More annual reports from Auswide Bank:
2023 Report2016-17 Annual Report Big heart, big future. A U S W I D E B A N K / 2 0 1 6 - 1 7 A n n u a l R e p o r t The purpose of this annual report is to explain Auswide Bank’s strategy and operations, and the performance of the business during 2016-17. The report also sets out our strategic objectives and business priorities for 2017-18. Contents Auswide Bank – what we do 2016-17 Performance Highlights Five Year Performance History Chairman and Managing Director’s Report Strategic Direction 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 Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Corporate Governance Summary Shareholder Information Financial Glossary 2 4 6 8 10 12 13 15 16 17 18 20 22 38 39 40 41 42 46 94 95 100 102 105 AUSWIDE BANK – 30 JUNE 2017 / 1 Auswide Bank what we do AT AUSWIDE BANK WE BELIEVE IN THE POWER OF SMALL, BECAUSE SMALL IS REAL AND SMALL IS SINCERE. BUT BEING SMALL DOESN’T MEAN WE CAN’T ACHIEVE BIG THINGS. Through the power of small we have delivered on our commitment to being a bank that makes a big difference. We have supported our communities through our community grants program, giving back to those who made us who we are today. We continue to deliver competitive financial products for personal and business customers that help them grow and thrive. As the big hearted bank we provide choice for customers seeking a genuine alternative for their banking needs. Our shareholders and business partners have enabled us to grow from a building society focused on regional Queensland into a bank with national reach. Despite our size, Auswide Bank continues to surprise as we lead with innovation in technology, deliver award winning products and create strategic partnerships that will ensure we continue to grow well into the future. Auswide Bank. Discover the power of small. 2 / ANNUAL REPORT MISSION Our Mission is to demonstrate the ‘power of small’ by placing our customers at the centre of everything we do. VISION Our Vision is to be the Bank that our customers, staff and partners want their friends, family and colleagues to bank with. VALUES Our Values are based on the word EMPOWER and provide a guide to staff on how we treat our customers and will assist to achieve our Mission and Vision. Empowering customers and staff to initiate change Make decisions and adapt quickly to meet our customers’ needs Identify your purpose and be passionate about it Own our actions, decisions, customers and outcomes Exceed our customers’ expectations and celebrate their successes and our own A commitment to be ethical and operate in a sustainable workplace Build open and honest relationships and deliver on our promises AUSWIDE BANK – 30 JUNE 2017 / 3 2016-17 Performance highlights AUSWIDE BANK REPORTED A SOLID FINANCIAL PERFORMANCE FOR THE 2016-17 FINANCIAL YEAR BASED ON STRENGTHENING OUR REVENUE STREAMS, INVESTING TO IMPROVE CUSTOMER EXPERIENCE, AND TAKING A DISCIPLINED APPROACH TO MANAGE OUR CAPITAL POSITION AND OPERATING COSTS. 6.7% 11.4% NET INTEREST REVENUE of $57.509 million (2015-16: $53.893 million), represents growth of 6.7% UNDERLYING NPAT of $15.636 million (2015-16: $14.041m), an increase of 11.4% 190 basis points 3.5% NET INTEREST MARGIN declined 6 basis points – a solid performance in highly competitive home lending markets Underlying COST TO INCOME RATIO decreased to 65.6% (2015-16: 69.1%) through disciplined cost management Footnote: All comparisons are with 2015-16 figures. 4 / ANNUAL REPORT 4.0% LOAN BOOK growth of 4.0% resulted in total loan book value of $2.773 billion (2015-16: $2.666 billion) 14.42% CAPITAL ADEQUACY RATIO increased to 14.42% (2015-16: 14.31%) and Tier 1 Capital Ratio increased to 12.06% (2015-16: 11.90%) 31c Fully franked TOTAL DIVIDEND of 31 cents per share, an increase of 1 cent per share from the previous financial year 0.72% TOTAL LOAN ARREARS greater than 30 days past due decreased to $20.1 million (2015-16: $26.6 million) or 0.72% of Total Loan Book (2015-16: 0.99%) AUSWIDE BANK – 30 JUNE 2017 / 5 Five-year performance history A CONSISTENT STRATEGIC FOCUS ON CUSTOMER EXPERIENCE, OPERATIONAL IMPROVEMENT AND ORGANIC GROWTH HAS SUPPORTED A SOLID FINANCIAL PERFORMANCE AND SHAREHOLDER RETURNS. NET INTEREST INCOME ($M) LOANS PORTFOLIO ($M) 60 50 40 30 20 10 0 $50.9 $49.7 $51.2 $57.5 $53.9 2,666 2,773 2,229 2,224 2,330 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2013 2014 2015 2016 2017 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 NET INTEREST INCOME has shown consistent improvement as a result of our focus on organic growth LOAN PORTFOLIO Our focus on customer experience in highly competitive lending markets has underpinned an expansion of more than 24% in our loan portfolio over five years 6 / ANNUAL REPORT DIVIDEND (CENTS PER SHARE) CAPITAL ADEQUACY RATIO (%) 30.0 30.0 31.0 28.0 15.0 16.0 16.0 17.0 17.0 4.0 13.0 13.0 14.0 14.0 14.0 35 30 25 20 15 10 5 0 2013 2014 2015 2016 2017 DIVIDEND Auswide Bank’s strong operating performance and capital position continue to support a sustainable dividend for shareholders Tier 1 Tier 2 13.53 2.66 14.29 2.61 15.15 2.56 14.31 2.41 14.42 2.36 10.87 11.68 12.59 11.90 12.06 15 10 5 0 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 CAPITAL POSITION Risk management and capital strength are critical priorities, and Auswide Bank has maintained a strong capital position relative to its peer group and regulatory requirements LOANS ARREARS ($M) NET INTEREST MARGIN (%) 100 80 60 40 $34.0 $13.0 30–60 days past due 60–90 days past due Over 90 days past due $20.2 $7.3 $15.5 20 $40.9 0 $11.9 $3.2 $7.2 $15.4 $6.7 $4.4 $10.8 $2.9 $6.4 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 LOAN ARREARS Auswide Bank’s Arrears Project has delivered consistent improvements, reducing arrears greater than 30 days past due from $87.9 million in 2012-13 to $20.1 million in 2016-17 NIM (bps) RBA Cash Rate (%) 3.0 2.5 2.0 1.5 1.0 /- -/ 0 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 NET INTEREST MARGIN Auswide Bank has maintained a solid Net Interest Margin despite intense competition and historically low interest rates AUSWIDE BANK – 30 JUNE 2017 / 7 Chairman and Managing Director’s Report AUSWIDE BANK DELIVERED A STRONG IMPROVEMENT IN FINANCIAL PERFORMANCE DURING THE 2016-17 FINANCIAL YEAR. This positive outcome was a direct result of our strategic focus on investing to improve customer experience combined with rigorous internal disciplines for managing our capital position, risk profile and operating costs. Net Interest Margin declined by six basis points over the course of the financial year to 190 basis points, which represents a good performance in highly competitive market conditions. We are pleased to inform shareholders that Auswide Bank reported an underlying cash net profit after tax (NPAT) of $15.636 million for the 2016-17 financial year, an improvement on the previous year of 11.4 per cent. Statutory NPAT for the consolidated group was $15.149 million. Compared with the previous year’s figure of $11.699 million, this was an increase of 29.5 per cent. Net Interest Revenue increased by 6.7 per cent to $57.509 million, compared with $53.893 million in the previous financial year. Strict management disciplines around cost controls are an important element of our Strategic Plan and delivered a pleasing 3.5 per cent improvement in the Bank’s cost to income ratio, from 69.1 per cent in 2015-16 to 65.6 per cent for 2016-17. Our loan book grew by 4.0 per cent to $2.773 billion at 30 June 2017, from $2.666 billion at the end of the previous financial year. The growth was achieved mainly in the second half of the financial year, with performance in the first half restricted with the focus on implementing the new LendFast origination system. For the first time, the loan book incorporated a full year of YCU’s contribution after we completed the integration of the acquired business into Auswide Bank. Auswide Bank continues to focus on diversifying income and improving medium term returns through growth in consumer lending and business banking. Our consumer loan book is growing but remains a small part of the total loan portfolio. The business banking segment is also expanding in central and south-east Queensland through targeted finance and banking services for small to medium enterprise customers. We have also employed a business banker in our Brisbane branch to focus on this segment. Our continued focus on risk management culture and systems across the business allowed us to grow with higher quality loan origination while maintaining a very healthy arrears position. Total statutory arrears greater than 30 days past due decreased from $26.6 million to $20.2 million, which represents 0.72 per cent of the total loan book (2015-16: 0.99 per cent). The Board is satisfied that the provisions set aside cover the risks arising from current and future doubtful debts. The Australian banking market remains intensely competitive. Our investments in improving customer experience by enhancing our capabilities and technology platforms, support Auswide Bank’s competitive position and underpin our solid performance for shareholders. Additionally the appointment of a Chief Customer Officer in July 2016, which brought together all of our customer-facing teams and customer channels, has contributed to increased focus on customer needs and service levels, helping us to increase customer numbers by more than 5,500 to 85,215 during the financial year. After the merger with Your Credit Union (YCU) was completed in May 2016, the integration of the systems, products and customer data of that business into a single Auswide Bank platform was finalised within five months, on 30 September 2016. The merger is delivering benefits for our customers and synergies for our business. Customer retention has been quite exceptional with overwhelmingly positive feedback. This reflects our bank’s values and culture and together with the potential financial value their members would receive, confirms our belief that other mutual credit unions, building societies or banks considering a merger partner should consider Auswide Bank as a compelling option. 8 / ANNUAL REPORT These market dynamics represent both challenges and opportunities for Auswide Bank. We believe there are clear opportunities for us to positively differentiate Auswide Bank from competitors. We also remain optimistic that we can continue organic growth of our loan book in 2017-18. We expect to maintain a similar pattern of home loan growth to the 2017 financial year with a stronger second half, and will concentrate on origination quality to maintain a low-risk loan book. Our business continues to grow and create value for shareholders because we put our customers first. This is a core value of Auswide Bank and is illustrated by our Mission to demonstrate the ‘power of small’ by placing our customers at the centre of everything we do. This year, we will build on the momentum we have achieved in 2016-17 to further deliver benefits for our customers and our shareholders. Together we would like to thank the people who work for Auswide Bank and bring our competitive advantage to life every day in everything they do for our customers. We also acknowledge the support of our business partners for your important contribution to another successful year. We also thank the Auswide Bank Board for your guidance throughout the year. Most importantly, we thank our two most important stakeholders, our shareholders and our customers, for your support for and advocacy of Auswide Bank. John Humphrey Chairman Martin Barrett Managing Director Regulatory changes have been significant in the past few years with additional focus during the financial year. The announcement by our prudential regulator, the Australian Prudential Regulation Authority (APRA) of new “unquestionably strong” capital benchmarks in July 2017 is expected to increase Auswide Bank’s minimum capital requirement by around 50 basis points. Our capital position is among the strongest in the banking sector and we are therefore well positioned to absorb any announced changes. APRA also introduced new supervisory measures in March 2017 which place increased lending restrictions on investor and interest only loans. While Auswide Bank was an early responder to the new measures, we believe the limits that have been imposed unduly impact smaller banks and will restrict our ability to effectively compete with the four large banks. Auswide Bank will continue to engage in conversation with APRA to assist in the future consideration of regulatory measures. On the basis of our strong capital position and improved financial performance and total assets, the Auswide Bank Board has declared a fully franked final dividend of 17.0 cents per share. This brings the total dividend for 2016-17 to 31.0 cents per share, compared with last year’s figure of 30.0 cents per share. This represents a fully franked, full year yield of 6.03% to shareholders. Auswide Bank underwrites the Dividend Reinvestment Plan in respect of the 2016-17 final dividend. The Plan allows shareholders to re-invest their dividends to purchase additional shares at a discount of 2.5 per cent. The capital raised through the underwritten Plan will strengthen Auswide Bank’s Tier 1 capital position and the proceeds will be used to assist future growth and regulatory results. Outlook The three-year Strategic Plan endorsed by the Board in March 2016 has guided our actions through the 2016-17 financial year and underpinned an improved financial performance. In the year ahead, we will maintain our focus on enhancing the experience we provide for our customers and growing our business, as well as strengthening the Bank through enhanced management capabilities, risk processes, and cost controls. We will also continue to review merger & acquisition opportunities which align with this Plan and benefit both the business and our shareholders. The financial landscape is currently defined by a combination of historic low interest rates and intense competition, with the sector also experiencing increasing regulatory pressures, particularly in relation to standards of accountability, capital requirements and risk management. Auswide Bank will continue to place a high priority on ongoing improvements to our risk management culture and maintaining a strong capital position. AUSWIDE BANK – 30 JUNE 2017 / 9 Strategic direction IN MARCH 2016, THE AUSWIDE BANK BOARD ENDORSED AN UPDATED THREE-YEAR STRATEGIC PLAN THAT BUILDS ON THE PROGRESS ACHIEVED OVER THE COURSE OF THE INITIAL 2013-2016 PLAN. The new plan maintains our focus on the structure, transformation, growth and strength of the Bank. The 2017-18 operational priorities under our strategic direction are set out below. These aims will be met through a range of priorities that have been progressed throughout 2016-17 as set out in this report, and which will continue to be our focus over the life of the plan. These priorities include: HOME LOANS RESTRUCTURING the Bank’s sales channels, products and marketing to better allocate resources to improve customer experience IMPLEMENTING and re-engineering the end-to-end home loan process AUTOMATING processes and simplifying products CONSUMER LOANS BUILDING the Auswide Bank brand through consistent messaging and enhanced customer service CONTINUING to invest in technology, skills and training STRENGTHENING the Bank through management capabilities, risk and audit processes, and capital strength EXPENSE MANAGEMENT REDUCING the Bank’s cost to income ratio REVIEWING M&A and fintech opportunities as they arise. FUNDING OPTIMISATION Continue to focus on growth in our home loan book » LendFast upgrade » Apply Online capability » » Third-party service improvement Process optimisation Drive growth through an increase in branch capacity and technology investment » Launch on-balance sheet credit card » Increase in branch-based and digital capability » Margin optimisation A key priority as we adopt further transformation practices and reduce cost-to-income ratio » Focused expense management » Continue transformation projects » Reduce cost-to-income ratio Manage funding mix of retail and wholesale sources with expected continued growth in customer deposits » Continue growth in customer deposits » Maintain efficient management of funding and mix of wholesale liabilities » Maximise return on liquid investments 10 / ANNUAL REPORT AUSWIDE BANK – 30 JUNE 2017 / 11 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. With the establishment of a Chief Customer Office in July 2016, the customer-facing channel has been transformed. This has already resulted in better outcomes for our customers and helped the Bank grow its customer base by 5,500 to 85,215 during the financial year. Auswide Bank has 23 branches and agencies across Queensland as well as broker relationship managers in Sydney and Melbourne. As part of the ongoing improvement of this retail network, the customer leadership and executive team continues to review our branch footprint to ensure it aligns to opportunities. In July 2017, this review process saw the Caboolture (north of Brisbane) and Maroochydore (Sunshine Coast) branches amalgamated and relocated to new premises at North Lakes. This decision was designed to provide more opportunity in a targeted population growth area. Auswide Bank has strengthened its third party broker channel with improved performance during the financial year driving growth in home loan applications. The solid growth in third party relationships is a result of technology enhancements and increasing the number of broker relationship managers who service this channel. Our new on-boarding process has delivered significant benefits for mortgage brokers by streamlining the application process and visibility of loans placed through our lending system. This process also results in a better customer experience, helping to retain customers introduced by mortgage brokers, many of whom are having their first experience with Auswide Bank. We place customers at the heart of everything we do and the results of our customer satisfaction and brand awareness research have shown that this focus has been rewarded. Survey results for 2017 highlighted a positive customer mood score of 84 per cent and a 40 per cent increase in brand recognition among non-customers. Seventy-six per cent of customers surveyed were ‘not likely’ to leave Auswide Bank for another institution in the next six months, which is a significant indicator of success in the customer channel. Meeting the financial needs of customers and creating innovative products remains a critical focus for Auswide Bank. On-balance sheet credit cards have been a major product development focus and these products are expected to launch in late 2017. This will allow personal banking customers to access Auswide Bank issued Low Rate and Cash Rewards credit cards. Auswide Bank will maintain its partnership with Citigroup Card Services to support the existing card portfolio and Platinum Rewards MasterCards. Our unique RBA Rate Tracker Home Loan won the ‘Innovative Mortgage Offering of the Year’ category at the 27th annual Australian Retail Banking Awards. The Bank’s Freedom Package was also recognised by financial comparison website, mozo.com.au as one of the best value home loans in Australia in their annual Experts Choice Home Loan Awards. These awards recognise the small things we do that are making a big difference for our customers. Customer Geographic Distribution 20.4% NORTH QLD 28.7% SOUTH QLD 2.5% VICTORIA 3.8% NEW SOUTH WALES 1.6% OTHER 43.0% CENTRAL QLD 12 / ANNUAL REPORT Supporting our community SUPPORTING OUR LOCAL COMMUNITIES DEMONSTRATES ‘THE POWER OF SMALL’ AND OUR COMMITMENT TO CUSTOMERS. Our support comes in the form of sponsorships, staff volunteering and in-kind contributions to help schools, groups and clubs to benefit their communities. In 2016-17, Auswide Bank’s ‘Our Community’ Grants Scheme supported more than 45 projects that have a lasting impact on our local communities. Further contribution was provided to community events through in-kind assistance and support. QLD Young Achievers Awards For the second year running, Auswide Bank has been a key sponsor of the Queensland Young Achievers Awards, which encourages the positive achievements of people under 29 years of age in a range of endeavours. To reinforce our dedication to this important program for young people, a commitment has been made to support the Awards in 2017-18. Fundraising Encouraging community service and fundraising initiatives gives our staff an opportunity to develop leadership skills and gain a sense of purpose and connection to their local communities. In 2016-17 Auswide Bank staff were actively involved in fundraising campaigns for a range of causes. For more than a decade, we have supported both the Jeans 4 Genes fundraiser for the Children’s Medical Research Institute and the Bundaberg Mayor’s Christmas Appeal. In addition, our people have raised funds for dementia research through the Miles for Memories campaign and the Salvation Army’s annual Red Shield Appeal. CQUniversity Scholarships Auswide Bank is in the second year of a three-year agreement valued at $50,000 with CQUniversity to provide scholarships for business, finance or accounting students. Our scholarship agreement represents an investment in our local youth and community. These students represent an important customer demographic for our future, and they are potential leaders and employees in our local regions. Disaster Relief Natural disasters have a long lasting impact on the communities they affect. In March 2017 many towns and cities in north Queensland were devastated by Tropical Cyclone Debbie. Auswide Bank contributed to the Salvation Army appeal for recovery efforts and coordinated support and assistance packages for customers experiencing hardships as a result of the disaster. Auswide Bank has always been actively involved in our local communities and we are proud to contribute by supporting appropriate not-for-profit organisations to achieve their goals. Photo: CQUniversity scholarships winners Brooke Eden, Ryan Paul and Caitlin Turnbull with Dean of Business and Law Professor Lee Di Milia and Auswide Bank Managing Director Martin Barrett AUSWIDE BANK – 30 JUNE 2017 / 13 CUSTOMER AND COMMUNITY CASE STUDIES 14 / AUSWIDE BANK – 30 JUNE 2017 AFTER BUNDABERG HAIRDRESSER CHANEL SMITH FROM HAIR SYNERGY LOST EVERYTHING IN THE 2013 FLOODS, AUSWIDE BANK HELPED HER REBUILD BETTER THAN EVERChanel has been a customer of Auswide Bank since 1992 and in that time we have helped her build three family homes and acquire her current business premises. Chanel had owned her business premises for just five months when the 2013 floods hit:“Auswide Bank assisted in helping me re-build my salon quickly so we could be back up and trading ASAP, which kept cash flowing and my staff employed. “Auswide Bank assisted me to manage my loan repayments during this stressful period which was very much appreciated. “I have found Auswide Bank staff go out of their way to help, especially during tough times. I would recommend Auswide Bank to anyone as I’ve always been very happy and grateful for the service they have provided through the years.” PRINT MARKETING AND PROMOTIONAL COMPANY, CHAMELEON GROUP RECENTLY MADE THE SWITCH TO AUSWIDE BANKChris Krieger, CEO of Chameleon Group was looking for a local bank doing good things and made the switch to Auswide Bank 12 months ago.“We’re a Queensland based company employing over 60 people locally with six offices from Rockhampton to the Sunshine Coast. We invest in innovation and strive to provide excellent customer service.“We looked around and Auswide Bank were a local bank supporting the community with very competitive fees and rates.“From a business point of view their fees are very low or non-existent and more importantly, the service is very friendly and prompt.“Auswide Bank is just an easy bank to get along with and are very professional to deal with at all levels.”AUSWIDE BANK’S CONNECTION WITH CQUNIVERSITY HAS GROWN FROM A PRESENTATION ON MARKETING CAREERS INTO AN OPPORTUNITY TO DEVELOP THE NEXT GENERATION OF LOCAL BUSINESS LEADERS.Associate Lecturer, Tim Whan worked with Auswide Bank to provide a real world learning experience for CQU students on the Bank’s re-branding. Now, Auswide Bank provides scholarships to support local students to focus on their career goals. “The staff at Auswide Bank have an incredible culture and a real understanding of doing business in regional Australia. “Coupled with a commitment to supporting their communities, this means that Auswide Bank really is the big hearted bank - a quality quite unique in the finance industry.” Empowering our people EMPOWERING OUR PEOPLE PROVIDES A PLATFORM FOR AUSWIDE BANK TO CONSISTENTLY ACHIEVE ITS MISSION STATEMENT OF PLACING CUSTOMERS AT THE CENTRE OF EVERYTHING WE DO. Our Values (see page 3) support this philosophy together with a focus on professional development, training and coaching of our people. We believe that the responsibility of delivering such outstanding customer service starts with our leaders. The bank during 2016/17 focused on developing our leaders through the introduction of the Leadership Empowerment Series. Fifty leaders from across the bank attended 2 sessions – Empower Our Leaders and Empower You and Others. This series will continue through 2017-18 to improve employee engagement, coaching through positive performance to outcome strategies, brand and risk culture awareness and attracting and retaining the best ‘bank fit talent. The annual Auswide Bank Employee Engagement survey was conducted in August with more than 90 per cent of staff participating. The response rate achieved places Auswide Bank in the top percentile among Australian companies with our people taking the opportunity to provide feedback and comments that will contribute to building a better bank. The Bank will continue to maintain its focus on creating a positive culture and environment that supports our people, our customers and our shareholders. Staff Survey Highlights 80% 83% 84% 90% 90% 92% 94% are proud to be part of Auswide Bank believe strongly in the mission and vision of the Bank fully support our company values “Empower” don’t promise things to our customers we cannot deliver constantly looking for better ways to service their customers work beyond what is required to help the Bank succeed understand how their work contributes to the Bank’s business objectives Total number of staff (headcount) Customer facing vs support staff Gender distribution (all staff) Gender distribution (management) 244 Figures as at 30 June 52% SUPPORT 48% CUSTOMER FACING 23% MALE 77% FEMALE 65% MALE 35% FEMALE AUSWIDE BANK – 30 JUNE 2017 / 15 Investing in technology AUSWIDE BANK MADE A STEP CHANGE IN DELIVERING SUPERIOR CUSTOMER SERVICE THROUGH OUR TECHNOLOGY INVESTMENTS AND IMPROVEMENTS DURING 2016-17. Our Strategic Plan directs our approach to investing in and managing technology so that we: • deliver superior customer service • offer competitive products and services • maintain secure and efficient systems • leverage data to better understand and address our customers’ needs. In the first half of the financial year, major system upgrades were completed and we consolidated YCU’s customer systems into our unified banking platform. During the second half of the financial year, our focus shifted to enabling digital products and services through enhanced omni-channel capabilities. That simply means our customers can choose when and where they interact with us, and we can offer them products and services that better match their needs. Auswide Bank deployed a new automated loan origination system called LendFast in the first half of the 2016-17 financial year, which has generated significant processing time and cost efficiencies. Loan origination now utilises automated valuation request and fulfilment, credit policy assessment and exception management, as well as loan tracking functionality for brokers and lenders. Through these technologies and process improvements, loans to Auswide Bank customers are now originated through our branches and contact centre using more automation and paperless technology than ever before. We are also working to extend this capability to digital channels for mortgages, business and consumer lending products. Our customers can also choose to receive updates at milestones in the loan process as well as electronic document capture and assessment. Auswide Bank also continued to invest in online banking capabilities in 2016-17. To enhance the experience for our customers, we upgraded our online banking platform with a refreshed interface and additional self-serve capabilities including password re-set, card activation, card locking, and easy access to historical account interest information. TECHNOLOGY DELIVERABLES ACHIEVED IN H1 2016-17 TECHNOLOGY DELIVERABLES ACHIEVED IN H2 2016-17 TECHNOLOGY DELIVERABLES PLANNED FOR 2017-18 • Upgrade to LendFast platform, resulting in increased automation, efficiency and speed for many mortgage origination functions • Data Centre refresh program providing the latest technology hardware, maintenance and support through to 2021, enabling fast and secure processing across the business to improve customer service and capture operating efficiencies • Consolidated YCU customer data and accounts onto Auswide Bank’s unified banking platform, to activate the benefits of the merger for customers and the Bank • Deployed BankFast 5, an upgrade to our internet and mobile banking services • Enabled customers to self-serve, card management and other functions • Enabled near real-time reporting across customers and accounts through enhancements to our business intelligence and data analytics capabilities • Online statements through internet banking • Online account opening • Further optimisation and automation of loan origination 16 / ANNUAL REPORT Managing risk STRENGTHENING RISK MANAGEMENT IS A KEY ELEMENT OF AUSWIDE BANK’S STRATEGIC PLAN. Auswide Bank has a comprehensive risk and compliance management program to actively identify and eliminate risk where possible, and mitigate and minimise the impact of those risks that cannot be eliminated. Auswide Bank takes a proactive approach to risk management, demonstrated by the early adoption of various methodologies to curtail excessive exposures to segments such as High LVR (loan to valuation ratio) and Interest Only lending. We are well placed to manage the risks associated with these loan products prior to the introduction of APRA of tighter regulatory controls over residential mortgages. We have revised our credit policies and introduced new pricing mechanisms to control growth in high LVR products and investor lending, and manage interest only in particular for owner occupied loans. In addition, we continue to enhance the way we measure, monitor and report risk related matters. The Board Risk Committee provides rigorous oversight of this process and the risk framework across the organisation. Our people have a strong orientation to take responsibility for risk management across each business unit, and this culture underpins our Strategic Plan. It is supported by the Bank’s ‘Three Lines of Defence’ risk management model. LINE 1 BUSINESS UNITS Business units own and manage risk, and are responsible for maintaining and executing effective internal control processes as part of their normal operations. They identify, assess, control and mitigate risks by implementing internal policies and processes. Business units are also responsible for implementing corrective actions to address process and control deficiencies. LINE 2 RISK AND COMPLIANCE MANAGEMENT Auswide Bank’s dedicated Risk and Compliance Management team: • maintains an integrated risk management framework • measures risk exposures to support business decision making • provides risk management support, supervision and expertise to the business • provides reporting to the Board and leadership team • makes credit risk decisions under approved delegations and loan portfolio management. LINE 3 AUDIT MANAGEMENT Auswide Bank maintains an independent internal audit function, outsourced to PricewaterhouseCoopers. This ensures the Bank has industry leading capabilities to review internal controls, risk management processes and governance systems. AUSWIDE BANK – 30 JUNE 2017 / 17 Board of directors John Humphrey LL.B Chairman Member of the Audit Committee Board Member since February 2008 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. Martin Barrett BA (Econ), MBA Managing Director Board Member since September 2013 Director of MoneyPlace Holdings Pty Ltd 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 and 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. Barry Dangerfield Non-Executive Director Chairman of the Group Board Remuneration Committee Member of the Audit Committee Member of the Risk Committee Board Member since November 2011 Director of MoneyPlace Holdings Pty Ltd Mr Dangerfield 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. 18 / ANNUAL REPORT Greg Kenny GAICD, GradDipFin Non-Executive Director Chairman of the Risk Committee Member of the Audit Committee Member of the Group Board Remuneration Committee Board Member since November 2013 Director of MoneyPlace Holdings Pty Ltd 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. Sandra Birkensleigh BCom, CA, GAICD, ICCP (Fellow) Non-Executive Director Chairperson of the Audit Committee Member of the Risk Committee Member of the Group Board Remuneration Committee Board Member since February 2015 Ms Birkensleigh was a partner at PricewaterhouseCoopers for 16 years until 2013. During her career, her predominant industry focus was 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, resources, and education. Ms Birkensleigh is currently a Non- Executive Director MLC Insurance Limited, the National Disability Insurance Agency, Horizon Oil Limited, 7-11 Holdings and its subsidiaries and the Sunshine Coast Children’s Therapy Centre. She is an independent member of the Audit Committee of the Reserve Bank of Australia, and a Council Member of the University of the Sunshine Coast. AUSWIDE BANK – 30 JUNE 2017 / 19 Leadership team Martin Barrett Managing Director Bill Schafer Chief Financial Officer and Company Secretary • Group Accounting and Treasury • Budgeting and financial analysis • Financial and management reporting • Statutory, ASX and regulatory reporting • Capital, funding and liquidity planning strategy • Investor Relations Mark Rasmussen Chief Operating Officer Damian Hearne Chief Customer Officer • Lending Services • Customer experience • Banking Services • Mortgage Origination Services • Support Services Operations including Business Continuity Planning • Reengineering Services strategy and management • Retail and business banking sales and distribution • Mortgage broker and third party relationships • Marketing, products and partnerships 20 / ANNUAL REPORT • Strategy development and implementation • Risk culture and management • Group operational and • Customer satisfaction financial performance and growth • Regulatory engagement • Shareholder returns Martin Barrett Managing Director Stephen Caville Chief Information Officer Gayle Job Chief People Officer Craig Lonergan Chief Risk Officer • Group Information Technology strategy and management • People engagement and performance • Risk profile within Board approved risk appetite • Payroll management, • Risk management strategy • IT Strategic Plan remuneration and benefits and practices • Key technology project • Talent acquisition, implementation recruitment and retention strategies • Learning and development • Employment law regulation and compliance • Staff wellbeing and workplace health and safety • Risk management and compliance framework and control systems • Risk culture awareness • Credit portfolio review AUSWIDE BANK – 30 JUNE 2017 / 21 Directors’ statutory report REVIEW AND RESULTS OF OPERATIONS The underlying cash NPAT for the consolidated entity for financial year 2016-17 was $15.636m compared to $14.041m for 2015/16. This represents an increase of 11.4% from 2015/16. The statutory consolidated net profit after income tax for the 2016-17 financial year was $15.149m compared to the result of $11.699m for the 2015/16 year. There were one-off expense items in the 2016-17 financial year totalling $0.579m before tax ($0.487m after tax). These one-off expenses were as follows: • • • professional fees – MoneyPlace controlling interest: $0.188m; professional fees – YCU acquisition: $0.126m; stamp duty – YCU acquisition: $0.265m. The loan book of Auswide Bank Ltd increased from $2.666b at 30 June 2016 to $2.773b at 30 June 2017. Despite modest loan book growth in the first half of the financial year due to the implementation of the new LendFast loan origination system, the annualised loan book growth for the 2016-17 financial year was 4.01%. Home loan approvals across the 2016-17 financial year totalled $553.799m, a decrease of 6.39% on the $591.571m in home loans approvals for the 2015/16 financial period. Personal loans The personal loan book continues to grow and although not material to the total loan portfolio, reached $15.061m at the conclusion of the financial year. Personal loan book growth improved during the 2016-17 financial year in terms of Auswide Bank’s own originations. Personal loans have not been reported as a separate segment for the financial year. An uplift in loan originations through the MoneyPlace platform has resulted in an increased return on Auswide Bank’s investment. The investment in MoneyPlace has grown from $1.412m at 30 June 2016 to $14.042m at 30 June 2017, representing an increase of $12.630m. Customers In keeping with the Company’s Strategic Plan, Auswide Bank’s appointment of a Chief Customer Officer in 2016, has allowed the bank to increase its focus and strategy on customer experience and growth. This appointment, which united all customer- facing channels and customer support teams including customer operations, marketing, products & partnerships has increased alignment and coordination of resources and planning which is resulting in better customer outcomes. Customer numbers increased from 79,508 at 30 June 2016 to 84,101 at 30 June 2017. This represents an increase of 5.77% over the year. Home loan recognition Auswide Bank has received national recognition for its innovative and market leading home loans. The unique RBA Rate Tracker home loan won the ‘Innovative Mortgage Offering of the Year’ category at the prestigious 27th annual Australian Retail Banking Awards. The Bank’s Freedom Package was also recognised by financial comparison website mozo.com.au as one of the ‘best value’ home loans in Australia in their annual Experts Choice Home Loan Awards. Business banking Auswide Bank continues to grow the business banking segment through central and south-east Queensland via selective provision of finance and banking services to SME’s. The establishment of the Brisbane branch following the acquisition of YCU and the employment of a full time business banker based in Brisbane will strengthen this focus in 2017/18. 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. 22 / ANNUAL REPORT 30 JUNE 2017 PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES Auswide Bank Ltd is an approved deposit-taking institution and licensed credit and financial services provider. Auswide Bank provides deposit, credit, insurance and banking services to personal and business customers across Australia, principally in regional and metropolitan Queensland, Sydney and Melbourne. Funding for loans is raised through a combination of retail and wholesale deposits as well as through securitisation markets. In June 2017 Auswide Bank settled $300m in new residential mortgage backed securities via ABA Trust 2017-1. The residential mortgage loans were originated by Auswide Bank’s branch network and brokers with all underwriting completed by Auswide Bank loans consultants. Following the progress made with the implementation of the strategies contained in the three year strategic plan adopted in May 2013, a refreshed three 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: • • • • • • • • Restructuring 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 Bank’ brand with consistency of messaging and enhanced customer service; Continued investment in technology, skills and training; Strengthening the bank through management capabilities, risk and audit processes and capital strength; Continued drive to lower, and further enhance, the cost to income ratio; and Review of M&A and Fintech opportunities as they arise. Merger implementation In December 2015 the Group entered into a Merger Implementation Agreement with YCU. On 19 May 2016 the court approved Scheme of Arrangement was implemented, and Auswide Bank acquired 100% of the shares of YCU. The transaction represented the first merger between a listed ADI and a mutual in 11 years. The integration of the systems and products and YCU customer data was fully consolidated with Auswide Bank’s core banking system on 30 September 2016. The merger was a strategic acquisition for Auswide Bank with the addition of a branch in the Brisbane CBD, strong customer retention, along with deposit book growth and capitalisation of financial synergies. Investment in MoneyPlace In December 2015 the Group announced it would be entering into a strategic relationship and equity investment with MoneyPlace Holdings. Auswide Bank Ltd acquired a 19.3% equity stake in MoneyPlace which settled on 4 January 2016. In February 2017 Auswide Bank made a follow-on investment and acquired an additional 44.0% equity stake in MoneyPlace, via a subscription agreement. This bought the total investment to 63.3%, and resulted in the Group obtaining a controlling interest in MoneyPlace Holdings. MoneyPlace commenced loan originations in January 2016 after receiving its retail and wholesale Australian Financial Service Licence and provides loans of $5,000 to $35,000 through its peer-to-peer (P2P) platform. MoneyPlace is Australia’s second fully licensed P2P lender. The strategic alliance with MoneyPlace provides a technically advanced personal loan system solution to a niche consumer finance market. The relationship provides an avenue to increase the Group’s consumer lending ambitions and provides significant opportunities for platform collaboration and value accretion. Branch network The company has a diversified Branch Network consisting of 23 branches and agencies across Queensland, and a business centre in Brisbane. The company also employs Business Development Managers in Sydney and Melbourne to conduct 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. During the 2016-17 financial year the Caboolture and Maroochydore branches were amalgamated and relocated to new premises at North Lakes. This restructure was undertaken with a view to provide more opportunity in a targeted growth area. There is an ongoing review of the existing branch footprint to ensure it is better aligned to customer demographics and trends whilst delivering strong performance for both shareholders and customers. AUSWIDE BANK – 30 JUNE 2017 / 23 Directors’ statutory report (continued) 30 JUNE 2017 PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES (CONTINUED) Technology Auswide Bank has invested in the deployment of a new automated loan origination system, LendFast, generating increased and significant processing efficiencies. Loan origination now uses automated valuation request and fulfilment, credit policy assessment and exception management, as well as loan tracker access for lenders and customers. Through use of the LendFast origination platform, Auswide Bank can now originate loans through branches, contact centres and soon in digital channels across mortgages, business and consumer lending. Further stakeholder benefits include back channel messaging at origination milestones, and electronic document capture and assessment. Auswide Bank continued its investment in online banking throughout the 2016-17 financial year. Recent upgrades to the online banking platform provide a refreshed interface and facilitate an enhanced customer experience. Additional self-serve capabilities such as password reset, card activation and locking, and historical interest information increase online capabilities and self-serve functionality. Credit cards Auswide Bank’s development of on-balance sheet credit card products is progressing with successful testing of cards and origination processes. The project which has been principally developed in-house will allow personal banking customers to apply for Auswide Bank Bank credit cards prior to the close of the 2017 calendar year. Credit cards complement the bank’s existing financing activities and will build stronger banking relationships with customers. The bank will maintain its partnership with Citibank Card Services in respect of its existing card portfolio and providing Platinum rewards credit cards to customers. Net Interest Margin The Net Interest Margin (NIM) continued to decline across the sector exacerbated by interest rates at historic lows and the continuance of highly competitive housing finance markets across the 2016-17 financial year. In order to maintain stability in NIM, the Product Pricing Committee closely monitors the competitive pricing of products whilst Treasury continues to proactively manage assets and liabilities. The net margin and interest spread for the 2016-17 year was 1.90% compared to 1.96% in the 2015/16 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) decreased from $26.6m to $20.1m. Arrears have decreased as a percentage of the Group’s total loan book from 0.99% at 30 June 2016 to 0.72% at 30 June 2017. The Board is satisfied that the provisions set aside cover the risks arising from current and future doubtful debts. Risk While Auswide Bank has a robust risk culture, further strengthening the risk management of the organisation has been a focus of the Board and management of Auswide Bank in the 2016-17 financial year, and continues to remain a key focus for the 2017/18 financial year. Auswide Bank takes a proactive approach to risk management, which can be demonstrated by the Group’s adoption of various methodologies to curtail excessive exposures to risky product markets. The introduction of Investor, High LVR and Interest Only lending initiatives ensured that Auswide Bank was well placed to manage the risks associated with its lending portfolio well ahead of APRA tightening regulatory controls over residential mortgages. In addition, there has been an increase in measurement, monitoring and reporting of risk related matters throughout 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. 24 / ANNUAL REPORT CAPITAL The capital adequacy ratio for the Auswide Bank Group at 30 June 2017 was 14.42% (2016: 14.31%). The tier 1 capital ratio at 30 June 2017 was 12.06% (2016: 11.90%). 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 2017 (30 March 2016 – 14.0 cents). A fully franked final dividend of 17.0 cents per ordinary share has been declared by the Board and will be paid on 22 September 2017 (30 September 2016 – 16.0 cents). Auswide Bank has entered into an agreement to underwrite Auswide Bank’s Dividend Reinvestment Plan (DRP) in respect of the 2017 Final Dividend. The capital raised through the underwritten DRP will strengthen the Bank’s Tier 1 Capital position and the proceeds will be used for the general business purposes of the Bank. 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 was a Non-Executive Director of Downer-EDI Limited (until November 2016) and is currently a Non-Executive Director of Horizon Oil Limited. Professor Humphrey is a member of the Audit Committee and is an independent Director. 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 MoneyPlace Holdings Pty Ltd, and 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 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. Mr Kenny is currently a Director of MoneyPlace Holdings Pty Ltd. 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, 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. Mr Barrett is currently a Director of MoneyPlace Holdings Pty Ltd. 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. AUSWIDE BANK – 30 JUNE 2017 / 25 Directors’ statutory report (continued) 30 JUNE 2017 DIRECTORS (CONTINUED) Ms Birkensleigh is currently a Non-Executive Director of MLC Insurance Limited, the National Disability Insurance Agency, Horizon Oil Limited, 7-11 Holdings and its subsidiaries and the Sunshine Coast Children’s Therapy Centre. She is an independent member of the Audit Committee of the Reserve Bank of Australia, and a Council Member of the University of the Sunshine Coast. 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, 12 meetings of the Directors, 6 meetings of the Audit Committee, 3 meetings of the Remuneration Committee and 7 meetings of the Risk Committee were held, in respect of which each Director attended the following number: JS Humphrey B Dangerfield GN Kenny MJ Barrett SC Birkensleigh Board Audit Remuneration Risk Held Attended Held Attended 12 12 12 12 12 12 12 11 12 12 6 6 6 6 6 6 5 6 6* 6 Held n/a 3 3 n/a 3 Attended n/a 3 3 n/a 3 Held n/a 7 7 7 7 Attended n/a 7 7 7* 7 * 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 Ordinary Shares 31,551 149,818 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 the Executive Management Team 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. 26 / ANNUAL REPORT 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 2016-17 was subject to review and recommendation of the Remuneration Committee and ratification by the Board. Remuneration of the Executive Management Team for 2016-17 was subject to ratification by the Remuneration Committee. The Remuneration Policy for executives uses a range of components to focus the Managing Director and the Executive Management Team toward achieving Auswide Bank’s strategy and business objectives. Auswide Bank’s overall philosophy is to adopt, where possible, a Total Target Reward methodology which links remuneration directly to the performance and behaviour of an individual with Auswide Bank’s results. The Total Target Reward framework is designed to: • • • • reward those who deliver the highest relative performance through the Company’s incentive programs; attract, recognise, motivate and retain high performers; provide competitive, fair and consistent rewards, benefits and conditions; and 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 the Executive Management Team 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 (FAR) provided as cash and benefits (including employer superannuation and fringe benefits); cash based Short-Term Incentives (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. Short Term Incentives (STI) Payment of STIs is conditional upon the achievement of key performance measures tailored to the respective role. The performance measures and objectives are selected to provide a robust link between executive reward and the key business drivers of long term shareholder value. The KPls are measured relating to Company and personal performance accountabilities and include financial, strategic, operational and customer/stakeholder measures. These measures are chosen and weighted to best align the individual’s reward to the KPls of the Company and its overall performance. The financial performance objectives are profit before and after income tax compared to budgeted amounts and management of costs in line with divisional organisational budgets. These measures reasonably capture the effects of a number of material risks and minimise actions that promote short-term results at the expense of longer-term business growth and success. The non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, compliance and support of the Company’s risk management policies and compliance culture, customer satisfaction, communication and staff development. AUSWIDE BANK – 30 JUNE 2017 / 27 Directors’ statutory report (continued) 30 JUNE 2017 REMUNERATION REPORT (CONTINUED) Short Term Incentives (STI) (continued) Performance based payments were made to the Executive Management Team under the STI scheme as an incentive payment to recognise and reward the achievement of KPI targets relating to the financial year ended 30 June 2016. Cash payments were granted on the 23 September 2016, and allocated to the Executive Management Team as follows; • • • • Mr MJ Barrett (Managing Director): $25,000; Mr WR Schafer (Chief Financial Officer): $15,298; Mr SM Caville (Chief Information Officer): $13,260; Mrs GM Job (Chief People Officer): $13,298; • Mr CA Lonergan (Chief Risk Officer): $15,000; and • Mr MS Rasmussen (Chief Operating Officer): $15,721. The payment of STIs is at the complete discretion of the Board and can be adjusted downwards to zero, if necessary, to protect the financial soundness of the Company and taking into account a qualitative overlay that reflects Auswide Bank’s management of business risks, shareholder expectations and quality of the financial results. Executive Long Term Incentive Plan (ELTIP) The ELTIP was established by the Board to encourage the Executive Management Team to drive the long-term prosperity of Auswide Bank and have a greater involvement in the achievement of the Company’s objectives. Under the ELTIP an offer may be made to the members of the Executive Management Team every year as determined by the Board. The maximum value of the offer is determined as a percentage of the FAR of each member of the Executive Management Team. The maximum percentages used are up to 50.0% for the Managing Director and up to 30.0% for Executive Managers. In order for the shares to vest, certain performance criteria must be satisfied within a predetermined performance period. KPI targets were considered by the Remuneration Committee to be appropriate measures of performance, as they had been specifically chosen for each executive with the 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. Any reward payable to the Executive Management Team under the ELTIP offer will be calculated as follows: • • • no reward will be payable if Total Shareholder Return (TSR) is negative irrespective of the benchmark group performance; Auswide Bank’s share price performance baseline for TSR calculation for the financial year ELTIP offer is below the set value; Auswide Bank’s NPAT performance baseline for growth calculation for the financial year ELTIP offer is below the set value. 28 / ANNUAL REPORT Actual and potential ELTIP allocations Share based payment arrangements affecting remuneration of key management personnel in the current year or future financial years are detailed in the following table. Offer 2014 KMP Barrett, MJ Performance period 1 July 2014 to 30 June 2018 2015 Barrett, MJ 1 July 2015 to 30 June 2019 2016 Barrett, MJ 1 July 2016 to 30 June 2020 Schafer, WR Caville, SM Job, GM Lonergan, CA Rasmussen, MS Maximum value $ Vesting date Vested in the 16/17 financial year $ Not yet assessed for vesting $ 25,000 1/07/2016 25,000 – 25,000 25,000 30,000 30,000 30,000 25,000 25,000 25,000 5,000 5,000 5,000 4,333 4,333 4,333 4,333 4,333 4,333 5,000 5,000 5,000 5,000 5,000 5,000 1/07/2017 1/07/2018 1/07/2017 1/07/2018 1/07/2019 1/07/2018 1/07/2019 1/07/2020 1/07/2018 1/07/2019 1/07/2020 1/07/2018 1/07/2019 1/07/2020 1/07/2018 1/07/2019 1/07/2020 1/07/2018 1/07/2019 1/07/2020 1/07/2018 1/07/2019 1/07/2020 – – – – – – – – – – – – – – – – – – – – – – – 25,000 25,000 30,000 30,000 30,000 25,000 25,000 25,000 5,000 5,000 5,000 4,333 4,333 4,333 4,333 4,333 4,333 5,000 5,000 5,000 5,000 5,000 5,000 Grant date 30/06/2014 30/06/2014 30/06/2014 30/06/2015 30/06/2015 30/06/2015 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 1/09/2016 Vesting of shares to key management personnel is at the complete discretion of the Board and can be adjusted downwards, to zero if necessary, to protect the financial soundness of the Company and taking into account a qualitative overlay that reflects Auswide Bank’s management of business risks, shareholder expectations and quality of the financial results. The remuneration report includes 27 fortnightly pays for the year ended 30 June 2017. AUSWIDE BANK – 30 JUNE 2017 / 29 Directors’ statutory report (continued) 30 JUNE 2017 REMUNERATION REPORT (CONTINUED) 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 2017 Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Other long term benefits $ Share based payments $ Total $ 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 550,364 25,000 Birkensleigh, S Director (non-exec) 91,324 – Total remuneration – Specified Directors 970,455 25,000 OTHER KEY MANAGEMENT PERSONNEL Schafer, WR Chief Financial Officer Caville, SM Chief Information Officer Hearne, D Chief Customer Officer Job, GM Chief People Officer Lonergan, CA Chief Risk Officer Rasmussen, MS Chief Operating Officer Total remuneration – Specified Executives 2016 SPECIFIED DIRECTORS Humphrey, JS Chairman (non-exec) Dangerfield, B Director (non-exec) Kenny, GN Director (non-exec) 325,872 187,149 272,940 187,682 195,060 221,877 15,298 13,260 – 13,298 15,000 15,721 1,390,580 72,577 146,119 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 Caville, SM Chief Information Officer Lonergan, CA Chief Risk Officer Rasmussen, MS Chief Operating Officer Nevis, CM General Manager Third Party 305,810 177,567 186,001 210,383 15,000 15,000 17,500 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 – – – – – – – – – – – – – – – – – – – – – – – – – – 30 / ANNUAL REPORT Performance based 13,881 8,676 8,676 19,616 8,676 – – – – – – 160,000 100,000 100,000 10,834 25,003 630,817 – – 100,000 59,525 10,834 25,003 1,090,817 19,616 18,082 19,616 18,120 18,321 19,616 7,833 4,529 4,880 5,369 3,673 4,294 113,371 30,578 – – – 13,881 8,676 8,676 19,308 8,676 – – – – – – – – – – 368,619 223,020 297,436 224,469 232,054 261,508 1,607,106 160,000 100,000 100,000 11,277 37,504 612,489 – – 100,000 59,217 11,277 37,504 1,072,489 19,308 17,101 17,416 19,308 7,802 4,947 3,850 4,262 16,232 3,445 3,471 – 92,836 24,306 – – – – – – – 347,920 214,615 224,767 243,953 197,841 53,956 1,283,052 Employment contracts All named Key Management Personnel and the Managing Director have employment contracts. Major provisions of those agreements are summarised below: Current personnel Managing Director – M J Barrett • Original contract dated – 4 February 2013 • Amended contract dated – 15 July 2016 • 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. Payment of six months redundancy pay on termination of employment if position is made redundant. Short Term Incentive (STI) – Up to a maximum of $150,000 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. Long Term Incentive (LTI) – Grant of performance rights up to a maximum value of $150,000 (or such other amount determined by the Board), and as determined by the Board Remuneration Committee. The grant of performance rights, under the terms of Auswide Bank 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 33.33% of the performance rights vest on the second anniversary of the measured performance year, 33.33% on the third anniversary and 33.33% 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). Chief Financial Officer & Company Secretary – W R Schafer • • • • • • • Original contract dated – 28 May 2007 Amended contract dated – 6 December 2016 Term of agreement – no fixed term 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. Short Term Incentive (STI) – Payment under the STI Scheme will be subject to the Company’s performance as well as the individual’s own performance in accordance with KPIs determined by the Company and advised on an annual basis. STI up to 15.0% of base salary to the 30th June each year on satisfaction of the KPIs as in place from time to time assessed and determined in the sole and absolute discretion of the Board Remuneration Committee. Long Term Incentive (LTI) – The grant of performance rights, under the terms of Auswide Bank Performance Rights Plan Rules, is subject to the Company’s performance and the individual’s own performance in accordance with KPIs agreed between the individual and the Company on an annual basis. LTI up to a maximum value of $30,000 or such other amount determined by the Board Remuneration Committee. Awards made under the LTI are at the absolute and sole discretion of the Board. The right to participate in the LTI on an ongoing basis is subject to the discretion of the Board. The granting of an award to an individual under the LTI in one year does not guarantee that similar awards will be made in the future. AUSWIDE BANK – 30 JUNE 2017 / 31 Directors’ statutory report (continued) 30 JUNE 2017 REMUNERATION REPORT (CONTINUED) Employment contracts (continued) Current personnel (continued) Chief Risk Officer – C A Lonergan • • • • • • • Original Contract dated – 10 February 2014 Amended contracts dated – 1 July 2014, 9 December 2016 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. Payment of six months redundancy pay on termination of employment if position is made redundant. Short Term Incentive (STI) – Payment under the STI Scheme will be subject to the Company’s performance as well as the individual’s own performance in accordance with KPIs determined by the Company and advised on an annual basis. STI up to 15.0% of base salary to the 30th June each year on satisfaction of the KPIs as in place from time to time assessed and determined in the sole and absolute discretion of the Board Remuneration Committee. Long Term Incentive (LTI) – The grant of performance rights, under the terms of Auswide Bank Performance Rights Plan Rules, is subject to the Company’s performance and the individual’s own performance in accordance with KPIs agreed between the individual and the Company on an annual basis. LTI up to a maximum value of $30,000 or such other amount determined by the Board Remuneration Committee. Awards made under the LTI are at the absolute and sole discretion of the Board. The right to participate in the LTI on an ongoing basis is subject to the discretion of the Board. The granting of an award to an individual under the LTI in one year does not guarantee that similar awards will be made in the future. Chief Information Officer – S M Caville • • • • • • • Original contract dated – 1 November 2010 Amended contract dated – 8 December 2016 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. Short Term Incentive (STI) – Payment under the STI Scheme will be subject to the Company’s performance as well as the individual’s own performance in accordance with KPIs determined by the Company and advised on an annual basis. STI up to 15.0% of base salary to the 30th June each year on satisfaction of the KPIs as in place from time to time assessed and determined in the sole and absolute discretion of the Board Remuneration Committee. Long Term Incentive (LTI) – The grant of performance rights, under the terms of Auswide Bank Performance Rights Plan Rules, is subject to the Company’s performance and the individual’s own performance in accordance with KPIs agreed between the individual and the Company on an annual basis. LTI up to a maximum value of $30,000 or such other amount determined by the Board Remuneration Committee. Awards made under the LTI are at the absolute and sole discretion of the Board. The right to participate in the LTI on an ongoing basis is subject to the discretion of the Board. The granting of an award to an individual under the LTI in one year does not guarantee that similar awards will be made in the future. Chief Operating Officer – M S Rasmussen • • • • Original contract dated – 3 February 2014 Amended contracts dated – 29 January 2015, 12 December 2016 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. • Payment of six months redundancy pay on termination of employment if position is made redundant. 32 / ANNUAL REPORT • • Short Term Incentive (STI) – Payment under the STI Scheme will be subject to the Company’s performance as well as the individual’s own performance in accordance with KPIs determined by the Company and advised on an annual basis. STI up to 15.0% of base salary to the 30th June each year on satisfaction of the KPIs as in place from time to time assessed and determined in the sole and absolute discretion of the Board Remuneration Committee. Long Term Incentive (LTI) – The grant of performance rights, under the terms of Auswide Bank Performance Rights Plan Rules, is subject to the Company’s performance and the individual’s own performance in accordance with KPIs agreed between the individual and the Company on an annual basis. LTI up to a maximum value of $30,000 or such other amount determined by the Board Remuneration Committee. Awards made under the LTI are at the absolute and sole discretion of the Board. The right to participate in the LTI on an ongoing basis is subject to the discretion of the Board. The granting of an award to an individual under the LTI in one year does not guarantee that similar awards will be made in the future. Chief Customer Officer – D Hearne • • • • • • Contract dated – 20 June 2016 Term of agreement – no fixed term Auswide Bank Ltd or D Hearne may terminate this agreement by providing four months written notice or provide payment in lieu of the notice period. Payment of six months redundancy pay on termination of employment if position is made redundant. Short Term Incentive (STI) – Payment under the STI Scheme will be subject to the Company’s performance as well as the individual’s own performance in accordance with KPIs determined by the Company and advised on an annual basis. STI up to 25.0% of base salary to the 30th June 2017 adjusted on a pro-rata basis depending on length of service completed and on satisfaction of the KPIs as in place from time to time assessed and determined in the sole and absolute discretion of the Board Remuneration Committee. Long Term Incentive (LTI) – The grant of performance rights, under the terms of Auswide Bank Performance Rights Plan Rules, is subject to the Company’s performance and the individual’s own performance in accordance with KPIs agreed between the individual and the Company on an annual basis. LTI up to a maximum value of 15.0% of your base salary up to 30th June 2017 adjusted on a pro-rata basis depending on length of service completed (or such other amount determined by the Board Remuneration Committee). Awards made under the LTI are at the absolute and sole discretion of the Board. The right to participate in the LTI on an ongoing basis is subject to the discretion of the Board. The granting of an award to an individual under the LTI in one year does not guarantee that similar awards will be made in the future. Chief People Officer – G M Job • Original contract dated – 4 June 2007 • Amended contract dated – 6 December 2016 • Term of agreement – no fixed term • • • • Auswide Bank Ltd or G M Job may terminate this agreement by providing three 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 four months salary plus two weeks salary per year of service with a minimum payment of 16 weeks and a maximum payment of 104 weeks. Short Term Incentive (STI) – Payment under the STI Scheme will be subject to the Company’s performance as well as the individual’s own performance in accordance with KPIs determined by the Company and advised on an annual basis. STI up to 15.0% of base salary to the 30th June each year on satisfaction of the KPIs as in place from time to time assessed and determined in the sole and absolute discretion of the Board Remuneration Committee. Long Term Incentive (LTI) – The grant of performance rights, under the terms of Auswide Bank Performance Rights Plan Rules, is subject to the Company’s performance and the individual’s own performance in accordance with KPIs agreed between the individual and the Company on an annual basis. LTI up to a maximum value of $30,000 or such other amount determined by the Board Remuneration Committee. Awards made under the LTI are at the absolute and sole discretion of the Board. The right to participate in the LTI on an ongoing basis is subject to the discretion of the Board. The granting of an award to an individual under the LTI in one year does not guarantee that similar awards will be made in the future. AUSWIDE BANK – 30 JUNE 2017 / 33 Directors’ statutory report (continued) 30 JUNE 2017 REMUNERATION REPORT (CONTINUED) 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 2017: 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 2017 $’000 21,708 15,149 30 June 2017 $5.08 $5.14 14.00 cps 17.00 cps 37.35 cps 37.35 cps 30 June 2016 $’000 17,606 11,699 30 June 2016 $5.05 $5.08 14.00 cps 16.00 cps 31.20 cps 31.20 cps 30 June 2015 $’000 19,028 13,262 30 June 2015 $5.50 $5.05 14.00 cps 16.00 cps 36.07 cps 36.07 cps 30 June 2014 $’000 20,192 14,062 30 June 2014 $5.25 $5.50 13.00 cps 15.00 cps 38.75 cps 38.75 cps 30 June 2013 $’000 3,728 2,887 30 June 2013 $5.81 $5.25 13.00 cps 4.00 cps 6.78 cps 6.78 cps Dividends franked to 100% at 30% corporate income tax rate. 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 135 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 2017 Directors Executives Total: Key management personnel Loans for the year ended 30 June 2016 Directors Executives Total: Key management personnel Individuals with loans above $100,000 in reporting period Directors MJ Barrett Executives WR Schafer 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 $ Interest charged $ 62,203 18,546 80,749 Interest charged $ 8,291 46,264 54,555 Write-off $ – – – Balance* 30 June 2017 $ (1,806,591) (589,242) (2,395,833) Number in Group 30 June 2017 1 4 5 Write-off $ Balance* 30 June 2016 $ Number in Group 30 June 2016 $ - - - (1,910,317) (1,618,330) (3,528,647) 1 5 6 Interest** charged $ Write-off $ Balance* 30 June 2017 $ Highest in period $ (1,910,317) 62,203 (495,318) 17,815 – – (1,806,591) (1,910,317) (478,247) (499,802) Does not include SM Caville, GM Job 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. 34 / ANNUAL REPORT 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 GM Job CA Lonergan Total Balance 30 June 2016 Received as remuneration Options exercised Net change other Balance* 30 June 2017 31,551 143,148 15,000 43,291 29,290 44,240 99,521 2,000 – 4,160 – – – – – – 408,041 4,160 – – – – – – – – – – 2,510 – – 4,710 – 6,449 6,064 19,733 31,551 149,818 15,000 43,291 34,000 44,240 105,970 8,064 431,934 * Balance at financial year end or the date the individuals ceased being key management personnel. AUSWIDE BANK – 30 JUNE 2017 / 35 Directors’ statutory report (continued) 30 JUNE 2017 INDEMNITIES AND INSURANCE PREMIUMS FOR OFFICERS AND AUDITORS During the financial year the Company has paid premiums to cover directors and officers for losses arising from claims or allegations made against them for wrongful acts committed or alleged to have been committed by them in their capacities as directors or officers of the Company. The policy will also reimburse the Company where it is permitted by law to indemnify Insured Persons in relation to such claims or allegations. Cover is provided for the costs of defending such claims or allegations. During the reporting period and subsequent to 30 June 2017, no amounts have been paid pursuant to the policy. NON-AUDIT SERVICES During the year, Deloitte Touche Tohmatsu, the Company’s Auditor, performed certain other services in addition to their statutory duties. 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. Non-audit services paid to Deloitte Touche Tohmatsu are as follows: Services provided in connection with: Tax advisory services Other assurance services 2017 $000 77 102 179 2016 $000 61 52 113 36 / ANNUAL REPORT 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 18 August 2017 SC Birkensleigh Director AUSWIDE BANK – 30 JUNE 2017 / 37 Auditors’ independence declaration 30 JUNE 2017 The Board of Directors Auswide Bank Ltd PO Box 1063 Bundaberg QLD 4760 18 August 2017 Dear Board Members 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 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 2017, 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 David Rodgers Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited 38 / ANNUAL REPORT 18 Consolidated statement of profit or loss and other comprehensive income FOR THE YEAR ENDED 30 JUNE 2017 Interest revenue Interest expense Net interest revenue Other non interest income Employee benefits expense Depreciation expense Amortisation expense Occupancy expense Bad and doubtful debts expense Fees and commissions General and administration expenses Other expenses Profit before income tax expense Income tax expense Notes 2 2 3 10 3 4 Profit for the year from continuing operations Profit/(loss) for the year from discontinued operations 34 Profit for the year Other comprehensive income, net of income tax Items that may be reclassified to profit or loss Revaluation of cash flow hedge to fair value Revaluation of RMBS investments to fair value Income tax relating to these items Other comprehensive income/(loss) for the year, net of income tax Consolidated Company 2017 $’000 125,909 (68,400) 57,509 10,222 19,088 1,918 848 2,358 979 9,690 10,984 158 21,708 6,699 15,009 – 15,009 861 (12) (255) 594 2016 $’000 124,293 (70,400) 53,893 9,103 18,692 1,708 429 2,627 (568) 9,001 13,672 322 17,113 5,759 11,354 345 11,699 347 (64) (85) 198 2017 $’000 125,905 (68,397) 57,508 9,760 18,935 1,918 662 2,353 979 9,682 10,701 158 21,880 6,677 15,203 – 15,203 861 (12) (255) 594 2016 $’000 124,293 (70,514) 53,779 9,523 18,692 1,696 429 2,688 (568) 9,001 13,638 322 17,404 5,725 11,679 – 11,679 347 (64) (85) 198 Total comprehensive income for the year 15,603 11,897 15,797 11,877 Profit for the year attributable to: Owners of the Company Non-controlling interests Total comprehensive income attributable to: Owners of the Company Non-controlling interests 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) 15,149 (140) 15,009 15,743 (140) 15,603 37.35 37.35 37.35 37.35 11,699 – 11,699 11,897 – 11,897 31.20 31.20 30.28 30.28 26 26 26 26 15,203 – 15,203 15,797 – 15,797 11,679 – 11,679 11,877 – 11,877 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. AUSWIDE BANK – 30 JUNE 2017 / 39 Consolidated statement of financial position AS AT 30 JUNE 2017 ASSETS Cash and cash equivalents Due from other financial institutions Accrued receivables Financial assets Loans and advances Other investments Property, plant and equipment Other intangible assets Deferred tax assets Other assets Goodwill Total assets LIABILITIES Deposits and short term borrowings Payables and other liabilities Loans under management Current tax liabilities Deferred income tax liabilities Provisions Subordinated capital notes Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Equity attributable to owners of the Company Non-controlling interests Contributed equity Retained profits Total non-controlling interests Total equity Notes 6 7 8 9 10 11 12 15 4 13 14 16 17 10 4 4 18 19 20 21 22 Consolidated Company 2017 $’000 120,065 11,763 6,735 2016 $’000 67,792 22,014 12,818 2017 $’000 121,142 11,763 6,714 291,948 225,045 322,334 2016 $’000 67,792 22,014 11,534 252,186 2,773,220 2,666,412 2,773,390 2,664,697 1,069 14,606 7,935 5,256 8,406 48,975 512 15,544 2,719 5,441 7,751 46,363 5,153 14,606 2,564 5,256 8,260 46,363 1,771 15,544 2,719 5,441 7,751 46,363 3,289,978 3,072,411 3,317,545 3,097,812 2,304,604 2,183,902 2,304,604 2,184,224 18,637 708,020 1,222 2,947 2,840 25,355 613,821 (411) 2,210 2,879 18,325 738,406 1,222 1,580 2,758 24,921 640,962 (411) 2,210 2,879 28,000 28,000 28,000 28,000 3,066,270 2,855,756 3,094,895 2,882,785 223,708 216,655 222,650 215,027 184,752 13,978 23,687 222,417 1,431 (140) 1,291 182,629 13,358 20,668 216,655 – – – 184,752 14,167 23,731 222,650 – – – 182,629 13,572 18,826 215,027 – – – 223,708 216,655 222,650 215,027 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 40 / ANNUAL REPORT Consolidated statement of cash flows FOR THE YEAR ENDED 30 JUNE 2017 Consolidated Company Notes 2017 $’000 2016 $’000 2017 $’000 2016 $’000 Cash flows from operating activities Interest received Dividends received Other non interest income and receivables Interest paid Cash paid to suppliers and employees (inclusive of goods and services tax) Income tax paid Net cash provided by / (used in) operating activities 23 Cash flows from investing activities Net movement in investment securities Net movement in amounts due from other financial institutions Net movement in loans and advances Net movement in other investments Payments for non current assets Proceeds from sale of property, plant and equipment 126,296 123,576 126,292 123,576 – 9,350 (71,532) (40,470) (4,398) 19,246 (65,623) 10,251 – 6,795 (71,604) (36,293) (5,038) 17,436 (7,344) (12,798) – 11,898 (71,529) (41,406) (5,743) 19,512 (70,159) 10,251 420 6,955 (71,718) (30,289) (4,886) 24,058 (10,454) (12,798) (113,241) (336,100) (113,842) (334,783) (557) (6,001) – (118) (5,268) 2,767 (3,382) (1,537) – 13,882 (5,276) 532 Net cash provided by / (used in) investing activities (175,171) (358,861) (178,669) (348,897) 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 Net cash provided by / (used in) financing activities Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year 124,012 94,191 349 (10,354) 208,198 52,273 67,792 330,622 36,468 477 (9,845) 357,722 16,297 51,495 125,109 97,411 349 (10,362) 212,507 53,350 67,792 317,540 36,574 477 (9,845) 344,746 19,907 47,885 Cash and cash equivalents at end of the financial year 6 120,065 67,792 121,142 67,792 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 – 30 JUNE 2017 / 41 Consolidated statement of changes in equity FOR THE YEAR ENDED 30 JUNE 2017 6 ) 6 6 1 ( 0 6 ) 4 6 ( 9 1 7 4 3 ) 5 0 1 ( 9 9 6 , 1 1 – – ) 6 6 1 ( 0 6 – – – – 8 7 4 1 8 2 , 1 ) 7 2 1 , 1 1 ( 3 3 2 4 1 , – – – – 0 9 7 , 1 1 2 ) 4 1 2 ( – – – – – – 7 4 3 ) 5 0 1 ( ) 4 8 7 ( – – – – – – – – ) 4 6 ( 9 1 – – – – – – – – – – – – – – – – – – – – – – – – – – – ) 2 5 5 ( – – – – – – 4 9 9 9 9 1 , ) 8 0 1 ( ) 6 2 0 , 1 ( 8 5 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 9 8 3 , l a t o T y t i u q e 0 0 0 $ ’ - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p i g n g d e h 0 0 0 $ ’ e v r e s e r l e a s r o f e v r e s e r 0 0 0 $ ’ s t b e d 0 0 0 $ ’ e v r e s e r w o fl h s a C l e b a l i a v A l u f t b u o D 0 0 0 $ ’ 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 0 0 0 $ ’ 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 0 0 0 $ ’ e v r e s e r t e s s A n o i t a u a v e r l i d e n a t e R s t fi o r p 0 0 0 $ ’ 8 3 5 9 1 , 8 5 5 9 9 6 , 1 1 – – – – – – – – – – – – – – e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i 7 3 6 6 6 1 , l d o s e c n i s s t e s s a f o n o i t a u a v e r l f o s t fi o r p d e n a t e r o t i r e f s n a r T y n a p m o c t n e r a p f o s r e b m e m o t e b a t u b i r t t a t fi o r P l : r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 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 ( e s a e r c n I 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 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 42 / ANNUAL REPORT 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 ( e s a e r c n I w o fl h s a c l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D e u a v l r i a f l a t o t - b u S e g d e h l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I S B M R l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l e u a v l r i a f o t x a t d e r r e f e D s t n e m t s e v n i 5 5 6 6 1 2 , ) 4 1 2 ( ) 4 8 7 ( 3 1 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 8 6 6 0 2 , 9 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 – – – – – – – – – – – – – – – – – – – – – – 8 7 4 1 8 2 , 1 3 1 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 5 9 7 , 1 3 7 3 6 6 6 1 , ) 7 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 – 3 3 2 4 1 , 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 l a t o T y t i u q e 0 0 0 $ ’ 5 5 6 6 1 2 , ) 0 4 1 ( 9 4 1 , 5 1 ) 2 ( 5 2 ) 2 1 ( 4 1 6 8 ) 8 5 2 ( – – ) 0 4 1 ( – – – – – – – – – 5 2 – – – – – – – – – – 1 6 8 ) 8 5 2 ( ) 1 8 1 ( – – – – 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 - n o N 0 0 0 $ ’ s t s e r e t n i g n i l l o r t n o c - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p i g n g d e h 0 0 0 $ ’ e v r e s e r l e a s r o f e v r e s e r 0 0 0 $ ’ s t b e d 0 0 0 $ ’ e v r e s e r w o fl h s a C l e b a l i a v A l u f t b u o D 0 0 0 $ ’ 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 0 0 0 $ ’ 0 0 0 $ ’ e v r e s e r s t fi o r p 0 0 0 $ ’ n o i t a u a v e r l i d e n a t e R t e s s A e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i ) 4 1 2 ( ) 4 8 7 ( 3 1 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 8 6 6 0 2 , 9 2 6 2 8 1 , – – – – ) 2 1 ( 4 - – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – ) 2 ( – – – – – 9 4 1 , 5 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 s t s e r e t n i g n i l l l o r t n o c - n o n o t e b a t u b i r t t a t fi o r P : r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 6 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 i p u d n w o t e u d 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 n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I e u a v l r i a f o t s t n e m t s e v n i S B M R f o s t n e m t s e v n i S B M R f o n o i t a u a v e r n o l t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I e u a v l r i a f o t e g d e h w o fl h s a c f o e g d e h w o fl h s a c f o n o i t a u a v e r n o l 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 i s e i r a d i s b u s d e n w o y l l o h w f o l s e e y o p m e o t s e r a h s f o e u s s I 9 4 3 4 7 7 , 1 1 3 4 , 1 – – 1 3 4 , 1 ) 8 2 1 , 2 1 ( – – – – – 2 8 2 2 3 2 , ) 0 4 1 ( ) 9 8 1 ( 5 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 5 1 8 5 3 , 9 2 6 2 8 1 , l a t o t - b u S – – – – – – – – – – – – – – – – – – – – – – – ) 8 2 1 , 2 1 ( – – 9 4 3 4 7 7 , 1 i i s e r a h s 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 n o i t i s i u q c a n o g n i s i r a s t s e r e t n i g n i l l o r t n o c - n o N 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 i d n e d v d r o f i l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r i 8 0 7 , 3 2 2 1 9 2 , 1 ) 9 8 1 ( ) 1 8 1 ( 5 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 7 8 6 3 2 , 2 5 7 , 4 8 1 7 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 – 30 JUNE 2017 / 43 Consolidated statement of changes in equity (continued) FOR THE YEAR ENDED 30 JUNE 2017 l a t o T y t i u q e 0 0 0 $ ’ 6 8 2 8 9 1 , 9 7 6 , 1 1 – ) 4 6 ( 9 1 7 4 3 ) 5 0 1 ( 8 7 4 2 6 1 , 0 1 2 1 8 2 , 1 3 3 2 4 1 , ) 7 2 1 , 1 1 ( 7 2 0 5 1 2 , – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7 4 3 ) 5 0 1 ( ) 4 8 7 ( – – – – - n o N 0 0 0 $ ’ s t s e r e t n i g n i l l o r t n o c - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p i g n g d e h 0 0 0 $ ’ e v r e s e r l e a s r o f e v r e s e r 0 0 0 $ ’ s t b e d 0 0 0 $ ’ e v r e s e r w o fl h s a C l e b a l i a v A l u f t b u o D 0 0 0 $ ’ 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 0 0 0 $ ’ ) 6 2 0 , 1 ( 8 5 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 0 5 3 , 0 0 0 $ ’ e v r e s e r s t fi o r p 0 0 0 $ ’ 5 1 1 , 8 1 t e s s A n o i t a u a v e r l i d e n a t e R e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i 7 3 6 6 6 1 , – – ) 4 6 ( 9 1 – – – – – – – – – – – – – – – – – – – – ) 9 5 1 ( 9 5 1 – 9 7 6 , 1 1 – – – – – – – – – – – – – – ) 4 8 7 ( 3 1 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 6 2 8 8 1 , 9 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 3 1 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 3 5 9 9 2 , 7 3 6 6 6 1 , l a t o t - b u S – – – – – – – – – – – – – – – – – – – – – – – 8 7 4 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 1 8 2 , 1 3 3 2 4 1 , 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 d n e d v d r o f i l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r i ) 7 2 1 , 1 1 ( – i i s e r a h s 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 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 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 f o 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 o t e u d ) e s a e r c e d ( e s a e r c n I e u a v l r i a f o t s t n e m t s e v n i S B M R f o s t n e m t s e v n i S B M R f o n o i t a u a v e r n o l t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I e u a v l r i a f o t e g d e h w o fl h s a c f o e g d e h w o fl h s a c f o n o i t a u a v e r n o l 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 44 / ANNUAL REPORT l a t o T y t i u q e 0 0 0 $ ’ 7 2 0 5 1 2 , 3 0 2 5 1 , 8 3 8 , 1 ) 2 1 ( 4 1 6 8 ) 8 5 2 ( 9 4 3 3 6 6 2 3 2 , 4 7 7 , 1 ) 6 3 1 , 2 1 ( 0 5 6 2 2 2 , - – – – – – – - – – – – - – – – – – – - – – – – – – – - 1 6 8 ) 8 5 2 ( ) 1 8 1 ( – – – - n o N 0 0 0 $ ’ s t s e r e t n i g n i l l o r t n o c - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p i g n g d e h 0 0 0 $ ’ e v r e s e r l e a s r o f e v r e s e r 0 0 0 $ ’ s t b e d 0 0 0 $ ’ e v r e s e r w o fl h s a C l e b a l i a v A l u f t b u o D 0 0 0 $ ’ 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 0 0 0 $ ’ 0 0 0 $ ’ e v r e s e r t e s s A n o i t a u a v e r l i d e n a t e R ) 4 8 7 ( 3 1 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , – – ) 2 1 ( 4 – – – – – – – – – – – – – – – – – – – – – – – – – – s t fi o r p 0 0 0 $ ’ 6 2 8 8 1 , 3 0 2 5 1 , 8 3 8 , 1 - – – – – – – – – – e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i 9 2 6 2 8 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 6 1 0 2 y u J l 1 t a e c n a a B l y n a p m o C i p u d n w o t e u d 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 n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I e u a v l r i a f o t s t n e m t s e v n i S B M R f o l n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I e u a v l r i a f o t e g d e h w o fl h s a c f o n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D s t n e m t s e v n i S B M R f o n o i t a u a v e r l i s e i r a d i s b u s d e n w o y l l o h w f o e g d e h w o fl h s a c f o n o i t a u a v e r n o l 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 5 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 7 6 8 5 3 , 9 2 6 2 8 1 , l a t o t - b u S – – – – – – – – – – – – – – – ) 6 3 1 , 2 1 ( – – – 9 4 3 4 7 7 , 1 i i s e r a h s 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 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 i d n e d v d r o f i l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r i ) 1 8 1 ( 5 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 5 4 3 3 , 1 3 7 , 3 2 2 5 7 , 4 8 1 7 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 – 30 JUNE 2017 / 45 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 and 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 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 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 • has the ability to use its power to affect its returns. synergies of the business combination. 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. 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. 46 / ANNUAL REPORT Notes to the consolidated financial statements30 JUNE 2017 (d) Investments in associates (f) Leases 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. 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. 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. 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. 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. 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. 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. (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. (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). AUSWIDE BANK – 30 JUNE 2017 / 47 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Employee benefits (continued) 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. 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. 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. 48 / ANNUAL REPORT (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. 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 reliably 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. Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. 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. AUSWIDE BANK – 30 JUNE 2017 / 49 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (k) Financial instruments (continued) 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. (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. 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. 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. Hedge accounting The Group designates certain hedging instruments, which include interest rate swaps, as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item attributable to the hedged risk. Hedge accounting (continued) 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. 50 / ANNUAL REPORT 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. 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. AUSWIDE BANK – 30 JUNE 2017 / 51 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Impairment of assets (continued) (q) Fair value of assets and liabilities 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. 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. 52 / ANNUAL REPORT 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. 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. AUSWIDE BANK – 30 JUNE 2017 / 53 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (r) Business combinations (continued) (s) Rounding of amounts 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. 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. The company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. (t) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (u) 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. 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 judgements in relation to the assessment of the fair value of the assets and liabilities on the date of acquisition of MoneyPlace Holdings Pty Ltd (MoneyPlace). The Board of Directors considered a range of valuations in relation to the Available for Sale (AFS) financial asset. Key judgements were applied to determine the entities that the Group controlled and valuation adopted - refer to Note 33. Management have made critical accounting estimates and judgements 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. 54 / ANNUAL REPORT (v) 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 2016. • 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 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements • AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle • AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 • AASB 1057 Application of Accounting Standards and AASB 2015-9 Amendments to Australian Accounting Standards – Scope and Application Paragraphs 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. 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 2017 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 AASB 9 Financial Instruments Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2018 30 June 2019 AASB 15 Revenue from Contracts with Customers (and the related clarifications) 1 January 2018 30 June 2019 AASB 16 Leases AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 AASB 2016-4 Amendments to Australian Accounting Standards – Recoverable Amount of Non-Cash Generating Specialised Assets of Not-for-Profit Entities AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016 Cycle AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions 1 January 2019 30 June 2020 1 January 2017 30 June 2018 1 January 2017 30 June 2018 1 January 2017 30 June 2018 1 January 2017 30 June 2018 1 January 2018 30 June 2019 AASB 2017-1 Amendments to Australian Accounting Standards – Transfer of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments 1 January 2018 30 June 2019 AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018 30 June 2019 AUSWIDE BANK – 30 JUNE 2017 / 55 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (v) Application of new and revised Accounting Standards (continued) AASB 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after 1 January 2018) AASB 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2017) 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 (ECL) 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). The AASB 9 impairment requirements are based on an Expected Credit Loss model (ECL) that replaces the incurred loss model under the current accounting standard. The Group will be generally required to recognise either a 12-month or lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. AASB 9 will change the Group’s current methodology for calculating the provision for doubtful debts, in particular for collective provisioning. AASB 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2017) (continued) The overall impact of transitioning to AASB 9 on the Group’s financial statements is still being assessed; however, the level of provisioning for doubtful debts on assets is expected to increase with any adjustments that arise as a result of the transition process being recognised in either retained earnings or an appropriate equity reserve at the date of transition. 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’s current assessment of this standard indicates that no material financial implications are expected. AASB 16 Leases (effective for annual periods beginning on or after 1 January 2019) The standard introduces a model for the identification of lease arrangements and accounting treatments for both lessors and lessees. This standard will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective. AASB 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Operating and finance lease distinctions are replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets. Management have identified operating leases that will be required to be recognised on balance sheet. However, the Group has not quantified the financial impact, as this standard does not mandatorily apply before 1 January 2019. 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. 56 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 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. Interest revenue 2017 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2017 Deposits from other financial institutions Customer deposits Negotiable certificates of deposit (NCDs) Floating rate notes (FRNs) Subordinated notes Net interest revenue 2017 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 Average balance $’000 64,836 205,709 2,729,706 34,245 3,034,496 614,050 1,953,439 184,868 85,667 28,000 2,866,023 47,661 187,762 2,494,616 21,463 2,751,502 611,521 1,700,730 218,333 47,917 27,000 2,605,500 Average interest rate % 1.41 2.38 4.36 3.15 4.15 3.15 2.07 2.45 2.63 6.34 2.39 1.96 2.89 4.71 2.16 4.52 3.45 2.37 2.71 2.69 6.48 2.70 Interest $’000 894 4,896 119,042 1,077 125,909 19,371 40,466 4,532 2,257 1,775 68,400 57,509 935 5,435 117,458 465 124,293 21,095 40,346 5,924 1,287 1,749 70,400 53,893 The following tables show the net interest margin, and are derived by dividing the difference between interest revenue and interest expenditure by the average balance of interest earning assets. Interest margin and interest spread 2017 Interest revenue Interest expense Net interest spread Benefit of net interest-free assets, liabilities and equity 3,034,496 2,866,023 125,909 68,400 Net interest margin – on average interest earning assets 3,034,496 57,509 Interest margin and interest spread 2016 Interest revenue Interest expense Net interest spread Benefit of net interest-free assets, liabilities and equity 2,751,502 2,605,500 124,293 70,400 Net interest margin – on average interest earning assets 2,751,502 53,893 4.15 2.39 1.76 0.13 1.90 4.52 2.70 1.82 0.14 1.96 AUSWIDE BANK – 30 JUNE 2017 / 57 Notes to the consolidated financial statements (continued) 30 JUNE 2017 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: Consolidated Company 2017 $’000 2016 $’000 2017 $’000 2016 $’000 Other non interest income Dividends Controlled entities Fees and commissions Other income – 9,259 963 10,222 – 8,310 793 9,103 – 9,057 703 9,760 The profit before income tax is arrived at after charging the following items: Other expenses Provisions for employee entitlements Superannuation contributions paid Consolidated Company 2017 $’000 158 158 1,455 2016 $’000 322 322 1,441 2017 $’000 158 158 1,455 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 Income tax expense reported in profit or loss Consolidated Company 2017 $’000 6,319 380 6,699 2016 $’000 4,606 1,153 5,759 2017 $’000 6,431 246 6,677 (ii) Numerical reconciliation of income tax expense to prima facie tax payable: Tax on profit before income tax at 30% (2016: 30%) Tax effect of permanent differences Add non-deductible expenses: Depreciation of buildings Merger expenses Less: Intra-group dividend (MRM) Other items – net Income tax expense Consolidated Company 2017 $’000 6,512 49 80 – 58 6,699 2016 $’000 5,134 53 590 – (18) 5,759 2017 $’000 6,564 49 80 – (16) 6,677 420 8,310 793 9,523 2016 $’000 322 322 1,441 2016 $’000 4,572 1,153 5,725 2016 $’000 5,221 53 590 (126) (13) 5,725 58 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 (b) Income tax recognised in other comprehensive income Consolidated Company 2017 $’000 2016 $’000 2017 $’000 2016 $’000 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 Arising on items that will not be reclassified to profit or loss: Total income tax recognised directly in other comprehensive income (c) Current tax assets and liabilities Current tax liabilities Current tax liabilities – – (3) 258 255 – 255 – – (19) 104 85 – 85 – – (3) 258 255 – 255 Consolidated Company 2017 $’000 1,222 1,222 2016 $’000 (411) (411) 2017 $’000 1,222 1,222 (d) Deferred tax balances Deferred tax balances are presented in the statement of financial position as follows: Deferred 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 2017 $’000 5,256 (2,947) 2,309 2016 $’000 5,441 (2,210) 3,231 2017 $’000 5,256 (1,580) 3,676 Consolidated Company 2017 $’000 2016 $’000 2017 $’000 815 1,294 729 1,886 280 131 24 97 864 1,514 598 1,886 136 138 14 291 815 1,294 729 1,886 280 131 24 97 – – (19) 104 85 – 85 2016 $’000 (411) (411) 2016 $’000 5,441 (2,210) 3,231 2016 $’000 864 1,514 598 1,886 136 138 14 291 5,256 5,441 5,256 5,441 AUSWIDE BANK – 30 JUNE 2017 / 59 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 4 INCOME TAX RELATING TO CONTINUING OPERATIONS (CONTINUED) (d) Deferred tax balances (continued) In respect of each temporary difference the adjustment was charged to income. Deferred tax liabilities Asset revaluation reserve Prepayments Available for sale reserve Cash flow hedging reserve Revaluation of financial assets Consolidated Company 2017 $’000 1,433 179 45 (77) 1,367 2,947 2016 $’000 1,434 1,064 48 (336) – 2,210 2017 $’000 1,433 179 45 (77) – 1,580 2016 $’000 1,434 1,064 48 (336) – 2,210 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. NOTE 5 DIVIDENDS PAID Dividends paid during the year Interim for current year Final for previous year Consolidated Company 2017 $’000 5,696 6,440 12,136 2016 $’000 5,200 5,927 11,127 2017 $’000 5,696 6,440 12,136 2016 $’000 5,200 5,927 11,127 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 17.0 cents per ordinary share ($6.917m), for the six months to 30 June 2017, payable on 22 September 2017. Auswide Bank has entered into an agreement to underwrite Auswide Bank’s Dividend Reinvestment Plan (DRP) in respect of the 2017 Final Dividend. The capital raised through the underwritten DRP will strengthen the Bank’s Tier 1 Capital position and the proceeds will be used for the general business purposes of the Bank. The final dividend for the six months to 30 June 2016 ($6.440m) was paid on 30 September 2016, and was disclosed in the 2015/16 financial accounts in accordance with Accounting Standards. The tax rate at which the dividends have been franked is 30% (2016: 30%). The amount of franking credits available for the subsequent financial year are: Balance as at the end of the financial year 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 Consolidated Company 2017 $’000 24,761 (411) (2,964) 21,386 2016 $’000 16,925 (411) (2,760) 13,754 2017 $’000 24,761 (411) (2,964) 21,386 2016 $’000 16,925 (411) (2,760) 13,754 60 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 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 Consolidated Company 2017 2016 2017 2016 17.0 14.0 16.0 16.0 14.0 16.0 17.0 14.0 16.0 16.0 14.0 16.0 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 2017 $’000 29,825 90,240 120,065 2016 $’000 13,752 54,040 67,792 2017 $’000 30,902 90,240 121,142 Cash held within securitised trusts at 30 June 2017 of $22.996m (2016: $19.335m) is restricted for use only by the trusts. NOTE 7 DUE FROM OTHER FINANCIAL INSTITUTIONS Deposits with Special Service Providers (SSPs) Subordinated loans Bank term deposits Maturity analysis No maturity specified Consolidated Company 2017 $’000 11,638 125 – 11,763 11,763 11,763 2016 $’000 9,966 547 11,501 22,014 22,014 22,014 2017 $’000 11,638 125 – 11,763 11,763 11,763 2016 $’000 13,752 54,040 67,792 2016 $’000 9,966 547 11,501 22,014 22,014 22,014 Following the acquisition of shares in Queensland Professional Credit Union Ltd on 19 May 2016, $11.501m of term deposits were transferred to Auswide Bank Ltd at fair value as part of the transfer of assets. These term deposits have since matured and funds have been utilised in various alternate investing activities. NOTE 8 ACCRUED RECEIVABLES Interest receivable Securitisation receivables Other Consolidated Company 2017 $’000 4,509 1,606 620 6,735 2016 $’000 4,682 1,448 6,688 12,818 2017 $’000 4,509 1,606 599 6,714 2016 $’000 4,682 1,448 5,404 11,534 AUSWIDE BANK – 30 JUNE 2017 / 61 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 9 FINANCIAL ASSETS Held to maturity financial assets carried at amortised cost Certificates of deposit 253,440 199,924 253,440 199,924 Consolidated Company 2017 $’000 2016 $’000 2017 $’000 2016 $’000 Available for sale financial assets carried at fair value External RMBS investments Investment in Managed Investment Scheme (MIS) Financial assets at fair value through profit or loss designated on initial recognition Financial assets at amortised cost Notes – Securitisation program & other Maturity analysis Up to 3 months From 1 to 5 years Later than 5 years 1,470 14,042 2,373 3,413 1,470 14,042 2,373 3,413 22,996 291,948 159,240 94,200 38,508 291,948 19,335 225,045 87,724 112,200 25,121 225,045 53,382 322,334 159,240 94,200 68,894 322,334 46,476 252,186 87,724 112,200 52,262 252,186 Cash held within securitised trusts at 30 June 2017 of $22.996m (2016: $19.335m) is restricted for use only by the trusts. The investment in management investment schemes represents the notes held in the consideration of the funding provided to the schemes managed by Moneyplace. At the date of this report, the Group holds 88% of the total notes on issue and could be seen to have control of the scheme. This position is expected to be temporary as additional funders increase their share of the Moneyplace scheme investment notes. If the scheme had been consolidated the impact would have been an increase in assets and liabilities of $1.7 million which represents 0.04% of the total assets of the Group. The scheme does not make residual profits and accordingly there would be no impact on net profit from consolidation of the scheme. 62 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 10 LOANS AND ADVANCES Term loans Loans to controlled entities Continuing credit loans Provision for impairment Total loans Consolidated Company 2017 $’000 2016 $’000 2017 $’000 2016 $’000 2,631,078 2,506,507 2,631,079 2,506,507 – 146,456 2,777,534 – 197 (1,695) 164,952 2,671,459 146,428 2,777,704 164,932 2,669,744 (4,314) (5,047) (4,314) (5,047) 2,773,220 2,666,412 2,773,390 2,664,697 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 Bad and doubtful debts unwound / (provided for) during the year Total provision for impairment 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 Consolidated Company 2017 $’000 (5,047) 733 (4,314) 733 (1,712) (979) 2016 $’000 (1,719) (3,328) (5,047) (3,328) 3,896 568 2017 $’000 (5,047) 733 (4,314) 733 (1,712) (979) 2016 $’000 (1,719) (3,328) (5,047) (3,328) 3,896 568 2,928 1,870 41,536 2,726,886 2,773,220 2,658 1,119 31,920 2,630,715 2,666,412 2,928 1,870 41,536 2,727,056 2,773,390 2,658 1,119 31,920 2,629,000 2,664,697 Following the acquisition of shares in Queensland Professional Credit Union Ltd on 19 May 2016, 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 $708.020m (30 June 2016 – $613.821m). B notes of $30.385m 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 – 30 JUNE 2017 / 63 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 11 OTHER INVESTMENTS AND RELATED PARTIES Unlisted shares – at cost Controlled entities – at directors' valuation (a) Controlled entities Consolidated Company 2017 $’000 1,069 – 1,069 2016 $’000 512 – 512 2017 $’000 1,069 4,084 5,153 2016 $’000 512 1,259 1,771 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 2017 % 2016 % 2017 $’000 2016 $’000 2017 $’000 2016 $’000 Australia – – 15,203 11,258 Australia Australia Australia Australia Australia 100.0 – – 100.0 100.0 100.0 100.0 100.0 100.0 100.0 – – – – – Australia 62.4 19.3 (236) 424 – 16 – – – - – – – – – 4,083 – – – 1,259 – – – Name Company Auswide Bank Ltd Controlled entities Mortgage Risk Management Pty Ltd MPBS Insurance Pty Ltd MPBS Holdings Pty Ltd Widcap Securities Pty Ltd Auswide Bank Performance Rights Pty Ltd MoneyPlace Holdings Pty Ltd (MoneyPlace) All wholly-owned subsidiaries are members of the tax consolidated group. The carrying amounts of unlisted shares were reassessed by the directors as at 30 June 2017 with the reassessments being based on whether there were internal or external indicators that the investment was impaired. MoneyPlace Holdings Pty Ltd (MoneyPlace) MoneyPlace commenced loan originations in January 2016 after receiving its retail and wholesale Australian Financial Service Licence and provides loans of $5,000 to $35,000 through its peer-to-peer (P2P) platform. MoneyPlace is Australia’s second fully licenced P2P lender. In December 2015 the Group announced it would be entering into a strategic relationship and equity investment with MoneyPlace Holdings. Auswide Bank Ltd acquired a 19.3% equity stake in MoneyPlace which settled on 4 January 2016. In February 2017 Auswide Bank made a follow-on investment and acquired an additional 44.0% equity stake in MoneyPlace, via a subscription agreement. This bought the total investment to 63.3%, and resulted in the Group obtaining a controlling interest in MoneyPlace. As a result of a share issue to minority holders, the proportion of ownership in MoneyPlace at 30 June 2017 was 62.4%. Further explanation can be found at Note 33. The strategic alliance with MoneyPlace provides a technically advanced personal loan system solution to a niche consumer finance market. The relationship provides an avenue to increase the Group’s consumer lending ambitions and provides significant opportunities for platform collaboration and value accretion. 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, and is no longer actively trading. 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. 64 / ANNUAL REPORT MPBS Holdings Pty Ltd MPBS Holdings Pty Ltd was 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 Holdings Pty Ltd was deregistered effective 21 May 2017, pursuant to section 601AA(4) of the Corporations Act 2001. MPBS Insurance Pty Ltd MPBS Insurance Pty Ltd was a wholly owned subsidiary which is no longer actively trading. MPBS Insurance Pty Ltd was deregistered effective 21 May 2017, pursuant to section 601AA(4) of the Corporations Act 2001. Widcap Securities Pty Ltd Widcap Securities Pty Ltd is a wholly owned subsidiary which acts as the manager and custodian for Auswide Bank’s public RMBS and Warehouse Securitisation programs. Auswide Bank Performance Rights Pty Ltd Auswide Bank Performance Rights Pty Ltd is the trustee company for the Auswide Bank 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 Bank 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 • ABA Trust 2017-1 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)) Financial Planning Australia Finance Advice Matters Group Pty Ltd (FAM) Financial Planning Australia 30/06/2017 30/06/2016 25.0% 25.0% 25.0% 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 – 30 JUNE 2017 / 65 Notes to the consolidated financial statements (continued) 30 JUNE 2017 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 associates’ financial statements prepared in accordance with AASBs. J1-Plan Pty Ltd Share of associate’s balance sheet: Current assets Current liabilities Non-current liabilities Net assets Share of associate’s revenue and profit: Revenue Profit / (loss) before 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 2017 $’000 326 (5) – 321 2017 $’000 194 65 65 65 114 2017 $’000 352 528 (206) (357) 317 2017 $’000 1,348 78 (22) 56 56 129 2016 $’000 637 (99) (43) 495 2016 $’000 595 106 106 106 13 2016 $’000 273 462 (707) (14) 14 2016 $’000 908 23 (10) 13 13 – 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. 66 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 12 PROPERTY, PLANT AND EQUIPMENT Carrying amounts of: Freehold land and buildings Plant and equipment Freehold land and buildings At independent valuation – June 2015 Provision for depreciation Movement in carrying amount Opening net book amount Disposals Depreciation charge Carrying amount at end of year Plant and equipment At cost Provision for depreciation Movement in carrying amount Opening net book amount Additions Additions due to business combinations Disposals Depreciation charge Carrying amount at end of year Consolidated Company 2017 $’000 8,399 6,207 14,606 2016 $’000 8,568 6,976 15,544 2017 $’000 8,399 6,207 14,606 Consolidated Company 2017 $’000 8,750 (351) 8,399 8,568 – (169) 8,399 2016 $’000 8,750 (182) 8,568 11,368 (2,618) (182) 8,568 2017 $’000 8,750 (351) 8,399 8,568 – (169) 8,399 Consolidated Company 2017 $’000 27,896 (21,689) 6,207 6,976 1,023 – (42) (1,750) 6,207 2016 $’000 27,099 (20,123) 6,976 4,757 3,600 350 (205) (1,526) 6,976 2017 $’000 27,896 (21,689) 6,207 6,976 1,023 – (42) (1,750) 6,207 2016 $’000 8,568 6,976 15,544 2016 $’000 8,750 (182) 8,568 9,121 (383) (170) 8,568 2016 $’000 27,099 (20,123) 6,976 4,757 3,600 350 (205) (1,526) 6,976 All land and buildings were revalued as at 3 June 2015 by certified practicing valuers Jim Webster and Richard Lysnar of Propell National Valuers QLD. The valuations were assessed to fair market values. The Company’s policy is to engage external experts to comprehensively revalue freehold land and buildings every three years with an assessment performed by the Board of Directors in intervening years. NOTE 13 OTHER ASSETS Prepayments Consolidated Company 2017 $’000 8,406 8,406 2016 $’000 7,751 7,751 2017 $’000 8,260 8,260 2016 $’000 7,751 7,751 AUSWIDE BANK – 30 JUNE 2017 / 67 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 14 GOODWILL (a) MoneyPlace Holdings Pty Ltd Auswide Bank Ltd acquired a 19.3% equity stake in MoneyPlace which settled on 4 January 2016. In February 2017 Auswide Bank made a follow-on investment and acquired an additional 44.0% equity stake in MoneyPlace, via a subscription agreement. This bought the total investment to 63.3%, and resulted in the Group obtaining a controlling interest in MoneyPlace. Upon gaining a controlling interest in MoneyPlace, an independent valuation was procured. After applying the principles of acquisition accounting, the initial equity investment was revalued to facilitate the calculation of the consideration transferred. The independent valuation identified the net assets (including intangible assets such as software and customer contracts), and it was established that the resultant difference be recognised as goodwill on consolidation. 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 28 February 2017. (b) Queensland Professional Credit Union Ltd (YCU) On 19 May 2016, the Group acquired 100% 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. (c) 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. Movements in Goodwill: Balance at the beginning of the year Additional Goodwill due to the acquisition of MoneyPlace Balance at the end of the year Impairment testing Consolidated Company 2017 $’000 46,363 2,612 48,975 2016 $’000 46,363 – 46,363 2017 $’000 46,363 – 46,363 2016 $’000 46,363 – 46,363 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. A separate cash generating unit has been identified as a result of the acquisition of MoneyPlace. Upon the acquisition, an independent valuation was procured and goodwill was assessed as part of this process. The goodwill disclosed in the Statement of Financial Position at 30 June 2017 was supported by the impairment testing and no impairment adjustment was required. 68 / ANNUAL REPORT Impairment testing of goodwill was carried out by comparing the net present value of cash flows from the cash-generating unit to the carrying value of the cash generating unit. The cash flows were based on projections of future earnings before taxation, depreciation and amortisation, minus forecast capital expenditure. The cash flows have been projected over a period of three years. The terminal value of the business beyond year three has been determined using a constant growth perpetuity. The key assumptions used in carrying out the impairment testing were as follows: • Budgeted trading result for the financial years ending 30 June 2018/19 Represents the cash-generating potential of the parent entity based on the forecast approved by the Board of Directors. • Estimated growth rate 5.0% (2016: 6.0%) represents growth in cash-generating unit cash flows over years one to three (beyond 30 June 2017). (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 5.0% (2016: 6.0%) represents the terminal growth rate (beyond three years). • Pre-tax discount rate 12.2% (2016: 12.0%) is the pre-tax discount rate used in impairment testing representing the Cost of Equity to the consolidated group at 30 June 2017. The trigger points at which the carrying value of the cash-generating unit would exceed its recoverable amount, while holding all other variables constant, are as follows: • terminal growth rate – 4.0% (2016: 1.9%); and • discount rate – 13.1% (2016: 15.6%). NOTE 15 OTHER INTANGIBLE ASSETS Carrying amounts of: Software Software At cost Provision for amortisation Movement in carrying amount Balance at 1 July Additions Additions due to business combinations Disposals Amortisation Balance at 30 June Consolidated Company 2017 $’000 7,935 7,935 2016 $’000 2,719 2,719 2017 $’000 2,564 2,564 Consolidated Company 2017 $’000 14,427 (6,492) 7,935 2,719 905 5,160 – (849) 7,935 2016 $’000 8,549 (5,830) 2,719 1,822 1,326 – – (429) 2,719 2017 $’000 9,056 (6,492) 2,564 2,719 507 – – (662) 2,564 2016 $’000 2,719 2,719 2016 $’000 8,549 (5,830) 2,719 1,822 1,326 – – (429) 2,719 AUSWIDE BANK – 30 JUNE 2017 / 69 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 16 DEPOSITS AND SHORT TERM BORROWINGS Call deposits Term deposits Negotiable certificates of deposit (NCDs) Floating rate notes (FRNs) Maturity analysis On call Up to 3 months From 3 to 12 months From 1 to 5 years Consolidated Company 2017 $’000 726,103 1,331,229 147,272 100,000 2016 $’000 675,823 1,218,062 215,017 75,000 2017 $’000 726,103 1,331,229 147,272 100,000 2016 $’000 676,145 1,218,062 215,017 75,000 2,304,604 2,183,902 2,304,604 2,184,224 909,521 613,597 756,275 25,211 820,408 801,872 538,954 22,668 909,521 613,597 756,275 25,211 820,730 801,872 538,954 22,668 2,304,604 2,183,902 2,304,604 2,184,224 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 on 19 May 2016, $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 Trade creditors Accrued interest payable Other creditors Maturity analysis Up to 3 months From 3 to 12 months From 1 to 5 years Consolidated Company 2017 $’000 3,235 10,814 4,588 18,637 12,473 5,987 177 18,637 2016 $’000 4,686 13,947 6,722 25,355 17,954 7,189 212 25,355 2017 $’000 3,032 10,814 4,479 18,325 12,231 5,917 177 18,325 2016 $’000 4,678 13,947 6,296 24,921 17,520 7,189 212 24,921 70 / ANNUAL REPORT 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 Unearned direct premiums and outstanding claims Balance at beginning of year Transfers to/(from) the provision during the year Payments from the provision during the year Balance at end of year Other provisions Total provisions Consolidated Company 2017 $’000 2,881 575 (656) 2,800 2,439 361 2,800 – – – – 40 2,840 2016 $’000 2,647 527 (293) 2,881 2,492 389 2,881 4,456 (4,344) (112) – (1) 2,879 2017 $’000 2,881 493 (656) 2,718 2,357 361 2,718 – – – – 40 2,758 2016 $’000 2,647 527 (293) 2,881 2,492 389 2,881 – – – – (1) 2,879 The provision for employee benefits represents annual leave and long service leave entitlements accrued. As at 30 June 2017 the unearned direct premiums and outstanding claims provision is nil due to the wind down of Mortgage Risk Management Pty Ltd. 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. NOTE 19 SUBORDINATED CAPITAL NOTES Inscribed debenture stock Maturity analysis Later than 5 years Consolidated Company 2017 $’000 28,000 2016 $’000 28,000 2017 $’000 28,000 2016 $’000 28,000 28,000 28,000 28,000 28,000 AUSWIDE BANK – 30 JUNE 2017 / 71 Notes to the consolidated financial statements (continued) 30 JUNE 2017 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 2017 Shares No. 2017 Shares $’000 2016 Shares No. 2016 Shares $’000 40,251,196 182,629 37,040,654 166,637 77,095 357,742 – 349 1,774 – 99,479 264,423 2,846,640 40,686,033 184,752 40,251,196 478 1,281 14,233 182,629 * 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 9 November 2016 – 77,095 ordinary shares were issued. Shares issued pursuant to the company’s staff share plan were at a price of 90% of the weighted average price of the company’s shares traded on the Australian Securities Exchange for the 10 days prior to the issue of the invitation to subscribe for the shares. The members of the company approved a staff share plan in 1992 enabling the staff to participate to a maximum of 10% of the shares of the company. The share plan is available to all employees under the terms and conditions as decided from time to time by the Directors, but in particular, limits the maximum loan to each participating employee to 40% of their gross annual income. The plan requires employees to provide a deposit of 10% with the balance able to be repaid over a period of 5 years at no interest. The total number of shares issued to employees since the inception of the staff share plan The total number of shares issued to employees during the financial year The total market value at date of issue, 9 November 2016 (1 December 2015) The total amount paid or payable for the shares at that date (b) Dividend Reinvestment Plan (DRP) Consolidated Company 2017 Shares No. 2016 Shares No. 2017 Shares No. 2016 Shares No. 2,861,007 2,783,912 2,861,007 2,783,912 77,095 99,479 77,095 99,479 $’000 $’000 $’000 $’000 393 349 536 478 393 349 536 478 The Board of Directors resolved to maintain the DRP for the final dividend payable on 30 September 2016 for the 2015/16 financial year. The Board of Directors resolved to suspend the DRP for the interim dividend payable on 30 March 2017 for the 2016-17 financial year. 30 September 2016 – 357,742 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 September 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 Bank Performance Rights Pty Ltd As at the reporting date Auswide Bank Performance Rights Pty Ltd holds 28,920 shares ($189,268) for the purpose of facilitating the Executive LTI scheme. 72 / ANNUAL REPORT NOTE 21 RESERVES Available for sale reserve Asset revaluation reserve Cash flow hedge reserve Share-based payment reserve 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 Consolidated Company 2017 $’000 105 3,345 (181) (189) 2,676 5,834 2,388 13,978 113 (12) 4 105 2016 $’000 113 3,345 (784) (214) 2,676 5,834 2,388 13,358 158 (64) 19 113 2017 $’000 105 3,345 (181) – 2,676 5,834 2,388 14,167 113 (12) 4 105 2016 $’000 113 3,345 (784) – 2,676 5,834 2,388 13,572 158 (64) 19 113 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 Decrease due to transfer to retained profits of revaluation of assets since sold Balance at end of year 3,345 – 3,345 3,897 (552) 3,345 3,345 – 3,345 3,504 (159) 3,345 The balance of this reserve represents the excess of the independent valuation over the original cost of the land and buildings. Cash flow hedge reserve Balance at beginning of year Gain/(loss) arising on changes in fair value of hedging instruments entered into for cash flow hedges Interest rate swaps Deferred tax related to gains/losses recognised in other comprehensive income Balance at end of year (784) (1,026) (784) (1,026) 861 (258) (181) 347 (105) (784) 861 (258) (181) 347 (105) (784) 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 – 30 JUNE 2017 / 73 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 21 RESERVES (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 2017 $’000 2016 $’000 2017 $’000 2016 $’000 (214) – 25 (189) (108) (166) 60 (214) – – – – – – – – 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 2,676 2,676 2,676 This is a statutory reserve created on a distribution from the Queensland Building Society Fund. General reserve Balance at end of year 5,834 5,834 5,834 5,834 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 2,388 2,388 2,388 2,388 Under APRA Prudential Standard 220, the company is required to hold a general reserve for credit losses. The current reserve has been assessed and meets the requirements of Auswide Bank’s impairment policy. Total reserves 13,978 13,358 14,167 13,572 22 NON-CONTROLLING INTEREST Reconciliation of non-controlling interest in controlled entities: Non-controlling interests arising on the acquisition of MoneyPlace Share of operating profit/(loss) for the year Balance at end of year Consolidated 2017 $’000 1,431 (140) 1,291 2016 $’000 – – – 74 / ANNUAL REPORT NOTE 23 CASH FLOW STATEMENT Reconciliation of profit from ordinary activities after tax to the net cash flows from operations: Profit after tax from continuing operations Depreciation and amortisation Bad debts expense (Profit)/loss on disposal of non-current assets 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 Net cash generated from operating activities Consolidated Company 2017 $’000 15,149 2,790 979 28 173 (658) 185 (1,396) 738 1,633 (81) (39) (255) 19,246 2016 $’000 11,699 2,136 (568) 56 (757) (2,759) 462 10,807 647 (155) 234 (4,281) (85) 17,436 2017 $’000 15,203 2,603 979 28 173 2,352 185 (2,475) (630) 1,633 (163) (121) (255) 2016 $’000 11,679 2,124 (568) 56 (757) (2,107) 262 12,383 817 (155) 234 175 (85) 19,512 24,058 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 Capital expenditure contracted for within one year 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 2017 $’000 1,463 2016 $’000 1,288 2017 $’000 1,463 Consolidated Company 2017 $’000 2,166 1,669 1,813 74 5,722 2016 $’000 2,449 1,853 2,867 163 7,332 2017 $’000 2,166 1,669 1,813 74 5,722 2016 $’000 1,288 2016 $’000 2,449 1,853 2,867 163 7,332 Non-cancellable operating leases relate to leases of branches across Queensland and other states of Australia. AUSWIDE BANK – 30 JUNE 2017 / 75 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 25 CONTINGENT LIABILITIES AND CREDIT COMMITMENTS Approved but undrawn loans Approved but undrawn credit limits Bank guarantees 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 Consolidated Company 2017 $’000 55,264 88,364 550 144,178 2016 $’000 53,951 93,706 191 147,848 2017 $’000 55,264 88,364 550 144,178 2016 $’000 53,951 93,706 191 147,848 2017 Cents per share 2016 Cents per share 37.35 – 37.35 37.35 – 37.35 30.28 0.92 31.20 30.28 0.92 31.20 2016 $’000 11,699 11,699 (345) 11,354 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 Profit for the year from discontinued operations used in the calculation of basic earnings per share from discontinued operations Earnings used in the calculation of basic earnings per share from continuing operations 2017 $’000 15,149 15,149 – 15,149 Weighted average number of ordinary shares for the purposes of basic earnings per share 40,567,981 37,491,046 2017 Shares No. 2016 Shares No. 76 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 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 Profit for the year from discontinued operations used in the calculation of diluted earnings per share from discontinued operations Earnings used in the calculation of diluted earnings per share from continuing operations 2017 $’000 15,149 15,149 – 15,149 2016 $’000 11,699 11,699 (345) 11,354 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 for the purposes of basic earnings per share 40,567,981 37,491,046 Shares deemed to be issued for no consideration – – Weighted average number of ordinary shares used in the calculation of diluted earnings per share 40,567,981 37,491,046 2017 Shares No. 2016 Shares No. 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 SM Caville Chief Information Officer D Hearne GM Job Chief Customer Officer Chief People Officer CA Lonergan Chief Risk Officer MS Rasmussen Chief Operating Officer 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 – 30 JUNE 2017 / 77 Notes to the consolidated financial statements (continued) 30 JUNE 2017 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 2017 $’000 2,361 98 173 25 41 2016 $’000 2,038 93 152 38 36 2017 $’000 2,361 98 173 25 41 2,698 2,357 2,698 2016 $’000 2,038 93 152 38 36 2,357 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 $126,363 (2016: $90,697) 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. 78 / ANNUAL REPORT NOTE 28 REMUNERATION OF AUDITORS 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 Tax advisory services Other assurance 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 Total auditors' remuneration Consolidated Company 2017 $’000 2016 $’000 2017 $’000 2016 $’000 417 77 102 596 – – 596 325 61 52 438 11 11 449 417 77 102 596 – – 596 325 61 52 438 – – 438 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. 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 AUSWIDE BANK – 30 JUNE 2017 / 79 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 32 FINANCIAL INSTRUMENTS (CONTINUED) (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: The Board Risk Committee; • assists the Board in the effective discharge of its responsibilities to set and oversee the risk profile and the risk management framework of Auswide Bank; • ensures management have appropriate risk systems and practices to effectively operate within the Board approved risk profile for Auswide Bank; and • deals with, and where applicable resolve, determine and recommend, all matters falling within the scope of its purpose and duties as set out in the Charter and other matters that may be delegated by the Board to the Committee from time to time. The Board Audit Committee; • overviews the management of the financial reporting and disclosure practices; • overviews the internal audit functions; • reviews compliance with APRA reporting and other statutory requirements; • oversight of financial accounts; • addresses changes in the adoption of accounting principles and the application thereof in interim and annual reports; • • reviews reports from the External Auditors; and reviews reports from the Internal Auditor, the Internal Audit program and any Management responses to issues raised. The Asset and Liability Management Committee (ALCO); • reviews the balance sheet and recommends changes with regard to capital management, funding and securitisation activities (including product related issues); and • reviews measures of liquidity and capital adequacy position against the policy and guidelines established in the Board policy. 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 targets. The Board’s target is for the capital adequacy ratio to be maintained above 13.5%. During the 2017 and 2016 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 the 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 2017 and 30 June 2016 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. 80 / ANNUAL REPORT 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. 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 (b) Market risk management Consolidated Company 2017 $’000 2016 $’000 2017 $’000 2016 $’000 1,289,918 1,262,861 1,283,508 1,261,387 186,007 14.42% 180,695 14.31% 184,532 14.38% 178,541 14.15% 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 Visual Risk Report. The ALCO’s functions and roles include: (i) review measures of profitability, particularly net interest and fee income including strategies and directives; (ii) review management interest rate view as well as asset and liability repricing data; (iii) receive and review reports from management concerning the organisation’s credit risk; (iv) receive and review management reports on interest rate risk against guidelines and limits established in Board policy; (v) consider and approve pricing on interest bearing assets and liabilities as well as fee revenue attached to these products in co-operation with the Product Pricing sub-committee; (vi) oversee lending and depositing activities, including the provision of discretion pursuant to Board policies; (vii) receive and review reports from management regarding significant asset and liability exposure; (viii) oversee securitisation activities for the organisation, including recommendations for future securitisation transactions; (ix) review and maintain liquidity and capital management plans, including contingency measures; (x) make recommendations to the Board on changes to the following policies; • Lending; • Term Deposits; • Finance related policies (including capital and liquidity). 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 $7.547m or increase by $6.781 (2016: decrease by $10.955m or increase by $10.453). 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 Visual Risk Report which calculates risk associated with movements in interest rates through the input of parameters for all financial assets and liabilities. The parameters used were consistent with those adopted for the prior period. AUSWIDE BANK – 30 JUNE 2017 / 81 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 32 FINANCIAL INSTRUMENTS (CONTINUED) (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 6% 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 2017 $’000 168,647 143,326 311,973 2016 $’000 52,688 8,657 61,345 311,973 61,345 The maturity analysis for the respective groups of financial assets and liabilities have been included in the notes to the financial statements. 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. (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, property insurance, mortgage protection insurance and consumer credit insurance. Credit risk in the loan portfolio is managed by generally 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 23 branches and agencies across Queensland, and a business centre in Brisbane city. The company also employs Business Development Managers in Sydney and Melbourne to conduct interstate business. All regional loan staff and panel valuers are locally based ensuring an in depth knowledge of the local economy and developments in the real estate market. The Board of Directors and management receive reports on a monthly basis to monitor and supervise the past due loans in the portfolio and ensure credit procedures are adhered to on a timely and accurate basis. The economic entity’s maximum exposure to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of those assets as indicated in the balance sheet. The maximum credit risk exposure does not take into account the value of any security held or the value of any mortgage or other insurance to cover the risk exposure. 82 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 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 2017 $’000 6,418 2,867 4,676 2,234 278 3,676 20,149 2016 $’000 4,401 6,714 8,223 2,266 553 4,406 26,563 2017 $’000 6,418 2,867 4,676 2,234 278 3,676 20,149 2016 $’000 4,401 6,714 8,223 2,266 553 4,406 26,563 As at 30 June 2017 there were 14 loans totalling $3.208m (30 June 2016: 13 loans totalling $4.023m) on which interest was not being accrued due to impairment. Concentration of credit risk The company minimises concentrations of credit risk in relation to loans receivable by undertaking transactions with a large number of customers principally within the states of Queensland, New South Wales and Victoria. The concentration of the loans and advances throughout Australia are as follows: Queensland New South Wales Victoria South Australia Western Australia Tasmania Northern Territory 2017 % 78.9 9.9 7.7 0.9 1.8 0.1 0.7 2016 % 81.1 9.0 6.9 0.8 1.6 0.1 0.5 100.0 100.0 AUSWIDE BANK – 30 JUNE 2017 / 83 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 32 FINANCIAL INSTRUMENTS (CONTINUED) (e) Terms, conditions and accounting policies The economic entity’s accounting policies, including the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the balance date, are as follows: Recognised financial instruments Notes to accounts Accounting policies Terms and conditions FINANCIAL ASSETS Short term deposits 6, 7 Accrued receivables Bills of exchange and promissory notes Certificates of deposit Notes RMBS investments 8 9 9 9 9 Loans and advances 10 FINANCIAL LIABILITIES Deposits Payables and other liabilities 16 17 Dividends payable 5 Short term deposits are stated at amortised cost. Interest is recognised when earned. Short term deposits have an effective interest rate of 1.17% (2016 – 1.72% ). Amounts receivable are recorded at their recoverable amount. Bills of exchange and promissory notes are stated at amortised cost. Bills of exchange and promissory notes have an effective interest rate of 0% (not applicable for 2017) (2016 – 0%). Certificates of deposit are carried at amortised cost. Interest revenue is recognised when earned. Certificates of deposit have an effective interest rate of 2.07% (2016 – 3.47%). Notes are carried at amortised cost. These notes are an overcover required as part of the securitisation of loans. They have an effective interest rate of 3.41% (2016 – 3.71%). RMBS investments are recorded at fair value through the Available for Sale Reserve. 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. Deposits are recorded at the principal amount. Interest is brought to account on an accrual basis. Details of maturity of the deposits are set out in Note 16. Interest is calculated on the daily balance. Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the economic entity. Dividends payable are recognised when declared by the company. Trade creditors are normally settled on 30 day terms. Details of the final dividend declared by the company for the financial year ended 30 June 2017 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. Subordinated capital notes 19 The subordinated capital notes are inscribed debenture stock. 84 / ANNUAL REPORT (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 WB Trust 2008-1 WB Trust 2009-1 WB Trust 2010-1 WB Trust 2014-1 ABA Trust 2017-1 2017 $’000 2016 $’000 48 864 77 43 269 43 39 755 110 52 268 – Auswide Bank enters into interest rate swaps from time to time and has International Swaps and Derivatives (ISDAs) in place with the ANZ and Wesptac Banks. Auswide Bank currently has three interest rate swaps, two with ANZ and one with Westpac Bank. 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: AUSWIDE BANK – 30 JUNE 2017 / 85 Notes to the consolidated financial statements (continued) 30 JUNE 2017 e g a r e v a d e t h g e W i t n u o m a g n y r r a c i l a t o T e t a r t s e r e t n i e v i t c e ff e t e e h s e c n a a b r e p l g n i r a e b t s e r e t n i n o N s r a e y 5 o t 1 m o r F s s e l r o r a e Y 1 e t a r t s e r e t n i l e b a i r a V % 6 1 0 2 % 7 1 0 2 6 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ 6 1 0 2 0 0 0 $ ’ 7 1 0 2 0 0 0 $ ’ s t n e m u r t s n i l : n i 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 i a c n a n F i ) D E U N T N O C I ( S T N E M U R T S N I I L A C N A N F I 2 3 E T O N ) d e u n i t n o c ( k s i r e t a r t s e r e t n I ) g ( 86 / ANNUAL REPORT s t e s s a l i a c n a n F i 2 4 2 . 5 6 . 1 , 2 0 9 3 8 1 , 2 , 8 2 6 9 9 9 2 , 9 6 . 1 4 9 . 1 – 6 3 3 . 5 7 . 4 – 1 1 . 1 2 9 7 , 7 6 5 6 0 0 2 1 , 7 4 6 0 6 . 1 4 1 0 2 2 , 3 6 7 , 1 1 5 9 4 4 5 5 9 – – 0 2 2 . 6 2 4 . 6 6 7 , 2 1 6 7 6 6 , 6 6 7 , 2 1 6 7 6 6 , 5 4 0 5 2 2 , 8 4 9 , 1 9 2 9 5 4 , 1 7 6 2 , 4 3 5 , 7 7 7 , 2 – – 2 5 5 9 6 0 , 1 2 5 5 , 5 5 0 9 0 2 3 , 0 6 0 4 1 , – – 9 6 0 , 1 4 8 3 8 , – – – – – – – – – – – – 5 4 1 , 7 6 0 2 5 9 1 1 , i l s t n e a v u q e h s a c d n a h s a C 9 1 9 , 1 2 8 6 6 , 1 1 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 3 1 4 3 , 2 4 0 4 1 , , 7 9 2 2 0 2 , 0 1 9 4 5 2 5 3 3 9 1 , 6 9 9 2 2 , s t e s s a l i a c n a n F i , 3 2 2 5 4 3 5 3 0 8 7 5 , , 3 3 2 4 6 2 1 5 5 , 1 6 1 , 3 0 0 2 6 0 2 , 8 4 9 , 7 3 0 2 , – – – – – – 6 3 6 8 4 3 , , 7 7 0 2 9 5 0 3 5 6 6 4 , , 1 6 4 6 1 4 , 2 0 4 0 7 1 , 2 2 3 1 , 2 9 1 , 2 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 0 5 6 . 4 3 6 . 0 0 0 8 2 , 0 0 0 8 2 , – – – – 9 7 8 2 , 0 4 8 2 , 9 7 8 2 , 0 4 8 2 , – – – – – – 0 0 0 8 2 , 0 0 0 8 2 , – – – – – – 5 5 3 5 2 , 7 3 6 8 1 , 5 5 3 5 2 , 7 3 6 8 1 , – – – – – – 2 3 3 . 4 8 2 . 1 2 8 3 1 6 , 0 2 0 8 0 7 , – – 2 2 3 9 7 , 7 4 3 , 7 4 1 3 1 7 , 0 6 1 8 1 , 1 4 6 8 7 , 3 7 4 2 9 4 9 1 5 , s e i t i l i b a i l r e h t o d n a s e b a y a P l s e t o n l a t i p a c d e t a n d r o b u S i s n a o l d e s i t i r u c e S s n o i s i v o r P , 7 5 9 3 5 8 2 , 1 0 1 , 2 6 0 3 , 4 3 2 8 2 , 7 7 4 , 1 2 0 9 9 , 1 0 1 8 5 5 2 7 1 , 3 2 1 , 4 7 5 , 1 , 1 7 4 2 2 6 , 1 , 9 0 6 9 4 1 , 1 , 5 9 5 5 4 2 , 1 s e i t i l i b a i l l i a c n a n fi l a t o T , 4 0 6 4 0 3 2 , – – 8 6 6 2 2 , 1 1 2 5 2 , , 0 1 4 5 8 4 , 1 , 0 9 2 3 5 5 , 1 3 2 8 5 7 6 , 3 0 1 , 6 2 7 i s g n w o r r o b m r e t t r o h s d n a s t i s o p e D (h) 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 Carrying amount approximates fair value due to short term to maturity. Estimated using discounted cash flow analysis based on current lending rates for similar types of investments. Fair value approximates carrying value due to short term nature. Fair value is quoted market price (if available) adjusted for any realisation costs. Total carrying amount per balance sheet Aggregate net fair value 2017 $’000 2016 $’000 2017 $’000 2016 $’000 120,065 67,792 120,065 67,792 11,763 22,014 11,763 22,014 6,676 12,766 6,676 12,766 291,948 225,045 293,261 226,490 Estimated using discounted cash flow analysis based on current lending rates for similar types of loans. 2,777,534 2,671,459 2,788,979 2,678,922 Carrying amount considered to be a reasonable estimate of net fair value. 1,069 552 1,069 552 3,209,055 2,999,628 3,221,813 3,008,536 Financial assets Cash and cash equivalents Due from other financial institutions Accrued receivables Financial assets Loans and advances Other investments Total financial assets Financial liabilities Deposits and short term borrowings Estimated using discounted cash flow analysis based on current lending rates for similar types of deposits. 2,304,604 2,183,902 2,298,306 2,177,906 Payables and other liabilities Securitised loans 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 liabilities. Estimated using discounted cash flow analysis based on current lending rates for similar types of loans. 18,637 25,355 18,637 25,355 708,020 613,821 710,937 615,536 Provisions Carrying amount approximates fair value. 2,840 2,879 2,841 2,879 Subordinated capital notes Carrying amount approximates fair value. Total financial liabilities 28,000 28,000 28,000 28,000 3,062,101 2,853,957 3,058,721 2,849,676 AUSWIDE BANK – 30 JUNE 2017 / 87 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 32 FINANCIAL INSTRUMENTS (CONTINUED) (h) Financial instruments (continued) 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 Financial assets Financial assets held to maturity: Fair value FV hierarchy Valuation technique(s) and key input(s) 2017 $’000 2016 $’000 Certificates of deposit 253,440 199,924 Level 1 Quoted price Financial assets held at amortised cost: Notes – securitisation program 22,996 19,335 Level 2 Held at amortised cost Loans and advances 2,788,979 2,678,922 Level 3 Held at amortised cost Financial assets at fair value through profit or loss: Investment in floating rate notes – – Level 2 Shares in unlisted companies 1,069 512 Level 3 Financial assets available for sale: External RMBS investments 1,470 2,373 Level 2 Investment in Managed Investment Scheme (MIS) Total Financial liabilities Financial liabilities held at amortised cost: 14,042 3,413 Level 3 3,081,996 2,904,480 Mark-to-market value based on consideration, maturity and interest rates Market approach using recent observable market data including cost value or 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 Deposits and short term borrowings 2,298,306 2,177,906 Level 3 Held at amortised cost Securitised loans Total 710,937 615,536 Level 2 Held at amortised cost 3,009,243 2,793,442 88 / ANNUAL REPORT Notes to the consolidated financial statements (continued) 30 JUNE 2017 Company Financial assets Financial assets held to maturity: Fair value FV hierarchy Valuation technique(s) and key input(s) 2017 $’000 2016 $’000 Certificates of deposit 253,440 199,924 Level 1 Quoted price Financial assets held at amortised cost: Notes – securitisation program 53,382 46,476 Level 2 Held at amortised cost Loans and advances 2,788,979 2,678,922 Level 3 Held at amortised cost Financial assets at fair value through profit or loss: Shares in unlisted companies 5,153 1,771 Level 3 Financial assets available for sale: External RMBS investments 1,470 2,373 Level 2 Investment in Managed Investment Scheme (MIS) 14,042 3,413 Level 3 Market approach using recent observable market data including cost value or 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 Financial liabilities Financial liabilities held at amortised cost: 3,116,464 2,932,879 Deposits and short term borrowings 2,310,901 2,190,219 Level 3 Held at amortised cost Securitised loans Total 710,937 615,536 Level 2 Held at amortised cost 3,021,838 2,805,755 Reconciliation of Level 3 fair value measurements: Shares in unlisted companies Investments in MIS 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 2017 $’000 512 – – 557 – 1,069 2016 $’000 395 – – 118 – 512 2017 $’000 3,413 – – 12,629 (2,000) 14,042 Shares in unlisted companies Investments in MIS 2017 $’000 1,771 – – 4,640 (1,259) 5,153 2016 $’000 15,654 – – 118 (14,000) 1,771 2017 $’000 3,413 – – 12,629 (2,000) 14,042 2016 $’000 – – – 3,413 – 3,413 2016 $’000 – – – 3,413 – 3,413 AUSWIDE BANK – 30 JUNE 2017 / 89 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 33 BUSINESS COMBINATION (a) MoneyPlace Holdings Pty Ltd In December 2015 the Group announced it would be entering into a strategic relationship and equity investment with MoneyPlace Holdings (MoneyPlace). Auswide Bank Ltd acquired a 19.3% equity stake in MoneyPlace which settled on 4 January 2016. In February 2017 Auswide Bank made a follow-on investment and acquired an additional 44.0% equity stake in MoneyPlace, via a subscription agreement. This bought the total investment to 63.3%, and resulted in the Group obtaining a controlling interest in MoneyPlace Holdings. MoneyPlace commenced loan originations in January 2016 after receiving its retail and wholesale Australian Financial Service Licence and provides loans of $5,000 to $35,000 through its peer-to-peer (P2P) platform. MoneyPlace is Australia’s second fully licenced P2P lender. The strategic alliance with MoneyPlace provides a technically advanced personal loan system solution to a niche consumer finance market. The relationship provides an avenue to increase the Group’s consumer lending ambitions and provides significant opportunities for platform collaboration and value accretion. Consideration Transferred The consideration paid to obtain 44.0% of MoneyPlace Holdings Pty Ltd equalled $4.344m which was made up of cash, convertible shares and the fair value of previously held investments. The initial investment of 19.3% was independently revalued to $2.260m on acquisition date in accordance with AASB 3 ‘Business Combinations’, and the resulting gain recognised in profit or loss. As the investment in additional equity holdings gave the Group control of MoneyPlace, the initial investment must be revalued to fair value before effecting the acquisition accounting. An independent valuation was obtained and fair value movements taken to profit or loss and the updated value of the initial tranche was reflected in the consideration applied in the purchase price accounting. The estimate recognised takes into account all current information available and represents the Group’s best estimate based on following a defined process. The fair value of MoneyPlace was estimated with reference to the following valuation approaches; • triangulation of discounted cash flow analysis (DCF) and expected returns analysis (3 and 5 year scenarios); • high level multiple of cumulative loan originations (Loan Multiples) range based on those observed for comparable companies at a similar stage of operation; • values implied by historical fund raisings and indicative offers implied by recent negotiations with institutional funders. Acquisition related costs for MoneyPlace amounting to $0.188m 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. Assets acquired and liabilities assumed at the date of acquisition at fair value Current assets Cash and cash equivalents Other assets Non-current assets Intangible assets Current liabilities Payables and other liabilities Deferred income tax liabilities Provisions Net assets No contingent liabilities have been identified from the acquisition of MoneyPlace. 90 / ANNUAL REPORT 2017 $’000 4 97 5,160 (1,083) (1,345) (97) 2,736 Notes to the consolidated financial statements (continued) 30 JUNE 2017 Non-Controlling Interests The non-controlling interest (36.7% ownership interest in MoneyPlace Holdings Pty Ltd) recognised at acquisition date was measured by reference to the fair value of the non-controlling interest and amounted to $1.005m. Goodwill arising on acquisition Consideration transferred Plus: non-controlling interests (36.7% in MoneyPlace) Less: fair value of identifiable net assets acquired Goodwill arising on acquisition 2017 $’000 4,344 1,005 2,736 2,613 Upon gaining a controlling interest in MoneyPlace, an independent valuation was procured. After applying the principles of acquisition accounting, the initial equity investment was revalued to facilitate the calculation of the consideration transferred. The independent valuation identified the net assets (including intangible assets such as software and customer contracts), and it was established that the resultant difference be recognised as goodwill on consolidation. None of the goodwill arising on the acquisition of MoneyPlace is expected to be deductible for tax purposes. Net cash outflow on acquisition Consideration paid in cash Less: cash and cash equivalent balances acquired Net cash outflow on acquisition Impact of acquisition on the results of the Group 2017 $’000 1,799 4 1,795 Included in the profit (before tax) for the year is a loss of $0.430m attributable to MoneyPlace. Revenue for the year includes $0.206m in respect of MoneyPlace. The controlling interest portion of the loss is $0.270m, and revenue is $0.129m. Had this business combination been in effect at 1 July 2016, the revenue from the Group arising from continuing operations would have been $136.433m, and the profit for the year from continuing operations would have been $13.222m. 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. (b) Queensland Professional Credit Union Ltd 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 $’000 16,585 14,233 30,818 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. AUSWIDE BANK – 30 JUNE 2017 / 91 Notes to the consolidated financial statements (continued) 30 JUNE 2017 NOTE 33 BUSINESS COMBINATION (CONTINUED) (b) Queensland Professional Credit Union Ltd (continued) 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. 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 $’000 107 130,737 899 74,246 92 350 (1,593) (141,785) (36,943) 454 (52) 26,511 2016 $’000 30,818 26,512 4,306 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 92 / ANNUAL REPORT 2016 $’000 16,575 107 16,468 Notes to the consolidated financial statements (continued) 30 JUNE 2017 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 Profit for the year from discontinued operations (attributable to owners of the Company) 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 Consolidated 2017 $’000 – – – – – 2017 $’000 – – – – 2016 $’000 1,799 (1,306) 493 (148) 345 2016 $’000 (6,035) 3,953 (14,420) (16,502) AUSWIDE BANK – 30 JUNE 2017 / 93 Directors’ declaration 30 JUNE 2017 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) give a true and fair view of the financial position of the company and consolidated entity as at 30 June 2017 and of the performance for the year ended on that date; and (ii) 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 2017. The declaration is made in accordance with a resolution of the Board of Directors made pursuant to Section 295(5) of the Corporations Act 2001, and is signed for and on behalf of the Directors by: JS Humphrey Director Brisbane 18 August 2017 SC Birkensleigh Director 94 / 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 Audit of the Financial Report Opinion We have audited the financial report of Auswide Bank Ltd (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of their financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited AUSWIDE BANK – 30 JUNE 2017 / 95 Independent auditor’s report (continued) Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How the scope of our audit responded to the Key Audit Matter Loan impairment provisions Our audit procedures included, but were not limited to: As at 30 June 2017 the Group has a loan loss impairment provision of $4.3m as disclosed in Note 10. Significant judgement is required in the application of assumptions, including: – Historic loss rates; – Expected future cash flows; – Availability of Lenders Mortgage Insurance; and – The recoverability of loans • Testing the controls relevant to the approval, recording and monitoring of loans and advances to customers; • Evaluating the controls over the determination and review of both specific impairment provisions and the collective impairment models; • Testing on a sample basis, the data used in the determination of collective impairments and evaluating whether the modelling assumptions used, considered relevant risks and were reasonable; • Assessing loans specifically provided for by identifying loans that met the criteria set out by the Group’s accounting policies; • Recalculating on a sample basis the specific provision impairment calculation focusing on: – expected future cash flows from customers, – the availability of Lenders Mortgage Insurance; and – the realisation of collateral held. • Evaluating both the individual and collective impairment provisions against historic loan loss experience; and • Assessing the recoverability of collateral. We also assessed the appropriateness of the disclosures in Note 10 to the financial statements. Impairment of non current assets Our audit procedures included, but were not limited to: As at 30 June 2017 the Group’s goodwill balance of $48.9m comprises goodwill relating to the acquisitions of Mackay Permanent Building Society (MBPS), Queensland Professional Credit Union (YCU) and MoneyPlace Pty Ltd as disclosed in Note 14. The recovery of non-current assets requires significant judgement due to the high level of assumptions and estimates involved in preparing a discounted cash flow model (‘value in use’), including: • Future cash flows for the Cash Generating Unit (‘CGU’); • Discount rates; and • Terminal value growth rates. • • • • • Evaluating the appropriateness of management’s identification of the Group’s CGU and tested key controls over the impairment assessment process, including identifying indicators of impairment; Assessing the reasonableness of cash flow projections and assessed growth rates against external economic and financial data and the Group’s own historical performance; Engaging our valuation specialists to assess the key assumptions and methodology used by management in the impairment model, in particular the weighted average cost of capital, the cost of debt and the terminal growth rate; Evaluating the value in use estimate determined by the Group against its market capitalisation; and Testing the mathematical accuracy of the impairment model. We also assessed the appropriateness of the disclosures in Note 14 to the financial statements. 96 / ANNUAL REPORT Key Audit Matter How the scope of our audit responded to the Key Audit Matter Acquisition of MoneyPlace Our audit procedures included, but were not limited to: On 28 February 2017, Auswide Bank gained control of the MoneyPlace group, increasing its percentage of voting rights held from 19.3% to 63.3%. Management has assessed that the acquisition should be accounted for as a business combination achieved in stages (a step acquisition) as disclosed in Note 33. • Reading the Sale Purchase Agreement to assess the accounting treatment applied by management; • Evaluating the fair value of the initial investment as calculated by management including the assessment of the fair value applied to the convertible notes already held; As a result the company is required to judgementally remeasure its previously held interests at fair value at the date it obtained control of MoneyPlace Group with any difference between fair value and the carrying value of the existing investment recognised in the Statement of Profit or Loss. In addition, following an assessment of the existing group structure, a purchase price accounting exercise was conducted where the fair value of all acquired assets was estimated. • Assessing the independent valuations obtained for both the business acquired and the assets of that business; • Evaluating the independence, competence and objectivity of the valuer commissioned by management to value the MoneyPlace business and the assets acquired; • Assessing the group structure to determine the entities within the structure that were required to be fully consolidated; • Evaluating the purchase price allocation performed by management including the assessment of the fair values applied to the assets and liabilities acquired; • Performing sensitivity analysis on the key assumptions in both the business valuation and the purchase price allocation for reasonableness; and • Engaging our valuation specialists to assess the key assumptions and methodology used by management in determining the valuation of the original investment derecognised and the valuation of the separately identifiable assets recognised. We also assessed the appropriateness of the disclosures in Note 33 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the Group’s annual report (but does not include the financial report and our auditor’s report thereon): Chairman’s Report, Managing Director’s Report, Corporate Governance Summary and Shareholder Information, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. AUSWIDE BANK – 30 JUNE 2017 / 97 Independent auditor’s report (continued) When we read the Chairman’s Report, Managing Director’s Report, Board of Directors and Leadership Team, Corporate Governance Summary and Shareholder Information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. Responsibilities of the directors 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 preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. 98 / ANNUAL REPORT We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 26 to 35 of the Directors’ Report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Auswide Bank Ltd for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities 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. DELOITTE TOUCHE TOHMATSU David Rodgers Partner Chartered Accountants Brisbane, QLD 18 August 2017 AUSWIDE BANK – 30 JUNE 2017 / 99 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 Standards CPS 510 Governance. The Board of Directors of Auswide Bank Ltd has adopted a Corporate Governance Statement which sets out the Company’s compliance with the Australian Securities Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles and Recommendations. The Corporate Governance Statement is available under the Governance section of the Company’s website located at www.auswidebankltd.com.au. The Governance section also details other relevant corporate governance information, including the Board and Committee Charters, policies and codes of conduct. The following is a summary of Auswide Bank’s compliance with the principles outlined in ASX’s Corporate Governance Principles and Recommendations (3rd edition): PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT The Board Charter, together with the Corporate Governance Statement set out the roles and responsibilities of the Board and separate functions of management and delegated responsibilities. The Corporate Governance Statement also details checks undertaken and provision of material information to shareholders prior to recommendation and appointment of Directors. In accordance with the regulatory standards, the Board has established a Group Board Remuneration Committee which carries out a performance evaluation of the Managing Director and review of the performance evaluations of other senior executives, which is provided to the Board following a report of discussions between the Chairman of the Committee and the Managing Director. A performance evaluation of the Board, the Board Committees and each individual Director’s contribution to the Board is performed annually as outlined in the Corporate Governance Statement. Auswide Bank recognises that a gender balanced diverse and inclusive workforce with a wide array of perceptions resulting from such diversity, promotes innovation and a positive and successful business environment. Auswide Bank’s Diversity Policy is available in the Corporate Governance section of its website at www.auswidebankltd.com.au. The measurable objectives and Auswide Bank’s progress in achieving them, are outlined in the Corporate Governance Statement. Auswide Bank is in compliance with Principle 1 and full details are available in the Corporate Governance Statement, Board Charter, Remuneration Committee Charter, together with other policies and codes located in the Governance section at www.auswidebankltd.com.au. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE Auswide Bank’s Board Charter outlines the structure of the board and its composition, together with the Board Renewal policy. Details of Directors’ skills, knowledge, experience, independence and diversity are discussed in the Corporate Governance Statement and in the Directors’ Statutory Report of this Annual Report. The Board does not have a separate formal Nomination Committee, with the full Board addressing such issues that would be otherwise 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. 100 / ANNUAL REPORT Declarations have been signed by the Managing Director and Chief Financial Officer before approval by the Board of Auswide Bank’s financial statements for the financial period as detailed in the Corporate Governance Statement. Auswide Bank is in compliance with Principle 4 and full details are outlined in the Board Audit Committee Charter, Corporate Governance Statement and ‘Appointment of External Auditors and Rotation of External Partners’ statement located in the Governance section at www.auswidebankltd.com.au. The Directors’ Statutory Report also provides details relevant to this principle. PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE Auswide Bank is committed to the promotion of investor confidence by providing equal, timely, balanced and meaningful disclosure to the market. The Company’s Continuous Disclosure Policy outlines its processes for complying with its continuous disclosure obligations under the Listing Rules. Auswide Bank is in compliance with Principle 5 and full details are outlined in the Continuous Disclosure Policy and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au. PRINCIPLE 6: RESPECT THE RIGHTS OF SECURITY HOLDERS Auswide Bank believes it is important for its shareholders to make informed decisions about their investment in the company and aims to provide shareholders with access to quality information and encourage two-way communication. Auswide Bank is in compliance with Principle 6 and full details are outlined in the Governance section at www.auswidebankltd.com.au, including the Corporate Governance Statement. PRINCIPLE 7: RECOGNISE AND MANAGE RISK The Risk Committee has a documented Charter, approved by the Board. The Risk Committee has the responsibility to set and oversee the risk profile and the risk management framework of the Company, and to ensure management have appropriate risk systems and practices to effectively operate within the Board approved risk profile. The Risk Committee reviews the Group’s Risk Management Framework at least annually to satisfy itself that the framework continues to be sound. The names and qualifications of the members of the Risk Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Auswide Bank is in compliance with Principle 7 and full details are outlined in the Board Risk Committee Charter and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au, together with the Charter for Corporate Social Responsibility located in the Social Responsibility section at www.auswidebankltd.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY The Remuneration Committee has a documented Charter, approved by the Board. The Remuneration Committee’s primary function is to assist the Board in fulfilling its responsibilities to shareholders and regulators in relation to remuneration, by ensuring that Auswide Bank has clear remuneration policies and practices that fairly and responsibly reward individuals having regard to performance, the Group’s Risk Management Framework, the law and the highest standards of governance. The names and qualifications of the members of the Remuneration Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Further information in relation to the Company’s policies and practices regarding the remuneration of Non-Executive Directors, Executive Directors, and other Senior Executives can be found in the Remuneration Report section of the Directors’ Statutory Report, together with employment contract details of the Managing Director and Key Management Personnel. 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. AUSWIDE BANK – 30 JUNE 2017 / 101 Shareholder information A. REGISTERED OFFICE The registered office and principal place of business of Auswide Bank Ltd is: Level 5 Auswide Bank Head Office 16-20 Barolin Street Bundaberg QLD 4670 Australia Ph 07 4150 4000 Fax 07 4152 356 Email auswide@auswidebank.com.au Website www.auswidebank.com.au B. SECRETARY The Secretary is: William (Bill) Ray Schafer BCom CA C. AUDITOR The principal auditors are: Deloitte Touche Tohmatsu Level 25 Riverside Centre 123 Eagle Street Brisbane QLD 4000 Ph 07 3308 7000 Fax 07 3308 700 Website www.deloitte.com.au D. 2017 ANNUAL GENERAL MEETING The 2017 Annual General Meeting is to be held on Wednesday 22 November at 11.00am EST at: Auswide Bank Ltd, Level 3, 16-20 Barolin Street Bundaberg QLD 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. Key dates Annual General Meeting 22 November 2017 Full year results and final dividend announcement 18 August 2017 Ex dividend date Record date 4 September 2017 5 September 2017 Participation in DRP (final date for receipt of application) 6 September 2017 Dividend payment 22 September 2017 Half year results and interim dividend announcement 23 February 2017 Ex dividend date Record date 6 March 2017 7 March 2017 Participation in DRP (final date for receipt of application) Suspended Dividend payment 30 March 2017 102 / ANNUAL REPORT E. 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 Issued shares Ph 1300 552 270 Fax 07 3237 2152 Online Contact www-au.computershare.co/Investor/Contact Website www.computershare.com.au The Company’s securities listed on the Australian Stock Exchange (ASX) as at 15 September 2017 are: Class of security Permanent ordinary shares Distribution of Shareholdings Permanent Ordinary Shares 15 September 2017 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 15 September 2017 Name National Nominees Limited HSBC Custody Nominees (Australia) Limited JP Morgan Nominees Australia Limited Hancock, RE & LP Citicorp Nominees Pty Limited Hancock, RE 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 Cloud 7 Nominees Pty Ltd ATF Peter Sawyer Famacct No2 A/c Hancock, RE & LP ATF The Hancock Family A/c Sawfam Pty Ltd ATF Sawyer Super Fund No2 A/c Ron Hancock Super Pty Ltd ATF The Hancock Superfund A/c JW & GJ Kennedy Super Pty Ltd Hestearn Pty Ltd BNP Paribas Noms Pty Ltd ATF DRP Olsen, N Cran, D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Drenwood Pty Ltd Top 20 Permanent Shareholders ASX Code ABA Number 40,686,033 No of Shareholders 3,771 1,911 630 482 52 6,846 No. of Shares 2,861,841 1,463,985 875,560 814,738 773,707 677,241 433,570 432,719 410,046 382,577 328,486 320,000 316,362 316,300 313,654 308,543 298,866 279,520 264,074 258,985 % 7.03 3.60 2.15 2.00 1.90 1.66 1.07 1.06 1.01 0.94 0.81 0.79 0.78 0.78 0.77 0.76 0.73 0.69 0.65 0.64 12,130,774 29.82 AUSWIDE BANK – 30 JUNE 2017 / 103 Shareholder information (continued) E. SECURITIES INFORMATION (CONTINUED) Substantial Shareholders The Company’s Register of Substantial Shareholders recorded the following substantial shareholders interests: Permanent Ordinary Shares 15 September 2017 Name National Nominees Ltd Hancock, RE (associated entities + associates) On-Market Buyback There is no on-market buy back. Dividend Reinvestment Plan No. of Shares % of Total 2,861,841 2,348,779 7.03 5.77 The Directors resolved to maintain the Dividend Reinvestment Plan (DRP). The DRP allows shareholders to reinvest all or part of their dividends in additional Auswide Bank Ltd shares. Auswide Bank has entered into an agreement to underwrite Auswide Bank’s Dividend Reinvestment Plan in respect of the 2017 Final Dividend. The Terms and Conditions of the Plan and past DRP discounts and share issue process are available 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 Shareholder Information. 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. 104 / ANNUAL REPORT 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 ASX Bad Debt Basel Basis Point 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. Australian Securities Exchange Limited (ABN 98 008 624 691). 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. 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. 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) Net Profit After Tax (NPAT) 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. 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 Securitisation SSP Subordinated Capital Notes Tier 1 Capital Tier 2 Capital Underlying Cash NPAT Residential mortgage-backed securities are a type of bond backed by residential mortgages on residential, rather than commercial, real estate. 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. Special Service Provider such as an authorised settlement clearing house. 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. Describes the capital adequacy of an ADI. Tier 1 Capital is core capital and includes equity capital and disclosed reserves. 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. 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 – 30 JUNE 2017 / 105 A U S W I D E B A N K / 2 0 1 6 - 1 7 A n n u a l R e p o r t 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)
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