Auswide Bank Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 Contents 2 Auswide Bank – what we do 32 Directors’ statutory report 4 Chairman and Managing Directors’ report 46 Auditor’s independence declaration 8 Performance highlights 10 Achievements 12 3 year strategic direction 47 (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:812)(cid:87)(cid:3)(cid:82)(cid:85) loss and other comprehensive income 48 Consolidated statement of 14 Queensland Rugby League partnership 49 16 Customer experience 18 Supporting our community 20 Our people 22 Our technology 24 Managing risk 26 Board of directors 28 Leadership team 50 Consolidated statement of changes in equity 54 Notes to the consolidated 114 Directors’ declaration 115 Independent auditor’s report 120 Corporate governance summary 122 Shareholder information 126 Financial glossary For over 50 years, Auswide Bank has been providing an extensive range of personal and business banking products and services to our valued customers. Auswide Bank isn’t a big bank and we don’t want to be like one. We believe it’s the small things that reveal who each of us are. Small is real. Small is sincere. It’s the smile on a familiar face and knowing how hard you’ve worked to get ahead. Small is ﬁ nding your voice and meaning what you say. At Auswide Bank, we’re here to help our customers ﬁ nd that voice, to tell their story and at last be heard. We want our customers to discover a whole new way to engage with a bank. EMPOWER Empowering customers and (cid:86)(cid:87)(cid:68)(cid:811)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3) change ETHICAL A commitment to be ethical and operate in a sustainable workplace WOW Exceed our customers’ expectations and celebrate their successes and our own REAL Build open and honest relationships and deliver on our promises MAKE IT HAPPEN Make decisions and adapt quickly to meet our customers’ needs P|2 AUSWIDE BANK ANNUAL REPORT 2019 OWN IT Own our actions, decisions, customers and outcomes PURPOSE Identify your purpose and be passionate about it Our Mission is to demonstrate the ‘power of small’ by placing our customers at the centre of everything we do. Our Vision is to be the Bank that our customers and partners want their friends, family and colleagues to bank with. At Auswide Bank we are very conscious of our impact on the environment and are increasingly aware of our community’s changing attitudes, expectations and our need to set an example to other businesses. As a responsible corporate citizen, we have a responsibility to our customers, our community and to the world to reduce our own environmental impact and be transparent about our environmental approaches and performance. We also understand that any increase in natural disasters and negative environmental impacts from climate change, will impact the well-being and livelihood of our customers. For shareholders there is the additional risk that our loans portfolio will be at heightened risk if major natural disasters occur damaging security properties or our customers place of work, impacting on their ability to meet loan repayments. Increased likelihood of disasters such as ﬂ ood or ﬁ re in vulnerable locations also means the additional cost of risk measures such as insurance for the bank and our customers as well as reducing opportunity for consumers as we seek to manage these risks. We have a range of policies that assist in mitigating risk in high disaster prone areas. Ways in which Auswide Bank is proactively reducing waste and reducing our envrionmental footprint include; • Implementing ways to recycle paper generated internally e.g. document shredding and secure document destruction • Promoting electronic options as an alternative to paper for customers, shareholders, suppliers and partners • Utilising energy eﬃ cient LED lighting at all new and refurbished branches. • Switching oﬀ air-conditioning, lighting and electrical appliances when not in use. • Recycling of obsolete items including phone handsets, mobile phones, batteries and computer equipment. • Recycling of printer, fax and photocopier cartridges through Cartridges 4 Planet Arc. • Encouraging our people to act responsibly and ethically in the workplace in line with our corporate values. • Not ﬁ nancing companies engaged principally in the exploration, mining, manufacture or export of thermal coal or coal seam gas. We do not intentionally invest directly in companies specialising in these areas Case study: In the 2018-2019, we introduced eStatements via our Internet Banking platform to reduce customer’s reliance on paper statements. This initiative was supported with extensive marketing focus urging customers to switch across and has already resulted in over 5000 customers making the switch, in turn eliminating tens of thousands of paper statements across thousands of accounts. AUSWIDE BANK ANNUAL REPORT 2019 P|3 In the 2018/19 ﬁ nancial year, we successfully delivered on our commitment to grow the loan book responsibly and shift our funding mix to customer deposits. Underlying NPAT for the consolidated group was $17.201 million representing a 0.5 per cent increase on underlying NPAT of $17.108 million in the prior year. The underlying NPAT for the 2018/19 ﬁ nancial year was the same as the statutory NPAT as there were no adjustments for one-oﬀ or non- recurring items. Auswide reports statutory net proﬁ t after tax (NPAT) of $17.201 million for the 2018/19 ﬁ nancial year. This was a 3.8 per cent decline on the previous year which reﬂ ected the sale of a controlling equity stake in MoneyPlace in January 2018. The sale had a one-oﬀ positive impact on the 2017/18 ﬁ nancial results with a NPAT contribution of $1.227 million. The Board declared a fully franked ﬁ nal dividend of 18.5 cents per share, payable on 20 September 2019, which was a 0.5 cents per share increase on the previous year. Total dividends of 34.5 cents per share represented a payout ratio of 84.6 per cent and a dividend yield of 6.7 per cent. Given Auswide’s capital strength, the Board has maintained the suspension of the Dividend Reinvestment Plan for the ﬁ nal dividend. Once again, total dividends were higher than the previous year highlighting ongoing improvement in dividend returns to shareholders. Net Interest Revenue increased by 3.5 per cent to $63.185 million compared to $61.020 million in the previous ﬁ nancial year due to loan book growth and the optimisation of the funding mix. Net Interest Margin for the 2018/19 ﬁ nancial year was 1.87 per cent compared to 1.93 per cent in the previous year. This was a credible performance with our net interest margin impacted by historically low interest rates, competitive housing ﬁ nance markets and elevated Bank Bill Swap Rates which increased wholesale funding costs for much of the year. Despite these challenges, our net interest margin stabilised through the second half, to exit the 2018/19 ﬁ nancial year at 1.94 per cent due to material improvements in our funding mix and a reduction in Bank Bill Swap Rates. The Bank’s underlying cost to income ratio was 64.5 per cent compared to 63.3 per cent in the prior year reﬂ ecting investment in customer service and technology. As part of this, the roll out of APPLY online origination remains on track, and our ongoing investment in data analytics and business intelligence is showing some good results. Loan book growth accelerated in the June half due to competitive pricing, broker relationships, reputational damage of the big banks and ongoing investment in customer service and technology. Despite a highly competitive lending market, this increase was almost twice system growth of 3.3 per Martin Barrett Managing Director P|4 AUSWIDE BANK ANNUAL REPORT 2019 Our investment in IT, product innovation and customer service were integral to realising the growth we achieved. The Bank has retained a strong capital position with a capital adequacy ratio of 13.79 per cent and a Tier 1 capital ratio of 11.76 per cent at 30 June 2019. We continue to meet APRA’s “unquestionably strong” capital requirements with a capital position that provides signiﬁ cant headroom for growth and is one of the best in the Australian banking sector. In the 2018/19 ﬁ nancial year, we also undertook our largest ever brand awareness campaign through our partnership with the Queensland Rugby League (QRL). As the oﬃ cial bank of the Queensland Maroons, Auswide had front of jersey rights during the 2019 State of Origin series which attracted more than nine million viewers nationwide. Given the Auswide brand is only four years old, our objective is to raise brand awareness across Queensland and NSW. Post the series, initial studies show an increase in brand awareness while we have received positive feedback from customers and our broker network and a signiﬁ cant increase in traﬃ c to our website. ....our objective is to raise brand awareness across Queensland and NSW. cent. Loan book growth accelerated in the June half due to competitive pricing, broker relationships and ongoing investment in customer service and technology. The housing and consumer portfolios recorded strong growth. Home loan settlements rose 13.3 per cent to $616.036 million and consumer lending increased to $62.312 million at 30 June 2019 from $43.524 million a year earlier. From a geographic perspective, South East Queensland delivered the largest contribution to loan book growth and now represents 39.3 per cent of the total loan book. The diversiﬁ cation of our loan book continued with 24.0 per cent of the lending portfolio now outside Queensland, with New South Wales experiencing an increase from 10.7 per cent to 11.5 per cent of the book across the year. A strategic priority for the 2018/19 ﬁ nancial year was to optimise our funding mix by growing customer deposits and reducing our reliance on securitisation. Despite an extremely competitive market, customer deposits increased by 12.6 per cent to $2.373 billion dollars highlighting the positive reception our term and at call deposit products received in the marketplace. At call deposits grew by 17.0 per cent during the ﬁ nancial year to $880.811 million. Since the 2015/16 ﬁ nancial year, deposits have grown from 66.8 per cent to 71.4 per cent of our funding while our reliance on securitisation has declined from 22.0 per cent to 14.8 per cent. Going forward, the change in our funding mix will enable us to better control our net interest margin. Our commitment to lending discipline and responsible loan book growth is highlighted by our arrears which are at historical lows, representing 0.46 per cent of the total loan book at 30 June 2019. The majority of our home loan book is mature and remains well secured with home loan arrears signiﬁ cantly below our peers. The sound credit quality of Auswide’s home lending portfolio is further shown by our conservative loan to valuation ratio with 73.8 per cent of the loan book having a loan to valuation ratio of 80.0 per cent or less. We continue to manage risk well with prudent loan underwriting standards and sound controls that enable us to grow the loan book while maintaining a solid arrears position. The implementation of the new AASB 9 accounting standard in July 2018 further strengthens the provisions set aside for bad and doubtful debts. The Board is satisﬁ ed that existing provisions cover the risks relating to current and future doubtful debts. AUSWIDE BANK ANNUAL REPORT 2019 P|5 We will continue to build the Auswide brand through consistent messaging and enhanced customer service... government investment occurring in Rockhampton, Mackay, Bundaberg and Townsville. Our three-year strategy which targets a cost to income ratio of 60 per cent, a return on net tangible assets of 10 per cent in the short to medium term, above system loan growth across home, personal and business lending and a stable net interest margin provides a roadmap for the business. Growth opportunities will also come from the ongoing reputation challenges, regulatory capital increases, remediation and greater regulatory focus on the big four banks. Going forward, we will continue to focus on disciplined cost management, expanding our digital footprint and enhancing our value proposition to our customers and our brokers. We would like to thank the Auswide team for their hard work and dedication and the Board for its ongoing support and counsel. Most importantly, we would like to thank our customers and shareholders for continuing to believe in the ‘power of small’. John Humphrey Chairman Martin Barrett Managing Director We have a number of priorities for the 2019/20 ﬁ nancial year. It will mark the ﬁ rst year of a three-year strategic plan which broadly focuses on building brand awareness and partnerships and improving technology and eﬃ ciency across the business. We will continue to build the Auswide brand through consistent messaging and enhanced customer service. Our partnership with the QRL is an important part of this journey as we leverage its membership base to drive loan ﬂ ows and new Customer Hub acquisition. At the same time, we will develop partnerships that support retail and business banking growth across our platforms and through member and community- based organisations to drive low cost growth. Improving the customer experience remains a priority as investment in technology and our Customer Hub will enable us to maximise the service we provide to our growing South-East Queensland and interstate customer base. A better customer experience and more eﬃ cient digital capabilities will also help us lower our cost to income ratio and increase our return on net tangible assets. We are focused on automating our processes and simplifying our products to provide faster turnaround times, allowing us to maximise returns and capitalise on the opportunities ahead. This also means strengthening the Bank through enhancing staﬀ capabilities, cyber risk resilience, which is critical today, and our ability to detect fraud while reducing errors and further developing our risk audit processes. The regulatory environment continues to evolve with APRA progressing changes to the capital framework to ensure ADIs remain on track to meet the “unquestionably strong” capital ratio benchmarks. Auswide’s capital ratio of 13.79 per cent means we are already well ahead of the new benchmarks. From a responsible lending perspective, we continue to operate prudently, continually reviewing our lending practises to ensure that we meet regulatory, and our own requirements. Recent industry events have highlighted the importance of not just having a healthy balance sheet, but strong governance, a sound culture and appropriate internal controls and clear accountabilities. We believe the culture of Auswide Bank remains sound and we have been focusing on ensuring that we meet all our governance and regulatory compliance requirements. Finally, the so-called “uneven playing ﬁ eld” between the big banks and the rest is levelling as APRA implements a range of capital and other programs of work. Economic activity continues to improve in regional Queensland. There has been greater certainty since the Federal Election with several large projects and signiﬁ cant P|6 AUSWIDE BANK ANNUAL REPORT 2019 John Humphrey Chairman AUSWIDE BANK ANNUAL REPORT 2019 P|7 Improving the customer experience remains a priority as investment in technology and our Customer Hub will enable us to maximise the service we provide to our growing South- East Queensland and interstate customer base. $2.373b CUSTOMER DEPOSITS 12.6%, 71.4% SELF FUNDING $3.131b LOAN BOOK 6.3%, 1.9 x SYSTEM 13.79% CAPITAL ADEQUACY RATIO STRONG CAPITAL SUPPORTS GROWTH $63.185m NET INTEREST REVENUE 3.5% $17.201m UNDERLYING NPAT 0.5% 34.5c TOTAL DIVIDEND 0.5c, YIELD 6.73% Performance highlights P|8 AUSWIDE BANK ANNUAL REPORT 2019 RESPONSIBLE LENDING GROWTH Strong loan book growth 1.9 X system growth Sound credit quality Arrears at historic lows, 74% loan book LVR 80% or less Capital strength “Unquestionably strong” capital supports loan book growth OPTIMISE FUNDING MIX Improved funding mix 12.6% growth in customer deposits, reduced reliance on securitisation Stabilised NIM in 2H Despite challenging conditions due to better funding mix, deposit growth CUSTOMER FOCUSED APPLY online origination Rollout continues Customer-driven tech Ongoing investment in data analytics, BI capabilities QRL sponsorship 31.23% increase in Auswide brand awareness across Queensland post State of Origin Strong market share growth in challenging year AUSWIDE BANK ANNUAL REPORT 2019 P|9 Net Interest Income rose by 3.5% to $63m due to loan book growth and strategic focus on building customer deposits while reducing reliance on securitisation. JUNE 16 $54m JUNE 17 $58m JUNE 18 $61m JUNE 19 $63m NET INTEREST INCOME Net Interest Margin stabilised in the second half of the year following volatile BBSW levels in the ﬁ rst half. JUNE 16 1.96% JUNE 17 1.90% JUNE 18 1.93% JUNE 19 1.87% NET INTEREST MARGIN 18.0 18.5 16.0 17.0 Further improvement and growth in dividend returns to shareholders (total dividend 34.5 cents per share fully franked). 14.0 14.0 16.0 16.0 JUNE 16 JUNE 17 JUNE 18 JUNE 19 1H 2H DIVIDEND P|10 AUSWIDE BANK ANNUAL REPORT 2019 27m $ 0m $15.5m $10.8m $10.5m $11.5m $6.7m $4.4m $0.8m $6.1m $2.9m $1.1m $6.4m $6.5m $9.4m $5.3m $6.4m $2.3m $3.2m $4.7m $5.0m $4.6m JUN 16 DEC 16 JUN 17 DEC 17 JUN 18 DEC 18 JUN 19 30-60 days past due 60-90 days past due Over 90 days past due LOAN BOOK ARREARS Arrears remain at historic lows at 0.46% of total loan book. $62m $122m $2,947m $44m $120m $2,781m $29m $108m $2,651m $14m $96m $2,558m 8.90% 9.20% 9.50% 9.10% 5.91% 6.03% 6.04% 6.73% JUNE 16 JUNE 17 JUNE 18 JUNE 19 Dividend Yield RONTA RONTA (UNDERLYING) + DIVIDEND YIELD Return on Net Tangible Assets 9.10% and Dividend Yield 6.73%. JUNE 16 $2,668m $2,788m $2,945m $3,131m JUNE 19 JUNE 18 JUNE 17 Housing loans Business Consumer loans LOANS AND ADVANCES BALANCES Strong loan book growth of 6.3% during the year, well ahead of system growth of 3.3%*. *RBA Financial Aggregates – Total Credit Growth AUSWIDE BANK ANNUAL REPORT 2019 P|11 Auswide Bank’s 2019-2022 Strategic Plan is imperative in determining our strategic direction, resource allocation and prioritisation of initiatives. We have delved into the biggest challenges we have as an organisation and collaboratively identiﬁ ed actions which will take us from where we are, to where we need and want to be. The achievement of these strategic imperatives will be delivered through a number of clearly identiﬁ ed goals. BRAND AWARENESS • Building the Auswide Brand through consistent messaging and enhanced customer service • Leveraging QRL membership base and driving new customer acquisition • Meeting 3 year target of >60% brand awareness • Increasing broker ﬂ ows • Diﬀ erentiating Auswide Bank from the big 4 through community engagement and activities PARTNERSHIPS • Building partnerships that support retail and business banking growth across platforms and via member and community-based organisations • Leveraging partner’s technology and customer base to deliver low cost growth P|12 AUSWIDE BANK ANNUAL REPORT 2019 DIGITAL AND CUSTOMER HUB • Improving the customer experience through capable digital implementation • Supporting customer transition from branch to digital channel, lowering CTI • Driving higher product conversion rates, increasing RONTA • Enhancing the Customer Hub to maximize our service levels and opportunities with our growing customer base • Improve our customer retention capability and early intervention EFFICIENCY • Improving eﬃ ciencies by automating processes and simplifying products in key focus areas of back oﬃ ce processing, ﬁ nance and credit decisioning (to drive down CTI) • Improving broker service proposition via faster turnaround times and consistency STRENGTH • Strengthening the bank through enhancing staﬀ capabilities, reducing errors and further developing risk audit processes • Enhancing cyber risk resilience and fraud detection capability • Maintaining strength of funding and capital • Fostering the right culture that continues to balance our stakeholder demands NON-ORGANIC GROWTH • Reviewing M&A, Fintech and other partnering opportunities to drive scale • Considering opportunities where the partner can leverage our assets and we can leverage their technology to grow our customer base and eﬃ ciently improve proﬁ tability st rat egic direction AUSWIDE BANK ANNUAL REPORT 2019 P|13 ...Auswide Bank has been on a journey to improve brand awareness and consideration... Since converting to a bank and re-branding in April 2015, Auswide Bank has been on a journey to improve brand awareness and consideration. We believe investment in our brand is crucial to our long term business success as it is one of the few diﬀ erentiating factors that remains principally within our control. We also recognise that our brand is a key intangible part of company value. To extend our brand and improve our brand visibility, particularly in the Queensland market, we considered that aligning with a Queensland iconic brand which has national recognition and substantial support within our key markets, would be a signiﬁ cant step forward. Rugby League is the number one sport by participation and support base in Queensland - with approximately 62,000 registered players, 420 registered clubs, a growing female participation and an audience of over 10 million State of Origin television viewers. In September 2018, we established a 3 year Partnership Agreement with Queensland Rugby League which sees the Auswide Bank brand represented on the front of jersey for the Queensland Maroons team. The Maroons are an exalted brand in Queensland and for a 3 month period they dominate the Queensland sport media and rally Queenslanders like no other club, brand or business. With games in New South Wales and other States by rotation there is also considerable national exposure. 9.537m viewers watched the 2019 State of Origin series. Games I, II & III were the three most watched programs to date in 2019. 827,820 households exposed to the Auswide Bank Brand during 2019 State of Origin Game 1. P|14 AUSWIDE BANK ANNUAL REPORT 2019 Importantly our strategic partnership also incorporates the support of ‘grassroots; rugby league in our heartland regions of coastal Queensland and south east Queensland with Naming Rights of the Mal Meninga Cup under 18’s competition and representative side. In the ﬁ rst half of 2019 we launched Auswide Bank as the ‘Oﬃ cial Bank of the Queensland Maroons’ - activating at Mal Meninga Cup games across Queensland, at each State of Origin game and at a series of associated events. These provided us with the opportunity to build brand awareness and create relationships. Our marketing plan called out targets in regard to brand metrics following the State of Origin series and we are pleased to see a lift across Queensland and core markets. We commissioned an independent brand awareness survey of individuals aged over 18 years across Queensland. Across the state, brand awareness has increased by 31.23% from 2018. It was also up by 33.85% across South East Queensland and up 14.63% in our core regional market . An estimated 827,820 households were exposed to the Auswide Bank brand during 2019 State of Origin Game I. As a major investment, apart from our brand goals, we also recognised the needs to return value for shareholders from our partnership with Queensland Rugby League. While a continuing uplift in brand recognition across our markets over the next few years will support these goals, with 200,000 supporters seeking ﬁ nance (Queensland Rugby League 2019 State of Origin Media Report conducted by The Nielsen Company - August 2019) there is a direct opportunity. We are already taking steps to capitalise on this opportunity and in year two and three of our Partnership, we will increasingly seek to leverage oﬀ our relationship with Queensland Rugby League to grow our customer base. 194,171 fans attended the 2019 State of Origin series. 258,083 website views during campaign period (13.06% increase on last year). AUSWIDE BANK ANNUAL REPORT 2019 P|15 Loyalty and advocacy built on strong customer relationships is critical... Auswide Bank has always had a reputation for customer service, however in 2016, as part of the 2016-2018 Strategic Plan, we consciously lifted our focus on the customer to a new level with the appointment of a Chief Customer Oﬃ cer and Head of Customer Operations, a signiﬁ cant structural reorganisation, and the planning and deployment of a number of key customer focussed initiatives. While this shift mirrors a similar change across ﬁ nancial services, Auswide Bank is not just following an industry trend. We believe it represents a signiﬁ cant value creation opportunity. A positive customer experience creates value by promoting customer loyalty and advocacy. On the other hand a negative customer experience results in a loss of value both directly and through detraction. To us, even a mundane experience simply means a loss of opportunity. Loyalty and advocacy built on strong customer relationships is critical in a competitive marketplace permeated by a reduction in diﬀ erentiation and, importantly from a shareholder’s perspective where cost management is critical, can help reduce marketing costs. Our new 2019-2022 Strategic Plan targets our continued development of three business origination channels: face to face through our branches; digitally and over the phone via online origination and our Australian-based Customer Hub; and via mutually beneﬁ cial partnerships which includes broker and referrer relationships and ‘white label’ opportunities. Customers originating in each of these channels have unique characteristics and needs and it is essential that we understand and respond to these diﬀ erent relationships in our delivery of customer experience. In 2018-2019, we built on our customer-focussed foundations with further reinvention, innovation and deployment of initiatives designed to support continuous improvement and transformation and improve our customer experience. Further restructuring of customer team roles with the appointment of a General Manager of Customer Experience, a Strategic Partnerships Manager and consolidation of several business functions as our Customer Experience team. Restructuring of our contact centre which is now our Customer Hub under a new General Manager – Customer Hub & Digital Bank. Implementation of the new Purecloud phone management system in our Customer Hub Multiple actions as part of the bank’s Broker Journey Initiatives program Improving the new Customer On-Boarding Experience Restructuring and enhancing oversight of the bank’s Customer Complaint and Feedback process d e s s u c o f - r e m o t s u c s n o i t a d n u o f P|16 AUSWIDE BANK ANNUAL REPORT 2019 P|16 AUSWIDE BANK ANNUAL REPORT 2019 Increased focus on Customer Retention initiatives Continued Product Simpliﬁ cation Mapping of customer facing processes in Promapp to support the consistency of customer experience Continued training of customer facing personnel to improve their capabilities and skills Revision of customer team performance measures to increase the weighting on positive customer outcomes Consideration of customer experience as a fundamental consideration in the development of a new version of the bank’s Mobile Banking App and in the deployment of online origination of personal loans and deposit accounts projects AUSWIDE BANK ANNUAL REPORT 2019 P|17 down the stigma of mental illness and in support of the Toowoomba Hospital Foundation. Australian Red Cross Blood Service Auswide Bank staﬀ were again proud to be part of a staﬀ donor program where we ‘United to Save Lives’ with regular blood donations to the Australian Red Cross. Our staﬀ were proud to join in with over half a million unpaid voluntary donors making a diﬀ erence. Movember Our Auswide Bank ‘Mo Bros’ team raised almost $5000 for Men’s Health Initiatives through their ‘Mo growing’ eﬀ orts in November. Since 2003, Movember has funded more than 1,250 men’s health projects around the world. Jeans for Genes Jeans for Genes was created by the community for one purpose – to do the diﬃ cult research needed to save children’s lives. Our Auswide Bank team again slipped into their best denim to support and raise much needed funds for this worthwhile cause and the work of the Children’s Medical Research Institute in their search for cures for children’s genetic diseases. HIGHLIGHTS Queensland Young Achievers Awards Auswide Bank was again a major sponsor of the Queensland Young Achievers Awards. These Awards are the most prestigious youth awards program in the State and aim to encourage and most importantly promote the positive achievements of our young achievers. Auswide was proud to provide successful young Queenslanders with a ﬁ nancial grant as recognition of their outstanding achievements. UCI Auswide Bank Cyclefest International The UCI Auswide Bank Cyclefest International was a World Class recognised cycling competition held in Bundaberg over 10 days in February featuring track cycling, super street criterion and triathlon. It bought together local, Queensland, Australian, and International competitors. Auswide Bank was pleased to be a naming rights and foundation sponsor. This event also helped shine a light on the Bundaberg region where Auswide Bank was founded. Red Shield Appeal The Salvation Army play a pivotal role in our regional Queensland communities giving hope and making a diﬀ erence where it is needed most. In May, Auswide Bank supported the meaningful work of the Salvation Army Red Shield Appeal with a signiﬁ cant ﬁ nancial donation. Fiver for a Farmer Rural Queensland communities experienced and continue to experience the impacts of drought. Our staﬀ launched an appeal to support ‘Fiver for a Farmer’ raising over $10,000. This was generously supported by Auswide Bank customers with the funds donated to Rural Aid and Drought Angels to help farmers and their families through the tough times. Bundaberg to Brisbane Charity Ride Our Managing Director, Martin Barrett, together with some of our partners from Financial Advice Matters and other riders took to their bikes to participate in a three day Bundaberg to Brisbane Charity Bike Ride of 530 kms. Their eﬀ orts raised important funds in support of ‘Turn to Me’, a cause breaking P|18 AUSWIDE BANK ANNUAL REPORT 2019 Auswide Bank originated in regional Queensland communities. Community is part of our DNA. Over the course of 2018-19, Auswide Bank again contributed to various community events, charities and fundraising initiatives via corporate sponsorships and our Community Grant Scheme across South-East and regional Queensland. AUSWIDE BANK ANNUAL REPORT 2019 P|19 In working together, we ask that our People understand and commit to our Mission, Vision and Values - EMPOWER Under our Code of Conduct and Ethics our staﬀ commit to: • Conducting ourselves professionally and valuing Auswide Bank’s reputation at all times; • Demonstrating and role modelling the behaviours of honesty, integrity, fairness and trust at all times in all our interactions with our customers, shareholders business partners and each other; • Setting an example for others to follow and seeking to recognise those that demonstrate these behaviours in a positive and meaningful way; • Speaking up without fear of retribution when these behaviours are threatened or may be compromised; and • Meeting and complying with our legal and regulatory obligations. We continue to adopt strategies to improve on the social and emotional Health & Wellbeing of our People by playing our role in keeping our employees engaged, healthy and productive both at work and in their everyday life. We will continue our focus on increasing our support and assistance P|20 AUSWIDE BANK ANNUAL REPORT 2019 to staﬀ . This includes our commitment to our People Wellness Empowerment Days throughout 2019-2020. The annual Auswide Bank Employee Engagement & Satisfaction Survey was conducted in August 2019 with more than 89% of staﬀ participating. The response rate provides an opportunity for our People to provide feedback and comments that will contribute to building a better bank. The Staﬀ Satisfaction Score of 83%, which is based on core metrics of engagement, staﬀ loyalty, leadership, teamwork/ communication, customer/brand advocacy and innovation, is a positive result for the Bank. In 2019-2020 we will maintain our focus on creating a positive culture and environment that supports our People, our customers and shareholders. Through our People, Auswide Bank continues to deliver outstanding customer service and high performance standards. We are committed to increasing the knowledge, capability, professional and personal development of the team responsible for managing the relationships with our customers. 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In 2019-2020 this will be complimented by online origination of term deposits, transaction and savings accounts. Our Customer Hub supports these online origination processes and will become a centre of capability that supports customers seeking digital engagement and which contribute to our revenue streams. We have also rolled out several internet banking and mobile banking app upgrades during the year with a further release of an enhanced mobile app targeted for quarter one 2019-2020 which includes facial and ﬁ ngerprint recognition and authentication. In the current climate and in line with our target to reduce costs we have sought to deliver on IT projects that create additional eﬃ ciencies. Some of these include rollout of eStatements via internet banking reducing paper and mailing costs; the increased automation and third party integration of loan origination; and a raft of product improvements and rationalisations stemming from our product simpliﬁ cation project. We have also focused on projects to help us comply with our regulatory, industry, and payment scheme obligations. In an increasingly online and digital world, it is essential that ﬁ nancial institutions such as Auswide Bank strive to protect our customers and help our customers protect themselves. Some of the projects delivered in 2018-2019 that support this objective include new fraud detection and prevention capabilities and cyber security initiatives. Apart from the initiatives already listed above, in the year ahead we will deliver a core banking system upgrade to the latest version and features. We will also target real time payments for our customers now that many of the fraud and other risks are better understood by the industry. Finally we will be exploring Open Banking to leverage oﬀ opportunities from the new ﬁ nancial model that allows us to better connect to the banking ecosystem and participate in data sharing. AUSWIDE BANK ANNUAL REPORT 2019 P|23 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. Continuing to strengthen our risk management approach is an important element of the Company’s Strategic Plan and a high priority for the Board and management team. Since 2013, changes to the bank’s business strategy and risk appetite have resulted in a simpler business model and more conservative underwriting actively reducing its mortgages with higher risk proﬁ les, such as mortgages with interest-only features and mortgages with high LVR (loan-to-valuation ratios). Auswide Bank is well placed to manage the risks associated with these loan product concentrations which are managed in line with established risk appetite settings. We have a strong-values based culture that encourages the highest standards of openness, integrity, honest and accountability. We encourage an open culture in our dealings between our managers, employees and all people with whom we engage in the course of business. Our people have a strong inclination to take responsibility for risk management across each business unit, and this culture underpins our Strategic Plan. The key features of how we manage risk as part of our Risk Management Framework include: • ‘Three Lines of Defence’ risk management model with Risk management accountabilities allocated for risk ownership (ﬁ rst line), functional oversight (second line) and assurance third line). Line 1 – Business Units Line 2 – Risk and Compliance Management Business units identify, assess, control and mitigate risks through internal policies and corrective actions to address process and control deﬁ ciencies. Risk and Compliance Management maintains a risk management framework, measures risk exposures to support decision making, and provides risk management support, supervision and expertise to the business. They report to the Board and leadership team and make credit risk decisions under approved delegations and loan portfolio management. Line 3 – Audit Management An independent internal audit function, outsourced to PricewaterhouseCoopers, ensures the Bank has industry leading capabilities to review internal controls, risk management processes and governance systems. • Incident management to increase our ability to identify, manage, report and remediate (if required) any incidents in a timely manner. • Whistle-blower Protection policy allowing employees to make conﬁ dential, anonymous submissions regarding misconduct or dishonest or illegal activity that has occurred • Strong Board oversight of the risk proﬁ le and risk management of the bank with reference to the Board determined risk appetite. P|24 AUSWIDE BANK ANNUAL REPORT 2019 Ongoing Regulatory Action APRA is progressing changes to the capital framework to ensure ADI’s remain on track to meet the “unquestionably” strong capital ration benchmarks. Auswide is already meeting the new benchmarks. APRA continuing to highlight cyber security. APRA to increase scrutiny of how banks are managing the ﬁ nancial risks of climate change to their business. Auswide is compliant with APRA’s tightened requirements regarding interest-only and investor lending. Banking Executive Accountability Regime (BEAR) - Auswide’s submissions have been made to and the Remuneration Committee has reviewed policies to be compliant. APRA’s Prudential Inquiry into CBA and the Royal Commission have highlighted the importance of not just having a healthy balance sheet, but also strong governance, sound culture, appropriate internal controls and clear accountabilities. Auswide has done a self assessment of our culture which has been submitted to APRA. AUSWIDE BANK ANNUAL REPORT 2019 P|25 John Humphrey LL.B Chairman Martin Barrett BA (Econ), MBA Managing Director Member of the Audit Committee Board Member since September 2013 Board Member since February 2008 Professor Humphrey was appointed Chairman of the Board following the 2009 Annual General Meeting. He is a Senior Consultant in the Brisbane oﬃ ce of international law ﬁ rm, King & Wood Mallesons, where he specialises in commercial law, corporate mergers and acquisitions. He served as Executive Dean of the Faculty of Law at Queensland University of Technology (until June 2019). He was a non-Executive Director of Downer- EDI Limited (until November 2016) and Horizon Oil Limited (until November 2018), and is currently a Non-Executive Director of Spotless Group Holdings Ltd and Lynas Corporation Limited. Mr Barrett has extensive experience in the banking sector, having 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 ﬁ nancial institutions in the United Kingdom and at National Australia Bank. He is currently a non-Executive Director of Impact Community Service. Non-Executive Director Chairman of the Group Board Remuneration Committee Member of the Audit Committee Member of the Risk Committee 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 2011 Board Member since November 2013 Mr Dangerﬁ eld 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 Dangerﬁ eld is a Director of the Bundaberg Friendly Society Medical Institute which operates the Friendly Society Private Hospital and Pharmacies in Bundaberg. He is Chairman of the Institute’s Audit, Risk and Remuneration Committees. 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 Remuneration Committee Member of the Risk Committee Board Member since February 2015 Member of the Group Board 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 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. An independent member of the Audit Committee of the Reserve Bank of Australia, and a Council Member of the University of the Sunshine Coast. P|26 AUSWIDE BANK ANNUAL REPORT 2019 Greg Kenny Non-Executive Director John Humphrey Chairman Martin Barrett Managing Director Barry Dangerﬁ eld Non-Executive Director Sandra Birkensleigh Non-Executive Director AUSWIDE BANK ANNUAL REPORT 2019 P|27 Bill Schafer Chief Financial Oﬃ cer and Company Secretary • Group Accounting and Treasury • Budgeting and ﬁ nancial analysis • Financial and management reporting • Statutory, ASX and regulatory reporting • Capital, funding and liquidity planning strategy • Investor Relations Mark Rasmussen Chief Operating Oﬃ cer Damian Hearne Chief Customer Oﬃ cer • Lending Services • Banking Services • Lending Origination Services • Support Services Operations including Business Continuity Planning • Reengineering Services • Customer experience strategy and management • Retail and business banking sales and distribution • Mortgage broker and third party relationships • Marketing, products and partnerships • Customer Hub and Digital Bank P|28 AUSWIDE BANK ANNUAL REPORT 2019 Martin Barrett Managing Director • Strategy development and implementation • Group operational and ﬁ nancial performance • Regulatory engagement • Risk culture and management • Customer satisfaction and growth • Shareholder returns Stephen Caville Chief Information Oﬃ cer Gayle Job Chief People & Property Oﬃ cer Craig Lonergan Chief Risk Oﬃ cer • Group Information Technology strategy and management • People engagement and performance • Risk proﬁ le within Board approved risk appetite • IT Strategic Plan • Key technology project implementation • Payroll management, remuneration • Risk management strategy and and beneﬁ ts practices • Talent acquisition, recruitment and retention strategies • Learning and development • Employment law regulation and compliance • Staﬀ wellbeing and workplace health and safety • Property portfolio management of leased and bank owned assets • Risk management and compliance framework and control systems • Risk culture awareness • Credit portfolio review AUSWIDE BANK ANNUAL REPORT 2019 P|29 P|30 AUSWIDE BANK ANNUAL REPORT 2019 contents 32 Directors’ statutory report 46 Auditor’s independence declaration 47 (cid:38)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:812)(cid:87)(cid:3)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72) 48 Consolidated statement o(cid:73)(cid:3)(cid:812)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) 49 Consolidated statement o(cid:73)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:813)(cid:82)(cid:90)(cid:86)(cid:3) 50 Consolidated statement o(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3) 54 Notes to (cid:87)(cid:75)(cid:72) consolidate(cid:71)(cid:3)(cid:812)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) 114 Directors’ declaration 115 Independent auditor’s report 120 Corporate g(cid:82)(cid:89)ernance summary 122 S(cid:75)ar(cid:72)(cid:75)(cid:82)(cid:79)der information 126 Financial glossary AUSWIDE BANK ANNUAL REPORT 2019 P|31 FOR THE YEAR ENDED 30 JUNE 2019 Review and results of operations The underlying net proﬁ t after tax (NPAT) for the consolidated entity for ﬁ nancial year 2018/19 was $17.201m compared to $17.108m for 2017/18. This represents an increase of 0.5%. The statutory consolidated NPAT for the 2018/19 ﬁ nancial year was $17.201m compared to the result of $17.886m for the 2017/18 year. The loan book of Auswide Bank Ltd (grossed up for Investments in Managed Investment Schemes reported in Other ﬁ nancial assets in the Statement of Financial Position) increased from $2.945b at 30 June 2018 to $3.131b at 30 June 2019, an increase of $186m. This represents growth of 6.3% for the 2018/19 ﬁ nancial year. The loan book growth of 6.3% compares favourably with the Reserve Bank of Australia data which discloses credit provided to the private sector increased by 3.3% over the 12 months to June 2019. Consumer lending The consumer lending portfolio increased from $43.524m at 30 June 2018 to $62.312m at 30 June 2019, an increase of $18.788m. The growth in consumer lending has contributed signiﬁ cantly to the operating results of the Company with net interest revenue of approximately $3.306m derived from the portfolio in the ﬁ nancial year. Customers Auswide Bank is undertaking a review of the Broker home lending business to examine and improve: • the customer proposition - product, pricing and brand; • end to end process and operations; • credit process and risk settings; • supporting systems and documentation; and • sales force eﬀ ectiveness. The key objectives include improving both the customer and the broker experience and to become known as the bank who is consistent and simple to do business with. Digital branch and automation Auswide Bank recognises that customers are moving to online services which provide speed, ease of use and the accessibility of services. The strategic goal is to create an end-to-end digital banking experience and the bank has initiated projects to deliver online application capabilities. APPLY - Personal Loans, which provides the ability for single applicants to apply for a personal loan via Auswide Bank’s website, went live in February 2019. APPLY will also facilitate the opening of term deposits, savings and transaction accounts via Online Banking and is expected to be released in H1 of FY2020. Nintex Promapp is an online repository which simpliﬁ es process management and provides real-time feedback and collaboration. This project was delivered in September 2018. Nintex provides powerful, easy to use workﬂ ow automation capabilities to allow staﬀ to quickly and easily manage, automate and optimize its business processes. Principal activities and signiﬁ cant changes Auswide Bank Ltd is an approved deposit-taking institution and licensed credit and ﬁ nancial 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. Strategic plan A new three year strategic plan was adopted by the Board in March 2019. The six pillars of the strategic plan are as follows: • building awareness and consideration via consistent messaging, customer service and leveraging the QRL sponsorship to drive customer acquisition; • establishing partnerships that support growth in retail and business banking platforms, member based and community organisations; • improving customer experience through digital implementation and the Customer Hub to increase product conversion rates and lower the cost to income ratio; • improving eﬃ ciencies through automation and simpliﬁ cation with focus on back oﬃ ce, ﬁ nance, credit and broker service; • strengthening the bank via enhanced staﬀ capabilities, risk audit processes, capital and funding strength, as well as cyber risk and fraud detection capability; and • reviewing M&A, Fintech and partnering opportunities. P|32 AUSWIDE BANK ANNUAL REPORT 2019 Branch network The Company has a diversiﬁ ed branch network consisting of 21 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. There is focus on ensuring future investments are aligned with growth opportunities and strategic initiatives, ensuring a consistent review of historical investments including branches. Technology Investment in technology continues with focus on improved security and fraud protection as well as enhanced customer experience. The key technology strategies include: • investment in the customer experience by updating the Customer Hub platform; • cyber security programs to maintain a strong security posture in a changing cyber landscape; • core system updates to the latest version and features of Ultracs; • improved digital channel capability across self-service account origination; and • approved Lending Platform updates to increase automation and 3rd party integration. Net Interest Margin The Net Interest Margin (NIM) has been impacted by interest rates at historic lows and the continuance of highly competitive housing ﬁ nance markets across the 2018/19 ﬁ nancial year, in addition to elevated funding markets in the ﬁ rst three quarters of the ﬁ nancial year. In order to maintain stability in the NIM, the bank closely monitors the competitive pricing of products and continues to proactively manage assets and liabilities. The net interest margin for the 2018/19 year was 1.87% compared to 1.93% in the 2017/18 ﬁ nancial year. Arrears and collections Total arrears greater than 30 days past due (excluding the eﬀ ects of hardship accounts) increased from $14.058m to $14.302m. Arrears have decreased as a percentage of the Group’s total loan book from 0.48% at 30 June 2018 to 0.46% at 30 June 2019. The Board is satisﬁ ed that the provisions set aside cover the risks arising from current and future doubtful debts. Risk Auswide Bank takes a proactive approach to risk management, which can be demonstrated by the bank’s adoption of methodologies to curtail excessive exposures to risky product markets. The early introduction of Investor, High LVR and Interest Only lending initiatives together with continued review of underwriting and serviceability assessments ensured that Auswide Bank was well placed to manage the risks associated with its lending portfolio together with regulatory requirements. The Board Risk Committee provides strong oversight of the risk framework across the organisation. The Board remains focused on the portfolio quality as the loan book grows and this is highlighted by the continuing positive trend in relation to loan arrears. Acquisitions The Board will continue to monitor opportunities to acquire loan books or suitable institutions as they arise and the Board will review any oﬀ ers made which may complement the overall operations of the Group. Matters subsequent to the end of the ﬁ nancial year There has been no other matter or circumstance since the end of the ﬁ nancial year that will signiﬁ cantly aﬀ ect the results of operations in future years or the state of aﬀ airs of the Company. Capital The capital adequacy ratio for the Auswide Bank Group at 30 June 2019 was 13.79% (2018: 14.89%). The tier 1 capital ratio at 30 June 2019 was 11.76% (2018: 12.68%). The Group’s strong capital position allows for continued growth with signiﬁ cant capital headroom. Dividends A fully franked interim dividend of 16.0 cents per ordinary share was declared and paid on 25 March 2019 (26 March 2018: 16.0 cents). A fully franked ﬁ nal dividend of 18.5 cents per ordinary share has been declared by the Board and will be paid on 20 September 2019 (21 September 2018: 18.0 cents). Although the dividend payout ratio of 84.6% for the ﬁ nancial year exceeds the Board guideline of 70% to 80%, the Board of Directors declared an 18.5 cent dividend based on the strength of the bank’s capital. AUSWIDE BANK ANNUAL REPORT 2019 P|33 Directors The names and particulars of the Directors of the Company in oﬃ ce during or since the end of the ﬁ nancial 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 is a Senior Consultant in the Brisbane oﬃ ce of international law ﬁ rm, King & Wood Mallesons, where he specialises in commercial law, corporate mergers and acquisitions. He served as Executive Dean of the Faculty of Law at Queensland University of Technology (until June 2019). 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 Dangerﬁ eld Mr Dangerﬁ eld was appointed to the Board on 22 November 2011. Mr Dangerﬁ eld 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 Dangerﬁ eld 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 Dangerﬁ eld served as a Director of Money Place Holdings Pty Ltd until January 2018. Mr Dangerﬁ eld is currently a Director of the Bundaberg Friendly Society Medical Institute which operates the Friendly Society Private Hospital and Pharmacies in Bundaberg and he is Chairman of the Institutes Audit and Risk Committee and Chairman of the Institutes Remuneration Committee. 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 served as a Director of MoneyPlace Holdings Pty Ltd until January 2018. 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 Oﬃ cer 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 ﬁ nancial institutions in the United Kingdom and at National Australia Bank. Mr Barrett is currently a Non-Executive Director of Impact Community Services, and served as a Director of MoneyPlace Holdings Pty Ltd until January 2018. Mr Barrett is an Executive Director. Ms Sandra C Birkensleigh BCom, CA, GAICD, ICCP (Fellow) Ms Birkensleigh was appointed to the Board on 2 February 2015. Ms Birkensleigh was previously a partner at PricewaterhouseCoopers for 16 years until 2013. During her career her predominant industry focus has been Financial Services (Banking and Wealth Management). Ms Birkensleigh has also advised on risk management in other sectors such as retail and consumer goods, retail and wholesale electricity companies, resources and the education sector. Ms Birkensleigh is currently a Non-Executive Director of 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 ﬁ nancial year, 11 meetings of the Directors, 5 meetings of the Audit Committee, 8 meetings of the Remuneration Committee and 5 meetings of the Risk Committee were held, in respect of which each Director attended the following number: P|34 AUSWIDE BANK ANNUAL REPORT 2019 BOARD AUDIT REMUNERATION RISK Held Attended Held Attended JS Humphrey B Dangerﬁ eld GN Kenny MJ Barrett SC Birkensleigh 11 11 11 11 11 11 11 10 11 11 5 5 5 5 5 5 5 4 5* 5 Held n/a 8 8 8 8 Attended n/a 8 7 1* 8 Held n/a 5 5 5 5 Attended n/a 5 5 5* 5 *Mr Barrett who is not a member of the Audit, Risk or Remuneration Committees, attended the Audit, Risk and Remuneration 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 Dangerﬁ eld GN Kenny Related party disclosure Ordinary Shares 31,551 173,773 43,291 15,000 No persons or entities related to key management personnel provided services to the Company during the year. AUSWIDE BANK ANNUAL REPORT 2019 P|35 Remuneration report The Board Remuneration Committee consists of independent Directors Mr Barry Dangerﬁ eld, Mr Greg Kenny and Ms Sandra Birkensleigh. Mr Barry Dangerﬁ eld is Chairman of the Committee. The objective of the Board Remuneration Policy is to maintain behaviour that supports the sustained ﬁ nancial performance and security of Auswide Bank Ltd and to reward eﬀ orts 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. 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 proﬁ tability. 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 beneﬁ t 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 2018/19 was subject to review and recommendation of the Remuneration Committee and ratiﬁ cation by the Board. Remuneration of the Executive Management Team for 2018/19 was subject to ratiﬁ cation 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, beneﬁ ts 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 ﬁ nancial 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 reﬂ ect: • 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 ﬁ nancial 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 beneﬁ ts (including employer superannuation and fringe beneﬁ ts); • cash based short-term incentives reﬂ ecting both individual and business performance for the current year that supports the longer term objectives of Auswide Bank; and • equity based long-term incentives provided to drive management decisions focused on the long-term prosperity of Auswide Bank through the use of challenging performance hurdles. P|36 AUSWIDE BANK ANNUAL REPORT 2019 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 ﬁ nancial, 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 ﬁ nancial performance objectives are proﬁ t before and after income tax compared to budgeted amounts and management of costs in line with divisional organisational budgets. These measures reasonably capture the eﬀ ects 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-ﬁ nancial 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. 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 ﬁ nancial year ended 30 June 2018. Cash payments were granted on the 20 September 2018, and allocated to the Executive Management Team as follows; Mr MJ Barrett (Managing Director) Mr WR Schafer (Chief Financial Oﬃ cer) Mr SM Caville (Chief Information Oﬃ cer) Mr D Hearne (Chief Customer Oﬃ cer) Mrs GM Job (Chief People and Property Oﬃ cer) Mr CA Lonergan (Chief Risk Oﬃ cer) Mr MS Rasmussen (Chief Operating Oﬃ cer) $93,000 $38,089 $19,314 $37,637 $20,199 $20,225 $22,802 The payment of STIs is at the complete discretion of the Board and can be adjusted downwards to zero, if necessary, to protect the ﬁ nancial soundness of the Company and taking into account a qualitative overlay that reﬂ ects Auswide Bank’s management of business risks, shareholder expectations and quality of the ﬁ nancial 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 oﬀ er may be made to the members of the Executive Management Team every year as determined by the Board. The maximum value of the oﬀ er 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 satisﬁ ed within a predetermined performance period. KPI targets were considered by the Remuneration Committee to be appropriate measures of performance, as they had been speciﬁ cally 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 ratiﬁ ed by the Remuneration Committee. Actual and potential ELTIP allocations Share based payment arrangements aﬀ ecting remuneration of key management personnel in the current year or future ﬁ nancial years are detailed in the following table. KMP Maximum value Vesting date No of shares Vested in the 18/19 ﬁ nancial year Not yet assessed for vesting No of shares No of shares 2014 oﬀ er - June 2014 Barrett, MJ 2015 oﬀ er - June 2015 Barrett, MJ July 2014 - June 2018 4,433 1/07/2018 4,433 July 2015 - June 2019 5,608 5,608 1/07/2018 1/07/2019 5,608 - - - 5,608 AUSWIDE BANK ANNUAL REPORT 2019 P|37 Remuneration Report (continued) KMP Maximum value Vesting date No of shares 2016 oﬀ er - September 2016 July 2016 - June 2020 Vested in the 18/19 ﬁ nancial year Not yet assessed for vesting No of shares No of shares Barrett, MJ Schafer, WR Caville, SM Job, GM Lonergan, CA Rasmussen, MS 4,762 4,762 4,762 998 998 998 865 865 865 815 815 815 971 971 971 998 998 998 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 2017 oﬀ er - September 2017 July 2017 - June 2021 Barrett, MJ Schafer, WR Caville, SM Hearne, D Job, GM Lonergan, CA Rasmussen, MS P|38 AUSWIDE BANK ANNUAL REPORT 2019 2,446 2,446 2,446 1,044 1,044 1,044 1,044 1,044 1,044 1,247 1,247 1,247 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1/07/2019 1/07/2020 1/07/2021 1/07/2019 1/07/2020 1/07/2021 1/07/2019 1/07/2020 1/07/2021 1/07/2019 1/07/2020 1/07/2021 1/07/2019 1/07/2020 1/07/2021 1/07/2019 1/07/2020 1/07/2021 1/07/2019 1/07/2020 1/07/2021 4,762 - - 998 - - 865 - - 815 - - 971 - - 998 - - - - - - - - - - - - - - - - - - - - - - - - 4,762 4,762 - 998 998 - 865 865 - 815 815 - 971 971 - 998 998 2,446 2,446 2,446 1,044 1,044 1,044 1,044 1,044 1,044 1,247 1,247 1,247 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 1,044 KMP Maximum value Vesting date No of shares 2018 oﬀ er - September 2018 July 2018 - June 2022 Vested in the 18/19 ﬁ nancial year Not yet assessed for vesting No of shares No of shares Barrett, MJ Schafer, WR Caville, SM Hearne, D Job, GM Lonergan, CA Rasmussen, MS 5,811 5,811 5,812 1,220 1,220 1,221 1,220 1,220 1,221 1,312 1,312 1,313 1,220 1,200 1,221 1,220 1,220 1,221 1,220 1,220 1,221 1/07/2020 1/07/2021 1/07/2022 1/07/2020 1/07/2021 1/07/2022 1/07/2020 1/07/2021 1/07/2022 1/07/2020 1/07/2021 1/07/2022 1/07/2020 1/07/2021 1/07/2022 1/07/2020 1/07/2021 1/07/2022 1/07/2020 1/07/2021 1/07/2022 - - - - - - - - - - - - - - - - - - - - - 5,811 5,811 5,812 1,220 1,220 1,221 1,220 1,220 1,221 1,312 1,312 1,313 1,220 1,200 1,221 1,220 1,220 1,221 1,220 1,220 1,221 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 ﬁ nancial soundness of the Company and taking into account a qualitative overlay that reﬂ ects Auswide Bank’s management of business risks, shareholder expectations and quality of the ﬁ nancial results. Details of the nature and amount of each major element of the remuneration of each Director and each of the named Oﬃ cers of the Company receiving the highest remuneration and the key management personnel are: 2019 Short-term employee beneﬁ ts Post employment beneﬁ ts Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Peformance Fixed based Other long term beneﬁ ts $ Share based payments $ Peformance based Total $ Speciﬁ ed Directors Humphrey, JS Chairman (non-exec) Birkensleigh, S Director (non-exec) Dangerﬁ eld, B Director (non-exec) Kenny, GN Director (non-exec) Barrett, MJ Managing Director Total remuneration - Speciﬁ ed Directors 149,224 93,265 93,265 93,265 - - - - 571,027 93,000 1,000,046 93,000 - - - - - - 14,176 8,860 8,860 8,860 - - - - - - - - 163,400 102,125 102,125 102,125 20,531 12,919 86,598 784,075 61,287 12,919 86,598 1,253,850 AUSWIDE BANK ANNUAL REPORT 2019 P|39 Remuneration Report (continued) 2019 Short-term employee beneﬁ ts Post employment beneﬁ ts Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Peformance Fixed based Other long term beneﬁ ts $ Share based payments $ Peformance based Total $ Other Key Management Personnel Schafer, WR Chief Financial Oﬃ cer Caville, SM Chief Information Oﬃ cer Hearne, D Chief Customer Oﬃ cer Job, GM Chief People and Property Oﬃ cer Lonergan, CA Chief Risk Oﬃ cer Rasmussen, MS Chief Operating Oﬃ cer Total remuneration - Speciﬁ ed Executives 2018 Speciﬁ ed Directors Humphrey, JS Chairman (non-exec) Birkensleigh, S Director (non-exec) Dangerﬁ eld, B Director (non-exec) Kenny, GN Director (non-exec) Barrett, MJ Managing Director Total remuneration - Speciﬁ ed Directors 328,137 38,089 191,762 19,314 299,771 37,637 191,845 20,199 199,022 20,225 224,367 22,802 1,434,904 158,266 146,119 91,324 91,324 91,324 - - - - 552,052 37,500 972,143 37,500 Other Key Management Personnel Schafer, WR Chief Financial Oﬃ cer Caville, SM Chief Information Oﬃ cer Hearne, D Chief Customer Oﬃ cer Job, GM Chief People and Property Oﬃ cer Lonergan, CA Chief Risk Oﬃ cer Rasmussen, MS Chief Operating Oﬃ cer Total remuneration - Speciﬁ ed Executives 317,891 23,400 183,942 13,525 268,427 20,250 184,466 13,563 191,560 15,524 227,541 16,003 1,373,827 102,265 P|40 AUSWIDE BANK ANNUAL REPORT 2019 - - - - - - - - - - - - - - - - - - - - 20,531 8,945 5,838 401,540 19,112 1,960 5,060 237,208 20,531 5,355 - 363,294 19,152 7,930 4,768 243,894 19,365 4,351 5,680 248,643 20,531 4,727 5,838 278,265 119,222 33,268 27,184 1,772,844 13,881 8,676 8,676 8,676 - - - - - - - - 160,000 100,000 100,000 100,000 20,049 11,187 55,006 675,794 59,958 11,187 55,006 1,135,794 20,049 7,872 18,454 4,688 20,049 5,061 18,492 5,546 18,697 3,817 20,049 4,409 115,790 31,393 - - - - - - - 369,212 220,609 313,787 222,067 229,598 268,002 1,623,275 Employment contracts All named Key Management Personnel and the Managing Director have employment contracts. Major provisions of those agreements are summarised to follow: Current personnel Managing Director - M J Barrett • Original contract dated - 4 February 2013 • Amended contract dated - 15 July 2016, 31 May 2019 • Term of agreement - no ﬁ xed 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) - Payment under the STI scheme up to a maximum of $180,000 per year (or such other amount determined by the Board), depending on satisfaction of KPls as in place from time to time assessed and determined in the sole and absolute discretion of the Board. • Long Term Incentive (LTI) - Grant of performance rights under the LTI plan up to a maximum value of $120,000 (or such other amount determined by the Board). Awards made under the LTIP are at the absolute and sole discretion of the Board. Chief Financial Oﬃ cer & Company Secretary - W R Schafer • Original contract dated - 28 May 2007 • Amended contract dated - 6 December 2016 • Term of agreement - no ﬁ xed 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 oﬀ ered 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 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 Risk Oﬃ cer - C A Lonergan • Original Contract dated - 10 February 2014 • Amended contracts dated - 1 July 2014, 9 December 2016 • Term of agreement - no ﬁ xed 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 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 ANNUAL REPORT 2019 P|41 Remuneration Report (continued) Chief Information Oﬃ cer - S M Caville • Original contract dated - 1 November 2010 • Amended contract dated - 8 December 2016 • Term of agreement - no ﬁ xed 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 oﬀ ered 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 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 Oﬃ cer - M S Rasmussen • Original contract dated - 3 February 2014 • Amended contracts dated - 29 January 2015, 12 December 2016 • Term of agreement - no ﬁ xed 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. • 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 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 Oﬃ cer - D Hearne • Contract dated - 20 June 2016 • Term of agreement - no ﬁ xed 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. The STI will be calculated up to 25.0% of base salary as at the 30th June each year 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 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 will be calculated up to a maximum value of 15.0% of base salary as at the 30th June each year (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. P|42 AUSWIDE BANK ANNUAL REPORT 2019 Chief People and Property Oﬃ cer - G M Job • Original contract dated - 4 June 2007 • Amended contract dated - 6 December 2016 • Term of agreement - no ﬁ xed 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 oﬀ ered 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 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. 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 ﬁ ve years to 30 June 2019: Net proﬁ t before tax Net proﬁ t 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 2019 $'000 24,638 17,201 30 June 30 June 30 June 30 June 2018 $'000 25,158 17,886 2017 $'000 21,870 15,149 2016 $'000 17,606 11,699 2015 $'000 19,028 13,262 30 June 30 June 30 June 30 June 30 June 2019 $5.63 $5.13 16.00 cps 18.50 cps 40.81 cps 40.81 cps 2018 $5.14 $5.63 16.00 cps 18.00 cps 42.83 cps 42.83 cps 2017 $5.08 $5.14 14.00 cps 17.00 cps 37.35 cps 37.35 cps 2016 $5.05 $5.08 14.00 cps 16.00 cps 31.20 cps 31.20 cps 2015 $5.50 $5.05 14.00 cps 16.00 cps 36.07 cps 36.07 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 oﬀ ered by the Company and charged at 153 basis points below the owner occupied standard variable interest rate or 20 basis points below the standard ﬁ xed 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 oﬀ ered 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. AUSWIDE BANK ANNUAL REPORT 2019 P|43 Remuneration Report (continued) Loans for the year ended 30 June 2019 Directors Executives Total: Key management personnel Balance 30 June 2018 (1,846,339) (172,494) (2,018,833) Loans for the year ended 30 June 2018 Directors Executives Total: Key management personnel Balance 30 June 2017 $ (1,806,591) (589,242) (2,395,833) Interest charged $ 68,040 30,207 98,247 Interest charged $ 64,387 7,079 71,466 Balance 30 June 2019 (1,762,889) (1,913,024) (3,675,913) Number in Group 30 June 2019 1 6 7 Balance 30 June 2018 $ Number in Group 30 June 2018 Write-oﬀ $ - - - Write-oﬀ $ - - - (1,846,339) (172,494) (2,018,833) 1 4 5 Individuals with loans above $100,000 in reporting period Balance 30 June 2018 $ Interest* charged $ Write-oﬀ $ Balance 30 June 2019 $ Highest in period $ Directors MJ Barrett Executives WR Schafer D Hearne (1,846,339) 68,040 (66,842) - 4,355 26,606 - - - (1,762,889) (1,846,339) (388,483) (396,092) (1,411,469) (1,425,000) Does not include SM Caville, GM Job, CA Lonergan or MS Rasmussen as their loans were less than $100,000. * Actual interest charged is aﬀ ected by the use of the Company’s oﬀ set account. Equity holdings and transactions The following table is in respect of ordinary shares held directly, indirectly or beneﬁ cially by key management personnel. Balance 30 June 2018 Received as remuneration Options exercised Net change other Balance 30 June 2019 Directors JS Humphrey B Dangerﬁ eld GN Kenny MJ Barrett Executives WR Schafer SM Caville GM Job CA Lonergan MS Rasmussen Total 31,551 43,291 15,000 158,970 42,000 44,240 112,464 12,000 - - - - 14,803 998 865 815 971 998 459,516 19,450 - - - - - - - - - - - - - - (8,000) - 5,104 1,029 3,500 1,633 31,551 43,291 15,000 173,773 34,998 45,105 118,383 14,000 4,498 480,599 P|44 AUSWIDE BANK ANNUAL REPORT 2019 Indemnities and insurance premiums for oﬃ cers and auditors During the ﬁ nancial year the Company has paid premiums to cover Directors and oﬃ cers 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 oﬃ cers 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 2019, 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 satisﬁ ed 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 services 2019 $ 64,449 112,344 176,793 2018 $ 88,841 87,166 176,007 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 22 August 2019 SC Birkensleigh Director AUSWIDE BANK ANNUAL REPORT 2019 P|45 30 JUNE 2019 Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Asia Paciﬁ c Limited and the Deloitte Network. P|46 AUSWIDE BANK ANNUAL REPORT 2019 FOR THE YEAR ENDED 30 JUNE 2019 Notes 2.1 2.1 2.2 Interest revenue Interest expense Net interest revenue Other non-interest income Employee beneﬁ ts expense Depreciation expense Amortisation expense Occupancy expense Impairment losses on ﬁ nancial instruments 4.5.5 Fees and commissions General and administration expenses Other expenses Proﬁ t before income tax expense Income tax expense Proﬁ t for the year from continuing operations Proﬁ t/(loss) for the year from discontinued operations 2.3 5.4 Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 136,352 128,933 136,352 128,933 (73,167) (67,913) (73,167) (67,913) 63,185 9,464 20,327 1,920 685 2,361 1,143 9,884 61,020 9,348 19,427 1,992 690 2,320 1,320 8,847 63,185 9,464 20,327 1,920 685 2,361 1,143 9,884 61,020 9,348 19,427 1,992 690 2,320 1,320 8,847 10,905 10,671 10,905 10,671 786 24,638 7,437 17,201 702 24,399 7,355 17,044 786 24,638 7,437 17,201 702 24,399 7,355 17,044 - 611 - 2,301 Proﬁ t for the year 17,201 17,655 17,201 19,345 Other comprehensive income, net of income tax Items that may be reclassiﬁ ed to proﬁ t or loss Revaluation of cash ﬂ ow hedge to fair value Revaluation of FVTOCI investments to fair value Income tax relating to these items Items that will not be reclassiﬁ ed to proﬁ t or loss Revaluation of land and buildings to fair value 3.5.3 Income tax relating to this item Other comprehensive income/(loss) for the year, net of income tax (221) (265) (221) (265) (2) 67 - - (3) 80 1,446 (434) (2) 67 - - (156) 824 (156) (3) 80 1,446 (434) 824 Total comprehensive income for the year 17,045 18,479 17,045 20,169 Proﬁ t 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) 5.2 5.2 2.4 2.4 2.4 2.4 17,201 - 17,201 17,886 (231) 17,655 17,201 19,345 - - 17,201 19,345 17,045 18,710 17,045 20,169 - (231) - - 17,045 18,479 17,045 20,169 40.81 40.81 40.81 40.81 42.83 42.83 40.81 40.81 The above consolidated statement of proﬁ t or loss and other comprehensive income should be read in conjunction with the accompanying notes. AUSWIDE BANK ANNUAL REPORT 2019 P|47 AS AT 30 JUNE 2019 ASSETS Cash and cash equivalents Due from other ﬁ nancial institutions Other ﬁ nancial assets Current income tax 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 Deferred tax liabilities Provisions Subordinated capital notes Total liabilities Net assets EQUITY Contributed equity Reserves Retained proﬁ ts Total equity Notes 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 3.1 3.2 2.3.5 6.5 3.3 4.1.6 4.1.7 4.1.4 2.3.5 6.4 4.1.8 3.4 3.5 Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 104,389 20,994 86,361 15,389 104,389 20,994 86,361 15,389 317,059 255,050 349,445 287,436 1,575 (721) 1,575 (1,182) 3,086,158 2,919,303 3,086,324 2,919,446 1,321 14,363 1,763 4,952 4,465 1,144 15,576 1,956 4,573 4,621 1,321 14,363 1,763 4,952 4,466 1,144 15,576 1,956 4,573 4,622 46,363 46,363 46,363 46,363 3,603,402 3,349,615 3,635,955 3,381,684 2,802,605 2,446,825 2,802,608 2,446,860 39,093 26,068 39,090 26,061 490,412 607,166 522,798 639,552 1,786 3,009 1,891 2,923 1,786 3,009 1,891 2,923 28,000 28,000 28,000 28,000 3,364,905 3,112,873 3,397,291 3,145,287 238,497 236,742 238,664 236,397 191,936 191,612 192,021 191,746 15,143 31,418 15,232 29,898 15,251 31,392 15,232 29,419 238,497 236,742 238,664 236,397 The above consolidated statement of ﬁ nancial position should be read in conjunction with the accompanying notes. P|48 AUSWIDE BANK ANNUAL REPORT 2019 FOR THE YEAR ENDED 30 JUNE 2019 Cash ﬂ ows from operating activities Interest received Other non-interest income received Interest paid Income tax paid Cash paid to suppliers and employees (inclusive of goods and services tax) Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 Notes 136,446 128,674 136,446 128,674 14,605 17,721 14,605 19,089 (70,785) (66,757) (70,785) (66,757) (10,227) (8,472) (10,227) (6,754) (34,394) (32,831) (34,388) (32,441) Net cash provided by / (used in) operating activities 6.1 35,645 38,335 35,651 41,811 Cash ﬂ ows from investing activities Net movement in investment securities Net movement in amounts due from other ﬁ nancial institutions Net movement in loans and advances Net movement in other investments Proceeds from sale of property, plant and equipment Payments for non current assets Net cash inﬂ ow/ (outﬂ ow) from discontinued operations (61,483) 37,651 (61,483) 35,651 (5,605) (3,626) (5,605) (3,626) (168,924) (141,788) (168,948) (141,762) (177) 4 (75) - (177) 4,008 4 - (1,219) (1,679) (1,219) (1,679) - 6,660 - - Net cash provided by / (used in) investing activities (237,404) (102,857) (237,428) (107,408) Cash ﬂ ows from ﬁ nancing activities Net movement in deposits and short term borrowings 351,670 137,263 351,638 135,324 Net movement in amounts due to other ﬁ nancial institutions and other liabilities Proceeds from share issue Dividends paid Movement in share capital due to employee incentive scheme (117,883) (99,656) (117,776) (97,845) 275 291 275 291 (14,324) (6,946) (14,332) (6,954) 49 (134) - - Net cash provided by / (used in) ﬁ nancing activities 219,787 30,818 219,805 30,816 Net movement in cash and cash equivalents 18,028 (33,704) 18,028 (34,781) Cash and cash equivalents at the beginning of the ﬁ nancial year Cash and cash equivalents at end of the ﬁ nancial year 86,361 120,065 86,361 121,142 4.1.1 104,389 86,361 104,389 86,361 Consolidated Statement For the purposes of the consolidated statement of cash ﬂ ows, 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 ﬁ nancial position. The above consolidated statement of cash ﬂ ows should be read in conjunction with the accompanying notes. AUSWIDE BANK ANNUAL REPORT 2019 P|49 l a t o T y t i u q e 0 0 0 $ ’ 8 0 7 3 2 2 , 1 9 2 1 , 4 7 9 1 , - 6 8 8 7 1 , - ) 1 3 2 ( ) 1 3 2 ( ) 0 6 0 1 ( , ) 0 6 0 1 ( , 5 5 5 7 3 ) 3 ( 6 4 4 1 , ) 4 3 4 ( ) 5 6 2 ( 0 8 1 9 2 4 1 9 6 , ) 1 1 2 ( ) 4 3 1 ( , 1 3 5 3 4 2 ) 9 4 6 3 1 ( , 2 4 7 6 3 2 , - - - - - - - - - - - - - - 0 0 0 $ ’ 0 0 0 $ ’ ) 9 8 1 ( - - - - 5 5 5 7 3 - - - - - i g n g d e h e v r e s e r w o ﬂ h s a C 0 0 0 $ ’ ) 1 8 1 ( - - - - - - - - - 0 8 ) 5 6 2 ( l e a s r o f e v r e s e r 0 0 0 $ ’ 5 0 1 - - - - - - ) 3 ( - - - - l e b a l i a v A - - - - - - - - - - - s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ 8 8 3 2 , - - - - - - - - - - - 0 0 0 $ ’ 6 7 6 2 , - - - - - - - - - - - - - - - - - - - - 6 4 4 1 , ) 4 3 4 ( - - - - - - - - - 6 8 8 7 1 , 4 7 9 1 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 9 2 4 1 9 6 , ) 1 1 2 ( ) 4 3 1 ( ) 9 4 6 3 1 ( , - 1 4 2 ) 6 6 3 ( 2 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 7 4 5 3 4 , , 2 5 7 4 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 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 i f o 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 r e f s n a r T i i s e i r a d i s b u s r a e y e h t g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S r a e y e h t g n i r u d d e t s e v s t n e m y a p d e s a b - e r a h S l e c a P y e n o M f o l a s o p s i d l l a n r e t x e 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 d n a d n a l l f o n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I l e u a v r i a f o t s t n e m t s e v n i S B M R l e u a v r i a f o t s g n d i l i u b l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D s g n d i l i u b d n a d n a l l w o ﬂ h s a c 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 l e u a v r i a f o t e g d e h 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 i t n e m t s e v n e r d n e d i v i d r o f l a t i p a c e r a h s f o e u s s I l 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 s e r a h s y r u s a e r t n i t n e m e v o M i d a p r o r o f d e d i v o r p s d n e d i v i D s t s o c e u s s i e r a h S n a p l e g d e h w o ﬂ h s a c l a t o t - b u S n o t s e r e t n i g n i l l o r t n o c - n o n f o n o i t a d i l o s n o c e D - n o N g n i l l o r t n o c - e r a h S d e s a b s t s e r e t n i s t n e m y a p 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 9 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F e v r e s e r y r o t u t a t S l a r e n e G e v r e s e r e v r e s e r 0 0 0 $ ’ 0 0 0 $ ’ s t ﬁ o r p 0 0 0 $ ’ 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 y r a n d r o i 0 0 0 $ ’ y t i t n e d e t a d i l o s n o C 4 3 8 5 , 5 4 3 3 , 7 8 6 3 2 , , 2 5 7 4 8 1 7 1 0 2 y l u J 1 t a e c n a a B l 1 4 2 ) 6 6 3 ( 2 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 8 9 8 9 2 , , 2 1 6 1 9 1 8 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 l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T P|50 AUSWIDE BANK ANNUAL REPORT 2019 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 ) 6 9 8 ( - - 2 4 7 6 3 2 , 1 4 2 l a t o T y t i u q e 0 0 0 $ ’ 0 0 0 $ ’ - e r a h S d e s a b s t n e m y a p i g n g d e h e v r e s e r w o ﬂ h s a C 0 0 0 $ ’ ) 6 6 3 ( - 2 0 1 e v r e s e r 0 0 0 $ ’ t n e m t s e v n I n o i t a u a v e r l 6 4 8 5 3 2 , 1 4 2 ) 6 6 3 ( 2 0 1 ) 1 6 4 ( 5 7 1 ) 8 0 1 ( 1 0 2 7 1 , ) 2 ( 1 6 6 ) 1 2 2 ( - - 5 7 1 ) 8 0 1 ( - - - - - - - - - - 6 6 ) 1 2 2 ( - - - - ) 2 ( 1 - - 8 7 ) 9 2 ( 5 7 2 ) 4 2 3 4 1 ( , - - - - - - - - - - - - 7 9 4 2 5 2 , 8 0 3 ) 1 2 5 ( 1 0 1 7 9 4 8 3 2 , 8 0 3 ) 1 2 5 ( 1 0 1 l e a s r o f e v r e s e r 0 0 0 $ ’ 2 0 1 l e b a l i a v A s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ 8 8 3 2 , e v r e s e r y r o t u t a t S l a r e n e G e v r e s e r 0 0 0 $ ’ 6 7 6 2 , 0 0 0 $ ’ 4 3 8 5 , e v r e s e r 0 0 0 $ ’ 7 5 3 4 , s t ﬁ o r p 0 0 0 $ ’ t e s s A n o i t a u a v e r l i d e n a t e R 8 9 8 9 2 , , 2 1 6 1 9 1 8 1 0 2 y l u J 1 t a e c n a a B l e r a h S l a t i p a c y r a n d r o i 0 0 0 $ ’ y t i t n e d e t a d i l o s n o C ) 2 0 1 ( - - - - ) 6 9 8 ( - - - - - - - - - - - - - - - - 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 2 0 0 9 2 , , 2 1 6 1 9 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ) 1 6 4 ( 1 0 2 7 1 , - - - - - - - - - - - - - - - - - - - - - - - - ) 4 2 3 4 1 ( , - - 5 7 2 - - 8 7 ) 9 2 ( 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 2 4 7 5 4 , , 2 1 6 1 9 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 8 1 4 1 3 , , 6 3 9 1 9 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 i i e h t f o g n n n g e b e h t t a y t i u q e l a t o t d e t a t s e R r a e y l a i c n a n ﬁ . ) 7 1 s e t o N ( ) x a t f o t e n ( 9 B S A A f o n o i t p o d a n o t n e m t s u d A j n o i t a d i l o s n o c n o s t ﬁ o r p d e n a t e r i m o r f / o t r e f s n a r T r a e y e h t g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S r a e y e h t g n i r u d d e t s e v s t n e m y a p d e s a b - e r a h S l l a n r e t x e 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 l e u a v r i a f o t s t n e m t s e v n i S B M R l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l h s a c 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 l e u a v r i a f o t e g d e h w o ﬂ s t n e m t s e v n i S B M R l a n r e t x e l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l 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 a p r o r o f d e d i v o r p s d n e d i v i D s e r a h s y r u s a e r t n i t n e m e v o M e g d e h w o ﬂ h s a c l a t o t - b u S l e e y o p m e o t e u d l a t i p a c e r a h s n i ) s s o l ( / n a G i 9 1 0 2 e n u J 0 3 t a e c n a a B l e m e h c s e v i t n e c n i i . s e t o n g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T AUSWIDE BANK ANNUAL REPORT 2019 P|51 l a t o T y t i u q e 0 0 0 $ ’ 0 5 6 2 2 2 , 5 4 3 9 1 , 1 4 2 ) 3 ( 6 4 4 1 , ) 4 3 4 ( ) 5 6 2 ( 0 8 - - 1 4 2 - - - - - 0 0 0 $ ’ - e r a h S d e s a b s t n e m y a p i g n g d e h e v r e s e r w o ﬂ h s a C 0 0 0 $ ’ ) 1 8 1 ( - - - - - 0 8 ) 5 6 2 ( l e a s r o f e v r e s e r 0 0 0 $ ’ 5 0 1 - - ) 3 ( - - - - l e b a l i a v A s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ 8 8 3 2 , - - - - - - - - - - - - - - 0 0 0 $ ’ 6 7 6 2 , 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 e v r e s e r y r o t u t a t S l a r e n e G e v r e s e r e v r e s e r 0 0 0 $ ’ 0 0 0 $ ’ s t ﬁ o r p 0 0 0 $ ’ 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 3 8 5 , 5 4 3 3 , 1 3 7 3 2 , , 2 5 7 4 8 1 7 1 0 2 y l u J 1 t a e c n a a B l - - - - - - - - - - - - 6 4 4 1 , ) 4 3 4 ( - - - - - - 5 4 3 9 1 , - - - - - - - o t s g n d i l i u b d n a d n a l l f o n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I l e u a v r i a f l e u a v r i a f o t s t n e m t s e v n i S B M R l l a n r e t x e 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 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 g n i r u d d e t s e v s t n e m y a p d e s a b - e r a h S : 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 l o t e g d e h w o ﬂ h s a c 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 l e u a v r i a f s g n d i l i u b l w o ﬂ h s a c 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 d n a d n a l l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D e r a h S l a t i p a c y r a n d r o i 0 0 0 $ ’ y n a p m o C 9 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F P|52 AUSWIDE BANK ANNUAL REPORT 2019 1 9 2 4 1 9 6 , ) 1 1 2 ( ) 7 5 6 3 1 ( , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 9 2 4 1 9 6 , ) 7 5 6 3 1 ( , - - ) 1 1 2 ( 0 6 0 3 4 2 , 1 4 2 ) 6 6 3 ( 2 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 6 7 0 3 4 , , 2 5 7 4 8 1 7 9 3 6 3 2 , 1 4 2 ) 6 6 3 ( 2 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 9 1 4 9 2 , 6 4 7 1 9 1 , l n a p t n e m t s e v n e r d n e d i v i 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 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 a t o t - b u S e g d e h i d a p r o r o f d e d i v o r p s d n e d i v i D 8 1 0 2 e n u J 0 3 t a e c n a a B l s t s o c e u s s i e r a h S 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 l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T 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 ) 6 9 8 ( - - 7 9 3 6 3 2 , 1 4 2 l a t o T y t i u q e 0 0 0 $ ’ 0 0 0 $ ’ - e r a h S d e s a b s t n e m y a p i g n g d e h e v r e s e r w o ﬂ h s a C 0 0 0 $ ’ ) 6 6 3 ( - 2 0 1 e v r e s e r 0 0 0 $ ’ t n e m t s e v n I n o i t a u a v e r l 1 0 5 5 3 2 , 1 4 2 ) 6 6 3 ( 2 0 1 1 0 2 7 1 , - 5 7 1 ) 2 ( 1 6 6 ) 1 2 2 ( - - - - 5 7 1 - - - - 6 6 ) 1 2 2 ( - - ) 2 ( 1 - - 5 7 2 ) 2 3 3 4 1 ( , - - - - - - 1 2 7 2 5 2 , 6 1 4 ) 1 2 5 ( 1 0 1 4 6 6 8 3 2 , 6 1 4 ) 1 2 5 ( 1 0 1 l e a s r o f e v r e s e r 0 0 0 $ ’ 2 0 1 l e b a l i a v A s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ 8 8 3 2 , 0 0 0 $ ’ 6 7 6 2 , e v r e s e r y r o t u t a t S l a r e n e G e v r e s e r e v r e s e r 0 0 0 $ ’ 0 0 0 $ ’ s t ﬁ o r p 0 0 0 $ ’ 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 y r a n d r o i 0 0 0 $ ’ y n a p m o C 4 3 8 5 , 7 5 3 4 , 9 1 4 9 2 , 6 4 7 1 9 1 , 8 1 0 2 y l u J 1 t a e c n a a B l ) 2 0 1 ( - - - - ) 6 9 8 ( - ) x a t f o t e n ( 9 B S A A f o n o i t p o d a n o t n e m t s u d A j - - - - - - - - - - - 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 3 2 5 8 2 , 6 4 7 1 9 1 , e h t i f o g n n n g e b e h t i t a y t i u q e l a t o t d e t a t s e R r a e y l a i c n a n ﬁ . ) 7 1 s e t o N ( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 0 2 7 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 g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S : 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 l l a n r e t x e 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 l e u a v r i a f o t s t n e m t s e v n i S B M R l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l h s a c 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 l e u a v r i a f o t e g d e h w o ﬂ s t n e m t s e v n i S B M R l a n r e t x e 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 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 4 2 7 5 4 , , 6 4 7 1 9 1 e g d e h w o ﬂ h s a c l a t o t - b u S - - - - - - - - - 5 7 2 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 ) 2 3 3 4 1 ( , - i d a p r o r o f d e d i v o r p s d n e d i v i D 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 2 9 3 1 3 , 1 2 0 2 9 1 , 9 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 l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T AUSWIDE BANK ANNUAL REPORT 2019 P|53 P|54 AUSWIDE BANK ANNUAL REPORT 2019 AUSWIDE BANK ANNUAL REPORT 2019 P|55 o 1. General information 1.1 Reporting entity Auswide Bank Ltd (the Company) is a for-proﬁ t listed public company, incorporated and domiciled in Australia. The consolidated ﬁ nancial statements of Auswide Bank Ltd for the year ended 30 June 2019 comprises Auswide Bank Ltd and its subsidiaries (the Group or the Consolidated Entity). 1.2 Statement of compliance The ﬁ nancial statements are general purpose ﬁ nancial 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 ﬁ nancial statements comply with all International Financial Reporting Standards (IFRS) in their entirety. 1.3 Basis of preparation These ﬁ nancial statements have been prepared on an accrual basis and are based on historical cost, except for land and buildings, hedging instruments, ﬁ nancial instruments held at fair value through proﬁ t or loss or other comprehensive income that have been measured at fair value. The accounting policies and methods of computation in the preparation of these ﬁ nancial statements are consistent with those adopted and disclosed in the ﬁ nancial statements for the year ended 30 June 2018, unless otherwise stated. These ﬁ nancial statements have been prepared in Australian Dollars (AUD) which is the functional and presentation currency of the Company. 1.4 Basis of consolidation The consolidated ﬁ nancial statements comprise the ﬁ nancial statements of the Company, being the parent entity and entities controlled by the Company. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to aﬀ ect its returns. The Company has power when it has rights that give it the ability to direct the activities that signiﬁ cantly aﬀ ect 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 eﬀ ect of potential voting rights where the Group has the practical ability to exercise them is considered when assessing whether the Group controls another entity. The Company reassesses whether it has control of an investee if facts and circumstances indicate changes to the aforementioned elements have occurred. A list of the controlled entities is provided in Section 5.1.1 - Controlled entities. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. Subsidiaries are fully consolidated from the date 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 ﬁ nancial 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 proﬁ ts 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 Proﬁ t or Loss and Other Comprehensive Income. 1.5 Rounding of amounts 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 ﬁ nancial statements are rounded oﬀ to the nearest thousand dollars, unless otherwise indicated. P|56 AUSWIDE BANK ANNUAL REPORT 2019 1.6 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 Oﬃ ce. 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 ﬂ ows are presented in the Consolidated Statement of Cash Flows on a gross basis, except for the GST component of investing and ﬁ nancing activities, which are disclosed as operating cash ﬂ ows. 1.7 Application of new and revised Accounting Standards 1.7.1 Standards and interpretations that are mandatorily eﬀ ective for the current year New and revised standards and amendments to standards eﬀ ective for the current ﬁ nancial year which have been applied in the preparation of these ﬁ nancial statements that are relevant to the Group include: • AASB 9 Financial Instruments (AASB 9) • AASB 15 Revenue from Contracts with Customers (AASB 15) Other standards In addition to the above, the Group has applied a number of amendments to AASB Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are eﬀ ective for periods that begin on or after 1 January 2018. Their adoption has not had any material impact on the disclosures or on the amounts reported in these ﬁ nancial statements. AASB 9 Financial Instruments In the current year, the Group has applied AASB 9 (as revised) and the related consequential amendments to other Accounting Standards for the ﬁ rst time. AASB 9 introduces new requirements for: (1) (2) (3) the classiﬁ cation and measurement of ﬁ nancial assets and liabilities; impairment of ﬁ nancial assets; and general hedge accounting. The classiﬁ cation and measurement, and impairment requirements are applied retrospectively by adjusting opening retained earnings at 1 July 2018. The Group has elected not to restate comparative ﬁ gures on adoption of the new standard. Details of these new requirements as well as their impact on the Group’s consolidated ﬁ nancial statements are described below. Classiﬁ cation and measurement All recognised ﬁ nancial assets that are within the scope of AASB 9 are required to be subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managing the ﬁ nancial assets and the contractual cash ﬂ ow characteristics of the ﬁ nancial assets. Speciﬁ cally: • debt investments that are held within a business model whose objective is to collect the contractual cash ﬂ ows, and that have contractual cash ﬂ ows that are solely payments of principal and interest on the principal amount outstanding, are subsequently measured at amortised cost; • debt investments that are held within a business model whose objective is both to collect the contractual cash ﬂ ows and to sell the debt instruments, and that have contractual cash ﬂ ows that are solely payments of principal and interest on the principal amount outstanding, are subsequently measured at fair value through other comprehensive income (FVTOCI); and • all other debt investments and equity investments are subsequently measured at fair value through proﬁ t or loss (FVTPL). However, at initial recognition of a ﬁ nancial asset: • the Group may irrevocably elect to present subsequent changes in fair value of an equity investment that is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which AASB 3 Business Combinations applies in other comprehensive income; and • the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or signiﬁ cantly reduces an accounting mismatch. Equity instruments designated at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investment revaluation reserve. The cumulative gain or loss is not reclassiﬁ ed to proﬁ t or loss on disposal of the equity investments, instead, it is transferred to retained earnings. Dividends on investments in equity instruments are recognised in proﬁ t or loss in accordance with AASB 9. In the current year, the Group has not designated any debt investments that meet the amortised cost or FVTOCI criteria as measured at FVTPL. When a debt investment measured at FVTOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassiﬁ ed from equity to proﬁ t or loss as a reclassiﬁ cation adjustment. In contrast, for an equity AUSWIDE BANK ANNUAL REPORT 2019 P|57 1. 1.7 General information (continued) Application of new and revised Accounting Standards (continued) investment designated as measured at FVTOCI, the cumulative gain or loss previously recognised in other comprehensive income is not subsequently reclassiﬁ ed to proﬁ t or loss. Debt instruments that are subsequently measured at amortised cost or at FVTOCI are subject to impairment. The Directors of the Company reviewed and assessed the Group’s existing ﬁ nancial assets as at 1 July 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of AASB 9 has had the following impact on the Group’s ﬁ nancial assets in regards to their classiﬁ cation and measurement: • the Group’s external Residential Mortgage Backed Securities (RMBS) investments within ﬁ nancial assets that were classiﬁ ed as available-for-sale ﬁ nancial assets under AASB 139 have been classiﬁ ed as ﬁ nancial assets at FVTOCI. This is because they are held within a business model whose objective is to collect the contractual cash ﬂ ows and to sell the debt instruments, and they have contractual cash ﬂ ows that are solely payments of principal and interest on the principal amount outstanding. The change in fair value on these investments continues to be accumulated in the investment revaluation reserve until they are derecognised or reclassiﬁ ed. The change in classiﬁ cation of these investments at 1 July 2018, has resulted in the fair value gain amounting to $0.102m, previously recognised in equity being reclassiﬁ ed to other comprehensive income; • the Group’s other investments in equity instruments (neither held for trading nor a contingent consideration arising from a business combination) that were previously classiﬁ ed as available-for-sale ﬁ nancial assets and were measured at cost under AASB 139 have been designated as at FVTOCI. The change in fair value on these equity instruments will be accumulated in the investment revaluation reserve. No adjustment has been made within the ﬁ nancial statements due to immateriality; • ﬁ nancial assets classiﬁ ed as held-to-maturity and loans and receivables under AASB 139 that were measured at amortised cost continue to be measured at amortised cost under AASB 9 as they are held within a business model to collect contractual cash ﬂ ows and these cash ﬂ ows consist solely of payments of principal and interest on the principal amount outstanding; and • ﬁ nancial assets that were measured at FVTPL under the available-for-sale category under AASB 139 continue to be measured as such under AASB 9. P|58 AUSWIDE BANK ANNUAL REPORT 2019 The table below illustrates the classiﬁ cation and measurement of ﬁ nancial assets and ﬁ nancial liabilities for the consolidated entity under AASB 9 and AASB 139 at the date of initial application, 1 July 2018. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Type of ﬁ nancial instrument AASB 139 measurement category AASB 9 measurement category AASB 139 carrying amount Additional loss allowance AASB 9 carrying amount $’000 $’000 $’000 Financial assets Cash and cash equivalents Loans and receivables Amortised cost 86,361 Due from other ﬁ nancial institutions Other ﬁ nancial assets consisting of: Loans and receivables Amortised cost 15,389 - Certiﬁ cates of deposit Held-to-maturity Amortised cost - External RMBS investments Available-for-sale FVTOCI 210,178 1,147 25,886 Available-for-sale FVTPL Loans and receivables Amortised cost 17,082 FVTPL FVTPL 61 - - - - - - - 86,361 15,389 210,178 1,147 25,886 17,082 61 Loans and receivables Amortised cost 2,919,303 1,280 2,918,023 Cost FVTOCI 793 - 793 - Investments in Managed Investment Schemes (MIS) - Notes - securitisation program and other Derivative assets Loans and advances Other investments Unlisted shares Financial liabilities Deposits and short term borrowings Payables and other liabilities Financial liabilities at amortised cost Financial liabilities at amortised cost Financial liabilities at amortised cost Financial liabilities at amortised cost Derivative liabilities FVTPL FVTPL Loans under management Subordinated capital notes Financial liabilities at amortised cost Financial liabilities at amortised cost Financial liabilities at amortised cost Financial liabilities at amortised cost 2,446,825 N/A 2,446,825 26,013 55 607,166 N/A N/A N/A 26,013 55 607,166 28,000 N/A 28,000 Impairment of ﬁ nancial assets AASB 9 requires impairment to be measured using an Expected Credit Loss (ECL) model as opposed to AASB 139’s incurred credit loss model. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reﬂ ect changes in credit risk since initial recognition of the ﬁ nancial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. Speciﬁ cally, AASB 9 requires the Group to recognise a loss allowance for expected credit losses on: (i) (ii) (iii) (iv) debt investments subsequently measured at amortised cost or at FVTOCI; lease receivables; contract assets; and loan commitments and ﬁ nancial guarantee contracts to which the impairment requirements of AASB 9 apply. AASB 9 requires the Group to measure the loss allowance for a ﬁ nancial instrument at an amount equal to the lifetime ECL if the credit risk on that ﬁ nancial instrument has increased signiﬁ cantly since initial recognition, or if the ﬁ nancial instrument is a purchased or originated credit-impaired ﬁ nancial asset. On the other hand, if the credit risk on a ﬁ nancial instrument has not increased signiﬁ cantly since initial recognition (except for purchased or originated credit-impaired ﬁ nancial assets), the Group is required to measure the loss allowance for that ﬁ nancial instrument at an amount equal to a 12 month ECL. As at 1 July 2018, the Directors of the Company reviewed and assessed the Group’s existing ﬁ nancial assets and ﬁ nancial guarantee contracts for impairment using reasonable and supportable information that is available without undue cost or eﬀ ort in accordance with the requirements of AASB 9 to determine the credit risk of the respective items at the date they were initially recognised, and compared that to the credit risk as at 1 July 2018. The result of the assessment on a consolidated basis is as follows: AUSWIDE BANK ANNUAL REPORT 2019 P|59 1. General information (continued) 1.7 Application of new and revised Accounting Standards (continued) Items existing as at 1 July 18 that are subject to the impairment provisions of AASB 9 Credit risk attributes at 1 July 18 Cash and cash equivalents, Due from other ﬁ nancial institutions Other ﬁ nancial assets including; Certiﬁ cates of deposit, External RMBS investments and Notes – securitisation program and other Loans and advances Management believes that cash and cash equivalents and due from other ﬁ nancial institutions are subject to a very low credit risk at initial recognition with negligible default probability. As a result, the corresponding ECL on these ﬁ nancial assets is immaterial. Management believes that certiﬁ cates of deposit , external RMBS investments and notes – securitisation program and other are subject to a very low credit risk at initial recognition with negligible default probability. As a result, the corresponding ECL on these ﬁ nancial assets is immaterial. Management have developed a model to assess the credit risk of each loan. A lifetime credit risk is recognised on loans considered to have experienced a signiﬁ cant increase in credit risk. A 12 month ECL is recognised on those loans on which credit risk has not increased since initial recognition. Cumulative additional loss allowance recognised on 1 July 18 $’000 - - 1,210 In addition to the items noted above, the following items that are not currently recognised on the consolidated Statement of Financial Position have been assessed for impairment; Items existing as at 1 July 2018 Credit risk attributes at 1 July 2018 Loans approved not advanced (LANA) Bank guarantees Management have developed a model to assess the credit risk of LANA. A 12 month ECL is recognised in these exposures, as credit risk has been assessed as not having increased since initial recognition. Management have assessed bank guarantees as having a low credit risk and a negligible probability of default. As a result the corresponding ECL on these investments is immaterial. Cumulative additional loss allowance recognised on 1 July 2018 $’000 70 - The additional credit loss allowance of $1.280m as at 1 July 2018 has been recognised against opening retained earnings, net of its related deferred tax impact of $0.384m resulting in a net decrease in retained earnings of $0.896m on 1 July 2018. P|60 AUSWIDE BANK ANNUAL REPORT 2019 Disclosure relating to initial application of classiﬁ cation and measurement requirements of AASB 9 The following table is a reconciliation of the carrying amounts in the Group’s Statement of Financial Position from AASB 139 to AASB 9 as at 1 July 2018. Disclosures in relation to the Company level Statement of Financial Position have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Consolidated entity Investments in Managed Investment Schemes AASB 139 carrying amount 30 Jun 18 $’000 Reclassiﬁ cation Remeasurement AASB 9 carrying amount Retained earnings impact 1 Jul 18 1 Jul 18 $’000 $’000 $’000 $’000 Available-for-sale under AASB 139 25,886 (25,886) Reclassiﬁ cation to FVTPL under AASB 9 Investment in unlisted shares At cost under AASB 139 Reclassiﬁ cation to FVTOCI under AASB 9 Loans and advances - 25,886 793 - (793) 793 Amortised cost under AASB 139 2,919,303 Remeasurement based on Expected Credit Loss (ECL) under AASB 9 Deferred tax assets Opening balance Tax eﬀ ect of remeasurement of ECL - 2,919,303 4,573 - 4,573 - - - - - - - - - - - - 25,886 - 793 2,919,303 - - - - - (1,280) (1,280) (1,280) (1,280) 2,918,023 (1,280) - 384 384 4,573 384 4,957 - 384 384 AASB 15 Revenue from Contracts with Customers The Group has applied AASB 15 for the ﬁ rst time in the current period. AASB 15 introduces a ﬁ ve-step approach to revenue recognition and more prescriptive guidance has been added to deal with speciﬁ c scenarios. Details of these new requirements as well as their impact on the Group’s consolidated ﬁ nancial statements are described below. The Group has applied AASB 15 in accordance with the fully retrospective transitional approach without using the practical expedients for completed contracts in AASB 15.C5(a), and (b), or for modiﬁ ed contracts in AASB 15.C5(c) but using the expedient in AASB 15.C5(d), allowing both non-disclosure of the amount of the transaction price allocated to the remaining performance obligations, and an explanation of when it expects to recognise that amount as revenue for all reporting periods presented before the date of initial application, i.e. 1 January 2018. Apart from providing more extensive disclosures on the Group’s revenue transactions, the application of AASB 15 has not had a signiﬁ cant impact on the ﬁ nancial position and/or ﬁ nancial performance of the Group. Signiﬁ cant revenue streams of the Group falling within the scope of AASB 15 are explained below. Fees and commissions The Group charges various fees and commissions to its customers from time to time from loan initiation to ﬁ nal settlement. Revenue is recognised when services promised under the contract are rendered and performance obligations are satisﬁ ed. There has been no adjustment to the current revenue recognition methodology of the Group as a result of the adoption of AASB 15. The accounting policy related to fees and commissions are disclosed in Section 2.2 - Other non-interest income. 1.7.2 Standards and Interpretations on issue not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2019 reporting period are set out below and have not been early adopted by the Group. AUSWIDE BANK ANNUAL REPORT 2019 P|61 1. General information (continued) 1.7 Application of new and revised Accounting Standards (continued) Standard/Interpretation Eﬀ ective for annual reporting periods beginning on or after Expected to be initially applied in the ﬁ nancial year ending AASB 16 Leases (AASB 16) 1 January 2019 30 June 2020 AASB 16 Leases AASB 16 replaces AASB 117, Leases and is eﬀ ective for annual periods beginning on or after 1 January 2019. The new standard is aimed at a more transparent representation of the true ﬁ nancial position of an entity by fully reﬂ ecting its liabilities as the leases represent committed future expenditures. The Standard introduces an on balance sheet lease accounting model where a right-of-use asset (representing the right to use the underlying asset) and a lease liability (representing the obligation to make lease payments) are recognised. The asset is depreciated over the term of the lease and the liability is reduced by the actual lease payments. Interest on the outstanding liability is recognised as an expense in the Statement of Proﬁ t or Loss and Other Comprehensive Income. The Group incurs costs for leases relating to oﬃ ce space in Brisbane and regional Queensland. The new standard will have the following impact on the Group’s ﬁ nancial statements: • the Group will recognise new right-of-use assets and liabilities relating to operating leases of oﬃ ce premises and vehicles in the Statement of Financial Position; • the recognition of operating lease expense will be replaced with a depreciation charge for right-of-use assets and interest expense on lease liabilities in the Statement of Proﬁ t or Loss and Other Comprehensive Income; and • cash payments of the lease liability will be classiﬁ ed into a principal portion and interest portion and presented in the Statement of Cash Flows under ﬁ nancing and operating activities respectively. As at 30 June 2019, the minimum lease payments under non-cancellable operating leases amounted to $5.586m. The Group will adopt the standard for the year ended 30 June 2020, and has chosen the ‘modiﬁ ed’ retrospective approach whereby comparative ﬁ nancial statements will not be restated. The Group has estimated the cumulative eﬀ ect arising as a result of adoption of AASB 16 which will be recognised as a one oﬀ adjustment to opening retained earnings of $0.846m. The right-of- use asset and lease liability that will be recognised on transition is estimated at $2.840m and $3.687m respectively. The Group estimates that as result of adoption of AASB 16, depreciation expense on right-of-use assets amounting to $1.171m and interest expense on lease liability amounting to $0.162m will be recognised in the ﬁ nancial statements for the year ending 30 June 2020. 1.8 Reclassiﬁ cation of comparative ﬁ gures Certain accounts in the Statement of Financial Position for the year ended 30 June 2018, which are included in the 2019 ﬁ nancial statements for comparative purposes, have been reclassiﬁ ed to conform to the nature of accounts. The signiﬁ cant reclassiﬁ cations are as follows; Statement of Financial Position Before reclassiﬁ cation Reclassiﬁ cation After reclassiﬁ cation Assets Accrued receivables Other ﬁ nancial assets Loans and advances Other assets Liabilities $’000 5,298 254,293 2,910,847 8,475 $’000 (5,298) 757 8,456 (3,854) $’000 - 255,050 2,919,303 4,621 Payables and other liabilities 26,007 61 26,068 The reclassiﬁ cations have been made because, in the opinion of management, the new classiﬁ cations are more appropriate to the Company’s business. P|62 AUSWIDE BANK ANNUAL REPORT 2019 2. 2.1 Financial performance 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 year. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Consolidated entity Interest revenue 2019 Deposits with other ﬁ nancial institutions Investment securities Loans and advances Other Interest expense 2019 Deposits from other ﬁ nancial institutions Customer deposits Negotiable certiﬁ cates of deposit (NCDs) Floating rate notes (FRNs) Subordinated capital notes Net interest revenue 2019 Interest revenue 2018 Deposits with other ﬁ nancial institutions Investment securities Loans and advances Other Interest expense 2018 Deposits from other ﬁ nancial institutions Customer deposits Negotiable certiﬁ cates of deposit (NCDs) Floating rate notes (FRNs) Subordinated capital notes Net interest revenue 2018 Average balance Interest Average interest rate $’000 $’000 56,502 223,722 3,017,419 76,103 3,373,746 550,996 2,203,601 297,275 105,154 28,000 3,185,026 62,816 204,856 2,841,792 47,780 3,157,244 622,330 2,025,886 205,623 80,769 28,000 2,962,608 897 5,430 126,533 3,492 136,352 17,798 43,478 7,039 3,054 1,798 73,167 63,185 967 4,680 121,086 2,200 128,933 19,886 39,412 4,713 2,142 1,760 67,913 61,020 % 1.59 2.43 4.19 4.59 4.04 3.23 1.97 2.37 2.90 6.42 2.30 1.54 2.28 4.26 4.60 4.08 3.20 1.95 2.29 2.65 6.29 2.29 AUSWIDE BANK ANNUAL REPORT 2019 P|63 2. Financial performance (continued) 2.1 Interest revenue and interest expense (continued) The following tables show the net interest margin, and are derived by dividing the diﬀ erence between interest revenue and interest expenditure by the average balance of interest earning assets. Consolidated entity Interest margin and interest spread 2019 Interest revenue Interest expense Net interest spread Average Balance Interest Average Interest Rate $’000 $’000 3,373,746 3,185,026 136,352 73,167 Beneﬁ t of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 3,373,746 63,185 Interest margin and interest spread 2018 Interest revenue Interest expense Net interest spread 3,157,244 2,962,608 128,933 67,913 Beneﬁ t of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 3,157,244 61,020 % 4.04 2.30 1.74 0.13 1.87 4.08 2.29 1.79 0.14 1.93 Accounting policies Interest income and interest expense Interest income and expense for all ﬁ nancial instruments except for those classiﬁ ed as held for trading and those measured or designated at FVTPL are recognised in net interest income as interest income and interest expense in the proﬁ t or loss account using the eﬀ ective interest method. The eﬀ ective interest rate (EIR) is the rate that discounts estimated future cash ﬂ ows of a ﬁ nancial instrument over its expected life or, where appropriate, a shorter period, to the net carrying amount of the ﬁ nancial asset or ﬁ nancial liability. The future cash ﬂ ows are estimated taking into account the contractual terms of the instrument. The calculation of the EIR includes all fees paid or received between parties to the contract that are incremental and directly attributable to the speciﬁ c lending arrangement, transaction costs, and all other premiums or discounts. For ﬁ nancial assets at FVTPL transaction costs are recognised in proﬁ t or loss at initial recognition. The interest income/ interest expense is calculated by applying the EIR to the gross carrying amount of non-credit impaired ﬁ nancial assets (i.e. the amortised cost of the ﬁ nancial asset before adjusting for any expected credit loss allowance), or to the amortised cost of ﬁ nancial liabilities. For credit-impaired ﬁ nancial assets the interest income is calculated by applying the EIR to the amortised cost of the credit-impaired ﬁ nancial assets (i.e. the gross carrying amount less the allowance for expected credit losses (ECLs)). For ﬁ nancial assets originated or purchased credit-impaired (POCI) the EIR reﬂ ects the ECL in determining the future cash ﬂ ows expected to be received from the ﬁ nancial asset. 2.2 Other non-interest income Other non-interest income Fees and commissions Other income Consolidated Company 2019 $’000 8,959 505 9,464 2018 $’000 8,874 474 9,348 2019 $’000 8,959 505 9,464 2018 $’000 8,874 474 9,348 P|64 AUSWIDE BANK ANNUAL REPORT 2019 Accounting policies Other non-interest income Fee and commission income and expense include fees other than those that are an integral part of EIR (see above). The fees included in this part of the Group’s Consolidated Statement of Proﬁ t or Loss and Other Comprehensive Income include among other things fees charged for servicing a loan, non-utilisation fees relating to loan commitments when it is unlikely that these will result in a speciﬁ c lending arrangement and loan syndication fees. Income from these sources is measured based on the consideration speciﬁ ed in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer which is typically at the time when the underlying transaction to which the fee and commission relates is executed as speciﬁ ed in the contract. 2.3 Income taxes 2.3.1 Components of income tax expense Current income tax Deferred income tax Income tax expense reported in proﬁ t or loss Accounting policies Taxation Consolidated Company 2019 $’000 7,465 (28) 7,437 2018 $’000 6,732 623 7,355 2019 $’000 7,465 (28) 7,437 2018 $’000 6,732 623 7,355 The 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 for changes in deferred tax assets and liabilities attributable to temporary diﬀ erences between the tax base of assets and liabilities and their carrying amounts in the ﬁ nancial statements, and to unused tax losses. The income tax expense is determined using 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. A deferred income tax loss is recognised in full, using the liability method, on temporary diﬀ erences, between the carrying amounts of assets and liabilities in the consolidated ﬁ nancial 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 aﬀ ects neither accounting nor taxable proﬁ t 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 proﬁ t or loss except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred tax assets are only recognised for deductible temporary diﬀ erences and unused tax losses if it is probable that future taxable proﬁ ts will be available against which deductible temporary diﬀ erences and losses can be utilised. The amount of beneﬁ ts 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 suﬃ cient future assessable income to enable the beneﬁ t to be realised and comply with the conditions of deductibility imposed by the law. Current and deferred tax are recognised in proﬁ t 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 eﬀ ect is included in the accounting for the business combination. AUSWIDE BANK ANNUAL REPORT 2019 P|65 2. 2.3 Financial performance (continued) Income taxes (continued) Tax consolidation legislation The Company and its wholly-owned Australian resident entities (with the exception of Auswide Performance Rights Pty Ltd) formed an income tax consolidated Group under the Australian Consolidation System as of the ﬁ nancial 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. 2.3.2 Numerical reconciliation of income tax expense to prima facie tax payable Tax on proﬁ t before income tax at 30% (2018: 30%) Tax eﬀ ect of permanent diﬀ erences Add non-deductible expenses: Depreciation of buildings Less: Tax oﬀ set for franked dividends Other items - net Income tax expense 2.3.3 Income tax recognised in other comprehensive income Current income tax Other Deferred income tax Arising on items that may be reclassiﬁ ed to proﬁ t or loss: Fair value remeasurement of FVTOCI (AASB 139: available-for-sale) ﬁ nancial assets Fair value remeasurement of hedging instruments entered into for cash ﬂ ow hedges Arising on items that will not be reclassiﬁ ed to proﬁ t or loss: Fair value remeasurement of land and buildings Total income tax recognised directly in other comprehensive income Consolidated Company 2019 $’000 7,392 58 1 (14) 7,437 2018 $’000 7,320 49 - (14) 7,355 2019 $’000 7,392 58 1 (14) 7,437 2018 $’000 7,320 49 - (14) 7,355 Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 - - (1) (66) (67) - - (67) - - - (80) (80) 434 434 354 - - (1) (66) (67) - - (67) - - - (80) (80) 434 434 354 P|66 AUSWIDE BANK ANNUAL REPORT 2019 2.3.4 Current tax assets and liabilities Current tax assets/ (liabilities) Current income tax assets/ (liabilities) 2.3.5 Deferred tax balances Deferred tax assets Deferred tax liabilities Deferred tax assets Employee leave provisions Expected credit losses Property, plant and equipment Capital losses available Project acquisition costs Premium on loans purchased Subordinated capital notes prepaid expenses Other items Deferred tax liabilities Asset revaluation reserve Prepayments Investment revaluation reserve (AASB139: available-for-sale reserve) Cash ﬂ ow hedging reserve Consolidated Company 2019 $’000 1,575 1,575 2018 $’000 (721) (721) 2019 $’000 1,575 1,575 2018 $’000 (1,182) (1,182) Consolidated Company 2019 $’000 4,952 (1,786) 3,166 2018 $’000 4,573 (1,891) 2,682 2019 $’000 4,952 (1,786) 3,166 2018 $’000 4,573 (1,891) 2,682 Consolidated Company 2019 $’000 891 1,396 858 1,466 91 122 39 89 2018 $’000 865 959 819 1,466 179 124 34 127 2019 $’000 891 1,396 858 1,466 91 122 39 89 2018 $’000 865 959 819 1,466 179 124 34 127 4,952 4,573 4,952 4,573 Consolidated Company 2019 $’000 1,867 99 43 (223) 1,786 2018 $’000 1,867 137 44 (157) 1,891 2019 $’000 1,867 99 43 (223) 1,786 2018 $’000 1,867 137 44 (157) 1,891 In respect of each temporary diﬀ erence the adjustment was charged to income, except for the revaluations of the external RMBS investments which were charged to the investment revaluation reserve in equity, the revaluations of hedging instruments entered into for cash ﬂ ow hedges which were charged to the cash ﬂ ow hedge reserve in equity, and the revaluations of land and buildings which were charged to the asset revaluation reserve in equity. AUSWIDE BANK ANNUAL REPORT 2019 P|67 2. 2.3 Financial performance (continued) Income taxes (continued) Movement in deferred tax balances Consolidated Company Notes 1.7 5.3 Balance at beginning of year Deferred income tax income/ (expense) recognised directly in proﬁ t or loss Deferred tax recognised in other comprehensive income Deferred tax arising on: First time adoption of AASB 9 Disposal of MoneyPlace Prior period adjustments Balance at end of year 2.4 Earnings per share Basic and diluted earnings per share From continuing operations From discontinued operations Total basic and diluted earnings per share 2019 $’000 2,682 28 67 384 - 5 3,166 2018 $’000 2,309 (640) (354) - 1,367 - 2,682 2019 $’000 2,682 28 67 384 - 5 2018 $’000 3,676 (640) (354) - - - 3,166 2,682 2019 2018 Cents per share Cents per share 40.81 - 40.81 40.81 2.02 42.83 The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are calculated as follows: Proﬁ t for the year attributable to owners of the Company Earnings used in the calculation of basic and diluted earnings per share Proﬁ t for the year from discontinued operations used in the calculation of basic and diluted earnings per share from discontinued operations Earnings used in the calculation of basic and diluted earnings per share from continuing operations Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share 2019 $’000 17,201 17,201 2018 $’000 17,886 17,886 - (842) 17,201 17,044 2019 2018 Shares No. Shares No. 42,154,629 41,771,336 2.5 Business and geographical segment information The Group only has one major business and operating segment being ‘Retail Banking’. The principal activities of the Group are conﬁ ned to the raising of funds and the provision of ﬁ nance for housing, consumer lending and business banking. For the purpose of performance evaluation, risk management and resource allocation, the decisions are based predominantly on the key performance indicators at the Group level. The Group operates in one geographical segment which is the Commonwealth of Australia. P|68 AUSWIDE BANK ANNUAL REPORT 2019 3. 3.1 Investments and ﬁ nancing Property, plant and equipment Carrying amounts of: Freehold land and buildings Plant and equipment Freehold land and buildings At independent valuation - June 2018 Provision for depreciation Movement in carrying amount Opening net book amount Revaluation increase 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 Disposals Depreciation charge Carrying amount at end of year Consolidated Company 2019 $’000 9,477 4,886 14,363 2018 $’000 9,676 5,900 15,576 2019 $’000 9,477 4,886 14,363 Consolidated Company 2019 $’000 9,690 (213) 9,477 2018 $’000 9,690 (14) 9,676 2019 $’000 9,690 (213) 9,477 Consolidated Company 2019 $’000 9,676 - (199) 9,477 2018 $’000 8,399 1,446 (169) 9,676 2019 $’000 9,676 - (199) 9,477 Consolidated Company 2019 $’000 27,990 (23,104) 4,886 2018 $’000 28,581 (22,681) 5,900 2019 $’000 27,990 (23,104) 4,886 Consolidated Company 2019 $’000 5,900 726 (20) (1,720) 4,886 2018 $’000 6,207 1,620 (103) (1,824) 5,900 2019 $’000 5,900 726 (20) (1,720) 4,886 2018 $’000 9,676 5,900 15,576 2018 $’000 9,690 (14) 9,676 2018 $’000 8,399 1,446 (169) 9,676 2018 $’000 28,581 (22,681) 5,900 2018 $’000 6,207 1,620 (103) (1,824) 5,900 All land and buildings were revalued as at 4 June 2018 by certiﬁ ed practicing valuers Henry Brown of Taylor Byrne Pty Ltd. The valuations were assessed to fair market values based on comparable sales in regional Queensland and by capitalisation of assessed net income. The Company’s policy is to engage external experts to comprehensively revalue freehold land and buildings every three years with an assessment performed by the Board of Directors in intervening years. AUSWIDE BANK ANNUAL REPORT 2019 P|69 3. Investments and ﬁ nancing (continued) 3.1 Property, plant and equipment (continued) Accounting policies 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 revalued amount of the asset. The carrying amount of plant and equipment is reviewed annually by the 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 ﬂ ows that will be received from the asset’s employment and subsequent disposal. The expected net cash ﬂ ows have been discounted to their present values in determining recoverable amounts. Plant and equipment are measured on the cost basis less depreciation and impairment losses. 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 beneﬁ ts associated with the item will ﬂ ow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to proﬁ t or loss during the ﬁ nancial period in which they are incurred. Any revaluation increase arising on the revaluation of freehold land and buildings is recognised in other comprehensive income and accumulated within equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in proﬁ t or loss, in which case the increase is credited to proﬁ t 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 proﬁ t 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 ﬁ xed 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 asset’s 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 beneﬁ ts are expected to arise from the continued use of the asset. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These gains and losses are included in proﬁ t or loss. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. P|70 AUSWIDE BANK ANNUAL REPORT 2019 3.2 Other intangible assets Carrying amounts of: Software Software At cost Provision for amortisation Movement in carrying amount Balance at beginning of year Additions Disposals Amortisation Balance at end of year Accounting policies Intangible assets Consolidated Company 2019 $’000 1,763 1,763 2018 $’000 1,956 1,956 2019 $’000 1,763 1,763 Consolidated Company 2019 $’000 9,630 (7,867) 1,763 1,956 492 - (685) 1,763 2018 $’000 9,138 (7,182) 1,956 7,935 587 (5,876) (690) 1,956 2019 $’000 9,630 (7,867) 1,763 1,956 492 - (685) 1,763 2018 $’000 1,956 1,956 2018 $’000 9,138 (7,182) 1,956 2,564 82 - (690) 1,956 Purchased items of computer software which are not integral to the computer hardware owned by the Group are classiﬁ ed 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 ﬁ nite 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 beneﬁ ts are expected from use or disposal. Gains or losses arising from derecognition are measured as the diﬀ erence between the net disposal proceeds and the carrying amount of the assets and are taken to proﬁ t or loss at the date of derecognition. No internally generated intangible assets are recognised by the Group. Impairment testing is performed annually for intangible assets with indeﬁ nite lives and intangible assets not yet available for use. 3.3 Goodwill Notes Movements in goodwill Balance at beginning of the year Derecognised on disposal of subsidiary Balance at end of year Representing goodwill arising on the acquisition of: Queensland Professional Credit Union Ltd (YCU) Mackay Permanent Building Society Ltd (MPBS) MoneyPlace Holdings Pty Ltd 3.3.1 3.3.2 5.4 Consolidated Company 2019 $’000 46,363 - 46,363 2018 $’000 48,975 (2,612) 46,363 2019 $’000 2018 $’000 46,363 46,363 - - 46,363 46,363 4,306 4,306 4,306 4,306 42,057 42,057 42,057 42,057 - - - - 46,363 46,363 46,363 46,363 AUSWIDE BANK ANNUAL REPORT 2019 P|71 3. Investments and ﬁ nancing (continued) 3.3 Goodwill (continued) 3.3.1 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 ﬁ nancial accounting for this business combination was prepared in accordance with Australian Accounting Standards and recognises the acquisition date as 19 May 2016. 3.3.2 Mackay Permanent Building Society Ltd (MPBS) Pursuant to a bidder’s statement lodged with the Australian Securities and Investments Commission on 15 November 2007, the Company issued an oﬀ -market takeover oﬀ er for 100% of the ordinary shares in Mackay Permanent Building Society Ltd (MPBS). On 11 January 2008 the Company announced the fulﬁ lment of conditions pertaining to the oﬀ -market takeover oﬀ er set out in the bidder’s statement and gave notice that the oﬀ er was unconditional eﬀ ective 10 January 2008. In accordance with APRA’s approval for the transfer of business the ﬁ nancial and accounting records of the entities were merged on 1 June 2008. The ﬁ nancial accounting for this business combination was prepared in accordance with Australian Accounting Standards and recognises the acquisition date as 10 January 2008. Accounting policies 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 identiﬁ able 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 beneﬁ t from the synergies of the business combination. A cash-generating unit or groups of cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated ﬁ rst 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 on goodwill is recognised directly in proﬁ t or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the proﬁ t or loss on disposal. Impairment testing for goodwill is performed annually, or earlier if there is an impairment indicator. Key estimates and judgements 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 was identiﬁ ed 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. On disposal goodwill was subsequently derecognised. The goodwill disclosed in the Statement of Financial Position at 30 June 2019 was supported by the impairment testing and no impairment adjustment was required. Impairment testing of goodwill was carried out by comparing the carrying amount of the cash generating unit to the recoverable amount. The recoverable amount is determined based on fair value less cost to sell, using an earnings multiple applicable to the type of business. The category of this fair value is Level 3 as deﬁ ned in Section 4.6 - Fair value measurements. Earnings multiples relating to Group’s banking business are sourced from publicly available data associated with Australian businesses displaying similar characteristics to those of Auswide Bank Ltd, and are applied, together with a control premium, to current earnings. The key assumption is Price-Earnings (P/E) multiple observed for these businesses, which for the banking businesses were in the range of 9.5x-15.1x. P|72 AUSWIDE BANK ANNUAL REPORT 2019 3.4 Contributed equity Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Consolidated entity Fully paid ordinary shares Balance at beginning of year Issued during the year Staﬀ share plan Dividend reinvestment plan Share issue costs Gain/ (loss) in share capital on disposal of treasury shares Treasury shares 2019 Notes Shares No. 2019 Shares $’000 2018 Shares No. 2018 Shares $’000 42,108,972 191,612 40,686,033 184,752 3.4.1 3.4.2 53,745 275 59,666 - - - - - (29) 1,383,041 - - 291 6,914 (211) - Movement in treasury shares 3.4.3 10,205 78 (19,768) (134) Balance at end of year 42,172,922 191,936 42,108,972 191,612 Eﬀ ective 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. 3.4.1 Staﬀ Share Plan On 19 October 2018, 53,745 ordinary shares were issued pursuant to the Company’s staﬀ share plan. Shares were issued 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 ﬁ ve years at no interest. Consolidated Company 2019 2018 2019 2018 Shares No. Shares No. Shares No. Shares No. 2,974,418 2,920,673 2,974,418 2,920,673 53,745 $’000 299 275 59,666 $’000 323 291 53,745 $’000 299 275 59,666 $’000 323 291 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 ﬁ nancial year The total market value at date of issue, 19 October 2018 (17 October 2017) The total amount paid or payable for the shares at that date 3.4.2 Dividend Reinvestment Plan (DRP) The Board of Directors resolved to suspend the Dividend Reinvestment Plan (DRP) in respect of the ﬁ nal dividend for the 2017/18 ﬁ nancial year, payable on 21 September 2018. The Board of Directors resolved to suspend the DRP for the interim dividend payable on 25 March 2019 for the 2018/19 ﬁ nancial year. 3.4.3 Treasury shares As at the reporting date Auswide Performance Rights Pty Ltd holds 9,563 shares ($55,942) for the purpose of facilitating the Executive LTI scheme. AUSWIDE BANK ANNUAL REPORT 2019 P|73 3. Investments and ﬁ nancing (continued) 3.5 Reserves Available-for-sale reserve Investment revaluation reserve Asset revaluation reserve Cash ﬂ ow hedge reserve Share based payment reserve Statutory reserve General reserve Doubtful debts reserve 3.5.1 Available-for-sale reserve Available-for-sale reserve Balance at beginning of year Notes 3.5.1 3.5.2 3.5.3 3.5.4 3.5.5 3.5.6 3.5.7 3.5.8 Consolidated Company 2019 $’000 - 101 4,357 (521) 308 2,676 5,834 2,388 2018 $’000 102 - 4,357 (366) 241 2,676 5,834 2,388 2019 $’000 - 101 4,357 (521) 416 2,676 5,834 2,388 2018 $’000 102 - 4,357 (366) 241 2,676 5,834 2,388 15,143 15,232 15,251 15,232 Adjustment on adoption of AASB 9 (net of tax) Increase/(decrease) due to revaluation of external RMBS investments to mark-to-market Balance at end of year 102 (102) - - 105 - (3) 102 102 (102) - - 105 - (3) 102 The available-for-sale reserve was a former classiﬁ cation under AASB 139. The previous balance of this reserve represented the excess of the mark-to-market valuation over the original cost of the external RMBS investments. 3.5.2 Investment revaluation reserve Investment revaluation reserve Adjustment on adoption of AASB 9 (net of tax) Increase/(decrease) due to mark-to-market of external RMBS investments Deferred tax liability adjustment on revaluation of external RMBS investments Balance at end of year 102 (2) 1 101 - - - - 102 (2) 1 101 - - - - The investment revaluation reserve materialised as a result of the adoption of AASB 9. The balance of this reserve represents the excess of the mark-to-market valuation over the original cost of the external RMBS investments. 3.5.3 Asset revaluation reserve Asset revaluation reserve Balance at beginning of year Increase/(decrease) due to revaluation on land and buildings Deferred tax liability adjustment on revaluation on land and buildings Balance at end of year 4,357 - - 4,357 3,345 1,446 (434) 4,357 4,357 - - 4,357 3,345 1,446 (434) 4,357 The balance of this reserve represents the excess of the independent valuation over the original cost of the land and buildings. P|74 AUSWIDE BANK ANNUAL REPORT 2019 3.5.4 Cash ﬂ ow hedge reserve Cash ﬂ ow hedge reserve Balance at beginning of year Gain/(loss) arising on changes in fair value of interest rate swaps entered into for cash ﬂ ow hedges Interest rate swaps Income tax related to gains/losses recognised in other comprehensive income Balance at end of year Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 (366) (181) (366) (181) (221) 66 (521) (265) 80 (366) (221) 66 (521) (265) 80 (366) The cash ﬂ ow hedging reserve represents the cumulative eﬀ ective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash ﬂ ow 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 ﬂ ow hedging reserve will be reclassiﬁ ed to proﬁ t or loss only when the hedged transaction aﬀ ects the proﬁ t or loss, or is included as a basis adjustment to the non- ﬁ nancial hedged item, consistent with the relevant accounting policy. There were no cumulative gains/losses arising on changes in fair value of hedging instruments reclassiﬁ ed from equity into proﬁ t or loss during the year. 3.5.5 Share based payments reserve Share based payments reserve Balance at beginning of year Expensed during the year Vested during the year Balance at end of year Consolidated Company 2019 $’000 241 175 (108) 308 2018 $’000 (189) 375 55 241 2019 $’000 2018 $’000 241 175 - 416 - 241 - 241 The share based payments reserve relates to shares available for long term incentive (LTI) based payments to employees. 3.5.6 Statutory reserve This is a statutory reserve created on a distribution from the Queensland Building Society Fund. 3.5.7 General reserve A special reserve was established upon the Company issuing ﬁ xed share capital in 1992. The special reserve represented accumulated members’ proﬁ ts at that date and was transferred to the general reserve over a period of 10 years being ﬁ nalised in 2001/2002. 3.5.8 Doubtful debts reserve 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. AUSWIDE BANK ANNUAL REPORT 2019 P|75 3. Investments and ﬁ nancing (continued) 3.6 Dividends Paid Dividends paid during the year Interim for current year Final for previous year Consolidated Company 2019 $’000 6,749 7,583 14,332 2018 $’000 6,740 6,917 13,657 2019 $’000 6,749 7,583 14,332 2018 $’000 6,740 6,917 13,657 Dividends paid are fully franked on ordinary shares. Dividends are provided for as declared or paid. Subsequent to the reporting date, the Board declared a dividend of 18.5 cents per ordinary share ($7.804m), for the six months to 30 June 2019, payable on 20 September 2019. The ﬁ nal dividend for the six months to 30 June 2018 ($7.583m) was paid on 21 September 2018, and was disclosed in the 2017/18 ﬁ nancial accounts. The tax rate at which the dividends have been franked is 30% (2018: 30%). The amount of franking credits available for the subsequent ﬁ nancial year are: Balance as at the end of the ﬁ nancial year Credits/(debits) that will arise from the payment of income tax payable per the ﬁ nancial statements Debits that will arise from the payment of the proposed dividend 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 2019 $’000 30,025 2018 $’000 26,266 2019 $’000 30,025 (1,575) 721 (1,575) 2018 $’000 26,266 1,182 (3,344) (3,250) (3,344) (3,250) 25,106 23,737 25,106 24,198 18.5 16.0 18.0 18.0 16.0 17.0 18.5 16.0 18.0 18.0 16.0 17.0 P|76 AUSWIDE BANK ANNUAL REPORT 2019 4. Financial assets, liabilities and related ﬁ nancial risk management 4.1 Categories of ﬁ nancial instruments Notes Classiﬁ cation Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 Financial assets Cash and cash equivalents 4.1.1 4.1.2 4.1.3 Due from other ﬁ nancial institutions Other ﬁ nancial assets; - Certiﬁ cates of deposit - External RMBS investments - Investments in Managed Investment Schemes - Notes – securitisation program and other - Derivative assets - Interest receivable Loans and advances 4.1.4 Amortised cost Amortised cost Amortised cost FVTOCI 104,389 86,361 104,389 86,361 20,994 15,389 20,994 15,389 256,156 210,178 256,156 210,178 533 1,147 533 1,147 FVTPL 44,569 25,886 44,569 25,886 Amortised cost FVTPL Amortised cost Amortised cost 14,624 17,082 47,010 49,468 589 588 61 696 589 588 61 696 3,086,158 2,919,303 3,086,324 2,919,446 Other investments; - Unlisted shares Total ﬁ nancial assets Financial liabilities 4.1.5 FVTOCI 918 793 918 793 3,529,518 3,276,896 3,562,070 3,309,425 Deposits and other short term borrowings Payables and other liabilities 4.1.6 4.1.7 - Payables and creditors - Derivative liabilities Loans under management 4.1.4 Subordinated capital notes 4.1.8 Amortised cost Amortised cost FVTPL Amortised cost Amortised cost 2,802,605 2,446,825 2,802,608 2,446,860 37,761 26,013 37,758 26,006 1,332 55 1,332 55 490,412 607,166 522,798 639,552 28,000 28,000 28,000 28,000 Total ﬁ nancial liabilities 3,360,110 3,108,059 3,392,496 3,140,473 Accounting policies Financial instruments Financial assets and ﬁ nancial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Recognised ﬁ nancial assets and ﬁ nancial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of ﬁ nancial assets and ﬁ nancial liabilities (other than ﬁ nancial assets and ﬁ nancial liabilities at FVTPL) are added to, or deducted from, the fair value on recognition. Transaction costs directly attributable to the acquisition of ﬁ nancial assets or ﬁ nancial liabilities at FVTPL are recognised immediately in proﬁ t or loss. AUSWIDE BANK ANNUAL REPORT 2019 P|77 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.1 Categories of ﬁ nancial instruments (continued) If the transaction price diﬀ ers from fair value at initial recognition, the Group will account for such diﬀ erences as follows: • if fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets, then the diﬀ erence is recognised in proﬁ t or loss on initial recognition (i.e. day 1 proﬁ t or loss); and • in all other cases, the fair value will be adjusted to bring it in line with the transaction price (i.e. day 1 proﬁ t or loss will be deferred by including it in the initial carrying amount of the asset or liability). After initial recognition, the deferred gain or loss will be released to proﬁ t or loss on a rational basis, only to the extent that it arises from a change in a factor (including time) that market participants would take into account when pricing the asset or liability. Financial assets Financial assets are recognised on the trade date when the purchase is under a contract whose terms require delivery of the ﬁ nancial asset within the timeframe established by the market concerned. Financial assets are initially measured at fair value, plus transaction costs, except for those ﬁ nancial assets classiﬁ ed as at FVTPL. Transaction costs directly attributable to the acquisition of ﬁ nancial assets classiﬁ ed as at FVTPL are recognised immediately in proﬁ t or loss. All recognised ﬁ nancial assets that are within the scope of AASB 9 are required to be subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managing the ﬁ nancial assets and the contractual cash ﬂ ow characteristics of the ﬁ nancial assets. Speciﬁ cally: • debt instruments that are held within a business model whose objective is to collect the contractual cash ﬂ ows, and that have contractual cash ﬂ ows that are solely payments of principal and interest on the principal amount outstanding (SPPI), are subsequently measured at amortised cost; • debt instruments that are held within a business model whose objective is both to collect the contractual cash ﬂ ows and to sell the debt instruments, and that have contractual cash ﬂ ows that are SPPI, are subsequently measured at FVTOCI; and • all other debt instruments (e.g. debt instruments managed on a fair value basis, or held for sale) and equity investments are subsequently measured at FVTPL. However, the Group may make the following irrevocable election/ designation at initial recognition of a ﬁ nancial asset on an asset-by-asset basis: • the Group may irrevocably elect to present subsequent changes in fair value of an equity investment that is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which AASB 3 applies, in OCI; and • the Group may irrevocably designate a debt instrument that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or signiﬁ cantly reduces an accounting mismatch (referred to as the fair value option). Debt instruments at amortised cost or at FVTOCI The Group assesses the classiﬁ cation and measurement of a ﬁ nancial asset based on the contractual cash ﬂ ow characteristics of the asset and the Group’s business model for managing the asset. For an asset to be classiﬁ ed and measured at amortised cost or at FVTOCI, its contractual terms should give rise to cash ﬂ ows that are solely payments of principal and interest on the principal outstanding (SPPI). For the purpose of SPPI test, principal is the fair value of the ﬁ nancial asset at initial recognition. That principal amount may change over the life of the ﬁ nancial asset (e.g. if there are repayments of principal). Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a proﬁ t margin. The SPPI assessment is made in the currency in which the ﬁ nancial asset is denominated. Contractual cash ﬂ ows that are SPPI are consistent with a basic lending arrangement. Contractual terms that introduce exposure to risks or volatility in the contractual cash ﬂ ows that are unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash ﬂ ows that are SPPI. An originated or an acquired ﬁ nancial asset can be a basic lending arrangement irrespective of whether it is a loan in its legal form. An assessment of business models for managing ﬁ nancial assets is fundamental to the classiﬁ cation of a ﬁ nancial asset. The Group determines the business models at a level that reﬂ ects how groups of ﬁ nancial assets are managed together to achieve a particular business objective. The Group’s business model does not depend on management’s intentions for an individual instrument, therefore the business model assessment is performed at a higher level of aggregation. When a debt instrument measured at FVTOCI is derecognised, the cumulative gain/loss previously recognised in OCI is reclassiﬁ ed from equity to proﬁ t or loss. P|78 AUSWIDE BANK ANNUAL REPORT 2019 Debt instruments that are subsequently measured at amortised cost or at FVTOCI are subject to impairment. Financial assets at FVTPL Financial assets at FVTPL are: • assets with contractual cash ﬂ ows that are not SPPI; or/and • assets that are held in a business model other than held to collect contractual cash ﬂ ows or held to collect and sell; or • assets designated at FVTPL using the fair value option. Such assets are measured at fair value, with any gains/losses arising on remeasurement recognised in proﬁ t or loss. Equity investments On initial recognition, the Group classiﬁ es the investment in equity instruments either at FVTPL if it is held for trading or at FVTOCI if designated as measured at FVTOCI. When an equity investment designated as measured at FVTOCI is derecognised, the cumulative gain/loss previously recognised in OCI is not subsequently reclassiﬁ ed to proﬁ t or loss but transferred within equity. Derecognition of ﬁ nancial assets The Group derecognises a ﬁ nancial asset only when the contractual rights to the asset’s cash ﬂ ows expire (including expiry arising from a modiﬁ cation with substantially diﬀ erent terms), or when the ﬁ nancial asset and substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred ﬁ nancial asset, the Group continues to recognise the ﬁ nancial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a ﬁ nancial asset in its entirety, the diﬀ erence between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain/loss that had been recognised in OCI and accumulated in equity is recognised in proﬁ t or loss, with the exception of equity investment designated as measured at FVTOCI, where the cumulative gain/loss previously recognised in OCI is not subsequently reclassiﬁ ed to proﬁ t or loss. Reclassiﬁ cations If the business model under which the Group holds ﬁ nancial assets changes, the ﬁ nancial assets aﬀ ected are reclassiﬁ ed. The classiﬁ cation and measurement requirements related to the new category apply prospectively from the ﬁ rst day of the ﬁ rst reporting period following the change in business model that results in reclassifying the Group’s ﬁ nancial assets. During the current ﬁ nancial year and previous accounting period there was no change in the business model under which the Group holds ﬁ nancial assets and therefore no reclassiﬁ cations were made. Financial liabilities A ﬁ nancial liability is a contractual obligation to deliver cash or another ﬁ nancial asset or to exchange ﬁ nancial assets or ﬁ nancial liabilities with another entity under conditions that are potentially unfavourable to the Group or a contract that will or may be settled in the Group’s own equity instruments and is a non-derivative contract for which the Group is or may be obliged to deliver a variable number of its own equity instruments, or a derivative contract over own equity that will or may be settled other than by the exchange of a ﬁ xed amount of cash (or another ﬁ nancial asset) for a ﬁ xed number of the Group’s own equity instruments. Financial liabilities are classiﬁ ed as either ﬁ nancial liabilities at FVTPL or other ﬁ nancial liabilities. The Group does not have any ﬁ nancial liabilities which are classiﬁ ed at FVTPL. Other ﬁ nancial liabilities, including deposits and borrowings, are initially measured at fair value, net of transaction costs. Other ﬁ nancial liabilities are subsequently measured at amortised cost using the eﬀ ective interest method. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Repurchase of the Group’s own equity instruments is recognised and deducted directly in equity. No gain/loss is recognised in proﬁ t or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. 4.1.1 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: AUSWIDE BANK ANNUAL REPORT 2019 P|79 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.1 Categories of ﬁ nancial instruments (continued) Cash at bank and in hand Deposits on call 4.1.2 Due from other ﬁ nancial institutions Deposits with Special Service Providers (SSPs) Subordinated loans Consolidated Company 2019 $’000 39,689 64,700 104,389 2018 $’000 35,801 50,560 86,361 2019 $’000 39,689 64,700 104,389 2018 $’000 35,801 50,560 86,361 Consolidated Company 2019 $’000 20,994 - 20,994 2018 $’000 15,264 125 15,389 2019 $’000 20,994 - 20,994 2018 $’000 15,264 125 15,389 In accordance with our undertakings with the RBA and APRA the Deposits with Special Service Providers represents the mandated prudential funds held with Australian Settlements Limited (ASL). 4.1.3 Other ﬁ nancial assets Certiﬁ cates of deposit External RMBS investments Investments in Managed Investment Schemes (MIS) Notes - securitisation program and other Derivative assets Interest receivable Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 256,156 210,178 256,156 210,178 533 44,569 14,624 589 588 1,147 25,886 17,082 61 696 533 44,569 47,010 589 588 1,147 25,886 49,468 61 696 317,059 255,050 349,445 287,436 Cash held within securitised trusts at 30 June 2019 of $14.624m (2018: $17.082m) is restricted for use only by the trusts. 4.1.4 Loans and advances Term loans Continuing credit loans Interest receivable Deferred mortgage broker commissions Loans to controlled entities Expected credit loss Total loans and advances Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 2,963,721 2,782,321 2,963,722 2,782,322 117,371 131,723 117,371 131,723 4,603 4,954 - 4,154 4,302 - 4,603 4,954 165 4,154 4,302 142 3,090,649 2,922,500 3,090,815 2,922,643 (4,491) (3,197) (4,491) (3,197) 3,086,158 2,919,303 3,086,324 2,919,446 For details on ECL recognised against loans and advances see Section 4.5 - Credit risk management. The Group has entered into securitisation transactions on residential mortgage loans that do not qualify for derecognition. The special purpose entities established for the securitisations are considered to be controlled in accordance with Australian Accounting Standards and Australian Accounting Interpretations. The Company is entitled to any residual income of the P|80 AUSWIDE BANK ANNUAL REPORT 2019 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 $490.412m (2018: $607.166m). Class B notes of $32.386m (2018: $32.386m) which are owned by the Company and which represent the Group’s exposure on the securitised mortgages have been eliminated from the consolidated ﬁ gures. 4.1.5 Other investments This represents investments in equity securities which have been classiﬁ ed fair value through other comprehensive income. Unlisted shares Equity accounted investment 4.1.6 Deposits and short term borrowings Call deposits Term deposits Negotiable certiﬁ cates of deposit (NCDs) Floating rate notes (FRNs) 4.1.7 Payables and other liabilities Trade creditors Derivative liabilities Accrued interest payable Other creditors 4.1.8 Subordinated capital notes Inscribed debenture stock Consolidated Company 2019 $’000 918 403 1,321 2018 $’000 793 351 1,144 2019 $’000 918 403 1,321 2018 $’000 793 351 1,144 Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 880,811 752,954 880,814 752,989 1,492,106 1,355,032 1,492,106 1,355,032 311,188 118,500 257,839 81,000 311,188 118,500 257,839 81,000 2,802,605 2,446,825 2,802,608 2,446,860 Consolidated Company 2019 $’000 7,272 1,332 15,140 15,349 39,093 2018 $’000 2,579 55 12,758 10,676 26,068 2019 $’000 7,269 1,332 15,140 15,349 39,090 2018 $’000 2,572 55 12,758 10,676 26,061 Consolidated Company 2019 $’000 28,000 28,000 2018 $’000 28,000 28,000 2019 $’000 28,000 28,000 2018 $’000 28,000 28,000 Subordinated capital notes are inscribed debenture stock which are issued for a period of ten years non call ﬁ ve years, at which time they can be redeemed. Interest is repriced quarterly at a set margin above the 90 day bank bill swap rate (BBSW). Subordinated capital notes of $15.000m were redeemed and replaced by a new $15.000m issue on 12 June 2019. The new notes were issued at a margin of 320 bps over the BBSW. The Group did not have any defaults of principal or interest or other breaches with respect to its subordinated liabilities during the years ended 30 June 2018 and 2019. 4.2 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: AUSWIDE BANK ANNUAL REPORT 2019 P|81 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.2 Capital risk management (continued) The Board Risk Committee; • assists the Board in the eﬀ ective management of its responsibilities to set and oversee the risk proﬁ le and the risk management framework of Auswide Bank; • ensures management have appropriate risk systems and practices to eﬀ ectively operate within the Board approved risk proﬁ le 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 ﬁ nancial reporting and disclosure practices; • overviews the internal audit functions; • reviews compliance with APRA reporting and other statutory requirements; • oversight of ﬁ nancial accounts; • addresses changes in accounting principles and the application 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 buﬀ er 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 proﬁ le 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. During the 2019 and 2018 ﬁ nancial years the capital adequacy ratios of both the Group and Company were maintained above the target ratio. The capital adequacy calculations at 30 June 2019 and 30 June 2018 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 speciﬁ c 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 speciﬁ c deductions. Tier 2 capital comprises other capital components including general reserve for credit losses and cumulative subordinated debt. Consistent with Basel III, the approach to capital assessment provides for a quantitative measure of the capital adequacy and focuses on: • credit risk arising from on-balance sheet and oﬀ -balance sheet exposures; • market risk arising from trading activities; • operational risk associated with banking activities; • securitisation risks; and • the amount, form and quality of capital held to act as a buﬀ er against these and other exposures. P|82 AUSWIDE BANK ANNUAL REPORT 2019 Details of the capital adequacy ratio on a Company and consolidated basis are set out in following table: Total risk weighted assets Capital base Risk-based capital ratio Consolidated Company 2019 $’000 2018 $’000 2019 $’000 2018 $’000 1,498,370 1,375,364 1,498,133 1,374,572 206,639 13.79% 204,827 14.89% 206,801 13.80% 204,339 14.87% The loan portfolio of the Company does not include any loan which represents 10% or more of capital. The APS 330 Pillar III Disclosures inclusive of the Capital Disclosure Template, Regulatory Capital reconciliation and the Capital Instruments Disclosures are available in the Prudential Disclosures section of the company’s website at www. auswidebank.com.au. 4.3 Market risk management Market risk is the risk that changes in market prices, such as interest rates, will aﬀ ect Auswide Bank Ltd’s income or the worth of its holdings of ﬁ nancial instruments. The Board’s objective is to manage market risk exposures while optimising the return on risk. 4.3.1 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 ﬁ nancial derivative alternatives. These risks are quantiﬁ ed in the Visual Risk Report. The ALCO’s functions and roles include: (i) directives; review measures of proﬁ tability, particularly net interest and fee income including strategies and (ii) (iii) review management interest rate view as well as asset and liability repricing data; receive and review reports from management concerning the organisation’s credit risk; (iv) established in Board policy; receive and review management reports on interest rate risk against guidelines and limits (v) attached to these products in co-operation with the Product Pricing sub-committee; consider and approve pricing on interest bearing assets and liabilities as well as fee revenue (vi) policies; oversee lending and depositing activities, including the provision of discretion pursuant to Board (vii) receive and review reports from management regarding signiﬁ cant asset and liability exposure; (viii) securitisation transactions; oversee securitisation activities for the organisation, including recommendations for future (ix) and (x) review and maintain liquidity and capital management plans, including contingency measures; make recommendations to the Board on changes to the following policies; • Lending; • Term Deposits; and • Finance related policies (including capital and liquidity). AUSWIDE BANK ANNUAL REPORT 2019 P|83 : s w o l l o f s a e r a , e t a d e c n a a b e h t l t a d e s i n g o c e r n u d n a d e s i n g o c e r h t o b , s e i t i l i b a i l : n i g n i r u t a m e t a r t s e r e t n i d e x i F ) d e u n i t n o c ( t n e m e g a n a m k s i r l a i c n a n ﬁ d e t a e r d n a s e i t i l i l b a i l , s t e s s a l a i c n a n F i ) d e u n i t n o c ( t n e m e g a n a m k s i r t e k r a M . 4 . 3 4 l i a c n a n ﬁ d n a s t e s s a l i a c n a n ﬁ f o s e t a r t s e r e t n i e v i t c e ﬀ e e h t d n a s k s i r e t a r t s e r e t n i o t e r u s o p x e s ’ p u o r G e h T e g a r e v a d e t h g e W i t n u o m a g n i y r r a c 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 l a i c n a n F i 8 1 0 2 % 9 1 0 2 % 8 1 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 8 1 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ s t n e m u r t s n i P|84 AUSWIDE BANK ANNUAL REPORT 2019 9 4 1 . 0 5 1 . - 9 0 3 . 9 2 6 . - 5 2 3 . 2 4 6 . 7 3 1 . 8 4 1 . 9 5 2 . 4 1 4 . 0 0 3 . 6 0 4 . 4 1 1 . 9 8 3 5 1 , 4 9 9 0 2 , 5 9 , 9 8 9 4 5 2 0 7 4 6 1 3 , - 6 3 1 . 1 6 3 6 8 , , 9 8 3 4 0 1 0 2 5 0 0 4 5 9 - - - - - - - - - 1 4 8 5 8 , , 9 8 9 3 0 1 4 9 2 5 1 , 9 9 8 0 2 , 6 8 8 5 2 , 9 6 5 4 4 , 1 2 0 2 1 2 , 7 7 2 7 5 2 , 2 8 0 7 1 , 4 2 6 4 1 , 3 1 0 6 2 , 2 6 7 7 3 , 3 1 0 6 2 , 2 6 7 7 3 , - - - - - - , 3 0 3 9 1 9 2 , , 2 4 0 6 7 2 3 , , 5 2 8 6 4 4 2 , , 8 5 1 6 8 0 3 , , 1 1 0 8 2 5 3 , 9 5 2 5 , 6 6 0 5 , 9 4 2 4 9 5 , , 2 9 1 0 0 6 9 9 3 3 6 2 , , 2 6 4 1 4 3 4 7 8 5 , 1 6 5 5 , 5 3 1 0 2 6 , 1 6 7 4 4 6 , 0 2 4 5 7 4 , 9 3 7 8 9 5 , , 6 9 3 6 5 0 2 , , 3 1 6 4 7 1 2 , , 8 3 4 9 3 1 2 , , 0 5 9 8 7 2 2 , , 5 0 6 2 0 8 2 , - - 5 0 9 3 3 , 2 9 5 8 5 , , 7 6 9 9 5 6 1 , , 2 0 2 3 6 8 1 , , 3 5 9 2 5 7 1 1 8 0 8 8 , , 4 0 0 8 0 1 3 , , 9 7 7 8 5 3 3 , 3 1 0 6 2 , 2 6 7 7 3 , , 2 2 7 7 5 1 1 8 9 3 5 1 , , 9 4 8 2 4 7 1 , , 1 7 4 5 4 9 1 , , 0 2 4 1 8 1 1 , , 5 6 5 1 2 2 1 , , 6 6 1 7 0 6 2 1 4 0 9 4 , 0 0 0 8 2 , 0 0 0 8 2 , - - - - - - 0 0 0 8 2 , 0 0 0 8 2 , - - 7 1 8 3 2 1 , 9 8 3 5 9 , 2 8 8 4 5 , 9 6 2 4 5 , 7 6 4 8 2 4 , 4 5 7 0 4 3 , r e d n u s n a o L t n e m e g a n a m s t e s s a l a i c n a n F i h s a c d n a h s a C l s t n e a v i u q e r e h t o m o r f e u D s n o i t u t i t s n i l i a c n a n ﬁ s e c n a v d a d n a s n a o L l a i c n a n ﬁ l a t o T s t e s s a s t e s s a l i a c n a n ﬁ r e h t O s e i t i l i b a i l l a i c n a n F i t r o h s d n a s t i s o p e D i s g n w o r r o b m r e t r e h t o d n a s e b a y a P l s e i t i l i b a i l l a t i p a c d e t a n d r o b u S i l a i c n a n ﬁ l a t o T s e t o n s e i t i l i b a i l 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 proﬁ t before tax would increase by $11.559m or decrease by $14.178m (2018: decrease by $8.404m or increase by $7.336m). This is mainly due to the Company’s exposures to 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 ﬁ nancial assets and liabilities. The parameters used were consistent with those adopted for the prior year. Derivatives Derivatives are utilised to manage interest rate risk, along with balance sheet management. Net Interest Impact, Net Present Value and Value at Risk are key interest rate risk measures that are monitored to maintain ratios and risk within policy limits. Each of the securitisation trusts has an Interest Rate Swap in place to hedge against ﬁ xed 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 2014-1 WB Trust 2010-1 ABA Trust 2017-1 2019 $’000 (145) 1,548 54 73 34 (61) 2018 $’000 9 850 31 156 42 17 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 six interest rate swaps, two with ANZ and four with Westpac Bank. These are designated as eﬀ ective hedges and are accounted for as cash ﬂ ow hedges. Assets and liabilities arising from the mark-to-market valuation of interest rate swaps are $0.589m and $1.332m respectively (2018: $61,343 and $54,714). Accounting policies Cash ﬂ ow hedges The Group designates certain hedging instruments, which include interest rate swaps, as cash ﬂ ow 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 eﬀ ective in oﬀ setting changes in cash ﬂ ows of the hedged item attributable to the hedged risk. The eﬀ ective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash ﬂ ow hedges is recognised in the cash ﬂ ow hedging reserve, a separate component of OCI, limited to the cumulative change in fair value of the hedged item from inception of the hedge less any amounts recycled to proﬁ t or loss. Amounts previously recognised in OCI and accumulated in equity are reclassiﬁ ed to proﬁ t or loss in the periods when the hedged item aﬀ ects proﬁ t or loss, in the same line as the recognised hedged item. If the Group no longer expects the transaction to occur that amount is immediately reclassiﬁ ed to proﬁ t or loss. The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised, or where the occurrence of the designated hedged forecast transaction is no longer considered to be highly probable. The discontinuation is accounted for prospectively. Any gain/loss recognised in OCI and accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in proﬁ t or loss. When a forecast transaction is no longer expected to occur, the gain/loss accumulated in equity is reclassiﬁ ed and recognised immediately in proﬁ t or loss. AUSWIDE BANK ANNUAL REPORT 2019 P|85 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.4 Liquidity risk management Liquidity risk refers to the possibility that the Group will be unable to meet its ﬁ nancial obligations as they fall due. 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 ﬂ ows. 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 ABA Trust No. 7 Total Concentration risk 2019 $’000 38,058 31,237 69,295 2018 $’000 25,360 27,032 52,392 The Company’s deposit portfolio does not include any deposit which represents 10% or more of total liabilities. P|86 AUSWIDE BANK ANNUAL REPORT 2019 l a t o T 0 0 0 $ ’ , 9 8 3 4 0 1 4 9 9 0 2 , , 9 5 0 7 1 3 , 8 5 1 6 8 0 3 , , 0 0 6 8 2 5 3 , , 5 0 6 2 0 8 2 , 3 9 0 9 3 , 2 1 4 0 9 4 , 0 0 0 8 2 , , 0 1 1 0 6 3 3 , l a t o T 0 0 0 $ ’ 1 6 3 6 8 , 9 8 3 5 1 , 0 5 0 5 5 2 , , 3 0 3 9 1 9 2 , , 3 0 1 6 7 2 3 , 0 0 0 $ ’ d e ﬁ i c e p s y t i r u t a m o N - - - 4 9 9 0 2 , 4 9 9 0 2 , - - - - - 0 0 0 $ ’ d e ﬁ i c e p s y t i r u t a m o N - - - 9 8 3 5 1 , 9 8 3 5 1 , - - 7 2 7 9 5 , , 4 3 9 3 3 0 3 , , 1 6 6 3 9 0 3 , - - - , 6 2 8 0 7 2 - - 2 7 1 6 8 , 5 2 1 9 3 , , 7 9 2 5 2 1 2 9 5 8 5 , 3 0 8 1 , 4 4 9 6 3 , 0 0 0 8 2 , , 6 2 8 0 7 2 , 9 3 3 5 2 1 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ s r a e y 5 n a h t r e t a L s r a e y 5 - 1 s h t n o m 2 1 - 3 s h t n o m 3 o t p U : s w o l l o f s a e r a y t i r u t a m l a u t c a r t n o c n o d e s a b s e i t i l i b a i l - - 7 6 5 2 2 , 2 3 9 4 , 9 9 4 7 2 , - - 7 6 1 8 , , 3 9 5 8 4 1 0 6 7 6 5 1 , d n a s t e s s a - - - l l a c n O 0 0 0 $ ’ , 9 8 3 4 0 1 , 9 8 3 4 0 1 l i a c n a n ﬁ f o s p u o r g e v i t c e p s e r e h t r o f s i s y l a n a y t i r u t a m e h T 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 l s t n e a v i u q e h s a c d n a h s a C s t e s s a l a i c n a n F i 9 1 0 2 e n u J 0 3 s t e s s a l i a c n a n ﬁ r e h t O s e c n a v d a d n a s n a o L l a t o T y t i t n e d e t a d i l o s n o C 1 3 7 2 9 9 , 1 7 4 0 7 8 , 1 1 8 0 8 8 , 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 - 6 6 6 8 , , 5 2 7 4 4 1 - 4 2 6 8 2 , 7 1 9 7 3 , - - - 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 t n e m e g a n a m r e d n u s n a o 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 , 2 2 1 6 4 1 1 , 2 1 0 7 3 9 , 1 1 8 0 8 8 , l a t o T s e i t i l i b a i l l a i c n a n F i 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ s r a e y 5 n a h t r e t a L s r a e y 5 - 1 s h t n o m 2 1 - 3 s h t n o m 3 o t p U - - 5 1 1 4 4 , , 4 0 8 0 6 8 2 , , 9 1 9 4 0 9 2 , - - , 3 5 4 8 0 1 5 4 0 9 3 , , 8 9 4 7 4 1 - - - 9 5 2 2 1 , 9 5 2 2 1 , - - 5 9 1 7 , , 2 8 4 2 0 1 7 7 6 9 0 1 , 1 6 3 6 8 , - - - l l a c n O 0 0 0 $ ’ 1 6 3 6 8 , 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 l s t n e a v i u q e h s a c d n a h s a C s t e s s a l a i c n a n F i 8 1 0 2 e n u J 0 3 s t e s s a l i a c n a n ﬁ r e h t O s e c n a v d a d n a s n a o L l a t o T AUSWIDE BANK ANNUAL REPORT 2019 P|87 y t i t n e d e t a d i l o s n o C l a t o T 0 0 0 $ ’ 0 0 0 $ ’ d e ﬁ i c e p s y t i r u t a m o N 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ s r a e y 5 n a h t r e t a L s r a e y 5 - 1 s h t n o m 2 1 - 3 s h t n o m 3 o t p U l l a c n O 0 0 0 $ ’ y t i t n e d e t a d i l o s n o C 8 1 0 2 e n u J 0 3 ) d e u n i t n o c ( t n e m e g a n a m k s i r l a i c n a n ﬁ d e t a e r d n a s e i t i l i l b a i l , s t e s s a l a i c n a n F i . 4 ) d e u n i t n o c ( t n e m e g a n a m k s i r y t i d u q i L i 4 4 . P|88 AUSWIDE BANK ANNUAL REPORT 2019 s e i t i l i b a i l l a i c n a n F i , 5 2 8 6 4 4 2 , 8 6 0 6 2 , , 6 6 1 7 0 6 0 0 0 8 2 , , 9 5 0 8 0 1 3 , - - - - - , 9 8 3 4 0 1 - l a t o T 0 0 0 $ ’ 0 0 0 $ ’ d e ﬁ i c e p s y t i r u t a m o N 4 9 9 0 2 , 5 4 4 9 4 3 , , 4 2 3 6 8 0 3 , , 2 5 1 1 6 5 3 , 0 9 0 9 3 , 8 9 7 2 2 5 , 0 0 0 8 2 , , 8 0 6 2 0 8 2 , , 6 9 4 2 9 3 3 , 4 9 9 0 2 , - - 4 9 9 0 2 , - - - - - - - - 8 7 6 1 6 3 , 4 0 9 3 3 , , 5 3 3 0 0 8 2 3 6 9 5 8 , 4 5 9 2 5 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 7 1 3 8 4 6 8 9 , 0 0 0 3 1 , 5 9 1 6 , 0 4 6 9 9 , 0 0 0 5 1 , - 6 5 5 9 1 , 0 0 2 7 4 , - - - 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 t n e m e g a n a m r e d n u s n a o 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 8 7 6 1 6 3 , , 9 6 8 5 4 1 0 7 1 1 2 9 , 8 8 3 6 2 9 , 4 5 9 2 5 7 , 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ s r a e y 5 n a h t r e t a L s r a e y 5 - 1 s h t n o m 2 1 - 3 s h t n o m 3 o t p U l l a c n O 0 0 0 $ ’ 9 1 0 2 e n u J 0 3 y n a p m o C l a t o T - - - - 3 1 1 2 9 , , 0 0 1 4 3 0 3 , , 3 1 2 6 2 1 3 , - - 2 7 1 6 8 , 5 2 1 9 3 , , 7 9 2 5 2 1 2 9 5 8 5 , 3 0 8 1 , - - 7 6 5 2 2 , 2 3 9 4 , 9 9 4 7 2 , 6 6 6 8 , 0 6 7 6 5 1 , , 9 8 3 4 0 1 - - 7 6 1 8 , , 3 9 5 8 4 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 s t e s s a l i a c n a n ﬁ r e h t O s e c n a v d a d n a s n a o L l a t o T s e i t i l i b a i l l a i c n a n F i , 9 8 3 4 0 1 l s t n e a v i u q e h s a c d n a h s a C s t e s s a l a i c n a n F i - 0 0 0 8 2 , - , 2 6 3 2 6 1 8 0 4 5 4 1 , 1 1 1 5 7 1 , - 1 2 6 8 2 , 7 1 9 9 3 , - - - 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 t n e m e g a n a m r e d n u s n a o 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 , 2 6 3 2 6 1 3 0 8 3 3 2 , , 8 0 5 6 7 1 1 , 9 0 0 9 3 9 , 4 1 8 0 8 8 , l a t o T 1 3 7 2 9 9 , 1 7 4 0 7 8 , 4 1 8 0 8 8 , 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 l a t o T 0 0 0 $ ’ 1 6 3 6 8 , 9 8 3 5 1 , 6 3 4 7 8 2 , , 6 4 4 9 1 9 2 , , 2 3 6 8 0 3 3 , 1 6 0 6 2 , 2 5 5 9 3 6 , 0 0 0 8 2 , , 0 6 8 6 4 4 2 , , 3 7 4 0 4 1 3 , 0 0 0 $ ’ d e ﬁ i c e p s y t i r u t a m o N - 9 8 3 5 1 , - - 9 8 3 5 1 , - - - - - - - 1 0 5 6 7 , , 9 4 9 0 6 8 2 , , 0 5 4 7 3 9 2 , - - - - , 3 5 4 8 0 1 5 4 0 9 3 , , 8 9 4 7 4 1 7 1 3 4 0 9 3 3 , - - - 9 5 2 2 1 , 9 5 2 2 1 , 5 9 1 6 , 8 7 6 1 6 3 , 4 4 4 5 1 1 , , 0 3 2 3 1 1 - 8 7 6 1 6 3 , 0 0 0 3 1 , , 5 6 6 2 6 1 0 0 0 5 1 , - - - 3 9 1 7 , , 2 8 4 2 0 1 9 4 5 9 1 , 0 0 2 9 4 , 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ 0 0 0 $ ’ s r a e y 5 n a h t r e t a L s r a e y 5 - 1 s h t n o m 2 1 - 3 s h t n o m 3 o t p U , 5 7 6 9 0 1 1 6 3 6 8 , - - - l l a c n O 0 0 0 $ ’ 1 6 3 6 8 , 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 l s t n e a v i u q e h s a c d n a h s a C 8 1 0 2 e n u J 0 3 y n a p m o C s t e s s a l a i c n a n F i s t e s s a l i a c n a n ﬁ r e h t O s e c n a v d a d n a s n a o L l a t o T s e i t i l i b a i l l a i c n a n F i , 5 3 3 0 0 8 2 3 6 9 5 8 , , 9 8 9 2 5 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 - - - 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 t n e m e g a n a m r e d n u s n a o 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 0 6 7 4 3 9 , 1 8 3 8 2 9 , , 9 8 9 2 5 7 l a t o T AUSWIDE BANK ANNUAL REPORT 2019 P|89 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.5 Credit risk management Credit risk is the risk that a customer or counterparty will default on its contractual obligations resulting in ﬁ nancial loss to the Group. The Group’s main income generating activity is lending to customers and therefore credit risk is a principal risk. Credit risk mainly arises from loans and advances, debt investments, lease receivables, contract assets, loan commitments and ﬁ nancial guarantees. The Group considers all elements of credit risk exposure such a counterparty default risk, geographical risk and sector risk for risk management purposes. 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 deﬁ ne the credit principles, lending policies and the decision making processes which control the credit risk of the Company. Credit risk exists predominantly on the Group’s loan portfolio. Other assets that are subject to credit risk include cash and cash equivalents, amounts due from other ﬁ nancial institutions, receivables, certiﬁ cates of deposit, securitisation notes and deposits, loan commitments and bank guarantees. The loan portfolio consists of mortgage lending, personal lending and commercial lending. Loan commitments and bank guarantees are oﬀ balance sheet exposures of the loan portfolio, which are also subject to credit risk. These groupings, by product type, have been assessed as reﬂ ecting similar performance behaviours, based on the Group’s analysis of its loan portfolio. Credit risk on mortgage lending is minimised by the availability and application of insurances including lenders’ mortgage insurance, property insurance and mortgage protection insurance. Credit risk in the mortgage loan portfolio is managed by generally protecting all loans in excess of 80% LVR with one of the recognised mortgage insurers and securing the loans by ﬁ rst mortgages on residential property. The company has a diversiﬁ ed branch network consisting of 21 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, as well as economic forecasts, and ensures credit procedures are adhered to on a timely and accurate basis. The Group’s maximum exposure to credit risk at balance date in relation to each class of ﬁ nancial asset is the carrying amount of those assets as recognised on the balance sheet. In relation to oﬀ balance sheet loan commitments, the maximum exposure to credit risk is the maximum committed amount as per terms of the agreement. 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 mitigate the risk exposure. The Group 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. Diversiﬁ cation of the mortgage portfolio assists in minimising credit risk by reducing security concentrations in particular geographic locations. Credit risk on personal lending is minimised by the availability of consumer credit insurance, as well as the lending policies and processes in place. Commercial lending credit risk is minimised requiring collateral as security, which is mostly residential property, in addition to the use of bank guarantees in some circumstances. The risk management policies and decision making procedures also aid in minimising credit risk on commercial exposures. Oﬀ balance sheet loan commitments and bank guarantees are also subject to credit risk, which is minimised by following credit guidelines for issuing credit, as well as monitoring and following review processes for exposures in relation to bank guarantees and undrawn credit. Credit risk on cash, cash equivalents and amounts due from other ﬁ nancial institutions have been assessed as low risk with a negligible probability of default, due to amounts being invested with investment grade credit institutions with a no loss history. Credit risk on certiﬁ cates of deposit is assessed as low and probability of default negligible. Risk is minimised by using clearly deﬁ ned policies for investment grade rated credit institutions, combined with the current economic outlook and on the basis of no prior losses in the Group’s history on these investments. External securitised notes are subject to low credit risk and negligible probability of default due to securitisation trusts having a structure that utilises an excess income reserve to absorb any losses, reducing the risk of note balances being aﬀ ected. The securitisation deposits are made with investment grade rated credit institutions. 4.5.1 Sources of credit risk Key sources of credit risk for the Group predominantly emanate from its business activities including loans and advances to customers, debt investments, loan commitments etc. The Group monitors and manages credit risk by class of ﬁ nancial P|90 AUSWIDE BANK ANNUAL REPORT 2019 instrument. The table below outlines such classes of ﬁ nancial instruments identiﬁ ed, their relevant ﬁ nancial statement line item, maximum exposure to credit risk at the reporting date and expected credit loss recognised. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Consolidated entity Class of ﬁ nancial instrument Cash and cash equivalents Due from other ﬁ nancial institutions Certiﬁ cates of deposit External RMBS investments Notes – securitisation program and other Interest receivable Loans and advances Total Oﬀ -balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total Accounting policies Impairment of ﬁ nancial assets Notes Financial statement line Maximum exposure to credit risk Expected credit loss $’000 $’000 Cash and cash equivalents Due from other ﬁ nancial institutions Other ﬁ nancial assets Other ﬁ nancial assets Other ﬁ nancial assets Other ﬁ nancial assets Loans and advances 4.1.1 4.1.2 4.1.3 4.1.3 4.1.3 4.1.3 4.1.4 6.3 6.3 104,389 20,994 256,156 533 14,624 588 - - - - - - 3,315,110 3,712,394 4,437 4,437 66,874 1,405 68,279 54 - 54 The Group recognises loss allowances for ECLs on the following ﬁ nancial instruments that are not measured at FVTPL: • loans and advances; and • issued loan commitments and loans approved and not yet advanced. ECLs are required to be measured through a loss allowance at an amount equal to: • 12-month ECL, i.e. lifetime ECL that result from those default events on the ﬁ nancial instrument that are possible within 12 months after the reporting date, (referred to as stage 1); or • lifetime ECL, i.e. lifetime ECL that result from all possible default events over the life of the ﬁ nancial instrument, (referred to as stage 2 and stage 3). A loss allowance for full lifetime ECL is required for a ﬁ nancial instrument if the credit risk on that ﬁ nancial instrument has increased signiﬁ cantly since initial recognition. For all other ﬁ nancial instruments, ECLs are measured at an amount equal to the 12-month ECL. Deﬁ nition of default The Group considers the following as constituting an event of default: • the borrower is past due more than 90 days on any material credit obligation to the Group; or • the borrower is unlikely to pay its credit obligations to the Group in full. The deﬁ nition of default is appropriately tailored to reﬂ ect diﬀ erent characteristics of diﬀ erent types of assets. Overdrafts are considered as being past due once the customer has breached an advised limit or has been advised of a limit smaller than the current amount outstanding. When assessing if the borrower is unlikely to pay its credit obligation, the Group takes into account both qualitative and quantitative indicators. The information assessed depends on the type of the asset, for example in corporate lending a qualitative indicator used is the breach of covenants, which is not relevant for retail lending. Quantitative indicators, such as overdue status and non-payment on another obligation of the same counterparty are key inputs in this analysis. AUSWIDE BANK ANNUAL REPORT 2019 P|91 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.5 Credit risk management (continued) Write oﬀ Loans and advances and debt securities are written oﬀ when the Group has no reasonable expectations of recovering the ﬁ nancial asset (either in its entirety or a portion of it). This is the case when the Group determines that the borrower does not have assets or sources of income that could generate suﬃ cient cash ﬂ ows to repay the amounts subject to the write- oﬀ . A write-oﬀ constitutes a derecognition event. The Group may apply enforcement activities to ﬁ nancial assets written oﬀ . Recoveries resulting from the Group’s enforcement activities will result in impairment gains. Key estimates and judgements Signiﬁ cant increase in credit risk ECL are measured as an allowance equal to 12-month ECL for stage 1 assets, or lifetime ECL assets for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased signiﬁ cantly since initial recognition. AASB 9 does not deﬁ ne what constitutes a signiﬁ cant increase in credit risk. In assessing whether the credit risk of an asset has signiﬁ cantly increased the Group takes into account qualitative and quantitative reasonable and supportable forward looking information. Models and assumptions used The Group uses various models and assumptions in measuring fair value of ﬁ nancial assets as well as in estimating ECL. Judgement is applied in identifying the most appropriate model for each type of asset, as well as for determining the assumptions used in these models, including assumptions that relate to key drivers of credit risk. Forward looking scenarios When measuring ECL the Group uses reasonable and supportable forward looking information, which is based on assumptions for the future movement of diﬀ erent economic drivers and how these drivers will aﬀ ect each other. Probability of default (PD) PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions. Loss Given Default (LGD) LGD is an estimate of the loss arising on default. It is based on the diﬀ erence between the contractual cash ﬂ ows due and those that the lender would expect to receive, taking into account cash ﬂ ows from collateral and integral credit enhancements. 4.5.2 Measurement of Expected Credit Loss (ECL) The key inputs used for measuring ECL are: • probability of default (PD); • loss given default (LGD); and • exposure at default (EAD). These ﬁ gures are derived from internally developed statistical models and other historical data and they are adjusted to reﬂ ect probability-weighted forward-looking information. PD is an estimate of the likelihood of default over a given time horizon. It is estimated as at a point in time. The Group has developed a PD model for loans and advances based on the likelihood of a default event occurring within the next 12 months, based on the current status of each loan. A lifetime PD is also computed where appropriate. Historical data on loan behaviours is captured to enable projections on loans going into default. This provides statistical data that is used in the PD model for calculating the probability of default. LGD is an estimate of the loss arising on default. The Group has developed a single LGD model, which includes judgements and estimates based on industry statistics and historical performance of the Bank’s portfolio. Given the Group’s loan portfolio, market data on LGDs of other institutions has also been applied in management’s assessment of LGD. EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments and principal and interest, and expected drawdowns on committed facilities. The Group has developed a single EAD model to cover all applicable loan exposures. The Group measures ECL considering the risk of default over the maximum contractual period (including extension options) over which the entity is exposed to credit risk and not a longer period. The risk of default is assessed by considering historical data as well as forward looking information through a macroeconomic overlay and management judgement. The Group’s risk function constantly monitors the ongoing appropriateness of the ECL model and related criteria, where any proposed amendments will be reviewed and approved by the Group’s management committees. P|92 AUSWIDE BANK ANNUAL REPORT 2019 Incorporation of forward looking information The Group uses forward-looking information that is available without undue cost or eﬀ ort in its assessment of signiﬁ cant increase of credit risk as well as in its measurement of ECL. The Group uses this information to generate a ‘base case’ scenario of future forecast of relevant economic variables along with a representative range of other possible forecast scenarios. The Group applies probabilities to the forecast scenarios identiﬁ ed. The base case scenario is the single most-likely outcome and consists of information used by the Group for strategic planning and budgeting. The Group has identiﬁ ed and documented key drivers of credit risk and credit losses for each lending portfolio using a statistical analysis of historical data and has estimated relationships between macro-economic variables, credit risk and credit losses. The principal macroeconomic indicators included in the economic scenarios used at 1 July 2018 and 30 June 2019 are GDP, GDP index, GDP index change and unemployment. Management have derived that GDP has economic correlations to inﬂ ation and unemployment, which generally have a corresponding impact on loan performance. Scenarios are compiled using APRA quarterly statistics and ADI Performance Statistics for losses data, ABS statistics for GDP, CPI (as proxy for GDP index) and unemployment rates, along with forecast reports from the market. The base case scenario is derived from forecasted changes to GDP, CPI and unemployment rates, using management’s judgement. Adjustments to these forecasts are made to develop a further two scenarios for less likely but plausible economic expectations. A weighting is applied to each scenario, based on management’s judgement as to the probability of each scenario occurring. These economic forecasts are then applied to a statistical model to determine the macroeconomic eﬀ ects on the expected loss allowance on the lending portfolios. The incorporation of forward looking information on the assessment of ECL on other assets required to be assessed for impairment is a qualitative approach. A range of economic outlooks, from an economist, the RBA and OECD, have been considered in making an assessment of whether there are economic forecasts that would indicate a potential impairment on the assets being assessed. Signiﬁ cant increase in credit risk The Group monitors all ﬁ nancial assets that are subject to impairment requirements to assess whether there has been a signiﬁ cant increase in credit risk since initial recognition. If there has been a signiﬁ cant increase in credit risk the Group will measure the expected loss allowance based on lifetime rather than 12-month ECL. The Group has used the assumption that 30 days past due represents signiﬁ cant increase in credit risk. The Group considers 90 days past due as representative of a default having occurred and a loan being credit impaired. The Group has identiﬁ ed the following three stages in which ﬁ nancial instruments have been classiﬁ ed in regards to credit risk; • stage 1 - performing exposure on which loss allowance is recognised as 12 month expected credit loss; • stage 2 - where credit risk has increased signiﬁ cantly and impairment loss is recognised as lifetime expected credit loss; and • stage 3 - assets are credit impaired and impairment loss is recognised as lifetime expected credit loss. Interest is accrued on a net basis, on the amortised cost of the loans after the ECL is deducted. AUSWIDE BANK ANNUAL REPORT 2019 P|93 y l e t a r a p e s n e e b t o n e v a h s i s a b y n a p m o C a n o s e r u s o l c s i D . e t a d g n i t r o p e r e h t t a e g a t s y b s t n e m e r i u q e r t n e m r i a p m i o t j t c e b u s t e s s a l i a c n a n ﬁ f o s s a l c h c a e f o s i s y l a n a s w o h s w o e b e b a t e h T l l ) d e u n i t n o c ( t n e m e g a n a m k s i r l a i c n a n ﬁ d e t a e r d n a s e i t i l i l b a i l , s t e s s a l a i c n a n F i ) d e u n i t n o c ( t n e m e g a n a m k s i r t i d e r C . 4 . 5 4 . y t i t n e d e t a d i l o s n o C e h t f o e s o h t m o r f y l l a i r e t a m i r e ﬀ d t o n o d s t n u o m a e h t s a d e s o l c s i d s s o l t i d e r c d e t c e p x E k s i r t i d e r c o t e r u s o p x e m u m i x a M l a t o T 0 0 0 $ ’ 3 e g a t S 0 0 0 $ ’ 2 e g a t S 0 0 0 $ ’ 1 e g a t S 0 0 0 $ ’ l a t o T 0 0 0 $ ’ 3 e g a t S 0 0 0 $ ’ 2 e g a t S 0 0 0 $ ’ 1 e g a t S 0 0 0 $ ’ 9 1 0 2 e n u J 0 3 t a e c n a a B l - - - - - - - - - - - - 0 4 7 8 2 2 - 0 1 1 4 , 9 7 4 1 , 7 3 4 4 , 1 8 4 1 , 4 5 - 4 5 - - - - - - - - - 5 9 5 5 1 3 1 1 3 2 7 - - - - - - - - - 6 3 0 2 , 3 2 4 7 1 3 3 2 2 , 4 5 - 4 5 , 9 8 3 4 0 1 4 9 9 0 2 , 6 5 1 6 5 2 , 3 3 5 4 2 6 4 1 , , 6 9 6 6 9 3 - - - - - - - - - - - - , 9 8 3 4 0 1 4 9 9 0 2 , 6 5 1 6 5 2 , 3 3 5 4 2 6 4 1 , 6 9 6 6 9 3 , 5 2 5 0 2 , 2 0 0 5 7 , 8 2 3 0 4 3 6 7 1 6 1 , 4 3 4 0 2 , 2 8 9 2 7 , , 3 8 5 9 1 2 3 , 8 3 6 2 1 , 1 1 6 5 1 , , 4 3 3 1 9 1 3 , , 0 1 1 5 1 3 3 , 9 6 0 3 1 , 1 9 2 7 1 , , 0 5 7 4 8 2 3 , 4 7 8 6 6 , 5 0 4 1 , 9 7 2 8 6 , - - - - - - 4 7 8 6 6 , 5 0 4 1 , 9 7 2 8 6 , r e h t o d n a m a r g o r p n o i t a s i t i r u c e s – s e t o N s t n e m t s e v n i S B M R l a n r e t x E t i s o p e d f o e t a c ﬁ i t r e C * s e c n a v d a d n a s n a o L l a t o T 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 t n e m u r t s n i l a i c n a n ﬁ f o s s a C l l s t n e a v i u q e h s a c d n a h s a C ) A N A L ( d e c n a v d a t o n d e v o r p p a s n a o L s e r u s o p x e t e e h s e c n a a b - ﬀ O l l a t o T s e e t n a r a u g k n a B l a t o T i g n d n e l l i a c r e m m o C - i g n d n e l l a n o s r e P - i g n d n e l e g a g t r o M - . . m 8 5 1 6 8 0 3 $ s i , 9 1 0 2 e n u J 0 3 t a s a t n u o m a g n y r r a C i l l . s e c n a a b d e u d e h c s s e s u d n a s t i m i l t i d e r c n w a r d n u s e d u l c n i k s i r t i d e r c o t e r u s o p x e m u m i x a M * y t i t n e d e t a d i l o s n o C P|94 AUSWIDE BANK ANNUAL REPORT 2019 s s o l t i d e r c d e t c e p x E k s i r t i d e r c o t e r u s o p x e m u m i x a M l a t o T 0 0 0 $ ’ 3 e g a t S 0 0 0 $ ’ 2 e g a t S 0 0 0 $ ’ 1 e g a t S 0 0 0 $ ’ l a t o T 0 0 0 $ ’ 3 e g a t S 0 0 0 $ ’ 2 e g a t S 0 0 0 $ ’ 1 e g a t S 0 0 0 $ ’ 8 1 0 2 e n u J 0 3 t a e c n a a B l - - - - - - - - - - - - 4 9 1 6 - 0 1 2 5 2 4 , 8 6 8 1 , 7 0 4 4 , 8 7 8 1 , 0 7 - 0 7 - - - - - - - - - 0 8 5 8 5 2 3 1 6 - - - - - - - - - 4 0 8 1 , 6 7 6 3 6 1 9 1 , 0 7 - 0 7 1 6 3 6 8 , 9 8 3 5 1 , 8 7 1 0 1 2 , 7 4 1 1 , 2 8 0 7 1 , 7 5 1 0 3 3 , - - - - - - - - - - - - 1 6 3 6 8 , 9 8 3 5 1 , 8 7 1 0 1 2 , 7 4 1 1 , 2 8 0 7 1 , 7 5 1 0 3 3 , , 0 3 8 2 7 0 3 , 6 7 4 8 1 , 2 4 1 1 7 , , 2 1 2 3 8 9 2 , 3 7 5 9 1 , 0 0 2 4 6 , 3 2 - 1 7 9 6 6 6 2 , 9 7 5 8 1 , 4 3 5 1 6 , , 3 0 6 6 5 1 3 , 9 9 4 8 1 , 9 7 7 4 7 , , 5 2 3 3 6 0 3 , 7 4 4 4 0 1 , 5 8 9 , 2 3 4 5 0 1 - - - - - - 7 4 4 4 0 1 , 5 8 9 , 2 3 4 5 0 1 r e h t o d n a m a r g o r p n o i t a s i t i r u c e s – s e t o N s t n e m t s e v n i S B M R l a n r e t x E t i s o p e d f o e t a c ﬁ i t r e C * s e c n a v d a d n a s n a o L l a t o T i g n d n e l e g a g t r o M - i g n d n e l l a n o s r e P - ) A N A L ( d e c n a v d a t o n d e v o r p p a s n a o L s e r u s o p x e t e e h s e c n a a b - ﬀ O l l a t o T s e e t n a r a u g k n a B l a t o T i g n d n e l l i a c r e m m o C - 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 t n e m u r t s n i l a i c n a n ﬁ f o s s a C l l s t n e a v i u q e h s a c d n a h s a C . . m 3 0 3 9 1 9 2 $ s i , 8 1 0 2 e n u J 0 3 t a s a t n u o m a g n y r r a C i l l . s e c n a a b d e u d e h c s s e s u d n a s t i m i l t i d e r c n w a r d n u s e d u l c n i k s i r t i d e r c o t e r u s o p x e m u m i x a M * AUSWIDE BANK ANNUAL REPORT 2019 P|95 y t i t n e d e t a d i l o s n o C 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.5 Credit risk management (continued) 4.5.3 Movement in gross carrying amounts The following tables show movements in gross carrying amounts of ﬁ nancial assets subject to impairment requirements. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Stage 1 Stage 2 Stage 3 Total Consolidated entity 12-month ECL Lifetime ECL Lifetime ECL $’000 $’000 $’000 $’000 Loans and advances at amortised cost* Gross carrying amount as at 1 July 2018 2,822,007 73,538 18,499 2,914,044 Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 134,593 (133,250) (1,343) (180,769) 199,788 (19,019) (16,153) (10,115) 26,268 - - - Financial assets that have been derecognised during the period including write-oﬀ s (357,587) (4,138) (5,716) (367,441) New ﬁ nancial assets originated 579,400 - - 579,400 Adjustments for repayments and interest 69,262 (108,566) (5,607) (44,911) Net carrying amount as at 30 June 2019 3,050,753 17,257 13,082 3,081,092 * Excludes interest receivable and deferred mortgage brokers commissions. There has been no signiﬁ cant movement in carrying amount of other ﬁ nancial assets the general business operations of the Group and therefore the movement has not been disclosed. 4.5.4 Movement in expected credit losses The following tables show movements in expected credit loss ﬁ nancial assets subject to impairment requirements. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Consolidated entity 12-month ECL Lifetime ECL Lifetime ECL Stage 1 Stage 2 Stage 3 Total $’000 $’000 $’000 $’000 Loans and advances at amortised cost* Loss allowance as at 1 July 2018 Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Financial assets derecognised during the period including write-oﬀ s New ﬁ nancial assets originated Changes in model risk assessment Loss allowance as at 30 June 2019 1,940 1,043 (2,877) (675) (488) 376 2,913 2,232 619 (903) 3,844 (926) (188) - (1,712) 734 1,873 (140) (967) 1,601 (943) - 101 1,525 4,432 - - - (1,619) 376 1,302 4,491 * Excludes interest receivable and deferred mortgage brokers commissions. No ECL is recognised on any other ﬁ nancial asset, as this has been assessed as immaterial in both the current and comparative periods. P|96 AUSWIDE BANK ANNUAL REPORT 2019 4.5.5 Summary of movements in expected credit loss by ﬁ nancial instrument The following table summarises the movement in expected credit loss by ﬁ nancial instruments for the reporting period. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Consolidated entity Expected credit loss Loss allowance as at beginning of year Adjustment on adoption of AASB 9 Loss allowance recognised/ (reversed) during the year Bad debts written oﬀ Loss allowance as at 30 June 2019 Consolidated entity Expected credit loss Loss allowance as at beginning of year Loss allowance recognised/ (reversed) during the year Bad debts written oﬀ Loss allowance at 30 June 2018 4.5.6 Credit risk concentrations Loans and advances $’000 3,197 1,210 1,159 (1,129) 4,437 Loans and advances $’000 4,314 1,320 (2,437) 3,197 LANA $’000 - 70 (16) - 54 LANA $’000 - - - - Total $’000 3,197 1,280 1,143 (1,129) 4,491 Total $’000 4,314 1,320 (2,437) 3,197 An analysis of the Group’s credit risk concentrations on loans and advances is provided in the following table. The amounts in the table represent gross carrying amounts, with the exception of loan commitments, which are recorded as the amount committed. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Consolidated entity Loans and advances at amortised cost* Concentration by sector Mortgage lending Personal lending Commercial lending Total * Excludes interest receivable and deferred mortgage brokers commissions. 2019 $’000 2018 $’000 2,996,371 17,536 67,185 3,081,092 2,842,893 17,592 53,559 2,914,044 AUSWIDE BANK ANNUAL REPORT 2019 P|97 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.5 Credit risk management (continued) Consolidated entity Loans and advances at amortised cost* Concentration by region Queensland New South Wales Victoria South Australia Western Australia Tasmania Northern Territory Total 2019 $’000 2,342,240 351,170 245,124 29,342 77,708 9,603 25,905 2018 $’000 2,244,506 309,759 235,497 28,066 66,266 6,009 23,941 3,081,092 2,914,044 * Excludes interest receivable and deferred mortgage brokers commissions. LANA of $66.874m (2018: $104.447m) is an additional exposure under AASB 9 not recognised on the balance sheet, but is immaterial to the concentrations in the above tables. 4.5.7 Speciﬁ c provision The Group has complied with the provisioning requirements under the APRA prudential standard APS220 Credit Quality and includes a speciﬁ c provision amounting to $2.012m determined in accordance with the aforementioned prudential standard. 4.5.8 Financial instruments classiﬁ ed at FVTPL The maximum exposure to credit risk of the notes held in MISs designated at FVTPL is their carrying invested amount, which was $44.569m at 30 June 2019 (2018: $25.886m). The change in fair value due to credit risk for the MISs designated at FVTPL is $0.588m for the year (2018: $0) and $0.558m on a cumulative basis as at 30 June 2019 (2018: $0). The Group uses the performance of the portfolio to determine the change in fair value attributable to changes in credit risk of its MISs designated at FVTPL. 4.5.9 Equity instruments classiﬁ ed at FVTOCI The maximum exposure to credit risk of the equity instrument designated at FVTOCI is their carrying amount. 4.5.10 Analysis of ﬁ nancial instrument by days past due status Under the Group’s monitoring procedures a signiﬁ cant increase in credit risk is identiﬁ ed before the exposure has defaulted and at the latest when the exposure becomes 30 days past due. The table below provides an analysis of the gross carrying amount of loans and advances by past due status, that are over 30 days past due. P|98 AUSWIDE BANK ANNUAL REPORT 2019 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 2019 $’000 4,638 3,229 2,175 1,941 718 1,601 2018 $’000 4,682 - 1,682 1,994 1,874 3,826 2019 $’000 4,638 3,229 2,175 1,941 718 1,601 2018 $’000 4,682 - 1,682 1,994 1,874 3,826 14,302 14,058 14,302 14,058 4.5.11 Collateral held as security and other credit enhancements Mortgage lending The Group holds residential properties as collateral for the mortgage loans it grants to its customers. The Group monitors its exposure to retail mortgage lending using the LVR (loan to value ratio), which is calculated as the ratio of the gross amount of the loan to the value of the collateral. The valuation of the collateral excludes any adjustments for obtaining and selling the collateral. The value of the collateral for residential mortgage loans is typically based on the collateral value at origination. For credit-impaired loans the value of collateral is based on the most recent appraisals. Subsequent appraisals are performed on securities held for credit-impaired loans, to more closely monitor the Group’s exposure. The Group will take possession of security property in line with its MIP (mortgagee in possession) policy and any loss resulting from subsequent sale will be recorded as an expense, resulting in a reduction in any provision that was held for that exposure. There are also procedures in place for the recovery of bad debts written oﬀ ; debt recovery processes are performed internally as well as through the use of third parties. The table below shows the exposures from mortgage loans by ranges of LVR. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. AUSWIDE BANK ANNUAL REPORT 2019 P|99 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.5 Credit risk management (continued) Consolidated entity Mortgage lending LVR ratio Less than 50% 51-70% 71-90% 91-100% More than 100% Total Personal lending Gross carrying amount Expected credit loss 2019 $’000 401,837 861,832 2018 $’000 374,332 792,631 1,472,048 1,433,078 227,859 200,873 32,795 41,979 2,996,371 2,842,893 2019 $’000 795 820 969 78 1,448 4,110 2018 $’000 397 964 1,262 235 1,394 4,252 The Group’s personal lending portfolio consists of secured and unsecured term loans and unsecured credit cards. For loans with a purpose of purchasing vehicles and the like, the vehicle can be used as security for a secured personal loan, if acceptable under the applicable lending policy. The personal lending portfolio exhibits similar traits and behaviours regardless of whether the loan is secured or unsecured. Commercial lending The Group requests collateral, which is usually in the form of residential property, as security for corporate lending. Bank guarantees are also used at times, which utilise cash, residential or commercial mortgages as security. The table below shows the exposures from commercial loans by ranges of LVR. Disclosures on a Company basis have not been separately disclosed as the amounts do not diﬀ er materially from those of the Consolidated entity. Gross carrying amount Expected credit loss Consolidated entity Commercial lending LVR ratio Less than 50% 51-70% 71-90% 91-100% More than 100% Total Other ﬁ nancial assets 2019 $’000 17,366 24,108 12,910 4,003 8,798 2018 $’000 15,728 20,222 9,721 3,146 4,742 2019 $’000 2018 $’000 43 91 46 90 17 12 15 7 23 4 61 67,185 53,559 287 The Group holds other ﬁ nancial assets at amortised cost with a carrying amount of $369.751m and at FVTOCI with a carrying amount of $1.451m. These are high quality investments and as per policy the Group only invests in certain types of ﬁ nancial assets which are investment grade and of lower credit risk. 4.6 Fair value measurements Some of the Group’s ﬁ nancial assets and ﬁ nancial liabilities are measured at fair value at the end of each reporting period. The following table provides an analysis of ﬁ nancial instruments that are measured subsequent to initial recognition at fair value, grouped by fair value hierarchy level. P|100 AUSWIDE BANK ANNUAL REPORT 2019 4.6.1 Financial instruments measured at fair value on recurring basis Consolidated entity 30 June 2019 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 Financial assets mandatorily measured at FVTPL Investments in Managed Investment Schemes Derivative assets Investments at FVTOCI - (debt and equity instruments) External RMBS investments Equity instruments designated at FVTOCI Unlisted shares Total assets Financial liabilities mandatorily measured at FVTPL Derivative liabilities Total liabilities Consolidated entity 30 June 2018 Financial assets mandatorily measured at FVTPL Investments in Managed Investment Schemes Derivative assets Investments at FVTOCI - (debt and equity instruments) External RMBS investments Equity instruments designated at FVTOCI Unlisted shares Total assets Financial liabilities mandatorily measured at FVTPL Derivative liabilities Total liabilities - - - - - - - Level 1 $’000 - - - - - - - - 589 533 44,569 44,569 - - 589 533 - 918 918 1,122 45,487 46,609 1,332 1,332 Level 2 $’000 - 61 1,147 - - Level 3 $’000 1,332 1,332 Total $’000 25,886 25,886 - - 61 1,147 - 793 793 1,208 26,679 27,887 55 55 - - 55 55 AUSWIDE BANK ANNUAL REPORT 2019 P|101 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.6 Fair value measurements (continued) Company 30 June 2019 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 Financial assets mandatorily measured at FVTPL Investments in Managed Investment Schemes Derivative assets Investments at FVTOCI - (debt and equity instruments) External RMBS investments Equity instruments designated at FVTOCI Unlisted shares Total assets Financial liabilities mandatorily measured at FVTPL Derivative liabilities Total liabilities Company 30 June 2018 Financial assets mandatorily measured at FVTPL Investments in Managed Investment Schemes Derivative assets Investments at FVTOCI - (debt and equity instruments) External RMBS investments Equity instruments designated at FVTOCI Unlisted shares Total assets Financial liabilities mandatorily measured at FVTPL Derivative liabilities Total liabilities - - - - - - - Level 1 $’000 - - - - - - - - 589 533 44,569 44,569 - - 589 533 - 918 918 1,122 45,487 46,609 1,332 1,332 Level 2 $’000 - 61 1,147 - - Level 3 $’000 1,332 1,332 Total $’000 25,886 25,886 - - 61 1,147 - 793 793 1,208 26,679 27,887 55 55 - - 55 55 There have been no transfers of between level 1 and level 2 categories of ﬁ nancial instruments. Accounting policies Fair value measurements 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 speciﬁ c 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. P|102 AUSWIDE BANK ANNUAL REPORT 2019 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-ﬁ nancial 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 classiﬁ ed, into three levels, using a fair value hierarchy that reﬂ ects the signiﬁ cance of the inputs used in making the measurements. Classiﬁ cations are received at each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is signiﬁ cant 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, and • 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 signiﬁ cant inputs required to measure fair value are observable, the asset or liability is included in level 2. If one or more signiﬁ cant inputs are not based on observable market data, the asset or liability is included in level 3. 4.6.2 Reconciliation of Level 3 fair value measurements of ﬁ nancial assets and ﬁ nancial liabilities Consolidated entity Balance at beginning of year Total gains or losses: - in proﬁ t or loss - in other comprehensive income Purchases Disposals Balance at end of year Company Balance at beginning of year Total gains or losses: - in proﬁ t or loss - in other comprehensive income Purchases Disposals Balance at end of year FVTOCI FVTPL Unlisted shares Managed investment schemes 2019 $'000 793 - - 125 - 918 2018 $'000 793 - - - 793 2019 $'000 25,886 2,320 - 27,150 (10,787) 44,569 2018 $'000 14,042 1,294 - 10,550 - 25,886 FVTOCI FVTPL Unlisted shares Managed investment schemes 2019 $'000 793 - - 125 - 918 2018 $'000 793 - - - - 793 2019 $'000 25,886 2,320 - 27,150 (10,787) 44,569 2018 $'000 14,042 1,294 - 10,550 - 25,886 AUSWIDE BANK ANNUAL REPORT 2019 P|103 4. Financial assets, liabilities and related ﬁ nancial risk management (continued) 4.6 Fair value measurements (continued) 4.6.3 Financial instruments not measured at fair value The following table provides an analysis of ﬁ nancial assets and liabilities that are not measured at fair value. Consolidated entity 30 June 2019 Financial assets Level 1 $’000 Level 2 $’000 Level 3 $’000 Total fair value Total carrying amount $’000 $’000 Cash and cash equivalents 104,389 Due from other ﬁ nancial institutions 20,994 - - - - - - - - 104,389 104,389 20,994 20,994 271,368 271,368 3,093,625 3,093,625 3,086,158 3,093,625 3,490,376 3,482,909 271,368 - 396,751 Other ﬁ nancial assets Loans and advances Total ﬁ nancial assets Financial liabilities Deposits and short-term borrowings Payables and other liabilities Loans under management Subordinated capital notes Total ﬁ nancial liabilities - - - - - 2,794,520 - 2,794,520 2,802,605 - 37,761 37,761 37,761 490,412 28,000 - - 490,412 490,412 28,000 28,000 3,312,932 37,761 3,350,693 3,358,778 Consolidated entity 30 June 2018 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total fair value Total carrying amount $’000 $’000 Financial assets Cash and cash equivalents Due from other ﬁ nancial institutions Other ﬁ nancial assets Loans and advances Total ﬁ nancial assets Financial liabilities Deposits and short-term borrowings Payables and other liabilities Loans under management Subordinated capital notes Total ﬁ nancial liabilities 86,361 15,389 227,956 - 329,706 - - - - - - - - 86,361 15,389 86,361 15,389 227,956 227,956 2,934,628 2,934,628 2,919,303 2,934,628 3,264,334 3,249,009 - - - - - 2,298,306 - 2,298,306 2,446,825 - 26,013 26,013 26,013 607,166 28,000 - - 607,166 607,166 28,000 28,000 2,933,472 26,013 2,959,485 3,108,004 P|104 AUSWIDE BANK ANNUAL REPORT 2019 4.6.4 Summary of valuation methodologies applied in determining fair value of ﬁ nancial instruments Each valuation technique requires inputs that reﬂ ect 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 reﬂ ect 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 signiﬁ cant. 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 ﬁ nancial 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 signiﬁ cant, are detailed in the respective note to the ﬁ nancial statements. The Group selects a valuation technique that is appropriate in the circumstances and for which suﬃ cient data is available to measure fair value. The availability of suﬃ cient and relevant data primarily depends on the speciﬁ c 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 ﬂ ows or income and expenses into a single discounted present value; and • cost approach - valuation techniques that reﬂ ect the current replacement cost of an asset at its current service capacity. AUSWIDE BANK ANNUAL REPORT 2019 P|105 5. Group structure and related parties 5.1 Subsidiaries, associates and other related parties 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. Place of incorporation and operation Proportion of ownership and voting power held by the Company Contribution to consolidated operating proﬁ t after income tax Investment carrying value 2019 % 2018 % 2019 $’000 2018 $’000 2019 $’000 2018 $’000 5.1.1 Controlled entities Name Controlled entities Mortgage Risk Management Pty Ltd Australia - 100.0 Widcap Securities Pty Ltd Australia 100.0 100.0 Auswide Performance Rights Pty Ltd MoneyPlace Holdings Pty Ltd (MoneyPlace) Australia 100.0 100.0 Australia - - - - - - - - - 842 - - - - - - - - Mortgage Risk Management Pty Ltd (MRM) MRM was a wholly owned subsidiary of Auswide Bank Ltd, and is no longer actively trading. MRM was deregistered eﬀ ective 15 April 2019, 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 external RMBS and Warehouse Securitisation programs. Auswide Performance Rights Pty Ltd Auswide Performance Rights Pty Ltd is the trustee company for the Auswide Performance Rights Plan, set up to assist in the retention and motivation of executives, senior managers and qualifying employees. MoneyPlace Holdings Pty Ltd (MoneyPlace) In January 2018, the Group announced that it had entered into an agreement to divest its equity stake in P2P lender MoneyPlace. This transaction was completed on 22 January 2018. Further information in relation to this entity can be found in Sections 5.3 - Disposal of a subsidiary and 5.4 - Discontinued operation. 5.1.2 Warehouse and securitisation trusts Auswide Bank has an external securitisation program which is comprised of the following trusts. These trusts are fully consolidated at the reporting date. • Wide Bay Trust No. 5 • Wide Bay Trust No. 6 • WB Trust 2008-1 • WB Trust 2009-1 • WB Trust 2010-1 • WB Trust 2014-1 • ABA Trust 2017-1 • ABA Trust No. 7 P|106 AUSWIDE BANK ANNUAL REPORT 2019 5.1.3 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 Finance Advice Matters Group Pty Ltd (FAMG) Financial Planning Australia 2019 25.0% 2018 25.0% Financial Advice Matters Group Pty Ltd (FAMG) is accounted for using the equity method in these consolidated ﬁ nancial statements. Accounting policies Investment in associates An associate is an entity over which the Group has signiﬁ cant inﬂ uence. Signiﬁ cant inﬂ uence is the power to participate in the ﬁ nancial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method of accounting from the date on which the investee becomes an associate. The ﬁ nancial 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. 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 proﬁ t or loss reﬂ ects the Group’s share of the results of operations of the associate. Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated and parent entity statement of changes in equity. Summarised ﬁ nancial information in respect of FAMG is set out below. The summarised ﬁ nancial information below represents amounts shown in the FAMG’s ﬁ nancial statements prepared in accordance with AASBs. Share of associate’s balance sheet: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of associate’s revenue and proﬁ t: Revenue Proﬁ t / (loss) before income tax Income tax Proﬁ t / (loss) after income tax Total comprehensive income for the year Dividends received from associate during the year The above ﬁ gures were based on the audited accounts of FAMG as at 30 June 2019. 2019 $’000 471 529 (190) (54) 756 2019 $’000 1,157 136 (39) 97 97 38 2018 $’000 405 527 (178) (59) 695 2018 $’000 1,203 102 (28) 74 74 - AUSWIDE BANK ANNUAL REPORT 2019 P|107 5. Group structure and related parties (continued) 5.2 Non-controlling interest Reconciliation of non-controlling interest in controlled entities: Consolidated entity Balance at beginning of year Share of operating proﬁ t/(loss) for the year Deconsolidation of non-controlling interest on the disposal of MoneyPlace Balance at end of year 2019 $’000 - - - - 2018 $’000 1,291 (231) (1,060) - 5.3 Disposal of a subsidiary In January 2018 the Group announced that it had entered into an agreement to divest its 62.4% equity stake in P2P lender MoneyPlace. This transaction was completed on 22 January 2018. Consideration received The total consideration received upon the divestment was $6.805m. Assets and liabilities over which control is lost as a result of this divestment Cash Other assets Software development Other intangibles Goodwill Deferred income tax liabilities Loans Payables and other liabilities Net assets disposed of Gain on disposal of a subsidiary Consideration received Net assets disposed of Non-controlling interests Gain on disposal 2018 $’000 145 175 5,668 208 2,612 (1,298) (85) (723) 6,702 2018 $’000 6,805 (6,702) 1,084 1,187 The gain on disposal is included in the proﬁ t for the year from discontinued operations, see Section 5.4 -Discontinued operation for further explanation. Net cash inﬂ ow on disposal of a subsidiary Consideration received in cash and cash equivalents Less: cash and cash equivalent balances disposed of P|108 AUSWIDE BANK ANNUAL REPORT 2019 2018 $’000 6,805 (145) 6,660 5.4 Discontinued operation The results of the discontinued operations included in the proﬁ t (loss) are set out below. Consolidated Company Proﬁ t for the year from discontinued operations Revenue Expenses Proﬁ t/(loss) before income tax Income tax beneﬁ t/ expense Gain on disposal of MoneyPlace Proﬁ t for the year from discontinued operations Cash ﬂ ows from discontinued operations Net cash inﬂ ows/(outﬂ ows) from operating activities Net cash inﬂ ows/(outﬂ ows) from investing activities Net cash inﬂ ows/(outﬂ ows) from ﬁ nancing activities Net increase in cash generated by the subsidiary 5.5 Key management personnel disclosures 5.5.1 Details of key management personnel 2018 $’000 280 (966) (686) 110 (576) 1,187 611 (505) (356) 285 (576) 2018 $’000 - - - - 2,301 2,301 - - - - Key management personnel have been taken to comprise the Directors and members of Executive Management who are collectively responsible for the day-to-day ﬁ nancial and operational management of the Group and the Company. The following were key management personnel for the entire reporting period unless otherwise stated. Directors JS Humphrey MJ Barrett B Dangerﬁ eld GN Kenny SC Birkensleigh Executives WR Schafer SM Caville D Hearne GM Job CA Lonergan MS Rasmussen Chairman - Non-executive Director Managing Director Director - Non-executive Director - Non-executive Director - Non-executive Chief Financial Oﬃ cer, Company Secretary Chief Information Oﬃ cer Chief Customer Oﬃ cer Chief People and Property Oﬃ cer Chief Risk Oﬃ cer Chief Operating Oﬃ cer 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 ANNUAL REPORT 2019 P|109 5. Group structure and related parties (continued) 5.5 Key management personnel disclosures (continued) 5.5.2 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 beneﬁ ts Cash salary and fees Cash bonus Post employment beneﬁ ts Superannuation Share based payments Other long term beneﬁ ts Consolidated Company 2019 $'000 2,435 251 181 114 46 3,027 2018 $'000 2,346 140 176 55 43 2,760 2019 $'000 2,435 251 181 114 46 3,027 2018 $'000 2,346 140 176 55 43 2,760 Remuneration is calculated based on the period each employee was classiﬁ ed as key management personnel. Remuneration to Directors was approved at the previous Annual General Meeting of the Company. 5.5.3 Other transactions with key management personnel Interest on loans to key management personnel has been paid on terms and conditions no more favourable than those available on similar transactions to members of the general public. The Group’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 $161,305 (2018: $148,507) 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. P|110 AUSWIDE BANK ANNUAL REPORT 2019 6. Other ﬁ nancial information 6.1 Cash ﬂ ow statement reconciliation Reconciliation of proﬁ t from ordinary activities after tax to the net cash ﬂ ows from operations: Consolidated Company Proﬁ t after tax from continuing operations Depreciation and amortisation Bad debts expense (Proﬁ t)/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 beneﬁ t provisions Other provisions Reserves 2019 $'000 17,201 2,601 1,143 16 102 5,133 5 11,604 356 (2,757) 87 87 67 Net cash generated from operating activities 35,645 Accounting policies Cash and cash equivalents 2018 $'000 17,886 2,659 1,320 (1,188) (341) 7,722 683 11,339 (1,056) (501) 83 82 (353) 38,335 2019 $'000 17,201 2,601 1,143 16 102 5,133 5 12,071 (105) (2,757) 87 87 67 35,651 2018 $'000 19,345 2,659 1,320 104 (341) 7,521 683 10,354 311 (40) 83 165 (353) 41,811 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. 6.2 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 Consolidated Company 2019 $'000 563 563 2,172 1,347 2,067 5,586 2018 $'000 227 227 2,092 1,143 949 4,184 2019 $'000 563 563 2,172 1,347 2,067 5,586 2018 $'000 227 227 2,092 1,143 949 4,184 Non-cancellable operating leases relate to vehicles and leases of branches across Queensland. AUSWIDE BANK ANNUAL REPORT 2019 P|111 6. Other ﬁ nancial information (continued) 6.2 Expenditure commitments (continued) Accounting policies Leases Lease payments for operating leases, where substantially all the risks and beneﬁ ts remain with the lessor, are charged as expenses in the periods in which they are incurred. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. 6.3 Contingent liabilities and credit commitments Approved but undrawn loans Approved but undrawn credit limits Bank guarantees 6.4 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 Other provisions Total provisions Consolidated Company 2019 $'000 66,874 85,096 1,405 2018 $'000 104,447 90,479 985 2019 $'000 66,874 85,096 1,405 2018 $'000 104,447 90,479 985 153,375 195,911 153,375 195,911 Consolidated Company 2019 $'000 2,883 265 (179) 2,969 2,643 326 2,969 40 3,009 2018 $'000 2,800 238 (155) 2,883 2,547 336 2,883 40 2,923 2019 $'000 2,883 265 (179) 2,969 2,643 326 2,969 40 3,009 2018 $'000 2,718 320 (155) 2,883 2,547 336 2,883 40 2,923 P|112 AUSWIDE BANK ANNUAL REPORT 2019 Accounting policies Employee provisions Provision is made for the liability for employee beneﬁ ts arising from services rendered by employees to the end of the reporting period. Short-term employee beneﬁ ts Liabilities for wages, salaries, sick leave and bonuses, that are expected to be settled wholly within twelve months of the end of the reporting period are recognised in the Statement of Financial Position in respect of employee services provided to the end of the reporting period and are measured at the amounts expected to be paid when the liability is settled, plus related on- costs. Long-term employee beneﬁ ts 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 beneﬁ ts 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 beneﬁ ts to employees on retirement. 6.5 Other non-ﬁ nancial assets Prepayments Other 6.6 Remuneration of auditors Consolidated Company 2019 $'000 3,787 678 4,465 2018 $'000 4,173 448 4,621 2019 $'000 3,788 678 4,466 2018 $'000 4,174 448 4,622 Amounts received or due and receivable by the auditors of Auswide Bank Ltd, Deloitte Touche Tohmatsu Limited, are as follows: Audit and review of ﬁ nancial statements Other assurance services Total audit and assurance services Tax advisory services Other services Total non-audit services Total auditors' remuneration Consolidated Company 2019 $'000 380,390 3,285 383,675 64,449 112,344 176,793 560,468 2018 $'000 342,436 14,000 356,436 88,841 87,166 176,007 532,443 2019 $'000 380,390 3,285 383,675 64,449 112,344 176,793 560,468 2018 $'000 342,436 14,000 356,436 88,841 87,166 176,007 532,443 6.7 Events subsequent to balance date The ﬁ nancial statements were approved by the Board of Directors on the date the directors’ declaration was signed. AUSWIDE BANK ANNUAL REPORT 2019 P|113 In accordance with a resolution of the Directors of Auswide Bank Ltd (‘the Company’), we declare that: (a) (b) (c) the ﬁ nancial statements comprising of the consolidated statement of proﬁ t or loss and other comprehensive income, consolidated statement of ﬁ nancial position, consolidated statement of cash ﬂ ows, consolidated statement of changes in equity and accompanying notes, and the remuneration disclosures that are contained in the remuneration report are in accordance with the Corporations Act 2001, and: (i) (ii) give a true and fair view of the ﬁ nancial position of the company and consolidated entity as at 30 June 2019 and of the performance for the year ended on that date; and comply with Australian Accounting Standards (including the Australia Accounting Interpretations) and the Corporations Regulations 2001; the ﬁ nancial report complies with International Financial Reporting Standards (IFRS) as disclosed in section 1.2 - Statement of compliance; and 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 Oﬃ cer for the ﬁ nancial year ended 30 June 2019. 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: SC Birkensleigh Director JS Humphrey Director Brisbane 22 August 2019 P|114 AUSWIDE BANK ANNUAL REPORT 2019 AUSWIDE BANK ANNUAL REPORT 2019 P|115 P|116 AUSWIDE BANK ANNUAL REPORT 2019 AUSWIDE BANK ANNUAL REPORT 2019 P|117 P|118 AUSWIDE BANK ANNUAL REPORT 2019 AUSWIDE BANK ANNUAL REPORT 2019 P|119 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 eﬀ ectively. 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 ﬁ nancial operations and reporting structure. The names and qualiﬁ cations 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. P|120 AUSWIDE BANK ANNUAL REPORT 2019 Declarations have been signed by the Managing Director and Chief Financial Oﬃ cer before approval by the Board of Auswide Bank’s ﬁ nancial statements for the ﬁ nancial 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 conﬁ dence 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 proﬁ le and the risk management framework of the Company, and to ensure management have appropriate risk systems and practices to eﬀ ectively operate within the Board approved risk proﬁ le. 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 qualiﬁ cations 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 fulﬁ lling 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 qualiﬁ cations 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 ANNUAL REPORT 2019 P|121 A. Registered oﬃ ce The registered oﬃ ce and principal place of business of Auswide Bank Ltd is: Level 3 Auswide Bank Head Oﬃ ce 16-20 Barolin Street Bundaberg QLD 4670 Australia Ph 07 4150 4000 Fax 07 4152 3566 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 23 Riverside Centre 123 Eagle Street Brisbane QLD 4000 Ph 07 3308 7000 Fax 07 3308 7001 Website www.deloitte.com.au D. 2019 Annual General Meeting The 2019 Annual General Meeting is to be held on Wednesday 27 November 2019 at 11.00am EST Auswide Bank Ltd Level 3, 16 - 20 Barolin St Bundaberg, Queensland. Voting rights of shareholders A shareholder is entitled to exercise one vote in respect of each fully paid ordinary permanent share held in accordance with the provisions of the Constitution. Key dates Annual General Meeting Full year results and ﬁ nal dividend announcement Ex dividend date Record date Participation in DRP (ﬁ nal date for receipt of application) Dividend payment Half year results and interim dividend announcement Ex dividend date Record date Participation in DRP (ﬁ nal date for receipt of application) Dividend payment 27 November 2019 26 August 2019 09 September 2019 10 September 2019 Suspended 20 September 2019 15 February 2019 28 February 2019 01 March 2019 Suspended 25 March 2019 P|122 AUSWIDE BANK ANNUAL REPORT 2019 E. Securities information Share Register The register of holders of Permanent Ordinary shares is kept at the oﬃ ce of: Computershare Investor Services Pty Limited Level 1 200 Mary Street Brisbane QLD 4100 Ph 1300 552 270 Fax 07 3237 2152 Online Contact www-au.computershare.co/Investor/Contact Website www.computershare.com.au Issued shares The Company’s securities listed on the Australian Stock Exchange (ASX) as at 13 September 2019 are: Class of security Permanent ordinary shares Distribution of shareholdings Permanent ordinary shares 13 September 2019 Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total Less than marketable parcel of $500 ASX Code ABA Number 42,182,485 No. of shareholders 3,728 2,032 650 551 52 7,013 180 AUSWIDE BANK ANNUAL REPORT 2019 P|123 Top 20 shareholders Permanent ordinary shares 13 September 2019 Name National Nominees Limited Citicorp Nominees Pty Limited Ronald Ernest Hancock & Lorraine Pearl Hancock JP Morgan Nominees Australia Limited Ronald Ernest Hancock HSBC Custody Nominees (Australia) Limited GDC & DMC Super Pty Ltd ATF Graham Cockerill S/F A/c Kathy Sawyer Ron Hancock Super Pty Ltd ATF The Hancock Superfund A/c Cloud 7 Nominees Pty Ltd ATF Peter Sawyer Famacct No2 A/c JW & GJ Kennedy Super Pty Ltd Ronald Ernest Hancock & Lorraine Pearl Hancock ATF The Hancock Family A/c Hestearn Pty Ltd Sawfam Pty Ltd ATF Sawyer Super Fund No2 A/c Noela Olsen Delma Cran Lohse Holdings Pty Ltd ATF Peter Lohse Super Fund A/c Horrie Pty Ltd ATF Horrie Superannuation A/c Charles Geoﬀ rey Morris & Ann Lois Morris ATF Morris Family A/c Warambul Super Co Pty Ltd ATF Warambul Super Fund A/c 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 No. of shares % of total 3,310,395 1,388,061 890,750 883,155 706,816 444,498 435,065 432,719 337,056 328,486 324,321 320,000 308,543 296,362 267,520 264,074 250,000 244,995 231,256 226,873 7.85 3.29 2.11 2.09 1.68 1.05 1.03 1.03 0.80 0.78 0.77 0.76 0.73 0.70 0.63 0.63 0.59 0.58 0.55 0.54 Top 20 holders of fully paid ordinary shares 11,890,945 28.19 Substantial shareholders The following organisations have disclosed a substantial shareholding notice to the ASX. Name National Nominees Ltd ACF Australian Ethical Investments Limited(1) RE Hancock (associated entities + associates)(2) No. of shares % of total 2,906,102 2,182,863 6.91 5.42 (1) Substantial shareholder notice dated 06/10/2017. (2) Substantial shareholder notice dated 19/05/2016. On-market buyback There is no on-market buy back. Dividend reinvestment plan The Board of Directors resolved to suspend the dividend reinvestment plan for the ﬁ nal dividend payable for the half year ended 30 June 2019, due to the strength of the capital position. Shareholder online investor centre We encourage shareholders to take advantage of the Computershare Investor Centre website available at www.computershare.com.au where you can register and: • View your shareholding, dividend and transaction history online • Update your registered address, TFN and dividend instructions • Elect to receive eCommunications about your shareholding • Retrieve copies of dividend payment statements. Alternatively, please contact Computershare Investor Services Pty Limited directly on 1300 552 270. P|124 AUSWIDE BANK ANNUAL REPORT 2019 Annual report mailing The Company’s Annual Report is available online at www.auswidebank.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. AUSWIDE BANK ANNUAL REPORT 2019 P|125 For your reference, this glossary provides deﬁ nitions for some of the terms used in ﬁ nancial reporting, particularly by ﬁ nancial 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 classiﬁ ed 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 deﬁ ne diﬀ erences 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 Credit Rating Dividend Dividend Payout 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. An analysis of a company's ability to repay debt or other obligations. A portion of a company's proﬁ ts that may be paid regularly by the company to its shareholders. 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 Earnings per Share Ex-Dividend Date Liability Liquidity Market Capitalisation NCD Net Interest Income A Dividend Reinvestment Plan allows shareholders to reinvest some or all of their dividends into additional shares. The amount of company earnings per each outstanding share of issued ordinary shares. The date used to determine a shareholder's entitlement to a dividend. A company's debts or obligations that arise during the course of business operations. Liabilities for ADIs include interest-bearing deposits. For an ADI, liquidity is a measure of the ability of the ADI to fund growth and repay debts when they fall due, including the paying of depositors. The total value of a company's shares calculated by multiplying the shares outstanding by the price per share. A Negotiable Certiﬁ cate of Deposit is a short term security typically issued by an ADI to a larger institutional investor in order to raise funds. The diﬀ erence between the revenue that is generated from an ADI's assets, and the expenses associated with paying out its liabilities. Net Interest Margin (NIM) The diﬀ erence between the interest income generated by an ADI and the amount of interest the ADI pays out to their depositors, divided by the amount of their interest-earning assets. Net Proﬁ t After Tax (NPAT) Total revenue minus total expenses, with tax that will need to be paid factored in. Net Tangible Asset Backing per Share An indication of the company's net worth, calculated by dividing the underlying value of the company (total assets minus total liabilities) by the number of shares on issue. Non Interest Income Income derived primarily from fees and commissions, rather than income from interest-earning assets. Price-to-Earnings Ratio (P/E Ratio) A measure of the price paid for a share relative to the annual income or proﬁ t 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 proﬁ t to shareholder's equity. Return on Net Tangible Assets (RONTA) Computed by dividing Net Proﬁ t After Tax by average Net Tangible Assets. Net Tangible Assets equals net assets less goodwill. RONTA is equivalent to Return on Tangible Equity. RMBS Residential mortgage-backed securities are a type of bond backed by residential mortgages on residential, rather than commercial, real estate. P|126 AUSWIDE BANK ANNUAL REPORT 2019 Securitisation SSP Subordinated Capital Notes Tier 1 Capital Tier 2 Capital Underlying NPAT 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 reﬂ ection of a company's proﬁ t. One-oﬀ items may be removed from the statutory proﬁ t for the company to arrive at this proﬁ t ﬁ gure. AUSWIDE BANK ANNUAL REPORT 2019 P|127 AUSWIDE BANK LTD ABN 40 087 652 060 Australian Financial Services & Australian Credit Licence 239686 Head Oﬃ ce 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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