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2023 ReportAuswide Bank Annual Report 2020 New Brisbane CBD Branch 4 6 8 10 11 12 15 16 19 20 20 21 24 28 45 46 56 108 110 116 118 122 ABOUT AUSWIDE BANK OUR BOARD OF DIRECTORS OUR LEADERSHIP TEAM 2020: YEAR IN REVIEW Our Financial Performance Our Operational Performance Our COVID-19 Response Our Strategy The Year Ahead SUSTAINABILITY Conduct and Ethics Social Responsibility Managing Risk DIRECTORS’ STATUTORY REPORT AUDITOR’S INDEPENDENCE DECLARATION FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT CORPORATE GOVERNANCE SUMMARY SHAREHOLDER INFORMATION FINANCIAL GLOSSARY |3 Auswide Bank Annual Report 2020 ABOUT AUSWIDE BANK For over 50 years Auswide Bank has been providing an extensive range of banking products and financial services to our valued customers. Auswide Bank is not a big bank and we do not want to be like one. We believe it is the small things that reveal who each of us are. Small is real. Small is sincere. It is the smile on a familiar face and knowing how hard you have worked to get ahead. Small is finding your voice and meaning what you say. At Auswide Bank, we are here to help our customers find 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. Established in 1966 Auswide Bank provides home loans, consumer lending and a range of personal and business banking services nationally - in branch, online, over-the-phone and through distribution partnerships and a national mortgage broker network. Strong legacy Our heartland is in regional Queensland and we have a growing presence in South East Queensland, New South Wales and Victoria. $3.7b in assets Representing a high quality loan book. Partnerships Establishing mutually beneficial partnerships such as Queensland Rugby League. Industry-leading Staff engagement score of 96%. Our Mission Our Vision To demonstrate the ‘power of small’ by placing our customers at the centre of everything we do. To be the Bank that our customers, staff and partners want their friends, family and colleagues to bank with. Our Values Empowering customers and staff to initiate change. Exceed our customers’ expectations and celebrate their successes and our own. Make decisions and adapt quickly to meet our customers’ needs. A commitment to be ethical and operate in a sustainable workplace. Identify your purpose and be passionate about it. Build open and honest relationships and deliver on our promises. Own our actions, decisions, customers and outcomes. Financial Highlights NPAT1 Excluding the effects of Covid-19 STATUTORY NPAT1 COST TO INCOME RATIO CAPITAL LOAN BOOK CUSTOMER DEPOSITS $20.114m $18.504m 62.5% 12.95% $3.266b2 $2.620b 16.9% 7.6% 2% 0.8% 4.3% 10.4% 1. 2. Difference between Statutory NPAT and NPAT excluding the effects of COVID-19 due to additional provisioning related to COVID-19 Grossed up for Investments in Managed Investment Schemes (MISs) reported in Financial Assets in Balance Sheet |4 Auswide Bank Annual Report 2020 |5 Auswide Bank Annual Report 2020 OUR BOARD OF DIRECTORS John Humphrey LL.B | Chairman Mr 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 office of international law firm, 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 a Non-Executive Director of Horizon Oil Limited (until November 2018). Mr Humphrey is a member of the Audit Committee and is an independent Director. Barry Dangerfield | Director Mr Dangerfield was appointed to the Board on 22 November 2011. Mr Dangerfield has had a successful 39 year banking career with Westpac Banking Corporation having held positions across Queensland and the Northern Territory of Regional Manager Business Banking, Head of Commercial and Agribusiness and Regional General Manager Retail Banking. Mr Dangerfield is 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 Dangerfield served as a Director of MoneyPlace Holdings Pty Ltd until January 2018. Mr Dangerfield 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 Institute’s Audit and Risk Committee and Chairman of the Institute’s Remuneration Committee. Greg Kenny GAICD, GradDipFin | Director 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. Martin Barrett BA(ECON), MBA | Managing Director Mr Barrett commenced as Chief Executive Officer of Wide Bay Australia Ltd (now Auswide Bank Ltd) on 4 February 2013 and was subsequently appointed Managing Director on 19 September 2013. Mr Barrett has extensive experience in the banking sector having previously held the positions of Managing Director (Queensland, Western Australia and National Motor Finance Business) and General Manager NSW/ACT Corporate & Business Bank at St George Bank Ltd. Prior to working at St George Bank, Mr Barrett held senior roles at regional financial institutions in the United Kingdom and at National Australia Bank. Mr Barrett is currently a 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. Sandra Birkensleigh BCom, CA, GAICD, ICCP (Fellow) | Director Ms Birkensleigh was appointed to the Board on 2 February 2015 and 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. She 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. |6 Auswide Bank Annual Report 2020 |7 Auswide Bank Annual Report 2020 OUR LEADERSHIP TEAM Managing Director Martin Barrett | Strategy development and implementation Group operational and financial performance Regulatory engagement Risk culture and management Social responsibility and sustainability Customer satisfaction and growth Shareholder returns Chief Financial Officer and Company Secretary Chief Operating Officer Chief Customer Officer Chief People & Property Officer Chief Risk Officer Chief Information Officer (Acting 09.04.20) Bill Schafer | Mark Rasmussen | Damian Hearne | Gayle Job | Craig Lonergan | Scott Johnson | Group Accounting and Treasury Budgeting and financial analysis Financial and management reporting Statutory, ASX and regulatory reporting Capital, funding and liquidity planning strategy Investor relations Customer operations Customer experience Retail and business banking sales and distribution Mortgage broker and third party relationships Marketing and products Community and strategic partnerships Customer Hub and Digital Bank Lending services Lending origination services Support services operations Support services performance Business Continuity Planning (BCP) and Management (BCM) Key outsourcing Partnership Management (Support Services functions) PEXA management and processing |8 Auswide Bank Annual Report 2020 Risk profile within Board approved risk appetite Risk management strategy and practices Risk management and compliance framework and control systems Risk culture awareness Credit portfolio review Group Information Technology management IT strategic planning Key technology project implementation People engagement and performance Payroll management, remuneration and benefits Talent acquisition, recruitment and retention strategies Learning and development Employment law regulation and compliance Employee wellbeing and workplace health & safety Property portfolio management of leased and bank owned assets |9 Auswide Bank Annual Report 2020 2020: YEAR IN REVIEW John Humphrey | Chairman Martin Barrett | Managing Director Financial year 2020 has been another successful year for Auswide Bank - a year where we delivered on all our key financial targets. Improving our attraction and delivery to customers resulted in outstanding growth in lending and customer deposits and an equally outstanding year in profitability. Significantly, these outcomes were achieved during a period of record low interest rates and unprecedented volatility with the second half marked by the coronavirus COVID-19 pandemic. We responded rapidly to support our customers and staff to ensure their wellbeing and safety. Our COVID-19 assistance packages provided immediate financial relief to many customers and we are proud of that. We are celebrating another year of quality growth in our balance sheet and profitability demonstrating our consistent progress and which, in recent times, we believe positively defies the industry norm. Our Financial Performance We are pleased to report that our statutory Net Profit after Tax (NPAT) was up 7.6% to $18.5 million compared to $17.2 million in the 2018/19 year. Our NPAT excluding the effects of COVID-19 was up 16.9% to $20.1 million. The positive result was based on growth with the loan book increasing by 4.3% to $3.26 billion, or 1.5 x system growth in a highly competitive market. We achieved this in conjunction with a 10 basis point increase in the Net Interest Margin (NIM), up to 197 basis points from 187 basis points in 2018/2019, as active management of our funding costs continued to deliver significant benefits. Based on growth in our loan book and the significant increase in our NIM, our Net Interest Revenue was $70.5 million, up by $7.3 million compared to 2018/19, an increase of 11.6%. The competitive environment has not affected our ability to grow our customer deposit base which increased by 10.4% to $2.62 billion, taking our self- funding ratio to 74.5%. This represents an increase of more than 300 basis points over the prior year allowing us to reduce more expensive funding lines such as securitisation. Our Cost to Income Ratio continues to fall and at 62.5% we are making good progress towards our 60% goal. Underlying Earnings per Share (EPS) was 47.6 cents when the effects of COVID-19 are excluded. EPS on a statutory basis was up 3.0 cents per share to 43.8 cents per share comparing very favourably to our peers. Our EPS has improved steadily on a continuing operations basis since 2016 when it was 31.2 cents per share or 40% lower than 2019/2020. Another medium-term goal we have previously flagged is Return on Net Tangible Assets (RONTA) of 10%. NPAT excluding the effects of COVID-19 demonstrated a RONTA of 10.6%. Using statutory NPAT, RONTA improved from 9.1% to 9.7%. Our performance means your Board declared a final fully franked dividend of 10.75 cents per share payable on 18 September 2020, representing a payout ratio of 49.3% of our second half year statutory NPAT. Our full financial year dividends amounted to 27.75 cents per share representing a payout ratio of 63.4%. This lower final dividend in the context of higher profits, seeks to achieve the balance required to manage our capital prudently and to operate within the guidelines announced by the Australian Prudential Regulation Authority (APRA) on 29 July 2020 in response COVID-19 economic conditions. |10 Auswide Bank Annual Report 2020 |11 Auswide Bank Annual Report 2020 1. FY20 results excluding the effects of COVID-19 Our Operational Performance Lending Home loans were up 3.5% to $3.05 billion representing over 93% of the total book. Our growth was driven by strong mortgage broker flows and our successful participation in the First Home Loan Deposit Scheme (FHLDS). In December 2019, we received approval from the National Housing Finance Investment Corporation (NHFIC) to join the Scheme lending panel. From 1 February 2020, we commenced offering home loans to eligible first homebuyers with the FHLDS providing a government guarantee for any loan monies above 80% LVR. The FHLDS contributed to a 25.8% increase in approvals and a 9.9% increase in home loan settlements for the year. Consumer lending, including funding of consumer loans through managed investment schemes, materially increased totalling $80.5 million at the end of year, up from $62.3 million from 30 June 2019. Business lending, including residentially secured lending to business customers, was up to $135.9 million. A strategic decision was made at the end of the year to pause new business lending to non- customers as part of our risk management response to COVID-19. We are committed to maintaining quality lending and risk management of our loan book. Total arrears were $12.6 million at 30 June 2020, representing 39 basis points of the loan book. This figure excludes COVID-19 related assistance in accordance with APRA guidelines. It compares to total arrears of 46 basis points of loans at June 2019 and is 53% down compared to June 2016. Our arrears compare favourably with our peers with the SPIN index for >30 days past due for “Other Banks” at 131 basis points and for “Regional Banks” at 173 basis points. One quarter of our loan book securities are now situated outside of Queensland, principally Sydney and Melbourne, and we continue to diversify our historical concentration away from our regional Queensland heartland, with New South Wales and South East Queensland representing significant growth opportunities. Our home lending book remains mature with 72% of home loans having an LVR of 80% or less. An increase in loans with LVR over 90% was due to the success of the FHLDS, however the government guarantee provides for any loan monies above 80% LVR. The majority of other home loans with an LVR over 80% are covered with a recognised Lenders Mortgage Insurer. 1 1. Covid-19 loan deferrals not included based on APRA guidelines |12 Auswide Bank Annual Report 2020 |13 Auswide Bank Annual Report 2020 Funding Capital During the year, we prudently managed our funding and we saw an ongoing shift in our funding mix as customer deposits increased by 10.4% to $2,620 million and securitisation continued to fall. Customer deposits now represent 74.5% of funding, driven largely by the strong growth in at-call savings accounts which increased by 24.8% to $1.13 billion. Regulators have responded decisively to the COVID-19 pandemic with the Reserve Bank announcing a Term Funding Facility for banks at 0.25%, which provide an attractive and very cost- effective funding line. We have maintained a strong capital adequacy ratio of 12.95% and CET1 of 11.09% at 30 June 2020, meeting ‘unquestionably strong’ regulatory targets. Our capital ratio reduced from 13.79% at 30 June 2019 due to our loan book growth and the suspension of the Dividend Reinvestment Plan for the 2018/19 final dividend. Our capital position remains comfortably in excess of the Board’s target. We will continue to support loan book growth with capital supply drivers including a Tier 2 subordinated debt transaction and the Dividend Reinvestment Plan for our 2019/20 final dividend. Our COVID-19 Response We have responded to the coronavirus pandemic by supporting our customers and staff. The health and wellbeing of all our personnel and customers was an early priority with the rapid development of a response plan and continuous oversight of the situation. Our branches remained open with the appropriate safety measures in place and our office staff worked remotely where possible. Our assistance packages for customers are consistent with our peers and included deferral of payments or change to interest only terms. We responded with urgency and without the need for further evidence. We are proud that, in most cases, we responded to our customers within three days. As at 30 June 2020, just below 9% of our loan book was placed on assistance, slightly lower than the average for the industry. This represented 1014 loan accounts for $288 million. The majority of requests were made in March slowing materially into April. Significantly, given how the pandemic has rolled out differently across the States, nearly 75% of our loan book is concentrated in Queensland with only 8% located in Victoria. Our loans are also heavily concentrated on residential lending representing over 95% of support that has been provided. Our total Provision for Doubtful Debts increased from $4.9 million in December 2019 to $7.1million in June 2020 with an additional $2.3 million included for the effects of COVID-19, including a $1million overlay to provide for uncertainty going forward. The modelling for the provisions included stressed scenarios and the prescribed provisions required under APRA standards. |14 Auswide Bank Annual Report 2020 |15 Auswide Bank Annual Report 2020 In 2019, we commenced the first year of our community partnership with Queensland Rugby League (QRL). The three year agreement includes Auswide Bank Naming Rights sponsorship of the under 18’s Mal Meninga Cup and sponsorship of the Queensland Maroons team. In 2019, approximately 9,537,000 viewers were exposed to the Auswide Bank brand on television, with the three State of Origin Games being the three most watched programs of the year. We are leveraging this exposure to the QRL membership and fan base to drive new customer acquisition and in January 2020 launched our ‘Club Rewards Program’ where QRL affiliated clubs can benefit when their members refer home loans and personal loans to us. Unfortunately, the second year of our partnership with QRL has been impacted by COVID-19. The Mal Meninga Cup was cancelled and the 2020 State of Origin series delayed until November. This impacted our engagement and marketing opportunity, so we were pleased to negotiate an extension of our agreement with QRL for an additional year. Our Strategy We are making substantial progress on our 2019/2022 strategic plan which seeks to work with the strengths of the organisation. Our plan determines our direction, resource allocation and prioritisation and has already supported our financial performance. It has also helped us address challenges and work more collaboratively as an organisation with a common purpose. Our strategic goals are being delivered with a number of clearly defined focuses. Brand Awareness Our goal is to grow our brand awareness across Queensland to over 60% by the end of 2022. We were pleased to see a 31.23% improvement in brand recognition in July 2019 compared to the same time in 2018. We are growing brand awareness through consistent messaging about our value proposition, through advocacy off the back of enhanced customer service, by extending our brand through partnerships, and by differentiating our brand from the ‘Big 4’ through community engagement. We were again the recipient of several awards that provided national recognition for our products and as at May 2020 rated 4.4 out of 5 stars across online and branch reviews on ProductReview.com.au We are building our presence on online and social media platforms with our Facebook following growing around 11%, our LinkedIn following growing around 31%, and our Instagram and Twitter following both growing around 23% for the year. Partnerships We will continue to identify and work with strategic partners that meet our criteria and where we believe we can create opportunity to reach our strategic and operational objectives. During the year, we strengthened our partnership governance framework to ensure appropriate assessment and ongoing management of these relationships. Our strategic partnerships can be broadly divided into: product partnerships where we seek to more fully meet the financial needs of our customers; distribution partnerships where we promote our products and services via our partner’s networks; community partnerships that support our brand and our commitment to social responsibility; and managed investments where we provide funding, for example to peer to peer lenders. Apart from our partnership with QRL, two examples of how partnerships have supported our growth and financial performance in 2019/20 are the National Housing Finance and Investment Corporation (NHFIC) and National Seniors Australia (NSA). As advised earlier, our participation in the First Home Loan Deposit Scheme administered by NHFIC contributed significantly to our home loan program. It has been exciting to see the quality of applications from a variety of backgrounds including a good proportion of young professionals and we congratulate the federal government on the initiative. In December 2019, we announced a partnership with National Seniors Australia, the peak national advocacy group representing the interests of older Australians. The principal partnership focus was to provide their members and supporters with a range of ‘white label’ fixed interest term deposits. With NSA support, we have seen solid growth of these deposits. It has been pleasing to note that the majority of deposits have been sourced outside of Queensland helping diversify our deposit base. This partnership together with similar partnerships where our term and on-call deposits are marketed and distributed have greatly supported our shift away from higher cost forms of funding and have directly supported the growth in our 2019/20 NIM. |16 Auswide Bank Annual Report 2020 |17 Auswide Bank Annual Report 2020 The Year Ahead In 2020/21, we will remain focused on all the key planks of our three-year strategic plan. In addition, we will continue to provide the appropriate level of support to our people and any customers affected by COVID-19. We have a relatively simple business. Scale and complexity in this environment is not the competitive advantage it once was. Today simplicity and nimbleness backed by good value products that are distributed efficiently via multiple channels, both proprietary and partner, is the opportunity for Auswide Bank. The impact of COVID-19 on the economy and on consumer confidence will be a very important factor for the future. At the time of writing, Queensland and New South Wales, where 88% of our loan book is located, have not been as negatively impacted by the crisis and have not experienced any material impacts to housing markets and prices. In fact, regional Queensland is showing resilience with several markets experiencing increased land sales and housing construction. We are well placed to take advantage of this growth. We have in the past held out four medium term financial targets including a Cost to Income Ratio of 60%, a stable NIM, a RONTA of 10% and above system loan growth. Despite the challenges and uncertainty, we expect to continue our momentum in all of these areas in the year ahead. As we progress into the year ahead, we both extend our appreciation to the Auswide Bank team and our fellow Directors for your contribution and your dedication to achieving Auswide Bank’s mission, vision and values. Thank you also to our customers, shareholders and to our partners for your continuing support. JS Humphrey MB Barrett Director Managing Director Digital Innovation and Customer Hub A significant driver of growth, retention and efficiency is technology. Our digital banking journey is simply to collaborate with those that have made the investment and that can assist us with digital distribution, improve customer experience, create efficiency and deliver to our customers what they want and need to improve their experience with us. However, we are mindful of return on investment from technology spend and will continue to invest prudently. During the year, we continued to improve customer experience through capable digital implementation and supporting customer transition from branch to digital channel. An example includes our roll out of a digital identification solution that allows customers to meet identification requirements using their mobile device without having to visit a branch or Australia Post. The solution also helps us mitigate fraud via a ‘liveliness’ test that ensures the legitimacy of the customer. We also enhanced our Bundaberg-based Customer Hub with additional technologies to maximise service levels and opportunities in order to grow our customer base over-the-phone and via online and partnership origination. A significant focus for our Customer Hub and the bank as a whole has been to improve our customer retention capability and early intervention that is particularly important in a competitive market. Our core banking system upgrade is targeted for late 2020. We expect to make considerable headway in our digital capability with a number of projects set to be delivered. Efficiency Apart from seeking efficiency through technology, we continue to review our products and processes. In particular, this year we have reduced the processing cost per loan while consistently providing very good turnaround times. In May 2019, we initiated a Broker Journey Review by engaging with mortgage brokers who helped us identify key areas that would deliver efficiency as well as a better customer and broker experience. Since then, a raft of technology and process optimisation initiatives have been progressively rolled out and we have consistently improved our turnaround times delivering an average of five business days to decision since February 2020. This year, we also commenced testing of ‘just in time’ customer experience surveys with a goal of understanding our customer experiences and identifying additional areas of improvement for our products and processes. We continued our simplification program with the conversion of multiple legacy products and the winding up of products and product features that we considered are low value. This also supports our risk and compliance management given increasingly more complex product compliance requirements such as Open Banking and product Design and Distribution Obligations in the year ahead. Strength We have maintained our focus on strengthening the bank by enhancing staff capabilities through our learning and development program and by fostering the right culture that continues to balance our stakeholder demands. We ensured continued focus on incident reporting, reducing errors, developing risk audit processes, enhancing cyber risk resilience and building our fraud detection capability. We revamped our customer feedback and dispute resolution processes to ensure timely and effective responses. Non-Organic Growth We continue to review potential merger and acquisition, fintech and other partnering opportunities as an opportunity to grow scale and this remains an important part of our strategy. |18 Auswide Bank Annual Report 2020 |19 Auswide Bank Annual Report 2020 Social Responsibility We are very conscious of the impacts that our business activities have on people and the world around us. Our People We are passionate about increasing professional and personal development of the teams responsible for managing our relationships. Our learning and development program is designed to improve the knowledge and capability of our staff and to support them in carrying out their roles effectively and efficiently. We maintain a number of human resource policies to assist our people to act responsibly, to protect them and our customers, and in which they commit to helping us meet our obligations. In working together, we ask that our people understand and commit to our Mission, Vision and Values – EMPOWER. We also continue to adopt strategies to improve on the social and emotional health and wellbeing of our people by playing our role in keeping our employees engaged, healthy and productive both at work and in their everyday life. In particular, the support of our people during the COVID-19 pandemic has been a significant focus for us. SUSTAINABILITY Conduct and Ethics We are committed to achieving outstanding customer service, performance standards and returns to provide value to our shareholders. In achieving these outcomes, we always strive to not compromise our values, ethics and principles. Under our Code of Conduct and Ethics, we ask all our employees and business partners to demonstrate honesty, integrity and trust in all their dealings. We ask them to set an example for others to follow. We also seek to recognise those that demonstrate these positive behaviours. We encourage our people to speak up without fear of retribution when these behaviours are threatened or are compromised. Our Whistle-blower Protection Policy allows employees to make confidential, anonymous submissions regarding any misconduct or dishonest or illegal activity that has occurred. We seek to comply with relevant laws in relation to workplace conditions. This includes supporting diversity in the workplace and a zero tolerance for any form of discrimination or harassment. We are also committed to developing, maintaining and improving systems and processes to avoid being complicit in human rights violations. In 2019/20, in keeping with the Modern Slavery Act 2018, we undertook actions to mitigate the potential for our activities to indirectly support slavery and human trafficking. This included identifying and reviewing agreements with high-risk suppliers and developing policies and processes which are designed to assist us to identify, assess and mitigate this risk. |20 Auswide Bank Annual Report 2020 |21 Auswide Bank Annual Report 2020 Our Customers Our desire to grow our business is underpinned by positive customer experiences, loyalty and advocacy as well as supporting customers in socially responsible ways. Financial Wellbeing Apart from providing products and services that help our customers manage their finances, we are committed to supporting their overall financial wellness. Our products can also help them grow their wealth for tomorrow or we can arrange to provide protection to insure their assets against unexpected loss. We have never been more conscious of supporting the financial wellbeing of our customers than through the COVID-19 pandemic where some of our customers were left concerned about their finances and financial future. This includes changes to superannuation, investments and government benefits, job changes and losses and impacts on household budgets. Apart from the measures we adopted to support loan customers, we directed customers towards Government support and provided access to other resources that helped them to make appropriate financial decisions. Through our partner National Seniors Australia, we directed our senior customers to the Older Australians COVID-19 Support Hotline (1800 171 866) launched in conjunction with the Federal Government Department of Health. The Hotline is available to seniors needing a listening ear, a friendly voice or help on what COVID-19 means for their circumstances. For customers seeking more personalised financial advice, we were able to direct customers to our partners at Alliance Wealth and Financial Advice Matters (FAM). FAM have also been supporting employers with financial wellness education for workplaces. Complaints & Dispute Resolution We see feedback, including complaints, as an opportunity to help and understand our customers and to improve our products, procedures and services. Effective resolution means we also retain customers who might otherwise go elsewhere. Our Complaints Management Policy and dispute resolution process includes assignment of responsibility, full transparency and a commitment to agreed resolution timeframes. We are also a member of the Australian Financial Complaints Authority for when complaints remain unresolved. Responsible Lending As an Australian Credit Licensee and under the National Consumer Credit Protection Act (NCCP), we will always seek to meet our responsible lending obligations. To achieve this our credit approval processes include making reasonable enquiries about the consumer and making a preliminary assessment whether the proposed credit is “not unsuitable” for the consumer. These responsible lending obligations are incorporated into our lending policies and procedures and relevant staff are required to participate in appropriate training. Financial Hardship We maintain policies and procedures to support borrowers who may be unable to meet their obligations under a credit contract due to illness, unemployment, natural disasters, pandemic events such as COVID19 or another reasonable cause. We assess and manage hardship applications by working with the customer to arrive at a reasonable solution to assist them to overcome their hardship. Our Community We originated in regional Queensland communities and community is part of our DNA. Where possible, we support community organisations and events through our Community Grant Scheme and we actively encourage our staff to support worthy causes. In 2019/20 we participated in events such as the Central Queensland University Open Day and the Fraser Coast Expo, and supported causes such as the Queensland and New South Wales Bushfire Appeals; Jeans for Genes Day, R U OK Day, Breast Cancer Awareness, Movember, NAIDOC Week and the Salvation Army Red Shield Appeal. We also launched our Community Rewards program designed to financially benefit not-for- profit organisations who provide referrals to us through their network of members and supporters. Our Environment We are very conscious of our impact on the environment, our community’s expectations and the need to set an example to other businesses. As a responsible corporate citizen, we understand our responsibility to reduce our environmental impact and be transparent about our environmental approaches and performance. We are conscious 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 customer’s place of work, impacting on their ability to meet loan repayments. Increased likelihood of disasters such as flood or fire 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. We proactively seek to reduce our environmental footprint through secure destruction and recycling of documents; promoting digital alternatives such as eStatements; utilising energy efficient lighting and switching off air-conditioning and electrical appliances when not in use. We do not finance companies engaged principally in the exploration, mining, manufacture or export of thermal coal or coal seam gas and we do not intentionally invest directly in companies specialising in these areas. During 2020/21 we will develop a sustainable environmental policy and associated targets. |22 Auswide Bank Annual Report 2020 |23 Auswide Bank Annual Report 2020 Managing Risk In protecting our operations and stakeholders, we have a comprehensive risk and compliance management program to actively identify and eliminate risk where possible, and to mitigate and minimise the impact of those risks that cannot be eliminated. Strengthening our risk management approach is a high priority with a strong Board oversight of the risk profile and risk management, particularly with reference to the Board determined risk appetite. Our Risk Management Framework is underpinned by the ‘three lines of defence’ risk management model with accountabilities for risk ownership (the ‘first line’), functional oversight (the ‘second line’) and assurance (the ‘third line’). Compliance Following various commissions of enquiry over recent years, the regulatory landscape is increasingly complex for our sector. We are working hard to remain compliant across the broad range of obligations and expectations. We maintain a range of internal policies and processes that help us ensure compliance and which support good governance. In 2020/21, the Open Banking regime will create further compliance obligations and challenges, but also provide us with opportunities in the future. Business Continuity We strive to maintain a minimum level of operational capacity including the provision of services for key stakeholders by minimising the impact that a disruptive event could have on the viability of our organisation and provision of customer services. Our Business Continuity framework includes ensuring the welfare of our personnel and customers; protecting our reputation; maintaining customer satisfaction; enhancing organisational stability; reducing risk exposures and potential economic losses; minimising legal liabilities and anticipating and satisfying future regulatory requirements. Data Security Privacy We are committed to protecting the data we hold and manage, particularly in a digital world. We have embedded a culture of privacy in keeping with the Australian Privacy Principles. Our IT security risk management framework addresses our approach to managing data security through a range of policies, standards, guidelines and procedures. This framework is based on clearly defined security principles and defined roles and responsibilities to ensure the achievement of effective IT and data security risk management outcomes. Risk assessments are completed regularly and applicable controls and security vulnerabilities are assessed regularly using various monitoring and testing techniques. Our Privacy Policy is our commitment to customers, while our Privacy Management Plan provides a framework to ensure we are able to meet that commitment. All our people are provided with privacy training to understand obligations and considerations relevant to identifying, assessing and managing privacy risks. |24 Auswide Bank Annual Report 2020 |25 Auswide Bank Annual Report 2020 FINANCIAL REPORT 28 44 47 48 49 50 54 DIRECTORS’ STATUTORY REPORT AUDITOR’S INDEPENDENCE DECLARATION CONSOLIDATED STATEMENT OF PROFIT OR LOSS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS 56 108 110 116 118 122 NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT CORPORATE GOVERNANCE SUMMARY SHAREHOLDER INFORMATION FINANCIAL GLOSSARY |26 Auswide Bank Annual Report 2020 |27 Auswide Bank Annual Report 2020 DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2020 Review and results of operations The continued successful implementation of our strategy has led to a further year of strong operational performance for the company with improvement across all key performance areas. We have continued to achieve success in balancing our funding costs with our lending growth despite a low growth and highly competitive market and we will continue to invest for growth and improved customer outcomes. COVID-19 has had a material impact on some of our customers and we have provided support as we assist these customers work through the challenges the pandemic has created. Consequently, our statutory Net Profit After Tax (NPAT) has been impacted as we have prudently provisioned for possible impacts to our loan book. Nonetheless, business momentum has been strong, funding costs materially improving and the bank has improved profitability for a further year. Strategically the environment has led us to re-consider our Business Banking growth strategy. Subsequently we have withdrawn from new customer acquisition and have reduced our resources in the area. Future focus will be on servicing our existing customers. This will allow greater attention to areas identified as future growth opportunities for the organisation. Results Our financial results are strong. NPAT (adjusted for the increase in expected credit loss assumptions adopted due to the effects of COVID-19) for the consolidated entity for financial year 2019/20 was $20.114m. Specific forward looking macroeconomic environment adjustments of $2.3m to expected credit losses have been excluded and no other adjustments have been made to statutory profit. This corresponding figure in the prior year was $17.201m. This represents an increase of 16.9%. The statutory consolidated NPAT for the 2019/20 financial year was $18.504m compared to the result of $17.201m for the 2018/19 year. This represents an increase of 7.6%. The loan book of Auswide Bank Ltd (grossed up for Investments in Managed Investment Schemes reported in Other financial assets in the Statement of Financial Position) increased from $3.131b at 30 June 2019 to $3.266b at 30 June 2020, an increase of $135m. This represents growth of 4.3% for the 2019/20 financial year. The loan book growth compares favourably with the Reserve Bank of Australia (RBA) Financial Aggregates data which discloses credit provided to the private sector increased by 2.9% over the 12 months to June 2020. Digital branch and automation Arrears and collections Home loan settlements across the financial year totalled $677.180m, an increase of 9.93% on the $616.036m in home loan settlements for 2019/20. Net Interest Margin The Net Interest Margin (NIM) has been strongly managed and despite interest rates at historic lows and the continuance of highly competitive housing finance markets across the 2019/20 financial year our NIM improved. Uncertainty around the impact of COVID-19 has also added to margin pressure. In order to achieve stable or improving NIM, the bank closely monitors the competitive pricing of products and continues to proactively manage assets and liabilities. The net interest margin for the 2019/20 year was 1.97% compared to 1.87% in the 2018/19 financial year. Consumer lending The consumer lending portfolio increased from $62.312m at 30 June 2019 to $80.508m at 30 June 2020, an increase of $18.196m. The growth in consumer lending has contributed significantly to the operating results of the Company, with $6.459m in interest income derived from the portfolio in the financial year. Deposits and funding Customer deposits have increased significantly during the year from $2.373b at 30 June 2019 to $2.620b, an increase of $247m. This has increased the level of customer deposits as a percentage of total funding base from 71.45% at 30 June 2019 to 74.51% at 30 June 2020. Auswide Bank has utilised the RBA term funding facility (TFF) by drawing $49.793m in two tranches by 30 June 2020. There are plans to further utilise this funding source by drawing a further $40m by September 2020, which will take the total funding utilised by Auswide Bank to its limit of $90m. The funding under this facility is locked in at a rate of 0.25% for a period of three years. The increase in customer deposits and utilisation of the RBA TFF has allowed Auswide Bank to diversify its funding sources and further reduce its reliance on securitisation funding. Customers The review of the Broker home lending business has continued to improve the customer experience and end to end processes and operations. There have been significant improvements in the volume of applications processed and the average days to decision on loan files throughout the financial year. Ongoing investment in the Broker business technology includes artificial intelligence learning to analyse, validate, redact and categorise documents and improved document management systems. Technology The upgrade of the core banking system is on schedule for completion in Q1 of FY21. This will enable the Open Banking processes and services which commence in October 2020 as well as providing the platform for the bank to advance the payments and on-line services provided to customers. The Auswide Bank branch network delivers a customised service within the Queensland footprint. The strategic goal is to create an end-to-end digital banking experience and the bank has initiated projects to deliver online application capabilities to provide services to customers Australia wide. Total arrears greater than 30 days past due (excluding the effects of hardship accounts) decreased from $14.302m to $12.559m. Arrears have decreased as a percentage of the Group’s total loan book from 0.46% at 30 June 2019 to 0.39% at 30 June 2020. Key components of the digital banking strategy are: Support for customers during COVID-19 • the Apply program which allows existing and new customers to apply for Auswide Bank products online; • the Interact program to provide solutions that satisfy the “digital savvy” customer interaction expectations; • the Transact program which provides customers with a new digital experience for their day-to-day transacting activities; and • the Personalise program which provides a method to have a deeper understanding of customers’ wants and needs and delivers at exactly the right moment. Capital The capital adequacy ratio for the Auswide Bank Group at 30 June 2020 was 12.95% (2019: 13.79%). The tier 1 capital ratio at 30 June 2020 was 11.09% (2019: 11.76%). The capital remains materially above the Board’s capital targets and meets APRA’s unquestionably strong minimums. The final dividend for FY20 will be accompanied by a Dividend Reinvestment Plan and the bank will be completing a tier 2 Subordinated Debt placement in Q1 of FY21 which will further strengthen the group’s capital position. Principal activities and significant changes Auswide Bank Ltd is an approved deposit-taking institution and licensed credit and financial services provider. Auswide Bank provides deposit, credit, insurance and banking services to personal and business customers across Australia, principally in regional and metropolitan Queensland, Sydney and Melbourne. Lending Outlook The growth in the loan book across FY20 is expected to be strong across the first half of FY21. This growth will be assisted by Auswide Bank’s participation in the First Home Loan Deposit Scheme. This scheme allows eligible borrowers to be able to apply for loan funding with higher than usual loan to valuation ratios without the requirement to pay the lender’s mortgage insurance (LMI) because up to 15% of the value of the property being purchased that is financed can be covered via federal government guarantee. Branch network The Company has a diversified branch network consisting of 18 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. The bank maintained a focus on supporting customers and staff during the period of the COVID-19 pandemic. All branches remained open and office staff worked remotely where possible until restrictions were eased across Queensland. Customers were assisted with repayment deferrals and interest only conditions to assist during this period of uncertainty and financial stress. Support was provided to 1,014 account holders representing a total loan value of $288m or 9% of the total loan book. There were 926 residential loan accounts valued at $275m (9%), 40 Business Banking accounts totalling $12m (16%) and 48 personal loan accounts amounting to $1m (4%) which were in receipt of supportive measures. Of the loans receiving assistance, Queensland represented 74% or 787 loans ($212m). New South Wales accounted for 14% or 102 loans ($41m) and Victoria represented 8% of the total, or 87 loans ($23m) which were in receipt of support. The remainder was allocated to loans across other states. In preparation for the end of the deferral period, Auswide staff are personally contacting customers to discuss the current status of the loans and assistance offered. Early trends indicate that more than 85%of customers have already commenced repayments or will resume regular loan repayments at the end of the deferral period. The Board is satisfied 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 higher risk locations, products or services. 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 the opportunity presents itself and the Board will review any offers made which may complement the overall operations of the Group. Dividends A fully franked interim dividend of 17.0 cents per ordinary QUICK LINKS >>> Directors’ Statutory Report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |28 Auswide Bank Annual Report 2020 |29 Auswide Bank Annual Report 2020 share was declared and paid on 16 March 2020 (25 March 2019: 16.0 cents). A fully franked final dividend of 10.75 cents per ordinary share has been declared by the Board and will be paid on 18 September 2020 (20 September 2019: 18.5 cents). The Board has adopted a conservative approach to the final dividend recognising current uncertainties and stresses in the market. Guidance from APRA that ADIs seek to retain at least half of their earnings when making decisions on capital distributions has also been taken into consideration in declaring the final dividend. Going concern The Board of Directors of Auswide Bank have assessed that the going concern basis of accounting remains appropriate, with no material uncertainty. The strength of the financial results for H1 of FY20 continued across H2 reflecting robust operations during Q4. Despite the impacts of COVID-19 in the 4 months for June 2020, the FY20 NPAT was $18.504m, up 7.6% on the $17.201m reported for FY19. The underlying NPAT (excluding the COVID-19 related provisions) was $20.114m, up 16.9% on the $17.201m for FY19. There are also indicators to support confidence in operations for FY21, including forecast performance and cash flows, as well as actual loan flows, NIM maintenance and expense management in July 2020. Liquidity also remains strong, with various facilities available to be utilised if required. COVID-19 has not had a material impact on Auswide’s ability to perform its banking activities, with branches remaining open and lending business continuing with no significant issues experienced. Any loan contract changes relating to COVID-19 have not resulted in any material impact to ongoing operations or performance. Despite the economic impact of COVID-19, Auswide has performed well and expects that this will continue; the Board of Directors have therefore been able to assess that Auswide Bank remains a going concern. Matters subsequent to the end of the financial year There has been no other matter or circumstance since the end of the financial year that will significantly affect the results of operations in future years or the state of affairs of the Company. However, the Board of Directors continues to remain vigilant of any unforeseen risks which may arise as a result of rapidly evolving situations arising from the economic impact of COVID-19. Directors 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 financial year, 20 meetings of the Directors, 6 meetings of the Audit Committee, 4 meetings of the Remuneration Committee and 5 meetings of the Risk Committee were held, in respect of which each Director attended the following number: BOARD AUDIT REMUNERATION RISK HELD ATTENDED HELD ATTENDED JS Humphrey B Dangerfield GN Kenny MJ Barrett SC Birkensleigh 20 20 20 20 20 19 20 20 20 20 6 6 6 6 6 5 6 6 6* 6 HELD n/a 4 4 4 4 ATTENDED n/a 4 3 1* 4 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 Dangerfield GN Kenny Ordinary Shares 31,551 187,589 43,291 15,000 Related party disclosure No persons or entities related to key management personnel provided services to the Company during the year. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary The names and particulars of the Directors of the Company in office during or since the end of the financial year are: Mr John S Humphrey LL.B Mr 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 office of international law firm, 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 a Non-Executive Director of Horizon Oil Limited (until November 2018). Mr Humphrey is a member of the Audit Committee and is an independent Director. Mr Barry Dangerfield Mr Dangerfield was appointed to the Board on 22 November 2011. Mr Dangerfield has had a successful 39 year banking career with Westpac Banking Corporation having held positions across Queensland and the Northern Territory of Regional Manager Business Banking, Head of Commercial and Agribusiness and Regional General Manager Retail Banking. Mr Dangerfield is 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 Dangerfield served as a Director of Money Place Holdings Pty Ltd until January 2018. Mr Dangerfield 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. He has 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 Officer of Wide Bay Australia Ltd (now Auswide Bank Ltd) on 4 February 2013, and was subsequently appointed Managing Director on 19 September 2013. Mr Barrett has extensive experience in the banking sector, having previously held the positions of Managing Director (Queensland, Western Australia and National Motor Finance Business) and General Manager NSW/ACT Corporate & Business Bank at St George Bank Ltd. Prior to working at St George Bank, Mr Barrett held senior roles at regional financial institutions in the United Kingdom and at National Australia Bank. Mr Barrett is currently a 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. |30 Auswide Bank Annual Report 2020 |31 Auswide Bank Annual Report 2020 Remuneration report The Board Remuneration Committee consists of independent Directors Mr Barry Dangerfield, Mr Greg Kenny and Ms Sandra Birkensleigh. Mr Barry Dangerfield is Chairman of the Committee. The objective of the Board Remuneration Policy is to maintain behaviour that supports the sustained financial performance and security of Auswide Bank Ltd and to reward efforts which increase shareholder and customer value. This objective is upheld by: • appropriately balanced measures of performance weighted KPIs towards long-term shareholder interests; • variable performance based pay for Senior Executives including a short term incentive and a long-term incentive plan subject to an extended period of performance assessment. Short-term and long- term incentives performance criteria are aligned to performance measures and targets based on a number of differently weighted criteria including financial, sustainability including risk and compliance gateways, staff and customer focused and satisfaction of BEAR accountability obligations; • 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; and • the exercise of Board discretion as an ultimate means to mitigate unintended consequences of variable remuneration and to preserve the interests of shareholders. Remuneration of Non-Executive Directors The fees payable for Non-Executive Directors are determined with reference to industry standards, the size of the Company, performance and profitability. The Directors’ fees are approved by the shareholders at the Annual General Meeting in the aggregate and the individual allocation is approved by the Board. The Company’s Non-Executive Directors receive only fees (including superannuation) for their services. They are not entitled to receive any benefit on retirement or resignation (other than superannuation) and do not participate in any variable STI or LTI share based remuneration. Remuneration of Key Management Personnel Key Management Personnel (KMP) are defined as persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether Senior Executive or otherwise) of the entity. As such, the KMP comprises of the non-Executive Directors, the Managing Director and directly reporting Senior Executives. Managing Director The Managing Director’s remuneration package includes fixed annual remuneration, variable remuneration in short- term and long-term incentives, benefits, superannuation, retirement and termination compensation as determined by the Board on the advice of the Board Remuneration Committee (the Committee). At its discretion, the Committee will seek external advice on the appropriate level and structure of the Managing Director’s total remuneration package. remuneration arrangements for the Managing Director with due consideration to the law and corporate governance provisions to ensure that: • there are sufficiently robust performance measures and targets that encourage superior performance and ethical accountable behaviour; • that the performance of the Managing Director is measured against individual and company targets; and • any new or varied contract is disclosed in accordance with any governance, accounting and legal requirements. Remuneration of the Managing Director for 2019/20 was subject to review and recommendation of the Remuneration Committee and ratification by the Board. Senior Executives / Key Personnel The remuneration packages of the Senior Executives who report directly to the Managing Director, including Executive Directors, and any other Responsible Persons (as defined by APRA’s Prudential Standards), Accountable Persons (as defined by BEARS) and any other key persons considered by Auswide Bank to be in a role with material influence, are reviewed and recommended to the Board on the recommendations of the Committee and the Managing Director. Similarly, the Committee and Managing Director may seek external advice on the appropriate level and structure of the Senior Executives remuneration packages. An annual review and recommendations to the Board in relation to the remuneration structure will apply to Senior Executives to: • establish and maintain a process to set robust performance measures and targets that encourage superior executive performance and ethical behaviour; and • oversee the process for the measurement and assessment of performance. The remuneration for Senior Executives in 2019/20 was subject to ratification by the Remuneration Committee. Remuneration Reward Framework Auswide Bank’s Remuneration Reward framework includes a range of components to focus the Managing Director and Senior Executives on achieving Auswide Bank’s strategy and business objectives. Auswide Bank’s overall philosophy is to adopt, where possible, a performance based methodology using a balanced scorecard which links remuneration to the Bank’s financial results and non- financial criteria. The Remuneration Reward framework is designed to: • reward those who deliver the highest relative performance consistent with Auswide Bank’s incentive programs; • attract, recognise, motivate and retain high performers; • provide competitive, fair and consistent rewards, benefits and conditions; and • align the interests of Senior Executives and shareholders through variable remuneration - short term incentives (STI) and long term incentives (LTI) performance rights with deferred vesting. On an annual basis, a review will be performed of the In setting an individual’s Remuneration Reward framework, the Committee considers: • input from Auswide Bank’s Managing Director on the balanced scorecard for Senior Executives who report directly to the Managing Director; • market data from comparable roles in the financial services industry; • individual and Auswide Bank’s performance; and • external remuneration advice, where necessary. Each individual’s actual remuneration will reflect: • the degree of individual achievement in meeting key performance measures under the performance management framework and balanced scorecard; • parameters approved by the Board based on Auswide Bank’s financial and risk performance and other qualitative factors; • satisfaction of ‘Accountability Obligations’ under section 37CA of the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Act 2018 for the vesting of any Performance Rights; • Auswide Bank’s Earnings per Share (EPS) and Return on Equity (ROE) over a defined period; and • the timing and level of vesting of Performance Rights and deferral of shares. Components of the Remuneration Reward framework The components of the Remuneration Reward framework consists of the following: • Fixed Annual Remuneration (FAR) provided as cash and any contracted additional benefits (including employer superannuation); • variable remuneration in cash based short-term incentives (STI) reflecting both individual and business performance for the current financial year that supports the longer term strategic objectives of Auswide Bank; and • variable remuneration in equity based long-term incentives (LTI) provided to drive management decisions focused on the long-term prosperity of Auswide Bank through the use of challenging long term performance hurdles (EPS & ROE) and satisfaction of accountability obligations under BEAR. Variable Remuneration - Short Term Incentives (STI) Each year, key performance indicators including financial and non-financial measures (KPIs) for the Managing Director are set by the Board Remuneration Committee and approved by the Board. The Managing Director sets KPIs for the Senior Executives which is presented to the Board Remuneration Committee for approval. The STI is a maximum contracted value calculated as a percentage of the FAR and is payable annually in respect of each financial year as cash. Payment of STI 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 Senior Executive reward and the key business drivers of long term shareholder value. The KPls are measured relating to the Bank’s financial performance and non-financial performance accountabilities and objectives. The measures are chosen and weighted to best align the individual’s reward to the KPls of the Company and its overall performance. KPls are weighted towards the achievement of profit growth targets. The financial performance objectives are determined in line with the yearly financial budget set and approved by the Board. The non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, customer results, sustainability which includes compliance and support of the Company’s risk management policies and culture, customer satisfaction, communication and staff development. Impact of individual performance on STI rewards At the end of the financial year, the Committee assesses the actual performance of the Bank and the Managing Director against the KPI balanced scorecard set at the beginning of the financial year. Based upon that assessment, a recommendation is made to the Board Remuneration Committee as to the STI payment. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration After individual assessment of their performance measures, the Managing Director will recommend to the Committee the STI payments for Senior Executives for approval by the Board Remuneration Committee. Financial statements Impact of Business Performance on STI rewards Payment of an STI to the Managing Director and Senior Executives is at the complete discretion of the Board and can be adjusted downwards to zero, if necessary, to protect the financial soundness of the Company and taking into account a qualitative overlay that reflects Auswide Bank’s management of business risks, shareholder expectations and quality of the financial results - e.g. at a minimum to ensure that no breach of capital adequacy or liquidity policy thresholds occurs. For the purposes of calculating the STI pool each year, the financial performance of Auswide Bank is determined by a mix of targeted financial earnings, EPS and ROE. These measures reasonably capture the effects of a number of material risks and minimise actions that promote short- term results at the expense of longer-term business growth and success. STI Risk Adjustment STI reward outcomes can be adjusted for risk at a number of levels. Individual Scorecards - Senior Executives will have specific risk related measures related to their role included in their scorecard and are aligned with the Risk Appetite Statement where appropriate. Compliance Gateway - Senior Executives must support Auswide Bank’s risk and compliance culture. Individuals who do not pass the compliance expectations of their role will have their STI reduced in part, or in full, depending on the severity of the breach. Risk Adjustment of Business Outcomes - whilst performance is assessed against compliance with the agreed risk measures and Risk appetite, the Committee may recommend to the Board an adjustment of the financial outcomes upon which STI rewards are determined based on a qualitative overlay that reflects the Auswide Bank’s management of business risks, shareholder expectations and the quality of the financial results. Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |32 Auswide Bank Annual Report 2020 |33 Auswide Bank Annual Report 2020 Serious Breach of Duty The Board also has discretion to adjust the STI payment down (potentially to zero) in the event that the Managing Director or a Senior Executive commits a serious breach of duty including their accountability obligations under BEAR. If the results on which any STI reward was based are subsequently found by the Board to have been the subject of deliberate management misstatement, the Board may require repayment of the relevant STI, in addition to any other disciplinary actions. Short Term Incentive payments relating to the financial year ended 30 June 2019 Performance based payments were made to Senior Executives under the STI scheme as an incentive payment to recognise and reward the achievement of KPI targets relating to the financial year ended 30 June 2019. Cash payments were paid on the 03 October 2019, and allocated to Senior Executives as follows; • Mr MJ Barrett (Managing Director): $60,000; • Mr WR Schafer (Chief Financial Officer): $18,563; • Mr SM Caville (Chief Information Officer) (cease date 17/04/2020): $12,052; • Mr D Hearne (Chief Customer Officer): $15,308; • Mrs GM Job (Chief People and Property Officer): $12,086; • Mr CA Lonergan (Chief Risk Officer): $12,270; and • Mr MS Rasmussen (Chief Operating Officer): $12,692. Long term Incentive (LTI) - Performance Rights Plan (PRP) The Auswide Bank Performance Rights Plan (PRP) was established by the Board to encourage the Executive Management Team, comprising of the Managing Director and Senior Executives, to drive the long-term prosperity of Auswide Bank and have a greater involvement in the achievement of the Bank’s objectives. Offers under the Performance Rights Plan Under the PRP invitation, an offer may be made to members of the Executive Management Team each year as determined by the Board. The maximum value of the offer is determined in the executive’s contract. The maximum value of the LTI is up to the maximum contracted amount for the Managing Director and up to the contracted percentage or fixed amount for the Senior Executives. The number of performance rights granted will be calculated based on the volume weighted average price of Auswide Bank shares over the first five trading days following the release of Auswide Bank’s annual results announcement (exclusive of announcement date). Each performance right will entitle the Senior Executive to receive one Auswide Bank share upon vesting (or the cash equivalent value), subject to the satisfaction of the vesting conditions over the vesting period. To the extent that performance rights vest, the relevant number of shares will be allocated. Shares allocated following vesting will be subject to a disposal and trading restriction until the fourth anniversary of the grant date (the restriction period). Performance rights do not give the Senior Executive any legal or beneficial interest in any shares unless and until they are vested and shares are delivered or allocated. They will not receive any dividends or other shareholder benefits, including voting in respect of their performance rights. The PRP provides for the Trustee of the Auswide Bank Ltd employee share trust to acquire, allocate and hold shares, as relevant. The Trustee is funded by the Company to acquire shares, as directed by the Board, either by way of purchase from other shareholders on market, or issue by the Company. Upon vesting, the Trustee will allocate shares to each member of the Senior Executive Team. Any shares to be allocated to the Managing Director under this Plan may require prior shareholder approval in accordance with ASX Listing Rules. Vesting of performance rights In general, performance rights will vest on the vesting date based on satisfaction of the following vesting conditions: • achievement of the applicable performance measurements and conditions over the vesting period; and • continued employment with a Group member until the vesting date (provided the Senior Executive has not given notice of resignation and has not received a notice of termination of employment). The PRP invitation offer letter provides for the allocation to the Senior Executive Team of fully paid ordinary shares in the Bank upon vesting of performance rights where accountability obligations, performance and vesting conditions specified by the Board are satisfied over a set vesting period. In addition, a further restriction period will apply to the shares following vesting and during this period, the accountability obligation must be satisfied, otherwise shares may be clawed back, the vesting period and restriction period will be outlined in the PRP invitation offer letter and will be in line with any deferred remuneration obligations under BEAR for Accountable Persons. Both the vesting period and restriction period are set by the Board at the time of offer and are at its absolute discretion. Satisfaction of conditions - accountability obligations Vesting of performance rights will be subject to obligations that apply to ‘Accountable Persons’ under section 37CA of the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Act 2018, which are to: • act with honesty, integrity, and with due skill, care and diligence; • deal with APRA in an open, constructive and cooperative way; and • take reasonable steps in conducting business to prevent matters from arising that would adversely affect the ADI’s prudential standard or reputation. In addition, during the Restriction Period, the obligations must also be satisfied, otherwise shares may be clawed back. Testing of vesting performance measurements and conditions on PRP offers 2019 Testing of the performance measurements and conditions will occur shortly after the end of the vesting period (which will normally occur once the full year annual results have been finalised). Based on the testing results, and provided the Senior Executive remains employed with the Bank until vesting date (being the date on which Board determines that the vesting conditions are met), the number of rights that will be eligible to vest (if any) will be determined by the Board. Upon vesting of performance rights, the Senior Executive will be allocated the relevant number of shares in respect of vested performance rights (or receive the cash equivalent value). The number of shares received may be adjusted in certain circumstances (such as if the Company undertakes a consolidation, bonus issue or capital reconstruction) as set out in the PRP rules. The Board retains discretion to adjust the number of performance rights which vest down (including to zero) to protect the financial soundness of the Company, including to ensure that breaches of capital adequacy or liquidity policy thresholds do not occur. In addition, any reward payable to any member of the Senior Executive Team under any PRP offer is subject to reassessment and possible forfeiture, if the results on which the LTI reward was based, are subsequently found to have been the subject of deliberate management misstatement. to the resultant equity price risk before the equity-linked remuneration is fully vested and able to be sold for cash by the recipient. Any person who breaches this requirement will constitute a breach of duty and as such will involve disciplinary action and the risk of dismissal under the terms of the Executive’s contract. Treatment of performance rights in other circumstances in PRP offers 2019 If a Senior Executive ceases employment prior to the vesting date, the treatment of unvested performance rights will depend on the circumstances of cessation. Where employment is ceased prior to the relevant vesting date due to resignation, termination for cause or gross misconduct, all of the unvested performance rights will lapse at cessation (subject to the Board’s discretion to apply a different treatment, in accordance with the PRP rules). Where employment is ceased for any other reason before performance rights vest, a pro-rata number of unvested performance rights (based on the vesting period elapsed) will continue “on-foot”, and will be tested at the original vesting date and vest to the extent that the relevant vesting conditions have been satisfied (ignoring any service-related conditions). Note that the PRP rules provide the Board with discretion to determine that a different treatment should apply in respect of performance rights. Restriction period for sale of shares once vested on PRP offers 2019 The PRP rules also contain provisions in relation to: • treatment of awards in the event of a variation of capital or a change of control; and • treatment of awards due to fraud, gross misconduct or material misstatement. The treatment of awards under the PRP rules will be subject to the requirements of the BEAR. Actual and potential LTI allocations Share based payment arrangements affecting remuneration of key management personnel in the current year or future financial years are detailed in the following table. Shares allocated upon vesting of the performance rights will be subject to trading restrictions until the end of the restriction period which is generally the fourth anniversary of the grant date. However, the restriction period may end earlier in certain circumstances including: • the date on which the Board determines an Event has occurred (refer rule 11 of the PRP Rules), subject to the requirements of the BEAR accountability obligations; and • any other date determined by the Board, subject to the requirements of BEAR. Senior Executives cannot sell, transfer or otherwise deal with their shares until the end of the restriction period. During this period, Senior Executives will still be entitled to receive dividends and exercise their voting rights along with other shareholders. The trading restriction may be enforced during the restriction period by either imposing a holding lock on the shares held by the Senior Executive or by the shares being held in the employee share trust on behalf the Senior Executive. Shares will remain subject to the requirements of the BEAR throughout the restriction period, including the ability for the Board to clawback shares if there is a failure to meet “Accountability Obligations”. Prohibition from Hedging The Board Remuneration Policy prohibits persons covered by paragraph 57(a) of APRA Prudential Standard CPS510 - Governance who receive equity or equity-linked deferred remuneration from hedging their economic exposures QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |34 Auswide Bank Annual Report 2020 |35 Auswide Bank Annual Report 2020 MJ BARRETT No. shares Vesting date Vested in 19/20 year Lapsed/ forfeited in 19/20 year Not yet assessed for vesting CA LONERGAN No. shares Vesting date Vested in 19/20 year Lapsed/ forfeited in 19/20 year Not yet assessed for vesting 2015 offer 2016 offer 2017 offer 2018 offer 5,608 4,762 4,762 2,446 2,446 2,446 5,811 5,811 5,812 2019 offer 21,154 1/7/2019 1/7/2019 1/7/2020 1/7/2019 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 5,608 4,762 - 2,446 - - - - - - - - - - - - - - - - - - 4,762 - 2,446 2,446 5,811 5,811 5,812 21,154 WR SCHAFER No. shares Vesting date Vested in 19/20 year Lapsed/ forfeited in 19/20 year Not yet assessed for vesting 2016 offer 2017 offer 2018 offer 2019 offer 998 998 1,044 1,044 1,044 1,220 1,220 1,221 5,288 1/7/2019 1/7/2020 1/7/2019 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 998 - 1,044 - - - - - - - - - - - - - - - - 998 - 1,044 1,044 1,220 1,220 1,221 5,288 SM CAVILLE No. shares Vesting date Vested in 19/20 year Lapsed/ forfeited in 19/20 year Not yet assessed for vesting 2016 offer 2017 offer 2018 offer 2019 offer GM JOB 2016 offer 2017 offer 2018 offer 2019 offer 865 865 1,044 1,044 1,044 1,220 1,220 1,221 5,288 1/7/2019 1/7/2020 1/7/2019 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 865 - 1,044 - - - - - - - 865 - 1,044 1,044 1,220 1,220 1,221 5,288 - - - - - - - - - No. shares Vesting date Vested in 19/20 year Lapsed/ forfeited in 19/20 year Not yet assessed for vesting 815 815 1,044 1,044 1,044 1,220 1,220 1,221 5,288 1/7/2019 1/7/2020 1/7/2019 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 815 - 1,044 - - - - - - - - - - - - - - - - 815 - 1,044 1,044 1,220 1,220 1,221 5,288 2016 offer 2017 offer 2018 offer 2019 offer 971 971 1,044 1,044 1,044 1,220 1,220 1,221 5,288 1/7/2019 1/7/2020 1/7/2019 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 971 - 1,044 - - - - - - - - - - - - - - - - 971 - 1,044 1,044 1,220 1,220 1,221 5,288 MS RASMUSSEN No. shares Vesting date Vested in 19/20 year Lapsed/ forfeited in 19/20 year Not yet assessed for vesting 2016 offer 2017 offer 2018 offer 2019 offer 998 998 1,044 1,044 1,044 1,220 1,220 1,221 5,288 1/7/2019 1/7/2020 1/7/2019 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 998 - 1,044 - - - - - - - - - - - - - - - - 998 - 1,044 1,044 1,220 1,220 1,221 5,288 DR HEARNE No. shares Vesting date Vested in 19/20 year Lapsed/ forfeited in 19/20 year Not yet assessed for vesting 2017 offer 2018 offer 2019 offer 1,247 1,247 1,247 1,312 1,312 1,312 7,040 1/7/2019 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1,247 - - - - - - - - - - - - - - 1,247 1,247 1,312 1,312 1,312 7,040 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |36 Auswide Bank Annual Report 2020 |37 Auswide Bank Annual Report 2020 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 9 1 0 2 0 2 0 2 n o i t a r e n u m e r l a t o T s t n e m y a p d e s a b e r a h S m r e t g n o l r e h t O n o i t a u n n a r e p u S $ $ d e s a b e c n a m r o f r e P s t fi e n e b $ $ s u n o b h s a C $ d e s a b e c n a m r o f r e P h s a C s e e f d n a y r a a s l $ l s t fi e n e b e e y o p m e m r e t - t r o h S : e r a l e n n o s r e p t n e m e g a n a m y e k e h t d n a n o i t a r e n u m e r i t s e h g h e h t g n i v i e c e r y n a p m o C e h t f o s r e c ffi O d e m a n e h t f o h c a e d n a r o t c e r i D h c a e f o n o i t a r e n u m e r e h t l j f o t n e m e e r o a m h c a e f o t n u o m a d n a e r u t a n e h t f o s l i a t e D 0 0 4 3 6 1 , 0 0 6 3 7 1 , , 5 2 1 2 0 1 0 0 5 8 0 1 , , 5 2 1 2 0 1 0 0 5 8 0 1 , , 5 2 1 2 0 1 0 0 5 8 0 1 , - - - - - - - - - - - - - - - - 0 6 8 8 , 0 6 8 8 , 0 6 8 8 , 3 1 4 9 , 3 1 4 9 , 3 1 4 9 , 6 7 1 4 1 , 1 6 0 5 1 , - - - - - - - - , 4 2 2 9 4 1 , 9 3 5 8 5 1 ) c e x e - n o n ( n a m r i a h C S J , y e r h p m u H S R O T C E R I D D E I F I C E P S 5 6 2 3 9 , 5 6 2 3 9 , 5 6 2 3 9 , 7 8 0 9 9 , 7 8 0 9 9 , 7 8 0 9 9 , ) c e x e - n o n ( r o t c e r i D S , i h g e l s n e k r i B ) c e x e - n o n ( r o t c e r i D B , l d e fi r e g n a D ) c e x e - n o n ( r o t c e r i D N G , y n n e K 5 7 0 4 8 7 , , 0 3 8 9 4 7 8 9 5 6 8 , 5 8 3 1 7 , 9 1 9 2 1 , 7 4 8 3 1 , 1 3 5 0 2 , 3 0 0 1 2 , 0 0 0 3 9 , 0 0 0 0 6 , 7 2 0 1 7 5 , , 5 9 5 3 8 5 r o t c e r i D g n g a n a M J M i , t t e r r a B , 0 5 8 3 5 2 1 , , 0 3 9 8 4 2 1 , 8 9 5 6 8 , 5 8 3 1 7 , 9 1 9 2 1 , 7 4 8 3 1 , 7 8 2 1 6 , 3 0 3 4 6 , 0 0 0 3 9 , 0 0 0 0 6 , , 6 4 0 0 0 0 1 , , 5 9 3 9 3 0 1 , d e fi i c e p S - n o i t a r e n u m e r l a t o T s r o t c e r i D L E N N O S R E P T N E M E G A N A M Y E K R E H T O , 0 4 5 1 0 4 , 6 5 8 4 9 3 8 3 8 5 , 4 7 3 1 1 , 5 4 9 8 , 1 5 4 8 , 1 3 5 0 2 , 3 0 0 1 2 , 9 8 0 8 3 , 3 6 5 8 1 , 7 3 1 8 2 3 , 5 6 4 5 3 3 , r e c ffi O l i i i a c n a n F f e h C R W r, e f a h c S 8 0 2 7 3 2 , 4 1 4 4 7 2 , 0 6 0 5 , 3 3 6 0 1 , 0 6 9 1 , - 2 1 1 9 1 , 8 8 2 5 1 , 4 1 3 9 1 , 2 5 0 2 1 , , 2 6 7 1 9 1 1 4 4 6 3 2 , r e c ffi O n o i t a m r o f n I i f e h C M S , e l l i v a C ) 0 2 0 2 / 4 0 / 9 0 d e s a e c ( 4 9 2 3 6 3 , 5 4 2 2 4 3 , - 6 4 9 6 , 5 5 3 5 , 1 7 4 5 , 1 3 5 0 2 , 3 0 0 1 2 , 7 3 6 7 3 , 8 0 3 5 1 , 1 7 7 9 9 2 , 7 1 5 3 9 2 , r e c ffi O r e m o t s u C i f e h C D , e n r a e H 4 9 8 3 4 2 , 0 1 4 8 5 2 , 8 6 7 4 , 5 5 3 0 1 , 0 3 9 7 , 2 4 2 6 1 , 2 5 1 9 1 , 0 6 0 9 1 , 9 9 1 0 2 , 6 8 0 2 1 , , 5 4 8 1 9 1 , 7 6 6 0 0 2 y t r e p o r P d n a e p o e P f e h C M G l i , b o J r e c ffi O 3 4 6 8 4 2 , 4 5 9 1 6 2 , 0 8 6 5 , 4 2 2 1 1 , 1 5 3 4 , 4 8 7 7 , 5 6 3 9 1 , 9 0 5 9 1 , 5 2 2 0 2 , 0 7 2 2 1 , 2 2 0 9 9 1 , 7 6 1 1 1 2 , r e c ffi O k s i R f e h C A C i , n a g r e n o L , 5 6 2 8 7 2 0 6 5 9 7 2 , 8 3 8 5 , 4 7 3 1 1 , 7 2 7 4 , 2 5 7 4 , 1 3 5 0 2 , 3 0 0 1 2 , 2 0 8 2 2 , 2 9 6 2 1 , 7 6 3 4 2 2 , 9 3 7 9 2 2 , , 4 4 8 2 7 7 1 , , 9 3 4 1 1 8 1 , 4 8 1 7 2 , 6 0 9 1 6 , 8 6 2 3 3 , 0 0 7 2 4 , , 2 2 2 9 1 1 , 6 6 8 6 1 1 , 6 6 2 8 5 1 1 7 9 2 8 , , 4 0 9 4 3 4 1 , , 6 9 9 6 0 5 1 , : l w o e b d e s i r a m m u s e r a s t n e m e e r g a e s o h t f o s n o i s i v o r p r o a M j l . s t c a r t n o c t n e m y o p m e e v a h r o t c e r i D g n g a n a M e h t d n a i g n i t a r e p O i f e h C S M , n e s s u m s a R r e c ffi O d e fi i c e p S - n o i t a r e n u m e r l a t o T s e v i t u c e x E l e n n o s r e P t n e m e g a n a M y e K d e m a n l l A s t c a r t n o c t n e m y o p m E l M R E T G N O L * * S E V I T N E C N I M R E T T R O H S * S E V I T N E C N I S N O I S I V O R P Y C N A D N U D E R E C I T O N D O I R E P M R E T E T A D E T A D T C A R T N O C D E D N E M A T C A R T N O C E L T I T P M K , 0 0 0 0 2 1 $ , 0 0 0 0 8 1 $ y a p y c n a d n u d e r s h t n o m x i s s u p e c i t o n s h t n o m x i S l s h t n o m m r e t 9 1 0 2 / 5 0 / 1 3 x i S d e x fi o N 6 1 0 2 / 7 0 / 5 1 3 1 0 2 / 2 0 / 4 i g n g a n a M r o t c e r i D 0 0 0 0 3 $ , % 5 1 e c i v r e s f o r a e y r e p y r a a s s k e e w o w l l l t s u p y r a a s s h t n o m x i s o t l a u q e r e v o e k a t a o t e u d n o i t a n m r e t y l r a e n o t n e m y a P i . ) s k e e w 4 0 1 m u m i x a m / s k e e w 0 2 m u m n m i i ( 0 0 0 0 3 $ , % 5 1 y a p y c n a d n u d e r s h t n o m x i s s u p e c i t o n s h t n o m x i S l 0 0 0 0 3 $ , % 5 1 e c i v r e s f o r a e y r e p y r a a s s k e e w o w l l l t s u p y r a a s s h t n o m x i s o t l a u q e r e v o e k a t a o t e u d n o i t a n m r e t y l r a e n o t n e m y a P i . ) s k e e w 4 0 1 m u m i x a m / s k e e w 0 2 m u m n m i i ( 0 0 0 0 3 $ , % 5 1 y a p y c n a d n u d e r s h t n o m x i s s u p e c i t o n s h t n o m x i S l 0 0 0 0 3 $ , % 5 1 e c i v r e s f o r a e y r e p y r a a s s k e e w o w l l l t s u p y r a a s s h t n o m x i s o t l a u q e r e v o e k a t a o t e u d n o i t a n m r e t y l r a e n o t n e m y a P i . ) s k e e w 4 0 1 m u m i x a m / s k e e w 0 2 m u m n m i i ( % 5 1 % 5 2 y a p y c n a d n u d e r s h t n o m x i s s u p e c i t o n s h t n o m x i S l s h t n o m r u o F s h t n o m e e r h T s h t n o m r u o F s h t n o m e e r h T s h t n o m e e r h T s h t n o m r u o F d e x fi o N m r e t 6 1 0 2 / 2 1 / 6 7 0 0 2 / 5 0 / 8 2 l i i a c n a n F f e h C i r e c ffi O d e x fi o N 4 1 0 2 / 7 0 / 1 m r e t 6 1 0 2 / 2 1 / 9 0 4 1 0 2 / 2 0 / 0 1 r e c ffi O k s i R f e h C i n a g r e n o L g a r C i d e x fi o N m r e t 6 1 0 2 / 2 1 / 8 0 1 0 2 / 1 1 / 1 n o i t a m r o f n I i f e h C r e c ffi O d e s a e c e l l i v a C e v e t S ) 0 2 0 2 / 4 0 / 7 1 ( d e x fi o N 5 1 0 2 / 1 0 / 9 2 m r e t 6 1 0 2 / 2 1 / 2 1 4 1 0 2 / 2 0 / 3 r e c ffi O s n o i t a r e p O i f e h C n e s s u m s a R k r a M d e x fi o N m r e t 6 1 0 2 / 2 1 / 2 1 7 0 0 2 / 6 0 / 6 0 r e c ffi O y t r e p o r P l & e p o e P f e h C i b o J e l y a G d e x fi o N m r e t A / N 6 1 0 2 / 6 0 / 0 2 r e c ffi O r e m o t s u C i f e h C e n r a e H n a m a D i t t e r r a B n i t r a M r e f a h c S l l i B QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary t n u o m a d e t c a r t n o c d e x fi a o t p u d e t a u c l a c e b l l l i w I T S e h T . s i s a b l a u n n a n a n o d e s i v d a d n a y n a p m o C e h t y b d e n m r e t e d s I P K h t i i w e c n a d r o c c a n i e c n a m r o f r e p n w o s ’ l a u d i v i d n i e h t s a l l e w s a e c n a m r o f r e p s ’ y n a p m o C e h t o t j t c e b u s s i t n e m y a P * . e e t t i m m o C n o i t a r e n u m e R d r a o B e h t l f o n o i t e r c s i d e t u o s b a d n a e o s e h t n l i i d e n m r e t e d d n a d e s s e s s a d n a s I P K f o n o i t c a f s i t a s n o p u r a e y h c a e e n u J h t 0 3 e h t l t a s a ) e v o b a d e s o l c s i d s a ( y r a a s e s a b f o e u a v e g a t n e c r e p m u m i x a m e h t l r o i e t a p c i t r a p o t t h g i r e h T . ) e e t t i m m o C n o i t a r e n u m e R d r a o B e h t y b d e n m r e t e d s a r o ( i r a e y h c a e e n u J h t 0 3 e h t l t a s a ) e v o b a d e s o l c s i d s a ( y r a a s e s a b f o e u a v m u m i x a m a o t p u d e t a u c l a c e b l l l l i w s I T L . s i s a b l a u n n a n a n o y n a p m o C e h t d n a l a u d i v i d n i e h t n e e w t e b d e e r g a s I P K h t i w e c n a d r o c c a n i e c n a m r o f r e p n w o s ’ l a u d i v i d n i e h t d n a e c n a m r o f r e p s ’ y n a p m o C e h t o t j t c e b u s s i i l l , s e u R n a P s t h g R e c n a m r o f r e P e d w s u A e h t i f o s n o i t i d n o c d n a s m r e t e h t r e d n u , s t h g i r e c n a m r o f r e p f o t n a r g e h T * * . e r u t u f e h t n i e d a m e b l l i w s d r a w a r a l i m i s t a h t e e t n a r a u g t o n s e o d r a e y e n o n i I T L e h t r e d n u l a u d i v i d n i n a o t d r a w a n a f o g n i t n a r g e h T . d r a o B e h t l f o n o i t e r c s i d e o s d n a e t u o s b a e h t l t a e r a e m e h c s e h t r e d n u e d a m s d r a w a d n a |38 Auswide Bank Annual Report 2020 |39 Auswide Bank Annual Report 2020 Loans to key management personnel Equity holdings and transactions The following table outlines the aggregate of loans to key management personnel. Details are provided on an individual basis for each of the key management personnel whose indebtedness exceeded $100,000 at any time during this reporting period. Loans have been made in accordance with the normal terms and conditions offered by the Company and charged at rates available to the general public; therefore, this interest rate would approximate an arm’s length interest rate offered by the Company. In addition, loans to staff are also made in accordance with the Staff Share Plan approved by shareholders in 1992. The loans are repayable over 5 years at 0% interest, with the loans being secured by a lien over the relevant shares. Such loans are only available to employees of the Company and there is no applicable arm’s length interest to take into account. Loans for the year ended 30 June 2020 Directors Executives Total: Key management personnel Balance 30 June 2019 (1,762,889) (1,913,024) Interest charged $ 55,409 53,845 (3,675,913) 109,254 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) Individuals with loans above $100,000 in reporting period Balance 30 June 2019 $ Interest charged $ 68,040 30,207 98,247 Interest charged $ Write-off $ - - - Write-off $ - - - Balance 30 June 2020 (1,655,187) (2,306,636) (3,961,823) Balance 30 June 2019 $ (1,762,889) (1,913,024) (3,675,913) Number in Group 30 June 2020 1 6 7 Number in Group 30 June 2019 1 6 7 Write-off $ Balance 30 June 2020 $ Highest in period $ Directors MJ Barrett Executives WR Schafer DR Hearne CA Lonergan (1,762,889) 55,409 (388,483) (1,411,469) - 8,581 44,059 1,206 - - - - (1,655,187) (1,732,044) (341,582) (388,483) (1,386,820) (1,411,469) (530,635) (534,099) * Actual interest charged is affected by the use of the Company’s offset account. Does not include SM Caville, GM Job or MS Rasmussen as their loans were less than $100,000. The following table is in respect of ordinary shares held directly, indirectly or beneficially by key management personnel. Balance 30 June 2019 Received as remuneration Options exercised Net change other Balance 30 June 2020 QUICK LINKS >>> Directors JS Humphrey B Dangerfield GN Kenny MJ Barrett Executives WR Schafer SM Caville (ceased 09/04/2020) GM Job CA Lonergan MS Rasmussen DR Hearne Total 31,551 43,291 15,000 173,773 34,998 45,105 118,383 14,000 4,498 - 480,599 - - - 12,816 2,042 1,909 1,859 2,015 2,042 1,247 23,930 - - - - - - - - - - - - - - 31,551 43,291 15,000 Directors’ statutory report 1,000 187,589 (998) - 944 (2,015) (2,640) (1,247) (4,956) 36,042 47,014 121,186 14,000 3,900 - 499,573 * Balance at financial year end or the date the individuals ceased being key management personnel. Consequences of performance on shareholder wealth The tables below set out summary information about the Consolidated Entity’s earnings from continuing and discontinued operations and movements in shareholder wealth for the five years to 30 June 2020: 30 June 2020 $'000 26,498 30 June 2019 $'000 24,638 30 June 2018 $'000 25,158 30 June 2017 $'000 21,870 30 June 2016 $'000 17,606 Net profit before tax Net profit after tax 18,504 17,201 17,886 15,149 11,699 30 June 2020 $5.13 30 June 2019 $5.63 30 June 2018 $5.14 30 June 2017 $5.08 30 June 2016 $5.05 $4.84 $5.13 $5.63 $5.14 $5.08 17.00 cps 10.75 cps 43.80 cps 16.00 cps 18.50 cps 40.81 cps 16.00 cps 18.00 cps 42.83 cps 14.00 cps 17.00 cps 37.35 cps 14.00 cps 16.00 cps 31.20 cps 43.80 cps 40.81 cps 42.83 cps 37.35 cps 31.20 cps Share price at start of year Share price at end of year Interim dividend Final dividend Basic earnings per share Diluted earnings per share Dividends franked to 100% at 30% corporate income tax rate. Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |40 Auswide Bank Annual Report 2020 |41 Auswide Bank Annual Report 2020 Indemnities and insurance premiums for officers and auditors This Report is signed for and on behalf of the Board of Directors in accordance with a resolution of the Board of Directors. During the financial year the Company has paid premiums to cover Directors and officers for losses arising from claims or allegations made against them for wrongful acts committed or alleged to have been committed by them in their capacities as Directors or officers of the Company. The policy will also reimburse the Company where it is permitted by law to indemnify Insured Persons in relation to such claims or allegations. Cover is provided for the costs of defending such claims or allegations. During the reporting period and subsequent to 30 June 2020, no amounts have been paid pursuant to the policy. Non-audit services During the year, Deloitte Touche Tohmatsu, the Company’s Auditor, performed certain other services in addition to their statutory duties. The Board has considered the non-audit services provided during the year by the Auditor, and in accordance with advice provided by the Board Audit Committee, is satisfied that the provision of those non-audit services during the year by the Auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non-audit services were subject to the Corporate Governance procedures adopted by the Company and have been reviewed by the Board Audit Committee to ensure they do not impact the integrity and objectivity of the Auditor, and • The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, as they did not involve reviewing or auditing the Auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. A copy of the Auditor’s Independence Declaration, as required under Section 307C of the Corporations Act 2001, is included in the Directors’ Statutory Report. Non-audit services paid to Deloitte Touche Tohmatsu are as follows: Services provided in connection with: Tax advisory services Consulting services 2020 $ 65,612 89,002 154,614 2019 $ 64,449 112,344 176,793 JS Humphrey Director SC Birkensleigh Director Brisbane 26 August 2020 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |42 Auswide Bank Annual Report 2020 |43 Auswide Bank Annual Report 2020 AUDITOR’S INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 23 123 Eagle Street Brisbane QLD 4000 GPO Box 1463 Brisbane QLD 4001 Australia Tel: +61 7 3308 7000 Fax: +61 7 3308 7002 www.deloitte.com.au The Board of Directors Auswide Bank Ltd PO Box 1063 BUNDABERG QLD 4670 26 August 2020 Dear Board Members Auditor’s Independence Declaration to Auswide Bank Ltd In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Auswide Bank Ltd. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: Directors’ declaration (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU David Rodgers Partner Chartered Accountants Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |44 Auswide Bank Annual Report 2020 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. |45 Auswide Bank Annual Report 2020 20 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF PROFIT OR LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2020 QUICK LINKS >>> Interest revenue Interest expense Net interest revenue Other non-interest income Total operating income Employee benefits expense Depreciation expense Amortisation expense Occupancy expense Fees and commissions General and administration expenses Other expenses Operating expenses less loan impairment expense Loan impairment expense Total operating expenses Profit before income tax expense Income tax expense Net profit after tax Profit for the year attributable to: Owners of the Company Earnings per share From continuing operations Basic (cents per share) Diluted (cents per share) Consolidated Company Notes 2.1 2.1 2020 $’000 2019 $’000 2020 $’000 2019 $’000 126,252 136,352 126,252 136,352 (55,736) (73,167) (55,736) (73,167) Directors’ statutory report 70,516 9,959 80,475 21,584 3,324 710 1,533 11,524 10,406 1,051 63,185 9,464 72,649 20,564 1,920 685 3,307 10,045 9,759 588 70,516 9,959 80,475 21,584 3,324 710 1,533 11,524 10,406 1,051 63,185 9,464 72,649 20,564 1,920 685 3,307 10,045 9,759 588 4.5.5 2.3 50,132 46,868 50,132 46,868 3,845 53,977 26,498 7,994 18,504 1,143 48,011 24,638 7,437 17,201 3,845 53,977 26,498 7,985 18,513 1,143 48,011 24,638 7,437 17,201 18,504 17,201 18,513 17,201 2.4 2.4 43.80 43.80 40.81 40.81 Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |46 Auswide Bank Annual Report 2020 |47 Auswide Bank Annual Report 2020 The above consolidated statement of profit or loss account should be read in conjunction with the accompanying notes. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 Profit for the year 18,504 17,201 18,513 17,201 ASSETS Consolidated Company Notes 2020 $’000 2019 $’000 2020 $’000 2019 $’000 Consolidated Company Notes 2020 $’000 2019 $’000 2020 $’000 2019 $’000 Other comprehensive income, net of income tax Items that may be reclassified to profit or loss Revaluation of cash flow hedge to fair value 3.5.4 (1,174) (221) (1,174) (221) Revaluation of FVTOCI investments to fair value Income tax relating to these items 2.3.3 - 352 (2) 67 - 352 (2) 67 Other comprehensive income/(loss) for the year, net of income tax (822) (156) (822) (156) Total comprehensive income for the year 17,682 17,045 17,691 17,045 Total comprehensive income attributable to: Owners of the Company 17,682 17,045 17,691 17,045 Cash and cash equivalents Due from other financial institutions Other financial 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 Other borrowings Payables and other liabilities Loans under management Deferred tax liabilities Provisions Subordinated capital notes Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity 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 4.1.8 4.1.4 2.3.5 6.4 4.1.9 3.4 3.5 106,478 104,389 106,478 104,389 16,293 20,994 378,266 317,059 3,344 1,575 16,293 396,258 3,345 20,994 349,445 1,575 3,205,775 3,086,158 3,206,167 3,086,324 1,379 21,394 1,198 5,726 3,250 1,321 14,363 1,763 4,952 4,465 1,379 21,394 1,198 5,726 3,247 1,321 14,363 1,763 4,952 4,466 46,363 46,363 46,363 46,363 3,789,466 3,603,402 3,807,848 3,635,955 3,018,508 2,802,605 3,018,518 2,802,608 49,793 25,645 - 39,093 49,793 25,643 420,731 490,412 438,723 1,786 3,009 1,404 3,347 1,404 3,347 28,000 - 39,090 522,798 1,786 3,009 28,000 28,000 28,000 3,547,428 3,364,905 3,565,428 3,397,291 242,038 238,497 242,420 238,664 193,261 191,936 193,433 192,021 14,431 34,346 15,143 31,418 14,667 34,320 15,251 31,392 242,038 238,497 242,420 238,664 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. The above consolidated statement of financial position should be read in conjunction with the accompanying notes. |48 Auswide Bank Annual Report 2020 |49 Auswide Bank Annual Report 2020 6 4 8 5 3 2 , 1 4 2 ) 6 6 3 ( 2 0 1 1 0 2 7 1 , ) 1 6 4 ( - - 5 7 1 5 7 1 ) 8 0 1 ( ) 8 0 1 ( ) 2 ( 1 6 6 ) 1 2 2 ( - - - - - - - - - - 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 - - - - - - - - - - - - - - - ) 6 9 8 ( - - 2 0 1 ) 2 0 1 ( - - - - ) 6 9 8 ( - 2 4 7 6 3 2 , 1 4 2 ) 6 6 3 ( - l a t o T y t i u q e 0 0 0 $ ’ - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ i g n g d e h e v r e s e r w o fl h s a C 0 0 0 $ ’ e v r e s e r t n e m t s e v n I n o i t a u a v e r l 2 0 1 l e a s r o f e v r e s e r 0 0 0 $ ’ l e b a l i a v A s t b e d 0 0 0 $ ’ e v r e s e r l u f t b u o D 8 8 3 2 , 0 0 0 $ ’ 6 7 6 2 , 0 0 0 $ ’ 4 3 8 5 , 0 0 0 $ ’ e v r e s e r 7 5 3 4 , 0 0 0 $ ’ 8 9 8 9 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 n o i t a u a v e r l s t fi o r p t e s s A i d e n a t e R e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i , 2 1 6 1 9 1 d t L k n a B e d w s u A i f o s r e n w o o t e b a t u b i r t t A l I 0 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F Y T U Q E N S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I I - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 0 2 7 1 , ) 1 6 4 ( - - - - - - - - 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 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 1 0 2 y l u J 1 t a e c n a a B l 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 e h t ) x a t f o 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 : r a e y t n e r a p f o s r e n w o o t e b a t u b i r t t a t fi o r P l y n a p m 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 y t i t n e d e t a d i l o s n o C n o i t a d i l o s n o c 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 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 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 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 a n r e t x e s t n e m t s e v n i S B M R l a n r e t x e f o n o i t a u a v e r 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 e g d e h w o fl h s a c 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 n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D e g d e h w o fl h s a c f o n o i t a u a v e r l 7 9 4 8 3 2 , 8 0 3 l a t o T y t i u q e 0 0 0 $ ’ - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ ) 1 2 5 ( i g n g d e h e v r e s e r ) 0 1 6 ( - - 7 8 8 7 3 2 , 8 0 3 ) 1 2 5 ( - 1 0 1 1 0 1 0 0 0 $ ’ e v r e s e r w o fl h s a C t n e m t s e v n I l u f t b u o D n o i t a u a v e r l s t b e d 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 n o i t a u a v e r l s t fi o r p t e s s A i d e n a t e R - 0 0 0 $ ’ e v r e s e r 8 8 3 2 , - 0 0 0 $ ’ 6 7 6 2 , - 0 0 0 $ ’ 4 3 8 5 , - 0 0 0 $ ’ e v r e s e r 7 5 3 4 , 0 0 0 $ ’ 8 1 4 1 3 , ) 0 1 6 ( - e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i , 6 3 9 1 9 1 ) x a t f o t e n ( 6 1 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 9 1 0 2 y l u J 1 t a e c n a a B l y t i t n e d e t a d i l o s n o C 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 8 0 8 0 3 , , 6 3 9 1 9 1 l a i c n a n fi 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 4 0 5 8 1 , - 8 3 2 ) 8 2 1 ( ) 4 7 1 1 ( , 2 5 3 - - 8 3 2 ) 8 2 1 ( - - - 2 5 3 ) 4 7 1 1 ( , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 0 5 8 1 , - - - - - ) 5 7 ( ) 2 1 ( 2 1 4 1 , ) 6 6 9 4 1 ( , - - - - - - - - - - - - - - - - - - - - - - - - - - - - ) 6 6 9 4 1 ( , - - 2 1 4 1 , - - ) 5 7 ( ) 2 1 ( 9 7 6 5 5 2 , 8 1 4 ) 3 4 3 1 ( , 1 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 2 1 3 9 4 , , 6 3 9 1 9 1 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 y n a p m o c t n e r a p f o s r e n w o 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 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 : 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 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 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 e g d e h w o fl l a t o t - b u S 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 v i t n e c n i 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 e m e h c s 8 3 0 2 4 2 , 8 1 4 ) 3 4 3 1 ( , 1 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 6 4 3 4 3 , 1 6 2 3 9 1 , 0 2 0 2 e n u J 0 3 t a e c n a a B l QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary 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 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 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 l a t o t - b u S - - - - - - - - - - - - - - - - - - - ) 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 , 8 1 4 1 3 , , 6 3 9 1 9 1 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 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 e m e h c s e v i t n e c n i e e y o p m e l 9 1 0 2 e n u J 0 3 t a e c n a a B l |50 Auswide Bank Annual Report 2020 |51 Auswide Bank Annual Report 2020 ) 6 9 8 ( - - 2 0 1 ) 2 0 1 ( - - - - ) 6 9 8 ( - 7 9 3 6 3 2 , 1 4 2 ) 6 6 3 ( - l a t o T y t i u q e 0 0 0 $ ’ - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ i g n g d e h e v r e s e r w o fl h s a C 0 0 0 $ ’ e v r e s e r t n e m t s e v n I n o i t a u a v e r l 2 0 1 l e a s r o f e v r e s e r 0 0 0 $ ’ l e b a l i a v A s t b e d 0 0 0 $ ’ e v r e s e r l u f t b u o D 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 n o i t a u a v e r l s t fi o r p t e s s A i d e n a t e R 0 0 0 $ ’ 6 7 6 2 , 0 0 0 $ ’ 4 3 8 5 , 0 0 0 $ ’ e v r e s e r 7 5 3 4 , 0 0 0 $ ’ 9 1 4 9 2 , e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i 6 4 7 1 9 1 , d t L k n a B e d w s u A i f o s r e n w o o t e b a t u b i r t t A l 1 0 5 5 3 2 , 1 4 2 ) 6 6 3 ( 2 0 1 1 0 2 7 1 , - 5 7 1 5 7 1 ) 2 ( 1 6 6 ) 1 2 2 ( - - - - - - - - 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 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 0 2 7 1 , - - - - - - 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 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 1 0 2 y l u J 1 t a e c n a a B l y n a p m o C 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 e h t ) x a t f o 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 t n e r a p f o s r e n w o o t e b a t u b i r t t a t fi o r P l y n a p m o c 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 : r a e y r a e y e h t 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 a n r e t x e s t n e m t s e v n i S B M R l a n r e t x e f o n o i t a u a v e r 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 e g d e h w o fl h s a c n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D e g d e h w o fl h s a c f o n o i t a u a v e r l 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 t L k n a B e d w s u A i f o s r e n w o o t e b a t u b i r t t A l i . 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 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 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 4 6 6 8 3 2 , 6 1 4 l a t o T y t i u q e 0 0 0 $ ’ - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ ) 1 2 5 ( i g n g d e h e v r e s e r ) 0 1 6 ( - - 4 5 0 8 3 2 , 6 1 4 ) 1 2 5 ( - 1 0 1 1 0 1 0 0 0 $ ’ e v r e s e r w o fl h s a C t n e m t s e v n I l u f t b u o D n o i t a u a v e r l s t b e d 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 n o i t a u a v e r l s t fi o r p t e s s A i d e n a t e R - 0 0 0 $ ’ e v r e s e r 8 8 3 2 , - 0 0 0 $ ’ 6 7 6 2 , - 0 0 0 $ ’ 4 3 8 5 , - 0 0 0 $ ’ e v r e s e r 7 5 3 4 , 0 0 0 $ ’ 2 9 3 1 3 , ) 0 1 6 ( - e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i 1 2 0 2 9 1 , ) x a t f o t e n ( 6 1 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 9 1 0 2 y l u J 1 t a e c n a a B l y n a p m o C 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 2 8 7 0 3 , 1 2 0 2 9 1 , l a i c n a n fi 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 8 3 2 3 1 5 8 1 , ) 4 7 1 1 ( , 2 5 3 - 8 3 2 - - - - 2 5 3 ) 4 7 1 1 ( , - - - - - - - - - - - - - - - - - - - - - - - 3 1 5 8 1 , - - - - 3 8 9 5 5 2 , 4 5 6 ) 3 4 3 1 ( , 1 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 5 9 2 9 4 , 1 2 0 2 9 1 , 2 1 4 1 , ) 5 7 9 4 1 ( , - - - - - - - - - - - - - - ) 5 7 9 4 1 ( , - - 2 1 4 1 , 0 2 4 2 4 2 , 4 5 6 ) 3 4 3 1 ( , 1 0 1 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 7 5 3 4 , 0 2 3 4 3 , 3 3 4 3 9 1 , 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 y n a p m o c t n e r a p f o s r e n w o o t e b a t u b i r t t a t fi o r P 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 : 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 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 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 e g d e h w o fl l a t o t - b u S 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 0 2 0 2 e n u J 0 3 t a e c n a a B l QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary 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 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 |52 Auswide Bank Annual Report 2020 |53 Auswide Bank Annual Report 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Notes Consolidated 2020 $’000 2019 $’000 Company 2020 $’000 2019 $’000 Cash flows 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) Net cash provided by / (used in) operating activities 6.1 Cash flows from investing activities Net movement in investment securities Net movement in amounts due from other financial institutions Net movement in loans and advances Net movement in other investments Proceeds from sale of property, plant and equipment 127,029 136,446 127,029 136,446 10,670 14,605 10,670 14,605 (60,529) (10,313) (70,785) (10,227) (60,529) (10,304) (70,785) (10,227) (59,689) (34,394) (59,689) (34,388) 7,168 35,645 7,177 35,651 (61,207) (61,483) (46,813) (61,483) 4,701 (5,605) 4,701 (5,605) (124,549) (168,924) (124,774) (168,948) (57) - (177) 4 (57) - (177) 4 Payments for non current assets (2,847) (1,219) (2,847) (1,219) THIS PAGE IS LEFT BLANK INTENTIONALLY Net cash provided by / (used in) investing activities Cash flows from financing activities Net movement in deposits and short term borrowings Net movement in amounts due to other financial institutions and other liabilities Principal payment of lease liabilities Proceeds from share issue Dividends paid Movement in share capital due to employee incentive scheme Net cash provided by / (used in) financing activities Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at end of the financial year (183,959) (237,404) (169,790) (237,428) 265,695 351,670 265,705 351,638 (71,022) (117,883) (85,288) (117,776) (2,152) - - 275 (2,152) - - 275 (13,554) (14,324) (13,563) (14,332) (87) 49 - - 178,880 219,787 164,702 219,805 2,089 18,028 2,089 18,028 104,389 86,361 104,389 86,361 4.1.1 106,478 104,389 106,478 104,389 For the purposes of the consolidated statement of cash flows, cash includes cash on hand and deposits on call. The cash at the end of the year can be agreed directly to the consolidated statement of financial position. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. |54 Auswide Bank Annual Report 2020 |55 Auswide Bank Annual Report 2020 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2020 1 GENERAL INFORMATION 58 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Reporting entity Statement of compliance Basis of preparation Basis of consolidation Rounding of amounts Goods and Services Tax (GST) Application of new and revised Accounting Standards Comparative figures Reclassification of comparative figures 1.10 Going concern 58 58 58 58 58 58 59 60 60 60 2 FINANCIAL PERFORMANCE 61 2.1 2.2 2.3 2.4 2.5 Interest revenue and interest expense Other non-interest income Income taxes Earnings per share Business and geographical segment information 3 INVESTMENTS AND FINANCING 3.1 3.2 3.3 3.4 3.5 3.6 Property, plant and equipment Other intangible assets Goodwill Contributed equity Reserves Dividends paid 61 62 63 66 66 67 67 69 70 71 72 74 4 FINANCIAL ASSETS, LIABILITIES AND RELATED FINANCIAL RISK MANAGEMENT 75 4.1 4.2 4.3 4.4 4.5 4.6 Categories of financial instruments Capital risk management Market risk management Liquidity risk management Credit risk management Fair value measurements 5 GROUP STRUCTURE AND RELATED PARTIES 5.1 5.2 Subsidiaries, associates and other related parties Key management personnel disclosures 6 OTHER FINANCIAL INFORMATION 6.1 6.2 6.3 6.4 6.5 6.6 6.7 Cash flow statement reconciliation Expenditure commitments Contingent liabilities and credit commitments Provisions Other non-financial assets Remuneration of auditors Events subsequent to balance date 75 80 81 83 87 97 102 102 103 105 105 105 105 106 106 107 107 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |56 Auswide Bank Annual Report 2020 |57 Auswide Bank Annual Report 2020 1 GENERAL INFORMATION 1.1 Reporting entity Auswide Bank Ltd (the Company) is a for-profit listed public company, incorporated and domiciled in Australia. The consolidated financial statements of Auswide Bank Ltd for the year ended 30 June 2020 comprises Auswide Bank Ltd and its subsidiaries (the Group or the Consolidated Entity). 1.2 Statement of compliance The financial statements are general purpose financial statements that have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comply with all International Financial Reporting Standards (IFRS) in their entirety. 1.3 Basis of preparation These financial statements have been prepared on an accrual basis and are based on historical cost, except for land and buildings, hedging instruments, financial instruments held at fair value through profit 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 financial statements are consistent with those adopted and disclosed in the financial statements for the year ended 30 June 2019, unless otherwise stated. 1.4 Basis of consolidation The consolidated financial statements comprise the financial 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 affect its returns. The Company has power when it has rights that give it the ability to direct the activities that significantly affect the investee’s returns. The Group not only has to consider its holdings and rights, but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes. The existence and effect of potential voting rights where the Group has the practical ability to exercise them 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 financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. Equity interests in a subsidiary not attributable, directly or indirectly, to the consolidated entity are presented as non- controlling interests. The consolidated entity initially recognises non-controlling interests that are present ownership interests in subsidiaries, and are entitled to a proportionate share of the subsidiary’s net assets on liquidation, at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profits or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income. 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 financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. All amounts are presented in Australian dollars. 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 Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST. Cash flows are presented in the Consolidated Statement of Cash Flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. 1.7 Application of new and revised Accounting Standards 1.7.1 Standards and interpretations that are mandatorily effective for the current year New and revised standards and amendments to standards effective for the current financial year which have been applied in the preparation of these financial statements that are relevant to the Group include: • AASB 16 Leases (AASB 16) AASB 16 Leases The Group applied AASB 16 with a date of initial application of 1 July 2019 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. As a result, the Group has changed its accounting policy for lease contracts as detailed below. Definition of lease Previously, the Group determined at contract inception whether an arrangement is or contains a lease under AASB 117. Under AASB 16, the Group assesses whether a contract is or contains a lease based on the definition of a lease. On transition to AASB 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied AASB 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under AASB 117 were not reassessed for whether there is a lease. Therefore, the definition of a lease under AASB 16 was applied only to contracts entered into or changed on or after 1 July 2019. Summary of key changes to the accounting policy As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under AASB 16, the Group recognises right-of-use assets and lease liabilities for most leases, as a result, these leases are now recognised on-balance sheet. The Group decided to apply recognition exemptions to short-term leases of less than twelve months. For leases of other assets, which were classified as operating under AASB 117, the Group recognised right-of-use assets and lease liabilities. At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 July 2019. Right-of-use assets are measured at either: • an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments; or • their carrying amount as if AASB 16 had been applied since the commencement date, discounted using the lessee’s incremental borrowing rate at the date of initial application. The Group has applied this approach to all leases. The Group used the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117; • applied a single discount rate to a portfolio of leases with similar characteristics; • applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term; and • excluded initial direct costs from measuring the right-of-use asset at the date of initial application. Impact on the financial statements On transition to AASB 16, the Group recognised an additional $4.043m of right-of-use assets and $4.907m of lease liabilities. The difference of $0.864m has been recognised against opening retained earnings, net of its related deferred tax impact of $0.254m resulting in a net decrease in retained earnings of $0.610m on 1 July 2019. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 July 2019. The weighted-average rate applied to properties and vehicles on transition was 5.50% and 6.42% respectively. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Operating lease commitment at 30 June 2019 as disclosed in the Group’s consolidated financial statements Discounted using the incremental borrowing rate at 1 July 2019 Recognition exemptions for: - Impact of GST and other outgoings - Impact of increasing lease rentals - Impact of options expected to be exercised - Impact of rent discount in agreement - Impact of leases not recognised as a commitment in prior year Lease liabilities recognised on 1 July 2019 1 July 2019 Shareholder information Financial glossary $'000 5,585 5,235 (1,000) 210 423 (136) 175 4,907 |58 Auswide Bank Annual Report 2020 |59 Auswide Bank Annual Report 2020 1.8 Comparative figures The adoption of AASB 16 Leases from 1 July 2019 resulted in changes to accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transitional provisions in AASB 16, comparative figures have not been restated. A one off adjustment of $0.864m has been recognised against opening retained earnings, net of the related tax impact of $0.254m, resulting in a net decrease to retained earnings of $0.610m on 1 July 2019. When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. 1.9 Reclassification of comparative figures Certain accounts in the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2019, which are included in the 2020 financial statements for comparative purposes, have been reclassified to conform to the nature of accounts. The significant reclassifications are as follows: Statement of Profit or Loss and Other Comprehensive Income Employee benefits expense Occupancy expense Fees and commissions General and administration expense Other expenses Before reclassification Reclassification After reclassification $'000 20,327 2,361 9,884 10,905 786 $'000 237 946 161 (1,146) (198) $'000 20,564 3,307 10,045 9,759 588 The reclassifications have been made because, in the opinion of management, the new classifications are more appropriate to the Company’s business. 1.10 Going concern The financial statements are prepared on a going concern basis. The group has net assets of $242m, recorded positive operating and total cashflows and has disclosed its liquidity risk management policy in Note 4.4. As a consequence of this, the Directors are of the view that the Group is well placed to manage its business risks successfully despite the current economic climate. Accordingly, they believe the going concern basis is appropriate. 2 FINANCIAL PERFORMANCE 2.1 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 differ materially from those of the Consolidated entity. Consolidated entity Interest revenue 2020 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2020 Deposits from other financial institutions Customer deposits Negotiable certificates of deposit (NCDs) Floating rate notes (FRNs) RBA term funding facility Subordinated capital notes Lease liabilities Net interest revenue 2020 Consolidated entity Interest revenue 2019 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2019 Deposits from other financial institutions Customer deposits Negotiable certificates of deposit (NCDs) Floating rate notes (FRNs) Subordinated capital notes Net interest revenue 2019 Average balance $’000 72,027 264,243 3,151,103 97,825 3,585,198 453,037 2,475,794 306,994 122,346 7,674 28,000 4,137 3,397,983 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 Average interest rate % 0.60 1.34 3.72 5.10 3.52 2.50 1.47 1.31 1.87 0.21 4.90 5.69 1.64 1.59 2.43 4.19 4.59 4.04 3.23 1.97 2.37 2.90 6.42 2.30 Interest $’000 435 3,552 117,278 4,987 126,252 11,334 36,461 4,027 2,291 16 1,372 235 55,736 70,516 897 5,430 126,533 3,492 136,352 17,798 43,478 7,039 3,054 1,798 73,167 63,185 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |60 Auswide Bank Annual Report 2020 |61 Auswide Bank Annual Report 2020 The following tables show the net interest margin, and are derived by dividing the difference between interest revenue and interest expenditure by the average balance of interest earning assets. Consolidated entity Interest margin and interest spread 2020 Interest revenue Interest expense Net interest spread 3,585,198 3,397,983 126,252 55,736 Benefit of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 3,585,198 70,516 Interest margin and interest spread 2019 Interest revenue Interest expense Net interest spread 3,373,746 3,185,026 136,352 73,167 Benefit of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 3,373,746 63,185 3.52 1.64 1.88 0.09 1.97 4.04 2.30 1.74 0.13 1.87 Accounting policies Interest income and interest expense Interest income and expense for all financial instruments except for those classified 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 profit or loss account using the effective interest method. The effective interest rate (EIR) is the rate that discounts estimated future cash flows of a financial instrument over its expected life or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. The future cash flows 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 specific lending arrangement, transaction costs, and all other premiums or discounts. For financial assets at FVTPL transaction costs are recognised in profit 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 financial assets (i.e. the amortised cost of the financial asset before adjusting for any expected credit loss allowance), or to the amortised cost of financial liabilities. For credit-impaired financial assets the interest income is calculated by applying the EIR to the amortised cost of the credit-impaired financial assets (i.e. the gross carrying amount less the allowance for expected credit losses (ECLs)). For financial assets originated or purchased credit-impaired (POCI) the EIR reflects the ECL in determining the future cash flows expected to be received from the financial asset. 2.2 Other non-interest income Consolidated Company 2020 $’000 9,206 753 9,959 2019 $’000 8,959 505 9,464 2020 $’000 9,206 753 9,959 2019 $’000 8,959 505 9,464 Other non-interest income Fees and commissions Other income 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 Profit 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 specific lending arrangement and loan syndication fees. Income from these sources is measured based on the consideration specified 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 specified 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 profit or loss Accounting policies Taxation Consolidated Company 2020 $’000 8,540 (546) 7,994 2019 $’000 7,465 (28) 7,437 2020 $’000 8,531 (546) 7,985 2019 $’000 7,465 (28) 7,437 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 differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. The income tax expense is 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 differences, between the carrying amounts of assets and liabilities in the consolidated financial statements and their respective tax bases. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited to profit or loss except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred tax assets are only recognised for deductible temporary differences and unused tax losses if it is probable that future taxable profits will be available against which deductible temporary differences and losses can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Tax consolidation legislation The Company and 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 financial year ended 30 June 2008. Auswide Bank Ltd is the head entity in the tax consolidated Group, and as a consequence recognises current and deferred tax amounts relating to transactions, events and balances of the wholly-owned Australian controlled entities in this Group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and balances. The tax consolidated Group has not entered into a tax sharing agreement. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |62 Auswide Bank Annual Report 2020 |63 Auswide Bank Annual Report 2020 2.3.2 Numerical reconciliation of income tax expense to prima facie tax payable Tax on profit before income tax at 30% (2019: 30%) Tax effect of permanent differences Add non-deductible expenses: Depreciation of buildings Less: Tax offset 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 reclassified to profit or loss: Fair value remeasurement of FVTOCI financial assets Fair value remeasurement of hedging instruments entered into for cash flow hedges Arising on items that will not be reclassified to profit or loss: Total income tax recognised directly in other comprehensive income 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 Consolidated Company 2020 $’000 7,949 58 1 (14) 7,994 2019 $’000 7,392 58 1 (14) 7,437 2020 $’000 7,949 58 2 (24) 7,985 2019 $’000 7,392 58 1 (14) 7,437 Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 - - - (352) (352) - (352) - - (1) (66) (67) - (67) - - - (352) (352) - (352) - - (1) (66) (67) - (67) Consolidated Company 2020 $’000 3,344 3,344 2019 $’000 1,575 1,575 2020 $’000 3,345 3,345 2019 $’000 1,575 1,575 Consolidated Company 2020 $’000 5,726 (1,404) 4,322 2019 $’000 4,952 (1,786) 3,166 2020 $’000 5,726 (1,404) 4,322 2019 $’000 4,952 (1,786) 3,166 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 Net lease liabilities Performance rights prepaid expenses Other items Deferred tax liabilities Asset revaluation reserve Prepayments Investment revaluation reserve (AASB139: available- for-sale reserve) Cash flow hedging reserve 2019 $’000 QUICK LINKS >>> Consolidated Company 2020 $’000 993 2,032 681 1,466 3 115 44 205 72 115 2019 $’000 891 1,396 858 1,466 91 122 39 - - 89 2020 $’000 993 2,032 681 1,466 3 115 44 205 72 115 891 1,396 858 1,466 91 122 39 - - 89 5,726 4,952 5,726 4,952 Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 1,867 1,867 1,867 1,867 70 43 (576) 1,404 99 43 (223) 1,786 70 43 (576) 1,404 99 43 (223) 1,786 In respect of each temporary difference 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 flow hedges which were charged to the cash flow hedge reserve in equity, and the revaluations of land and buildings which were charged to the asset revaluation reserve in equity. Movement in deferred tax balances Notes Balance at beginning of year Deferred income tax income/ (expense) recognised directly in profit or loss Deferred tax recognised in other comprehensive income Deferred tax arising on: First time adoption of AASB 16 1.7 First time adoption of AASB 9 Prior period adjustments Balance at end of year Consolidated Company 2020 $’000 3,166 546 352 254 - 4 2019 $’000 2,682 28 67 - 384 5 2020 $’000 3,166 546 352 254 - 4 2019 $’000 2,682 28 67 - 384 5 4,322 3,166 4,322 3,166 Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |64 Auswide Bank Annual Report 2020 |65 Auswide Bank Annual Report 2020 2.4 Earnings per share Basic and diluted earnings per share From continuing operations Total basic and diluted earnings per share 2020 Cents per share 2019 Cents per share 43.80 43.80 40.81 40.81 3 INVESTMENTS AND FINANCING 3.1 Property, plant and equipment Consolidated Company The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are calculated as follows: Property and equipment owned Right-of-use assets Profit for the year attributable to owners of the Company 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 2.5 Business and geographical segment information 2020 $’000 18,504 18,504 2019 $’000 17,201 17,201 2020 Shares No. 2019 Shares No. 42,248,700 42,154,629 The Group only has one major business and operating segment being ‘Retail Banking’. The principal activities of the Group are confined to the raising of funds and the provision of finance 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. 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 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 2020 $’000 15,135 6,259 21,394 Consolidated 2020 $’000 9,277 5,858 15,135 Consolidated 2020 $’000 9,690 (413) 9,277 9,477 (200) 9,277 2019 $’000 14,363 - 14,363 2019 $’000 9,477 4,886 14,363 2019 $’000 9,690 (213) 9,477 9,676 (199) 9,477 2020 $’000 15,135 6,259 21,394 Company 2020 $’000 9,277 5,858 15,135 Company 2020 $’000 9,690 (413) 9,277 9,477 (200) 9,277 2019 $’000 14,363 - 14,363 2019 $’000 9,477 4,886 14,363 2019 $’000 9,690 (213) 9,477 9,676 (199) 9,477 Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 22,790 27,990 22,790 27,990 (16,932) (23,104) (16,932) (23,104) 5,858 4,886 5,858 4,886 4,886 2,702 (125) (1,605) 5,858 5,900 726 (20) (1,720) 4,886 4,886 2,702 (125) (1,605) 5,858 5,900 726 (20) (1,720) 4,886 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information All land and buildings were revalued as at 4 June 2018 by certified 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. Financial glossary The Board of Directors have assessed the market and the effects COVID-19 has had on regional Queensland and have concluded that the valuations remain appropriate. 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, |66 Auswide Bank Annual Report 2020 |67 Auswide Bank Annual Report 2020 valuations by external independent valuers. 3.1.2 Lease liabilities 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 flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. 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 benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Any revaluation increase arising on the revaluation of freehold land and buildings is recognised in other comprehensive income and accumulated within equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such land and buildings is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation periods used for each class of depreciable assets are: • Buildings - 40 years • Plant and equipment - 4 to 6 years • Leasehold improvements - 4 to 6 years or the term of the lease, whichever is the lesser. The 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 benefits 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 profit or loss. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. 3.1.1 Right-of-use assets Consolidated entity Right-of-use assets at cost Balance as at 1 July 2019 Additions during the year Variable lease payment adjustments Balance as at 30 June 2020 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2020 Company Right-of-use assets at cost Balance as at 1 July 2019 Additions during the year Variable lease payment adjustments Balance as at 30 June 2020 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2020 Property $’000 Vehicles $’000 3,924 3,546 34 7,504 (1,416) 6,088 Property $’000 3,924 3,546 34 7,504 (1,416) 6,088 119 155 - 274 (103) 171 Vehicles $’000 119 155 - 274 (103) 171 Total $’000 4,043 3,701 34 7,778 (1,519) 6,259 Total $’000 4,043 3,701 34 7,778 (1,519) 6,259 Details of associated lease liabilities recognised in respect of the right-of-use assets are presented below: Consolidated Company 2020 $’000 2020 $’000 Maturity analysis - contractual undiscounted cash flows Less than one year One to five years More than five years Total undiscounted lease liabilities Lease liabilities included in statement of financial position Current Non-current Amounts recognised in statement of comprehensive income Interest on lease liabilities Amounts recognised in statement of cash flows Total cash outflow for leases 1,898 5,289 568 7,755 1,844 5,100 6,944 235 235 2,387 2,387 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 2020 $’000 1,198 1,198 Consolidated 2020 $’000 7,152 (5,954) 1,198 1,763 145 - (710) 1,198 2019 $’000 1,763 1,763 2019 $’000 9,630 (7,867) 1,763 1,956 492 - (685) 1,763 2020 $’000 1,198 1,198 Company 2020 $’000 7,152 (5,954) 1,198 1,763 145 - (710) 1,198 1,898 5,289 568 7,755 1,844 5,100 6,944 235 235 2,387 2,387 2019 $’000 1,763 1,763 2019 $’000 9,630 (7,867) 1,763 1,956 492 - (685) 1,763 Purchased items of computer software which are not integral to the computer hardware owned by the Group are classified as intangible assets. Intangible assets are stated in the Statement of Financial Position at cost less any accumulated depreciation and impairment. Computer software has a finite life and accordingly is amortised on a straight line basis over the expected useful life of the software. Amortisation periods ranging from 4 to 6 years are applied. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition are measured as the difference between the net disposal proceeds and the carrying amount of the assets and are taken to profit or loss at the date of derecognition. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |68 Auswide Bank Annual Report 2020 |69 Auswide Bank Annual Report 2020 No internally generated intangible assets are recognised by the Group. Impairment testing is performed annually for intangible assets with indefinite lives and intangible assets not yet available for use. 3.3 Goodwill Goodwill Representing goodwill arising on the acquisition of: Queensland Professional Credit Union Ltd (YCU) Mackay Permanent Building Society Ltd (MPBS) Consolidated Company 2020 $’000 46,363 46,363 4,306 42,057 46,363 2019 $’000 46,363 46,363 4,306 42,057 46,363 2020 $’000 46,363 46,363 4,306 42,057 46,363 2019 $’000 46,363 46,363 4,306 42,057 46,363 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 financial 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 offer for 100% of the ordinary shares in Mackay Permanent Building Society Ltd (MPBS). On 11 January 2008 the Company announced the fulfilment of conditions pertaining to the off-market takeover offer set out in the bidder’s statement and gave notice that the offer was unconditional effective 10 January 2008. In accordance with APRA’s approval for the transfer of business the financial and accounting records of the entities were merged on 1 June 2008. The financial accounting for this business combination was prepared in accordance with Australian Accounting Standards and 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 identifiable assets, liabilities and contingent liabilities recognised at the date of the acquisition. Goodwill is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the business combination. A cash-generating unit or groups of cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss on goodwill is recognised directly in profit 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 profit 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. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration 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 and a reasonable control premium. The category of this fair value is Level 3 as defined 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 assumptions under this approach are: • Price-Earnings (P/E) multiple observed for these businesses, which for the banking businesses were in the range of 11.3- 17.9x. Management has applied P/E multiple of 12x, lower than the historical average, as a most prudent estimate of the assumption considering economic impacts of COVID-19. • Control premium which based on management’s best estimate informed by independent advice of a professional services firm is 20%. Sensitivity to changes in assumptions Under above value of the assumption, the estimated recoverable amount of the CGU exceeds its carrying amount by $19m. A reasonably possible change in any one of these assumptions can result in the carrying amount to exceed the recoverable amount: • if all other assumptions remain the same, should the multiples estimate decrease to 11.1x the carrying value will exceed the recoverable amount by $0.5m; and • if all other assumptions remain the same, should the control premium estimate decrease to 11% the carrying value will exceed the recoverable amount by $0.5m. 3.4 Contributed equity Disclosures on a Company basis have not been separately disclosed as the amounts do not differ 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 Gain/ (loss) in share capital on disposal of treasury shares Treasury shares Notes 3.4.1 3.4.2 2020 Shares No. 2020 Shares $’000 2019 Shares No. 2019 Shares $’000 42,172,922 191,936 42,108,972 191,612 - 252,231 - - 1,412 (12) 53,745 - - 275 - (29) Independent auditor’s report to the members of Auswide Bank Ltd Movement in treasury shares 3.4.3 (15,315) (75) 10,205 78 Balance at end of year 42,409,838 193,261 42,172,922 191,936 Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the Company does not have authorised capital or par value in respect of its issued shares. All ordinary shares have equal voting, dividend and capital repayment rights. 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 five years at no interest. Corporate governance summary Shareholder information Financial glossary |70 Auswide Bank Annual Report 2020 |71 Auswide Bank Annual Report 2020 The total number of shares issued to employees since the inception of the staff share plan The total number of shares issued to employees during the financial year The total market value at date of issue (19 October 2018) The total amount paid or payable for the shares at that date Consolidated Company 2020 Shares No. 2019 Shares No. 2020 Shares No. 2019 Shares No. 2,974,418 2,974,418 2,974,418 2,974,418 - 53,745 - 53,745 $'000 $'000 $'000 $'000 - - 299 275 - - 299 275 3.4.2 Dividend Reinvestment Plan (DRP) The Board of Directors resolved to suspend the Dividend Reinvestment Plan (DRP) in respect of the final dividend for the 2018/19 financial year, payable on 20 September 2019. The Board resolved to reintroduce the DRP for the interim dividend payable on 16 March 2020 for the 2019/20 financial year. 16 March 2020 - 252,231 ordinary shares were issued Shares issued under the plan rank equally in every respect with existing fully paid permanent ordinary shares and participate in all cash dividends declared after the date of issue. The shares issued under the DRP on 16 March 2020 were issued at a discount of 2.5% on the weighted sale price of the Company’s shares sold during the five trading days immediately following the Record Date. 3.4.3 Treasury shares As at the reporting date Auswide Performance Rights Pty Ltd holds 24,878 shares, $131,051 (Jun 19: 9,563 shares, $55,942) for the purpose of facilitating the Executive LTI scheme. 3.5 Reserves Available-for-sale reserve Investment revaluation reserve Asset revaluation reserve Cash flow hedge reserve Share based payment reserve Statutory reserve General reserve Doubtful debts reserve 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 2020 $’000 - 101 4,357 (1,343) 418 2,676 5,834 2,388 2019 $’000 - 101 4,357 (521) 308 2,676 5,834 2,388 2020 $’000 - 101 4,357 (1,343) 654 2,676 5,834 2,388 2019 $’000 - 101 4,357 (521) 416 2,676 5,834 2,388 14,431 15,143 14,667 15,251 3.5.1 Available-for-sale reserve Available-for-sale reserve Balance at beginning of year Adjustment on adoption of AASB 9 (net of tax) Balance at end of year - - - 102 (102) - - - - 102 (102) - The available-for-sale reserve was a former classification 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 Balance at beginning of year 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 Consolidated Company 2020 $’000 101 - - - 101 2019 $’000 - 102 (2) 1 101 2020 $’000 101 - - - 101 2019 $’000 - 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 Balance at end of year 4,357 4,357 4,357 4,357 4,357 4,357 4,357 4,357 The balance of this reserve represents the excess of the independent valuation over the original cost of the land and buildings. 3.5.4 Cash flow hedge reserve Cash flow hedge reserve Balance at beginning of year Gain/(loss) arising on changes in fair value of interest rate swaps entered into for cash flow hedges (521) (366) (521) (366) Interest rate swaps (1,174) (221) (1,174) Income tax related to gains/losses recognised in other comprehensive income 352 66 352 Balance at end of year (1,343) (521) (1,343) (221) 66 (521) The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the relevant accounting policy. There were no cumulative gains/losses arising on changes in fair value of hedging instruments reclassified from equity into profit or loss during the year. 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 308 238 (128) 418 241 175 (108) 308 416 238 - 654 241 175 - 416 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |72 Auswide Bank Annual Report 2020 |73 Auswide Bank Annual Report 2020 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 fixed share capital in 1992. The special reserve represented accumulated members’ profits at that date and was transferred to the general reserve over a period of 10 years being finalised in 2001/2002. 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. 3.6 Dividends paid Dividends paid during the year Interim for current year Final for previous year Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 7,171 7,804 14,975 6,749 7,583 14,332 7,171 7,804 14,975 6,749 7,583 14,332 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 10.75 cents per ordinary share ($4.562m), for the six months to 30 June 2020, payable on 18 September 2020. The final dividend for the six months to 30 June 2019 ($7.804m) was paid on 20 September 2019, and was disclosed in the 2018/19 financial accounts. The tax rate at which the dividends have been franked is 30% (2019: 30%). The amount of franking credits available for the subsequent financial year are: Balance as at the end of the financial year Credits/(debits) that will arise from the payment of income tax payable per the financial statements Debits that will arise from the payment of the proposed dividend Dividends - cents per share Dividend proposed Consolidated Company 2020 $’000 33,931 2019 $’000 30,025 2020 $’000 33,931 2019 $’000 30,025 (3,244) (1,575) (3,244) (1,575) (1,955) (3,344) (1,955) (3,344) 28,732 25,106 28,732 25,106 Fully franked dividend on ordinary shares 10.75 18.50 10.75 18.50 Interim dividend paid during the year Fully franked dividend on ordinary shares 17.00 16.00 17.00 16.00 Final dividend paid for the previous year Fully franked dividend on ordinary shares 18.50 18.00 18.50 18.00 4 FINANCIAL ASSETS, LIABILITIES AND RELATED FINANCIAL RISK MANAGEMENT QUICK LINKS >>> 4.1 Categories of financial instruments Notes Classification Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 Directors’ statutory report Financial assets Cash and cash equivalents 4.1.1 Due from other financial institutions 4.1.2 Other financial assets; 4.1.3 - Certificates 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 106,478 104,389 106,478 104,389 16,293 20,994 16,293 20,994 Auditor’s independence declaration 293,172 256,156 293,172 256,156 - 533 - 533 Financial statements FVTPL 60,613 44,569 60,613 44,569 Amortised cost FVTPL Amortised cost Amortised cost 24,074 14,624 42,066 47,010 141 266 589 588 141 266 589 588 Notes to the financial statements 3,205,775 3,086,158 3,206,167 3,086,324 Other investments; - Unlisted shares Total financial assets Financial liabilities Deposits and other short term borrowings Other borrowings Payables and other liabilities - Payables and creditors - Derivative liabilities Loans under management Subordinated capital notes Total financial liabilities Accounting policies Financial instruments 4.1.5 FVTOCI 918 918 918 918 3,707,730 3,529,518 3,726,114 3,562,070 4.1.6 4.1.7 4.1.8 4.1.4 4.1.9 Amortised cost Amortised cost Amortised cost FVTPL Amortised cost Amortised cost 3,018,508 2,802,605 3,018,518 2,802,608 49,793 - 49,793 - 23,586 37,761 23,584 37,758 2,059 1,332 2,059 1,332 420,731 490,412 438,723 522,798 28,000 28,000 28,000 28,000 3,542,677 3,360,110 3,560,677 3,392,496 Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Recognised financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to, or deducted from, the fair value on recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss. If the transaction price differs from fair value at initial recognition, the Group will account for such differences 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 difference is recognised in profit or loss on initial recognition (i.e. day 1 profit or loss); and |74 Auswide Bank Annual Report 2020 |75 Auswide Bank Annual Report 2020 • in all other cases, the fair value will be adjusted to bring it in line with the transaction price (i.e. day 1 profit 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 profit 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 financial asset within the timeframe established by the market concerned. Financial assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as at FVTPL. Transaction costs directly attributable to the acquisition of financial assets classified as at FVTPL are recognised immediately in profit or loss. All recognised financial 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 financial assets and the contractual cash flow characteristics of the financial assets. Specifically: • debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows 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 flows and to sell the debt instruments, and that have contractual cash flows 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 financial 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 significantly reduces an accounting mismatch (referred to as the fair value option). Debt instruments at amortised cost or at FVTOCI The Group assesses the classification and measurement of a financial asset based on the contractual cash flow characteristics of the asset and the Group’s business model for managing the asset. For an asset to be classified and measured at amortised cost or at FVTOCI, its contractual terms should give rise to cash flows 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 financial asset at initial recognition. That principal amount may change over the life of the financial 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 profit margin. The SPPI assessment is made in the currency in which the financial asset is denominated. Contractual cash flows that are SPPI are consistent with a basic lending arrangement. Contractual terms that introduce exposure to risks or volatility in the contractual cash flows 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 flows that are SPPI. An originated or an acquired financial 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 financial assets is fundamental to the classification of a financial asset. The Group determines the business models at a level that reflects how groups of financial 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 reclassified from equity to profit or loss. 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 flows that are not SPPI; or/and • assets that are held in a business model other than held to collect contractual cash flows 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 profit or loss. Equity investments On initial recognition, the Group classifies 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 reclassified to profit or loss but transferred within equity. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the asset’s cash flows expire (including expiry arising from a modification with substantially different terms), or when the financial 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 financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain/loss that had been recognised in OCI and accumulated in equity is recognised in profit 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 reclassified to profit or loss. Reclassifications If the business model under which the Group holds financial assets changes, the financial assets affected are reclassified. The classification and measurement requirements related to the new category apply prospectively from the first day of the first reporting period following the change in business model that results in reclassifying the Group’s financial assets. During the current financial year and previous accounting period there was no change in the business model under which the Group holds financial assets and therefore no reclassifications were made. Financial liabilities A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial assets or financial 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 fixed amount of cash (or another financial asset) for a fixed number of the Group’s own equity instruments. Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. The Group does not have any financial liabilities which are classified at FVTPL. Other financial liabilities, including deposits and borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary 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 profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Shareholder information 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: Financial glossary Cash at bank and in hand Deposits on call Consolidated Company 2020 $’000 61,878 44,600 2019 $’000 39,689 64,700 2020 $’000 61,878 44,600 2019 $’000 39,689 64,700 106,478 104,389 106,478 104,389 |76 Auswide Bank Annual Report 2020 |77 Auswide Bank Annual Report 2020 4.1.2 Due from other financial institutions Deposits with Special Service Providers (SSPs) Consolidated Company 2020 $’000 16,293 16,293 2019 $’000 20,994 20,994 2020 $’000 16,293 16,293 2019 $’000 20,994 20,994 Unlisted shares Equity accounted investment 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). 4.1.6 Deposits and short term borrowings 4.1.3 Other financial assets Certificates of deposit External RMBS investments Investments in Managed Investment Schemes (MIS) Notes - securitisation program and other Derivative assets Interest receivable Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 293,172 256,156 293,172 256,156 - 60,613 24,074 141 266 533 44,569 14,624 589 588 - 60,613 42,066 141 266 533 44,569 47,010 589 588 378,266 317,059 396,258 349,445 Call deposits Term deposits Negotiable certificates of deposit (NCDs) Floating rate notes (FRNs) 4.1.7 Other borrowings Cash held within securitised trusts at 30 June 2020 of $24.074m (2019: $14.624m) is restricted for use only by the trusts. RBA Term Funding Facility (TFF) Consolidated Company 2020 $’000 918 461 1,379 2019 $’000 918 403 1,321 2020 $’000 918 461 1,379 2019 $’000 918 403 1,321 Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 1,118,565 880,811 1,118,575 880,814 1,501,841 1,492,106 1,501,841 1,492,106 267,102 131,000 311,188 118,500 267,102 131,000 311,188 118,500 3,018,508 2,802,605 3,018,518 2,802,608 Consolidated Company 2020 $’000 49,793 49,793 2019 $’000 - - 2020 $’000 49,793 49,793 2019 $’000 - - 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 2020 $’000 2019 $’000 2020 $’000 2019 $’000 3,100,117 2,963,721 3,100,115 2,963,722 102,778 117,371 102,778 117,371 4,218 5,451 - 4,603 4,954 - 4,218 5,451 394 4,603 4,954 165 3,212,564 3,090,649 3,212,956 3,090,815 (6,789) (4,491) (6,789) (4,491) 3,205,775 3,086,158 3,206,167 3,086,324 For details on ECL recognised against loans and advances see Section 4.5 - Credit risk management. Loans and advances include an amount of $108.8m of which have been issued under the federal government’s First Home Loan Deposit Scheme by National Housing Finance and Investment Corporation (NHFIC) since 1 January 2020. The scheme provides a guarantee for any loan monies above 80% LVR. Auswide Bank has applied to participate in the scheme and is limited to issuing loans under the scheme by the number of places that have been allocated by NHFIC, the eligibility criteria that has been established and ongoing reporting requirements. 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 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 $420.731m (2019: $490.412m). Class B notes of $17.992m (2019: $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 figures. 4.1.5 Other investments This represents investments in equity securities which have been classified at fair value through other comprehensive income. The RBA term funding facility (TFF) funds, subject to the pledging of eligible collateral, for a period of three years at a rate of 0.25%. Interest is payable to the RBA at the end of the funding period. 4.1.8 Payables and other liabilities Trade creditors Derivative liabilities Accrued interest payable Other creditors Lease liabilities 4.1.9 Subordinated capital notes Inscribed debenture stock Consolidated Company 2020 $’000 2,881 2,059 10,357 3,404 6,944 25,645 2019 $’000 7,272 1,332 15,140 15,349 - 39,093 2020 $’000 2,879 2,059 10,357 3,404 6,944 25,643 2019 $’000 7,269 1,332 15,140 15,349 - 39,090 Consolidated Company 2020 $’000 28,000 28,000 2019 $’000 28,000 28,000 2020 $’000 28,000 28,000 2019 $’000 28,000 28,000 Subordinated capital notes are inscribed debenture stock which are issued for a period of ten years non call five 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). 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 2019 and 2020. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |78 Auswide Bank Annual Report 2020 |79 Auswide Bank Annual Report 2020 4.2 Capital risk management Details of the capital adequacy ratio on a company and consolidated basis are set out below: The Board and Management of Auswide Bank Ltd are responsible for instituting a Risk Management Framework (RMF) including policies and processes to reduce such risks to prudent levels at both a Company and Group level. The Board has established the following committees and delegated responsibilities to develop and monitor risk within their relevant areas and consistent with the Group wide Risk Management Framework: The Board Risk Committee; • assists the Board in the effective management of its responsibilities to set and oversee the risk profile and the risk management framework of Auswide Bank; • ensures management have appropriate risk systems and practices to effectively operate within the Board approved risk profile for Auswide Bank; and • deals with, and where applicable resolve, determine and recommend, all matters falling within the scope of its purpose and duties as set out in the Charter and other matters that may be delegated by the Board to the Committee from time to time. The Board Audit Committee; • overviews the management of the financial reporting and disclosure practices; • overviews the internal audit functions; • reviews compliance with APRA reporting and other statutory requirements; • oversight of financial accounts; • addresses changes in 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); Total risk weighted assets Capital base Risk-based capital ratio Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 QUICK LINKS >>> 1,631,807 1,498,370 1,632,124 1,498,133 211,382 12.95% 206,639 13.79% 211,766 12.97% 206,801 13.80% Directors’ statutory report 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. Auditor’s independence declaration 4.3 Market risk management Market risk is the risk that changes in market prices, such as interest rates, will affect Auswide Bank Ltd’s income or the worth of its holdings of financial instruments. The Board’s objective is to manage market risk exposures while optimising the return on risk. Financial statements 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 financial derivative alternatives. These risks are quantified in the Visual Risk Report. The ALCO’s functions and roles include: Notes to the financial statements • reviews the balance sheet and recommends changes with regard to capital management, funding and securitisation (i) review measures of profitability, particularly net interest and fee income including strategies and directives; activities (including product related issues); and • reviews measures of liquidity and capital adequacy position against the policy and guidelines established in the Board policy. APRA’s Prudential Standard APS 110 Capital Adequacy aims to ensure the Authorised Deposit-taking Institutions (ADI’s) maintain adequate capital, on both an individual and group basis, to act as a buffer against the risks associated with the Group’s activities. APRA requires capital to be allocated against credit, market and operational risk, and the Group has adopted the ‘standard model’ approach to measure the capital adequacy ratio. The Board of Directors takes responsibility to ensure the Company and Group maintain a level and quality of capital commensurate with the type, amount and concentration of risks to which the company and consolidated group are exposed from their activities. The Board has regard to prospective changes in the risk profile and capital holdings. The Company’s management prepares a three year capital plan and monitors actual risk-based capital ratios on a monthly basis to ensure the capital ratio complies with Board targets. During the 2020 and 2019 financial years the capital adequacy ratios of both the Group and Company were maintained above the target ratio. The capital adequacy calculations at 30 June 2020 and 30 June 2019 have been prepared in accordance with the revised prudential standards incorporating the Basel III principles. APRA Prudential Standards and Guidance Notes for ADIs provide guidelines for the calculation of capital and specific parameters relating to Tier 1, Common Equity Tier 1 and Total Capital. Tier 1 capital comprises the highest quality components of capital and includes ordinary share capital, general reserves and retained earnings less specific deductions. Tier 2 capital comprises other capital components including general reserve for credit losses and cumulative subordinated debt. Consistent with Basel III, the approach to capital assessment provides for a quantitative measure of the capital adequacy and focuses on: • credit risk arising from on-balance sheet and off-balance sheet exposures; • market risk arising from trading activities; • operational risk associated with banking activities; • securitisation risks; and • the amount, form and quality of capital held to act as a buffer against these and other exposures. (ii) review management interest rate view as well as asset and liability repricing data; (iii) receive and review reports from management concerning the organisation’s credit risk; (iv) receive and review management reports on interest rate risk against guidelines and limits established in Board policy; (v) consider and approve pricing on interest bearing assets and liabilities as well as fee revenue attached to these products in co-operation with the Product Pricing sub-committee; (vi) oversee lending and depositing activities, including the provision of discretion pursuant to Board policies; (vii) receive and review reports from management regarding significant asset and liability exposure; (viii) oversee securitisation activities for the organisation, including recommendations for future securitisation transactions; (ix) review and maintain liquidity and capital management plans, including contingency measures; and (x) make recommendations to the Board on changes to the following policies; • Lending; • Term Deposits; and • Finance related policies (including capital and liquidity). Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary The Group’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance date, are as follows: Shareholder information Financial glossary |80 Auswide Bank Annual Report 2020 |81 Auswide Bank Annual Report 2020 0 0 3 . 6 0 4 . 0 5 1 . - - 5 2 3 . 2 4 6 . 9 3 2 . 1 6 3 . 3 1 1 . - 0 2 0 . 6 1 2 . 6 8 4 . 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 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 9 1 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 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 s t e s s a l a i c n a n F i : n i g n i r u t a m e t a r t s e r e t n i d e x i F s t n e m u r t s n i l a i c n a n F i 4 1 1 . 4 4 0 . 4 9 9 0 2 , 3 9 2 6 1 , 5 9 6 3 1 . 0 5 0 . , 9 8 3 4 0 1 , 8 7 4 6 0 1 0 0 4 0 1 9 0 7 4 6 1 3 , 5 2 1 8 7 3 , - , 8 5 1 6 8 0 3 , , 1 1 0 8 2 5 3 , , 5 0 6 2 0 8 2 , , 5 7 7 5 0 2 3 , , 1 7 6 6 0 7 3 , , 8 0 5 8 1 0 3 , - 2 6 7 7 3 , 3 9 7 9 4 , 6 8 5 3 2 , - - 6 6 0 5 , 1 6 5 5 , 2 6 7 7 3 , 6 8 5 3 2 , 5 9 - 0 8 8 2 , 5 8 8 3 , - - - - - - - - - - , 9 8 9 3 0 1 , 8 6 5 5 0 1 9 9 8 0 2 , 8 9 1 6 1 , l i a c n a n fi r e h t o m o r f e u D h s a c d n a h s a C l s t n e a v i u q e 9 6 5 4 4 , 3 1 6 0 6 , 7 7 2 7 5 2 , 8 3 4 3 9 2 , 4 2 6 4 1 , 4 7 0 4 2 , s t e s s a l i a c n a n fi r e h t O , 2 9 1 0 0 6 , 9 8 6 9 2 7 , 2 6 4 1 4 3 6 5 5 8 8 2 , 1 6 7 4 4 6 , , 2 0 3 0 9 7 9 3 7 8 9 5 , 4 9 9 1 8 5 , , 8 3 4 9 3 1 2 , , 0 5 9 8 7 2 2 , , 0 5 6 4 8 1 2 , , 0 9 4 0 3 3 2 , s e c n a v d a d n a s n a o L s t e s s a l a i c n a n fi l a t o T s n o i t u t i t s n i s e i t i l i b a i l l a i c n a n F i - - - 3 9 7 9 4 , - - - - - - - - 2 9 5 8 5 , 2 7 1 5 9 1 , , 2 0 2 3 6 8 1 , , 1 7 7 4 0 7 1 , 1 1 8 0 8 8 , , 5 6 5 8 1 1 1 , m r e t t r o h s d n a s t i s o p e D i s g n w o r r o b r e h t o d n a s e b a y a P l i s g n w o r r o b r e h t O s e i t i l i b a i l n o i t a s i t i r u c e s d n a t i s o p e d d n a , s n a o l l e t a r e b a i r a v o t s e r u s o p x e s ’ y n a p m o C e h t o t e u d y l n a m s i s i h T i . ) l . m 8 7 1 4 1 $ f o e s a e r c e d a r e w o % 0 2 r o m 9 5 5 1 1 $ f o e s a e r c n . . i n a r e h g h % 0 2 . i : 9 1 0 2 ( m 0 7 3 4 $ . y b e s a e r c e d r o m 3 6 7 2 $ y b e s a e r c n . i l d u o w x a t e r o f e b t fi o r p t e n s ’ p u o r G e h t l , t n a t s n o c d e h e r e w s e b a i r a v r e h t o l l l l . a d n a r e w o % 0 1 r o r e h g h % 0 2 n e e b d a h s e t a r . i t s e r e t n i f i , e t a d g n i t r o p e r e h t t A . s e i t i l i b a i l l r. e w o % 2 g n e b s e t a r i t s e r e t n i l f o s i s a b e h t n o d e t a u c l a c s a w h c h w r a e y r o i r p e h t n i i d e i l p p a s r e t e m a r a p e h t i i m o r f s r e ff d h c h w r, e w o % 1 g n e b s e t a r l i t s e r e t n i e r e w d e i l p p a s r e t e m a r a p e h t r a e y t n e r r u c e h t n I . s e i t i l i b a i l d n a s t e s s a l i a c n a n fi l l a r o f s r e t e m a r a p f o t u p n i e h t h g u o r h t s e t a r t s e r e t n i n i s t n e m e v o m h t i i i l w d e t a c o s s a k s i r s e t a u c l a c h c h w y r u s a e r T G m o r f d e v i r e d s a w s i s y l a n a y t i v i t i s n e s e h T 2 1 4 0 9 4 , , 1 3 7 0 2 4 0 0 0 8 2 , 0 0 0 8 2 , - - - - 9 8 3 5 9 , 6 6 7 5 9 , 9 6 2 4 5 , 0 7 8 7 3 , 4 5 7 0 4 3 , 5 9 0 7 8 2 , r e d n u s n a o L t n e m e g a n a m - - 0 0 0 8 2 , 0 0 0 8 2 , - - l a t i p a c d e t a n d r o b u S i , 9 7 7 8 5 3 3 , , 8 1 6 0 4 5 3 , 2 6 7 7 3 , 6 8 5 3 2 , 1 8 9 3 5 1 , 1 3 7 0 4 3 , , 1 7 4 5 4 9 1 , , 1 4 6 0 7 7 1 , , 5 6 5 1 2 2 1 , , 0 6 6 5 0 4 1 , s e i t i l i b a i l l a i c n a n fi l a t o T s e t o n l y e k e r a k s i R t a e u a V d n a e u a V t n e s e r P t e N l , t c a p m I t s e r e t n I t e N . t n e m e g a n a m t e e h s e c n a a b h t i l l w g n o a , k s i r e t a r t s e r e t n i e g a n a m o t d e s i l i t u e r a s e v i t a v i r e D . e r u s a e m c i t s i l a e r e r o m a t c e fl e r o t % 1 o t d e c u d e r s a w o i r a n e c s e t a r t s e r e t n i n i e s a e r c e d e h t , l % 1 w o e b y l t n a c fi n g i s s i i e t a r h s a c A B R e h T s e v i t a v i r e D . s t i m i l y c i l o p n h t i i i w k s i r d n a s o i t a r n a t n a m o t d e r o t i n o m i Each of the following securitisation trusts has an Interest Rate Swap in place to hedge against fixed rate loans held in the trust. The mark-to-market values at the end of the year were as follows: e r a t a h t s e r u s a e m k s i r e t a r t s e r e t n i 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 2020 $’000 (546) 10,442 - 117 85 (36) 2019 $’000 (145) 1,548 54 73 34 (61) QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements 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. These are designated as effective hedges and are accounted for as cash flow hedges. Assets and liabilities arising from the mark-to-market valuation of interest rate swaps are $0.141m and $2.059m respectively (2019: $0.589m and $1.332m). Accounting policies Cash flow hedges The Group designates certain hedging instruments, which include interest rate swaps, as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item attributable to the hedged risk. Notes to the financial statements The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognised in the cash flow 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 profit or loss. Amounts previously recognised in OCI and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. If the Group no longer expects the transaction to occur that amount is immediately reclassified to profit 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 profit or loss. When a forecast transaction is no longer expected to occur, the gain/loss accumulated in equity is reclassified and recognised immediately in profit or loss. 4.4 Liquidity risk management Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Liquidity risk refers to the possibility that the Group will be unable to meet its financial 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 flows. Shareholder information 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 maximum of 25% 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). Financial glossary The undrawn limits on the securitisation warehouses were as follows: Securitisation trust Wide Bay Trust No. 5 ABA Trust No. 7 Total 2020 $’000 84,235 23,503 107,738 2019 $’000 38,058 31,237 69,295 |82 Auswide Bank Annual Report 2020 |83 Auswide Bank Annual Report 2020 Concentration risk The Company’s deposit portfolio does not include any deposit which represents 10% or more of total liabilities. The maturity analysis for the respective groups of financial assets and liabilities based on contractual maturity are as follows: Consolidated entity 30 June 2020 Financial assets Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances On call $’000 106,478 - - - Up to 3 months $’000 3-12 months $’000 1 - 5 years $’000 Later than 5 years $’000 No maturity specified $’000 Total $’000 - - - - - - - - - 106,478 16,293 16,293 169,638 15,091 108,850 84,687 7,914 6,521 37,633 3,153,707 - - 378,266 3,205,775 Total 106,478 177,552 21,612 146,483 3,238,394 16,293 3,706,812 Financial liabilities Deposits and short term borrowings Other borrowings Payables and other liabilities* Loans under management Subordinated capital notes 1,118,565 927,945 826,619 145,379 - - - - - - - 10,454 49,793 5,534 51,497 175,754 193,480 - - 28,000 - - 2,708 - - Total 1,118,565 979,442 1,012,827 422,186 2,708 - - - - - - 3,018,508 49,793 18,696 420,731 28,000 3,535,728 * The maturity analysis for the contractual undiscounted cash flows of lease liabilities are separately disclosed in Section 3.1.2. Consolidated entity 30 June 2019 Financial assets Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances On call $’000 104,389 - - - Up to 3 months $’000 3-12 months $’000 1 - 5 years $’000 Later than 5 years $’000 No maturity specified $’000 QUICK LINKS >>> Total $’000 - - - - - - - - - 104,389 20,994 20,994 Directors’ statutory report 148,593 8,167 22,567 4,932 86,172 59,727 39,125 3,033,934 - - 317,059 3,086,158 Total 104,389 156,760 27,499 125,297 3,093,661 20,994 3,528,600 Financial liabilities Deposits and short term borrowings Payables and other liabilities* Loans under management Subordinated capital notes 880,811 870,471 992,731 58,592 - - - - - 28,624 8,666 1,803 37,917 144,725 36,944 270,826 - - 28,000 - Total 880,811 937,012 1,146,122 125,339 270,826 - - - - - 2,802,605 39,093 490,412 28,000 3,360,110 Company 30 June 2020 Financial assets Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances On call $’000 106,478 - - - Up to 3 months $’000 3-12 months $’000 1 - 5 years $’000 Later than 5 years $’000 No maturity specified $’000 Total $’000 - - - - - - - - - 106,478 16,293 16,293 169,638 15,091 108,850 102,679 7,914 6,521 37,633 3,154,099 - - 396,258 3,206,167 Total 106,478 177,552 21,612 146,483 3,256,778 16,293 3,725,196 Financial liabilities Deposits and short term borrowings Other borrowings Payables and other liabilities* Loans under management Subordinated capital notes 1,118,575 927,945 826,619 145,379 - - - - - - - 10,454 49,793 5,534 55,511 189,732 193,480 - - 28,000 - - 2,708 - - Total 1,118,575 983,456 1,026,805 422,186 2,708 - - - - - - 3,018,518 49,793 18,696 438,723 28,000 3,553,730 * The maturity analysis for the contractual undiscounted cash flows of lease liabilities are separately disclosed in Section 3.1.2. Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |84 Auswide Bank Annual Report 2020 |85 Auswide Bank Annual Report 2020 Company 30 June 2019 Financial assets Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances On call $’000 104,389 - - - Up to 3 months $’000 3-12 months $’000 1 - 5 years $’000 Later than 5 years $’000 No maturity specified $’000 Total $’000 - - - - - - - - - 104,389 20,994 20,994 148,593 8,167 22,567 4,932 86,172 92,113 39,125 3,034,100 - - 349,445 3,086,324 Total 104,389 156,760 27,499 125,297 3,126,213 20,994 3,561,152 Financial liabilities Deposits and short term borrowings Payables and other liabilities* Loans under management Subordinated capital notes 880,814 870,471 992,731 58,592 - - - - - 28,621 8,666 1,803 39,917 175,111 145,408 162,362 - - 28,000 - Total 880,814 939,009 1,176,508 233,803 162,362 - - - - - 2,802,608 39,090 522,798 28,000 3,392,496 4.5 Credit risk management Credit risk is the risk that a customer or counterparty will default on its contractual obligations resulting in financial 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 financial guarantees. The Group considers all elements of credit risk exposure such a counterparty default risk, geographical risk and sector risk for risk management purposes. QUICK LINKS >>> Under the direction of the Board of Directors, management has developed risk management policies and procedures to establish and monitor the credit risk of the Company. The risk management procedures define the credit principles, lending policies and the decision making processes which control the credit risk of the Company. Directors’ statutory report 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 financial institutions, receivables, certificates 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 reflecting similar performance behaviours, based on the Group’s analysis of its loan portfolio. Auditor’s independence declaration 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 first mortgages on residential property. Financial statements The company has a diversified branch network consisting of 18 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 financial 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. Diversification 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. Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Credit risk on cash, cash equivalents and amounts due from other financial 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. Shareholder information Credit risk on certificates of deposit is assessed as low and probability of default negligible. Risk is minimised by using clearly defined 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 affected. The securitisation deposits are made with investment grade rated credit institutions. During the year, the Group recognised an additional provision of $1.0 million for the potential impact of COVID-19 on the lending portfolio taking into account stress on the economy introduced by COVID-19 and the mitigating impact of Government and industry assistance packages and support, such as loan repayment deferral arrangements. 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 financial Financial glossary |86 Auswide Bank Annual Report 2020 |87 Auswide Bank Annual Report 2020 instrument. The table below outlines such classes of financial instruments identified, their relevant financial 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 differ materially from those of the Consolidated entity. Maximum exposure to credit risk 2019 $’000 Expected credit loss 2019 $’000 Expected credit loss 2020 $’000 - - - - - - 104,389 20,994 256,156 533 14,624 588 - - - - - - 4,437 4,437 54 - 54 Consolidated entity Financial statement line Notes Class of financial instrument Cash and cash equivalents 4.1.1 Cash and cash equivalents Due from other financial institutions 4.1.2 Due from other financial institutions Maximum exposure to credit risk 2020 $’000 106,478 16,293 Certificates of deposit 4.1.3 Other financial assets 293,172 External RMBS investments 4.1.3 Other financial assets - Notes – securitisation program and other Interest receivable Loans and advances Total 4.1.3 Other financial assets 24,074 4.1.3 Other financial assets 266 4.1.4 Loans and advances 3,457,232 6,592 3,315,110 3,897,515 6,592 3,712,394 Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 6.3 6.3 Accounting policies Impairment of financial assets 114,807 591 115,398 197 - 197 66,874 1,405 68,279 The Group recognises loss allowances for ECLs on the following financial 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 financial 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 financial instrument, (referred to as stage 2 and stage 3). A loss allowance for full lifetime ECL is required for a financial instrument if the credit risk on that financial instrument has increased significantly since initial recognition. For all other financial instruments, ECLs are measured at an amount equal to the 12-month ECL. Definition 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 definition of default is appropriately tailored to reflect different characteristics of different 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. Write off Loans and advances and debt securities are written off when the Group has no reasonable expectations of recovering the financial 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 sufficient cash flows to repay the amounts subject to the write-off. A write-off constitutes a derecognition event. The Group may apply enforcement activities to financial assets written off. Recoveries resulting from the Group’s enforcement activities will result in impairment gains. Key estimates and judgements Significant 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 significantly since initial recognition. AASB 9 does not define what constitutes a significant increase in credit risk. In assessing whether the credit risk of an asset has significantly increased the Group takes into account qualitative and quantitative reasonable and supportable forward looking information. Repayment deferral availed by the borrowers as a result of COVID-19 does not in itself constitute a significant increase in credit risk unless the exposure meets the above criteria. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Models and assumptions used The Group uses various models and assumptions in measuring fair value of financial 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. Financial statements 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 different economic drivers and how these drivers will affect 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 difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows 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 figures are derived from internally developed statistical models and other historical data and they are adjusted to reflect 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. Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information 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. Financial glossary 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. Incorporation of forward looking information Repayment deferral availed by the borrowers as a result of COVID-19 does not in itself constitute a default or credit impairment event unless the exposure meets the above criteria. The Group uses forward-looking information that is available without undue cost or effort in its assessment of significant increase of credit risk as well as in its measurement of ECL. The Group uses this information to generate a ‘base case’ |88 Auswide Bank Annual Report 2020 |89 Auswide Bank Annual Report 2020 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 identified. 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 identified 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 are GDP, GDP index, GDP index change and unemployment. Management have derived that GDP has economic correlations to inflation 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 effects 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. Sensitivity analysis and forward looking information The following table shows the reported ECL based on the probability weighting of scenarios, with the sensitivity range reflecting the ECL impacts assuming a 100% weighting is applied to the base case scenario, the downside scenario or the severe downside scenario (with all other assumptions held constant). As at 30 June 2020, the probability weighted ECL is a blended outcome taking into consideration the respective scenarios. The base case scenario incorporates a reasonable level of portfolio stress driven by forecast macro-economic factors, including potential impacts of the COVID-19 pandemic, additional funding opportunities with the RBA and the governments commitment to supporting jobs, incomes and businesses as Australia responds to COVID-19. Scenario ECL Macroeconomic forecast Reported ECL 100% base case Jun 20 $m 6,789 6,490 Includes a reasonable level of portfolio stress. Unemployment is expected to rise to above 8% in mid-2020 with modest recovery occurring but broadly to remain above pre-COVID-19 levels over the next few years. Australian GDP expected to fall considerably by 6.3% in the June 2020 quarter the biggest economic contraction since the 1930’s resulting in the 2020 GDP contracting 4.0% with GDP forecast to recover with growth of 3.0% in the 2021 calendar year. 100% downside 7,140 Assumes a moderate but reasonable level of portfolio stress. 100% severe downside 8,000 Assumes a more severe and prolonged downturn including elevated levels of unemployment and GDP decline. Assumptions The following table summarises the key judgements and assumptions in relation to the model inputs and highlights significant changes during the current period. The judgements and associated assumptions have been made within the context of the impact of COVID-19, and reflect historical experience and other factors that are considered to be relevant, including expectations of future events that are believed to be reasonable under the circumstances. In relation to COVID-19, judgements and assumptions include the extent and duration of the pandemic, the impacts of actions of governments and other authorities, and the responses of businesses and consumers in different industries. Accordingly, the Group’s ECL estimates are inherently uncertain and, as a result, actual results may differ from these estimates. Judgement/ Assumption Description Changes and considerations during the year ended 30 June 2020 In the measurement of ECL, judgement is involved in setting the rules and trigger points to determine whether there has been a SICR since initial recognition of a loan, which would result in the financial asset moving from ‘stage 1’ to ‘stage 2’. This is a key area of judgement since transition from stage 1 to stage 2 increases the ECL from an allowance based on the probability of default in the next 12 months, to an allowance for lifetime expected credit losses. Subsequent decreases in credit risk resulting in transition from stage 2 to stage 1 may similarly result in significant changes in the ECL allowance. The setting of precise trigger points requires judgement which may have a material impact upon the size of the ECL allowance. ECL is a function of the probability of default (PD), the loss given default (LGD) and the exposure at default (EAD) which are point-in-time measures reflecting the relevant forward looking information determined by management. Judgement is involved in determining which forward looking information variables are relevant for particular lending portfolios and for determining the sensitivity of the parameters to movements in these forward looking variables. Determining when a significant increase in credit risk (SICR) has occurred Measuring both 12-month and lifetime credit losses Base case economic forecast The Group derives a forward looking “base case” economic scenario which reflects Auswide’s view of the most likely future macro-economic conditions. Probability weighting of each scenario (base case, downside and severe downside scenarios) Management overlays Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base case scenario. Management overlays to the ECL allowance are used where it is judged that existing inputs, assumptions and model techniques do not adequately capture the risk factors in the lending portfolio. Various initiatives, such as loan repayment holidays and deferrals have been offered to customers in this half year recognising the potential detrimental impact of COVID-19. Such offers, if accepted, are not automatically considered to indicate SICR. The PD, EAD and LGD models are subject to the Group’s model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. There were no material changes to the policies during the year ended 30 June 2020. There were no changes to behavioural lifetime estimates during the half year ended 30 June 2020. There have been no changes to the types of forward looking variables (key economic drivers) used as model inputs in the current year. As at 30 June 2020, the base case assumptions have been updated to reflect the rapidly evolving situation with respect to COVID-19. This includes an assessment of the impact of central bank (monetary policy), governments (wage subsidies), and institution specific responses (such as payment holidays). These are considered in determining the length and severity of the forecast economic downturn. The key consideration for probability weightings in the current period is the continuing impact of COVID-19. The base case forecast reflects largely the negative economic consequences of COVID-19. Management have assessed the weightings applied to the downside and severe downside scenarios and determined that these remained appropriate An overlay for model error risk continues to be applied. In assessing the potential impacts of COVID-19, management have applied an additional overlay, increasing the ECL, allowing for the increased uncertainty in future economic conditions. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |90 Auswide Bank Annual Report 2020 |91 Auswide Bank Annual Report 2020 a d n a d e r r u c c o g n i v a h t l u a f e d a f o e v i t a t n e s e r p e r s a e u d t s a p s y a d 0 9 s r e d i s n o c p u o r G e h T . k s i r t i d e r c n i e s a e r c n i i t n a c fi n g i s s t n e s e r p e r e u d t s a p s y a d 0 3 t a h t n o i t p m u s s a e h t d e s u s a h p u o r G e h T . d e r i a p m i t i d e r c g n e b n a o i l . L C E h t n o m - 2 1 n a h t r e h t a r e m i t e f i l n o d e s a b e c n a w o l l a s s o l d e t c e p x e e h t e r u s a e m l l i w p u o r G e h t k s i r t i d e r c n i e s a e r c n i t n a c fi n g i s i ; k s i r t i d e r c o t s d r a g e r n i d e fi i s s a l c n e e b e v a h s t n e m u r t s n i l i a c n a n fi h c h w n i i s e g a t s e e r h t g n w o i l l o f e h t d e fi i t n e d i s a h p u o r G e h T d e s o l c s i d 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 . 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 l a t o T 0 0 0 $ ’ 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 l a t o T 0 0 0 $ ’ 0 0 0 $ ’ 3 e g a t S 0 0 0 $ ’ 2 e g a t S - - - - - 9 0 3 3 8 1 5 , 0 0 1 1 , 2 9 5 6 , - 7 9 1 7 9 1 - - - - - 0 9 5 1 8 9 3 4 2 , 4 4 3 3 , - - - - - - - - 1 4 2 - 2 2 3 6 2 - - - - - - - - 3 0 5 2 , 9 1 2 3 6 2 5 8 9 2 , - 7 9 1 7 9 1 8 7 4 6 0 1 , 3 9 2 6 1 , 2 7 1 3 9 2 , 4 7 0 4 2 , , 7 1 0 0 4 4 , 7 6 8 1 5 3 3 , 1 4 3 4 2 , 4 2 0 1 8 , , 2 3 2 7 5 4 3 , , 7 0 8 4 1 1 1 9 5 , 8 9 3 5 1 1 - - - - - - - - 5 3 8 3 6 1 1 , 4 7 7 1 , 7 4 4 3 1 , - - - - - - 6 5 3 7 , 0 8 1 6 3 5 7 , - - - 0 0 0 $ ’ 1 e g a t S 8 7 4 6 0 1 , 3 9 2 6 1 , 2 7 1 3 9 2 , 4 7 0 4 2 , , 7 1 0 0 4 4 , 3 7 8 2 3 3 3 , 6 0 3 4 2 , 0 7 0 9 7 , , 9 4 2 6 3 4 3 , , 7 0 8 4 1 1 1 9 5 , 8 9 3 5 1 1 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 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 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 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 r e h t o l a t o T 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 0 2 0 2 e n u J 0 3 t a e c n a a B l 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 - i g n d n e l l i a c r e m m o 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 y t i t n e d e t a d i l o s n o C s i L C E e h t r e t f a s n a o l e h t f o t s o c d e s i t r o m a e h t n o , s i s a b t e n a n o d e u r c c a s i t s e r e t n I . s s o l t i d e r c d e t c e p x e e m i t e f i l s a d e s i n g o c e r s i s s o l t n e m r i a p m i d n a d e r i a p m i t i d e r c e r a s t e s s a - 3 e g a t s . d e t c u d e d d n a ; s s o l t i d e r c d e t c e p x e e m i t e f i l s a d e s i n g o c e r s i s s o l t n e m r i a p m i i d n a y l t n a c fi n g i s d e s a e r c n i s a h k s i r t i d e r c e r e h w - 2 e g a t s ; s s o l t i d e r c d e t c e p x e h t n o m 2 1 s a d e s i n g o c e r s i e c n a w o l l a s s o l i h c h w n o e r u s o p x e g n m r o f r e p - 1 e g a t s i • • • a n e e b s a h e r e h t f I . n o i t i n g o c e r l a i t i n i e c n i s k s i r t i d e r c n i e s a e r c n i i t n a c fi n g i s a n e e b s a h e r e h t r e h t e h w s s e s s a o t 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 e r a t a h t s t e s s a l i a c n a n fi l l a s r o t i n o m p u o r G e h T k s i r t i d e r c n i e s a e r c n i t n a c fi n g S i i . . m 5 9 8 2 0 2 3 $ s i , 0 2 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 * l a t o T 0 0 0 $ ’ 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 1 1 4 , 0 4 7 8 2 7 3 4 4 , - 4 5 4 5 - - - - - - 2 - 9 7 4 1 , 1 8 4 1 , - - - - - - - - - 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 l a t o T 0 0 0 $ ’ , 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 , , 3 8 5 9 1 2 3 , 5 2 5 0 2 , 2 0 0 5 7 , , 0 1 1 5 1 3 3 , 4 7 8 6 6 , 5 0 4 1 , 9 7 2 8 6 , 0 0 0 $ ’ 3 e g a t S 0 0 0 $ ’ 2 e g a t S - - - - - - 8 2 3 0 4 8 3 6 2 1 , 9 6 0 3 1 , - - - - - - - - - 3 6 1 1 6 5 1 , 7 1 6 1 , 1 9 2 7 1 , - - - 0 0 0 $ ’ 1 e g a t S , 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 , 4 3 3 1 9 1 3 , 4 3 4 0 2 , 2 8 9 2 7 , , 0 5 7 4 8 2 3 , 4 7 8 6 6 , 5 0 4 1 , 9 7 2 8 6 , 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 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 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 r e h t o l a t o T 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 9 1 0 2 y l u J 1 t a s a e c n a a B l 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 - i g n d n e l l i a c r e m m o 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 y t i t n e d e t a d i l o s n o C |92 Auswide Bank Annual Report 2020 |93 Auswide Bank Annual Report 2020 . . m 2 9 0 1 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 * QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary 4.5.3 Movement in gross carrying amounts The following tables show movements in gross carrying amounts of financial assets subject to impairment requirements. Disclosures on a Company basis have not been separately disclosed as the amounts do not differ materially from those of the Consolidated entity. Consolidated entity Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 Loans and advances at amortised cost* Gross carrying amount at beginning of year 3,050,753 Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Financial assets that have been derecognised during the period including write-offs New financial assets originated Adjustments for repayments and interest Net carrying amount as at 30 June 2020 10,785 (5,914) (4,472) (436,929) 685,733 (118,054) 3,181,902 * Excludes interest receivable and deferred mortgage brokers commissions. 17,257 (7,542) 6,192 (4,096) (4,550) 310 (51) 7,520 Total $’000 3,081,092 - - - 13,082 (3,243) (278) 8,568 (5,895) (447,374) 847 392 13,473 686,890 (117,713) 3,202,895 Consolidated entity Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 Loans and advances at amortised cost * Gross carrying amount at beginning of year 2,822,007 73,538 Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 134,593 (133,250) (180,769) (16,153) 199,788 (10,115) 18,499 (1,343) (19,019) 26,268 Total $’000 2,914,044 - - - Financial assets that have been derecognised during the period including write-offs New financial assets originated Adjustments for repayments and interest Net carrying amount as at 30 June 2019 (357,587) (4,138) (5,716) (367,441) 579,400 69,262 3,050,753 - (108,566) 17,257 - (5,607) 13,082 579,400 (44,911) 3,081,092 * Excludes interest receivable and deferred mortgage brokers commissions. There has been no significant movement in the carrying amount of other financial assets in 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 financial assets subject to impairment requirements. Disclosures on a Company basis have not been separately disclosed as the amounts do not differ materially from those of the Consolidated entity. Consolidated entity Loans and advances at amortised cost* Loss allowance at beginning of year Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Financial assets derecognised during the period including write-offs New financial assets originated Changes in model risk assessment Loss allowance as at 30 June 2020 Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 Total $’000 2,232 269 (7) (17) (826) 727 684 3,062 734 (260) 8 (218) (242) 1 240 263 1,525 4,491 (9) (1) 235 - - - (1,055) (2,123) 363 2,209 3,267 1,091 3,133 6,592 * Excludes interest receivable and deferred mortgage brokers commissions. Loans and advances at amortised cost* Loss allowance at beginning of year Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Financial assets derecognised during the period including write-offs New financial assets originated Changes in model risk assessment Loss allowance as at 30 June 2019 Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 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 Total $’000 4,432 - - - (1,619) 376 1,302 4,491 * Excludes interest receivable and deferred mortgage brokers commissions. No ECL is recognised on any other financial asset, as this has been assessed as immaterial in both the current and comparative periods. 4.5.5 Summary of movements in expected credit loss by financial instrument The following table summarises the movement in expected credit loss by financial instruments for the reporting period. Disclosures on a Company basis have not been separately disclosed as the amounts do not differ materially from those of the Consolidated entity. Consolidated entity Expected credit loss Loss allowance at beginning of year Loss allowance recognised/ (reversed) during the year Bad debts written off Loss allowance as at 30 June 2020 Consolidated entity Expected credit loss Loss allowance at beginning of year Adjustment on adoption of AASB 9 Loss allowance recognised/ (reversed) during the year Bad debts written off Loss allowance at 30 June 2019 Loans and advances $’000 4,437 3,702 (1,547) 6,592 Loans and advances $’000 3,197 1,210 1,159 (1,129) 4,437 LANA $’000 54 143 - 197 LANA $’000 - 70 (16) - 54 Total $’000 4,491 3,845 (1,547) 6,789 Total $’000 3,197 1,280 1,143 (1,129) 4,491 4.5.6 Credit risk concentrations 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 differ 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 Consolidated 2020 $’000 2019 $’000 3,112,850 2,996,371 21,926 68,119 17,536 67,185 3,202,895 3,081,092 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |94 Auswide Bank Annual Report 2020 |95 Auswide Bank Annual Report 2020 Consolidated entity Loans and advances at amortised cost* Concentration by region Queensland New South Wales Australian Capital Territory Victoria South Australia Western Australia Tasmania Northern Territory Total Consolidated 2020 $’000 2019 $’000 2,371,985 2,342,240 360,263 38,542 281,021 29,272 82,506 12,779 26,527 317,552 33,618 245,124 29,342 77,708 9,603 25,905 3,202,895 3,081,092 * Excludes interest receivable and deferred mortgage brokers commissions. LANA of $114.807m (2019: $66.874m) 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 Specific provision The Group has complied with the provisioning requirements under the APRA prudential standard APS220 Credit Quality and includes a specific provision amounting to $3.577m (2019: $2.012m) determined in accordance with the aforementioned prudential standard. 4.5.8 Financial instruments classified at FVTPL The maximum exposure to credit risk of the notes held in MISs designated at FVTPL is their carrying invested amount, which was $60.613m at 30 June 2020 (2019: $44.569m). The change in fair value due to credit risk for the MISs designated at FVTPL is $1.051m for the year (2019: $0.558m). 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 classified at FVTOCI The maximum exposure to credit risk of the equity instrument designated at FVTOCI is their carrying amount. 4.5.10 Analysis of financial instrument by days past due status Under the Group’s monitoring procedures a significant increase in credit risk is identified 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. Consolidated entity 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 2020 $’000 1,609 903 3,333 1,265 549 4,900 2019 $’000 4,638 3,229 2,175 1,941 718 1,601 2020 $’000 1,609 903 3,333 1,265 549 4,900 2019 $’000 4,638 3,229 2,175 1,941 718 1,601 12,559 14,302 12,559 14,302 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 differ materially from those of the Consolidated entity. 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 2020 $’000 2019 $’000 417,192 920,521 401,837 861,832 1,414,594 1,472,048 329,318 31,243 227,859 32,795 3,112,868 2,996,371 2020 $’000 496 1,047 1,802 166 1,657 5,168 2019 $’000 795 820 969 78 1,448 4,110 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 differ materially from those of the Consolidated entity. Gross carrying amount Expected credit loss QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Consolidated entity Commercial lending LVR ratio Less than 50% 51-70% 71-90% 91-100% More than 100% Total Other financial assets 2020 $’000 20,604 24,078 13,278 3,380 6,779 68,119 2019 $’000 17,366 24,108 12,910 4,003 8,798 67,185 2020 $’000 92 94 68 473 374 1,101 The Group holds other financial assets at amortised cost with a carrying amount of $440.284m (2019: $369.751m) and at FVTOCI with a carrying amount of $0.918m (2019: $1.451m). These are high quality investments and as per policy the Group only invests in certain types of financial assets which are investment grade and of lower credit risk. 4.6 Fair value measurements Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped by fair value hierarchy level. 2019 $’000 Directors’ declaration 43 91 46 90 17 287 Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |96 Auswide Bank Annual Report 2020 |97 Auswide Bank Annual Report 2020 4.6.1 Financial instruments measured at fair value on recurring basis Consolidated entity 30 June 2020 Financial assets mandatorily measured at FVTPL Investments in Managed Investment Schemes Derivative assets Equity instruments designated at FVTOCI Unlisted shares Total assets Financial liabilities mandatorily measured at FVTPL Derivative liabilities Total liabilities Consolidated entity 30 June 2019 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 2020 Financial assets mandatorily measured at FVTPL Investments in Managed Investment Schemes Derivative assets Equity instruments designated at FVTOCI Unlisted shares Total assets Financial liabilities mandatorily measured at FVTPL Derivative liabilities Total liabilities Company 30 June 2019 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 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - 141 - 141 2,059 2,059 60,613 - 918 61,531 - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - - - - - - - 589 533 - 1,122 1,332 1,332 44,569 - - 918 45,487 - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - - - - - - 141 - 141 2,059 2,059 60,613 - 918 61,531 - - Level 1 $’000 Level 2 $’000 Level 3 $’000 - - - - - - - - 589 533 - 1,122 1,332 1,332 44,569 - - 918 45,487 - - 60,613 141 918 61,672 2,059 2,059 Total $’000 44,569 589 533 918 46,609 1,332 1,332 Total $’000 60,613 141 918 61,672 2,059 2,059 Total $’000 44,569 589 533 918 46,609 1,332 1,332 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 specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. In measuring fair value, the Group uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Financial statements Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are received at each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. The categories are as follows: •level 1 - measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date, • level 2 - measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, 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 significant inputs required to measure fair value are observable, the asset or liability is included in level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in level 3. 4.6.2 Reconciliation of Level 3 fair value measurements of financial assets and financial liabilities Consolidated entity Balance at beginning of year Total gains or losses: - in profit or loss - in other comprehensive income Purchases Disposals Balance at end of year FVTOCI FVTPL Unlisted shares Managed investment schemes 2020 $’000 918 - - - - 918 2019 $’000 793 - - 125 - 918 2020 $’000 44,569 3,851 - 26,400 (14,207) 60,613 2019 $’000 25,886 2,320 - 27,150 (10,787) 44,569 Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary There have been no transfers of between level 1 and level 2 categories of financial instruments. |98 Auswide Bank Annual Report 2020 |99 Auswide Bank Annual Report 2020 Company Balance at beginning of year Total gains or losses: - in profit or loss - in other comprehensive income Purchases Disposals Balance at end of year FVTOCI FVTPL Unlisted shares Managed investment schemes 2020 $’000 918 - - - - 918 2019 $’000 793 - - 125 - 918 2020 $’000 44,569 3,851 - 26,400 (14,207) 60,613 2019 $’000 25,886 2,320 - 27,150 (10,787) 44,569 4.6.3 Financial instruments not measured at fair value The following table provides an analysis of financial assets and liabilities that are not measured at fair value. Consolidated entity 30 June 2020 Financial assets Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances Total financial assets Financial liabilities Deposits and short-term borrowings Other borrowings Payables and other liabilities Loans under management Subordinated capital notes Total financial liabilities Consolidated entity 30 June 2019 Financial assets Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances Total financial assets Financial liabilities Deposits and short-term borrowings Payables and other liabilities Loans under management Subordinated capital notes Total financial liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total fair value $’000 Total carrying amount $’000 106,478 16,293 327,968 - 450,739 - - - - - - - - 106,478 106,478 16,293 16,293 327,968 317,512 3,217,658 3,217,658 3,205,775 3,217,658 3,668,397 3,646,058 - - - - - - 3,008,456 48,859 - - - 23,586 422,668 28,000 - - 3,008,456 3,018,508 48,859 23,586 422,668 28,000 49,793 23,586 420,731 28,000 3,507,983 23,586 3,531,569 3,540,618 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total fair value $’000 Total carrying amount $’000 104,389 20,994 271,368 - 396,751 - - - - - - - - 3,093,625 3,093,625 104,389 104,389 20,994 20,994 271,368 3,093,625 3,490,376 271,368 3,086,158 3,482,909 - - - - - 2,794,520 - 2,794,520 2,802,605 - 37,761 490,412 28,000 - - 37,761 490,412 28,000 37,761 490,412 28,000 3,312,932 37,761 3,350,693 3,358,778 4.6.4 Summary of valuation methodologies applied in determining fair value of financial instruments Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or liability, including assumptions about risks. When selecting a valuation technique, the Group gives priorities to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and that reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is ether not available or when the valuation is determined to be significant. External valuers are selected based on market knowledge and reputation. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instrument, by reference to observable market information where such instruments are held in assets. Where this information is not available, other valuation techniques are adopted and where significant, are detailed in the respective note to the financial statements. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration The Group selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The valuation techniques selected by the economic entity are consistent with one or more of the following valuation approaches: Financial statements • •market approach - valuation techniques that use prices and other relevant information generated by market transactions for identical or similar assets or liabilities; • income approach - valuation techniques that convert estimated future cash flows or income and expenses into a single discounted present value; and • cost approach - valuation techniques that reflect the current replacement cost of an asset at its current service capacity. Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |100 Auswide Bank Annual Report 2020 |101 Auswide Bank Annual Report 2020 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. 5.1.1 Controlled entities Name Controlled entities Place of incorporation and operation Proportion of ownership and voting power held by the Company Contribution to consolidated operating profit after income tax Investment carrying value 2020 % 2019 % 2020 $’000 2019 $’000 2020 $’000 2019 $’000 Widcap Securities Pty Ltd Australia Auswide Performance Rights Pty Ltd Australia 100.0 100.0 100.0 100.0 - - - - - - - - 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. 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 • WB Trust 2008-1 • WB Trust 2010-1 • WB Trust 2014-1 • ABA Trust 2017-1 • ABA Trust No. 7 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 Finance Advice Matters Group Pty Ltd (FAMG) Financial Planning Australia Proportion of ownership interest and voting power held by the Group 2020 25.0% 2019 25.0% Financial Advice Matters Group Pty Ltd (FAMG) is accounted for using the equity method in these consolidated financial statements. Accounting policies Investment in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method of accounting from the date on which the investee becomes an associate. The financial statements of the associate are used by the Group to apply the equity method. The reporting dates and accounting policies of the associate have been aligned to that of the Group where necessary. Investments in an associate are carried in the consolidated and parent entity Statement of Financial Position at cost plus post-acquisition changes in the Group’s share of net assets of the associate, less any impairment in value. The consolidated and parent entity profit or loss reflects the Group’s share of the results of operations of the associate. Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated and parent entity statement of changes in equity. QUICK LINKS >>> Summarised financial information in respect of FAMG is set out below. The summarised financial information below represents amounts shown in the FAMG’s financial 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 profit: Revenue Profit / (loss) before income tax Income tax Profit / (loss) after income tax Total comprehensive income for the year Dividends received from associate during the year 2020 $’000 552 537 (204) (63) 822 2020 $’000 1,194 160 (44) 116 116 50 2019 $’000 471 529 (190) (54) 756 2019 $’000 1,157 136 (39) 97 97 38 The above figures were based on the unaudited accounts of FAMG as at 30 June 2020. 5.2 Key management personnel disclosures 5.2.1 Details of key management personnel Key management personnel have been taken to comprise the Directors and members of Executive Management who are collectively responsible for the day-to-day financial and operational management of the Group and the Company. The following were key management personnel for the entire reporting period unless otherwise stated. Directors JS Humphrey MJ Barrett B Dangerfield GN Kenny Chairman - Non-executive Director Managing Director Director - Non-executive Director - Non-executive SC Birkensleigh Director - Non-executive Executives WR Schafer Chief Financial Officer, Company Secretary SM Caville (cease date 17/04/20) Chief Information Officer D Hearne GM Job CA Lonergan MS Rasmussen Chief Customer Officer Chief People and Property Officer Chief Risk Officer Chief Operating Officer Each of the key management personnel, relatives of key management personnel and related business entities which hold share capital and/or deposits with the Company do so on the same conditions as those applying to all other members of the Company. Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |102 Auswide Bank Annual Report 2020 |103 Auswide Bank Annual Report 2020 5.2.2 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 benefits Cash salary and fees Cash bonus Post employment benefits Superannuation Share based payments Other long term benefits Consolidated 2020 $’000 2,546 143 181 133 46 3,049 2019 $’000 2,435 251 181 114 46 3,027 Company 2020 $’000 2,546 143 181 133 46 3,049 2019 $’000 2,435 251 181 114 46 3,027 Remuneration is calculated based on the period each employee was classified as key management personnel. Remuneration to Directors was approved at the previous Annual General Meeting of the Company. 5.2.3 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 $177,935 (2019: $161,305) 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. 6 OTHER FINANCIAL INFORMATION 6.1 Cash flow statement reconciliation Reconciliation of profit from ordinary activities after tax to the net cash flows from operations: Consolidated Company Profit after tax from continuing operations Depreciation and amortisation Bad debts expense (Profit)/loss on disposal of non-current assets Movement in assets Accrued interest on investments Prepayments and other receivables Deferred tax asset Movement in liabilities Creditors and accruals Deferred tax payable Income tax payable Employee benefit provisions Other provisions Reserves 2020 $’000 18,504 4,033 3,845 125 784 706 (521) (18,847) (382) (1,769) 339 (1) 352 2019 $’000 17,201 2,601 1,143 16 102 5,133 5 11,604 356 (2,757) 87 87 67 2020 $’000 18,513 4,033 3,845 125 781 709 (521) (18,847) (382) (1,769) 339 (1) 352 2019 $’000 17,201 2,601 1,143 16 102 5,133 5 12,071 (105) (2,757) 87 87 67 Net cash generated from operating activities 7,168 35,645 7,177 35,651 Accounting policies Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 6.2 Expenditure commitments Capital expenditure commitments Capital expenditure contracted for within one year 6.3 Contingent liabilities and credit commitments Approved but undrawn loans Approved but undrawn credit limits Bank guarantees Consolidated Company 2020 $’000 1,096 1,096 2019 $’000 563 563 2020 $’000 1,096 1,096 Consolidated Company 2020 $’000 114,807 87,808 591 2019 $’000 66,874 85,096 1,405 2020 $’000 114,807 87,808 591 2019 $’000 563 563 2019 $’000 66,874 85,096 1,405 203,206 153,375 203,206 153,375 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |104 Auswide Bank Annual Report 2020 |105 Auswide Bank Annual Report 2020 6.4 Provisions 6.6 Remuneration of auditors Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 2,969 628 (289) 3,308 2,873 435 3,308 39 3,347 2,883 265 (179) 2,969 2,643 326 2,969 40 3,009 2,969 628 (289) 3,308 2,873 435 3,308 39 3,347 2,883 265 (179) 2,969 2,643 326 2,969 40 3,009 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 Accounting policies Employee provisions Provision is made for the liability for employee benefits arising from services rendered by employees to the end of the reporting period. Short-term employee benefits Liabilities for wages, salaries, sick leave and bonuses, that are expected to be settled wholly within twelve months of the end of the reporting period are recognised in the Statement of Financial Position in respect of employee services provided to the end of the reporting period and are measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Long-term employee benefits Liabilities for long service leave and annual leave are not expected to be settled within twelve months of the end of the reporting period. They are recognised as provisions for employee benefits and are measured at the present value of the expected future payments to be made in respect of services provided to the end of the reporting period. Consideration is given to expected future salary and wage increases and periods of service. Regardless of when settlement is expected to occur, liabilities for long service leave and annual leave are presented as current liabilities in the Statement of Financial Position if the entity does not have an unconditional right to defer settlement for at least twelve months after the end of the reporting period. Superannuation Contributions are made by the Group to an employees’ superannuation fund and are charged as an expense when incurred. The Group has no legal obligation to cover any shortfall in the fund’s obligation to provide benefits to employees on retirement. 6.5 Other non-financial assets Prepayments Other Consolidated Company 2020 $’000 2,969 281 3,250 2019 $’000 3,787 678 4,465 2020 $’000 2,966 281 3,247 2019 $’000 3,788 678 4,466 Amounts received or due and receivable by the auditors of Auswide Bank Ltd, Deloitte Touche Tohmatsu Limited, are as follows: QUICK LINKS >>> Audit or review of financial reports: Group Subsidiaries and joint operations Statutory assurance services required by legislation to be provided by the auditors Other assurance and agreed upon procedures under other legislation or contractual arrangements Other services: Tax compliance services Consulting services Total auditors' remuneration Consolidated Company 2020 $’000 2019 $’000 2020 $’000 2019 $’000 286,194 20,600 306,794 285,390 20,000 305,390 286,194 20,600 306,794 77,250 75,000 77,250 77,250 75,000 77,250 13,690 13,690 65,612 89,002 154,614 552,348 3,285 3,285 64,449 112,344 176,793 560,468 13,690 13,690 65,612 89,002 154,614 552,348 285,390 20,000 305,390 75,000 75,000 3,285 3,285 64,449 112,344 176,793 560,468 6.7 Events subsequent to balance date The financial statements were approved by the Board of Directors on the date the directors’ declaration was signed. Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |106 Auswide Bank Annual Report 2020 |107 Auswide Bank Annual Report 2020 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2020 In accordance with a resolution of the Directors of Auswide Bank Ltd (‘the Company’), we declare that: (a) the financial statements comprising of the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position, consolidated statement of cash flows, consolidated statement of changes in equity and accompanying notes, and the remuneration disclosures that are contained in the remuneration report are in accordance with the Corporations Act 2001, and: (i) (ii) give a true and fair view of the financial position of the company and consolidated entity as at 30 June 2020 and of the performance for the year ended on that date; and comply with Australian Accounting Standards (including the Australia Accounting Interpretations) and the Corporations Regulations 2001; (b) (c) the financial 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 Officer for the financial year ended 30 June 2020. The declaration is made in accordance with a resolution of the Board of Directors made pursuant to Section 295(5) of the Corporations Act 2001, and is signed for and on behalf of the Directors by: JS Humphrey Director SC Birkensleigh Director Brisbane 26 August 2020 |108 Auswide Bank Annual Report 2020 |109 Auswide Bank Annual Report 2020 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |110 Auswide Bank Annual Report 2020 |111 Auswide Bank Annual Report 2020 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |112 Auswide Bank Annual Report 2020 |113 Auswide Bank Annual Report 2020 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |114 Auswide Bank Annual Report 2020 |115 Auswide Bank Annual Report 2020 CORPORATE GOVERNANCE SUMMARY Auswide Bank Ltd maintains corporate governance policies and practices which follow the recommendations outlined by the Australian Securities Exchange (ASX) and which comply with the Corporations Act 2001, the ASX Listing Rules and APRA Prudential Standards CPS 510 Governance. The Board of Directors of Auswide Bank Ltd has adopted a Corporate Governance Statement which sets out the Company’s compliance with the Australian Securities Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles and Recommendations. The Corporate Governance Statement is available under the Governance section of the Company’s website located at www.auswidebankltd.com.au. The Governance section also details other relevant corporate governance information, including the Board and Committee Charters, policies and codes of conduct. The following is a summary of Auswide Bank’s compliance with the principles outlined in ASX’s Corporate Governance Principles and Recommendations (3rd edition): Principle 1: Lay solid foundations for management and oversight The Board Charter, together with the Corporate Governance Statement set out the roles and responsibilities of the Board and separate functions of management and delegated responsibilities. The Corporate Governance Statement also details checks undertaken and provision of material information to shareholders prior to recommendation and appointment of Directors. In accordance with the regulatory standards, the Board has established a Group Board Remuneration Committee which carries out a performance evaluation of the Managing Director and review of the performance evaluations of other senior executives, which is provided to the Board following a report of discussions between the Chairman of the Committee and the Managing Director. A performance evaluation of the Board, the Board Committees and each individual Director’s contribution to the Board is performed annually as outlined in the Corporate Governance Statement. Auswide Bank recognises that a gender balanced diverse and inclusive workforce with a wide array of perceptions resulting from such diversity, promotes innovation and a positive and successful business environment. Auswide Bank’s Diversity Policy is available in the Corporate Governance section of its website at www.auswidebankltd.com.au. The measurable objectives and Auswide Bank’s progress in achieving them, are outlined in the Corporate Governance Statement. Auswide Bank is in compliance with Principle 1 and full details are available in the Corporate Governance Statement, Board Charter, Remuneration Committee Charter, together with other policies and codes located in the Governance section at www.auswidebankltd.com.au. Principle 2: Structure the board to add value Auswide Bank’s Board Charter outlines the structure of the board and its composition, together with the Board Renewal policy. Details of Directors’ skills, knowledge, experience, independence and diversity are discussed in the Corporate Governance Statement and in the Directors’ Statutory Report of this Annual Report. The Board does not have a separate formal Nomination Committee, with the full Board addressing such issues that would be otherwise considered by the Nomination Committee. These matters include Board succession issues and ensuring that the Board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Auswide Bank is in compliance with Principle 2 and full details are available in the Corporate Governance Statement and Board Charter, together with other charters, policies and codes located in the Governance section at www.auswidebankltd. com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. Principle 3: Act ethically and responsibly Auswide Bank promotes and supports a culture of honest and ethical behaviour. The standards of behaviour expected of all Directors, management and employees are detailed in the bank’s Codes of Conduct. Auswide Bank is in compliance with Principle 3 and full details are available in the following Codes of Conduct - ‘Corporate Code of Conduct’ and ‘Code of Conduct for Directors and Key Executives’ located in the Governance section at www. auswidebankltd.com.au. Principle 4: Safeguard integrity in corporate reporting The Audit Committee has a documented Charter, approved by the Board. The Audit Committee’s focus is on the issues relevant to verifying and safeguarding the integrity of Auswide Bank’s financial operations and reporting structure. The names and qualifications of the members of the Audit Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Declarations have been signed by the Managing Director and Chief Financial Officer before approval by the Board of Auswide Bank’s financial statements for the financial period as detailed in the Corporate Governance Statement. Auswide Bank is in compliance with Principle 4 and full details are outlined in the Board Audit Committee Charter, Corporate Governance Statement and ‘Appointment of External Auditors and Rotation of External Partners’ statement located in the Governance section at www.auswidebankltd.com.au. The Directors’ Statutory Report also provides details relevant to this principle. Principle 5: Make timely and balanced disclosure Auswide Bank is committed to the promotion of investor confidence by providing equal, timely, balanced and meaningful disclosure to the market. The Company’s Continuous Disclosure Policy outlines its processes for complying with its continuous disclosure obligations under the Listing Rules. Auswide Bank is in compliance with Principle 5 and full details are outlined in the Continuous Disclosure Policy and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au. Principle 6: Respect the rights of security holders Auswide Bank believes it is important for its shareholders to make informed decisions about their investment in the company and aims to provide shareholders with access to quality information and encourage two-way communication. Auswide Bank is in compliance with Principle 6 and full details are outlined in the Governance section at www. auswidebankltd.com.au, including the Corporate Governance Statement. Principle 7: Recognise and manage risk The Risk Committee has a documented Charter, approved by the Board. The Risk Committee has the responsibility to set and oversee the risk profile and the risk management framework of the Company, and to ensure management have appropriate risk systems and practices to effectively operate within the Board approved risk profile. The Risk Committee reviews the Group’s Risk Management Framework at least annually to satisfy itself that the framework continues to be sound. The names and qualifications of the members of the Risk Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Auswide Bank is in compliance with Principle 7 and full details are outlined in the Board Risk Committee Charter and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au, together with the Charter for Corporate Social Responsibility located in the Social Responsibility section at www.auswidebankltd.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. Principle 8: Remunerate fairly and responsibly The Remuneration Committee has a documented Charter, approved by the Board. The Remuneration Committee’s primary function is to assist the Board in fulfilling its responsibilities to shareholders and regulators in relation to remuneration, by ensuring that Auswide Bank has clear remuneration policies and practices that fairly and responsibly reward individuals having regard to performance, the Group’s Risk Management Framework, the law and the highest standards of governance. The names and qualifications of the members of the Remuneration Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Further information in relation to the Company’s policies and practices regarding the remuneration of Non-Executive Directors, Executive Directors, and other Senior Executives can be found in the Remuneration Report section of the Directors’ Statutory Report, together with employment contract details of the Managing Director and Key Management Personnel. Auswide Bank is in compliance with Principle 8 and full details are outlined in the Board Remuneration Committee Charter and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |116 Auswide Bank Annual Report 2020 |117 Auswide Bank Annual Report 2020 SHAREHOLDER INFORMATION A. Registered office The registered office and principal place of business of Auswide Bank Ltd is: Level 3 Auswide Bank Head Office 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 25 Riverside Centre 123 Eagle Street Brisbane QLD 4000 Ph 07 3308 7000 Fax 07 3308 7001 Website www.deloitte.com.au D. 2020 Annual General Meeting On 5 May 2020, the Federal Treasurer announced a Determination which allows companies to hold their Annual General Meetings using online technologies to facilitate Shareholder engagement and participation in meetings, regardless of location. Given the coronavirus (COVID-19) pandemic and restrictions placed on travel, public gatherings and the importance of social distancing, Auswide Bank will be holding its 2020 Annual General Meeting as a virtual meeting. The Annual General Meeting is scheduled to take place on Tuesday 17 November 2020 at 11:00am (Queensland time). 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 17 November 2020 Full year results and final dividend announcement 27 August 2020 Ex dividend date Record date 03 September 2020 04 September 2020 Participation in DRP (final date for receipt of application) 07 September 2020 Dividend payment 18 September 2020 Half year results and interim dividend announcement 19 February 2020 Ex dividend date Record date 27 February 2020 28 February 2020 Participation in DRP (final date for receipt of application) 02 March 2020 Dividend payment 16 March 2020 E. Securities information Share Register The register of holders of Permanent Ordinary shares is kept at the office 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 18 September 2020 are: Class of security Permanent ordinary shares ASX Code ABA Number 42,572,088 Distribution of shareholdings Permanent ordinary shares 18 September 2020 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 No. of shareholders 3,790 2,125 670 569 52 7,206 312 QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |118 Auswide Bank Annual Report 2020 |119 Auswide Bank Annual Report 2020 Top 20 shareholders Permanent ordinary shares 18 September 2020 Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 National Nominees Limited Citicorp Nominees Pty Limited Ronald Ernest Hancock & Lorraine Pearl Hancock Ronald Ernest Hancock Craig Thomas Kennedy JP Morgan Nominees Australia Pty Limited GDC & DMC Super Pty Ltd ATF Graham Cockerill S/F A/c Kathleen Sawyer HSBC Custody Nominees (Australia) Limited Ron Hancock Super Pty Ltd ATF The Hancock Superfund A/c Cloud 7 Nominees Pty Ltd ATF Peter Sawyer Famacct No2 A/c 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 Delma Cran Lohse Holdings Pty Ltd ATF Peter Lohse Super Fund A/c Horrie Pty Ltd ATF Horrie Superannuation A/c Noela Olsen 19 Warambul Super Co Pty Ltd ATF Warambul Super Fund A/c> 20 Graham & Suzanne Messer Superannuation Fund Pty Ltd ATF G Messer Super Fund A/C No. of shares % of total 3,191,948 1,366,356 890,750 706,816 509,045 492,851 440,065 432,719 396,886 365,932 328,486 320,000 308,543 296,362 264,074 260,000 258,068 257,520 226,873 226,066 7.50 3.21 2.09 1.66 1.20 1.16 1.03 1.02 0.93 0.86 0.77 0.75 0.72 0.70 0.62 0.61 0.61 0.60 0.53 0.53 Top 20 holders of fully paid ordinary shares 11,539,360 27.10 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) (1) Substantial shareholder notice dated 06/10/2017. (2) Substantial shareholder notice dated 19/05/2016. No. of shares % of total 2,906,102 2,182,863 6.91 5.42 On-market buyback There is no on-market buy back. Dividend reinvestment plan The Board of Directors resolved to maintain the Dividend Reinvestment Plan (DRP). The DRP allows shareholders to reinvest all or part of their dividends in additional Auswide Bank Limited shares. The Terms and Conditions of the Plan and past DRP discounts and share issue processes are available online at www.auswidebank.com.au under Shareholder Information. Shareholder online investor centre We encourage shareholders to take advantage of the Computershare Investor Centre website available at www.computershare.com.au where you can register and: QUICK LINKS >>> • View your shareholding, dividend and transaction history online • Update your registered address, TFN and dividend instructions • Elect to receive eCommunications about your shareholding • Retrieve copies of dividend payment statements. Alternatively, please contact Computershare Investor Services Pty Limited directly on 1300 552 270. Annual report mailing The Company’s Annual Report is available online at www.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. Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements Directors’ declaration Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |120 Auswide Bank Annual Report 2020 |121 Auswide Bank Annual Report 2020 FINANCIAL GLOSSARY For your reference, this glossary provides definitions for some of the terms used in financial reporting, particularly by financial institutions listed on the ASX. ADI AGM APRA ASIC Asset ASX Bad Debt Basel Basis Point An Authorised Deposit-taking Institution is a corporation authorised under the Banking Act 1959 and includes banks, building societies and credit unions regulated by APRA. Annual General Meeting. Australian Prudential Regulation Authority. Australian Securities and Investments Commission. A resource which has economic value and can be converted to cash. Assets for an ADI include its loans because income is derived from the loan fees and interest payments generated. Australian Securities Exchange Limited (ABN 98 008 624 691). The amount that is written off as a loss and classified as an expense, usually as a result of a poor-performing loan. The Basel Accords are the recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, which has the purpose of improving the consistency of capital regulations internationally. One hundredth of one percent or 0.01 percent. The term is used in money and securities markets to define differences in interest rates or yields. Capital Adequacy Ratio A ratio of an ADI's capital to its risk, obtained by dividing total capital by risk-weighted assets. This ratio shows an ADI's capacity to meet the payment terms of liabilities and other risks. Cost-to-income Ratio Obtained by dividing operating cost by operating income, this ratio shows a company's costs in relation to its income. A lower ratio can be an indication that a company is better at controlling its costs. Credit Rating An analysis of a company's ability to repay debt or other obligations. Dividend A portion of a company's profits that may be paid regularly by the company to its shareholders. Dividend Payout Ratio The amount of dividends paid to shareholders relative to the amount of total net income of a company, represented as a percentage. Dividend Yield Computed by dividing the annual dividend by the share price. DRP A Dividend Reinvestment Plan allows shareholders to reinvest some or all of their dividends into additional shares. Earnings per Share The amount of company earnings per each outstanding share of issued ordinary shares. Ex-Dividend Date The date used to determine a shareholder's entitlement to a dividend. Liability Liquidity A company's debts or obligations that arise during the course of business operations. Liabilities for ADIs include interest-bearing deposits. For an ADI, liquidity is a measure of the ability of the ADI to fund growth and repay debts when they fall due, including the paying of depositors. Market Capitalisation The total value of a company's shares calculated by multiplying the shares outstanding by the price per share. NCD A Negotiable Certificate of Deposit is a short term security typically issued by an ADI to a larger institutional investor in order to raise funds. Net Interest Income The difference between the revenue that is generated from an ADI's assets, and the expenses associated with paying out its liabilities. Net Interest Margin (NIM) The difference between the interest income generated by an ADI and the amount of interest the ADI pays out to their depositors, divided by the amount of their interest- earning assets. Net Profit After Tax (NPAT) Total revenue minus total expenses, with tax that will need to be paid factored in. Net Tangible Asset Backing per Share An indication of the company's net worth, calculated by dividing the underlying value of the company (total assets minus total liabilities) by the number of shares on issue. Non Interest Income Income derived primarily from fees and commissions, rather than income from interest- earning assets. Price-to-Earnings Ratio (P/E Ratio) A measure of the price paid for a share relative to the annual income or profit earned by the company per share. Record Date The date used to identify shares traded and registered up until Ex-Dividend Date. Return on Average Ordinary Equity A measurement of how well a company uses the funds provided by its shareholders, represented by a ratio of the company's profit to shareholder's equity. Return on Net Tangible Assets (RONTA) Computed by dividing Net Profit After Tax by average Net Tangible Assets. Net Tangible Assets equals net assets less goodwill. RONTA is equivalent to Return on Tangible Equity. QUICK LINKS >>> Directors’ statutory report Auditor’s independence declaration Financial statements Notes to the financial statements RMBS Securitisation Residential mortgage-backed securities are a type of bond backed by residential mortgages on residential, rather than commercial, real estate. Directors’ declaration Refers to setting aside a group of income-generating assets, such as loans, into a pool against which securities are issued. Securitisation is performed by an ADI in order to raise new funds. SSP Special Service Provider such as an authorised settlement clearing house. Subordinated Capital Notes Subordinated notes or subordinated debentures, are a type of capital represented by debt instruments. Subordinated notes have a claim against the borrowing institution that legally follows the claims of depositors. Subordinated notes or debentures come ahead of stockholders. Tier 1 Capital Tier 2 Capital 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. Underlying NPAT The actual reflection of a company's profit. One-off items may be removed from the statutory profit for the company to arrive at this profit figure. Independent auditor’s report to the members of Auswide Bank Ltd Corporate governance summary Shareholder information Financial glossary |122 Auswide Bank Annual Report 2020 |123 Auswide Bank Annual Report 2020 AUSWIDE BANK LTD ABN 40 087 652 060 Australian Financial Services & Australian Credit Licence 239686 Head Office Auswide Bank 16 - 20 Barolin Street PO Box 1063 Bundaberg QLD 4670 T 07 4150 4000 F 07 4152 3499 E auswide@auswidebank.com.au |124 Auswide Bank Annual Report 2020 1300 138 831 auswidebank.com.au (Retail Website) auswidebankltd.com.au (Corporate Website)
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