Auswide Bank Annual Report 2021

Plain-text annual report

ANNUAL REPORT 2021 from little things big things grow Auswide BankABOUT AUSWIDE BANK ............................................ 2 Our Values ....................................................................... 2 Our Mission ..................................................................... 2 Our Vision ....................................................................... 2 DELIVERING PROFITABLE GROWTH .................... 12 OUR STRATEGY 2021 IN REVIEW ........................... 14 GROWING WITH OUR COMMUNITY ..................... 16 FY21 FINANCIAL HIGHLIGHTS ................................ 3 OUR BOARD OF DIRECTORS ..................................... 4 OUR LEADERSHIP TEAM ............................................. 6 2021 YEAR IN REVIEW.................................................. 9 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT ................................... 19 OUR IMPACT FOR 2021 ............................................... 20 FINANCIAL REPORT ...................................................... 25 1 Annual Report for the year ended 30 June 2021About 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 credit cards through its national digital offering; branches; broker networks and private banking > Strong legacy in regional Queensland, growing across South East Queensland, New South Wales and Victoria > High quality loan book with over $4.0b in assets > Track record of delivering profitable growth and attractive dividends > Strong focus on customer service and value > Partnership with Queensland Rugby League and jersey sponsor of Queensland Maroons > Industry-leading staff engagement score of 98%* > Partnerships continue to expand our reach and opportunities * In 2021, 87% of staff participated in Auswide Bank Employee Engagement & Satisfaction Survey Our Values Empower Empowering customers and staff to initiate change. Make it happen Make decisions and adapt quickly to meet our customers’ needs. Purpose Identify your purpose and be passionate about it. Own it Own our actions, decisions, customers and outcomes. Wow Exceed our customers’ expectations and celebrate their successes and our own. Ethical A commitment to be ethical and operate in a sustainable workplace. Real Build open and honest relationships and deliver on our promises. Our Mission To demonstrate the ‘power of small’ by placing our customers at the centre of everything we do. Our Vision To be the Bank that our customers, staff and partners want their friends, family and colleagues to bank with. 2 Auswide BankFY21 Financial Highlights Strong FY21 performance across all key metrics STATUTORY NPAT $24.155m 30.5% NET INTEREST MARGIN 200BPS 3BPS EPS 56.7CPS 12.9CPS TOTAL DIVIDEND 40.0CPS 12.25CPS LOAN BOOK $3.593b1 10.0% GROWTH, 3.2x SYSTEM2 COST TO INCOME RATIO 60.1% 2.4% RONTA 12.1% FROM 9.7% CAPITAL 13.31% FROM 12.95% JUN 20 HOME LOAN APPROVALS $1.012b 38.1% CUSTOMER DEPOSITS $2.933b 11.9% 1. Including Investments in Managed Investment Schemes (MISs) reported in Financial Assets in Balance Sheet 2. System growth of 3.1% per RBA Financial Aggregates – total credit growth 3 Annual Report for the year ended 30 June 2021Our Board of Directors Sandra Birkensleigh BCom, CA, GAICD, ICCP (Fellow) | Chairman Ms Birkensleigh was appointed to the Board on 2 February 2015, and was appointed Chairman on 1 January 2021. 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 a member of the Board Audit Committee, the Board Risk 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 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 Dangerfield is the Chairman of the Board Remuneration Committee, a member of the Board Audit Committee, the Board Risk Committee, the Board Credit Committee and is an independent Director. 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 Board Risk Committee, a member of the Board Audit Committee, the Board Remuneration Committee, the Board Credit Committee and is an independent Director. 4 Auswide BankGrant Murdoch M Com (Hons) FAICD, FCA | Director Mr Murdoch was appointed to the Board on 1 January 2021. Mr Murdoch is a Chartered Accountant with over 37 years of experience and has previously served as a partner with both Ernst & Young and Deloitte. Mr Murdoch has extensive experience in providing advice on M&A, corporate restructures, share issues, pre-acquisition due diligence and expert reports for capital raisings and IPOs. Mr Murdoch is currently a non-executive Director of OFX Ltd, Lynas Rare Earths Ltd and UQ Holdings Pty Ltd, and serves as a Senator of the University of Queensland where he is also an Adjunct Professor at the School of Business, Economics and Law. Mr Murdoch was appointed as a non-executive Director of the following companies from 1 April 2021 Kiwicare Holdings Ltd, Kiwicare Corporation Ltd, Amalgamated Hardware Merchants Ltd, Burnets Horticulture Ltd, McGregors Horticulture Ltd, and Amalgamated Hardware Merchants (Australia) Pty Ltd. Mr Murdoch is chairman of the Board Audit Committee, a member of the Board Remuneration Committee, the Board Risk Committee, the Board Credit Committee and is an independent Director. Jacqueline Korhonen BSc, BEng (Hon), GAICD | Director Ms Korhonen was appointed to the Board on 1 April 2021. Ms Korhonen’s career spans more than 35 years and encompasses executive roles with several multi-national technology companies including over 25 years at IBM. Ms Korhonen is a Non-Executive Director of MLC Life Insurance, Chair of Council for International House, University of Sydney, and is on the Board of au.Domain Administration Limited (AuDA), the governing body of the Australian internet domain. Ms Korhonen is a member of the Board Remuneration Committee, the Board Audit Committee, the Board Risk Committee and is an independent Director. Martin Barrett BA(ECON), MBA | Managing Director Martin 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. Martin 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, Martin held senior roles at regional financial institutions in the United Kingdom and at National Australia Bank. Martin is currently a Non-Executive Director of Impact Community Services, and served as a Director of MoneyPlace Holdings Pty Ltd until January 2018. Martin is an executive Director. 5 Annual Report for the year ended 30 June 2021Our 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 6 Chief Financial Officer & Company Secretary Chief Operating Officer Chief Customer Officer Bill Schafer Mark Rasmussen Damian Hearne > Group Accounting > Lending services > Customer operations and Treasury > Budgeting and financial analysis > Financial and management reporting > Statutory, ASX and regulatory reporting > Capital, funding and liquidity planning strategy > Investor relations > Crisis Management > Lending origination > Customer experience 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 > 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 Auswide BankChief People & Property Officer Chief Risk Officer Chief Information Officer Chief Transformation Officer Gayle Job Craig Lonergan Scott Johnson Rebecca Stephens > 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 and safety > Property portfolio management of leased and bank owned assets > Continued improvement of risk management strategies and practices Technology management > Risk management and > IT strategic planning > Deliver organisation wide strategic initiatives > Group Information > Lead strategic change > Key technology project > Pro-actively monitor implementation strategic performance > Build capability in areas of organisational priority compliance framework and control systems > Managing the Risk Profile within Board approved risk appetite > Risk culture awareness > Developing an Anti-Money Laundering (AML) framework (including counter terrorism financing, anti-bribery, corruption and sanctions responsibilities) > Credit risk management > Providing management and the board with risk reporting > Management of the internal audit function via third party professional services 7 Annual Report for the year ended 30 June 2021small things big difference 8 Auswide BankCHAIRMAN AND MANAGING DIRECTOR REPORT 2021 Year in Review Dear Shareholders, This year, due to the continued impacts of the COVID-19 pandemic, we have seen significant economic, health, and social challenges which have impacted many of our customers, colleagues, and partners. Despite these challenges, it was a very successful year for Auswide Bank. We have remained focused on our strategy of supporting and improving the services we provide to our customers for today and in the future. Auswide Bank saw quality growth in its balance sheet and profitability at record levels in the FY21. Loan approvals exceeded a record $1b for the year, supporting our track record of delivering profitable loan book growth underpinned by careful cost management. Earnings per Share (EPS) increased 12.86 cents per share (cps) from 43.80cps to 56.66 cps. It continues to improve and on a continuing operations basis, since 2016, has increased materially when our EPS was 31.2cps or 82% lower than 2021. These outcomes reflect our strategic focus on growing our loan book, combined with prudent expense management and a wholesale funding strategy aimed at mitigating market volatility. Financial and operational highlights We are pleased to report a very strong result with growth across all key financial metrics. Material loan book expansion, an increase in the Net Interest Margin (NIM) and effective control of operational expenses have culminated in a record Net Profit after Tax (NPAT) of $24.155m, an increase of 30.5% on the previous year. The highly competitive home loan market coupled with historically low interest rates provided a challenging environment. However, Auswide Bank achieved above system loan book growth which resulted in a 10% increase in the loan book from $3.266b to $3.593b at 30 June 2021. Strong management of our funding costs delivered benefits to the NIM which was further assisted by declines in Bank Bill Swap Rate (BBSWs). The NIM increased 3 basis points (bps) to 2.00%, compared to 1.97% in the prior year. The Cost to Income Ratio continued to fall and declined to 60.1%, which reflects increasing revenue, careful cost management, and a disciplined approach to investment in online capabilities. The Return on Net Tangible Assets (RONTA) was 12.1%, up from 9.7% in 2020, exceeding the Boards strategic target of 10.0%. LENDING During FY21, Auswide Bank capitalised on the buoyant housing market, building a wider broker network and continuing the focus on targeting high net worth customers through our Private Bank. Underpinning this result, our loan book increased by a record $327m, 10% and 3.2x system. Loan approvals increased 38.1% and for the first time in our history exceeded $1b despite a highly competitive market. We continue to invest in our capacity to grow our loan book, having built a strong foundation with initiatives to further our growth by: > building a wider distribution network and supporting a younger customer demographic > diversifying the geographic footprint outside Queensland > providing an efficient end-to-end home loan process > continued participation in the First Home Loan Deposit Scheme (FHLDS) going into FY22, which provides Government guarantees on FHLDS loan monies above 80% LVR. Total arrears have again decreased, currently $8.98m, which represents 0.25% of the loan book and highlights the quality of our loan portfolio. 9 Annual Report for the year ended 30 June 2021FUNDING Auswide Bank’s loan book growth was supported by focusing on expanding customer deposits and tightly managing funding costs to drive margin growth. An increase in lower cost at call savings accounts contributed to an 11.9% rise in customer deposits throughout the year, from $2.620b to $2.933b at 30 June 2021. Funding from customer deposits through our branches represents 75.7%. This has allowed us to transform our funding mix and reduce our reliance on more expensive funding lines, such as securitisation, which now represents 8.6% of funding in June 2021, compared 19.7% in June 2018. Auswide Bank has fully utilised the Reserve Bank of Australia (RBA) Term Funding Facility of $151m, a funding initiative announced by the RBA to support the Australian economy. Auswide Bank has maintained dual investment grade ratings from Fitch and Moody’s of BBB+ and Baa2 respectively. CAPITAL Auswide Bank retained its strong capital position with a capital adequacy ratio of 13.31% and CET1 of 10.84%. The result is expected to support above system loan book growth in FY22. The capital position remains comfortably in excess of the Board’s target and exceeds APRA’s unquestionably strong minimums. DIVIDEND The strength of our result, with strong growth and profit improvement, allowed the Board to declare a fully franked final dividend of 21 cents per share, bringing the total dividend for the financial year to 40 cents per share. This is reflective of our strong operational performance coupled with prudent capital management, providing a balanced shareholder return. Our response to COVID-19 This year we continued to support our customers through the unprecedented challenges presented by the COVID-19 pandemic. As an essential service, our branches have remained open unless it was mandated to close. Our financial assistance packages included deferral or reduction of loan repayments and the shift to interest only loans. This helped to alleviate pressure during periods of financial stress. At 30 June 2021 less than 0.01% of the loan book remains on COVID assistance. Throughout the pandemic, the health and wellbeing of our staff has remained a high priority for Auswide Bank. COVID-19 has accelerated our focus on digital and flexible ways of working. Despite the barriers created by lockdowns and isolation, our people continued to show tremendous dedication in their support of our customers and worked hard to maintain continuity of services. Our performance CUSTOMERS Our business continues to succeed because it puts our customers at the heart of everything we do. We have continued our commitment to deliver integrated digital experiences, enhancing initiatives to ensure consistently strong cybersecurity and robust protections to customer data. In order to support organisational transformation in the area of digital capability a Chief Transformation Officer was appointed to the executive team. The use of technology to support growth and customer experience continue to be an ongoing key focus area going forward as part of our digital strategy. Initiatives underway include: > online third party lending systems to deliver faster decision making > customer segmentation to better understand the needs of our customers > internal process refinement utilising new technologies such as robotics. BROKER RELATIONSHIPS Our broker network continues to represent an important distribution channel and remains one of our most significant growth opportunities. We have continued to build our broker capability, refining our service and delivering with consistently good turnaround times, which has allowed us to differentiate from many of our bigger competitors. As a result, in FY21, we witnessed ongoing success via our broker channels particularly in South East Queensland, New South Wales and Victoria. Initiatives to transform our broker offering include: > harnessing broker relationship managers to build stronger relationships > realising back office efficiencies to reduce loan processing times and costs > utilising flexible workforce and technology initiatives to support loan application volumes. PRIVATE BANK Auswide started its Private Bank three years ago, recognising the strong demand for a high quality service proposition for high net worth professionals. This has afforded us an exciting avenue to offer a prioritised and personalised service to clients, and we have experienced rapid growth throughout the year with the loan portfolio now passing $219m. 10 Auswide BankA word from the Chairman In this year of outperformance I would like to acknowledge our former Chairman John Humphrey. John’s leadership together with our CEO, Martin Barrett, has given us the platform for ongoing success. I am privileged to lead a talented and enhanced Board. During this year two new Directors have joined us, Grant Murdoch and Jackie Korhonen. Between them they build out our corporate finance, IT and digital capabilities which sets us up for the future. We continue to be well served by Barry Dangerfield and Greg Kenny through their extensive banking experience. Finally, I thank all of the Auswide Bank team, for their continued commitment and contribution to creating value for all. Sandra Birkensleigh Chairman Martin Barrett Managing Director Strong momentum in Private Bank has been achieved by: > delivering bespoke lending and deposit solutions to targeted clients > quick loan turnaround times > establishing a solid referral base and fostering relationships. The year ahead The banking environment remains highly competitive and continues to operate under increased regulation. Auswide Bank is in an advantageous position to experience significant growth by maintaining our focus on our strategic priorities and continuing to focus on customer service and value. We have built a culture that continually innovates and improves services to deliver accelerated growth, while maintaining current asset quality, targeting Return on Equity (ROE), and creating value for shareholders, customers, partners and stakeholders. We would like to extend our appreciation to the Auswide Bank team for their extraordinary effort and our fellow Directors for your guidance and contribution over the past 12 months. To our shareholders, customers and partners, thank you for your continued support. The past year has seen exceptional growth and now is the time for us to truly become a digitally enabled multi-channel bank. We are looking forward to having you with us for the journey. Our loan book distribution Strong broker flows have accelerated growth in South East Queensland (SE QLD), New South Wales and Victoria. > 28.8% of our loan book is outside Queensland. > SE QLD remains a significant growth opportunity and the largest contributor to our loan book by region. AUSTRALIA OTHER 5.5% FY21 LOAN BOOK DISTRIBUTION BY REGION QLD 71.2% NSW 13.7% VIC 9.6% 11 Annual Report for the year ended 30 June 2021Delivering profitable growth STATUTORY NPAT $24.2m NET INTEREST REVENUE $17.9m $17.2m $18.5m $15.1m $78.2m $70.5m $61.0m $63.2m $57.5m JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 NET INTEREST MARGIN LOAN BOOK 2.00% 1.97% $3,593m $3,266m $3,131m $2,945m $2,788m 1.93% 1.90% 1.87% JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 STATUTORY EARNINGS PER SHARE (CPS) COST TO INCOME RATIO 56.7 66.0% 42.8 40.8 43.8 37.3 64.5% 63.5% 62.5% 60.1% JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 12 Auswide BankCUSTOMER DEPOSITS $2,620m $2,933m $2,373m $2,057m $2,108m JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 CAPITAL ADEQUACY RATIO 14.58% 14.89% 13.79% 12.95% 13.31% JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 STATUTORY RONTA 12.1% 8.9% 9.9% 9.1% 9.7% JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 growth is never by mere chance; it is the result of forces working together 13 Annual Report for the year ended 30 June 2021Our strategy 2021 in review We have a relatively simple business. Scale and complexity are no longer the advantage they once were. Today simplicity and being nimble is our opportunity. Products and services that meet our customers’ needs and good value is our advantage. Our customers are central to every decision that we make. From risk management practices, to streamlining our back-office operations and making sure our distribution and access channels allow convenient and easy access. Auswide Bank has had a very strong year as lending growth accelerated and customer deposits supported this growth. This has been achieved by our continued focus on our strategic goals. OUR STRATEGIC GOALS 2019 - 2022 KEY DELIVERABLES FINANCIAL YEAR 2021 Brand awareness > Building the Auswide brand through consistent messaging and enhanced customer service > Leveraging Queensland Rugby League (QRL) membership base and driving new customer acquisition > Increasing broker flows > Differentiating Auswide Bank from the big 4 through community engagement and activities > This year saw us enter the third year of our QRL partnership. We continued to leverage the opportunities of this partnership by building our brand awareness and providing offers for consumer consideration. This year we launched our Maroon’s Visa Debit Card to appeal to the Maroons membership and attract new customers. Our partnership saw us engage with local community: > Auswide Bank Regional Roadshow - with visits to the regional centres of Townsville, Mackay and Rockhampton. The purpose was to bring ‘QRL greats’ to local communities and to support local football clubs via fundraising initiatives. Auswide Bank Mal Meninga Cup – sponsorship of the Under 18’s competition and providing encouragement awards for players each round of the eight season competition. Partnerships > Building partnerships that support growth across platforms and via member and community-based organisations Our involvement in the First Home Loan Deposit Scheme (FHLDS) has presented an opportunity to engage with a younger customer demographic, specifically between the ages of 24-35 and allowed significant growth of our loan books. > Leveraging partner’s technology and customer base to deliver low cost growth Mortgage brokers continue to represent a significant growth opportunity for Auswide Bank, as third-party loans account for a larger portion of the home loan market each year. Strong broker flows were a key driver behind growth in Southeast Queensland, New South Wales and Victoria, while SE QLD remains the largest contributor to our loan book by region. Similarly our partnerships have continued to support deposit growth. Our Private Bank is growing rapidly delivering personalised lending and deposit solutions to high net worth individuals. The Private Bank offers quick loan turnaround time and leverages a very high service level that our existing and new customers are enthusiastically adopting. Our Private Bank is well positioned for significant future growth. 14 Auswide BankDigital innovation and Customer Hub Efficiency Strength Non-organic growth > Improving the customer experience through capable digital implementation The upgrade of the core banking system was completed during FY21, enabling the addition of Open Banking processes and services for the future. > Supporting customer transition from branch to digital channel, lowering Cost To Income (CTI) > Driving higher product conversion rates, increasing RONTA > Enhancing the Customer Hub to maximise our service levels and opportunities with our growing customer base > Improve our customer retention capability and early intervention The Bank has continued the development of the digital integration strategy to transform the business with technology. The continued improvement of customer experience is supporting transition from branch to digital channel, offering greater appeal for a younger (and existing) customer base with fully integrated digital banking. During the year Auswide Bank facilitated both Apple Pay and Google Pay™ capabilities as part of our digital wallet offering.^ This year saw the implementation of a digital identification solution to support online origination of deposit accounts and personal loans. This was to further support our customer choice proposition. ^ Apple, the Apple logo, and Apple Pay are trademarks of Apple Inc., registered in the U.S. and other countries. Google Pay is a trademark of Google LLC. > Improving efficiencies by automating processes and simplifying products in key focus areas of back office processing, finance and credit decisioning > Improving broker service proposition via faster turnaround times and consistency This year saw ongoing investment in the Broker business technology including artificial intelligence learning to analyse, validate, redact and categorise documents and improve document management systems. Auswide Bank commenced its robotic process automation for loans processing during the year and while still an ongoing implementation it is showing early signs of efficiency improvement. The Bank continued to support its product simplification removing risk, cost and complexity to our products. This year saw the commencement of a six month Heads of Department Leadership Development program. The key focus is to develop the best practice capability of the banks leaders. Importantly, there is ongoing investment to ensure consistently strong cyber resilience and robust protections to customer data. Cyber security remains a key focus of the Board and management and is a foundation of investment in technology as the Bank continues to enhance the digital offering. The Board continued to monitor opportunities to acquire loan books or suitable institutions as the opportunity presents itself and will review any offers made which may complement the overall operations of the Group. > Strengthening the bank through enhancing staff capabilities, reducing errors and further developing risk audit processes > Enhancing cyber risk resilience and fraud detection capability > Maintaining strength of funding and capital > Fostering the right culture that continues to balance our stakeholder demands > Reviewing merger and acquisition, Fintech and other partnering opportunities to drive scale > Considering opportunities where the partner can leverage our assets and we can leverage their technology to grow our customer base and efficiently improve profitability FY22 Outlook Looking ahead, the Board has reviewed Auswide Bank’s strategy and will focus on delivering the company’s growth aspirations by driving digital integration across the business. We have developed a digital framework that will continue to support our focus on customer experience, partners, processes, and people, recognising that digital integration underpins risk management, improves efficiency and manages costs. 15 Annual Report for the year ended 30 June 2021Growing with our community 3 2 4 5 5 6 16 Auswide Bank7 6 3 1 1. Harvey Norman Queensland Maroon’s Women’s team Fan Day on the Sunshine Coast 20th June 2021. 2. Queensland Maroons Fan Day in Bundaberg on 1st June 2021. 3. Epilepsy Awareness, some of our Brisbane and Bundaberg staff on 26th March 2021. 4. Auswide Bank Player of the year as part of the Auswide Bank Mal Meninga Cup, was a draw between two Wynnum Manly Seagull players, Blake Moore and Shaun Packer, awarded at the QRL Awards 24th September 2021. 5. Tino Fa’asuamaleaui Day, honoring local Gympie Queensland Maroons player with a meet and greet for the locals in Gympie, 16th December 2020. 6. Auswide Bank Regional Roadshow raising money for Junior Rugby League in Townsville, Mackay and Rockhampton on18th, 19th, 20th May 2021. 7. Red Shield Appeal in Bundaberg on 21st May 2021. 8. Auswide Bank building supports Cancer Councils Daffodil Day. 9 9. Maroon’s Visa Debit Card launched as part of our QRL patrnership. 2 8 17 Annual Report for the year ended 30 June 2021a strong base to branch out from 18 Auswide BankEnvironmental, Social and Governance (ESG) report At Auswide Bank, we have embraced the call to demonstrate sustainability leadership so that we can continue to be a positive force in shaping a prosperous society for all. The decisions and actions we take today play a critical role in creating a more sustainable future. The drivers of our approach are: > placing customers at the heart of everything we do > we serve our customers by supporting the communities they live in > seeking greater sustainability is essential in meeting our responsibilities to our community. Our key focus areas ENVIRONMENT As a financial services company, we have an opportunity to build a greener world. From financing and investing in climate-friendly activities, to reducing the environmental impact of our operations. We are constantly looking to manage our environmental impacts by: > efficient use of resources > environmentally-friendly property and assets > reducing environmental impact of operations. CUSTOMERS Our purpose is putting customers at the heart of everything we do to help make our customers ambitions a reality. Responsibly managing our customer impacts by: > customer satisfaction, engagement and advocacy > helping customers in financial hardship > fair fees and interest rates > lending responsibly to customers > access to our products and services > offering the right products in key customer segments > information security and privacy protection. STAFF Our focus at Auswide Bank is creating a workforce for the future which includes flexible working and workforce wellbeing as well as supporting staff to do their job well. Responsibly managing our staff supports: > workforce wellbeing > attracting, developing and retaining our people > staff to become leaders of the future > support staff to give back to their communities > diversity and inclusion. COMMUNITY Auswide Bank supports grass roots initiatives in local communities through developing and maintaining strong relationships and investments that contribute to the community as well as supporting vulnerable community members with access to suitable and affordable financial services. Responsibly managing our community supports: > community partnerships assisting vulnerable Australians > regional community programs assisted by our branch network > workplace giving > disaster relief support. GOVERNANCE Operating ethically is the foundation of stakeholder trust in Auswide Bank. Over many years, we have built our business on strong principles and values that guide our behavior. We communicate clear messages about what we stand for and follow through with the right actions to make ethics real for our team. To ensure honesty, respect and integrity in all our activities, we use a framework of policies and programs. Responsibly managing our governance supports: > transparent disclosure > business conduct and ethics > financial and business management > compliance > sustainable shareholder returns > risk management. 19 Annual Report for the year ended 30 June 2021Our impact for 2021 Environmental We take action to better embed sustainability in our own operations and seek to ensure our business partners take the same approach. CLIMATE CHANGE RISK 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. We have a range of policies that assist in mitigating risk in high disaster prone areas. Auswide Bank does not lend to industries known to exacerbate the impact of climate change. REDUCING OUR ENVIRONMENTAL IMPACT We proactively seek to reduce our environmental footprint through utilising energy efficient lighting and switching off air-conditioning and electrical appliances when not in use. We are committed to: > minimising our generation of waste and to increasing the proportion of waste that we recycle > implement initiatives to reduce the amount of paper we use and to encourage customers to switch to digital communications wherever possible. 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. DIGITAL APPROACH Auswide Bank is committed to reducing our paper based waste and utilising technology where possible. Our philosophy is to ensure we are constantly seeking better ways to serve customers via a digital approach. PRESERVATION OF NATURAL ENVIRONMENTS Auswide Bank does not invest in or lend to projects that involve uranium mining or production of nuclear energy. MODERN SLAVERY AND RESPONSIBLE SUPPLY CHAIN We understand that our supply chain decisions need to include considerations of more than the traditional factors such as cost, quality and speed of delivery. Auswide Bank is committed to conducting due diligence on third parties to ensure that they have in place appropriate measures to prevent and address modern slavery risks. CULTURALLY SIGNIFICANT SITES Auswide Bank recognises the importance of protecting Australia’s culture, including sites of cultural significance. With this in mind, we will not invest in, or support organisations that actively destroy sites of cultural significance in pursuit of commercial outcomes. 20 Auswide BankSocial efforts Our social responsibilities extend not only to the way we treat our customers and our staff, but also to influencing the way others treat their stakeholders. RESPONSIBLE APPROACH TO 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. These responsible lending obligations are incorporated into our lending policies and procedures and staff are required to participate in appropriate training to ensure any credit offerings will support customers to meet their financial goals. FINANCIAL HARDSHIP Our policies and procedures are structured to support borrowers who may be unable to meet their contractual obligations due to unexpected changes in circumstances. We assess and manage hardship applications by allowing our customers to help us better understand their needs. This allows us to come up with a viable long term solution to better support them. have any complaints or disputes addressed and resolved. Where complaints or disputes are not able to be resolved internally, an external dispute resolution process is made available. CONTINUED INVESTMENT IN DIGITAL CAPABILITIES Investment in our digital capability is a strategic focus for Auswide Bank ensuring our customers have access to our products and services wherever they may be and at a time of their choosing. In addition we are focused on ensuring our digital capability delivers on best practice governance including security, privacy and access. COMPLAINTS HANDLING Auswide Bank strives to act in the interests of its customers and has implemented dispute resolution processes to provide customers with an avenue to VULNERABLE CUSTOMERS Auswide Bank recognises the need to support customers who are in vulnerable situations and take steps to ensure they are treated fairly and receive a level of assistance appropriate to their circumstances. People may find themselves in vulnerable situations for many different reasons and we understand that our customers may need help in different ways, at different times, depending on the circumstances they face. “ We assess and manage hardship applications by allowing our customers to help us better understand their needs.” 21 Annual Report for the year ended 30 June 2021Our Community We actively seek out ways that we can make a positive difference in the overall well-being of the communities we operate in. EVENTS AND SPONSORSHIP PROGRAM In line with our community-focused ethos, Auswide Bank runs a number of its own events and activities that raise money for charity or support cultural activities in our community. Auswide Bank encourages staff to participate in numerous charity fund-raising activities each year. Our sponsorship program is not all about generating a commercial return; it is about being authentic in our aim to give a helping hand where it is needed. STAFF WELLNESS DAYS Auswide Bank supports a holistic approach to looking after complete physical, social and emotional wellness. Quarterly wellness days aim to keep our employees, engaged, healthy and productive both at work and in their everyday life. COMMUNITY SERVICE LEAVE Auswide Bank has community service leave to support staff to participate in activities that give back to their local communities. Our staff are encouraged to utilise two days paid community service leave each year to undertake voluntary work for community organisations. EMERGENCY SERVICE LEAVE To further strengthen our commitment to our volunteers and local communities, Auswide Bank has paid leave available to staff active in the emergency services to assist the local community during a declared emergency. Auswide Bank is committed to providing a safe and inclusive working environment for all staff. DIVERSITY AND INCLUSION A diverse workforce provides a wide array of perceptions, promotes innovation and allows our company to be responsive, productive and competitive. Auswide Bank is committed to providing a safe and inclusive working environment for all staff. CONTRIBUTING TO SOCIAL EQUALITY Auswide Bank supports the philosophy that a wide range of people should have the opportunity to own their own homes and take a step closer to financial security. Our presence assists regional communities to remain vibrant by providing the financial services they need to grow and prosper. We create flow on economic and social benefits by generating jobs and demand for services that add to the wellbeing of communities in which we operate. HUMAN RIGHTS Auswide Bank respects all human rights as outlined in the United Nations’ Universal Declaration of Human Rights and embeds them in our policies and practices. We do this by: > respecting the human rights of our staff and customers > encouraging respect for human rights in our supply and value chains. DISCRIMINATION AND HARASSMENT Auswide Bank believes all forms of discrimination and harassment are unacceptable and is committed to creating a workplace free from discrimination and harassment. Taking action on this issue is important because we believe everyone should be able to enjoy work free from discrimination and harassment. Similarly, our customers should be able to enjoy the services provided by Auswide Bank without discrimination or harassment. “ Auswide Bank supports the philosophy that a wide range of people should have the opportunity to own their own homes and take a step closer to financial security.” 22 Auswide BankGovernance Our approach to corporate governance is based on a set of values and behaviours that underpin day-to-day activities, provide transparency and fair dealing and seek to protect stakeholder interests. BOARD GOVERNANCE Auswide Bank’s Board and senior executive are committed to managing our business ethically and maintaining high standards of corporate governance. BOARD OF DIRECTORS The Board Charter sets out the roles and responsibilities of the Board. The role of the Board is to provide strategic guidance for Auswide Bank Ltd and effective oversight of management. BOARD COMPOSITION The size of the Board is subject to the provisions of Auswide Bank’s Board Charter. There is an election of Directors at each annual general meeting. Directors and re-election is on a rotation basis at least once every three years. The role of the Board is to provide strategic guidance for Auswide Bank Ltd and effective oversight of management. BOARD PERFORMANCE ASSESSMENT In accordance with the Prudential Standard CPS 520 Fit and Proper, the organisation’s Fit and Proper Policy requires all new appointments to meet the fitness and propriety test prior to appointment and undergo re-assessment on an annual basis. A performance evaluation of the Board and individual director’s contribution is undertaken annually. CONFLICTS OF INTEREST The Board regularly assesses the independence of each director in the light of interests disclosed. The Conflict of Interest Policy applies to all senior executives, employees, officers and agents of Auswide Bank and requires that material interests that could potentially conflict with the interest are declared. BOARD COMMITTEES The Board operates in conjunction with the following committees; > Board Risk Committee > Board Audit Committee > Board Remuneration Committee > Board Credit Committee. REGULATORY COMPLIANCE Auswide Bank is an authorised deposit-taking institution supervised by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959. Auswide Bank is also supervised by the Australian Securities and Investments Commission under the Corporations Act 2001 and has been granted Australian financial services and credit licenses. Auswide Bank is committed to meeting all regulatory requirements. RISK MANAGEMENT Auswide Bank is committed to implementing appropriate strategies to identify, analyse and manage the risks associated with its activities. Auswide Bank has adopted an integrated approach to risk management which meets the international standard IS031000 Risk Management. Auswide Bank has appointed a Chief Risk Officer and is compliant with APRA Prudential Standards CPS 220 (Risk Management) and APS 310 Audit & Related Matters. CODE OF CONDUCT The way we behave, both at work and outside, is a key driver of our success and directly affects the perceptions people have about Auswide Bank. We have adopted a Code of Conduct that sets out the expectations for how our staff act, solve problems and make decisions, making it clear that we take behavioural expectations seriously and that we’re prepared to act if people breach the Code. WHISTLEBLOWER PROTECTION As part of our commitment to being a conscientious corporate citizen, Auswide Bank encourages staff to report any activity that is illegal, improper or unfair at work without fear of retribution. Our approach is detailed in our Whistle-blower Policy, which promotes a culture of conducting our business with honesty, fairness and integrity. RESPONSIBLE BANKING Auswide Bank is committed to acting in the interests of its customers. As such, our focus is on ensuring that the financial commitments our customers make are appropriate for their circumstance and can be managed without adverse financial impacts. PRIVACY Auswide Bank values the ongoing trust our customers place in us and places the utmost importance on protecting and maintaining the privacy of their personal information. When handling personal information we are bound by the Australian Privacy Principles in the Privacy Act 1988 and the Credit Reporting Privacy Code (CR Code), which regulates the handling of credit information, credit eligibility information and related information by credit providers. 23 Annual Report for the year ended 30 June 2021CYBER SECURITY We take all reasonable precautions to protect personal information from misuse, interference and loss, and from unauthorised access, modification or disclosure, including: > confidentiality requirements of our employees > document storage security policies > returning documents or destroying data when no longer required in a secure manner or by de-identifying > security measures including passwords for access to our systems > only giving access to personal information to a person who is verified to be able to receive that information > having confidential face-to-face discussions with customers in a secure environment > control of access to our buildings, and > electronic security systems, such as firewalls, virus software and data encryption on our websites. FINANCIAL HARDSHIP Auswide Bank’s focus on the interests of our customers is reflected in our approach to those who find themselves having difficulty meeting their financial commitments. Auswide Bank has hardship provisions in place to assist customers during times of financial difficulty. Auswide Bank has in place a Natural Disaster Relief Package which can provide assistance to customers affected by events such as bushfires, floods and cyclones. FRAUD AND CORRUPTION Auswide Bank has no tolerance for fraud, bribery and corruption. Our Fraud and Corruption Control Plan details our fraud and corruption prevention, detection and response initiatives and is an integral part of Auswide Bank’s overall risk management framework. ANTI-MONEY LAUNDERING AND COUNTER TERRORISM FINANCING We are committed to preventing financial crime and mitigating the risk of its customers, products, delivery channels, employees and agents being inadvertently or otherwise involved in the facilitation of money laundering or the financing of terrorism. Auswide Bank is subject to the Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) Act 2006 (AML/CTF Act) and the associated AML/CTF Rules and Regulations. The way forward This year Auswide Bank established a leadership group to develop an ESG management framework and management committee. This committee will work to monitor and manage the organisations ESG framework with the goal of establishing targets and measuring outcomes in line with our business objectives and ESG responsibilities. 24 Auswide BankFINANCIAL REPORT DIRECTORS’ STATUTORY REPORT .............................................................27 AUDITOR’S INDEPENDENCE DECLARATION ............................................45 CONSOLIDATED STATEMENT OF PROFIT OR LOSS ACCOUNT ............47 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME .............48 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ......................49 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ........................50 CONSOLIDATED STATEMENT OF CASH FLOWS ......................................54 NOTES TO THE FINANCIAL STATEMENTS ................................................55 25 Annual Report for the year ended 30 June 2021Working together 26 Auswide BankDirectors’ statutory report REVIEW AND RESULTS OF OPERATIONS Auswide Bank has continued to implement the Bank’s strategic plan and produced record operating results for the financial year. The medium term financial targets set out in the 3-year plan have been achieved ahead of schedule and the Board and management are now preparing new strategic and operational targets as the Bank looks to the future. The significant above system loan book growth has been achieved in an environment of record low interest rates and a highly competitive home loan market. There has been ongoing success in generating loans via broker channels as we have enhanced the service to brokers and provided customers with improved consistency and turnaround times. Our Private Bank continues to grow rapidly offering a complete service proposition to high net worth clients. While many customers have been affected by COVID-19 we have continued to provide support, particularly in the first half of the financial year. Prudent provisions have been allocated for potential impacts on the loan book into the future. The growth strategy of the Bank has continued across the financial year with a significant uplift in the NPAT as a result of material loan book growth, an increase in the net interest margin and effective control of operating expenses. RESULTS FY21 has returned record financial results. The statutory consolidated NPAT for the 2020/21 financial year was $24.155m compared to the result of $18.504m for the 2019/20 year. This represents an increase of 30.55%. represents a significant increase of 10.01% when compared to the 3.1% system growth reported in the Reserve Bank of Australia (RBA) Financial Aggregates data which discloses credit provided to the private sector. LOAN BOOK $3,593m $3,266m $3,131m $2,945m $2,788m JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 Home loan settlements across the financial year totalled $960.439m, an increase of 41.83% on the $677.180m 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 2020/21 financial year the NIM increased. As average return on assets has decreased across the financial year, there has been continuous management of funding mix and pricing. This has been assisted by declines in funding costs along with the BBSWs and funding from the RBA. The net interest margin for the 2020/21 year was 2.00% compared to 1.97% in the 2019/20 financial year. STATUTORY NPAT $24.2m Return on Net Tangible Assets $17.9m $17.2m $18.5m $15.1m STATUTORY RONTA 12.1% 8.9% 9.9% 9.1% 9.7% JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 The loan book1 increased from $3.266b at 30 June 2020 to $3.593b at 30 June 2021, an increase of $327m. This JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 1. Grossed up for Investments in Managed Investment Schemes reported in Other financial assets in the Statement of Financial Position 27 Annual Report for the year ended 30 June 2021DIRECTORS’ STATUTORY REPORT Increasing returns over recent years combined with a balanced approach to dividend distribution which supports capital levels has seen the return on net tangible assets rise considerably to 12.1% from 8.9% in June 17. This metric surpassed our strategic target of 10%. Deposits and funding Customer deposits have grown significantly during the year from $2.620b at 30 June 2020 to $2.933b, an increase of $313m. This has strengthened the level of customer deposits as a percentage of total funds from 74.51% at 30 June 2020 to 75.66% at 30 June 2021. CUSTOMER DEPOSITS $2,620m $2,933m $2,373m $2,057m $2,108m JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 Auswide Bank has utilised the RBA term funding facility (TFF) by drawing $150.806m in two tranches by 30 June 2021. The initial $89.766m funding from the TFF was drawn at a rate of 25 basis points for three years, while the second $61.040m allocation of funding is locked in at a rate of 10 basis points for three years, allowing Auswide Bank to extend the maturity profile of its wholesale funding program and assist in managing interest rate risk exposure. The increase in customer deposits and utilisation of the TFF has allowed Auswide Bank to diversify its funding sources and further reduce its reliance on securitisation funding. Customers Our involvement in the First Home Loan Deposit Scheme (FHLDS) has presented an opportunity to engage with a younger customer demographic, specifically between the ages of 24-35. The scheme also introduced Auswide Bank to a larger pool of brokers, strengthening relationships in the third party business channel. Mortgage brokers continue to represent a significant growth opportunity for Auswide Bank, as third-party loans account for a larger portion of the home loan market each year. Strong broker flows were a key driver behind growth in Southeast Queensland, New South Wales and Victoria, while SE QLD remains the largest contributor to our loan book by region. Ongoing investment in the Broker business technology includes artificial intelligence learning to analyse, validate, redact and categorise documents and improved document management systems. Our Private Bank is growing rapidly delivering personalised lending and deposit solutions to high net worth individuals. The Private Bank offers quick loan turnaround time and leverages a very high service level that our existing and new customers are enthusiastically adopting. Our Private Bank is well positioned for significant future growth. Technology and digital strategy The upgrade of the core banking system was completed during FY21, enabling the addition of Open Banking processes and services for the future, as well as facilitating advance payments and on-line services provided to customers. The Bank has continued the development of the digital integration strategy to transform the business with technology. The continued improvement of customer experience is supporting transition from branch to digital channel, offering greater appeal for a younger (and existing) customer base with fully integrated digital banking. The strategy also targets an improved loan processing experience and a focus on reducing the cost per loan in a highly competitive market. During the year Auswide Bank facilitated both Apple Pay and Google Pay™ capabilities. These digital enhancements to our current offering delivered a key outcome of the Digital Strategy and Strategic Plan. Importantly, there is ongoing investment to ensure consistently strong cyber resilience and robust protections to customer data. Cyber security remains a key focus of the Board and management and is a foundation of investment in technology as the Bank continues to enhance the digital offering. Auswide Bank is also investing to elevate the brand across multiple digital platforms including mobile and website. Capital The capital adequacy ratio for the Auswide Bank Group at 30 June 2021 was 13.31% (2020: 12.95%). The tier 1 capital ratio at 30 June 2021 was 10.84% (2020: 11.09%). The capital remains materially above the Board’s capital targets and meets APRA’s unquestionably strong minimums. 28 Auswide BankDIRECTORS’ STATUTORY REPORT 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 momentum in the loan book is expected to continue across the first half of FY22 with improvements across regional markets. Auswide Bank maintains its commitment to build partnerships that support retail banking growth across platforms as we aspire to extend our reach through both physical and digital offerings. We continue to demonstrate capability in our products combined with consistently fast turnaround times. Auswide Bank is committed to investing in the broker-lending channel to enhance service to brokers and customers. The Private Bank continues to expand by targeting niche markets through a high service model in addition to offering personalised, industry specific packages. Branch network Auswide Bank established outstanding growth in deposits during the financial year through our branch network, particularly regional branches in Northern and Central Queensland. Branches were responsible for generating customer deposits of $2.137b in June 2021, increasing from $1.876b in June 2020. This equates to an increase in customer deposits through our branch network of 13.91%. Regional Queensland has shown resilience during the COVID-19 challenges with economic activity improving and many regional areas demonstrating growth in housing markets. Auswide Bank is well placed to support these communities through its diversified branch network consisting of 18 branches and agencies across Queensland, and a business centre in Brisbane. There is focus on ensuring future investments are aligned with growth opportunities and strategic initiatives, ensuring a consistent review of historical investments including branches. Environmental, Social and Governance (ESG) vision Auswide Bank is conscious of our impact on the environment and understands our responsibility to be transparent about our environmental approaches and performance. Our goal is to be a sustainable organisation which generates positive and sustainable economic growth while demonstrating shareholder value. Key areas of focus for the organisation include the development of an ESG Management System framework and the establishment of an ESG Management Committee to provide ongoing implementation, monitoring and oversight of the framework. We believe this approach will integrate and connect our business objectives with our ESG responsibilities. RISK Arrears and collections Total arrears greater than 30 days past due decreased from $12.559m at 30 June 2020 to $8.980m at 30 June 2021. Arrears past due 30 days have decreased as a percentage of the Group’s total loan book from 0.39% at 30 June 2020 to 0.25% at 30 June 2021. Arrears are at record lows demonstrating the quality of our loan book. Support for customers during COVID-19 Auswide Bank maintains a focus on supporting customers and staff during the ongoing volatility of the COVID-19 pandemic. Throughout the pandemic, Auswide Bank has responded rapidly to requests for support from customers affected by COVID-19. A range of assistance packages were provided which included the deferral or reduction of loan repayments and the shift to interest only loans. As at 30 June 2021, there is less than 0.01% of Auswide Bank’s loan book remaining on assistance. Auswide Bank will continue to offer COVID assistance and support to customers amidst the evolving environment. The Board is satisfied that the provisions set aside cover the risks arising from current and future doubtful debts. Risk Management 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. 29 Annual Report for the year ended 30 June 2021DIRECTORS’ STATUTORY REPORT EARNINGS PER SHARE (EPS) EPS increased 12.86 cents per share (cps) from 43.80cps to 56.66cps. The significant growth in EPS allows better utilisation of existing capital levels to fund the dividend and removes the need to undertake additional capital raising. 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. STATUTORY EPS (CPS) 56.7 42.8 40.8 43.8 37.3 JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 DIVIDENDS A fully franked interim dividend of 19.0 cents per ordinary share was declared and paid on 19 March 2021 (16 March 2020: 17.0 cents). TOTAL DIVIDEND (CPS) 40.0 34.0 34.5 31.0 27.8 GOING CONCERN Auswide Bank recognises the economic impact that COVID-19 has had on the financial sector, as well as the broader economy. Despite the challenges it presents, there is no material uncertainty that Auswide Bank remains in a going concern position. The strength of the financial results for FY21 reflect robust operations, with NPAT up 30.55% on the prior year. Various indicators support confidence in operations throughout FY22, including forecast performance and cash flows, steady loan flows, NIM maintenance and expense management in July 2021. Access to liquidity and capital have also been considered, with no indications of stress existing and facilities being available to provide for contingencies. Despite the economic impact of COVID-19, Auswide Bank 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 that may arise because of rapidly evolving situations arising from the economic impact of COVID-19. JUN 17 JUN 18 JUN 19 JUN 20 JUN 21 A fully franked final dividend of 21.0 cents per ordinary share has been declared by the Board and will be paid on 24 September 2021 (18 September 2020: 10.75 cents). This represents a final dividend payout ratio of 70.9% compared to 63.4% in June 2020. The payout ratio is within the Boards target range of 70-80%. 30 Auswide BankDIRECTORS’ STATUTORY REPORT Mr Martin J Barrett BA(ECON), MBA Martin 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. Martin 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, Martin held senior roles at regional financial institutions in the United Kingdom and at National Australia Bank. Martin is currently a Non-Executive Director of Impact Community Services, and served as a Director of MoneyPlace Holdings Pty Ltd until January 2018. Martin is an executive Director. Mr Grant B Murdoch MCom(Hons) FAICD, FCA Mr Murdoch was appointed to the Board on 1 January 2021. Mr Murdoch is a Chartered Accountant with over 37 years of experience and has previously served as a partner with both Ernst & Young and Deloitte. Mr Murdoch has extensive experience in providing advice on M&A, corporate restructures, share issues, pre-acquisition due diligence and expert reports for capital raisings and IPOs. Mr Murdoch is currently a non-executive Director of OFX Ltd, Lynas Rare Earths Ltd and UQ Holdings Pty Ltd, and serves as a Senator of the University of Queensland where he is also an Adjunct Professor at the School of Business, Economics and Law. Mr Murdoch was appointed as a non-executive Director of the following companies from 1 April 2021 Kiwicare Holdings Ltd, Kiwicare Corporation Ltd, Amalgamated Hardware Merchants Ltd, Burnets Horticulture Ltd, McGregors Horticulture Ltd, and Amalgamated Hardware Merchants (Australia) Pty Ltd. Mr Murdoch is chairman of the Board Audit Committee, a member of the Board Remuneration Committee, the Board Risk Committee, the Board Credit Committee and is an independent Director. Ms Jacqueline Korhonen BSc, BEng (Hon), GAICD Ms Korhonen was appointed to the Board on 1 April 2021. Ms Korhonen’s career spans more than 35 years and encompasses executive roles with several multi-national technology companies including over 25 years at IBM. Ms Korhonen is a Non-Executive Director of MLC Life Insurance, Chair of Council for International House, University of Sydney, and is on the Board of au.Domain Administration Limited (AuDA), the governing body of the Australian internet domain. Ms Korhonen is a member of the Board Remuneration Committee, the Board Audit Committee, the Board Risk Committee and is an independent Director. DIRECTORS The names and particulars of the Directors of the Company in office during or since the end of the financial year are: Ms Sandra C Birkensleigh BCom, CA, GAICD, ICCP (Fellow) Ms Birkensleigh was appointed to the Board on 2 February 2015, and was appointed Chairman on 1 January 2021. 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 a member of the Board Audit Committee, the Board Risk 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 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 Dangerfield is the Chairman of the Board Remuneration Committee, a member of the Board Audit Committee, the Board Risk Committee, the Board Credit Committee and is an independent Director. Mr Gregory N Kenny GAICD, GradDipFin Mr Kenny was appointed to the Board on 19 November 2013. Mr Kenny has had a long and successful career with Westpac Banking Corporation and St George Bank Ltd, and prior to that with Bank of New York and Bank of America in Australia. At St George Bank he held the positions of Managing Director (NSW and ACT), General Manager Corporate and Business Bank and General Manager Group Treasury and Capital Markets. Mr Kenny served as a Director of MoneyPlace Holdings Pty Ltd until January 2018. Mr Kenny is the Chairman of the Board Risk Committee, a member of the Board Audit Committee, the Board Remuneration Committee, the Board Credit Committee and is an independent Director. 31 Annual Report for the year ended 30 June 2021DIRECTORS’ STATUTORY REPORT 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 retired from the Board on 31 December 2020. Directors’ meetings 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. During the financial year, 15 meetings of the Directors, 4 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 Held Attended Held Attended SC Birkensleigh B Dangerfield GN Kenny MJ Barrett* GB Murdoch J Korhonen JS Humphrey 15 15 15 15 6* 2* 9* 15 15 14 15 6 2 9 4 4 4 4 2* 1* 2* 4 4 3 4 2 1 2 4 4 4 4 0* 0* n/a 4 4 4 1 0 0 n/a 5 5 5 5 2* 0* n/a 4 5 5 4 2 0 n/a * Number of meetings held and attended during tenure as Director. 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: SC Birkesleigh MJ Barrett B Dangerfield GN Kenny GB Murdoch J Korhonen Ordinary Shares Nil holding 229,762 43,291 15,000 14,000 Nil holding Related party disclosure No persons or entities related to key management personnel provided services to the Company during the year. 32 Auswide BankDIRECTORS’ STATUTORY REPORT Remuneration report The Board Remuneration Committee consists of independent Directors Mr Barry Dangerfield, Mr Greg Kenny, Mr Grant Murdoch and Ms Jacqueline Korhonen. 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. On an annual basis, a review will be performed of the 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 2020/21 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 2020/21 was subject to ratification by the Remuneration Committee. 33 Annual Report for the year ended 30 June 2021DIRECTORS’ STATUTORY REPORT 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. 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. When setting the annual performance objectives, there will be a balance of material weighting to financial and non-financial measures with the assessment of risk a critical input. The financial performance objectives are determined in line with the yearly financial budget set and approved by the 34 Auswide BankDIRECTORS’ STATUTORY REPORT 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. 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. Non-payment of STI on resignation The payment of an STI will not apply if formal notice of resignation has been provided by the employee. Short Term Incentive (STI) payments 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 2020, and were paid on 17 September 2020. To strengthen transparency, the Board Remuneration Committee have provided the performance based payments under the STI scheme for the year ended 30 June 2021. The Board Remuneration Committee at its discretion have allocated some STI payments based on KPI results plus an additional 1.5% - 3.55%, being slightly higher than employment contracts. These payments are conditional upon the achievement of financial and non-financial performance objectives during the financial year under review and are expected to be paid in September 2021. 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. 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. 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 35 Annual Report for the year ended 30 June 2021DIRECTORS’ STATUTORY REPORT KMP Position MJ Barrett WR Schafer DR Hearne GM Job SD Johnson (appointed 09/11/2020) Managing Director Chief Financial Officer Chief Customer Officer Chief People and Property Officer Chief Information Officer CA Lonergan Chief Risk Officer MS Rasmussen Chief Operating Officer R Stephens (appointed 04/11/2020) Chief Transformation Officer STI award FY21 (to be paid Sept 2021) $ STI award FY20 (paid 17 Sept 2020) $ 186,390 103,357 51,476 69,420 32,800 30,137 35,147 35,096 16,438 28,874 36,005 18,662 3,056 18,050 17,779 - 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 36 Auswide BankDIRECTORS’ STATUTORY REPORT 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 > make 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 from 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. Restriction period for sale of shares once vested on PRP offers from 2019 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 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 from 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. 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. > 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. 37 Annual Report for the year ended 30 June 2021DIRECTORS’ STATUTORY REPORT MJ Barrett 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer WR Schafer 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer GM Job 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer No. shares Vesting date Vested in 20/21 year Lapsed/ forfeited in 20/21 year Not yet assessed for vesting 4,762 2,446 2,446 5,811 5,811 5,812 21,154 20,576 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 4,762 2,446 - 5,811 - - - - - - - - - - - - - - 2,446 - 5,811 5,812 21,154 20,576 No. shares Vesting date Vested in 20/21 year Lapsed/ forfeited in 20/21 year Not yet assessed for vesting 998 1,044 1,044 1,220 1,220 1,221 5,288 5,202 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 998 1,044 - 1,220 - - - - - - - - - - - - - - 1,044 - 1,220 1,221 5,288 5,202 No. shares Vesting date Vested in 20/21 year Lapsed/ forfeited in 20/21 year Not yet assessed for vesting 815 1,044 1,044 1,220 1,220 1,221 5,288 5,251 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 815 1,044 - 1,220 - - - - - - - - - - - - - - 1,044 - 1,220 1,221 5,288 5,251 CA Lonergan No. shares Vesting date Vested in 20/21 year Lapsed/ forfeited in 20/21 year Not yet assessed for vesting 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer 971 1,044 1,044 1,220 1,220 1,221 5,288 4,728 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 971 1,044 - 1,220 - - - - - - - - - - - - - - 1,044 - 1,220 1,221 5,288 4,728 38 Auswide BankDIRECTORS’ STATUTORY REPORT MS Rasmussen No. shares Vesting date Vested in 20/21 year Lapsed/ forfeited in 20/21 year Not yet assessed for vesting 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer DR Hearne 2017 offer 2018 offer 2019 offer 2020 offer 998 1,044 1,044 1,220 1,220 1,221 5,288 4,675 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 998 1,044 - 1,220 - - - - - - - - - - - - - - 1,044 - 1,220 1,221 5,288 4,675 No. shares Vesting date Vested in 20/21 year Lapsed/ forfeited in 20/21 year Not yet assessed for vesting 1,247 1,247 1,312 1,312 1,312 7,040 6,451 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 1,247 - 1,312 - - - - - - - - - - 1,247 - 1,312 1,313 7,040 6,451 To provide further transparency, the Board Remuneration Committee have provided the allocation of share based payments under the LTI scheme for the financial year under review which are expected to be awarded in September 2021. 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). KMP MJ Barrett WR Schafer DR Hearne GM Job Position Managing Director Chief Financial Officer Chief Customer Officer Chief People and Property Officer SD Johnson (appointed 09/11/2020) Chief Information Officer CA Lonergan MS Rasmussen Chief Risk Officer Chief Operating Officer R Stephens (appointed 04/11/2020) Chief Transformation Officer LTI award 2021 offer $ 120,000 30,000 41,036 30,000 30,137 30,000 30,000 15,000 39 Annual Report for the year ended 30 June 2021n o i t a r e n u m e r i i i t s e h g h e h t g n v 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 S T I F E N E B E E Y O L P M E M R E T - T R O H S 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 ; s w o l l o f s a 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 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 0 2 0 2 1 2 0 2 l a t o T n o i t a r e n u m e r $ d e s a b e r a h S s t n e m y a p $ d e s a b e c n a m r o f r e P m r e t g n o l r e h t O s t fi e n e b $ n o i t a u n n a r e p u S $ 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 l y r a a s h s a C s e e f d n a $ I S R O T C E R D D E I F I C E P S T R O P E R Y R O T U T A T S ’ S R O T C E R D I 40 0 0 5 8 0 1 , 5 2 3 3 3 1 , 0 0 5 8 0 1 , 0 5 6 3 0 1 , 0 0 5 8 0 1 , 0 5 6 3 0 1 , - 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n o i t a r e n u m e r l a t o T L E N N O S R E P T N E M E G A N A M Y E K R E H T O 6 5 8 4 9 3 , 1 5 0 6 1 4 , 4 7 3 1 1 , 6 5 2 7 1 , 1 5 4 8 , 5 4 2 2 4 3 , 9 6 0 6 6 3 , 6 4 9 6 , 7 3 5 3 1 , 1 7 4 5 , 1 6 3 7 , 3 8 3 5 , 3 0 0 1 2 , 4 9 6 1 2 , 3 6 5 8 1 , 5 7 8 8 2 , , 5 6 4 5 3 3 5 6 8 0 4 3 , r e c ffi O l i i a c n a n F f e h C R W i , r e f a h c S 3 0 0 1 2 , 4 9 6 1 2 , 8 0 3 5 1 , 5 0 0 6 3 , , 7 1 5 3 9 2 0 5 4 9 8 2 , r e c ffi O r e m o t s u C i f e h C R D , e n r a e H 0 1 4 8 5 2 , 9 7 6 5 7 2 , 5 5 3 0 1 , 8 8 2 6 1 , 2 4 2 6 1 , 4 0 4 5 , 0 6 0 9 1 , 0 7 9 0 2 , 6 8 0 2 1 , 3 6 6 8 1 , , 7 6 6 0 0 2 4 5 3 4 1 2 , r e c ffi O y t r e p o r P d n a e p o e P f e h C M G i l , b o J , 9 3 4 1 1 8 1 , , 8 3 8 1 0 0 2 , 6 0 9 1 6 , 0 5 4 1 8 , 0 0 7 2 4 , 5 5 4 5 4 , , 6 6 8 6 1 1 , 6 9 7 6 3 1 1 7 9 2 8 , 3 2 0 5 2 1 , , 6 9 9 6 0 5 1 , , 4 1 1 3 1 6 1 , - - 3 8 4 4 4 2 , 7 8 5 0 1 1 , - - 4 1 4 4 7 2 , - 3 3 6 0 1 , - - - - - - 4 5 9 1 6 2 , 6 5 9 4 9 2 , 4 2 2 1 1 , 3 1 1 7 1 , 4 8 7 7 , 0 6 5 9 7 2 , 3 1 0 4 9 2 , 4 7 3 1 1 , 6 5 2 7 1 , 2 5 7 4 , - - 9 7 6 4 , 2 6 6 4 , 6 6 9 7 1 , 9 0 5 9 1 , 4 9 6 1 2 , 0 7 2 2 1 , 1 5 0 8 1 , , 7 6 1 1 1 2 9 1 4 3 3 2 , i r e c ffi O k s R f e h C A C i , n a g r e n o L 3 0 0 1 2 , 4 9 6 1 2 , 2 9 6 2 1 , 9 7 7 7 1 , , 9 3 7 9 2 2 2 2 6 2 3 2 , r e c ffi O g n i t a r e p O , i f e h C S M n e s s u m s a R - - 2 2 6 9 1 , 8 2 4 9 , - - 8 8 2 5 1 , - 2 5 0 2 1 , - - 0 5 6 5 , , 1 4 4 6 3 2 - - - 5 4 2 1 0 2 , 9 5 1 1 0 1 , r e c ffi O n o i t a m r o f s n a r T f e h C R i , s n e h p e t S 0 2 0 2 / 1 1 / 4 0 d e t n o p p a i r e c ffi O n o i t a m r o f n I i f e h C D S , n o s n h o J 0 2 0 2 / 1 1 / 9 0 d e t n o p p a i r e c ffi O n o i t a m r o f n I i f e h C M S , e l l i v a C 0 2 0 2 / 4 0 / 9 0 d e s a e c s e v i t u c e x E 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 Auswide Bank 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 , 0 0 0 0 2 1 $ , 0 0 0 0 8 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 0 0 0 0 3 $ , % 5 1 i x 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 m u m n m i i ( i e c 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 . ) s k e e w 4 0 1 m u m x a m / s k e e w 0 2 i 0 0 0 0 3 $ , % 5 1 r u o f 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 % 5 1 % 5 2 y a p y c n a d n u d e r s h t n o m x s s u p e c i t o n s h t n o m x S l i i % 5 1 % 5 1 r u o f 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 x a m / s k e e w 6 1 i m u m n m i i ( i e c 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 0 0 0 0 3 $ , % 5 1 * * 0 0 0 0 3 $ , * * % 5 1 0 0 0 0 3 $ , % 5 1 m u m n m i i ( i e c 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 y a p y c n a d n u d e r s h t n o m x s s u p e c i t o n s h t n o m x S i l i . ) s k e e w 4 0 1 m u m x a m / s k e e w 6 1 i y a p y c n a d n u d e r s h t n o m x s s u p e c i t o n s h t n o m x S l i i y a p y c n a d n u d e r s h t n o m x s s u p e c i t o n s h t n o m x S l i i s h t n o m s h t n o m r u o F s h t n o m s h t n o m e e r h T 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 e e r h T s h t n o m e e r h T m r e t 9 1 0 2 / 5 0 / 1 3 d e x fi o N 6 1 0 2 / 2 1 / 6 0 7 0 0 2 / 5 0 / 8 2 l i i a c n a n F f e h C i i g n g a n a M r o t c e r i D t t e r r a B n i t r a M r e f a h c S l l i B m r e t r e c ffi O m r e t r e c ffi O d e x fi o N 6 1 0 2 / 8 0 / 2 2 6 1 0 2 / 6 0 / 0 2 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 d e x fi o N 6 1 0 2 / 2 1 / 6 0 7 0 0 2 / 6 0 / 4 0 l & e p o e P f e h C i b o J l e y a G m r e t r e c ffi O y t r e p o r P m r e t 0 2 0 2 / 1 1 / 9 0 n o i t a m r o f n I r e c ffi O d e x fi o N 0 2 0 2 / 3 0 / 3 2 0 1 0 2 / 1 1 / 1 0 i f e h C n o s n h o J t t o c S m r e t 6 1 0 2 / 1 1 / 9 2 6 1 0 2 / 2 1 / 9 0 d e x fi o N 4 1 0 2 / 7 0 / 1 0 4 1 0 2 / 2 0 / 0 1 r e c ffi O k s R f e h C i i n a g r e n o L g a r C i d e x fi o N 5 1 0 2 / 1 0 / 9 2 4 1 0 2 / 2 0 / 3 0 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 m r e t 6 1 0 2 / 2 1 / 2 1 d e x fi o N m r e t A / N * 0 2 0 2 / 1 1 / 4 0 n o i t a m r o f s n a r T r e c ffi O r e c ffi O i f e h C a c c e b e R s n e h p e t S . 1 2 0 2 / 1 0 / 1 1 e t a d t n e m e c n e m m o C * y a p y c n a d n u d e r s h t n o m x s s u p e c i t o n s h t n o m x S i l i i x S d e x fi o N 6 1 0 2 / 7 0 / 5 1 3 1 0 2 / 2 0 / 4 0 i i f o s n o s 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 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 T R O P E R Y R O T U T A T S ’ S R O T C E R D 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 t c a r t n o C m r e T d e d n e m A e t a D t c a r t n o C e t a D e l t i T P M K h c a e e n u J h t 0 3 e h t t a s a ) l i l e v o b a d e s o c s 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 x a m e h t i l 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 i a u d v d n i 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 - s e v i t n e c n m r e t i t r o h S r o 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 a c e b l l l l i w I T S e h T i . s s a b l a u n n a n a n o d e s v d a i 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 , l l i 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 - s e v i t n e c n m r e t g n o L i l i e s a b f o e u a v m u m x a m a o t p u d e t a u c a c e b l l l l i w s I T L i . s 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 i a u d v d n i 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 i a u d v d n i i e h t 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 e t a p c i t r a p o t i 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 t a s a ) l e v o b a d e s o c s d s a ( y r a a s l i . 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 i m 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 i a u d v d n i 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 i l f o n o i t e r c s d e o s d n a e t u o s b a e h t l t a 41 . 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 i f o n o i t e r c s 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 . l d e t e p m o c e c v r e s f o h t g n e i l i e h t n o t n a d n e p e d s s a b a t a r - o r p a n o d e t s u d a j , 1 2 0 2 / 6 0 / 0 3 o t p U * * Annual Report for the year ended 30 June 2021 DIRECTORS’ STATUTORY REPORT Loans to key management personnel The following table outlines the aggregate of loans to key management personnel. Details are provided on an individual basis for each of the key management personnel whose indebtedness exceeded $100,000 at any time during this reporting period. Loans have been made in accordance with the normal terms and conditions offered by the Company and charged at 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 2021 Balance 30 June 2020 Interest charged $ Write-off $ Balance 30 June 2021 Number in Group 30 June 2021 Directors Executives (1,655,187) (2,306,636) Total: Key management personnel (3,961,823) 34,419 60,387 94,806 - - - (622,459) (3,390,702) (4,013,161) 1 6 7 Loans for the year ended 30 June 2020 Directors Executives Balance 30 June 2019 (1,762,889) (1,913,024) Interest charged $ 55,409 53,845 Total: Key management personnel (3,675,913) 109,254 Write-off $ Balance 30 June 2020 Number in Group 30 June 2020 - - - (1,655,187) (2,306,636) (3,961,823) 1 6 7 Individuals with loans above $100,000 in reporting period Balance 30 June 2020 Interest* charged $ Write-off $ Balance 30 June 2021 Highest in period $ Directors MJ Barrett Executives WR Schafer D Hearne C Lonergan M Rasmussen S Johnson (1,655,187) 34,419 (341,582) (1,386,820) (530,635) (13,895) (308,346) 4,919 37,770 8,192 2,869 6,637 - - - - - - (622,459) (1,740,148) (354,848) (410,391) (1,386,543) (1,390,045) (720,086) (878,375) (603,877) (639,790) (271,196) (320,155) * Actual interest charged is affected by the use of the Company’s offset account. Does not include GM Job as the loan amount was under the $100,000 threshold. 42 Auswide BankDIRECTORS’ STATUTORY REPORT Equity holdings and transactions The following table is in respect of ordinary shares held directly, indirectly or beneficially by key management personnel. Balance 30 June 2020 Received as remuneration Net change other Directors B Dangerfield GN Kenny GB Murdoch (appointed 01/01/2021) MJ Barrett JS Humphrey (ceased 31/12/2020) Executives WR Schafer DR Hearne GM Job SD Johnson (appointed 09/11/2020) CA Lonergan MS Rasmussen Total 43,291 15,000 - 187,589 31,551 36,042 - 121,186 61,217 14,000 3,900 513,776 - - - 13,019 - 3,262 2,559 3,079 - 3,235 3,262 28,416 - - 14,000 29,154 - 17,708 (2,559) 11,699 - 12,765 - Balance 30 June 2021 43,291 15,000 14,000 229,762 31,551 57,012 - 135,964 61,217 30,000 7,162 82,767 624,959 * 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 2021: Net profit before tax Net profit after tax Share price at start of year Share price at end of year Interim dividend Final dividend Basic earnings per share Diluted earnings per share 30 June 2021 $’000 37,702 24,155 30 June 2021 $’000 $4.84 $6.49 30 June 2020 $’000 26,498 18,504 30 June 2020 $’000 $5.13 $4.84 30 June 2019 $’000 24,638 17,201 30 June 2019 $’000 $5.63 $5.13 30 June 2018 $’000 25,158 17,886 30 June 2018 $’000 $5.14 $5.63 30 June 2017 $’000 21,870 15,149 30 June 2017 $’000 $5.08 $5.14 19.00 cps 17.00 cps 16.00 cps 16.00 cps 21.00 cps 10.75 cps 18.50 cps 18.00 cps 56.66 cps 43.80 cps 40.81 cps 42.83 cps 14.00 cps 17.00 cps 37.35 cps 56.66 cps 43.80 cps 40.81 cps 42.83 cps 37.35 cps Dividends franked to 100% at 30% corporate income tax rate. 43 Annual Report for the year ended 30 June 2021DIRECTORS’ STATUTORY REPORT Indemnities and insurance premiums for officers and auditors During the financial year the Company has paid premiums to cover Directors and officers for losses arising from claims or allegations made against them for wrongful acts committed or alleged to have been committed by them in their capacities as Directors or officers of the Company. The policy will also reimburse the Company where it is permitted by law to indemnify Insured Persons in relation to such claims or allegations. Cover is provided for the costs of defending such claims or allegations. During the reporting period and subsequent to 30 June 2021, 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 2021 $ 24,007 131,118 2020 $ 65,612 89,002 155,125 154,614 This Report is signed for and on behalf of the Board of Directors in accordance with a resolution of the Board of Directors. SC Birkensleigh Director Brisbane 26 August 2021 GB Murdoch Director Brisbane 26 August 2021 44 Auswide BankDeloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 23 123 Eagle Street Brisbane QLD 4000 GPO Box 1463 Brisbane QLD 4001 Australia Deloitte Touche Tohmatsu ABN 74 490 121 060 Tel: +61 7 3308 7000 Fax: +61 7 3308 7002 AUDITOR’S INDEPENDENCE DECLARATION Riverside Centre www.deloitte.com.au Level 23 Deloitte Touche Tohmatsu 123 Eagle Street ABN 74 490 121 060 Brisbane QLD 4000 GPO Box 1463 Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu Riverside Centre Brisbane QLD 4001 Australia ABN 74 490 121 060 ABN 74 490 121 060 Level 23 123 Eagle Street Tel: +61 7 3308 7000 Riverside Centre Riverside Centre Brisbane QLD 4000 Fax: +61 7 3308 7002 Level 23 Level 23 GPO Box 1463 www.deloitte.com.au 123 Eagle Street 123 Eagle Street Brisbane QLD 4001 Australia Brisbane QLD 4000 Brisbane QLD 4000 GPO Box 1463 GPO Box 1463 Tel: +61 7 3308 7000 Brisbane QLD 4001 Australia Brisbane QLD 4001 Australia Fax: +61 7 3308 7002 www.deloitte.com.au Tel: +61 7 3308 7000 Tel: +61 7 3308 7000 Fax: +61 7 3308 7002 Fax: +61 7 3308 7002 www.deloitte.com.au www.deloitte.com.au The Board of Directors Auswide Bank Ltd PO Box 1063 BUNDABERG QLD 4670 The Board of Directors Auswide Bank Ltd PO Box 1063 26 August 2021 BUNDABERG QLD 4670 The Board of Directors Auswide Bank Ltd The Board of Directors The Board of Directors PO Box 1063 Dear Board Members, Auswide Bank Ltd Auswide Bank Ltd BUNDABERG QLD 4670 PO Box 1063 PO Box 1063 AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd BUNDABERG QLD 4670 BUNDABERG QLD 4670 26 August 2021 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. Dear Board Members, As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2021, I 26 August 2021 declare that to the best of my knowledge and belief, there have been no contraventions of: AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd 26 August 2021 26 August 2021 • Dear Board Members, 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. Dear Board Members, Dear Board Members, AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2021, I AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration Yours faithfully declare that to the best of my knowledge and belief, there have been no contraventions of: of independence to the directors of Auswide Bank Ltd. In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration 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. of independence to the directors of Auswide Bank Ltd. As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2021, I • declare that to the best of my knowledge and belief, there have been no contraventions of: As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2021, I As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2021, I declare that to the best of my knowledge and belief, there have been no contraventions of: declare that to the best of my knowledge and belief, there have been no contraventions of: • DELOITTE TOUCHE TOHMATSU Yours faithfully • • • any applicable code of professional conduct in relation to the audit. the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. any applicable code of professional conduct in relation to the audit. any applicable code of professional conduct in relation to the audit. • • Yours faithfully Yours faithfully Yours faithfully DELOITTE TOUCHE TOHMATSU GGaarreetthh BBiirrdd Partner Chartered Accountants DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU GGaarreetthh BBiirrdd Partner Chartered Accountants GGaarreetthh BBiirrdd Partner GGaarreetthh BBiirrdd GGaarreetthh BBiirrdd Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Partner Partner Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Chartered Accountants Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 45 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Annual Report for the year ended 30 June 2021 This page has been left blank intentionally. 46 Auswide BankFinancial Statements CONSOLIDATED STATEMENT OF PROFIT OR LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2021 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 Expected credit loss on financial assets at amortised cost 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 2021 $’000 2020 $’000 2021 $’000 2020 $’000 110,999 126,252 110,999 126,252 (32,838) (55,736) (32,838) (55,736) 78,161 10,360 88,521 22,487 3,169 664 1,450 12,946 11,501 1,013 70,516 9,959 80,475 21,584 3,324 710 1,533 11,524 10,406 1,051 78,161 10,360 88,521 22,487 3,169 664 1,450 12,946 11,501 1,013 70,516 9,959 80,475 21,584 3,324 710 1,533 11,524 10,406 1,051 53,230 50,132 53,230 50,132 4.5.5 589 3,845 589 3,845 2.3 53,819 34,702 10,547 24,155 53,977 26,498 7,994 18,504 53,819 34,702 10,544 24,158 53,977 26,498 7,985 18,513 24,155 18,504 24,158 18,513 2.4 2.4 56.66 56.66 43.80 43.80 The above consolidated statement of profit or loss account should be read in conjunction with the accompanying notes. 47 Annual Report for the year ended 30 June 2021CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE2021 Consolidated Company Notes 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Profit for the year 24,155 18,504 24,158 18,513 Other comprehensive income, net of income tax Items that may be reclassified to profit or loss Revaluation of cash flow hedge to fair value Income tax relating to this item 3.5.3 2.3.3 (693) 208 (1,174) 352 (693) 208 (1,174) 352 Items that will not be reclassified to profit or loss Revaluation of land and buildings to fair value 3.5.2 Revaluation of FVTOCI investments to fair value Income tax relating to these items Other comprehensive income/(loss) for the year, net of income tax 2,267 (144) (637) 1,001 - - - (822) 2,267 (144) (637) 1,001 - - - (822) Total comprehensive income for the year 25,156 17,682 25,159 17,691 Total comprehensive income attributable to: Owners of the Company 25,156 17,682 25,159 17,691 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 48 Auswide BankCONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 Consolidated Company Notes 2021 $’000 2020 $’000 2021 $’000 2020 $’000 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 6.4 4.1.9 3.4 3.5 112,627 106,478 112,627 106,478 12,790 16,293 12,790 16,293 398,812 378,266 419,819 396,258 3,555,043 3,205,775 3,556,287 3,206,167 1,396 21,315 1,483 - 2,834 3,122 1,379 21,394 1,198 3,344 4,322 3,250 1,396 21,315 1,483 - 2,834 3,119 1,379 21,394 1,198 3,345 4,322 3,247 46,363 46,363 46,363 46,363 4,155,785 3,788,062 4,178,033 3,806,444 3,349,289 3,018,508 3,349,291 3,018,518 150,806 18,654 49,793 25,645 150,806 18,641 49,793 25,643 333,714 420,731 354,721 438,723 1,230 3,555 42,000 - 3,347 28,000 1,226 3,555 42,000 - 3,347 28,000 3,899,248 3,546,024 3,920,240 3,564,024 256,537 242,038 257,793 242,420 195,218 193,261 196,121 193,433 15,496 45,823 14,431 34,346 15,872 45,800 14,667 34,320 256,537 242,038 257,793 242,420 ASSETS Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances Other investments Property, plant and equipment Other intangible assets Current income tax assets Deferred tax assets - net Other assets Goodwill Total assets LIABILITIES Deposits and short term borrowings Other borrowings Payables and other liabilities Loans under management Current tax liabilities Provisions Subordinated capital notes Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 49 Annual Report for the year ended 30 June 2021i d t L k n a B e d w s u A f o s r e n w o o t e b a t u b i r t t A l l a t o T 0 0 0 $ ’ y t i u q e - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ g n i 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 0 0 0 $ ’ s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ e v r e s e r y r o t u t a t S 0 0 0 $ ’ l a r e n e G e v r e s e r 0 0 0 $ ’ e v r e s e r t e s s A n o i t a u a v e r l 0 0 0 $ ’ s t fi o r p 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 y t i t n e d e t a d i l o s n o C I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 1 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 50 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 9 1 0 2 y l u J 1 t a e c n a a B l - - - - ) 0 1 6 ( - ) 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 ) 0 1 6 ( - 7 9 4 8 3 2 , 8 0 3 7 8 8 7 3 2 , 8 0 3 4 0 5 8 1 , - 8 3 2 ) 8 2 1 ( ) 4 7 1 1 , ( 2 5 3 - - 8 3 2 ) 8 2 1 ( - ) 1 2 5 ( ) 1 2 5 ( - - - 2 5 3 ) 4 7 1 1 , ( - 1 0 1 1 0 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 0 5 8 1 , - - - - - 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 , ) 5 7 ( ) 2 1 ( 2 1 4 1 , ) 6 6 9 4 1 , ( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ) 6 6 9 4 1 , ( - ) 5 7 ( ) 2 1 ( - 2 1 4 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 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 l a i c n a n fi e h t i f o g n n n i g e b e h t t a y t i u q e l a t o t d e t a t s e R r a e y 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 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 e h t g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S r a e y e h t g n i r u d d e t s e v s t n e m y a p d e s a b - e r a h S h s a c f o n o i t a u a v e r o t e u d l ) 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 l n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l n a p t n e m t s e v n e r d n e d v d r o f i i i e g d e h w o fl h s a c f o l a t o t - b u S l a t i p a c e r a h s f o e u s s I 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 ( i / n a G s e r a h s y r u s a e r t n i t n e m e v o M 0 2 0 2 e n u J 0 3 t a e c n a a B l e m e h c s i i d a p r o r o f d e d v o r p s d n e d v D i i . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T Auswide Bank i d t L k n a B e d w s u A f o s r e n w o o t e b a t u b i r t t A l l a t o T 0 0 0 $ ’ y t i u q e - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ g n i 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 0 0 0 $ ’ s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ e v r e s e r y r o t u t a t S 0 0 0 $ ’ l a r e n e G e v r e s e r 0 0 0 $ ’ e v r e s e r t e s s A n o i t a u a v e r l 0 0 0 $ ’ s t fi o r p 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 y t i t n e d e t a d i l o s n o C 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 y l u J 1 t a e c n a a B l I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 1 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 5 5 1 4 2 , 7 6 2 2 , ) 0 8 6 ( 4 0 2 ) 0 4 1 ( ) 3 9 6 ( 8 0 2 ) 4 4 1 ( 3 4 - - - 4 0 2 ) 0 4 1 ( - - - - - - - - - ) 3 9 6 ( 8 0 2 - - 2 5 6 6 3 0 2 , ) 8 7 6 2 1 , ( ) 6 0 7 ( ) 5 2 ( - - - - - - - - - - 8 5 2 7 6 2 , 2 8 4 ) 8 2 8 1 , ( 7 3 5 6 5 2 , 2 8 4 ) 8 2 8 1 , ( - - - - - - - - - - - - - - 3 4 ) 4 4 1 ( - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 6 2 2 , ) 0 8 6 ( - - - - - - - - - - - - - - 5 5 1 4 2 , - - - - - - - - - d n a d n a l l f o n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I 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 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 e u a v r i a f o t s g n d i l i u b r a e y e h t g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S r a e y e h t g n i r u d d e t s e v s t n e m y a p d e s a b - e r a h S h s a c f o n o i t a u a v e r o t e u d l ) e s a e r c e d ( e s a e r c n I l e u a v r i a f o t e g d e h w o fl s g n d i l i u b d n a d n a l f o l n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l a n r e t x e f o y t i r u t a m o t e u d ) e s a e r c e d ( e s a e r c n I s t n e m t s e v n i S B M R y t i r u t a m n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D s t n e m t s e v n i S B M R l a n r e t x e f o e g d e h w o fl h s a c f o 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 1 0 5 8 5 , , 1 6 2 3 9 1 l a t o t - b u S - - - - - - - - - - - - - - - - - - - - ) 8 7 6 2 1 , ( - - - 2 5 6 6 3 0 2 , - - ) 6 0 7 ( ) 5 2 ( 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 3 2 8 5 4 , , 8 1 2 5 9 1 . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u 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 l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I l 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 ( i / n a G s e r a h s y r u s a e r t n i t n e m e v o M 1 2 0 2 e n u J 0 3 t a e c n a a B l e m e h c s e v i t n e c n i 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 51 i i d a p r o r o f d e d v o r p s d n e d v D i i Annual Report for the year ended 30 June 2021 ) 0 1 6 ( - 4 6 6 8 3 2 , 6 1 4 4 5 0 8 3 2 , 6 1 4 8 3 2 3 1 5 8 1 , ) 4 7 1 1 , ( 2 5 3 - 8 3 2 - - - ) 1 2 5 ( ) 1 2 5 ( - - 2 5 3 ) 4 7 1 1 , ( - 1 0 1 1 0 1 - - - - - - - - - - - - - - - - - - - - - - - 3 1 5 8 1 , - - - - 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 , i d t L k n a B e d w s u A f o s r e n w o o t e b a t u b i r t t A l l a t o T 0 0 0 $ ’ y t i u q e - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ g n i 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 0 0 0 $ ’ s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ e v r e s e r y r o t u t a t S 0 0 0 $ ’ l a r e n e G e v r e s e r 0 0 0 $ ’ e v r e s e r t e s s A n o i t a u a v e r l 0 0 0 $ ’ s t fi o r p 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 y n a p m o C I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 1 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 52 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 y l u J 1 t a e c n a a B l - - - - ) 0 1 6 ( - ) 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 l a i c n a n fi e h t i f o g n n n i g e b e h t t a y t i u q e l a t o t d e t a t s e R r a e y 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 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 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 e g d e h w o fl h s a c f o n o i t a u a v e r o t e u d l ) e s a e r c e d ( e s a e r c n I 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 e u a v r i a f o t e g d e h w o fl l a t o t - b u S l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I i i d a p r o r o f d e d v o r p s d n e d v D i i 2 1 4 1 , ) 5 7 9 4 1 , ( - - - - - - - - - - - - - - ) 5 7 9 4 1 , ( - - 2 1 4 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 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 0 2 0 2 e n u J 0 3 t a e c n a a B l . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T Auswide Bank i d t L k n a B e d w s u A f o s r e n w o o t e b a t u b i r t t A l l a t o T 0 0 0 $ ’ y t i u q e - e r a h S d e s a b 0 0 0 $ ’ s t n e m y a p 0 0 0 $ ’ g n i 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 0 0 0 $ ’ s t b e d e v r e s e r l u f t b u o D 0 0 0 $ ’ e v r e s e r y r o t u t a t S 0 0 0 $ ’ l a r e n e G e v r e s e r 0 0 0 $ ’ e v r e s e r t e s s A n o i t a u a v e r l 0 0 0 $ ’ s t fi o r p 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 y n a p m o C 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 0 2 0 2 y l u J 1 t a e c n a a B l I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 1 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 8 5 1 4 2 , 7 6 2 2 , ) 0 8 6 ( 4 0 2 ) 4 4 1 ( 3 4 ) 3 9 6 ( 8 0 2 - - - 4 0 2 - - - - - - - - - - ) 3 9 6 ( 8 0 2 3 8 7 7 6 2 , 8 5 8 ) 8 2 8 1 , ( 2 5 6 6 3 0 2 , ) 8 7 6 2 1 , ( - - - - - - 3 9 7 7 5 2 , 8 5 8 ) 8 2 8 1 , ( - - - - 3 4 ) 4 4 1 ( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 6 2 2 , ) 0 8 6 ( - - - - - - - - 8 5 1 4 2 , - - - - - - - - - - - - - - - - - - - - ) 8 7 6 2 1 , ( - - - 2 5 6 6 3 0 2 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 8 7 4 8 5 , , 3 3 4 3 9 1 l a n r e t x e f o y t i r u t a m n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D s t n e m t s e v n i S B M R e g d e h w o fl h s a c f o n o i t a u a v e r o t e u d l ) e s a e r c e d ( e s a e r c n I S B M R l a n r e t x e f o y t i r u t a m o t e u d ) e s a e r c e d ( e s a e r c n I 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 s t n e m t s e v n i 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 e u a v r i a f o t e g d e h w o fl l a t o t - b u S l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I i i d a p r o r o f d e d v o r p s d n e d v D i i d n a l l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D s g n d i l i u b d n a 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 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 d n a d n a l l f o n o i t a u a v e r o t e u d ) e s a e r c e d ( e s a e r c n I l e u a v r i a f o t s g n d i l i u b 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 0 0 8 5 4 , , 1 2 1 6 9 1 1 2 0 2 e n u J 0 3 t a e c n a a B l . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u 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 53 Annual Report for the year ended 30 June 2021 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 Consolidated Company Notes 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Cash flows from operating activities Interest received 111,129 127,029 111,129 127,029 Other non-interest income received 10,216 10,670 10,211 10,670 Interest paid Income tax paid (36,596) (60,529) (36,596) (60,529) (4,914) (10,313) (4,914) (10,304) Net movement in loans and advances (349,871) (124,549) (350,723) (124,774) Net movement in deposits and short term borrowings Cash paid to suppliers and employees (inclusive of goods and services tax) 431,794 265,695 431,786 265,705 (50,596) (59,689) (50,603) (59,689) Net cash used in operating activities 6.1 111,162 148,314 110,290 148,108 Cash flows from investing activities Net movement in investment securities (20,692) (61,207) (23,707) (46,813) Net movement in amounts due from other financial institutions Net movement in other investments Payments for non current assets Net cash used in investing activities Cash flows from financing activities Net movement in subordinated capital notes Principal payment of lease liabilities Proceeds from share issue Treasury shares Dividends paid Net movement in amounts due to other financial institutions and other liabilities 3,504 4,701 3,504 4,701 (17) (57) (17) (57) (1,897) (2,847) (1,897) (2,847) (19,102) (59,410) (22,117) (45,016) 14,000 (1,538) 652 (732) - (2,152) - (87) 14,000 (1,538) 652 - - (2,152) - - (10,642) (13,554) (10,642) (13,563) (87,651) (71,022) (84,496) (85,288) Net cash used in financing activities (85,911) (86,815) (82,024) (101,003) Net movement in cash and cash equivalents 6,149 2,089 6,149 2,089 Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at end of the financial year 106,478 104,389 106,478 104,389 4.1.1 112,627 106,478 112,627 106,478 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 BankCONTENTS OF THE NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION ............................. 56 1.1 Reporting entity ............................................... 56 1.2 Statement of compliance ............................ 56 1.3 Basis of preparation ...................................... 56 1.4 Basis of consolidation ................................... 56 1.5 Rounding of amounts ................................... 57 1.6 Goods and Services Tax (GST) ................... 57 1.7 Application of new and revised Accounting Standards ................................... 57 1.8 Standards and interpretations on issue not yet adopted ............................. 57 1.9 Comparative figures ....................................... 58 1.10 Going concern ................................................... 58 2. FINANCIAL PERFORMANCE ......................... 59 2.1 Interest revenue and interest expense ... 59 2.2 Other non-interest income ........................ 61 2.3 Income taxes ..................................................... 61 2.4 Earnings per share ......................................... 64 2.5 Business and geographical segment information ........................................................ 64 3. INVESTMENTS AND FINANCING ............... 65 3.1 Property, plant and equipment ................ 65 3.2 Other intangible assets ................................ 69 3.3 Goodwill ............................................................... 70 3.4 Contributed equity ......................................... 71 3.5 Reserves .............................................................. 73 3.6 Dividends paid .................................................. 75 4. FINANCIAL ASSETS, LIABILITIES AND RELATED FINANCIAL RISK MANAGEMENT .................................................. 76 4.1 Categories of financial instruments ....... 76 4.2 Capital risk management ............................ 82 4.3 Market risk management ........................... 83 4.4 Liquidity risk management ........................ 86 4.5 Credit risk management .............................. 90 4.6 Fair value measurements ........................... 103 5. GROUP STRUCTURE AND RELATED PARTIES ............................................ 107 5.1 Subsidiaries, associates and other related parties ..................................... 107 5.2 Key management personnel disclosures .......................................................... 109 6. OTHER FINANCIAL INFORMATION .......... 110 6.1 Cash flow statement reconciliation ....... 110 6.2 Expenditure commitments ........................ 110 6.3 Contingent liabilities and credit commitments ................................................... 111 6.4 Provisions ........................................................... 111 6.5 Other non-financial assets ......................... 112 6.6 Remuneration of auditors .......................... 112 6.7 Events subsequent to balance date ....... 112 INDEPENDENT AUDITOR’S REPORT ..................... 115 CORPORATE GOVERNANCE SUMMARY .............. 120 SHAREHOLDER INFORMATION ............................... 122 FINANCIAL GLOSSARY ................................................ 126 55 Annual Report for the year ended 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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 2021 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 2020, 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. 56 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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 2018-6 Amendments to Australian Accounting Standards - Definition of a Business > AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material > AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework > AASB 2019-3 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform > AASB 2019-5 Amendments to Australian Accounting Standards - Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia > AASB 2020-4 Amendments to Australian Accounting Standards - COVID-19 Related Rent Concessions 1.8 Standards and Interpretations on issue not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2021 reporting period are set out below and have not been early adopted by the Group. Continued over page... 57 Annual Report for the year ended 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 1.8 Standards and Interpretations on issue not yet adopted (continued) Standard/Interpretation AASB 17 Insurance Contracts and AASB 2020-5 Amendments to Australian Accounting Standards – Insurance Contracts AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, AASB 2015-10 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and AASB 2017-5 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current and AASB 2020-6 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current – Deferral of Effective Date Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2023 30 June 2024 1 January 2022 30 June 2023 1 January 2022 30 June 2023 AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and Other Amendments 1 January 2022 30 June 2023 AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2 1 June 2021 30 June 2022 AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates 1 January 2023 30 June 2024 AASB 2021-3 Amendments to Australian Accounting Standards – Covid-19-Related Rent Concessions beyond 30 June 2021 1 April 2021 30 June 2022 The Group has assessed the impact of these accounting standards and does not anticipate the implementation of the above standards to have a material impact on the financial statements. 1.9 Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. 1.10 Going concern The financial statements are prepared on a going concern basis. The group has net assets of $256.537m, 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. 58 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 2. Financial Performance Interest revenue and interest expense 2.1 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 2021 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2021 Deposits from other financial institutions Customer deposits Negotiable certificates of deposit (NCDs) Floating rate notes (FRNs) Subordinated capital notes RBA term funding facility Lease liabilities Net interest revenue 2021 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) Subordinated capital notes RBA term funding facility Lease liabilities Net interest revenue 2020 Average balance $’000 Interest $’000 Average interest rate % 86,537 298,815 3,438,463 78,254 3,902,069 364,421 2,787,320 263,790 137,769 38,538 112,411 6,136 3,710,385 72,027 264,243 3,151,103 97,825 3,585,198 453,037 2,475,794 306,994 122,346 28,000 7,674 4,137 3,397,983 58 1,472 105,742 3,727 110,999 7,004 21,842 612 1,317 1,532 241 290 32,838 78,161 435 3,552 117,278 4,987 126,252 11,334 36,461 4,027 2,291 1,372 16 235 55,736 70,516 0.07 0.49 3.08 4.76 2.84 1.92 0.78 0.23 0.96 3.97 0.21 4.73 0.88 0.60 1.34 3.72 5.10 3.52 2.50 1.47 1.31 1.87 4.90 0.21 5.69 1.64 59 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 Interest revenue and interest expense (continued) 2.1 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 2021 Interest revenue Interest expense Net interest spread 3,902,069 3,710,385 110,999 32,838 Benefit of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 3,902,069 78,161 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 2.84 0.88 1.96 0.04 2.00 3.52 1.64 1.88 0.09 1.97 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 the EIR reflects the ECL in determining the future cash flows expected to be received from the financial asset. 60 Auswide BankNOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 9,483 877 10,360 9,206 753 9,959 9,483 877 10,360 9,206 753 9,959 2.2 Other non-interest income 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 Consolidated Company 2021 $’000 9,928 619 10,547 2020 $’000 8,540 (546) 7,994 2021 $’000 9,925 619 10,544 2020 $’000 8,531 (546) 7,985 Taxation 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. 61 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 2.3 Income taxes (continued) 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. 2.3.2 Numerical reconciliation of income tax expense to prima facie tax payable Tax on profit before income tax at 30% (2020: 30%) Consolidated Company 2021 $’000 10,411 2020 $’000 7,949 2021 $’000 10,411 2020 $’000 7,949 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 hedging instruments entered into for cash flow hedges Arising on items that will not be reclassified to profit or loss: Fair value remeasurement of FVTOCI financial assets Fair value remeasurement of land and buildings Total income tax recognised directly in other comprehensive income 58 (1) 79 58 1 (14) 58 2 73 58 2 (24) 10,547 7,994 10,544 7,985 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 - - (208) (208) (43) 680 637 429 - - (352) (352) - - - (352) - - (208) (208) (43) 680 637 429 - - (352) (352) - - - (352) 62 Auswide BankNOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 2.3.4 Current tax assets and liabilities Consolidated Company Current tax assets/ (liabilities) Current tax liabilities 2021 $’000 2020 $’000 2021 $’000 2020 $’000 (1,230) - (1,226) - Current income tax assets/ (liabilities) - 3,344 - 3,345 2.3.5 Deferred tax balances Consolidated Company (1,230) 3,344 (1,226) 3,345 Deferred tax assets - net 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 Lease liabilities net of right of use assets Cash flow hedging reserve Performance Rights prepaid expenses Other items Deferred tax liabilities Asset revaluation reserve Prepayments Investment revaluation reserve Performance Rights cash contributions in excess of accounting expense 2021 $’000 2,834 2,834 2020 $’000 4,322 4,322 2021 $’000 2,834 2,834 2020 $’000 4,322 4,322 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 1,032 1,841 204 1,026 - 108 47 218 783 - 315 993 2,032 681 1,466 3 115 44 205 576 72 115 1,032 1,841 204 1,026 - 108 47 218 783 - 315 993 2,032 681 1,466 3 115 44 205 576 72 115 5,574 6,302 5,574 6,302 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 2,547 1,867 2,547 1,867 40 - 153 70 43 - 40 - 153 70 43 - 2,740 1,980 2,740 1,980 63 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 Income taxes (continued) 2.3 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 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 Reduction in deferred tax asset on capital losses Prior period adjustments Balance at end of year 2.4 Earnings per share Basic and diluted earnings per share From continuing operations Total basic and diluted earnings per share The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are calculated as follows: 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 Consolidated Company 2021 $’000 4,322 (619) (429) - (440) - 2,834 2020 $’000 3,166 546 352 254 - 4 4,322 2021 $’000 4,322 (619) (429) - (440) - 2,834 2020 $’000 3,166 546 352 254 - 4 4,322 2021 Cents per share 2020 Cents per share 56.66 56.66 43.80 43.80 2021 $’000 2020 $’000 24,155 18,504 24,155 18,504 2021 Shares No. 2020 Shares No. 42,632,528 42,248,700 2.5 Business and geographical segment information The Group only has one major business and operating segment being ‘Retail Banking’. The principal activities of the Group are 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. 64 Auswide BankNOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 3. Investments and financing 3.1 Property, plant and equipment Consolidated Company Property and equipment owned Right-of-use assets Carrying amounts of: Freehold land and buildings Plant and equipment Freehold land and buildings At independent valuation - April 2021 Provision for depreciation Movement in carrying amount Opening net book amount Revaluation increase Depreciation charge Carrying amount at end of year Plant and equipment At cost Provision for depreciation Movement in carrying amount Opening net book amount Additions Disposals Depreciation charge Carrying amount at end of year 2021 $’000 16,787 4,528 21,315 11,345 5,442 16,787 2020 $’000 15,135 6,259 21,394 9,277 5,858 15,135 2021 $’000 16,787 4,528 21,315 11,345 5,442 16,787 2020 $’000 15,135 6,259 21,394 9,277 5,858 15,135 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 11,345 - 11,345 9,277 2,267 (199) 11,345 9,690 (413) 9,277 9,477 - (200) 9,277 11,345 - 11,345 9,277 2,267 (199) 11,345 9,690 (413) 9,277 9,477 - (200) 9,277 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 15,526 22,790 15,526 22,790 (10,084) (16,932) (10,084) (16,932) 5,442 5,858 5,442 5,858 5,858 949 - (1,365) 5,442 4,886 2,702 (125) (1,605) 5,858 5,858 949 - (1,365) 5,442 4,886 2,702 (125) (1,605) 5,858 All land and buildings were revalued as at 13 April 2021 by certified practicing valuers Acumentis Brisbane Pty Ltd. The valuations were independently prepared in accordance with the API’s Australian and New Zealand Valuation and Property Standards. The valuations were derived through a reconciliation of the capitalisation of net income and direct comparison approaches. 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. 65 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 3.1 Property, plant and equipment (continued) Accounting policies Property, plant and equipment Freehold land and buildings are stated in the Consolidated Statement of Financial Position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent depreciation for buildings and subsequent accumulated impairment losses. Freehold land is not depreciated. Revalued amounts are based on periodic, but at least triennial, valuations by external independent valuers. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. The carrying amount of plant and equipment is reviewed annually by the Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash 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. 66 Auswide BankNOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 3.1 Property, plant and equipment (continued) 3.1.1 Right-of-use assets Consolidated entity Right-of-use assets at cost Balance as at 1 July 2020 Modification to lease terms Variable lease payment adjustments Balance as at 30 June 2021 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2021 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 2020 Variable lease payment adjustments Modification to lease terms Balance as at 30 June 2021 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2021 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 Total $’000 6,088 (51) (92) 5,945 (1,509) 4,436 171 17 - 188 (96) 92 6,259 (34) (92) 6,133 (1,605) 4,528 Property $’000 Vehicles $’000 Total $’000 3,924 3,546 34 7,504 (1,416) 6,088 119 155 - 274 (103) 171 4,043 3,701 34 7,778 (1,519) 6,259 Property $’000 Vehicles $’000 Total $’000 6,088 (92) (51) 5,945 (1,509) 4,436 171 - 17 188 (96) 92 6,259 (92) (34) 6,133 (1,605) 4,528 Property $’000 Vehicles $’000 Total $’000 3,924 3,546 34 7,504 (1,416) 6,088 119 155 - 274 (103) 171 4,043 3,701 34 7,778 (1,519) 6,259 67 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 3.1 Property, plant and equipment (continued) 3.1.2 Lease liabilities 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 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 1,653 4,132 - 5,785 1,619 3,647 5,266 290 290 1,828 1,828 1,898 5,289 568 7,755 1,844 5,100 6,944 235 235 2,387 2,387 1,653 4,132 - 5,785 1,619 3,647 5,266 290 290 1,828 1,828 1,898 5,289 568 7,755 1,844 5,100 6,944 235 235 2,387 2,387 68 Auswide BankNOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 1,483 1,483 1,198 1,198 1,483 1,483 1,198 1,198 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 5,336 (3,853) 1,483 7,152 (5,954) 1,198 5,336 (3,853) 1,483 7,152 (5,954) 1,198 1,198 1,763 1,198 1,763 949 - (664) 1,483 145 - (710) 1,198 949 - (664) 1,483 145 - (710) 1,198 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 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. 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. 69 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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 2021 $’000 46,363 46,363 4,306 42,057 46,363 2020 $’000 46,363 46,363 4,306 42,057 46,363 2021 $’000 46,363 46,363 4,306 42,057 46,363 2020 $’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. 70 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 3.3 Goodwill (Continued) Key estimates and judgments 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. 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 11.0 - 23.2x. 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%. 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 Notes 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 2021 Shares No. 2021 Shares $’000 2020 Shares No. 2020 Shares $’000 42,409,838 193,261 42,172,922 191,936 3.4.1 3.4.2 144,641 354,012 - 652 2,036 (25) - - 252,231 1,412 - (12) Movement in treasury shares 3.4.3 (115,457) (706) (15,315) (75) Balance at end of year 42,793,034 195,218 42,409,838 193,261 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. 71 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 3.4.1 Staff Share Plan On 02 November 2020, 144,641 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. Shares issued to employees since the inception of plan 3,119,059 2,974,418 3,119,059 2,974,418 Shares issued to employees during the financial year 144,641 - 144,641 - Consolidated Company 2021 Shares No. 2020 Shares No. 2021 Shares No. 2020 Shares No. Total market value at date of issue (02 November 2020) Total amount paid or payable for the shares at that date 3.4.2 Dividend Reinvestment Plan (DRP) 2021 $’000 720 652 2020 $’000 - - 2021 $’000 720 652 2020 $’000 - - The Board of Directors resolved to reinstate the Dividend Reinvestment Plan (DRP) in respect of the final dividend for the 2019/20 financial year, payable on 18 September 2020. The Board resolved to maintain the DRP for the interim dividend payable on 19 March 2021 for the 2020/21 financial year. 19 March 2021 - 216,640 ordinary shares were issued 18 September 2020 - 137,372 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 19 March 2021 and 18 September 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 140,335 shares, $837,303 (Jun 20: 24,878 shares, $131,051) for the purpose of facilitating the Executive LTI scheme. 72 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 3.5 Reserves 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 3.5.1 Investment revaluation reserve Investment revaluation reserve Balance at beginning of year Derecognition of investments classified as at FVTOCI Deferred tax liability adjustment on derecognition Balance at end of year Consolidated Company 2021 $’000 - 5,944 (1,828) 482 2,676 5,834 2,388 2020 $’000 101 4,357 (1,343) 418 2,676 5,834 2,388 2021 $’000 - 5,944 (1,828) 858 2,676 5,834 2,388 2020 $’000 101 4,357 (1,343) 654 2,676 5,834 2,388 15,496 14,431 15,872 14,667 2021 $’000 2020 $’000 2021 $’000 2020 $’000 101 (144) 43 - 101 - - 101 101 (144) 43 - 101 - - 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. 3.5.2 Asset revaluation reserve Asset revaluation reserve Balance at beginning of year Increase/(decrease) due to revaluation on land and buildings Deferred tax liability adjustment on revaluation on land and buildings 2021 $’000 2020 $’000 2021 $’000 2020 $’000 4,357 2,267 (680) 4,357 - - 4,357 2,267 (680) 4,357 - - Balance at end of year 5,944 4,357 5,944 4,357 The balance of this reserve represents the excess of the independent valuation over the original cost of the land and buildings. 73 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 3.5.3 Cash flow hedge reserve Consolidated Company 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 2021 $’000 2020 $’000 2021 $’000 2020 $’000 (1,343) (521) (1,343) (521) Interest rate swaps (693) (1,174) (693) (1,174) Income tax related to gains/losses recognised in other comprehensive income 208 352 208 352 Balance at end of year (1,828) (1,343) (1,828) (1,343) 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. 3.5.4 Share based payments reserve Share based payments reserve Balance at beginning of year Expensed during the year Vested during the year Balance at end of year Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 418 204 (140) 482 308 238 (128) 418 654 204 - 858 416 238 - 654 The share based payments reserve relates to shares available for long term incentive (LTI) based payments to employees. 3.5.5 Statutory reserve This is a statutory reserve created on a distribution from the Queensland Building Society Fund. 3.5.6 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. 3.5.7 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. 74 Auswide Bank3.6 Dividends paid Dividends paid during the year Interim for current year Final for previous year NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 8,116 4,562 7,171 7,804 8,116 4,562 7,171 7,804 12,678 14,975 12,678 14,975 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 21.00 cents per ordinary share ($9.016m), for the six months to 30 June 2021, payable on 24 September 2021. The final dividend for the six months to 30 June 2020 ($4.562m) was paid on 18 September 2020, and was disclosed in the 2019/20 financial accounts. The tax rate at which the dividends have been franked is 30% (2020: 30%). The amount of franking credits available for the subsequent financial year are: Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Balance as at the end of the financial year 33,875 33,931 33,875 33,931 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 1,226 (3,344) 1,226 (3,344) (3,864) (1,955) (3,864) (1,955) 31,237 28,632 31,237 28,632 Dividends - cents per share Dividend proposed Fully franked dividend on ordinary shares 21.00 10.75 21.00 10.75 Interim dividend paid during the year Fully franked dividend on ordinary shares 19.00 17.00 19.00 17.00 Final dividend paid for the previous year Fully franked dividend on ordinary shares 10.75 18.50 10.75 18.50 75 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 4. Financial assets, liabilities and related financial risk management 4.1 Categories of financial instruments Consolidated Company Notes Classification 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Financial assets Cash and cash equivalents 4.1.1 Amortised cost 112,627 106,478 112,627 106,478 Due from other financial institutions 4.1.2 Amortised cost 12,790 16,293 12,790 16,293 Other financial assets; - Certificates of deposit 4.1.3 Amortised cost 341,025 293,172 341,025 293,172 - Investments in Managed Investment Schemes FVTPL - Notes – securitisation program and other Amortised cost 37,424 20,126 49 188 60,613 24,074 141 266 37,424 41,133 49 188 60,613 42,066 141 266 FVTPL Amortised cost 4.1.4 Amortised cost 3,555,043 3,205,775 3,556,287 3,206,167 4.1.5 FVTOCI 918 918 918 918 4,080,190 3,707,730 4,102,441 3,726,114 - Derivative assets - Interest receivable Loans and advances Other investments; - Unlisted shares Total financial assets Financial liabilities Deposits and other short term borrowings 4.1.6 Amortised cost 3,349,289 3,018,508 3,349,291 3,018,518 Other borrowings 4.1.7 Amortised cost 150,806 49,793 150,806 49,793 Payables and other liabilities 4.1.8 - Payables and creditors - Derivative liabilities Amortised cost 15,993 23,586 15,980 23,584 FVTPL 2,661 2,059 2,661 2,059 Loans under management 4.1.4 Amortised cost 333,714 420,731 354,721 438,723 Subordinated capital notes 4.1.9 Amortised cost 42,000 28,000 42,000 28,000 Total financial liabilities 3,894,463 3,542,677 3,915,459 3,560,677 Accounting policies Financial instruments 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 > 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). 76 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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. 77 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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. 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. 78 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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: Cash at bank and in hand Deposits on call 4.1.2 Due from other financial institutions Deposits with Special Service Providers (SSPs) Consolidated Company 2021 $’000 45,427 67,200 2020 $’000 61,878 44,600 2021 $’000 45,427 67,200 2020 $’000 61,878 44,600 112,627 106,478 112,627 106,478 Consolidated Company 2021 $’000 12,790 12,790 2020 $’000 16,293 16,293 2021 $’000 12,790 12,790 2020 $’000 16,293 16,293 In accordance with our undertakings with the RBA and APRA the Deposits with Special Service Providers represents the mandated prudential funds held with Australian Settlements Limited (ASL). 4.1.3 Other financial assets Certificates of deposit Investments in Managed Investment Schemes (MIS) Notes - securitisation program and other Derivative assets Interest receivable Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 341,025 293,172 341,025 293,172 37,424 20,126 49 188 60,613 24,074 141 266 37,424 41,133 49 188 60,613 42,066 141 266 398,812 378,266 419,819 396,258 Cash held within securitised trusts at 30 June 2021 of $20.126m (2020: $24.074m) is restricted for use only by the trusts. 79 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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 2021 $’000 2020 $’000 2021 $’000 2020 $’000 3,470,566 3,100,117 3,470,565 3,100,115 78,899 102,778 78,899 102,778 4,157 7,560 - 4,218 5,451 - 4,157 7,560 1,245 4,218 5,451 394 3,561,182 3,212,564 3,562,426 3,212,956 (6,139) (6,789) (6,139) (6,789) 3,555,043 3,205,775 3,556,287 3,206,167 For details on ECL recognised against loans and advances see Section 4.5 - Credit risk management. Loans and advances include an amount of $553.859m of which have been issued under the federal government’s First Home Loan Deposit Scheme by National Housing Finance and Investment Corporation (NHFIC). The scheme provides a guarantee for any loan monies above 80% LVR. 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 $333.714m (2020: $420.731m). Class B notes of $21.007m (2020: $17.992m) 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. Consolidated Company Unlisted shares Equity accounted investment 4.1.6 Deposits and short term borrowings Call deposits Term deposits 2021 $’000 918 478 2020 $’000 918 461 2021 $’000 918 478 2020 $’000 918 461 1,396 1,379 1,396 1,379 Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 1,439,978 1,118,565 1,439,980 1,118,575 1,492,619 1,501,841 1,492,619 1,501,841 Negotiable certificates of deposit (NCDs) 251,692 267,102 251,692 267,102 Floating rate notes (FRNs) 165,000 131,000 165,000 131,000 3,349,289 3,018,508 3,349,291 3,018,518 80 Auswide Bank4.1.7 Other borrowings RBA Term Funding Facility (TFF) NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Consolidated Company 2021 $’000 150,806 150,806 2020 $’000 49,793 49,793 2021 $’000 150,806 150,806 2020 $’000 49,793 49,793 The Term Funding Facility (TFF) was announced by the RBA in March 2020 as part of a package of measures to support the Australian economy. Under the TFF, the RBA offered three-year funding to ADI’s subject to collateral requirements. Auswide Bank has utilised $89.766m charged at a rate of 0.25% and $61.040m at a rate of 0.10%. Interest is payable to the RBA at the end of the funding period. Term funding liabilities are initially recognised at fair value and subsequently measured at amortised cost using effective interest method. 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 2021 $’000 2,966 2,661 6,597 1,174 5,256 2020 $’000 2,881 2,059 10,357 3,404 6,944 2021 $’000 2,953 2,661 6,597 1,174 5,256 2020 $’000 2,879 2,059 10,357 3,404 6,944 18,654 25,645 18,641 25,643 Consolidated Company 2021 $’000 42,000 42,000 2020 $’000 28,000 28,000 2021 $’000 42,000 42,000 2020 $’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 2020 and 2021. 81 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 4.2 Capital risk management The Board and Management of Auswide Bank Ltd are responsible for instituting a Risk Management Framework (RMF) including policies and processes to reduce such risks to prudent levels at both a Company and Group level. The Board has established the following committees and delegated responsibilities to develop and monitor risk within their relevant areas and consistent with the Group wide Risk Management Framework: 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); > reviews the balance sheet and recommends changes with regard to capital management, funding and securitisation activities (including product related issues); and > reviews measures of liquidity and capital adequacy position against the policy and guidelines established in the Board policy. APRA’s Prudential Standard APS 110 Capital Adequacy aims to ensure the Authorised Deposit-taking Institutions (ADI’s) maintain adequate capital, on both an individual and group basis, to act as a buffer against the risks associated with the Group’s activities. APRA requires capital to be allocated against credit, market and operational risk, and the Group has adopted the ‘standard model’ approach to measure the capital adequacy ratio. The Board of Directors takes responsibility to ensure the Company and Group maintain a level and quality of capital commensurate with the type, amount and concentration of risks to which the company and consolidated group are exposed from their activities. The Board has regard to prospective changes in the risk profile and capital holdings. The Company’s management prepares a three year capital plan and monitors actual risk-based capital ratios on a monthly basis to ensure the capital ratio complies with Board targets. During the 2021 and 2020 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 2021 and 30 June 2020 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. 82 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Details of the capital adequacy ratio on a company and consolidated basis are set out below: Total risk weighted assets Capital base Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 1,792,514 1,631,807 1,793,728 1,632,124 238,662 211,382 239,427 211,766 Risk-based capital ratio 13.31% 12.95% 13.35% 12.97% The loan portfolio of the Company does not include any loan which represents 10% or more of capital. The APS 330 Pillar III Disclosures inclusive of the Capital Disclosure Template, Regulatory Capital reconciliation and the Capital Instruments Disclosures are available in the Prudential Disclosures section of the company’s website at www.auswidebank.com.au. 4.3 Market risk management Market risk is the risk that changes in market prices, such as interest rates, will 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. 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 Interest Rate Risk Report. The ALCO’s functions and roles include: (i) review measures of profitability, particularly net interest and fee income including strategies and directives; (ii) review management interest rate view as well as asset and liability repricing data; (iii) receive and review reports from management concerning the organisation’s credit risk; (iv) (v) receive and review management reports on interest rate risk against guidelines and limits established in Board policy; 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). 83 Annual Report for the year ended 30 June 2021 % 0 2 0 2 % 1 2 0 2 0 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 0 2 0 2 0 0 0 $ ’ 1 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 e g a r e v a d e t h g i e W t n u o m a g n i y r r a c l a t o T 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 : 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 i F s t e s s a l a i c n a n i F : s w o l l o f s a e r a , e t a d e c n a a b e h t l t a s e i t i l i b a i l l i a c n a n fi d n a s t e s s a l i a c n a n fi f o s e t a r t s e r e t n i e v i t c e ff e e h t d n a s k s i r e t a r t s e r e t n i o t e r u s o p x e s p u o r G e h T ’ I S T N E M E T A T S L A C N A N I F E H T O T S E T O N 1 2 0 2 E N U J 0 3 84 0 5 0 . 4 4 0 . 9 3 2 . 1 6 3 . - 3 1 1 . 0 2 0 . 6 1 2 . 6 8 4 . 6 0 0 . 3 0 0 . 7 3 1 . 6 9 2 . - 6 5 0 . 0 2 0 . 1 4 1 . 9 8 3 . 4 9 9 5 1 , 6 8 5 3 2 , 4 9 9 5 1 , - - 8 7 4 6 0 1 , 7 2 6 2 1 1 , 0 1 9 1 4 2 1 , 3 9 2 6 1 , 0 9 7 2 1 , 5 2 1 8 7 3 , 3 6 7 8 9 3 , , 5 7 7 5 0 2 3 , , 1 7 6 6 0 7 3 , 3 9 7 9 4 , 6 8 5 3 2 , , 8 0 5 8 1 0 3 , , 3 4 0 5 5 5 3 , , 3 2 2 9 7 0 4 , 6 0 8 0 5 1 , , 9 8 2 9 4 3 3 , - 5 9 0 8 8 2 , 5 8 8 3 , - - - 5 9 7 7 5 5 , 3 1 9 6 , - - - - - - - - - - 3 1 6 0 6 , 4 2 4 7 3 , , 8 3 4 3 9 2 3 1 2 1 4 3 , 8 6 5 5 0 1 , 6 8 3 1 1 1 , 8 9 1 6 1 , 4 7 0 4 2 , 5 9 6 2 1 , 6 2 1 0 2 , , 9 8 6 9 2 7 , 2 0 3 0 9 7 , 9 8 1 6 6 2 1 , , 3 1 6 3 0 3 1 , 2 7 1 5 9 1 , , 7 3 5 5 7 2 3 9 7 9 4 , 6 0 8 0 5 1 , - - - - - - - - 6 5 5 8 8 2 , , 8 9 4 0 0 4 4 9 9 1 8 5 , , 1 1 7 1 4 7 , 1 7 7 4 0 7 1 , , 4 7 7 3 3 6 1 , , 0 5 6 4 8 1 2 , , 0 9 4 0 3 3 2 , , 5 6 5 8 1 1 1 , , 9 7 7 2 8 8 1 , , 6 8 9 6 2 0 2 , , 8 7 9 9 3 4 1 , s n o i t u t i t s n i l i a c n a n fi r e h t o m o r f e u D i s g n w o r r o b m r e t t r o h s d n a s t i s o p e D s e i t i l i b a i l r e h t o d n a s e b a y a P l i s g n w o r r o b r e h t O s t e s s a l i a c n a n fi r e h t O s e c n a v d a d n a s n a o L s t e s s a l a i c n a n fi l a t o T s e i t i l i b a i l l a i c n a n i F i l s t n e a v u q e h s a c d n a h s a C 1 3 7 0 2 4 , 4 1 7 3 3 3 , 0 0 0 8 2 , 0 0 0 2 4 , - - - - - - 6 6 7 5 9 , 8 5 8 8 1 1 , 0 7 8 7 3 , 0 0 0 8 2 , 5 9 5 7 3 , 0 0 0 2 4 , 5 9 0 7 8 2 , 1 6 2 7 7 1 , t n e m e g a n a m r e d n u s n a o L - - s e t o n l a t i p a c d e t a n d r o b u S i , 8 1 6 0 4 5 3 , , 3 0 8 1 9 8 3 , 6 8 5 3 2 , 4 9 9 5 1 , 1 3 7 0 4 3 , 1 0 2 5 4 5 , , 1 4 6 0 7 7 1 , , 9 6 3 3 1 7 1 , , 0 6 6 5 0 4 1 , , 9 3 2 7 1 6 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 Auswide Bank NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 At the reporting date, if interest rates had been 2.0% higher all other variables were held constant the Group’s net profit before tax would decrease by $0.024m. If interest rates were 1.0% lower and all other variables were held constant the Group’s net profit before tax would decrease by $5.352m (2020: 2.0% higher an increase of $2.763m or 1.0% lower a decrease of $4.307m). The parameters used were consistent with those adopted for the prior period and is mainly due to the Company’s exposures to variable rate loans, and deposit and securitisation liabilities. The sensitivity analysis was derived from the Interest Rate Risk Report which calculates risk associated with movements in interest rates through the input of parameters for all financial assets and liabilities. Derivatives Derivatives are utilised to manage interest rate risk, along with balance sheet management. Net Interest Impact, Net Present Value and Value at Risk are key interest rate risk measures that are monitored to maintain ratios and risk within policy limits. Each of the 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: Wide Bay Trust No. 5 WB Trust 2008-1 WB Trust 2014-1 WB Trust 2010-1 ABA Trust 2017-1 2021 $’000 (1,144) 6,133 50 - (20) 2020 $’000 (546) 10,442 117 85 (36) 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 $0.049m and $2.661m respectively (2020: $0.141m and $2.059m). 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. 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. 85 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 4.4 Liquidity risk management 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. 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. The Company holds an additional reserve which is assessed on an ongoing basis and isolated as additional liquidity available in a crisis situation via the RBA repurchase facility (Repo). The undrawn limits on the securitisation warehouses were as follows: Securitisation trust Wide Bay Trust No. 5 ABA Trust No. 7 Total 2021 $’000 40,300 36,100 76,400 2020 $’000 84,235 23,503 107,738 Concentration risk The Company’s deposit portfolio does not include any deposit which represents 10% or more of total liabilities. 86 Auswide Bankl a t o T 0 0 0 $ ’ 7 2 6 2 1 1 , 0 9 7 2 1 , 2 1 8 8 9 3 , , 3 4 0 5 5 5 3 , , 2 7 2 9 7 0 4 , , 9 8 2 9 4 3 3 , 6 0 8 0 5 1 , 8 9 3 3 1 , 4 1 7 3 3 3 , 0 0 0 2 4 , , 7 0 2 9 8 8 3 , 0 0 0 $ ’ d e fi i c e p s y t i r u t a m o N s r a e y 0 0 0 $ ’ 5 n a h t r e t a L 0 0 0 $ ’ s r a e y 5 - 1 0 0 0 $ ’ 0 0 0 $ ’ s h t n o m 2 1 - 3 s h t n o m 3 o t p U 0 0 0 $ ’ l l a c n O 1 2 0 2 e n u J 0 3 y t i t n e d e t a d i l o s n o C s t e s s a l a i c n a n i F : s w o l l l o f s a e r a y t i r u t a m a u t c a r t n o c n o d e s a b s e i t i l i b a i l d n a s t e s s a l i a c n a n fi f o s p u o r g e v i t c e p s e r e h t i l r o f s s y a n a y t i r u t a m e h T I S T N E M E T A T S L A C N A N I F E H T O T S E T O N 1 2 0 2 E N U J 0 3 - 0 9 7 2 1 , - - 0 9 7 2 1 , - - - - - - - - 0 5 5 7 5 , , 6 5 8 1 0 5 3 , - - - - - - , 6 0 4 9 5 5 3 , - - 9 9 6 0 5 1 , 0 0 3 2 4 , 9 9 9 2 9 1 , 1 3 7 4 2 1 , 6 0 8 0 5 1 , 6 3 8 2 , 9 1 1 0 3 1 , 0 0 0 2 4 , 2 9 4 0 5 4 , . - - 0 0 5 2 1 , 7 7 3 3 , 7 7 8 5 1 , - - 0 1 5 7 , , 3 6 0 8 7 1 3 7 5 5 8 1 , - - - , 7 2 6 2 1 1 , 7 2 6 2 1 1 , 9 6 7 8 6 8 1 1 8 5 1 9 , , 8 7 9 9 3 4 1 , - - 6 4 9 3 , 1 2 7 4 6 1 , , 6 3 4 7 3 0 1 , - - 6 1 6 6 , 4 7 8 8 3 , 1 0 3 1 6 9 , - - - - , 8 7 9 9 3 4 1 , s n o i t u t i t s n i l i a c n a n fi r e h t o m o r f e u D i s g n w o r r o b m r e t t r o h s d n a s t i s o p e D * s e i t i l i b a i l r e h t o d n a s e b a y a P l t n e m e g a n a m r e d n u s n a o L s e t o n l a t i p a c d e t a n d r o b u S i i s g n w o r r o b r e h t O l a t o T s t e s s a l i a c n a n fi r e h t O s e c n a v d a d n a s n a o L s e i t i l i b a i l l a i c n a n i F l a t o T i l s t n e a v u q e h s a c d n a h s a C . . 2 1 3 n o i t c e S n i d e s o l c s i d y l e t a r a p e s e r a s e i t i l i b a i l e s a e l f o s w o fl h s a c d e t n u o c s i d n u l a u t c a r t n o c e h t r o f s i s y l a n a y t i r u t a m e h T * l a t o T 0 0 0 $ ’ 8 7 4 6 0 1 , 3 9 2 6 1 , 6 6 2 8 7 3 , , 5 7 7 5 0 2 3 , , 2 1 8 6 0 7 3 , 0 0 0 $ ’ d e fi i c e p s y t i r u t a m o N s r a e y 0 0 0 $ ’ 5 n a h t r e t a L 0 0 0 $ ’ s r a e y 5 - 1 0 0 0 $ ’ 0 0 0 $ ’ s h t n o m 2 1 - 3 s h t n o m 3 o t p U 0 0 0 $ ’ l l a c n O 0 2 0 2 e n u J 0 3 y t i t n e d e t a d i l o s n o C s t e s s a l a i c n a n i F - 3 9 2 6 1 , - - 3 9 2 6 1 , - - 7 8 6 4 8 , , 7 0 7 3 5 1 3 , , 4 9 3 8 3 2 3 , - - 0 5 8 8 0 1 , 3 3 6 7 3 , 3 8 4 6 4 1 , - - 1 9 0 5 1 , 1 2 5 6 , 2 1 6 1 2 , - - 4 1 9 7 , , 8 3 6 9 6 1 2 5 5 7 7 1 , - - - , 8 7 4 6 0 1 , 8 7 4 6 0 1 s n o i t u t i t s n i l i a c n a n fi r e h t o m o r f e u D l i s t n e a v u q e h s a c d n a h s a C s t e s s a l i a c n a n fi r e h t O s e c n a v d a d n a s n a o L l a t o T 87 Annual Report for the year ended 30 June 2021 l a t o T 0 0 0 $ ’ 0 0 0 $ ’ d e fi i c e p s y t i r u t a m o N s r a e y 0 0 0 $ ’ 5 n a h t r e t a L 0 0 0 $ ’ s r a e y 5 - 1 0 0 0 $ ’ 0 0 0 $ ’ s h t n o m 2 1 - 3 s h t n o m 3 o t p U 0 0 0 $ ’ l l a c n O , 8 0 5 8 1 0 3 , 3 9 7 9 4 , 6 9 6 8 1 , 1 3 7 0 2 4 , 0 0 0 8 2 , , 8 2 7 5 3 5 3 , l a t o T 0 0 0 $ ’ 7 2 6 2 1 1 , 0 9 7 2 1 , 9 1 8 9 1 4 , , 7 8 2 6 5 5 3 , , 3 2 5 1 0 1 4 , 6 0 8 0 5 1 , 5 8 3 3 1 , 1 2 7 4 5 3 , 0 0 0 2 4 , , 1 9 2 9 4 3 3 , , 3 0 2 0 1 9 3 , - - - - - - - - - - 8 0 7 2 , 8 0 7 2 , 9 7 3 5 4 1 , 3 9 7 9 4 , 4 3 5 5 , 0 8 4 3 9 1 , 0 0 0 8 2 , 6 8 1 2 2 4 , 9 1 6 6 2 8 , 5 4 9 7 2 9 , - - 4 5 4 0 1 , 4 5 7 5 7 1 , , 7 2 8 2 1 0 1 , - - - 7 9 4 1 5 , 2 4 4 9 7 9 , , 5 6 5 8 1 1 1 , - - - - , 5 6 5 8 1 1 1 , 0 0 0 $ ’ d e fi i c e p s y t i r u t a m o N s r a e y 0 0 0 $ ’ 5 n a h t r e t a L 0 0 0 $ ’ s r a e y 5 - 1 0 0 0 $ ’ 0 0 0 $ ’ s h t n o m 2 1 - 3 s h t n o m 3 o t p U 0 0 0 $ ’ l l a c n O - 0 9 7 2 1 , - - 0 9 7 2 1 , - - - - - - - - 7 5 5 8 7 , , 0 0 1 3 0 5 3 , - - - - - - , 7 5 6 1 8 5 3 , - - 9 9 6 0 5 1 , 0 0 3 2 4 , 9 9 9 2 9 1 , 1 3 7 4 2 1 , 6 0 8 0 5 1 , 6 3 8 2 , 9 1 1 0 3 1 , 0 0 0 2 4 , 2 9 4 0 5 4 , . - - 0 0 5 2 1 , 7 7 3 3 , 7 7 8 5 1 , - - 0 1 5 7 , , 3 6 0 8 7 1 3 7 5 5 8 1 , - - - , 7 2 6 2 1 1 , 7 2 6 2 1 1 , 9 6 7 8 6 8 1 1 8 5 1 9 , , 0 8 9 9 3 4 1 , - - 6 4 9 3 , 5 1 7 1 8 1 , , 0 3 4 4 5 0 1 , - - 3 0 6 6 , 7 8 8 2 4 , 1 0 3 5 6 9 , - - - - , 0 8 9 9 3 4 1 , I S T N E M E T A T S L A C N A N I F E H T O T S E T O N 1 2 0 2 E N U J 0 3 88 0 2 0 2 e n u J 0 3 y t i t n e d e t a d i l o s n o C i s g n w o r r o b m r e t t r o h s d n a s t i s o p e D s e i t i l i b a i l l a i c n a n i F * s e i t i l i b a i l r e h t o d n a s e b a y a P l t n e m e g a n a m r e d n u s n a o L s e t o n l a t i p a c d e t a n d r o b u S i i s g n w o r r o b r e h t O l a t o T 1 2 0 2 e n u J 0 3 y n a p m o C s t e s s a l a i c n a n i F i l s t n e a v u q e h s a c d n a h s a C s n o i t u t i t s n i l i a c n a n fi r e h t o m o r f e u D i s g n w o r r o b m r e t t r o h s d n a s t i s o p e D * s e i t i l i b a i l r e h t o d n a s e b a y a P l t n e m e g a n a m r e d n u s n a o L s e t o n l a t i p a c d e t a n d r o b u S i i s g n w o r r o b r e h t O l a t o T s t e s s a l i a c n a n fi r e h t O s e c n a v d a d n a s n a o L s e i t i l i b a i l l a i c n a n i F l a t o T . . 2 1 3 n o i t c e S n i d e s o l c s i d y l e t a r a p e s e r a s e i t i l i b a i l e s a e l f o s w o fl h s a c d e t n u o c s i d n u l a u t c a r t n o c e h t r o f s i s y l a n a y t i r u t a m e h T * Auswide Bank l a t o T 0 0 0 $ ’ 8 7 4 6 0 1 , 3 9 2 6 1 , 8 5 2 6 9 3 , , 7 6 1 6 0 2 3 , , 6 9 1 5 2 7 3 , , 8 1 5 8 1 0 3 , 3 9 7 9 4 , 6 9 6 8 1 , 3 2 7 8 3 4 , 0 0 0 8 2 , , 0 3 7 3 5 5 3 , 0 0 0 $ ’ d e fi i c e p s y t i r u t a m o N s r a e y 0 0 0 $ ’ 5 n a h t r e t a L 0 0 0 $ ’ s r a e y 5 - 1 0 0 0 $ ’ 0 0 0 $ ’ s h t n o m 2 1 - 3 s h t n o m 3 o t p U 0 0 0 $ ’ l l a c n O I S T N E M E T A T S L A C N A N I F E H T O T S E T O N 1 2 0 2 E N U J 0 3 0 2 0 2 e n u J 0 3 y n a p m o C s t e s s a l a i c n a n i F - 3 9 2 6 1 , - - 3 9 2 6 1 , - - - - - - - - 9 7 6 2 0 1 , , 9 9 0 4 5 1 3 , - - - - 8 0 7 2 , 8 0 7 2 , , 8 7 7 6 5 2 3 , - - 0 5 8 8 0 1 , 3 3 6 7 3 , 3 8 4 6 4 1 , 9 7 3 5 4 1 , 3 9 7 9 4 , 4 3 5 5 , 0 8 4 3 9 1 , 0 0 0 8 2 , 6 8 1 2 2 4 , - - 1 9 0 5 1 , 1 2 5 6 , 2 1 6 1 2 , - - , 8 3 6 9 6 1 4 1 9 7 , 2 5 5 7 7 1 , - - - , 8 7 4 6 0 1 , 8 7 4 6 0 1 , 9 1 6 6 2 8 5 4 9 7 2 9 , - - 4 5 4 0 1 , 2 3 7 9 8 1 , , 5 0 8 6 2 0 1 , - - - 1 1 5 5 5 , 6 5 4 3 8 9 , , 5 7 5 8 1 1 1 , - - - - , 5 7 5 8 1 1 1 , s n o i t u t i t s n i l i a c n a n fi r e h t o m o r f e u D i l s t n e a v u q e h s a c d n a h s a C i s g n w o r r o b m r e t t r o h s d n a s t i s o p e D * s e i t i l i b a i l r e h t o d n a s e b a y a P l t n e m e g a n a m r e d n u s n a o L s e t o n l a t i p a c d e t a n d r o b u S i i s g n w o r r o b r e h t O l a t o T s t e s s a l i a c n a n fi r e h t O s e c n a v d a d n a s n a o L s e i t i l i b a i l l a i c n a n i F l a t o T 89 Annual Report for the year ended 30 June 2021 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 4.5 Credit risk management 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. Managing credit risk 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. 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. 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. Exposure to credit risk Credit risk exists predominantly on the Group’s loan portfolio. 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. 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. 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. Minimising credit risk 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. 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. 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. This excludes loans issued under the federal government’s First Home Loan Deposit Scheme by National Housing Finance and Investment Corporation (NHFIC). The scheme provides a guarantee for any loan monies above 80% LVR. 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. 90 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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. Additional provisions 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 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. Consolidated entity Notes Financial statement line Maximum exposure to credit risk 2021 $’000 Expected credit loss 2021 $’000 Maximum exposure to credit risk 2020 $’000 Expected credit loss 2020 $’000 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 112,627 12,790 Certificates of deposit 4.1.3 Other financial assets 341,025 4.1.3 Other financial assets 20,126 4.1.3 4.1.4 Other financial assets 188 Loans and advances 3,822,764 Notes – securitisation program and other Interest receivable Loans and advances Total Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 6.3 6.3 4,309,520 159,053 1,763 160,816 - - - - - 106,478 16,293 293,172 24,074 266 - - - - - 5,999 5,999 3,457,232 3,897,515 6,592 6,592 140 - 140 114,807 591 115,398 197 - 197 91 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 Accounting policies Impairment of financial assets 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. 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. 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. 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. 92 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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. EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments and principal and interest, and expected drawdowns on committed facilities. The Group has developed a single EAD model to cover all applicable loan exposures. The Group measures ECL considering the risk of default over the maximum contractual period (including extension options) over which the entity is exposed to credit risk and not a longer period. The risk of default is assessed by considering historical data as well as forward looking information through a macroeconomic overlay and management judgement. The Group’s risk function constantly monitors the ongoing appropriateness of the ECL model and related criteria, where any proposed amendments will be reviewed and approved by the Group’s management committees. Incorporation of forward looking information 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’ 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 93 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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 2021, 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 as Australia responds to COVID-19. Scenario Reported ECL 100% base case ECL Jun 21 $m 6,139 Macroeconomic forecast 5,995 Includes a reasonable level of portfolio stress. By the end of 2021 the unemployment rate is expected to 4.5% with marginal improvements beyond that. Unemployment is forecast to be 4.25% by the end of 2022. The RBA has forecast GDP growth of 4%, with further contractions possible due to the ongoing impact of COVID-19. 100% downside 6,305 Assumes a moderate but reasonable level of portfolio stress. 100% severe downside 6,915 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. 94 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Judgement/ Assumption Description Changes and considerations during the year ended 30 June 2021 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. The Group derives a forward looking “base case” economic scenario which reflects Auswide Bank’s view of the most likely future macro-economic conditions. Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base case scenario. Various initiatives, such as loan repayment holidays and deferrals have been offered to customers throughout the 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 2021. There were no changes to behavioural lifetime estimates during the year ended 30 June 2021. 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 2021, the base case assumptions have been updated to reflect the ongoing 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. 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. 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. Determining when a significant increase in credit risk (SICR) has occurred Measuring both 12-month and lifetime credit losses Base case economic forecast Probability weighting of each scenario (base case, downside and severe downside scenarios) Management overlays 95 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 Significant increase in credit risk The Group monitors all financial assets that are subject to impairment requirements to assess whether there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk the Group will measure the expected loss allowance based on lifetime rather than 12-month ECL. The Group has used the assumption that 30 days past due represents significant increase in credit risk. The Group considers 90 days past due as representative of a default having occurred and a loan being credit impaired. The Group has identified the following three stages in which financial instruments have been classified in regards to credit risk; > stage 1 - performing exposure on which loss allowance is recognised as 12 month expected credit loss; > stage 2 - where credit risk has increased significantly and impairment loss is recognised as lifetime expected credit loss; and > stage 3 - assets are credit impaired and impairment loss is recognised as lifetime expected credit loss. Interest is accrued on a net basis, on the amortised cost of the loans after the ECL is deducted. The table below shows analysis of each class of financial asset subject to impairment requirements by stage at the reporting date. 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 Expected credit loss Consolidated entity Balance at 30 June 2021 Stage 1 $’000 Stage 2 $’000 Stage 3 $’000 Total $’000 Stage 1 $’000 Stage 2 $’000 Stage 3 $’000 Total $’000 Class of financial instrument Cash and cash equivalents Due from other financial institutions 112,627 12,790 Certificate of deposit 341,025 Notes – securitisation program and other Total 20,126 486,568 Loans and advances* - - - - - - - - - - 112,627 12,790 341,025 20,126 486,568 - - - - - - Mortgage lending 3,708,130 6,868 8,862 3,723,860 2,465 - Personal lending - Commercial lending 28,636 68,896 43 - 19 1,310 28,698 70,206 172 98 Total 3,805,662 6,911 10,191 3,822,764 2,735 Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 159,053 1,763 160,816 - - - - - - 159,053 1,763 160,816 140 - 140 - - - - - 289 12 - 301 - - - - - - - - - - - - - 2,342 5,096 15 606 199 704 2,963 5,999 - - - 140 - 140 * Maximum exposure to credit risk includes undrawn credit limits and uses scheduled balances. Carrying amount as at 30 June 2021 is $3.549b. 96 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 Maximum exposure to credit risk Expected credit loss Consolidated entity Balance at 1 July 2020 Stage 1 $’000 Stage 2 $’000 Stage 3 $’000 Total $’000 Stage 1 $’000 Stage 2 $’000 Stage 3 $’000 Total $’000 Class of financial instrument Cash and cash equivalents Due from other financial institutions 106,478 16,293 Certificate of deposit 293,172 Notes – securitisation program and other Total 24,074 440,017 Loans and advances* - - - - - - - - - - 106,478 16,293 293,172 24,074 440,017 - - - - - - Mortgage lending 3,332,873 7,356 11,638 3,351,867 2,503 - Personal lending - Commercial lending 24,306 79,070 - 180 35 1,774 24,341 81,024 219 263 Total 3,436,249 7,536 13,447 3,457,232 2,985 Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 114,807 591 115,398 - - - - - - 114,807 591 115,398 197 - 197 - - - - - 241 - 22 263 - - - - - - - - 2,439 90 815 3,344 - - - - - - - - 5,183 309 1,100 6,592 197 - 197 * Maximum exposure to credit risk includes undrawn credit limits and uses scheduled balances. Carrying amount as at 30 June 2020 is $3.203b. 97 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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 Total $’000 Loans and advances at amortised cost* Gross carrying amount at beginning of year 3,181,902 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 2021 6,958 (4,882) (4,091) (483,268) 963,367 (127,662) 3,532,324 * Excludes interest receivable and deferred mortgage brokers commissions. 7,520 (4,018) 5,382 (892) (970) - (115) 6,907 13,473 (2,940) (500) 4,983 3,202,895 - - - (4,422) (488,660) - 963,367 (360) 10,234 (128,137) 3,549,465 Consolidated entity Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 Total $’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 13,082 (3,243) (278) 8,568 3,081,092 - - - (5,895) (447,374) 847 392 686,890 (117,713) 13,473 3,202,895 There has been no significant movement in carrying amount of other financial assets the general business operations of the Group and therefore the movement has not been disclosed. 98 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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 2021 Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 3,062 628 (10) (2) (599) 637 (981) 2,735 263 (118) 47 (40) (90) - 239 301 3,267 (510) (37) 42 (938) - 1,139 2,963 * Excludes interest receivable and deferred mortgage brokers commissions. Total $’000 6,592 - - - (1,627) 637 397 5,999 Total $’000 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 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. No ECL is recognised on any other financial asset, as this has been assessed as immaterial in both the current and comparative periods. 99 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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 2021 Consolidated entity Expected credit loss Loss allowance at beginning of year Loss allowance recognised/ (reversed) during the year Bad debts written off Loss allowance at 30 June 2020 4.5.6 Credit risk concentrations Loans and advances $’000 6,592 646 (1,239) 5,999 Loans and advances $’000 4,437 3,702 (1,547) 6,592 LANA $’000 Total $’000 197 (57) - 140 LANA $’000 54 143 - 197 6,789 589 (1,239) 6,139 Total $’000 4,491 3,845 (1,547) 6,789 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. 2021 $’000 2020 $’000 3,469,468 3,112,868 24,271 55,726 21,908 68,119 3,549,465 3,202,895 100 Auswide BankConsolidated 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 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 2021 $’000 2020 $’000 2,527,350 2,371,985 445,274 53,291 355,108 31,753 100,623 13,494 22,572 360,263 38,542 281,021 29,272 82,506 12,779 26,527 3,549,465 3,202,895 * Excludes interest receivable and deferred mortgage brokers commissions. LANA of $159.053m (2020: $114.807m) 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 $3.668m (2020: $3.577m) 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 $37.424m at 30 June 2021 (2020: $60.613m). The change in fair value due to credit risk for the MISs designated at FVTPL is $1.013m for the year (2020: $1.051m). 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. 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 2021 $’000 3,047 735 862 431 - 3,905 8,980 2020 $’000 1,609 903 3,333 1,265 549 4,900 12,559 2021 $’000 3,047 735 862 431 - 3,905 8,980 2020 $’000 1,609 903 3,333 1,265 549 4,900 12,559 101 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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. Gross carrying amount Expected credit loss Consolidated entity Mortgage lending LVR ratio Less than 50% 51-70% 71-90% 91-100% More than 100% FHLDS Total 2021 $’000 2020 $’000 450,012 416,877 920,479 920,521 1,326,451 1,395,369 195,072 230,207 23,595 31,243 553,859 118,651 3,469,468 3,112,868 2021 $’000 269 1,096 1,523 325 1,482 401 5,096 2020 $’000 495 1,047 1,772 11 1,672 186 5,183 Loans issued under the federal government’s First Home Loan Deposit Scheme by National Housing Finance and Investment Corporation (NHFIC) are guaranteed for any loan monies above 80% LVR. Personal lending 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. Consolidated entity Commercial lending LVR ratio Less than 50% 51-70% 71-90% 91-100% More than 100% Total Gross carrying amount Expected credit loss 2021 $’000 2020 $’000 2021 $’000 15,212 18,117 17,018 308 5,071 20,604 24,078 13,278 3,380 6,779 55,726 68,119 35 33 24 - 612 704 2020 $’000 92 94 68 473 374 1,101 Other financial assets The Group holds other financial assets at amortised cost with a carrying amount of $486.756m (2020: $440.284m) and at FVTOCI with a carrying amount of $0.918m (2020: $0.918m). 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. 102 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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. 4.6.1 Financial instruments measured at fair value on recurring basis Consolidated entity 30 June 2021 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 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 2021 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 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - 49 - 49 2,661 2,661 37,424 - 918 38,342 - - 37,424 49 918 38,391 2,661 2,661 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - 141 - 141 2,059 2,059 60,613 - 918 61,531 - - 60,613 141 918 61,672 2,059 2,059 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - 49 - 49 2,661 2,661 37,424 - 918 38,342 - - 37,424 49 918 38,391 2,661 2,661 There have been no transfers of between level 1 and level 2 categories of financial instruments. 103 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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 Accounting policies Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - - - - - 141 - 141 2,059 2,059 60,613 - 918 61,531 - - 60,613 141 918 61,672 2,059 2,059 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). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. In measuring fair value, the Group uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are received at each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. The categories are as follows: > level 1 - measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date, > level 2 - measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, 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. 104 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 4.6.2 Reconciliation of Level 3 fair value measurements of financial assets and financial liabilities FVTOCI Unlisted shares FVTPL Managed investment schemes Consolidated entity Balance at beginning of year Total gains or losses: - in profit or loss - in other comprehensive income Purchases Disposals 2021 $’000 918 - - - - 2020 $’000 918 - - - - Balance at end of year 918 918 2021 $’000 60,613 2,789 - 2,000 (27,978) 37,424 2020 $’000 44,569 3,851 - 26,400 (14,207) 60,613 FVTOCI Unlisted shares FVTPL Managed investment schemes Company Balance at beginning of year Total gains or losses: - in profit or loss - in other comprehensive income Purchases Disposals 2021 $’000 918 - - - - 2020 $’000 918 - - - - Balance at end of year 918 918 2021 $’000 60,613 2,789 - 2,000 (27,978) 37,424 2020 $’000 44,569 3,851 - 26,400 (14,207) 60,613 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 2021 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total fair value $’000 Total carrying amount $’000 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 112,627 12,790 361,719 - 487,136 - - - - - - - - 112,627 112,627 12,790 12,790 361,719 361,340 3,574,708 3,574,708 3,555,043 3,574,708 4,061,844 4,041,800 - - - - - - 3,337,996 147,978 - - 3,337,996 3,349,289 147,978 150,806 - 15,993 15,993 15,993 336,084 42,000 - - 336,084 333,715 42,000 42,000 3,864,058 15,993 3,880,051 3,891,803 105 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 Consolidated entity 30 June 2020 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total fair value $’000 Total carrying amount $’000 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 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 3,008,456 3,018,508 48,859 23,586 49,793 23,586 422,668 28,000 - - 422,668 420,731 28,000 28,000 3,507,983 23,586 3,531,569 3,540,618 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. The Group selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The valuation techniques selected by the economic entity are consistent with one or more of the following valuation approaches: > market approach - valuation techniques that use prices and other relevant information generated by market transactions for identical or similar assets or liabilities; > income approach - valuation techniques that convert estimated future cash flows or income and expenses into a single discounted present value; and > cost approach - valuation techniques that reflect the current replacement cost of an asset at its current service capacity. 106 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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 Widcap Securities Pty Ltd Auswide Performance Rights Pty Ltd Widcap Securities Pty Ltd 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 2021 % 2020 % 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Australia 100.0 100.0 Australia 100.0 100.0 - - - - - - - - Widcap Securities Pty Ltd is a wholly owned subsidiary which acts as the manager and custodian for Auswide Bank’s 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 2014-1 • ABA Trust 2017-1 • WB Trust 2010-1 (paid out March 2021) • ABA Trust No. 7 5.1.3 Details of material associates Name of associate Principal activity Place of incorporation and operation Proportion of ownership interest and voting power held by the Group Finance Advice Matters Group Pty Ltd (FAMG) Financial Planning Australia 2021 25.0% 2020 25.0% Financial Advice Matters Group Pty Ltd (FAMG) is accounted for using the equity method in these consolidated financial statements. 107 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 30 JUNE 2021 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. 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 2021 $’000 554 597 (236) (46) 871 2021 $’000 1,227 168 (50) 118 118 63 2020 $’000 552 537 (204) (63) 822 2020 $’000 1,194 160 (44) 116 116 50 The above figures were based on the unaudited accounts of FAMG as at 30 June 2021. 108 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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. s r o t c e r i D s e v i t u c e x E SC Birkensleigh Chairman - Non-executive Director GN Kenny Director - Non-executive J Korhonen (appointed 01/04/2021) Director - Non-executive MJ Barrett Managing Director B Dangerfield Director - Non-executive GB Murdoch (appointed 01/01/2021) Director - Non-executive JS Humphrey (ceased 31/12/2020) Chairman - Non-executive Director WR Schafer Chief Financial Officer, Company Secretary GM Job Chief People and Property Officer MS Rasmussen Chief Operating Officer D Hearne Chief Customer Officer SD Johnson (appointed 09/11/2020) Chief Information Officer R Stephens (appointed 04/11/2020) Chief Transformation Officer CA Lonergan Chief Risk 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. 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. Consolidated Company Short-term benefits Cash salary and fees Cash bonus Post employment benefits Superannuation Share based payments Other long term benefits 2021 $’000 2,658 228 202 150 57 2020 $’000 2,546 143 181 133 46 2021 $’000 2,658 228 202 150 57 2020 $’000 2,546 143 181 133 46 3,295 3,049 3,295 3,049 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 $162,747 (2020: $177,935) 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. 109 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 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: Profit after tax from continuing operations Depreciation and amortisation Bad debts expense (Profit)/loss on disposal of non-current assets Movement in assets Loans and advances Accrued interest on investments Prepayments and other receivables Deferred tax asset Movement in liabilities Consolidated Company 2021 $’000 24,155 3,833 589 - 2020 $’000 18,504 4,033 3,845 125 2021 $’000 24,158 3,833 589 - 2020 $’000 18,513 4,033 3,845 125 (349,871) (124,550) (350,723) (124,772) 139 (17) 936 784 706 (521) 139 (18) 936 781 709 (521) Deposits and short term borrowings 431,794 265,696 431,786 265,703 Creditors and accruals Deferred tax payable Income tax payable Employee benefit provisions Other provisions Reserves (5,302) (18,847) (5,313) (18,847) 552 4,574 132 76 (428) (382) (1,769) 339 (1) 352 552 4,571 132 76 (428) (382) (1,769) 339 (1) 352 Net cash generated from operating activities 111,162 148,314 110,290 148,108 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 Consolidated Company Capital expenditure commitments Capital expenditure contracted for within one year 2021 $’000 732 732 2020 $’000 1,096 1,096 2021 $’000 732 732 2020 $’000 1,096 1,096 110 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 6.3 Contingent liabilities and credit commitments Approved but undrawn loans Approved but undrawn credit limits Bank guarantees Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 159,053 114,807 159,053 114,807 88,841 1,763 87,808 591 88,841 1,763 87,808 591 249,657 203,206 249,657 203,206 6.4 Provisions Consolidated Company 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 2021 $’000 3,308 401 (268) 3,441 3,024 417 3,441 114 3,555 2020 $’000 2,969 628 (289) 3,308 2,873 435 3,308 39 3,347 2021 $’000 3,308 401 (268) 3,441 3,024 417 3,441 114 3,555 2020 $’000 2,969 628 (289) 3,308 2,873 435 3,308 39 3,347 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. 111 Annual Report for the year ended 30 June 2021NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2021 6.5 Other non-financial assets Prepayments Other Consolidated Company 2021 $’000 2,824 298 3,122 2020 $’000 2,969 281 3,250 2021 $’000 2,821 298 3,119 2020 $’000 2,966 281 3,247 6.6 Remuneration of auditors Amounts received or due and receivable by the auditors of Auswide Bank Ltd, Deloitte Touche Tohmatsu Limited, are as follows: Audit or review of financial reports: Group Consolidated Company 2021 $’000 2020 $’000 2021 $’000 2020 $’000 354,116 286,194 354,116 286,194 Subsidiaries and joint operations 25,225 20,600 25,225 20,600 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 379,341 306,794 379,341 306,794 94,600 77,250 94,600 77,250 94,600 77,250 94,600 77,250 13,096 13,690 13,096 13,690 13,096 13,690 13,096 13,690 24,007 131,118 65,612 89,002 24,007 131,118 65,612 89,002 155,125 154,614 155,125 154,614 642,162 552,348 642,162 552,348 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. 112 Auswide BankDIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2021 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 2021 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 2021. The declaration is made in accordance with a resolution of the Board of Directors made pursuant to Section 295(5) of the Corporations Act 2001, and is signed for and on behalf of the Directors by: SC Birkensleigh Director Brisbane 26 August 2021 GB Murdoch Director Brisbane 26 August 2021 113 Annual Report for the year ended 30 June 2021 114 Auswide BankDeloitte Touche Tohmatsu ABN 74 490 121 060 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD Riverside Centre Deloitte Touche Tohmatsu Level 23 Deloitte Touche Tohmatsu ABN 74 490 121 060 123 Eagle Street ABN 74 490 121 060 Brisbane QLD 4000 Riverside Centre GPO Box 1463 Riverside Centre Deloitte Touche Tohmatsu Level 23 Brisbane QLD 4001 Australia Level 23 ABN 74 490 121 060 123 Eagle Street 123 Eagle Street Brisbane QLD 4000 Tel: +61 7 3308 7000 Brisbane QLD 4000 Riverside Centre GPO Box 1463 Fax: +61 7 3308 7001 GPO Box 1463 Level 23 Brisbane QLD 4001 Australia www.deloitte.com.au Brisbane QLD 4001 Australia 123 Eagle Street Brisbane QLD 4000 Tel: +61 7 3308 7000 Tel: +61 7 3308 7000 GPO Box 1463 Fax: +61 7 3308 7001 Fax: +61 7 3308 7001 Brisbane QLD 4001 Australia www.deloitte.com.au www.deloitte.com.au Tel: +61 7 3308 7000 Fax: +61 7 3308 7001 www.deloitte.com.au Report on the Audit of the Financial Report Independent Auditor’s Report to the Members of Auswide Bank Ltd Independent Auditor’s Report to the Members of Auswide Independent Auditor’s Report to the Members of Auswide Bank Ltd Bank Ltd Independent Auditor’s Report to the Members of Auswide Bank Ltd Opinion Report on the Audit of the Financial Report Report on the Audit of the Financial Report We have audited the financial report of Auswide Bank Ltd (the “Bank”) and its subsidiaries (the “Group”) which Opinion comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of Report on the Audit of the Financial Report Opinion profit or loss and other comprehensive income, the consolidated statement of changes in equity and the We have audited the financial report of Auswide Bank Ltd (the “Bank”) and its subsidiaries (the “Group”) which consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a We have audited the financial report of Auswide Bank Ltd (the “Bank”) and its subsidiaries (the “Group”) which Opinion comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of summary of significant accounting policies and other explanatory information, and the directors’ declaration. comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the profit or loss and other comprehensive income, the consolidated statement of changes in equity and the We have audited the financial report of Auswide Bank Ltd (the “Bank”) and its subsidiaries (the “Group”) which consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of summary of significant accounting policies and other explanatory information, and the directors’ declaration. including: summary of significant accounting policies and other explanatory information, and the directors’ declaration. profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, (i) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of their financial In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, summary of significant accounting policies and other explanatory information, and the directors’ declaration. including: performance for the year then ended; and including: complying with Australian Accounting Standards and the Corporations Regulations 2001. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, giving a true and fair view of the Group’s financial position as at 30 June 2021 and of their financial (i) (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. giving a true and fair view of the Group’s financial position as at 30 June 2021 and of their financial (i) including: performance for the year then ended; and performance for the year then ended; and Basis for Opinion complying with Australian Accounting Standards and the Corporations Regulations 2001. (ii) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of their financial (i) complying with Australian Accounting Standards and the Corporations Regulations 2001. (ii) performance for the year then ended; and We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those Basis for Opinion standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of Basis for Opinion (ii) our report. We are independent of the Group in accordance with the auditor independence requirements of the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those Basis for Opinion standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in our report. We are independent of the Group in accordance with the auditor independence requirements of the We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s accordance with the Code. Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are our report. We are independent of the Group in accordance with the auditor independence requirements of the relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in We confirm that the independence declaration required by the Corporations Act 2001, which has been given to relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s accordance with the Code. the directors of the Bank, would be in the same terms if given to the directors as at the time of this auditor’s accordance with the Code. APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are report. relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in We confirm that the independence declaration required by the Corporations Act 2001, which has been given to We confirm that the independence declaration required by the Corporations Act 2001, which has been given to accordance with the Code. the directors of the Bank, would be in the same terms if given to the directors as at the time of this auditor’s We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our the directors of the Bank, would be in the same terms if given to the directors as at the time of this auditor’s report. opinion. report. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Bank, would be in the same terms if given to the directors as at the time of this auditor’s We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our report. opinion. opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 115 Annual Report for the year ended 30 June 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KKeeyy AAuuddiitt MMaatttteerr IImmppaaiirrmmeenntt ooff llooaannss aanndd aaddvvaanncceess As at 30 June 2021, the Group has recognised provisions amounting to $6.1m for impairment losses on loans and advances held at amortised cost in accordance with the Expected Credit Loss (ECL) approach required under AASB 9 Financial Instruments as disclosed in Note 4.5. Loans and advances subject to provisioning using the ECL model include the residential lending portfolio, personal loan portfolio and loans approved but not yet advanced. Significant management judgement was necessary in determining expected credit losses, including: HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr Our audit procedures in conjunction with our limited to: included, but were not specialists Testing the design and implementation of controls over the impairment provision including: - - The accuracy of data input into the system used for determining past due status and the approval of credit facilities; and The ongoing monitoring and identification of loans displaying indicators of impairment and whether they are migrating on a timely basis to appropriate including generation of days past due reports. default stages - - The application of the requirements of AASB 9 as reflected in the Group’s ECL model particularly in light of the current economic environment and the impacts of COVID-19; The identification of exposures with a significant movement in credit quality to determine whether 12-month or lifetime ECL should be recognised; and - Assumptions used in the ECL model such as the financial condition of the counterparty, repayment capacity and forward-looking macroeconomic factors as disclosed in Note 4.5. AAsssseessssiinngg iimmppaaiirrmmeenntt mmooddeell aaddeeqquuaaccyy:: We assessed the adequacy of management’s internally developed model in determining the impairment loss provision. Our procedures included, but were not limited to: - - - Assessing whether the impairment model adequately addresses the requirements of the relevant accounting standard; Evaluating management’s assessment of the impact of COVID-19 on the loan portfolio and as a result the estimate of ECL; Testing on a sample basis, individual exposures to assess if they are classified into appropriate default stages and aging buckets for the purpose of determining the impairment loss provision; - Assessing reasonableness of assumptions driving Probabilities of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD); and - Assessing reasonableness of management overlays to the modelled collective provision by recalculating the coverage provided by the collective (including impairment provision overlays) to the loan book, taking into account recent history, performance and de-risking of the relevant portfolios. We also assessed appropriateness of disclosures in Note 4 to the financial statements. the 116 Auswide Bank INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD KKeeyy AAuuddiitt MMaatttteerr KKeeyy AAuuddiitt MMaatttteerr IImmppaaiirrmmeenntt ooff nnoonn--ccuurrrreenntt aasssseettss IImmppaaiirrmmeenntt ooff nnoonn--ccuurrrreenntt aasssseettss As at 30 June 2021, the Group’s non-current assets include goodwill amounting to $46.3m as disclosed in As at 30 June 2021, the Group’s non-current assets Note 3.3. In accordance with AASB 136 Impairment of include goodwill amounting to $46.3m as disclosed in Non-Current Assets, cash-generating units (CGU) to Note 3.3. In accordance with AASB 136 Impairment of which goodwill is allocated are required to be tested for Non-Current Assets, cash-generating units (CGU) to impairment at least annually by comparing the CGU’s which goodwill is allocated are required to be tested for carrying value with its recoverable amount. impairment at least annually by comparing the CGU’s carrying value with its recoverable amount. in Significant management determining recoverable amount of the CGU including: in Significant management determining recoverable amount of the CGU including: Identification of appropriate Cash Generating Units - (CGU) to which goodwill is allocated for the purpose Identification of appropriate Cash Generating Units - of impairment testing; (CGU) to which goodwill is allocated for the purpose Selection of appropriate valuation methodology; of impairment testing; - and Selection of appropriate valuation methodology; - - Determination of assumptions and estimates in the and valuation methodology, in particular those affected - Determination of assumptions and estimates in the by current economic conditions due to the impact valuation methodology, in particular those affected of COVID-19 such as control premium and price- by current economic conditions due to the impact earnings multiples. of COVID-19 such as control premium and price- earnings multiples. is required is required judgement judgement the the HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr In conjunction with our valuation specialists, our procedures included, but were not limited to: In conjunction with our valuation specialists, our procedures included, but were not limited to: appropriateness - appropriateness - Evaluating of management’s identification of the Group’s of Evaluating CGUs and testing of key controls over the management’s identification of the Group’s impairment assessment process, including the CGUs and testing of key controls over the identification of indicators of impairment such impairment assessment process, including the as the carrying value exceeding the market identification of indicators of impairment such capitalisation; as the carrying value exceeding the market - Assessing appropriateness of the valuation capitalisation; methodology applied in determining the - Assessing appropriateness of the valuation recoverable amount of the one CGU; in determining the methodology applied - Assessing the reasonableness of the key recoverable amount of the one CGU; in the assumptions used by management - Assessing the reasonableness of the key impairment model and whether they are in the assumptions used by management the current suitably adjusted impairment model and whether they are economic environment including the impact of the current suitably adjusted COVID-19; and economic environment including the impact of Testing the mathematical accuracy of the COVID-19; and impairment model. Testing the mathematical accuracy of the impairment model. to reflect to reflect We also assessed the appropriateness of the disclosures in Note 3.3 to the financial statements. We also assessed the appropriateness of the disclosures in Note 3.3 to the financial statements. - - Other Information Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report which we obtained prior to the date of this auditor’s report, and also includes the following information which The directors are responsible for the other information. The other information comprises the Directors’ Report will be included in the Group’s annual report (but does not include the financial report and our auditor’s report which we obtained prior to the date of this auditor’s report, and also includes the following information which thereon): Chairman’s Report, Managing Director’s Report, Corporate Governance Summary and Shareholder will be included in the Group’s annual report (but does not include the financial report and our auditor’s report Information, which is expected to be made available to us after that date. thereon): Chairman’s Report, Managing Director’s Report, Corporate Governance Summary and Shareholder Information, which is expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. Our opinion on the financial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report In connection with our audit of the financial report, our responsibility is to read the other information identified or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work above and, in doing so, consider whether the other information is materially inconsistent with the financial report we have performed on the other information that we obtained prior to the date of this auditor’s report, we or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work conclude that there is a material misstatement of this other information, we are required to report that fact. We we have performed on the other information that we obtained prior to the date of this auditor’s report, we have nothing to report in this regard. conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the Chairman’s Report, Managing Director’s Report, Corporate Governance Summary and Shareholder Information, if we conclude that there is a material misstatement therein, we are required to When we read the Chairman’s Report, Managing Director’s Report, Corporate Governance Summary and communicate the matter to the directors and use our professional judgement to determine the appropriate Shareholder Information, if we conclude that there is a material misstatement therein, we are required to action. communicate the matter to the directors and use our professional judgement to determine the appropriate action. Responsibilities of the Directors for the Financial Report Responsibilities of the Directors for the Financial Report The directors of the Bank are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control The directors of the Bank are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control 117 Annual Report for the year ended 30 June 2021 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. view and is free from material misstatement, whether due to fraud or error. as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis alternative but to do so. of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic Auditor’s Responsibilities for the Audit of the Financial Report alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report • • • • • Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements be expected to influence the economic decisions of users taken on the basis of this financial report. can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: maintain professional scepticism throughout the audit. We also: As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and Identify and assess the risks of material misstatement of the financial report, whether due to fraud or maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material Identify and assess the risks of material misstatement of the financial report, whether due to fraud or sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve • Obtain an understanding of internal control relevant to the audit in order to design audit procedures collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures effectiveness of the Group’s internal control. that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Evaluate the appropriateness of accounting policies used and the reasonableness of accounting effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. estimates and related disclosures made by the directors. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to based on the audit evidence obtained, whether a material uncertainty exists related to events or conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. the related disclosures in the financial report or, if such disclosures are inadequate, to modify our However, future events or conditions may cause the Group to cease to continue as a going concern. opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, achieves fair presentation. and whether the financial report represents the underlying transactions and events in a manner that • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion business activities within the Group to express an opinion on the financial report. We are responsible for audit opinion the direction, supervision and performance of the Group’s audit. We remain solely responsible for our We communicate with the directors regarding, among other matters, the planned scope and timing of the audit audit opinion We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit audit. and significant audit findings, including any significant deficiencies in internal control that we identify during our We also provide the directors with a statement that we have complied with relevant ethical requirements audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably regarding independence, and to communicate with them all relationships and other matters that may reasonably We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably • • • 118 Auswide Bank as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. RReeppoorrtt oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 18 of the Directors’ Report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Auswide Bank Ltd for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Bank are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Gareth Bird Partner Chartered Accountants Brisbane, QLD 26 August 2021 119 as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. view and is free from material misstatement, whether due to fraud or error. as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue view and is free from material misstatement, whether due to fraud or error. as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis alternative but to do so. alternative but to do so. of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Auditor’s Responsibilities for the Audit of the Financial Report • • • Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements be expected to influence the economic decisions of users taken on the basis of this financial report. can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: maintain professional scepticism throughout the audit. We also: • • • As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material Identify and assess the risks of material misstatement of the financial report, whether due to fraud or sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve • Obtain an understanding of internal control relevant to the audit in order to design audit procedures collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures effectiveness of the Group’s internal control. that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. estimates and related disclosures made by the directors. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, estimates and related disclosures made by the directors. based on the audit evidence obtained, whether a material uncertainty exists related to events or based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to based on the audit evidence obtained, whether a material uncertainty exists related to events or conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. the related disclosures in the financial report or, if such disclosures are inadequate, to modify our However, future events or conditions may cause the Group to cease to continue as a going concern. opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that and whether the financial report represents the underlying transactions and events in a manner that Evaluate the overall presentation, structure and content of the financial report, including the disclosures, achieves fair presentation. achieves fair presentation. • • • and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or the direction, supervision and performance of the Group’s audit. We remain solely responsible for our business activities within the Group to express an opinion on the financial report. We are responsible for audit opinion audit opinion the direction, supervision and performance of the Group’s audit. We remain solely responsible for our We communicate with the directors regarding, among other matters, the planned scope and timing of the audit We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our and significant audit findings, including any significant deficiencies in internal control that we identify during our audit opinion We communicate with the directors regarding, among other matters, the planned scope and timing of the audit audit. audit. audit. and significant audit findings, including any significant deficiencies in internal control that we identify during our We also provide the directors with a statement that we have complied with relevant ethical requirements We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably regarding independence, and to communicate with them all relationships and other matters that may reasonably We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably Annual Report for the year ended 30 June 2021 CORPORATE GOVERNANCE SUMMARY 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 (4th 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, Board 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 be effective and 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: Instil a culture of acting lawfully, ethically and responsibly Auswide Bank promotes and supports a culture of lawful, ethical and responsible 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 - ‘Code of Conduct and Ethics’ and ‘Code of Conduct for Directors and Key Executives’ located in the Governance section at www.auswidebankltd.com.au. 120 Auswide BankCORPORATE GOVERNANCE SUMMARY Principle 4: Safeguard the integrity of corporate reports The Audit Committee has a documented Charter, approved by the Board. The Audit Committee’s focus is on the issues relevant to verifying and safeguarding the integrity of Auswide Bank’s financial operations and reporting structure. The names and qualifications of the members of the Audit Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Declarations have been signed by the Managing Director and Chief Financial Officer before approval by the Board of Auswide Bank’s financial statements for the financial period as detailed in the Corporate Governance Statement. Auswide Bank is in compliance with Principle 4 and full details are outlined in the Board Audit Committee Charter, Corporate Governance Statement and ‘Appointment of External Auditors and Rotation of the External Audit Partners’ statement located in the Governance section at www.auswidebankltd.com.au. The Directors’ Statutory Report 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. 121 Annual Report for the year ended 30 June 2021SHAREHOLDER INFORMATION 30 JUNE 2021 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. 2021 Annual General Meeting The 2021 Annual General Meeting is to be held on Tuesday 23 November 2021. Due to the ongoing COVID-19 pandemic, this year the Company will hold a hybrid AGM - both in-person at Auswide Bank’s Bundaberg Office, as well as virtually for those who are not able to attend in-person. The online platform will enable all shareholders, regardless of location, to participate in the meeting. 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. 122 Auswide BankSHAREHOLDER INFORMATION 30 JUNE 2021 Key dates Annual General Meeting 23 November 2021 Full year results and final dividend announcement 27 August 2021 Ex dividend date Record date 09 September 2021 10 September 2021 Participation in DRP (final date for receipt of application) 13 September 2021 Dividend payment 24 September 2021 Half year results and interim dividend announcement 24 February 2021 Ex dividend date Record date Participation in DRP (final date for receipt of application) Dividend payment E. Securities information 04 March 2021 05 March 2021 08 March 2021 19 March 2021 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 15 September 2021 are: Class of security Permanent ordinary shares ASX Code Number ABA 42,933,369 Distribution of shareholdings Permanent ordinary shares 15 September 2021 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 3,770 2,130 666 581 53 7,200 216 123 Annual Report for the year ended 30 June 2021SHAREHOLDER INFORMATION 30 JUNE 2021 E. Securities information (continued) Top 20 shareholders Permanent ordinary shares 15 September 2021 Name National Nominees Limited Citicorp Nominees Pty Limited Ronald Ernest Hancock & Lorraine Pearl Hancock Ronald Ernest Hancock Craig Thomas Kennedy GDC & DMC Super Pty Ltd ATF Graham Cockerill S/F A/c Kathleen Fay 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 BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP A/c Hestearn Pty Ltd Sawfam Pty Ltd ATF Sawyer Super Fund No2 A/c Horrie Pty Ltd ATF Horrie Superannuation A/c Delma Cran Lohse Holdings Pty Ltd ATF Peter Lohse Super Fund A/c Noela Olsen JP Morgan Nominees Australia Pty Limited Warambul Super Co Pty Ltd ATF Warambul Super Fund A/c No. of shares % of total 3,328,372 1,129,546 890,750 706,816 509,045 465,065 432,719 402,646 365,932 328,486 320,000 313,885 308,543 296,362 265,799 264,074 260,000 247,520 228,668 226,873 7.75 2.63 2.07 1.65 1.19 1.08 1.01 0.94 0.85 0.77 0.75 0.73 0.72 0.69 0.62 0.62 0.61 0.58 0.53 0.53 Top 20 holders of fully paid ordinary shares 11,291,101 26.32 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 5.42 124 Auswide BankSHAREHOLDER INFORMATION 30 JUNE 2021 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: > 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. 125 Annual Report for the year ended 30 June 2021FINANCIAL GLOSSARY Financial glossary For your reference, this glossary provides definitions for some of the terms used in financial reporting, particularly by financial institutions listed on the ASX. Not all terms may have been used in the Annual Report and Financial Statements. ADI AGM APRA ASIC Asset ASX Bad Debt Basel 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. Basis Point One hundredth of one percent or 0.01 percent. The term is used in money and securities markets to define differences in interest rates or yields. Capital Adequacy Ratio Cost-to-income 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. 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. ECL An Expected Credit Loss is the probability-weighted estimate of credit losses expected over the life of a financial instrument. Ex-Dividend Date The date used to determine a shareholder’s entitlement to a dividend. FHLDS FRN Liability First Home Loan Deposit Scheme. A Floating Rate Note is a security typically issued with a variable interest rate. A company’s debts or obligations that arise during the course of business operations. Liabilities for ADIs include interest-bearing deposits. 126 Auswide BankFINANCIAL GLOSSARY Liquidity For an ADI, liquidity is a measure of the ability of the ADI to fund growth and repay debts when they fall due, including the paying of depositors. Market Capitalisation The total value of a company’s shares calculated by multiplying the shares outstanding by the price per share. NCD A Negotiable Certificate of Deposit is a short term security typically issued by an ADI to a larger institutional investor in order to raise funds. Net Interest Income The difference between the revenue that is generated from an ADI’s assets, and the expenses associated with paying out its liabilities. Net Interest Margin (NIM) Net Profit After Tax (NPAT) The difference between the interest income generated by an ADI and the amount of interest the ADI pays out to their depositors, divided by the amount of their interest- earning assets. Total revenue minus total expenses, with tax that will need to be paid factored in. Net Tangible Asset Backing per Share An indication of the company’s net worth, calculated by dividing the underlying value of the company (total assets minus total liabilities) by the number of shares on issue. NHFIC The National Housing Finance and Investment Corporation. Non Interest Income Income derived primarily from fees and commissions, rather than income from interest-earning assets. Price-to-Earnings Ratio A measure of the price paid for a share relative to the annual income or profit earned (P/E Ratio) 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 Computed by dividing Net Profit After Tax by average Net Tangible Assets. Net Tangible Assets (RONTA) Assets equals net assets less goodwill. RONTA is equivalent to Return on Tangible Equity. RMBS Securitisation SSP Subordinated Capital Notes Tier 1 Capital Tier 2 Capital Residential mortgage-backed securities are a type of bond backed by residential mortgages on residential, rather than commercial, real estate. Refers to setting aside a group of income-generating assets, such as loans, into a pool against which securities are issued. Securitisation is performed by an ADI in order to raise new funds. Special Service Provider such as an authorised settlement clearing house. Subordinated notes or subordinated debentures, are a type of capital represented by debt instruments. Subordinated notes have a claim against the borrowing institution that legally follows the claims of depositors. Subordinated notes or debentures come ahead of stockholders. Describes the capital adequacy of an ADI. Tier 1 Capital is core capital and includes equity capital and disclosed reserves. Describes the capital adequacy of an ADI. Tier 2 Capital is secondary capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt and more. 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. 127 Annual Report for the year ended 30 June 2021 This page has been left blank intentionally. 128 Auswide BankHead Office Auswide Bank 16 - 20 Barolin Street PO Box 1063 Bundaberg QLD 4670 T 07 4150 4000 F 07 4152 3499 E auswide@auswidebank.com.au 1300 138 831 auswidebank.com.au (Retail Website) auswidebankltd.com.au (Corporate Website) AUSWIDE BANK LTD ABN 40 087 652 060 Australian Financial Services & Australian Credit Licence 239686

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