Auswide Bank Annual Report 2022

Plain-text annual report

ANNUAL REPORT 2022 small things big difference Auswide BankABOUT AUSWIDE BANK ..............................................3 FY22 FINANCIAL HIGHLIGHTS ..................................5 PROGRESS IN KEY OPERATIONAL PRIORITIES .........................................15 OUR BOARD OF DIRECTORS ......................................6 OUR LEADERSHIP TEAM ..............................................8 CHAIRMAN AND MANAGING DIRECTOR REPORT ........................................................11 DELIVERING PROFITABILITY GROWTH .................16 IN THE COMMUNITY .....................................................18 SUSTAINABILITY .............................................................20 FINANCIAL REPORT .......................................................25 1 Annual Report for the year ended 30 June 2022anytime anywhere banking 2 Auswide BankAbout Auswide Bank 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. 56 YEARS STRONG EST. IN 1966 CORE OFFERINGS STAFF ENGAGEMENT SCORE OF 97* * In 2022, 89% of staff participated in the Auswide Bank Employee Engagement & Satisfaction Survey FINANCIAL STATUS AWARDS MAJOR STRATEGIC PARTNERSHIPS $3.06b $3.85b CUSTOMER DEPOSITS IN LOAN BOOK ASSETS DISTRIBUTION ONLINE INTERNET BANKING AND APP STRONG BROKER NETWORK PRIVATE BANKING 17 BRANCHES 3 Annual Report for the year ended 30 June 20224 Auswide BankFY22 Financial Highlights Continued strength with profitable loan book growth STATUTORY NPAT $26.132m LOAN BOOK $3.855b1 COST TO INCOME RATIO 61.1% 8.2% 7.3% GROWTH2 1.0% NET INTEREST MARGIN 194BPS 6BPS on FY21 NPAT EXCLUDING NON-RECURRING ITEMS $24.956m 3.3% CUSTOMER DEPOSITS $3.059b 4.3% GROWTH EPS STATUTORY 60.5CPS ROE 9.8% 3.8CPS FROM 9.7% TOTAL DIVIDEND 42.0CPS 2.0CPS ROE EXCLUDING NON-RECURRING ITEMS 9.4% FROM 9.7% 1. Including Investments in Managed Investment Schemes (MISs) reported in Financial Assets in Balance Sheet. 2. The home loan book saw growth of 8.3% compared to RBA Financial Aggregates system growth of 7.8% for housing. 3. Difference between statutory and excluding non-recurring items NPAT and ROE is due to: - tax credits which the Bank previously underclaimed ($628k) - transition payment received from payments system provider ($318k) - costs of M&A activity, which did not proceed ($120k) - release of COVID overlay in collective provision ($350k). 5 Annual Report for the year ended 30 June 2022 Our 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, Ms Birkensleigh’s 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 Chairman of the Board Remuneration Committee and the Board Credit Committee, a member of the Board Audit Committee and the Board Risk Committee and is an independent Director. Mr Dangerfield is currently a Director and Chairman of the Bundaberg Friendly Society Medical Institute, which operates the Friendly Society Private Hospital and Pharmacies in Bundaberg. Gregory 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. Chairman Director Director 6 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, an independent Non-Executive Director of Nuix, 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 & National Motor Finance Business) and General Manager NSW/ACT Corporate and Business Bank at St George Bank Ltd. Prior to working at St George Bank, 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. Director Director Managing Director 7 Annual Report for the year ended 30 June 2022Our Leadership Team Managing Director Chief Financial Officer & Company Secretary Chief Risk Officer Chief Customer Officer Martin Barrett Bill Schafer Craig Lonergan Damian Hearne > Strategy development and implementation > Group operational and financial performance > Regulatory engagement > Risk culture and management > Social responsibility and sustainability > Customer satisfaction and growth > Group Accounting and Treasury > Budgeting and financial analysis > Financial and management reporting > Statutory, ASX and regulatory reporting > Capital, funding and liquidity planning strategy > Investor relations > Shareholder returns > Crisis management > Stress testing and contingency planning > Continued improvement of risk management strategies and practices > Risk management and compliance framework and control systems > Managing the Risk Profile within Board approved risk appetite > Risk culture awareness > Anti-Money Laundering (AML) framework (including counter terrorism financing, anti-bribery, corruption and sanctions responsibilities) > Customer operations > Customer experience > Retail and business banking sales and distribution > Mortgage broker and third party relationships > Marketing and products > Community and strategic partnerships > Customer Hub and Digital Bank > Company Secretary > Credit risk management duties > Providing management and the Board with risk reporting > Management of the internal audit function via third party professional services 8 Auswide BankChief People & Property Officer Chief Operating Officer Chief Transformation Officer Chief Information Officer Gayle Job Mark Rasmussen Rebecca Stephens Scott Johnson > 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 > Develop and > Lead strategic change > Information Technology > Deliver organisation wide strategic initiatives management > Information Technology strategic planning > Proactively monitor > Delivery of key strategic performance technology projects > Build capability in areas of organisational priority > Information Technology controls and security management > Information Technology vendor and partner management to ensure systems remain relevant and appropriate monitor the controls, frameworks, processes and policies governing the Bank’s operations. > Lending services > Lending origination services > Support Services operations > Support Services performance > Business Continuity Planning (BCP) and Management (BCM) > Key outsourcing Partnership Management (Support Services functions) > PEXA management and processing > Customer Hub – Customer Care > Customer Hub – Lending Centre 9 Annual Report for the year ended 30 June 2022building a bank for today and tomorrow 10 Auswide BankChairman and Managing Director Report Auswide Bank has delivered another strong financial performance in FY22. We maintained market share with solid profitability underpinned by both investing in capability and careful cost management. Despite a backdrop of economic uncertainty, the pandemic and flooding in our local communities, we were with our customers every step of the way. We are continuing to simplify our products and services, with a focus on meeting our customers’ needs. We have built a culture that continually innovates to create value for customers, shareholders and partners. As stewards of the bank, we have continued to build a sustainable business and during this year we have made significant progress with our sustainability strategy, which is detailed on page 20 of this report. Customers We believe our business continues to succeed because we place our customers at the heart of everything we do and this is reflected in our commitment to deliver anywhere banking via face-to-face, Customer Hub and digital experiences. The use of technology to support the customer experience continues to be a crucial area of focus of our digital strategy. Digital capabilities delivered during this year include: > an improved digital experience through internet banking and mobile app > faster time-to-yes and turnaround through improvements to our loan approval processes > enhanced cybersecurity and protection of customer data > use of robotic processes to enhance customer service. Our broker network continues to represent an important distribution channel and is one of our most significant growth opportunities. We have continued to build our broker capability with investment to improve both the broker and customer experience. Our broker relationship managers focus on building a strong rapport with brokers and aggregators, which we believe differentiates us from many of our bigger competitors. Our Private Bank supports the significant demand for a high-quality offering for high-net-worth customers. Growth in Private Bank has been achieved by delivering bespoke lending and deposit solutions to targeted clients, quick loan turnaround times and building enduring relationships. Financial Customer numbers, total loan volumes and retail deposits grew during the year, against the backdrop of ongoing COVID-19 disruptions and labour cost increases. We are pleased to report a strong result with growth across a number of key financial metrics. > Auswide Bank recorded a Net Profit after Tax (NPAT) of $26.132m, an increase of 8.2% on the previous year, despite an increase in funding costs and strategic investments. > Loan volumes were strong and our home loan portfolio grew above system, which resulted in a 7.3% increase in the loan book from $3.593b to $3.855b. Private Bank, brokers, fixed rate products and the enhancements to our broker offering all underpinned this growth. > Customer deposits grew by $126 million to reach $3.059b at year’s end, an increase of 4.3%. This deposit growth will provide funding for asset growth and repayment of the RBA funding facility for Q4 of FY23. > Mortgage loan arrears greater than 30 days sat at just 0.18% at 30 June 2022, which is a historically low rate for the bank. > Our Net Interest Margin (NIM) for the year was 1.94%, which enabled the bank to earn $82.0m in net interest income for the financial year. Whilst there was a reduction of 6bps in the NIM, this compares favourably to the NIM reductions of our peers. > The Cost to Income Ratio was 61.1%, which reflects a marginal increase of 1.0%. This was a result of the increased investment in our digital and mortgage growth strategy, which is in line with the bank’s strategic focus. > Funding from customer deposits through our branches, deposit partnerships and online capabilities represented 73.2% of total funding. This has allowed us to transform our funding mix and reduce our reliance on more expensive 11 Annual Report for the year ended 30 June 2022funding lines, such as securitisation, which represented 8.8% of funding in June 2022, compared 19.7% in June 2018. > Our strong capital position has been maintained with a capital adequacy ratio of 12.90% and CET1 of 10.63%. The result is expected to support above system loan book growth in H1 of FY23. The capital position remains comfortably more than the board’s target and exceeds APRA’s ‘unquestionably strong’ minimums. Lending > participation in FHLDS, supporting home ownership in a younger customer demographic > providing an efficient end-to-end home loan process. Dividend Strong growth and profit improvement allowed the board to declare a fully franked final dividend of 21.0 cents per share, bringing the total dividend for the financial year to 42.0 cents per share. Scale not the advantage it once was Despite an increasingly competitive home lending environment, we achieved strong lending growth throughout FY22. Scale can provide a competitive advantage, but it can also create system, customer service and structural challenges. Our continued efforts in building our broker network and targeting high-net-worth customers has allowed us to achieve record high home loan settlements of $1.065b, an increase of 10.9% on FY21. Loan approvals increased 10.3% and for the second year we exceeded $1b despite a highly competitive market. We continue to invest in our capacity to grow our loan book by: > Private Bank and brokers diversifying our geographic footprint outside Queensland We believe it’s the small things that set us apart and make a big difference for our customers and communities. Being small and nimble allows us the ability to quickly seize opportunities. Technology is now providing new distribution opportunities and our size means we are agile and can quickly access and integrate technology solutions at a much lower cost than bigger rivals. We have access to capital and funding that will continue to support our growth ambitions. 12 Auswide Bank The year ahead Our priorities for next year are clear: > continue to improve our home and consumer lending capability to support profitable growth > enhance our response to the growing risk to cybersecurity and further protect our customers from the risk of increasingly sophisticated scams and fraud > define and deliver on our digital transformation roadmap to meet our customers’ changing banking needs > continue to comply with all regulatory requirements > responsibly grow our customer base and assets > embed our sustainability strategy into our business. We are supporting our priorities through a combination of organic growth, partnerships, acquisitions and other collaboration opportunities. Acknowledgments Our results are the outcome of the incredible hard work from our team, who throughout the year have shown flexibility, strength and determination. We are proud of their dedication and the way they have faced each challenge, while continuing to support our customers. We would like to thank them for their contribution. To our fellow Directors, thank you for your commitment and contribution over the past 12 months. To our shareholders, customers, and partners, thank you for allowing us to stand with you and for your continued support. We appreciate being on this exciting journey together. Sandra Birkensleigh Chairman Martin Barrett Managing Director Broker and Private Bank driving growth TOTAL HOME LOAN APPROVALS PRIVATE BANK PORTFOLIO DISSECTION $585.8m $582.5m $732.6m $1,011.6m $1,115.4m Sports Professional Accountant JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 PRIVATE BANK PORTFOLIO $352.2m $219.5m $125.4m JUN 20 JUN 21 JUN 22 Material growth in Private Bank up from $219.5m at June 21 to $352.2m at June 22 Lawyer 5% 5% 11% Medico 45% Misc. Professional 28% 2% 4% Building Professional Allied Health 13 Annual Report for the year ended 30 June 202214 Auswide BankProgress in key operational priorities CUSTOMERS PRODUCTS STRATEGY High quality lending > home loan settlements at a record high $1.065b, an increase of 10.9% on FY21 > > sustained Private Bank momentum in customer and asset growth total arrears at historic low of 0.18% of loan book at 30 June 22 Customer deposits > customer deposits grew 4.3% (73.2% of total funding) across FY22 > 21.4% growth in lower cost at call savings accounts from $1.44b at June 21 to $1.75b at June 22 Enhancing customer experience by > brand evolution journey and QRL partnership > > home loan support and a retention focus for existing customers anytime anywhere banking – face-to-face, Customer Hub and digital Growth in FY22 by > our niches – Private Bank, First Home Owners scheme, Fixed Rate products > gaining deposits through partnerships > an enhanced broker offering Growth outlook > refinance market will become competitive as fixed rates mature > ongoing broker lending enhancement > Private Bank expansion Digital capabilities delivered improving digital experience > through Internet Banking and Mobile App > > > loan processing enhancements for time-to-yes and turnaround boosting cyber resilience and protections to customer data robotic processes to enhance customer service Digital investments in action a full digital experience including > payment choices > > improved loan experience: auto decisioned loans, digital documentation and robotic processes industry leading AI to retain customers as we move into a period of customer volatility Sustainability > > Sustainability Committee developing policies, targets and measures for ESG progress pillars of framework – Customers, Our People, Community, Environment, Financial and Technology and Data 15 Annual Report for the year ended 30 June 2022Delivering profitable growth STATUTORY NPAT NET INTEREST REVENUE $17.9m $17.2m $18.5m $26.1m $24.2m $61.0m $63.2m $70.5m $78.2m $82.0m JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 NET INTEREST MARGIN LOAN BOOK 1.97% 2.00% 1.94% $2,945m $3,131m $3,266m $3,855m $3,593m 1.93% 1.87% JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 STATUTORY EARNINGS PER SHARE (CPS) COST TO INCOME RATIO 42.8 40.8 43.8 56.7 60.5 64.5% 63.5% 62.5% 61.1% 60.1% JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 16 Auswide BankCUSTOMER DEPOSITS $2,620m $2,373m $2,108m $2,933m $3,059m JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 CAPITAL ADEQUACY RATIO 14.89% 13.79% 12.95% 13.31% 12.90% JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 STATUTORY RONTA 12.1% 12.0% 9.9% 9.1% 9.7% JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 17 Annual Report for the year ended 30 June 2022In the community Auswide Bank Corey Parker training clinic Corey Parker and Meg Ward provided football skills training to over 200 children at clinics held at Souths Magpies and Capalaba Warriors football clubs. Auswide Bank’s Community Program of the year Murgon Mustangs domestic violence prevention program receiving additional funding. Red Shield Appeal Bundaberg 13 May 2022. 18 Auswide BankCancer Council Queensland Relay for Life Stepping out in their 80’s fluro, our Gympie branch clocked up laps and raised funds for this year’s Relay for Life. Auswide Bank Regional Roadshow The tour - which made stops in Bundaberg, Maryborough and Gympie over an action-packed three days - saw $22,500 raised for grassroots football. Training clinics were held and wellbeing education was delivered to local schools. Cancer Council Queensland Busy Bee Walk for awareness. A team of Auswide Bank staff spent the day volunteering – cleaning and gardening at the Charles Wanstall Apex Lodge in Brisbane. Our QRL ambassador Corey Parker came along to lend a hand. Auswide Bank staff and their families participated in and sponsored the 11th Walk for Awareness. The walk was created to help raise awareness for people with mental health battles. Walk for Awareness is to remember and honour those who have lost their lives or are continuing to battle with mental health. 19 Annual Report for the year ended 30 June 2022Sustainability At Auswide Bank, our sustainability approach is centred on long term value creation that ensures we remain relevant to our customers, people, shareholders and the communities in which we operate. We understand 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 > serving our customers by supporting the communities they live in > seeking greater sustainability that meets our responsibilities to our community. Building upon the Environmental, Social, and Governance (ESG) sustainability focus areas launched in FY21, we have been evolving our approach while recognising this work is never really complete. What’s important is being able to demonstrate and measure our impact. During the year Auswide Bank established its Sustainability Committee to develop a sustainability strategy and framework and to oversee the ongoing development of this strategy. Over the course of the year under the guidance of the Board Risk Committee, the Sustainability Committee worked to develop Auswide Bank’s sustainability framework and establish targets and measurement in line with our business objectives and ESG responsibilities. Our approach Our sustainability vision is to provide ethical banking to all our communities. Our commitment is doing business responsibly and in ways that benefit our customers and communities, today and into the future. The approach we are taking to sustainability focuses upon six key pillars: Our People An empowered, diverse and inclusive workforce. Recruit for a strong sense of purpose and ethics. Increase skills and capabilities of our people. Customer Relationships built on trust. Helping achieve home ownership, create wealth, access banking and financial services. Help customers protect their assets from financial loss or hardship. Transparency on fees and charges. Community Improve financial literacy wellbeing in the community. Support and encourage through community projects and initiatives that are good for the community and the economy. Increase access to financial services. OUR VISION Ethical banking for our Communities Environment Accountability of Auswide Bank’s impact on the environment. Contribute to a transition to a lower carbon economy. Technology & Data Data security, privacy and governance. Focus on customer experience through digital infrastructure. Data insights driving customer relationships. Financial Capital reinvested for future growth returns to shareholders. Increase market share with identified markets. 20 Auswide BankOur sustainability goals and value drivers View our Sustainability Report - Auswidebank.com.au/sustainabilityimpact.2022 Workforce empowerment and capability > Wellbeing - health and safety (working conditions) > Inclusion and diversity > Employee support and benefits > Culture and engagement > Talent and capability Climate change, sustainable finance and environment > C limate change > Climate offset initiative > Lending emissions > Sustainable finance Data protection and governance > Cyber security > Customer data privacy > Open banking > Regulatory reporting Innovation, transformation and execution > Transformation > Innovation and partnerships Sustainability is a key part of who we are as an organisation, and in this last year we made key decisions and investments to ensure we are fulfilling our duties as a responsible bank. Community support and involvement > Maintaining and developing strong relationships and investments that contribute to a better community Customer experience and product responsibility > Enhancing our customer experience > Customer satisfaction and advocacy > Product simplification > Lending responsibility > Resolving customer complaints Supporting economic and customer resilience > Supporting disaster recovery > Managing credit risk > Business resilience > Customer support Leadership and governance > Corporate governance > Modern slavery > Purpose led culture > Business ethics > Critical incident risk management > Systemic risk management Annual Report for the year ended 30 June 2022 21 22 Auswide BankFINANCIAL REPORT DIRECTORS’ STATUTORY REPORT ....................................................... 27 AUDITOR’S INDEPENDENCE DECLARATION ...................................... 43 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 Annual Report for the year ended 30 June 2022 23 24 Auswide BankDirectors’ statutory report REVIEW AND RESULTS OF OPERATIONS Auswide Bank is finalising the implementation of the Bank’s strategic plan which has led to record operating results for the financial year. The financial targets set out in the 3-year plan were achieved ahead of schedule and the Board and management are developing a new strategic plan which will target further enhancements in the digital bank journey into 2025. Strong loan book growth has been achieved across the 2021/22 financial year with a corresponding increase in the net interest revenue of the bank. While the net interest margin (NIM) fell by 6 bps, this result will compare favourably with our peers. Auswide continued to support the First Home Loan Deposit Scheme (FHLDS), while experiencing further expansion of the Private Bank service model and success in generating loans via broker channels as we focus on service to the brokers and providing consistency and improved turnaround times for customers. > a transition payment credit received from a payments system provider ($318k); > partial release of an overlay in the collective provision for doubtful debts ($350k); and > expenses relating M&A due diligence which did not proceed to a transaction $120k. The loan book of Auswide Bank Ltd (grossed up for Investments in Managed Investment Schemes reported in Other financial assets in the Statement of Financial Position) increased from $3.593b at 30 June 2021 to $3.855b at 30 June 2022, an increase of $262.090m. The home loan book saw above system growth of 8.3% compared to system growth per the Reserve Bank of Australia (RBA) Financial Aggregates data of 7.8% for the housing sector. LOAN BOOK $3,855m $3,593m RESULTS Auswide Bank has again returned record financial results. $2,945m $3,131m $3,266m The statutory consolidated NPAT for the 2021/22 financial year was $26.132m compared to the result of $24.155m for the 2021/21 year. This represents an increase of 8.18%. STATUTORY NPAT $26.1m $24.2m JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 $17.9m $17.2m $18.5m JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 The NPAT excluding the non-recurring items was $24.956m compared to $24.155, an increase of 3.32%. The NPAT excluding non-recurring items was derived by adjusting for the following after tax items: > tax credits which the bank previously underclaimed ($628k); Home loan settlements across the financial year totalled $1.065b, an increase of 10.86% on the $960.439m in home loan settlements for FY21. Net Interest Margin The NIM has been a focus of the bank’s strategy during the 2021/22 financial year to ensure loan book growth is reflected in the net interest revenue. The highly competitive housing market was again a feature of the financial year, putting additional pressure on the NIM and requiring ongoing management of funding mix and pricing. The net interest margin for the 2021/22 financial year was 1.94% compared to 2.00% in the prior financial year, a decline of 6 bps. 25 Annual Report for the year ended 30 June 2022DIRECTORS’ STATUTORY REPORT NET INTEREST MARGIN 1.93% 1.87% 1.97% 2.00% 1.94% JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 Deposits and funding Customer deposits have increased significantly during the year from $2.933b at 30 June 2021 to $3.059b, an uplift of $126.098m. Although customer deposits have risen there has also been an increase in other funding sources as pricing and competition for deposits has escalated. The level of customer deposits as a percentage of total funds has reduced from 75.59% at 30 June 2021 to 73.16% at 30 June 2022. CUSTOMER DEPOSITS $2,620m $2,373m $2,108m $2,933m $3,059m JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 The focus on lower cost at call savings accounts has resulted in an increase of 21.4% in that funding channel, rising from $1.44b at June 21 to be $1.75b at June 22. The bank has not been required to commit heavily to the middle market term deposit space which has seen extreme competition leading to higher interest rates. Growth in customer deposits will provide funding for expansion and allow the repayment of the first tranches of the RBA’s term funding facility which mature in Q4 of FY23. Customers Auswide Bank continued to support the FHLDS across the 2021/22 financial year, supporting first homebuyers into their homes and acquiring a new generation of younger customers for the bank. While the FHLDS loans have contributed to an increase in the proportion of loans with >90% LVR the FHLDS loans have a government guarantee for all funds above 80% LVR. Auswide’s Private Bank strategy has continued to expand with the delivery of lending and deposit solutions to high net worth individuals. The model aims to deliver high levels of service and capability to customers while also providing turnaround times that match the requirements of the customers. There has been material growth during the financial year lifting the portfolio to in excess of $350m at 30 June 2022. Loans from the third-party channel have continued to provide a material growth opportunity for the bank across the year with a 10.5% uplift in the Southeast Queensland portfolio. In addition, the growth outside of Queensland has continued with material growth in the loan books in New South Wales and Victoria. Strategic investment in the Broker business technology, which includes Artificial Intelligence (AI) learning and improved document management systems, will be an ongoing feature of the bank’s strategy. Technology The bank has continued to accelerate growth through investment in digital capabilities. The strategic plan has targeted investment in the digital framework to deliver capabilities across acquisition through partners, customer choice, digital uplift and automation. The first phase of the strategy is now complete with improved digital experience through Internet Banking and the Mobile App. The loan processing enhancements have delivered improved time to yes and turnaround times and there has been improvements in cyber resilience and protection of customer data. Auswide has also introduced robotic processes to enhance customer service and is delivering data capabilities for a data driven business. The next phase of digital investment aims at delivering a full digital experience including payment choices and anytime anywhere banking. Importantly, the strategy targets improved loan experience through auto decisioned loans, digital documentation and robotic processes. Auswide is also introducing industry leading AI to retain customers as we move into a period of customer volatility. Cyber resilience and data protection enhancements will continue to be at the forefront of the technology strategy. Capital The capital adequacy ratio for the Auswide Bank Group at 30 June 2022 was 12.90% (2021: 13.31%). The tier 1 26 Auswide BankDIRECTORS’ STATUTORY REPORT capital ratio at 30 June 2022 was 10.63% (2021: 10.84%). The capital remains above the Board’s capital targets and meets APRA’s ‘unquestionably strong’ minimums. Due to the above system loan book growth projected for H1 of FY23, there will be a material uplift in the credit risk weighted assets during that period. The Board has resolved to implement an underwritten DRP for the final dividend for FY22. This will ensure strength of capital as the loan book grows as a result of record approvals in Q1 of FY23. 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 projected to increase across the first half of FY23 as a result of record loan applications and approvals. As Auswide has continued to invest in the broker-lending channel there is capacity to elevate the volume of transactions with record settlements projected in Q1 of the 2022/23 financial year. The Private Bank is continuing to develop with additional staff added to ensure the high service model is expanded to the growing customer base. The Board and management will continue to focus on profitable lending, managing funding and pricing to ensure the loan book growth flows through to the net interest revenue of the bank. Branch network The Company has a diversified branch network consisting of 17 branches and agencies across Queensland, and a business centre in Brisbane. The Company also employs Business Development Managers in Sydney and Melbourne to conduct interstate business. All regional loan staff and panel valuers are locally based ensuring an in-depth knowledge of the local economy and developments in the real estate market. There is focus on ensuring future investments are aligned with growth opportunities and strategic initiatives, ensuring a consistent review of historical investments including branches. Arrears and collections Total arrears greater than 30 days past due decreased from $8.980m at 30 June 2021 to $6.976m at 30 June 2022. Arrears past due 30 days have decreased as a percentage of the Group’s total loan book from 0.25% at 30 June 2021 to 0.18% at 30 June 2022. Environmental, Social and Governance (ESG) In December 2021 an Environmental Social and Governance Committee (ESG Committee) was formally established within the bank to progress the risk assessment, processes and controls and the reporting of ESG matters for Auswide. The purpose of the committee has been defined as assisting the bank in fulfilling its responsibilities and objectives with respect to environmental, health and safety, corporate social responsibility, corporate governance, sustainability and other public policy matters. The ESG Committee has escalated the Sustainability Strategy of the bank via 6 pillars including Customer, Our People, Community, Environment, Financial and Technology & Data. Risk Auswide Bank has demonstrated a proactive approach to risk management, which has been reflected in the bank’s adoption of policies to monitor and curtail excessive exposures to higher risk locations, products or services. Initiatives have included those relating to High LVRs, Interest Only lending and participation in the FHLDS scheme which provides a government guarantee for all funds above 80% LVR. These initiatives together with continued review of underwriting, debt to income ratios and serviceability assessments ensured that Auswide Bank was well placed to manage the risks associated with its lending portfolio together with regulatory requirements. The Board Risk Committee provides strong oversight of the risk framework across the organisation. The Board remains focused on the portfolio quality as the loan book grows and this is highlighted by the continuing positive trend in relation to loan arrears. ACQUISITIONS The Board will continue to monitor opportunities to acquire loan books of suitable institutions as the opportunity presents itself and the Board will review any offers made which may complement or extend the overall operations of the Group. DIVIDENDS A fully franked interim dividend of 21.0 cents per ordinary share was declared and paid on 18 March 2022 (19 March 2021: 19.0 cents). A fully franked final dividend of 21.0 cents per ordinary share has been declared by the Board and will be paid on 30 September 2022 (24 September 2021: 21.0 cents). 27 Annual Report for the year ended 30 June 2022DIRECTORS’ STATUTORY REPORT TOTAL DIVIDEND 34.0 34.5 27.8 40.0 42.0 JUN 18 JUN 19 JUN 20 JUN 21 JUN 22 GOING CONCERN Auswide Bank recognises the ongoing economic impact that the pandemic and geopolitical events have had on the financial sector, as well as the broader economy. The strength of the financial results for FY22 reflects expanding operations. Access to liquidity and capital have also been considered, with no indications of stress and facilities being available to provide for contingencies. The Board of Directors have therefore been able to assess that Auswide Bank remains a going concern. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR There has been no other matter or circumstance since the end of the financial year that will significantly affect the results of operations in future years or the state of affairs of the Company. However, the Board of Directors continues to remain vigilant of any unforeseen risks which may arise as a result of rapidly evolving situations arising from the economic impacts of geopolitical events and the volatility remaining subsequent to the pandemic. 28 Auswide BankDIRECTORS’ STATUTORY REPORT DIRECTORS’ STATUTORY REPORT 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 Chairman of the Board Remuneration Committee and the Board Credit Committee a member of the Board Audit Committee and the Board Risk Committee and is an independent Director. Mr Dangerfield is currently a Director and Chairman of the Bundaberg Friendly Society Medical Institute which operates the Friendly Society Private Hospital and Pharmacies in Bundaberg. 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. 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, FCAANZ 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, an independent Non-Executive Director of Nuix, 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. 29 Annual Report for the year ended 30 June 2022DIRECTORS’ STATUTORY REPORT Company secretary Mr William R Schafer BCom, CA Mr Schafer was appointed Company Secretary in August 2001. He has extensive experience in public accounting and management. He is an Associate of the Institute of Chartered Accountants. Directors’ meetings During the financial year, 11 meetings of the Directors, 4 meetings of the Audit Committee, 4 meetings of the Remuneration Committee and 6 meetings of the Risk Committee were held, in respect of which each Director attended the following number: Board Audit Remuneration Risk Attended Attended Attended Attended SC Birkensleigh B Dangerfield GN Kenny MJ Barrett* GB Murdoch J Korhonen 11 9 9 11 10 9 4 4 4 4 4 4 n/a 4 4 2 4 4 6 6 6 6 6 6 * 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 285,080 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. 30 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 the Banking Executive Accountability Regime (BEAR) 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 2021/22 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 2021/22 was subject to ratification by the Remuneration Committee. 31 Annual Report for the year ended 30 June 2022DIRECTORS’ 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 fixed contracted amount or the maximum 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 role 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 32 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 Board Remuneration 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 2021, and were paid on 17 September 2021. To strengthen transparency, the Board Remuneration Committee have provided the performance based payments under the STI scheme for the year ended 30 June 2022. 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 2022. set and approved by the Board. The non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, customer results, sustainability which includes compliance and support of the Company’s risk management policies and culture, customer satisfaction, communication and staff development. Impact of individual performance on STI rewards At the end of the financial year, the Board Remuneration 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 and ratified by the Board. 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 33 Annual Report for the year ended 30 June 2022DIRECTORS’ STATUTORY REPORT KMP Position MJ Barrett WR Schafer DR Hearne GM Job SD Johnson CA Lonergan Managing Director Chief Financial Officer Chief Customer Officer Chief People and Property Officer Chief Information Officer Chief Risk Officer MS Rasmussen Chief Operating Officer R Stephens Chief Transformation Officer STI award FY22 (to be paid Sept 2022) $ STI award FY21 (paid 17 Sept 2021) $ 180,000 186,390 51,727 66,923 33,443 32,052 35,751 35,612 34,109 51,476 69,420 32,800 30,137 35,147 35,096 16,438 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 34 Auswide BankDIRECTORS’ STATUTORY REPORT Accountability and Related Measures) Act 2018, which are to: > act with honesty, integrity, and with due skill, care and diligence; > deal with APRA in an open, constructive and cooperative way; and > take reasonable steps in conducting business to prevent matters from arising that would adversely affect the ADI’s prudential standard or reputation. In addition, during the Restriction Period, the obligations must also be satisfied, otherwise shares may be clawed back. Testing of vesting performance measurements and conditions on PRP offers 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. 35 Annual Report for the year ended 30 June 2022DIRECTORS’ STATUTORY REPORT 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. No. shares Vesting date Vested in 21/22 year Lapsed/ forfeited in 21/22 year Not yet assessed for vesting MJ Barrett 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer 2021 offer WR Schafer 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer 2021 offer GM Job 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer 2021 offer CA Lonergan 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer 2021 offer 36 4,762 2,446 2,447 5,811 5,811 5,812 21,154 20,576 17,613 998 1,044 1,044 1,220 1,220 1,221 5,288 5,202 4,404 815 1,044 1,044 1,220 1,220 1,221 5,288 5,251 4,404 971 1,044 1,044 1,220 1,220 1,221 5,288 4,728 4,404 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 1/7/2024 - - 2,447 - 5,811 - - - - - - 1,044 - 1,220 - - - - - - 1,044 - 1,220 - - - - - - 1,044 - 1,220 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,812 21,154 20,576 17,613 - - - - - 1,221 5,288 5,202 4,404 - - - - - 1,221 5,288 5,251 4,404 - - - - - 1,221 5,288 4,728 4,404 Auswide BankDIRECTORS’ STATUTORY REPORT No. shares Vesting date Vested in 21/22 year Lapsed/ forfeited in 21/22 year Not yet assessed for vesting MS Rasmussen 2016 offer 2017 offer 2018 offer 2019 offer 2020 offer 2021 offer DR Hearne 2017 offer 2018 offer 2019 offer 2020 offer 2021 offer SD Johnson 2021 offer R Stephens 2021 offer 998 1,044 1,044 1,220 1,220 1,221 5,288 4,675 4,404 1,247 1,247 1,312 1,312 1,312 7,040 6,451 6,024 1/7/2020 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2020 1/7/2021 1/7/2020 1/7/2021 1/7/2022 1/7/2022 1/7/2023 1/7/2024 4,424 1/7/2024 2,202 1/7/2024 - - 1,044 - 1,220 - - - - - 1,247 - 1,312 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,221 5,288 4,675 4,404 - - - - 1,313 7,040 6,451 6,024 4,424 2,202 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 2022. 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 SD Johnson CA Lonergan MS Rasmussen R Stephens Position Managing Director Chief Financial Officer Chief Customer Officer Chief People and Property Officer Chief Information Officer Chief Risk Officer Chief Operating Officer Chief Transformation Officer LTI award 2022 offer $ 120,000 30,000 40,154 30,000 32,052 30,000 30,000 30,000 37 Annual Report for the year ended 30 June 20221 2 0 2 2 2 0 2 1 2 0 2 2 2 0 2 1 2 0 2 2 2 0 2 1 2 0 2 2 2 0 2 1 2 0 2 2 2 0 2 1 2 0 2 2 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 $ 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 I S R O T C E R D D E I F I C E P S ; 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 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 f o s l i a t e D T R O P E R Y R O T U T A T S ’ S R O T C E R D I 38 5 2 3 3 3 1 , 3 6 4 4 8 1 , 0 5 6 3 0 1 , 2 1 3 5 1 1 , 0 5 6 3 0 1 , 2 1 3 5 1 1 , 0 0 4 9 4 , 2 1 3 5 1 1 , 5 7 2 2 2 , 2 1 3 5 1 1 , 0 0 8 6 8 , - - - - - - - - - - - - - - - - - - - - - - - - - 7 6 5 1 1 , 9 6 7 6 1 , 2 9 9 8 , 2 9 9 8 , 6 8 2 4 , 3 3 9 1 , 3 8 4 0 1 , 3 8 4 0 1 , 3 8 4 0 1 , 3 8 4 0 1 , 1 3 5 7 , - - - - - - - - - - - - - , 8 5 7 1 2 1 4 9 6 7 6 1 , ) c e x e - n o n ( n a m r i a h C C S , 8 5 6 4 9 , 9 2 8 4 0 1 , ) c e x e - n o n ( r o t c e r i D B l i h g e s n e k r i B , l d e fi r e g n a D 8 5 6 4 9 , 9 2 8 4 0 1 , ) c e x e - n o n ( r o t c e r i D N G , y n n e K 4 1 1 5 4 , 9 2 8 4 0 1 , ) c e x e - n o n ( r o t c e r i D B G , h c o d r u M 2 4 3 0 2 , 9 2 8 4 0 1 , ) c e x e - n o n ( r o t c e r i D J , n e n o h r o K 9 6 2 9 7 , - ) c e x e - n o n ( n a m r i a h C S J , y e r h p m u H 0 2 0 2 / 2 1 / 1 3 d e s a e c 0 9 5 4 9 7 , 3 1 7 3 8 8 , 1 7 8 8 6 , 9 9 0 3 5 , 9 7 9 1 1 , 5 6 4 4 1 , 4 9 6 1 2 , 8 6 5 3 2 , , 8 5 3 3 0 1 , 0 9 3 6 8 1 , 8 8 6 8 8 5 1 9 1 6 0 6 , r o t c e r i D g n g a n a M i J M , t t e r r a B , 0 9 6 3 9 2 1 , , 4 2 4 9 2 5 1 , 1 7 8 8 6 , 9 9 0 3 5 , 9 7 9 1 1 , 5 6 4 4 1 , 5 9 9 4 6 , 9 6 2 2 8 , , 8 5 3 3 0 1 0 9 3 6 8 1 , , 7 8 4 4 4 0 1 , , 1 0 2 3 9 1 1 , s r o t c e r i D 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 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 1 5 0 6 1 4 , 0 7 5 6 4 4 , 6 5 2 7 1 , 8 5 5 4 1 , 1 6 3 7 , 7 0 5 0 1 , 4 9 6 1 2 , 8 6 5 3 2 , 5 7 8 8 2 , 6 7 4 1 5 , , 5 6 8 0 4 3 1 6 4 6 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 9 6 0 6 6 3 , 2 0 1 3 3 4 , 7 3 5 3 1 , 4 5 4 6 1 , 3 8 3 5 , 9 7 6 5 7 2 , 7 7 6 2 0 3 , 8 8 2 6 1 , 8 5 5 4 1 , 4 0 4 5 , 6 5 9 4 9 2 , 4 6 3 3 2 3 , 3 1 1 7 1 , 8 5 5 4 1 , 9 7 6 4 , 3 1 0 4 9 2 , 8 6 9 9 1 3 , 6 5 2 7 1 , 8 5 5 4 1 , 2 6 6 4 , 2 0 6 6 , 7 2 7 9 , 7 0 7 5 , 8 8 6 5 , 4 9 6 1 2 , 1 8 3 5 2 , 5 0 0 6 3 , 0 2 4 9 6 , 0 5 4 9 8 2 , 5 4 2 5 1 3 , 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 7 9 0 2 , 5 3 7 2 2 , 3 6 6 8 1 , 0 0 8 2 3 , , 4 5 3 4 1 2 7 5 8 2 2 2 , 4 9 6 1 2 , 8 6 5 3 2 , 1 5 0 8 1 , 7 4 1 5 3 , , 9 1 4 3 3 2 4 8 3 4 4 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 i r e c ffi O k s R f e h C A C i , n a g r e n o L 4 9 6 1 2 , 8 6 5 3 2 , 9 7 7 7 1 , 6 9 0 5 3 , , 2 2 6 2 3 2 8 5 0 1 4 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 3 8 4 4 4 2 , 3 3 5 8 7 2 , 7 8 5 0 1 1 , 5 8 9 2 7 2 , - - - - 6 6 9 7 1 , 2 3 5 9 , 2 2 6 9 1 , 4 6 6 2 2 , 0 5 6 5 , 7 3 1 0 3 , , 5 4 2 1 0 2 0 0 2 6 1 2 , 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 - 1 2 3 6 , 8 2 4 9 , 4 2 9 2 2 , - 8 3 4 6 1 , , 9 5 1 1 0 1 2 0 3 7 2 2 , 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 , 8 3 8 1 0 0 2 , , 9 9 1 7 7 3 2 , 0 5 4 1 8 , 6 8 6 4 7 , 5 5 4 5 4 , 4 8 0 4 5 , 6 9 7 6 3 1 , 8 0 4 4 6 1 , 3 2 0 5 2 1 , 4 1 5 0 7 2 , , 4 1 1 3 1 6 1 , , 7 0 5 3 1 8 1 , 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 $ 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 r o t c e r i D g n g a n a M i t t e r r a B n i t r a M 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 : 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 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 0 0 0 0 3 $ , % 5 1 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 f o r a e y r e p y r a a s s k e e w o w l l l t s u p y r a a s s h t n o m x s o t i i . ) s k e e w 4 0 1 m u m x a m / s k e e w 0 2 m u m n m i i ( i e c v r e s % 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 i l i 0 0 0 0 3 $ , % 5 1 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 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 r u o f o t i . ) s k e e w 4 0 1 m u m x a m / s k e e w 6 1 m u m n m i i ( i e c v r e s % 5 1 % 5 1 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 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 r u o f o t i . ) s k e e w 4 0 1 m u m x a m / s k e e w 6 1 m u m n m i i ( i e c v r e s 0 0 0 0 3 $ , % 5 1 0 0 0 0 3 $ , 0 0 0 0 3 $ , % 5 1 % 5 1 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 i l 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 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 s h t n o m e e r h T m r e t 9 1 0 2 / 5 0 / 1 3 m r e t d e x fi o N 6 1 0 2 / 2 1 / 6 0 7 0 0 2 / 5 0 / 8 2 r e c ffi O l i i a c n a n F f e h C i r e f a h c S l l i B d e x fi o N 6 1 0 2 / 8 0 / 2 2 6 1 0 2 / 6 0 / 0 2 r e c ffi O r e m o t s u C i f e h C e n r a e H n a m a D i m r e t m r e t d e x fi o N 6 1 0 2 / 2 1 / 6 0 7 0 0 2 / 6 0 / 4 0 r e c ffi O y t r e p o r P & e p o e P f e h C l i b o J l e y a G m r e t 0 2 0 2 / 1 1 / 9 0 d e x fi o N 0 2 0 2 / 3 0 / 3 2 0 1 0 2 / 1 1 / 1 0 r e c ffi O n o i t a m r o f n I 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 m r e t 6 1 0 2 / 2 1 / 2 1 d e x fi o N 5 1 0 2 / 1 0 / 9 2 4 1 0 2 / 2 0 / 3 0 r e c ffi O s n o i t a r e p O i f e h C n e s s u m s a R k r a M d e x fi o N m r e t A / N 0 2 0 2 / 1 1 / 4 0 r e c ffi O n o i t a m r o f s n a r T f e h C i a c c e b e R s n e h p e t S i n a n o d e s v d a d n a y n a p m o C e h t y b d e n m r e t e d s I P K h t i i w e c n a d r o c c a n i e c n a m r o f r e p 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 e r a - s e v i t n e c n i m r e t t r o h S n o p u r a e y h c a e e n u J h t 0 3 e h t t a s a ) l l i 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 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 ’ 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 i l s e u R n a P s t h g R e c n a m r o f r e P e d w s u A e h t i f o s n o i t i d n o c d n a s m r e t e h t r e d n u , s t h g i r e c n a m r o f r e p f o t n a r g e h T - s e v i t n e c n i m r e t g n o L . 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 i f o n o i t e r c s d e t u o s b a e h t l i t a 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 l i 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 d n 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 ) 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 l . 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 n a p l I T L e h t r e d n u 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 f o n o i t e r c s d e t u o s b a e h t l t a e r a 39 Annual Report for the year ended 30 June 2022 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 2022 Balance 30 June 2021 Interest charged $ Write-off $ Balance 30 June 2022 Number in Group 30 June 2022 Directors Executives (622,459) (3,390,702) Total: Key management personnel (4,013,161) 1,026 70,595 71,621 - - - (629,183) (3,562,533) (4,191,716) 1 6 7 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 Individuals with loans above $100,000 in reporting period Balance 30 June 2021 Interest* charged $ Write-off $ Balance 30 June 2022 Highest in period $ Directors MJ Barrett Executives WR Schafer D Hearne C Lonergan M Rasmussen S Johnson (622,459) 1,026 (354,848) (1,386,543) (720,086) (603,877) (271,196) 3,784 28,294 14,106 20,518 3,893 - - - - - - (629,183) (735,603) (310,062) (354,848) (1,224,433) (2,950,951) (726,309) (746,608) (1,015,982) (1,038,726) (211,694) (274,222) * 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. 40 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. Directors B Dangerfield GN Kenny GB Murdoch MJ Barrett Executives WR Schafer DR Hearne GM Job SD Johnson CA Lonergan MS Rasmussen Total Balance 30 June 2021 43,291 15,000 14,000 229,762 57,012 - 135,964 61,217 30,000 7,162 593,408 Received as remuneration Net change other - - - - - - Balance 30 June 2022 43,291 15,000 14,000 8,258 47,060 285,080 2,264 2,559 2,264 - 2,264 2,264 19,873 2,724 (2,559) 10,778 3,000 3,198 (3,926) 60,275 62,000 - 149,006 64,217 35,462 5,500 673,556 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 2022: 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 2022 $’000 37,484 26,132 30 June 2021 $’000 34,702 24,155 30 June 2020 $’000 26,498 18,504 30 June 2019 $’000 24,638 17,201 30 June 2018 $’000 25,158 17,886 30 June 2022 30 June 2021 30 June 2020 30 June 2019 30 June 2018 $6.49 $6.09 $4.84 $6.49 $5.13 $4.84 $5.63 $5.13 $5.14 $5.63 21.00 cps 19.00 cps 17.00 cps 16.00 cps 16.00 cps 21.00 cps 21.00 cps 10.75 cps 18.50 cps 18.00 cps 60.48 cps 56.66 cps 43.80 cps 40.81 cps 42.83 cps 60.48 cps 56.66 cps 43.80 cps 40.81 cps 42.83 cps Dividends franked to 100% at 30% corporate income tax rate. 41 Annual Report for the year ended 30 June 2022DIRECTORS’ 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 2022, 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 2022 $ 2021 $ 24,669 24,007 - 131,118 24,669 155,125 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 2022 GB Murdoch Director Brisbane 26 August 2022 42 Auswide BankDeloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne VIC 3000 GPO Box 78B Melbourne VIC 3001, Australia Deloitte Touche Tohmatsu Tel: +61 (0) 3 9671 7000 AUDITOR’S INDEPENDENCE DECLARATION ABN 74 490 121 060 Fax: +61 (0) 3 9671 7001 Deloitte Touche Tohmatsu www.deloitte.com 477 Collins Street ABN 74 490 121 060 Melbourne VIC 3000 477 Collins Street GPO Box 78B Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu Melbourne VIC 3000 Melbourne VIC 3001, Australia ABN 74 490 121 060 ABN 74 490 121 060 GPO Box 78B Melbourne VIC 3001, Australia Tel: +61 (0) 3 9671 7000 Riverside Centre 477 Collins Street Fax: +61 (0) 3 9671 7001 Level 23 Melbourne VIC 3000 123 Eagle Street Tel: +61 (0) 3 9671 7000 www.deloitte.com GPO Box 78B Brisbane QLD 4000 Fax: +61 (0) 3 9671 7001 Melbourne VIC 3001, Australia GPO Box 1463 www.deloitte.com Brisbane QLD 4001 Australia Tel: +61 (0) 3 9671 7000 Tel: +61 7 3308 7000 Fax: +61 (0) 3 9671 7001 Fax: +61 7 3308 7002 www.deloitte.com www.deloitte.com.au The Board of Directors Auswide Bank Ltd PO Box 1063 BUNDABERG QLD 4670 The Board of Directors Auswide Bank Ltd The Board of Directors PO Box 1063 26 August 2022 Auswide Bank Ltd BUNDABERG QLD 4670 The Board of Directors PO Box 1063 Auswide Bank Ltd The Board of Directors BUNDABERG QLD 4670 Dear Board Members, PO Box 1063 Auswide Bank Ltd BUNDABERG QLD 4670 PO Box 1063 AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd BUNDABERG QLD 4670 26 August 2022 In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration 26 August 2022 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 2022, I 26 August 2021 26 August 2022 Dear Board Members, declare that to the best of my knowledge and belief, there have been no contraventions of: AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd 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 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 Dear Board Members, Dear Board Members, 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 AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd 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 2022, I declare that to the best of my knowledge and belief, there have been no contraventions of: In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration Yours faithfully In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2022, I of independence to the directors of Auswide Bank Ltd. of independence to the directors of Auswide Bank Ltd. declare that to the best of my knowledge and belief, there have been no contraventions of: • 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 As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2022, 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 • • Yours faithfully any applicable code of professional conduct in relation to the audit. any applicable code of professional conduct in relation to the audit. Mark Stretton Yours faithfully Partner Yours faithfully DELOITTE TOUCHE TOHMATSU Chartered Accountants DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Mark Stretton DELOITTE TOUCHE TOHMATSU Partner Mark Stretton Chartered Accountants Partner Chartered Accountants Mark Stretton Partner Chartered Accountants GGaarreetthh BBiirrdd Liability limited by a scheme approved under Professional Standards Legislation. Partner Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Chartered Accountants 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. 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. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 43 Annual Report for the year ended 30 June 2022 44 Auswide Bank45 Annual Report for the year ended 30 June 202246 Auswide BankFinancial statements CONSOLIDATED STATEMENT OF PROFIT OR LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2022 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 105,967 110,999 105,967 110,999 (23,923) (32,838) (23,923) (32,838) 82,044 12,388 94,432 23,924 3,011 486 1,454 14,255 13,855 677 78,161 10,360 88,521 22,487 3,169 664 1,450 12,946 11,501 1,013 82,044 12,388 94,432 23,924 3,011 486 1,454 14,255 13,855 677 78,161 10,360 88,521 22,487 3,169 664 1,450 12,946 11,501 1,013 57,662 53,230 57,662 53,230 4.5.5 (714) 589 (714) 589 2.3 56,948 37,484 11,352 26,132 53,819 34,702 10,547 24,155 56,948 37,484 11,341 26,143 53,819 34,702 10,544 24,158 26,132 24,155 26,143 24,158 2.4 2.4 60.48 60.48 56.66 56.66 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 2022CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2022 Profit for the year 26,132 24,155 26,143 24,158 Consolidated Company Notes 2022 $’000 2021 $’000 2022 $’000 2021 $’000 Other comprehensive income, net of income tax Items that may subsequently be reclassified to profit or loss: Cash flow hedges: Fair value gain/(loss) arising on hedging instruments during the period Less: cumulative (gain)/loss arising on hedging instruments reclassified to profit or loss Income tax relating to items that may be reclassified subsequently to profit or loss Items that may be reclassified to profit or loss FVTOCI investments: Revaluation of FVTOCI investments to fair value Income tax relating to this item Items that will not be reclassified to profit or loss Revaluation of land and buildings to fair value 3.5.1 Income tax relating to these items 17,074 (2,086) 17,074 (2,086) 1,120 1,393 1,120 1,393 (5,458) 208 (5,458) 12,736 (485) 12,736 - - - - - - (144) 43 (101) 2,267 (680) 1,587 - - - - - - 208 (485) (144) 43 (101) 2,267 (680) 1,587 1,001 Other comprehensive income/(loss) for the year, net of income tax 12,736 1,001 12,736 Total comprehensive income for the year 38,868 25,156 38,879 25,159 Total comprehensive income attributable to: Owners of the Company 38,868 25,156 38,879 25,159 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 2022 Consolidated Company Notes 2022 $’000 2021 $’000 2022 $’000 2021 $’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 2.3.4 2.3.5 6.4 4.1.9 3.4 3.5 178,537 112,627 178,491 112,627 11,773 12,790 11,773 12,790 412,058 398,812 437,095 419,819 3,827,565 3,555,043 3,828,636 3,556,287 1,414 20,648 2,839 - 3,366 46,363 1,396 21,315 1,483 2,834 3,122 46,363 1,414 20,648 2,839 - 3,365 46,363 1,396 21,315 1,483 2,834 3,119 46,363 4,504,563 4,155,785 4,530,624 4,178,033 3,617,342 3,349,289 3,617,342 3,349,291 150,806 150,806 150,806 150,806 33,127 18,654 33,071 18,641 370,761 333,714 395,798 354,721 613 3,896 3,956 42,000 1,230 - 3,555 42,000 602 3,896 3,956 42,000 1,226 - 3,555 42,000 4,222,501 3,899,248 4,247,471 3,920,240 282,062 256,537 283,153 257,793 199,784 195,218 200,388 196,121 28,435 53,843 15,496 45,823 28,934 53,831 15,872 45,800 282,062 256,537 283,153 257,793 ASSETS Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances Other investments Property and equipment Other intangible 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 Deferred tax liabilities - net 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 2022l a t o T 0 0 0 $ ’ y t i u q e 0 0 0 $ ’ s t n e m y a p d e s a b - e r a h S 0 0 0 $ ’ g n i g d e h e v r e s e r 0 0 0 $ ’ s t b e d e v r e s e r w o fl h s a C 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 7 3 5 6 5 2 , 2 8 4 ) 8 2 8 1 , ( 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 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 3 2 8 5 4 , e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i , 8 1 2 5 9 1 6 2 3 ) 3 2 1 ( 2 3 1 6 2 , 4 9 1 8 1 , ) 8 5 4 5 , ( - 6 2 3 ) 3 2 1 ( - - - - - 4 9 1 8 1 , ) 8 5 4 5 , ( - - - - - - - - - - - - - - - - - - - - - - - - 2 3 1 6 2 , - - - - - 5 5 2 4 4 9 4 5 8 1 7 3 , ) 2 1 1 8 1 , ( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ) 2 1 1 8 1 , ( 9 4 5 8 1 7 3 , - 5 5 2 4 4 8 0 6 5 9 2 , 5 8 6 8 0 9 0 1 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 5 5 9 1 7 , , 8 1 2 5 9 1 2 6 0 2 8 2 , 5 8 6 8 0 9 0 1 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 3 4 8 3 5 , , 4 8 7 9 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 I Y T U Q E N 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 L O S N O C I 2 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F r a e y e h t g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S y n a p m o c t n e r a p f o s r e n w o o t e b a t u b i r t t a t fi o r P l : r a e y e h t 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 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 y t i t n e d e t a d i l o s n o C 1 2 0 2 y l u J 1 t a e c n a a B l 50 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 e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I e g d e h w o fl h s a c f o l a t o t - b u S l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I 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 2 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 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 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 2 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 , - 4 0 2 ) 0 4 1 ( ) 4 4 1 ( 3 4 7 6 2 2 , ) 0 8 6 ( ) 3 9 6 ( 8 0 2 - - - - - - 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 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ) 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 , 1 0 5 8 5 , , 1 6 2 3 9 1 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 t n e m t s e v n i S B M R 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 B M R 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 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 r a e y e h t g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S y n a p m o c t n e r a p f o s r e n w o o t e b a t u b i r t t a t fi o r P l r a e y e h t g n i r u d d e t s e v s t n e m y a p d e s a b - e r a h S : 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 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 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 e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I e 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 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 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 l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I . s e 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 51 Annual Report for the year ended 30 June 2022 l a t o T 0 0 0 $ ’ y t i u q e 0 0 0 $ ’ s t n e m y a p d e s a b - e r a h S 0 0 0 $ ’ g n i g d e h e v r e s e r 0 0 0 $ ’ s t b e d e v r e s e r w o fl h s a C 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 3 9 7 7 5 2 , 8 5 8 ) 8 2 8 1 , ( 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 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 0 0 8 5 4 , e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i , 1 2 1 6 9 1 6 2 3 3 4 1 6 2 , 4 9 1 8 1 , ) 8 5 4 5 , ( - 6 2 3 - - - - 4 9 1 8 1 , ) 8 5 4 5 , ( - - - - - - - - - - - - - - - - - - - 3 4 1 6 2 , - - - - 8 9 9 6 9 2 , 4 8 1 1 , 8 0 9 0 1 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 3 4 9 1 7 , , 1 2 1 6 9 1 9 4 5 8 1 7 3 , ) 2 1 1 8 1 , ( 3 5 1 3 8 2 , - - - - - - - - - - - - - - - - - - 4 8 1 1 , 8 0 9 0 1 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , - - ) 2 1 1 8 1 , ( 1 3 8 3 5 , - 9 4 5 8 1 7 3 , , 8 8 3 0 0 2 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 I Y T U Q E N 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 L O S N O C I 2 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 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 r a e y e h t g n i r u d d e s n e p x e s t n e m y a p d e s a b - e r a h S y n a p m o c t n e r a p f o s r e n w o o t e b a t u b i r t t a t fi o r P l : r a e y e h t 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 1 2 0 2 y l u J 1 t a e c n a a B l y n a p m o C 52 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 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 2 2 0 2 e n u J 0 3 t a e c n a a B l 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 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 2 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 , - 4 0 2 ) 4 4 1 ( 3 4 7 6 2 2 , ) 0 8 6 ( ) 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 s t n e m t s e v n i S B M R 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 B M R 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 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 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 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 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 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 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 2022 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2022 Consolidated Company Notes 2022 $’000 2021 $’000 2022 $’000 2021 $’000 Cash flows from operating activities Interest received 105,245 111,129 105,245 111,129 Other non-interest income received 14,209 10,216 13,802 10,211 Interest paid (24,843) (36,596) (24,843) (36,596) Net movement in loans and advances (271,057) (349,871) (270,884) (350,723) Net movement in deposits and short term borrowings 268,053 431,794 268,051 431,786 Income tax paid (10,697) (4,914) (10,693) (4,914) Cash paid to suppliers and employees (inclusive of goods and services tax) (37,840) (50,596) (37,478) (50,603) Net cash used in operating activities 6.1 43,070 111,162 43,200 110,290 Cash flows from investing activities Net movement in investment securities Net movement in amounts due from other financial institutions 3,105 (20,692) (925) (23,707) 1,017 3,504 1,017 3,504 Net movement in other investments (17) (17) (17) (17) Payments for purchase of property, equipment and intangible 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 Net cash used in financing activities Net movement in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at end of the financial year (2,743) (1,897) (2,743) (1,897) 1,362 (19,102) (2,668) (22,117) - (1,502) 548 503 14,000 (1,538) 652 (732) - (1,502) 548 327 14,000 (1,538) 652 - (14,394) (10,642) (14,394) (10,642) 36,323 (87,651) 40,353 (84,496) 21,478 65,910 (85,911) 6,149 25,332 65,864 (82,024) 6,149 112,627 106,478 112,627 106,478 4.1.1 178,537 112,627 178,491 112,627 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 ......................................... 72 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 2022 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 comprises Auswide Bank Ltd and its subsidiaries (the Group or the Consolidated Entity). The Company’s registered office and principle place of business is Level 3, 16-20 Barolin St, Bundaberg, QLD, 4670. The principal activities of the Company and its subsidiaries (the Group) and the nature of the Group’s operations are set out in Note 2.5 - Business and geographical segment information. 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 2021, 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 Note 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. Non-controlling interests in subsidiaries are identified separately from the Group’s equity. The interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable 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 2022 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 2020-8 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform - Phase 2 > AASB 2021-3 Amendments to Australian Accounting Standards - Covid-19-Related Rent Concessions beyond 30 June 2021 > AASB 2020-2 Amendments to Australian Accounting Standards - Removal of Special Purpose Financial Statements for Certain For-Profit Private Sector Entities 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 2022 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 1.8 Standards and Interpretations on issue not yet adopted (continued) Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 17 Insurance Contracts and AASB 2020-5 Amendments to Australian Accounting Standards – Insurance Contracts 1 January 2023 30 June 2024 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 1 January 2023 30 June 2024 1 January 2023 30 June 2024 AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and Other Amendments 1 January 2022 30 June 2023 AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates 1 January 2023 30 June 2024 AASB 2021-5 Amendments to Australian Accounting Standards – Deferred Tax related to Assets and Liabilities arising from a Single Transaction 1 January 2023 30 June 2024 AASB 2022-1 Amendments to Australian Accounting Standards – Initial Application of AASB 17 and AASB 9 – Comparative Information 1 January 2023 30 June 2024 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 $282.062m, recorded positive operating and total cash flows 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 2022 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 2022 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2022 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 2022 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 Average balance $’000 Interest $’000 Average interest rate % 90,106 335,578 3,738,811 65,762 4,230,257 243,989 3,028,609 308,778 173,077 42,000 150,806 5,310 3,952,568 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 83 1,913 101,885 2,086 105,967 5,931 13,442 904 1,672 1,442 285 247 23,923 82,044 58 1,472 105,742 3,727 110,999 7,004 21,842 612 1,317 1,532 241 290 32,838 78,161 0.09 0.57 2.73 3.17 2.50 2.43 0.44 0.29 0.97 3.43 0.19 4.65 0.61 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 59 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 Interest revenue Interest expense Net interest spread 4,230,257 3,952,568 105,967 23,923 Plus benefit of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 4,230,257 82,044 Interest margin and interest spread 2021 Interest revenue Interest expense Net interest spread 3,902,069 3,710,385 110,999 32,838 Plus benefit of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 3,902,069 78,161 2.50 0.61 1.90 0.04 1.94 2.84 0.88 1.96 0.04 2.00 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 30 JUNE 2022 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 9,729 2,659 9,483 877 9,729 2,659 9,483 877 12,388 10,360 12,388 10,360 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 2022 $’000 10,220 1,132 11,352 2021 $’000 9,928 619 10,547 2022 $’000 10,172 1,169 11,341 2021 $’000 9,925 619 10,544 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 Tax on profit before income tax at 30% (2021: 30%) 11,245 10,411 11,245 10,411 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 71 (7) 43 58 (1) 79 71 3 22 58 2 73 11,352 10,547 11,341 10,544 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 - - 5,458 5,458 - - - 5,458 - - (208) (208) (43) 680 637 429 - - 5,458 5,458 - - - 5,458 - - (208) (208) (43) 680 637 429 62 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 2.3.4 Current tax assets and liabilities Consolidated Company Current tax assets/ (liabilities) Current tax liabilities 2022 $’000 2021 $’000 2022 $’000 2021 $’000 (613) (613) (1,230) (1,230) (602) (602) (1,226) (1,226) 2.3.5 Deferred tax balances Consolidated Company Deferred tax assets Deferred tax liabilities Deferred tax assets Employee leave provisions Expected credit losses Property and equipment Capital losses available Premium on loans purchased Subordinated capital notes prepaid expenses Lease liabilities net of right of use assets Cash flow hedging reserve Other items Notes 3.1 Deferred tax liabilities Property and equipment Asset revaluation reserve Prepayments Cash flow hedging reserve Performance Rights cash contributions in excess of accounting expense 2022 $’000 - (3,896) (3,896) 2021 $’000 2,834 - 2,834 2022 $’000 - (3,896) (3,896) 2021 $’000 2,834 - 2,834 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 1,072 1,443 - 874 101 22 238 - 384 1,032 1,841 204 1,026 108 47 218 783 315 1,072 1,443 - 874 101 22 238 - 384 1,032 1,841 204 1,026 108 47 218 783 315 4,134 5,574 4,134 5,574 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 706 2,547 10 4,675 92 - 2,547 40 - 153 706 2,547 10 4,675 92 - 2,547 40 - 153 8,030 2,740 8,030 2,740 In respect of each temporary difference the adjustment was charged to income, except for 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. 63 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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: Reduction in deferred tax asset on capital losses Prior period adjustments Balance at end of year Consolidated Company 2022 $’000 2,834 (1,168) (5,458) (120) 16 2021 $’000 4,322 (619) (429) (440) - 2022 $’000 2,834 (1,168) (5,458) (120) 16 (3,896) 2,834 (3,896) 2021 $’000 4,322 (619) (429) (440) - 2,834 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 2022 Cents per share 2021 Cents per share 60.48 60.48 56.66 56.66 2022 $’000 2021 $’000 26,132 24,155 26,132 24,155 2022 Shares No. 2021 Shares No. 43,207,991 42,632,528 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 30 JUNE 2022 3. Investments and financing 3.1 Property and equipment Consolidated Company Property and equipment owned Right-of-use assets Carrying amounts of: Freehold land and buildings 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 Equipment At cost Provision for depreciation Movement in carrying amount Opening net book amount Additions Depreciation charge Disposals Reclassification of work in progress Carrying amount at end of year 2022 $’000 16,140 4,508 20,648 11,104 5,036 16,140 2021 $’000 16,787 4,528 21,315 11,345 5,442 16,787 2022 $’000 16,140 4,508 20,648 11,104 5,036 16,140 2021 $’000 16,787 4,528 21,315 11,345 5,442 16,787 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 11,345 (241) 11,104 11,345 - (241) 11,104 11,345 - 11,345 9,277 2,267 (199) 11,345 11,345 (241) 11,104 11,345 - (241) 11,104 11,345 - 11,345 9,277 2,267 (199) 11,345 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 14,834 (9,798) 5,036 5,442 1,385 15,526 (10,084) 5,442 5,858 949 14,834 (9,798) 5,036 5,442 1,385 15,526 (10,084) 5,442 5,858 949 (1,143) (1,365) (1,143) (1,365) (165) (483) 5,036 - - 5,442 (165) (483) 5,036 - - 5,442 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. The Board of Directors believe the valuations determined by the independent valuer remain appropriate. 65 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 3.1 Property and equipment (continued) Accounting policies Property 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 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. 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 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. Equipment is measured on the cost basis less depreciation and impairment losses. 66 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 3.1 Property and equipment (continued) 3.1.1 Right-of-use assets Consolidated entity Right-of-use assets at cost Balance as at 1 July 2021 Additions during the year Modification to lease terms Variable lease payment adjustments Balance as at 30 June 2022 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2022 Consolidated entity 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 2021 Additions during the year Variable lease payment adjustments Modification to lease terms Balance as at 30 June 2022 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2022 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 Property $’000 Vehicles $’000 Total $’000 4,436 1,658 (8) (149) 5,937 (1,533) 4,404 92 69 38 (2) 197 (93) 104 4,528 1,727 30 (151) 6,134 (1,626) 4,508 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 4,436 1,658 (149) (8) 5,937 (1,533) 4,404 92 69 (2) 38 197 (93) 104 4,528 1,727 (151) 30 6,134 (1,626) 4,508 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 67 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 3.1 Property and equipment (continued) 3.1.2 Lease liabilities Details of associated lease liabilities recognised in respect of the right-of-use assets are presented below: Maturity analysis - contractual undiscounted cash flows Less than one year One to 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 1,892 3,882 5,774 1,851 3,452 5,303 246 246 1,748 1,748 1,653 4,132 5,785 1,619 3,647 5,266 290 290 1,828 1,828 1,892 3,882 5,774 1,851 3,452 5,303 246 246 1,748 1,748 1,653 4,132 5,785 1,619 3,647 5,266 290 290 1,828 1,828 Accounting policies At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A right-of-use asset and a corresponding lease liability is recognised with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether: > the contract involves the use of an identified asset - this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; > the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and > the Group has the right to direct the use of the asset. The Group has this right when it has the decision- making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Group has the right to direct the use of the asset if either: - - the Group has the right to operate the asset; or the Group designed the asset in a way that predetermines how and for what purpose it will be used. At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. 68 Auswide Bank NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain re-measurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, at the Group’s incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise the following: > fixed payments, including in-substance fixed payments, less any lease incentive receivable; > variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; > the amount expected to be payable under a residual value guarantee, if any; and > the exercise price, if any, under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is re-measured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. Short-term leases and leases of low-value assets The Group has elected not to recognise right-of-use assets and lease liabilities for all short-term leases that have a lease term of 12 months or less. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. 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 Reclassification of work in progress Balance at end of year Consolidated Company 2022 $’000 2,839 2,839 2021 $’000 1,483 1,483 2022 $’000 2,839 2,839 2021 $’000 1,483 1,483 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 7,178 (4,339) 2,839 1,483 1,359 - (486) 483 2,839 5,336 (3,853) 1,483 1,198 949 - (664) - 1,483 7,178 (4,339) 2,839 1,483 1,359 - (486) 483 2,839 5,336 (3,853) 1,483 1,198 949 - (664) - 1,483 69 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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. 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 2022 $’000 46,363 46,363 4,306 42,057 46,363 2021 $’000 46,363 46,363 4,306 42,057 46,363 2022 $’000 46,363 46,363 4,306 42,057 46,363 2021 $’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. 70 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 Accounting policies Goodwill Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised at the date of the acquisition. Goodwill is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the business combination. A cash-generating unit or groups of cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss on goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Impairment testing for goodwill is performed annually, or earlier if there is an impairment indicator. Key estimates and 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 Note 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 8.4 - 20.5x. Management has applied P/E multiple of 10x (2021: 12x), lower than the historical average, as a most prudent estimate of the assumption considering the current economic environment. > Control premium which based on management’s best estimate informed by independent advice of a professional services firm is 20%. Sensitivity to changes in assumptions Under the value of these assumptions, the estimated recoverable amount of the CGU exceeds its carrying amount by $24m. A reasonably possible change in any one of these assumptions can result in the carrying amount exceeding the recoverable amount: > if all other assumptions remain the same, should the multiples estimate decrease to 9.2x the carrying value will exceed the recoverable amount by $0.5m; and > If all other assumptions remain the same, should the control premium estimate decrease to 10.5% the carrying amount will exceed the recoverable amount by $0.5m. 71 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 Movement in treasury shares Balance at end of year 2022 Shares No. 2022 Shares $’000 2021 Shares No. 2021 Shares $’000 42,793,034 195,218 42,409,838 193,261 3.4.1 3.4.2 93,345 586,840 - 549 3,718 44 144,641 354,012 - 652 2,036 (25) 3.4.3 50,845 255 (115,457) (706) 43,524,064 199,784 42,793,034 195,218 Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the Company does not have authorised capital or par value in respect of its issued shares. All ordinary shares have equal voting, dividend and capital repayment rights. 3.4.1 Staff Share Plan On 01 November 2021, 93,345 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 3,212,404 3,119,059 3,212,404 3,119,059 Shares issued to employees during the financial year 93,345 144,641 93,345 144,641 Consolidated Company 2022 Shares No. 2021 Shares No. 2022 Shares No. 2021 Shares No. Total market value at date of issue (01 November 2021) Total amount paid or payable for the shares at that date 3.4.2 Dividend Reinvestment Plan (DRP) 2022 $’000 650 549 2021 $’000 720 652 2022 $’000 650 549 2021 $’000 720 652 The Board of Directors resolved to reinstate the Dividend Reinvestment Plan (DRP) in respect of the final dividend for the 2020/21 financial year, payable on 24 September 2021. The Board resolved to maintain the DRP for the interim dividend payable on 18 March 2022 for the 2021/22 financial year. 18 March 2022 - 297,247 ordinary shares were issued 24 September 2021 - 289,593 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 18 March 2022 and 24 September 2021 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. 72 Auswide Bank NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 3.4.3 Treasury shares As at the reporting date Auswide Performance Rights Pty Ltd holds 89,490 shares, $582,407 (Jun 21: 140,335 shares, $837,303) for the purpose of facilitating the Executive LTI scheme. 3.5 Reserves Asset revaluation reserve Cash flow hedge reserve Share-based payment reserve Statutory reserve General reserve Doubtful debts reserve 3.5.1 Asset revaluation reserve Notes 3.5.1 3.5.2 3.5.3 3.5.4 3.5.5 3.5.6 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 Consolidated Company 2022 $’000 5,944 10,908 685 2,676 5,834 2,388 2021 $’000 5,944 (1,828) 482 2,676 5,834 2,388 2022 $’000 5,944 10,908 1,184 2,676 5,834 2,388 2021 $’000 5,944 (1,828) 858 2,676 5,834 2,388 28,435 15,496 28,934 15,872 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 5,944 - - 4,357 2,267 (680) 5,944 - - 4,357 2,267 (680) Balance at end of year 5,944 5,944 5,944 5,944 The balance of this reserve represents the excess of the independent valuation over the original cost of the land and buildings. 3.5.2 Cash flow hedge reserve Consolidated Company Cash flow hedge reserve Balance at beginning of year Fair value gain/(loss) arising on hedging instruments during the period Cumulative (gain)/loss arising on hedging instruments reclassified to profit or loss Income tax related to gains/losses recognised in other comprehensive income 2022 $’000 2021 $’000 2022 $’000 2021 $’000 (1,828) (1,343) (1,828) (1,343) 17,074 (2,086) 17,074 (2,086) 1,120 1,393 1,120 1,393 (5,458) 208 (5,458) 208 Balance at end of year 10,908 (1,828) 10,908 (1,828) 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. 73 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 3.5.3 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 482 326 (123) 685 418 204 (140) 482 858 326 - 1,184 654 204 - 858 The share based payments reserve relates to shares available for long term incentive (LTI) based payments to employees. 3.5.4 Statutory reserve This is a statutory reserve created on a distribution from the Queensland Building Society Fund. 3.5.5 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. 3.5.6 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 2022 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 9,096 9,016 8,116 4,562 9,096 9,016 8,116 4,562 18,112 12,678 18,112 12,678 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 ($9.159m), for the six months to 30 June 2022, payable on 30 September 2022. The final dividend for the six months to 30 June 2021 ($9.016m) was paid on 24 September 2021, and was disclosed in the 2020/21 financial accounts. The tax rate at which the dividends have been franked is 30% (2021: 30%). The amount of franking credits available for the subsequent financial year are: Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 Balance as at the end of the financial year 36,932 33,875 36,932 33,875 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 602 1,226 602 1,226 (3,925) (3,864) (3,925) (3,864) 33,609 31,237 33,609 31,237 Dividends - cents per share Dividend proposed Fully franked dividend on ordinary shares 21.00 21.00 21.00 21.00 Interim dividend paid during the year Fully franked dividend on ordinary shares 21.00 19.00 21.00 19.00 Final dividend paid for the previous year Fully franked dividend on ordinary shares 21.00 10.75 21.00 10.75 75 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 4. Financial assets, liabilities and related financial risk management 4.1 Categories of financial instruments Consolidated Company Notes Classification 2022 $’000 2021 $’000 2022 $’000 2021 $’000 Financial assets Cash and cash equivalents 4.1.1 Amortised cost 178,537 112,627 178,491 112,627 Due from other financial institutions 4.1.2 Amortised cost 11,773 12,790 11,773 12,790 Other financial assets; - Certificates of deposit 4.1.3 Amortised cost 351,957 341,025 351,957 341,025 - Investments in Managed Investment Schemes FVTPL - Notes – securitisation program and other Amortised cost 26,857 16,294 16,400 550 37,424 20,126 49 188 26,857 41,331 16,400 550 37,424 41,133 49 188 FVTPL Amortised cost 4.1.4 Amortised cost 3,827,565 3,555,043 3,828,636 3,556,287 4.1.5 FVTOCI 918 918 918 918 4,430,851 4,080,190 4,456,913 4,102,441 - 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 3,617,342 3,349,289 3,617,342 3,349,291 Other borrowings 4.1.7 Amortised cost 150,806 150,806 150,806 150,806 Payables and other liabilities 4.1.8 - Payables and creditors - Derivative liabilities Amortised cost 32,310 15,993 32,253 15,980 FVTPL 818 2,661 818 2,661 Loans under management 4.1.4 Amortised cost 370,761 333,714 395,798 354,721 Subordinated capital notes 4.1.9 Amortised cost 42,000 42,000 42,000 42,000 Total financial liabilities 4,214,037 3,894,463 4,239,017 3,915,459 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 2022 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 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 2022 $’000 89,037 89,500 2021 $’000 45,427 67,200 2022 $’000 88,991 89,500 2021 $’000 45,427 67,200 178,537 112,627 178,491 112,627 Consolidated Company 2022 $’000 11,773 11,773 2021 $’000 12,790 12,790 2022 $’000 11,773 11,773 2021 $’000 12,790 12,790 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 351,957 341,025 351,957 341,025 26,857 16,294 16,400 550 37,424 20,126 49 188 26,857 41,331 16,400 550 37,424 41,133 49 188 412,058 398,812 437,095 419,819 Cash held within securitised trusts at 30 June 2022 of $16.294m (2021: $20.126m) is restricted for use only by the trusts. 79 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 3,768,019 3,470,566 3,768,018 3,470,565 51,305 78,899 51,305 78,899 4,447 8,612 - 4,157 7,560 - 4,447 8,612 1,072 4,157 7,560 1,245 3,832,383 3,561,182 3,833,454 3,562,426 (4,818) (6,139) (4,818) (6,139) 3,827,565 3,555,043 3,828,636 3,556,287 For details on ECL recognised against loans and advances see Note 4.5 - Credit risk management. Loans and advances include an amount of $790.373m 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 $370.761m (2021: $333.714m). Class B notes of $25.037m (2021: $21.007m) 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 unlisted shares which have been classified at fair value through other comprehensive income, as well as an equity accounted investment. Consolidated Company Unlisted shares Equity accounted investment 4.1.6 Deposits and short term borrowings Call deposits Term deposits 2022 $’000 918 496 2021 $’000 918 478 2022 $’000 918 496 2021 $’000 918 478 1,414 1,396 1,414 1,396 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 1,740,050 1,439,978 1,740,050 1,439,980 1,318,645 1,492,619 1,318,645 1,492,619 Negotiable certificates of deposit (NCDs) 358,647 251,692 358,647 251,692 Floating rate notes (FRNs) 200,000 165,000 200,000 165,000 3,617,342 3,349,289 3,617,342 3,349,291 80 Auswide Bank4.1.7 Other borrowings NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 RBA Term Funding Facility (TFF) 150,806 150,806 150,806 150,806 150,806 150,806 150,806 150,806 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 2022 $’000 3,012 818 5,678 18,316 5,303 33,127 2021 $’000 2,966 2,661 6,597 1,174 5,256 18,654 2022 $’000 2,956 818 5,678 18,316 5,303 33,071 2021 $’000 2,953 2,661 6,597 1,174 5,256 18,641 Consolidated Company 2022 $’000 42,000 42,000 2021 $’000 42,000 42,000 2022 $’000 42,000 42,000 2021 $’000 42,000 42,000 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 2021 and 2022. 81 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 (ADIs) 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 2022 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 2022 and 30 June 2021 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 2022 Details of the capital adequacy ratio on a Company and Consolidated basis are set out below: Total risk weighted assets Capital base Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 1,953,487 1,792,514 1,954,528 1,793,728 251,970 238,662 253,144 239,427 Risk-based capital ratio 12.90% 13.31% 12.95% 13.35% 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 2022 % 1 2 0 2 % 2 2 0 2 1 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 1 2 0 2 0 0 0 $ ’ 2 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 2 2 0 2 E N U J 0 3 84 6 0 0 . 3 0 0 . 7 3 1 . 6 9 2 . - 6 5 0 . 0 2 0 . 1 4 1 . 9 8 3 . 2 1 0 . 1 0 0 . 1 9 0 . 0 6 2 . - 3 4 0 . 9 1 0 . 2 2 1 . 6 6 3 . 7 2 6 2 1 1 , 7 3 5 8 7 1 , 1 4 2 1 , 9 3 0 1 , 0 9 7 2 1 , 3 7 7 1 1 , 3 6 7 8 9 3 , 8 5 6 5 9 3 , , 3 4 0 5 5 5 3 , , 5 6 5 7 2 8 3 , , 3 2 2 9 7 0 4 , , 3 3 5 3 1 4 4 , - 5 9 7 7 5 5 , 3 1 9 6 , - 5 9 1 4 2 8 , 5 7 3 9 , - - - - - - - - 4 2 4 7 3 , 7 5 8 6 2 , , 3 1 2 1 4 3 8 0 5 2 5 3 , 6 8 3 1 1 1 , 7 9 4 7 7 1 , 5 9 6 2 1 , 6 2 1 0 2 , 8 7 6 1 1 , 4 9 2 6 1 , , 9 8 1 6 6 2 1 , , 3 8 7 0 1 5 1 , , 3 1 6 3 0 3 1 , , 0 4 6 7 3 5 1 , 8 9 4 0 0 4 , , 9 8 8 3 8 4 1 1 7 1 4 7 , , 7 9 3 6 3 8 , 9 7 7 2 8 8 1 , , 6 8 9 6 2 0 2 , , 2 5 6 4 2 8 1 , , 1 2 1 0 3 0 2 , 4 9 9 5 1 , 9 0 3 2 3 , 4 9 9 5 1 , 9 0 3 2 3 , - - 6 0 8 0 5 1 , 6 0 8 0 5 1 , 4 1 7 3 3 3 , 1 6 7 0 7 3 , 0 0 0 2 4 , 0 0 0 2 4 , - - - - - - - - 6 0 8 0 5 1 , 6 0 8 0 5 1 , 8 5 8 8 1 1 , 3 4 3 6 4 1 , - - - - 5 9 5 7 3 , 0 0 0 2 4 , 2 7 8 6 4 , 0 0 0 2 4 , , 9 8 2 9 4 3 3 , , 2 4 3 7 1 6 3 , - - 7 3 5 5 7 2 , , 9 5 3 7 9 1 , 4 7 7 3 3 6 1 , , 3 3 9 9 7 6 1 , , 3 0 8 1 9 8 3 , , 8 1 2 3 1 2 4 , 4 9 9 5 1 , 9 0 3 2 3 , 1 0 2 5 4 5 , , 8 0 5 4 9 4 , 9 6 3 3 1 7 1 , , 5 0 8 8 6 7 1 , - - - - , 8 7 9 9 3 4 1 , , 0 5 0 0 4 7 1 , 1 6 2 7 7 1 , 6 4 5 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 , 9 3 2 7 1 6 1 , , 6 9 5 7 1 9 1 , s e i t i l i b a i l l a i c n a n fi l a t o T s 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 Auswide Bank NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 At the reporting date, if interest rates had been 2.0% higher and all other variables were held constant the Group’s net profit before tax would increase by $0.165m. If interest rates were 1.0% lower and all other variables were held constant the Group’s net profit before tax would decrease by $0.081m (2021: 2.0% higher a decrease of $0.024m or 1.0% lower a decrease of $5.352m). 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 ABA Trust 2017-1 WB Trust 2010-1 2022 $’000 (814) 2,105 - 30 (3) 2021 $’000 (1,144) 6,133 50 (20) - Auswide Bank enters into interest rate swaps from time to time and has International Swaps and Derivatives (ISDAs) in place with the ANZ and Westpac 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 $16.400m and $0.818m respectively (2021: $0.049m and $2.661m). 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 $’000 27,086 67,133 94,219 2021 $’000 40,300 36,100 76,400 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 3 5 8 7 1 , 3 7 7 1 1 , 5 6 4 1 , 8 5 6 5 9 3 , , 5 6 5 7 2 8 3 , , 8 9 9 4 1 4 4 , 6 0 8 0 5 1 , 4 4 1 4 , 7 0 0 7 2 , 1 6 7 0 7 3 , 0 0 0 2 4 , , 2 4 3 7 1 6 3 , , 0 6 0 2 1 2 4 , 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 2 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 2 2 0 2 E N U J 0 3 - - - - 3 7 7 1 1 , 3 7 7 1 1 , - - - - - - - - - - 0 5 1 3 4 , , 8 3 7 1 8 7 3 , , 8 8 8 4 2 8 3 , - - - - - - - - - - 2 3 3 7 5 6 8 3 , 9 8 9 8 3 , 6 4 3 6 9 , 3 1 0 1 0 1 , 0 3 8 3 5 6 2 , 7 1 5 2 5 , 0 0 0 2 4 , 9 5 3 5 9 2 , . - - - 3 3 1 1 , 0 6 7 1 , 3 9 8 2 , - 5 5 7 6 6 7 , 3 9 7 9 4 , 1 9 4 1 , 6 3 1 2 , 7 7 3 0 6 2 , - - - 8 0 5 2 5 3 , 0 1 4 5 , 8 1 9 7 5 3 , - - - - , 7 3 5 8 7 1 , 7 3 5 8 7 1 , 1 9 1 4 1 0 1 , , 0 5 0 0 4 7 1 , - - - 1 4 0 4 2 , 7 6 8 7 5 , - - - - - , 2 5 5 0 8 0 1 , , 9 9 0 6 9 0 1 , , 0 5 0 0 4 7 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 l a t o T i s g n w o r r o b r e h t O s e i t i l i b a i l e v i t a v i r e D s t e s s a l i a c n a n fi r e h t O s e c n a v d a d n a s n a o L s t e s s a e v i t a v i r e D 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 e t o N 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 * 87 Annual Report for the year ended 30 June 2022 l 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 , 6 0 8 0 5 1 , 8 9 3 3 1 , 4 1 7 3 3 3 , 0 0 0 2 4 , , 9 8 2 9 4 3 3 , , 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 l i 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 2 2 0 2 E N U J 0 3 88 - 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 , - - , 3 6 0 8 7 1 0 1 5 7 , 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 l i s t n e a v u q e h s a c d n a h s a C . . 2 1 3 e t o N 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 $ ’ 5 6 4 1 , 3 7 7 1 1 , 1 9 4 8 7 1 , 5 9 6 0 2 4 , , 6 3 6 8 2 8 3 , , 0 6 0 1 4 4 4 , 4 4 1 4 , 1 5 9 6 2 , 6 0 8 0 5 1 , 0 0 0 2 4 , 8 9 7 5 9 3 , , 2 4 3 7 1 6 3 , , 1 4 0 7 3 2 4 , l a t o T 0 0 0 $ ’ 0 9 7 2 1 , 7 2 6 2 1 1 , 9 1 8 9 1 4 , , 7 8 2 6 5 5 3 , , 3 2 5 1 0 1 4 , , 1 9 2 9 4 3 3 , 5 8 3 3 1 , 6 0 8 0 5 1 , 0 0 0 2 4 , 1 2 7 4 5 3 , , 3 0 2 0 1 9 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 2 2 0 2 e n u J 0 3 y n a p m o C 2 2 0 2 E N U J 0 3 s t e s s a l a i c n a n i F - - - - 3 7 7 1 1 , 3 7 7 1 1 , - - - - - - - - - - 7 8 1 8 6 , , 9 0 8 2 8 7 3 , - - - - - - - , 6 9 9 0 5 8 3 , - - - 2 3 3 7 5 6 8 3 , 9 8 9 8 3 , 6 4 3 6 9 , 3 1 0 1 0 1 , 0 3 8 3 5 6 2 , 7 1 5 2 5 , 0 0 0 2 4 , 9 5 3 5 9 2 , - - 3 3 1 1 , - 0 6 7 1 , 3 9 8 2 , - 1 9 4 1 , 6 3 1 2 , 3 9 7 9 4 , 5 5 7 6 6 7 , 6 8 9 0 8 2 , - - - 0 1 4 5 , , 8 0 5 2 5 3 , 8 1 9 7 5 3 - - - - 1 9 4 8 7 1 , 1 9 4 8 7 1 , , 1 9 1 4 1 0 1 , , 0 5 0 0 4 7 1 , - - - 5 8 9 3 2 , 5 9 2 2 6 , - - - - - , 1 6 1 1 0 1 1 , , 1 7 4 0 0 1 1 , , 0 5 0 0 4 7 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 l a t o T s e i t i l i b a i l e v i t a v i r e D 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 e v i t a v i r e D 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 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 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 , - - 0 0 3 2 4 , 9 9 6 0 5 1 , 9 9 9 2 9 1 , 6 3 8 2 , 1 3 7 4 2 1 , 6 0 8 0 5 1 , 0 0 0 2 4 , 9 1 1 0 3 1 , 2 9 4 0 5 4 , . . . . 2 1 3 e t o N 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 * 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 - - 7 7 3 3 , 0 0 5 2 1 , 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 , - - 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 , - - - - , 0 8 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 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 l i s t n e a v u q e h s a c d n a h s a C . . 2 1 3 e t o N 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 * 89 Annual Report for the year ended 30 June 2022 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 4.5 Credit risk management The company has a diversified branch network consisting of 17 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 2022 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 The Group has recognised an additional provision of $0.5 million to cater for volatility in the economic forecasts and other emerging risks including rising inflation and interest rates. 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 2022 $’000 Expected credit loss 2022 $’000 Maximum exposure to credit risk 2021 $’000 Expected credit loss 2021 $’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 178,537 11,773 Certificates of deposit 4.1.3 Other financial assets 351,957 Notes – securitisation program and other Interest receivable Loans and advances Total Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 4.1.3 Other financial assets 16,294 4.1.3 4.1.4 Other financial assets 550 Loans and advances 4,108,260 6.3 6.3 4,667,371 184,335 640 184,975 - - - - - 112,627 12,790 341,025 20,126 188 - - - - - 4,705 4,705 3,822,764 4,309,520 5,999 5,999 113 - 113 159,053 1,763 160,816 140 - 140 91 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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. All other items measured at amortised cost have been assessed as immaterial for ECL purposes in both the current and comparative periods. 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 2022 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 macroeconomic variables, credit risk and credit losses. The principal macroeconomic indicators included in the economic scenarios used are GDP, GDP index, GDP index change and unemployment. Management have derived that GDP has economic correlations to inflation and unemployment, which generally have a corresponding impact on loan performance. Scenarios are compiled 93 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022, 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 macroeconomic factors, including potential impacts of the COVID-19 pandemic as Australia responds to COVID-19. Scenario Reported ECL 100% base case ECL Jun 22 $m 4,818 Macroeconomic forecast 4,531 Includes a reasonable level of portfolio stress. By the end of 2022 the unemployment rate is expected to 3.3% with minor deterioration beyond that. Unemployment is forecast to be 3.5% by the end of 2023. Forecast GDP growth of 4%, with further contraction possible due to tightening monetary policies to tackle significant inflation pressures. 100% downside 5,171 Assumes a moderate but reasonable level of portfolio stress. 100% severe downside 6,041 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 2022 Judgement/ Assumption Description Changes and considerations during the year ended 30 June 2022 Determining when a significant increase in credit risk (SICR) has occurred 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. Unemployment improved as the local economy recovered from the detrimental impacts of COVID-19. Measuring both 12-month and lifetime credit losses 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 PD, EAD and LGD models are subject to the Group’s model risk policy that stipulates periodic model monitoring, periodic revalidation and defines approval procedures and authorities according to model materiality. There were no material changes to the policies during the year ended 30 June 2022. Base case economic forecast The Group derives a forward-looking “base case” economic scenario which reflects Auswide’s view of the most likely future macroeconomic conditions. Probability weighting of each scenario (base case, downside and severe downside scenarios) Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base case scenario. Management overlays 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. There have been no changes to the types of forward-looking variables (key economic drivers) used as model inputs in the current year. Management have assessed the weightings applied to the downside and severe downside scenarios and determined that these remained appropriate. An overlay for model error risk continues to be applied. In assessing the potential impacts of inflation pressures, management have applied an additional overlay, increasing the ECL, allowing for the increased uncertainty in future economic conditions. 95 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 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 178,537 11,773 Certificate of deposit 351,957 Notes – securitisation program and other Total 16,294 558,561 Loans and advances* - - - - - - - - - - 178,537 11,773 351,957 16,294 558,561 - - - - - - Mortgage lending 3,999,109 8,648 5,917 4,013,674 3,235 - Personal lending - Commercial lending 31,678 62,766 8 123 12 - 31,698 62,889 144 40 Total 4,093,553 8,779 5,929 4,108,261 3,419 Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 184,335 640 184,975 - - - - - - 184,335 640 184,975 113 - 113 * Maximum exposure to credit risk includes undrawn credit limits and uses scheduled balances. Carrying amount as at 30 June 2022 is $3.828b. - - - - - 363 6 18 387 - - - - - - - - - - - - - 893 4,491 6 - 156 58 899 4,705 - - - 113 - 113 96 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 * Maximum exposure to credit risk includes undrawn credit limits and uses scheduled balances. Carrying amount as at 30 June 2021 is $3.555b. - - - - - 289 12 - 301 - - - - - - - - - - - - - 2,342 5,096 15 606 199 704 2,963 5,999 - - - 140 - 140 97 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 3,532,324 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 2022 4,780 (7,556) (3,886) (581,339) 937,373 (77,073) 3,804,623 * Excludes interest receivable and deferred mortgage brokers commissions. 6,907 (1,796) 8,026 (243) (3,505) - (616) 8,773 10,234 (2,984) (470) 4,129 3,549,465 - - - (5,010) (589,854) - 29 937,373 (77,660) 5,928 3,819,324 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 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 2022 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 2022 Stage 1 12-month ECL $’000 Stage 2 Lifetime ECL $’000 Stage 3 Lifetime ECL $’000 2,735 1,077 (86) (19) (621) 811 (361) 3,536 301 (85) 88 (1) 2,963 (992) (2) 20 - 295 388 - 537 894 (210) (1,632) (2,463) * Excludes interest receivable and deferred mortgage brokers commissions. 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 5,999 - - - 811 471 4,818 Total $’000 6,592 - - - (1,627) 637 397 5,999 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 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 2021 4.5.6 Credit risk concentrations Loans and advances $’000 5,999 (686) (608) 4,705 Loans and advances $’000 6,592 646 (1,239) 5,999 LANA $’000 140 (27) - 113 LANA $’000 197 (57) - 140 Total $’000 6,139 (713) (608) 4,818 Total $’000 6,789 589 (1,239) 6,139 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. 2022 $’000 2021 $’000 3,744,091 3,469,468 26,393 48,840 24,271 55,726 3,819,324 3,549,465 100 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 2022 2022 $’000 2021 $’000 2,654,406 2,527,350 499,313 57,834 405,852 35,671 134,057 14,214 17,977 445,274 53,291 355,108 31,753 100,623 13,494 22,572 3,819,324 3,549,465 * Excludes interest receivable and deferred mortgage brokers commissions. LANA of $184.335m (2021: $159.053m) 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 APS 220 Credit Quality and includes a specific provision amounting to $2.345m (2021: $3.668m) 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 $26.857m at 30 June 2022 (2021: $37.424m). The change in fair value due to credit risk for the MISs designated at FVTPL is $0.677m for the year (2021: $1.013m). 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 365 days and over Consolidated Company 2022 $’000 3,444 331 910 1,602 689 6,976 2021 $’000 3,047 735 862 431 3,905 8,980 2022 $’000 3,444 331 910 1,602 689 6,976 2021 $’000 3,047 735 862 431 3,905 8,980 101 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 $’000 2021 $’000 535,458 450,012 1,062,835 920,479 2022 $’000 365 832 1,236,558 1,326,451 2,207 100,258 195,072 18,610 23,595 790,373 553,859 12 525 550 3,744,092 3,469,468 4,491 2021 $’000 269 1,096 1,523 325 1,482 401 5,096 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 15,846 19,627 10,596 418 2,353 15,212 18,117 17,018 308 5,071 48,840 55,726 17 32 8 - 2 59 35 33 24 - 612 704 Other financial assets The Group holds other financial assets at amortised cost with a carrying amount of $557.599m (2021: $486.756m) and at FVTOCI with a carrying amount of $0.918m (2021: $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 2022 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 2022 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 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 Company 30 June 2022 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 - - - - - - - 16,400 - 16,400 818 818 26,857 - 918 27,775 - - 26,857 16,400 918 44,175 818 818 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 - - - - - - - 16,400 - 16,400 818 818 26,857 - 918 27,775 - - 26,857 16,400 918 44,175 818 818 103 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 There have been no transfers of between level 1 and level 2 categories of financial instruments. Accounting policies Fair value measurements The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to characteristics of the 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 2022 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 2022 $’000 918 - - - - 2021 $’000 918 - - - Balance at end of year 918 918 2022 $’000 37,424 1,605 - 7,750 (19,922) 26,857 2021 $’000 60,613 2,789 - 2,000 (27,978) 37,424 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 2022 $’000 918 - - - - 2021 $’000 918 - - - - Balance at end of year 918 918 2022 $’000 37,424 1,605 - 7,750 (19,922) 26,857 2021 $’000 60,613 2,789 - 2,000 (27,978) 37,424 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 2022 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 178,537 11,773 370,135 - 560,445 - - - - - - - - 178,537 178,537 11,773 11,773 370,135 368,801 3,849,469 3,849,469 3,827,565 3,849,469 4,409,914 4,386,676 - - - - - - 3,607,342 147,978 - - 3,607,342 3,617,342 147,978 150,806 - 32,309 32,309 32,309 373,681 42,000 - - 373,681 370,761 42,000 42,000 4,171,001 32,309 4,203,310 4,213,218 105 Annual Report for the year ended 30 June 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 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 either 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 2022 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 2022 % 2021 % 2022 $’000 2021 $’000 2022 $’000 2021 $’000 Australia 100.0 100.0 - Australia 100.0 100.0 (11) - (3) - - - - 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 • ABA Trust No. 7 5.1.3 Details of material associates Details of each of the Group’s material associates at the end of the reporting period are as follows: Name of associate Principal activity Place of incorporation and operation Proportion of ownership interest and voting power held by the Group Financial Advice Matters Group Pty Ltd (FAMG) Financial Planning Australia 2022 25.0% 2021 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 $’000 585 689 (245) (51) 977 2022 $’000 1,445 187 (28) 159 159 63 2021 $’000 554 597 (236) (46) 871 2021 $’000 1,227 168 (50) 118 118 63 The above figures were based on the unaudited accounts of FAMG as at 30 June 2022. 108 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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; Chairman - Non-executive Director s SC Birkensleigh r o t c e r i D MJ Barrett Managing Director s e v i t u c e x E WR Schafer Chief Financial Officer, Company Secretary DR Hearne Chief Customer Officer B Dangerfield Director - Non-executive GN Kenny Director - Non-executive GB Murdoch Director - Non-executive J Korhonen Director - Non-executive GM Job Chief People and Property Officer MS Rasmussen Chief Operating Officer SD Johnson Chief Information Officer R Stephens 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 2022 $’000 3,007 457 247 128 69 2021 $’000 2,658 228 202 150 57 2022 $’000 3,007 457 247 128 69 2021 $’000 2,658 228 202 150 57 3,908 3,295 3,908 3,295 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 $269,274 (2021: $162,746) 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 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 2022 $’000 26,132 3,496 (714) 164 2021 $’000 24,155 3,833 589 - 2022 $’000 26,143 3,496 (714) 164 2021 $’000 24,158 3,833 589 - (271,057) (349,871) (270,884) (350,723) (651) 1,065 2,834 139 (17) 936 (651) 1,065 2,834 139 (18) 936 Deposits and short term borrowings 268,053 431,794 268,051 431,786 Creditors and accruals Deferred tax payable Income tax payable Employee benefit provisions Other provisions Reserves Net cash generated from operating activities Accounting policies 15,527 (5,302) 15,482 (5,313) (618) 3,896 133 268 (5,458) 43,070 552 4,574 132 76 (428) 111,162 (625) 3,896 133 268 (5,458) 43,200 552 4,571 132 76 (428) 110,290 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 793 793 732 732 793 793 732 732 110 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 6.3 Contingent liabilities and credit commitments Approved but undrawn loans Approved but undrawn credit limits Bank guarantees Consolidated Company 2022 $’000 2021 $’000 2022 $’000 2021 $’000 184,335 159,053 184,335 159,053 85,506 640 88,841 1,763 85,506 640 88,841 1,763 270,481 249,657 270,481 249,657 The Group holds an agency settlement facility amounting to $3 million. As at 30 June 2022, the amount of facility used is $0 (30 June 2021: $0). 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 2022 $’000 3,441 391 (258) 3,574 3,105 469 3,574 382 3,956 2021 $’000 3,308 401 (268) 3,441 3,024 417 3,441 114 3,555 2022 $’000 3,441 391 (258) 3,574 3,105 469 3,574 382 3,956 2021 $’000 3,308 401 (268) 3,441 3,024 417 3,441 114 3,555 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 2022NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2022 6.5 Other non-financial assets Prepayments Other Consolidated Company 2022 $’000 3,106 260 3,366 2021 $’000 2,824 298 3,122 2022 $’000 3,105 260 3,365 2021 $’000 2,821 298 3,119 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 2022 $’000 2021 $’000 2022 $’000 2021 $’000 402,361 354,116 402,361 354,116 Subsidiaries and joint operations 28,080 25,225 28,080 25,225 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 430,441 379,341 430,441 379,341 114,800 94,600 114,800 94,600 114,800 94,600 114,800 94,600 15,485 13,096 15,485 13,096 15,485 13,096 15,485 13,096 24,669 24,007 24,669 24,007 - 131,118 - 131,118 24,669 155,125 24,669 155,125 Total auditors' remuneration 585,395 642,162 585,395 642,162 6.7 Events subsequent to balance date Details of dividends declared subsequent to year end are included in Note 3.6 - Dividends paid. Other than the matters described above, there has been no matter or circumstance occurring subsequent to the end of the period that has significantly affected, or may significantly affect the operations of the Group or the Company, the results of those operations, or the state of affairs of the Group or the Company in future financial years. 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 2022 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 2022 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 Note 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 2022. 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 2022 GB Murdoch Director Brisbane 26 August 2022 113 Annual Report for the year ended 30 June 2022 114 Auswide BankDeloitte Touche Tohmatsu ABN 74 490 121 060 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD 477 Collins Street Melbourne VIC 3000 GPO Box 78B Melbourne VIC 3001, Australia Independent Auditor’s Report to the Members of Auswide Bank Ltd Deloitte Touche Tohmatsu Tel: +61 (0) 3 9671 7000 ABN 74 490 121 060 Fax: +61 (0) 3 9671 7001 Deloitte Touche Tohmatsu www.deloitte.com 477 Collins Street ABN 74 490 121 060 Melbourne VIC 3000 477 Collins Street GPO Box 78B Melbourne VIC 3000 Melbourne VIC 3001, Australia GPO Box 78B Melbourne VIC 3001, Australia Tel: +61 (0) 3 9671 7000 Fax: +61 (0) 3 9671 7001 Tel: +61 (0) 3 9671 7000 www.deloitte.com Fax: +61 (0) 3 9671 7001 www.deloitte.com RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrttss Independent Auditor’s Report to the Members of Auswide Independent Auditor’s Report to the Members of Auswide Bank Ltd OOppiinniioonn Bank Ltd We have audited the financial reports of Auswide Bank Ltd (the “Company”) and its subsidiaries (the “Group”) which comprise the Group and the Company’s statements of financial position as at 30 June 2022, the statements RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrttss of profit or loss and other comprehensive income, the statements of changes in equity and the statements of RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrttss cash flows for the year then ended, and notes to the financial statements, including a summary of significant OOppiinniioonn accounting policies and other explanatory information, and the directors’ declaration. complying with Australian Accounting Standards and the Corporations Regulations 2001. complying with Australian Accounting Standards and the Corporations Regulations 2001. giving a true and fair view of the Group and the Company’s financial position as at 30 June 2022 and of their financial performance for the year then ended; and giving a true and fair view of the Group and the Company’s financial position as at 30 June 2022 and of their financial performance for the year then ended; and giving a true and fair view of the Group and the Company’s financial position as at 30 June 2022 and of their financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. OOppiinniioonn We have audited the financial reports of Auswide Bank Ltd (the “Company”) and its subsidiaries (the “Group”) In our opinion, the accompanying financial reports of the Group and the Company are in accordance with the which comprise the Group and the Company’s statements of financial position as at 30 June 2022, the statements Corporations Act 2001, including: We have audited the financial reports of Auswide Bank Ltd (the “Company”) and its subsidiaries (the “Group”) of profit or loss and other comprehensive income, the statements of changes in equity and the statements of which comprise the Group and the Company’s statements of financial position as at 30 June 2022, the statements cash flows for the year then ended, and notes to the financial statements, including a summary of significant (i) of profit or loss and other comprehensive income, the statements of changes in equity and the statements of accounting policies and other explanatory information, and the directors’ declaration. cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial reports of the Group and the Company are in accordance with the (ii) Corporations Act 2001, including: In our opinion, the accompanying financial reports of the Group and the Company are in accordance with the BBaassiiss ffoorr OOppiinniioonn Corporations Act 2001, including: (i) We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those (i) standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of (ii) our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s (ii) BBaassiiss ffoorr OOppiinniioonn APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are BBaassiiss ffoorr OOppiinniioonn relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those in accordance with the Code. standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those our report. We are independent of the Group in accordance with the auditor independence requirements of the standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of We confirm that the independence declaration required by the Corporations Act 2001, which has been given to Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s our report. We are independent of the Group in accordance with the auditor independence requirements of the the directors of the Company (the “directors”), would be in the same terms if given to the directors as at the time APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s of this auditor’s report. relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are in accordance with the Code. relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to opinion. the directors of the Company (the “directors”), would be in the same terms if given to the directors as at the time We confirm that the independence declaration required by the Corporations Act 2001, which has been given to of this auditor’s report. the directors of the Company (the “directors”), would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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. 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 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD KKeeyy AAuuddiitt MMaatttteerrss Page 2 26 August 2022 Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the Group 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 2022, the Group has recognised a loss allowance for Expected Credit Losses (ECL) amounting to $4.8m on loans and advances held at amortised cost in accordance with AASB 9 Financial Instruments as disclosed in Note 4.5. Loans and advances subject to AASB 9’s impairment requirements include the residential lending portfolio, personal loan portfolio and loans approved but not yet advanced. Significant management judgement was necessary in determining the loss allowance, including: - - The application of the requirements of AASB 9 as reflected in the Group’s ECL model particularly in light of the current economic environment; The identification of exposures with a significant increase in credit risk to determine whether a 12- month or lifetime ECL should be recognised; and - Assumptions used in the ECL model such as the financial condition of the counterparty, repayment forward-looking macroeconomic capacity and factors as disclosed in Note 4.5. HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr In conjunction with our specialists, our audit procedures included, but were not limited to: Testing the design and implementation of controls over the ECL loss allowance 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 indicators of significant loans displaying increases in credit risk and whether they are migrating on a timely basis to appropriate stages including generation of days past due reports. AAsssseessssiinngg EECCLL mmooddeell aaddeeqquuaaccyy:: We assessed the adequacy of management’s internally developed model in determining the ECL allowance. Our procedures included, but were not limited to: - Assessing whether the ECL model adequately - - addresses the requirements of AASB 9; Evaluating management’s assessment of the impact of forward-looking macroeconomic factors on the loan portfolio and as a result the estimate of loss allowance; 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 ECL allowance; - Assessing the reasonableness of assumptions driving Probabilities of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD) including performing retrospective review of the key assumptions; and - Assessing the reasonableness of management overlays to the modelled collective provision by recalculating the coverage provided by the collective ECL (including overlays) to the loan book, taking into account recent history, performance and de-risking of the relevant portfolios. loss allowance We also assessed adequacy of the disclosures in Note 4 to the financial statements. 116 Auswide Bank KKeeyy AAuuddiitt MMaatttteerr KKeeyy AAuuddiitt MMaatttteerr KKeeyy AAuuddiitt MMaatttteerr IImmppaaiirrmmeenntt ooff nnoonn--ccuurrrreenntt aasssseettss IImmppaaiirrmmeenntt ooff nnoonn--ccuurrrreenntt aasssseettss As at 30 June 2022, the Group’s non-current assets IImmppaaiirrmmeenntt ooff nnoonn--ccuurrrreenntt aasssseettss As at 30 June 2022, the Group’s non-current assets include goodwill amounting to $46.3m as disclosed in include goodwill amounting to $46.3m as disclosed in As at 30 June 2022, the Group’s non-current assets Note 3.3. Note 3.3. include goodwill amounting to $46.3m as disclosed in The determination of the recoverable amount of Note 3.3. The determination of the recoverable amount of goodwill is complex and requires management to goodwill is complex and requires management to The determination of the recoverable amount of exercise significant judgement including: exercise significant judgement including: goodwill is complex and requires management to Selection of appropriate valuation methodology; - exercise significant judgement including: Selection of appropriate valuation methodology; - and and Selection of appropriate valuation methodology; Estimation of applicable Price-Earnings multiples Estimation of applicable Price-Earnings multiples and and control premium. and control premium. Estimation of applicable Price-Earnings multiples and control premium. - - - - IInnffoorrmmaattiioonn tteecchhnnoollooggyy IInnffoorrmmaattiioonn tteecchhnnoollooggyy The Group’s business utilises several interdependent IInnffoorrmmaattiioonn tteecchhnnoollooggyy The Group’s business utilises several interdependent Information Technology (IT) systems to process and Information Technology (IT) systems to process and The Group’s business utilises several interdependent record a high volume of transactions. Controls over record a high volume of transactions. Controls over Information Technology (IT) systems to process and access and changes to IT systems are critical to the access and changes to IT systems are critical to the record a high volume of transactions. Controls over integrity of financial information and the preparation integrity of financial information and the preparation access and changes to IT systems are critical to the financial reports. financial reports. integrity of financial information and the preparation The IT systems and controls, as they impact the financial financial reports. The IT systems and controls, as they impact the financial recording and reporting of transactions, has a significant recording and reporting of transactions, has a significant The IT systems and controls, as they impact the financial impact on our audit approach, and is dependent on the impact on our audit approach, and is dependent on the recording and reporting of transactions, has a significant effective operation of the Group’s IT controls. effective operation of the Group’s IT controls. impact on our audit approach, and is dependent on the effective operation of the Group’s IT controls. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD Page 3 Page 3 26 August 2022 26 August 2022 Page 3 26 August 2022 - - - - - - - - - the key the the key key to reflect to reflect to reflect HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr AAuuddiitt MMaatttteerr HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy In conjunction with our valuation specialists, our AAuuddiitt MMaatttteerr In conjunction with our valuation specialists, our procedures included, but were not limited to: procedures included, but were not limited to: In conjunction with our valuation specialists, our of appropriateness Evaluating - procedures included, but were not limited to: Evaluating of appropriateness - the over controls management’s the over controls management’s Evaluating appropriateness of impairment assessment process, including the impairment assessment process, including the controls management’s the over indicators of identification of potential indicators of identification of potential impairment assessment process, including the the carrying value impairment such as the carrying value impairment such as indicators of identification of potential exceeding the market capitalisation; exceeding the market capitalisation; impairment such as the carrying value Assessing appropriateness of the valuation Assessing appropriateness of the valuation exceeding the market capitalisation; methodology applied; methodology applied; Assessing appropriateness of the valuation Assessing the reasonableness of the key Assessing the reasonableness of the key methodology applied; in the assumptions used by management in the assumptions used by management Assessing the reasonableness of the key impairment model and whether they are impairment model and whether they are assumptions used by management in the the current suitably adjusted the current suitably adjusted impairment model and whether they are economic environment; and economic environment; and the current suitably adjusted Testing the mathematical accuracy of the Testing the mathematical accuracy of the economic environment; and impairment model. impairment model. Testing the mathematical accuracy of the - We also assessed the adequacy of the disclosures in impairment model. We also assessed the adequacy of the disclosures in Note 3.3 to the financial statements. Note 3.3 to the financial statements. We also assessed the adequacy of the disclosures in Note 3.3 to the financial statements. IT Specialists, our In conjunction with our IT Specialists, our In conjunction with our procedures included, but were not limited to: procedures included, but were not limited to: IT Specialists, our In conjunction with our IT Obtaining an understanding of - procedures included, but were not limited to: IT Obtaining an understanding of - environment and identification of the key environment and identification of the key Obtaining an understanding of IT systems relevant to financial reporting; systems relevant to financial reporting; environment and identification of the key Testing the design and implementation and systems relevant to financial reporting; Testing the design and implementation and where applicable, operating effectiveness of IT where applicable, operating effectiveness of IT Testing the design and implementation and controls including but not limited to access controls including but not limited to access where applicable, operating effectiveness of IT administration, change management and administration, change management and controls including but not limited to access segregation of duties; and segregation of duties; and administration, change management and Responding to IT deficiencies identified by segregation of duties; and Responding to IT deficiencies identified by additional designing additional designing Responding to IT deficiencies identified by procedures which included the identification procedures which included the identification designing additional and testing of compensating or mitigating and testing of compensating or mitigating procedures which included the identification controls and varying the nature, timing and controls and varying the nature, timing and and testing of compensating or mitigating substantive procedures extent of substantive procedures extent of controls and varying the nature, timing and performed. performed. extent of substantive procedures performed. performing performing performing and and the the the the and the the - - - - - - - OOtthheerr IInnffoorrmmaattiioonn OOtthheerr IInnffoorrmmaattiioonn OOtthheerr IInnffoorrmmaattiioonn The directors are responsible for the other information. The other information comprises the Directors’ Report 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 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 and the Company’s annual report (but does not include the financial reports and will be included in the Group and the Company’s annual report (but does not include the financial reports and which we obtained prior to the date of this auditor’s report, and also includes the following information which our auditor’s report thereon): Chairman’s Report, Managing Director’s Report, Corporate Governance Summary our auditor’s report thereon): Chairman’s Report, Managing Director’s Report, Corporate Governance Summary will be included in the Group and the Company’s annual report (but does not include the financial reports and and Shareholder Information, which is expected to be made available to us after that date. and Shareholder Information, which is expected to be made available to us after that date. our auditor’s report thereon): Chairman’s Report, Managing Director’s Report, Corporate Governance Summary and Shareholder Information, which is expected to be made available to us after that date. Our opinion on the financial reports does not cover the other information and we do not and will not express any Our opinion on the financial reports does not cover the other information and we do not and will not express any form of assurance conclusion thereon. form of assurance conclusion thereon. Our opinion on the financial reports does not cover the other information and we do not and will not express any form of assurance conclusion thereon. 117 Annual Report for the year ended 30 June 2022 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD Page 4 26 August 2022 In connection with our audit of the financial reports, 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 reports or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 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 communicate the matter to the directors and use our professional judgement to determine the appropriate action. RReessppoonnssiibbiilliittiieess ooff tthhee DDiirreeccttoorrss ffoorr tthhee FFiinnaanncciiaall RReeppoorrttss The directors are responsible for the preparation of the financial reports that give a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial reports that give a true and fair view and are free from material misstatement, whether due to fraud or error. In preparing the financial reports, the directors are responsible for assessing the ability of the Group and the Company to continue as going concerns, 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 the Company or to cease operations, or has no realistic alternative but to do so. AAuuddiittoorr’’ss RReessppoonnssiibbiilliittiieess ffoorr tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrttss Our objectives are to obtain reasonable assurance about whether the financial reports as a whole are 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 the financial reports. 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 reports, 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 or the Company’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 or the Company’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 reports 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 118 Auswide Bank INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD Page 5 26 August 2022 auditor’s report. However, future events or conditions may cause the Group or the Company to cease to continue as going concerns. • • Evaluate the overall presentation, structure and content of the financial reports, including the disclosures, and whether the financial reports represent 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 Group 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. 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 Group 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 OOppiinniioonn oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt We have audited the Remuneration Report included in pages 7 to 18 of the Directors’ Report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Auswide Bank Ltd for the year ended 30 June 2022, complies with section 300A of the Corporations Act 2001. RReessppoonnssiibbiilliittiieess The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Mark Stretton Partner Chartered Accountants Melbourne 26 August 2022 119 Annual Report for the year ended 30 June 2022 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 2022SHAREHOLDER INFORMATION 30 JUNE 2022 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. 2022 Annual General Meeting The 2022 Annual General Meeting is to be held on Wednesday 23 November 2022. This year the Company will hold a hybrid AGM - both in-person at Christie Spaces, 320 Adelaide Street, Brisbane, Queensland, 4000, 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 2022 Key dates Annual General Meeting 23 November 2022 Full year results and final dividend announcement 29 August 2022 Ex dividend date Record date 15 September 2022 16 September 2022 Participation in DRP (final date for receipt of application) 19 September 2022 Dividend payment 30 September 2022 Half year results and interim dividend announcement 25 February 2022 Ex dividend date Record date Participation in DRP (final date for receipt of application) Dividend payment E. Securities information 03 March 2022 04 March 2022 07 March 2022 18 March 2022 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 4000 Ph 1300 552 270 Fax 07 3237 2152 Online Contact www-au.computershare.co/Investor/Contact Website www.computershare.com.au Issued shares The Company’s securities listed on the Australian Stock Exchange (ASX) as at 13 September 2022 are: Class of security Permanent ordinary shares ASX Code Number ABA 43,613,554 Distribution of shareholdings Permanent ordinary shares 13 September 2022 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 3,856 2,181 654 606 53 7,350 242 123 Annual Report for the year ended 30 June 2022SHAREHOLDER INFORMATION 30 JUNE 2022 E. Securities information (continued) Top 20 shareholders Permanent ordinary shares 13 September 2022 Name National Nominees Limited Ronald Ernest Hancock & Lorraine Pearl Hancock Citicorp Nominees Pty Limited Ronald Ernest Hancock BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd DRP A/c GDC & DMC Super Pty Ltd ATF Graham Cockerill S/F A/c Craig Thomas Kennedy Horrie Pty Ltd ATF Horrie Superannuation A/c Kathleen Fay Sawyer Ron Hancock Super Pty Ltd ATF The Hancock Superfund A/c J P Morgan Nominees Australia Pty Limited Cloud 7 Nominees Australia Pty Ltd ATF Peter Sawyer Famacct No2 A/c Ronald Ernest Hancock & Lorraine Pearl Hancock ATF The Hancock Family A/c HSBC Custody Nominees (Australia) Limited Hestearn Pty Ltd Sawfam Pty Ltd ATF Sawyer Super Fund No2 A/c Delma Cran Lohse Holdings Pty Ltd ATF Peter Lohse Super Fund A/c Noela Olsen Warambul Super Co Pty Ltd ATF Warambul Super Fund A/c No. of shares % of total 3,167,452 890,750 809,950 706,816 523,864 515,559 509,045 436,649 432,719 365,932 330,342 328,486 320,000 311,286 308,543 296,362 264,074 260,000 247,520 226,873 7.26 2.04 1.86 1.62 1.20 1.18 1.17 1.00 0.99 0.84 0.76 0.75 0.73 0.71 0.71 0.68 0.61 0.60 0.57 0.52 Top 20 holders of fully paid ordinary shares 11,252,222 25.80 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 2022 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 2022FINANCIAL 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 Basis Point Capital Adequacy Ratio Cost-to-income Ratio Credit Rating Dividend Dividend Payout Ratio Dividend Yield DRP Earnings per Share ECL An Authorised Deposit-taking Institution is a corporation authorised under the Banking Act 1959 and includes banks, building societies and credit unions regulated by APRA. Annual General Meeting. Australian Prudential Regulation Authority. Australian Securities and Investments Commission. A resource which has economic value and can be converted to cash. Assets for an ADI include its loans because income is derived from the loan fees and interest payments generated. Australian Securities Exchange Limited (ABN 98 008 624 691). The amount that is written off as a loss and classified as an expense, usually as a result of a poor-performing loan. The Basel Accords are the recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, which has the purpose of improving the consistency of capital regulations internationally. One hundredth of one percent or 0.01 percent. The term is used in money and securities markets to define differences in interest rates or yields. 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. An analysis of a company’s ability to repay debt or other obligations. A portion of a company’s profits that may be paid regularly by the company to its shareholders. The amount of dividends paid to shareholders relative to the amount of total net income of a company, represented as a percentage. Computed by dividing the annual dividend by the share price. A Dividend Reinvestment Plan allows shareholders to reinvest some or all of their dividends into additional shares. The amount of company earnings per each outstanding share of issued ordinary shares. 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 126 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. Auswide BankFINANCIAL GLOSSARY Liquidity Market Capitalisation NCD Net Interest Income Net Interest Margin (NIM) Net Profit After Tax (NPAT) Net Tangible Asset Backing per Share NHFIC Non Interest Income For an ADI, liquidity is a measure of the ability of the ADI to fund growth and repay debts when they fall due, including the paying of depositors. The total value of a company’s shares calculated by multiplying the shares outstanding by the price per share. A Negotiable Certificate of Deposit is a short term security typically issued by an ADI to a larger institutional investor in order to raise funds. The difference between the revenue that is generated from an ADI’s assets, and the expenses associated with paying out its liabilities. 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. 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. The National Housing Finance and Investment Corporation. Income derived primarily from fees and commissions, rather than income from interest-earning assets. Price-to-Earnings Ratio (P/E Ratio) A measure of the price paid for a share relative to the annual income or profit earned by the company per share. Record Date Return on Average Ordinary Equity The date used to identify shares traded and registered up until Ex-Dividend Date. A measurement of how well a company uses the funds provided by its shareholders, represented by a ratio of the company’s profit to shareholder’s equity. Return on Net Tangible Assets (RONTA) Computed by dividing Net Profit After Tax by average Net Tangible RMBS Securitisation SSP Subordinated Capital Notes Tier 1 Capital Tier 2 Capital Underlying NPAT Assets. Net Tangible Assets equals net assets less goodwill. RONTA is equivalent to Return on Tangible Equity. Residential mortgage-backed securities are a type of bond backed by residential mortgages on residential, rather than commercial, real estate. Refers to setting aside a group of income-generating assets, such as loans, into a pool against which securities are issued. Securitisation is performed by an ADI in order to raise new funds. Special Service Provider such as an authorised settlement clearing house. Subordinated notes or subordinated debentures, are a type of capital represented by debt instruments. Subordinated notes have a claim against the borrowing institution that legally follows the claims of depositors. Subordinated notes or debentures come ahead of stockholders. Describes the capital adequacy of an ADI. Tier 1 Capital is core capital and includes equity capital and disclosed reserves. Describes the capital adequacy of an ADI. Tier 2 Capital is secondary capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt and more. The actual reflection of a company’s profit. One-off items may be removed from the statutory profit for the company to arrive at this profit figure. 127 Annual Report for the year ended 30 June 2022This 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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