Auswide Bank
Annual Report 2023

Plain-text annual report

Annual Report 2023 ii Auswide BankABOUT AUSWIDE BANK .............................................. 3 FY23 FINANCIAL HIGHLIGHTS .................................. 5 OUR BOARD OF DIRECTORS ...................................... 6 OUR LEADERSHIP TEAM .............................................. 8 CHAIR REPORT ..............................................................11 MANAGING DIRECTOR REPORT .............................13 DELIVERING PROFITABLE GROWTH .....................16 BROKER FLOWS IN CAPITAL CITY MARKETS DRIVING DIVERSIFICATION .................17 OUR SUSTAINABILITY STRATEGY ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ...................................................19 QUEENSLAND RUGBY LEAGUE PARTNERSHIP ............................................. 20 CORPORATE PLAN 2023-2025 ............................... 22 FINANCIAL REPORT .................................................... 23 We acknowledge the Traditional Owners of the lands on which we operate and pay our respects to Elders past and present, and to emerging community leaders. We also acknowledge the important role Aboriginal and Torres Strait Islander peoples continue to play within the communities in which Auswide Bank operates and where our team members reside. Annual Report for the year ended 30 June 2023 1 Connections build the foundation for nurturing and sustaining meaningful relationships. 2 Auswide BankAbout 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. 57 YEARS STRONG EST. IN 1966 CORE OFFERINGS STAFF ENGAGEMENT SCORE OF 96 Home Loans Personal Loans Credit Cards Payments Deposit Solutions Insurance Internet Banking and App FINANCIAL STATUS MAJOR STRATEGIC PARTNERSHIPS $3.414b $4.403b CUSTOMER DEPOSITS IN LOAN BOOK ASSETS AWARDS DISTRIBUTION ONLINE INTERNET BANKING AND APP STRONG BROKER NETWORK PRIVATE BANKING 16 BRANCHES Annual Report for the year ended 30 June 2023 3 4 Auswide BankFY23 Financial Highlights Underlying NPAT maintained in a challenging environment STATUTORY NPAT $25.067m 4.1% LOAN BOOK $4.403b2 14.2% growth, over 3x system3 COST TO INCOME RATIO 65.0% 3.9% NET INTEREST MARGIN 188BPS 6BPS on FY22  UNDERLYING NPAT 1 $25.067m CUSTOMER DEPOSITS $3.414b 0.4% 11.6% growth STATUTORY EPS 55.6CPS STATUTORY ROE 8.7% TOTAL ASSETS EXCEEDED $5b at 30 June 2023 4.9CPS from 9.8% 1. Difference between Statutory and Underlying TOTAL DIVIDEND 43.0CPS UNDERLYING ROE1 8.7% 1.0CPS from 9.4% NPAT and ROE in FY22 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 the Collective Provision ($350k) 2. Including investments in Managed Investment Schemes (MISs) reported in Financial Assets in Balance Sheet 3. System growth of 4.5% per RBA Financial Aggregates - total housing growth Annual Report for the year ended 30 June 2023 5 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 a partner at PricewaterhouseCoopers for 16 years until her retirement in 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 the Tasmanian Finance Corporation, Adore Beauty Limited, Horizon Oil Limited and 7-11 Holdings and its subsidiaries. She is an independent member of the Audit Committee of the Reserve Bank of Australia, and Deputy Chancellor 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. 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 and is an independent Director. Grant Murdoch MCom(Hons) FAICD, FCAANZ | 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 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, McGregor’s 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 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 an Independent Non-Executive Director of MLC Life Insurance and a Non-Executive Director of Nuix. Ms Korhonen is also on the Board of au.Domain Administration Limited (AuDA), the governing body of the Australian internet domain and a Non- Executive Director of the Civil Aviation Safety Authority (CASA). Ms Korhonen is a member of the Board Remuneration Committee, the Board Audit Committee, the Board Risk Committee and is an independent Director. Chairman Director Director Director 6 Auswide BankCameron Mitchell BBus, MAppFin | Director Mr Mitchell was appointed to the Board on 1 February 2023. Mr Mitchell is an experienced business leader with an executive career that spans more than 25 years in Banking and Financial Services, both domestically and internationally. He has significant experience working with regulators to ensure the highest levels of risk management and compliance. Mr Mitchell has partnered with all levels of Banking segmentation including Retail, SME, Business, Private and Institutional banking to deliver customer growth, customer insight, data, transformation, and strategy. Mr Mitchell is the Executive Chairman and Managing Director of FX Risk Solutions. Mr Mitchell is a member of the Board Audit Committee, the Board Risk Committee and the Board Remuneration Committee and is an independent Director. Lyn McGrath BA, MBA, SFFinsia, GAICD | Director Ms McGrath was appointed to the Board on 1 March 2023. Ms McGrath has extensive executive experience in the financial services sector throughout her roles as Group Executive Retail Banking at BOQ and Executive General Manager, Retail at CBA. Ms McGrath’s experience extends across retail banking, wealth management and retail distribution. Ms McGrath has significant experience in digital transformation and business turnarounds. Ms McGrath is currently a non-executive director of Credit Corp Group Ltd (ASX:CCP) and Challenger Bank Ltd (ASX: CGF). She is also Chair and non- executive Director of togetherAI Pty Ltd, and a non-executive Director and Chair of the Audit and Risk Committee for Australian Digital Health Agency. Ms McGrath is a member of the Board Audit Committee, Board Risk Committee and Board Remuneration 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 served on the Board for a period of eleven years before retiring from the Board on 27 November 2022. Martin Barrett BA (ECON), MBA | Managing Director Martin commenced as Chief Executive Officer of Wide Bay Australia Ltd (now Auswide Bank Ltd) on 4 February 2013, and was subsequently appointed Managing Director on 19 September 2013. Martin has extensive experience in the banking sector, having previously held the positions of Managing Director (Queensland, Western Australia and National Motor Finance Business) and General Manager NSW/ACT Corporate & Business Bank at St George Bank Ltd. Prior to working at St George Bank, Martin held senior roles at regional financial institutions in the United Kingdom and at National Australia Bank. Martin is currently a Non-Executive Director of Impact Community Services. Martin is an executive Director. Director Director Director Managing Director Annual Report for the year ended 30 June 2023 7 Our Leadership Team Managing Director Chief Financial Officer & Company Secretary Chief Risk Officer Chief Customer Officer Martin Barrett Bill Schafer Craig Lonergan Damian Hearne > Organisational leadership > Strategy development and implementation > Group operational and financial performance > Regulatory engagement > Risk culture and management > Social responsibility and sustainability > Group Accounting and Treasury > Budgeting and financial analysis > Financial and management reporting > Statutory, ASX and regulatory reporting > Capital, funding and liquidity planning strategy > Investor relations > Customer satisfaction > Crisis management and growth > Shareholder returns > 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 > Management of > Providing management and the Board with risk reporting external audit services > Management of the internal audit function via third party professional services 8 Auswide BankChief 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 Annual Report for the year ended 30 June 2023 9 Trust, a currency we invest in. 10 Auswide BankChair Report I am pleased to report that Auswide Bank had a solid result for FY23. We met our commitments to customers and shareholders, drove positive change, all while navigating a challenging operating environment. This year we faced inflationary pressure on wages and costs, regulatory demand on resources, significant operating cost for technology and cybersecurity, in combination with strong competition for retail deposits and loans. Through appropriate and measured responses to these challenges we were able to deliver our sound result. On behalf of my fellow board members and staff, I would like to thank Martin for his exemplary leadership, and his relentless focus on the Bank’s mission of placing the customer at the heart of everything we do, while at the same time creating value for shareholders. We wish Martin all the best for his future endeavours. Corporate Plan January 2023 saw the start of a new strategic cycle. The next three years will be a period of growth and development at Auswide Bank. Our corporate plan reflects the commitment to our mission, core values, and to those we serve. During the formulation of the plan, we sought feedback from staff, customers, and other stakeholders. The four pillars of focus for our corporate plan are: > Focus on third party and private banking for loan book and deposit acquisition. > Actively pursue inorganic growth to improve our ability to scale or step change our capacity. > Provide exceptional customer experience across all channels to grow and ensure retention of customers. > Invest to grow and keep the promise by ensuring growth is aligned to financial metrics for stakeholders. Retirement of Managing Director In March 2023, our Managing Director Martin Barrett advised the Board of his intention to retire at the end of 2023. During his 10 years as our CEO Martin has been an inspirational leader, transforming the business, sharpening its focus, and creating a platform for sustained growth. Under Martin’s leadership, together with his team, we: > Increased our loan book over the 10 years from $2.229b to $4.403b, while customer deposits grew from $1.620b to $3.414b over the same period. > Incrementally grew in profitability and shareholder returns culminating in a record underlying NPAT in FY23 of $25.1m and a total dividend for the year of 43cps, which equated to a fully franked yield of 7.98%. > Gained our banking licence on the 1st April 2015 and began our journey to rationalise and modernise the branch network to support improved customer service. > Acquired YCU in 2016, which provided a new customer base in Brisbane and was the first merger between a listed ADI and mutual in over a decade. > Grew our Private Bank, offering bespoke lending and deposit opportunities, with a portfolio of $428m at 30 June 2023. The Board commenced the process to find a new Managing Director in June 2023, with the aim of having a new Managing Director in place by November 2023. Leadership and Board renewal The year saw the appointment of two new Directors to the Auswide Bank Board. In February, the Board appointed Mr Cameron Mitchell. Cameron is an experienced business leader with an executive career that spans more than 25 years in banking and financial services, both domestically and internationally. He has extensive experience working with regulators to ensure the highest levels of risk management and compliance. In March, Ms Lyn McGrath was appointed to the Board. Lyn has extensive executive experience in the financial services sector, including retail banking, wealth management and retail distribution. Additionally, Lyn has significant experience in digital transformation and business turnarounds. In November 2022, Board member Mr Barry Dangerfield retired after serving on the Board for a period of eleven years. Barry made a significant contribution to the Board and the Bank, including the appointment of Martin Barrett as CEO. We thank Barry for his guidance and support during his tenure and wish him well. Acknowledgements It has been an extraordinary effort from everyone in the Auswide Bank team. Our results are the outcome of hard work, flexibility, and determination. I would like to thank everyone for their contribution. To my fellow directors, thank you for your commitment and wise counsel. To our shareholders, customers, and partners, thank you for allowing us to stand with you and for your continued support. Sandra Birkensleigh Chair Annual Report for the year ended 30 June 2023 11 Connections drive the growth and trust that define our future. 12 Auswide BankManaging Director Report Despite a year of rapidly changing circumstances and challenges, we have continued to grow our Bank and provide support to our customers. We saw Covid-19 ease and the wider economic recovery accelerated as society opened up. However, as a consequence of, and inflamed by, the Ukraine conflict, we saw an earlier and more severe elevation in global inflation than expected. This resulted in rapid increases in interest rates in our market and pressure on costs across the industry. Interest rate increases in financial year 2023 were unprecedented with 10 cash rate adjustments by the Reserve Bank of Australia, lifting the cash rate from 1.35%pa to 4.10%pa. This operating environment presented challenges, not least being the intense competition for home lending and deposits. The major banks cited that they were writing business at below the cost of capital and offered very generous cash back offers to encourage other bank customers to refinance. Profitable home lending growth was difficult and remains difficult. We have started to see some easing in recent months, however, margin pressure will continue into financial year 2024. Despite the significant rise in interest rates and cost of living pressures, our credit quality remained very strong and reflects our focus over the years on growing with a quality loan book. Our Customers Through the outstanding efforts of our staff, including our Bundaberg based contact centre, branch network, and customer support teams, we’ve maintained a high level of customer advocacy, ending FY23 with an externally measured net promoter score of +31. We are proud of this score which is amongst the highest in the sector. We received industry acknowledgement of our competitive range of banking products by winning MOZO Experts Awards for our car loans, investor home loans, first home buyer loans, low cost home loans, as well as a CANSTAR award for our low cost credit card. The broker network represents an important distribution channel and with this in mind, we continued to build our broker capability through 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 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 most importantly building enduring relationships. We are continuing to simplify our products and services, with a focus on meeting customer needs. We have built a culture of innovation that creates value for customers, shareholders and partners. Financial Customer numbers, total loan volumes and retail deposits materially grew during the year. We are pleased to report a strong result with growth across a number of key financial metrics. > Auswide Bank maintained a Net Profit after Tax (NPAT) of $25.067m, despite the significant margin pressure environment and an increase in operating expenses due to inflation, wage increases, growing regulatory requirements and investment in technology. > Loan volumes were a highlight with record growth for the Bank. Our home loan portfolio grew at over 3x system, from $3.855b to $4.404b. Our continued efforts in building our broker network and targeting high net worth customers allowed us to achieve an increase of 14.2% on FY22. Maintaining quality lending remains a key focus and underpins our balance sheet strength. > Customer deposits grew by 11.6% to reach $3.414b at year’s end. This growth reflects our strategic focus on raising cost effective funding lines through our branches, deposit partnerships and online capabilities. Customers made up 72.4% of deposits with the gap met by higher cost wholesale funding. Our focus on customer deposits continues to transform our funding mix and reduce reliance on more expensive funding lines, such as securitisation, which represented 8.8% of funding in June 2023. > Mortgage loan arrears greater than 30 days sat at just 0.10% on 30 June 2023. Our loan book arrears remain industry leading, aided by credit quality and a strong labour market. > Net Interest Margin (NIM) for the year was 1.88%, a 6bps decline from FY22. This decline is reflective of the rapidly rising interest rate environment and intense market competition. Earnings from NIM for the year was $89.182 in net interest income for the financial year, which was up 8.7% from FY22. Continued over page... Annual Report for the year ended 30 June 2023 13 Broker and Private Bank driving growth TOTAL HOME LOAN APPROVALS PRIVATE BANK PORTFOLIO $1,011.6m $1,115.4m $1,320.4m Sports Professional $582.5m $732.6m JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 PRIVATE BANK PORTFOLIO $437.7m $352.2m $219.5m $125.4m Accountant 10% Lawyer 6% Medico 9% 38% 32% Misc. Professional 1% 4% Allied Health JUN 20 JUN 21 JUN 22 JUN 23 Building Professional 14 Auswide Bank> The Cost to Income Ratio was 65.0%, which is an Given the challenging year ahead we are focused on: increase of 3.9%. This year we saw an increase in our key operational expenses and investments to support growth, technology, cyber security regulatory requirements and costs associated with increased lending volume. Wage costs increased as labour shortages were experienced and cost of living pressures increased. > Our capital position remains strong with a capital adequacy ratio of 13.70% and CET1 of 11.43%. The impact of a new capital framework for ADIs that came into effect in January 2023 has had a benefit of 0.77%. The capital position remains above the Board’s target and exceeds APRA’s minimum requirements. Dividend Strong growth and sustained profit 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 43.0 cents per share. The year ahead The Bank enters financial year 2024 with very low arrears reflecting a high quality loan book. Capital also remains strong. The year and particularly the first half will be challenging. Net interest margin pressures continue as home lending and deposit competition remain intense. Regulatory demands continue to grow and are the most significant I have seen in my career. Additionally we, along with all businesses, face significant demands on our need to protect our customers. Today it is not hold ups in branches but relentless efforts by cyber criminals and fraudsters seeking to get access to customer data and our customers money. Investment in this area has grown significantly and will need to continue to grow. > Managing our costs and ensuring that we are well capitalised. > Focusing on loan growth that is quality and is also profitable. > Remaining vigilant on cyber security and continue to educate customers on the growing risks of scams and fraud. > Continuing to make improvements in customer experience. > Progressing our ESG program with a focus on ensuring the Bank is sustainable and contributing to making our community a better place. > Complying with all regulatory requirements. > Reviewing acquisition opportunities that can add diversification, capability and profitable growth to our business. Thank you This marks my final report to Auswide Bank shareholders, as I will be retiring at the end of December, after nearly 11 years with the Bank. We have come a long way over that time, faced numerous challenges and realised many opportunities. Whilst facing some significant challenges in 2024, the Bank is in good shape and has a great team. I am humbled and honoured to have worked with our wonderful staff and customers that have contributed to the Bank’s success. I am also very grateful for the support our loyal shareholders have provided over the years. To my fellow Directors, thank you for your commitment and contribution over the past 12 months. To my Auswide Bank team, thanks for your willingness and energy to support our customers. To all our business partners and shareholders, thank you for your trust. I have thoroughly enjoyed my time at Auswide Bank, and I look forward to continuing to watch the Bank’s success. I have appreciated the experience, capability and support of our Board led initially by John Humphrey and in more recent times by Sandra Birkensleigh. We have worked hard together to develop the Bank we have today. I have appreciated the guidance, the necessary challenges and the support. Martin Barrett Managing Director Annual Report for the year ended 30 June 2023 15 Delivering profitable growth STATUTORY NPAT $17.2m $18.5m $24.2m $26.1m $25.1m NET INTEREST REVENUE $89m $78m $82m $71m $63m JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 NET INTEREST MARGIN 1.97% 2.00% 1.87% 1.94% 1.88% LOAN BOOK $4,403m $3,131m $3,266m $3,593m $3,855m JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 STATUTORY EARNINGS PER SHARE (CPS) COST TO INCOME RATIO 56.7 60.5 55.6 64.5% 62.5% 65.0% 40.8 43.8 61.1% 60.1% JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 CUSTOMER DEPOSITS CAPITAL ADEQUACY RATIO $2,933m $3,059m $3,414m 13.79% 12.95% 13.31% 12.90% 13.70% $2,620m $2,373m JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 16 Auswide BankBroker flows in capital city markets driving diversification This year we saw: > Strong broker flows drive growth in SE QLD, NSW and VIC. > 36.2% of loan book outside Queensland (FY22: 30.4%). > Significant growth is being seen in the non-core areas. > In FY23, continued high broker flows contributed to: • 18.4% increase on FY22 Home Loan approvals. • 27.9% increase on FY22 Home Loan settlements. LOAN BOOK BREAKDOWN JUN 22 JUN 23 GROWTH RATE JUN 22 JUN 23 $1,514.4m $1,697.2m 12.1% 39.7% 38.9% $1,139.0m $1,084.0m 4.8% 29.9% 24.9% $566.0m $660.3m 16.7% 14.8% 15.2% SOUTH EAST QUEENSLAND QUEENSLAND OTHER NEW SOUTH WALES VICTORIA $411.9m $527.8m 28.1% 10.8% 12.1% AUSTRALIA OTHER $183.2m $389.2m 112.5% 4.8% 8.9% TOTAL $3,814.5m $4,358.5m 100% 100% Annual Report for the year ended 30 June 2023 17 working together, achieving results 18 Auswide BankOur Sustainability Strategy Environmental, Social and Governance (ESG) We understand the importance of ESG to support the wellbeing of our community. Last year we reported that the Bank had determined the six focus areas of our Sustainability Strategy. Our sustainability work will be undertaken across these focus areas: 1 2 3 4 5 Customer Our People Community Environment Financial 6 Technology and Data This year work in these focus areas has ensured that Auswide Bank continued its ESG journey in meeting its responsibilities and objectives with respect to the environment, health and safety, corporate social responsibility, corporate governance, sustainability and other public policy matters. Key achievements this year > > > > We sought external expertise to review our ESG risk management framework as part of the Prudential Standard CPS-220. This process allowed us to develop our approach to managing ESG risk across the organisation. Our first Sustainability Report was delivered to customers and shareholders as part of the annual reporting process for FY22. Project work focused on scoping our climate change and emission strategy, which is an ongoing process and is scoped to be delivered over a two to three year period. Executive score card metrics were established with reporting and measurement indicators embedded into performance requirements. > We continued to develop key reporting metrics across our six focus areas. As part of the ESG Committee’s ongoing charter we will continue to focus on managing the environmental, social and governance (ESG) impacts of our business. In addition, we will identify and elevate the issues that matter most to our customers, our communities, and shareholders. To view Auswide Banks 2023 Sustainability Report, please visit www.auswidebank.com.au Annual Report for the year ended 30 June 2023 19 Queensland Rugby League partnership We’re extremely proud and honoured to have supported the Queensland Rugby League (QRL), and local football league communities for the last five years. During our tenure as QLD Maroons sponsor, the Maroons won three State of Origin series in 2020, 2022 and 2023, and we enjoyed being part of the team’s success! Auswide Bank Mal Meninga Cup Our support of this regional competition allowed young regional Queensland footballers to play in a competition that gives them an opportunity to progress their football careers, helping to achieve their sporting dreams. Customer engagement Over the five years we took many of our customers, brokers and partners to QRL events, giving them an opportunity to share in the joy of our partnership, whilst allowing us to develop better relationships with them along the way. Refer to Auswide Banks Sustainability Report for our full community and support involvement. Key highlights Apart from increased brand exposure, we have achieved many great things in our five-year partnership, including: Auswide Bank Regional Road Shows In association with QRL, the aim of the Regional Roadshows was to give Queensland regional communities the opportunity to interact with Maroons’ legends and National Rugby League development and wellness officers. During these roadshows over $45,000 was raised and given back to local communities. Murgon Mustangs – Domestic Violence Awareness program Auswide Bank partnered with the Murgon Mustangs to provide funds to support the club to continue their work advocating, ‘no excuse for domestic abuse’. Coaching clinics Clinics were held across a number of community clubs with over 450 children in attendance and as many sausages cooked along the way. These training clinics provided QRL community club players the opportunity to engage with former State of Origin greats and enhance their own skills via a training clinic. 20 Auswide Bankcoaching clinics mates date mates date Annual Report for the year ended 30 June 2023 21 Corporate Plan 2023-2025 January 2023 saw the start of a new strategic cycle. The next three years will be a period of growth and development at Auswide Bank. Our corporate plan reflects the commitment to our mission, core values, and to those we serve. During the formulation of the plan, we sought feedback from staff, customers, and other stakeholders. Our Goals 13% Capital adequacy retained throughout the strategy 60% Cost to income ratio by end of December 2025 10% ROE by end of December 2025 >70% Customer deposit funding ratio retained throughout the strategy $6-10bn Up to $6bn driven by organic growth in home lending, with inorganic growth contributing up to $4bn to the lending book. December 2025 Target Metrics in loan book assets What are we doing Focus on third party and private bank for acquisition Y H W Loan book growth and deposit book growth W O H Grow partnerships to grow our geographic reach and access new customers Actively pursue inorganic growth up to $4bn Y H W Improve our ability to scale or step change our capacity W O H • Merger and acquisitions and/or alliances • Partnerships Roll out exceptional customer experience across all channels Y H W • Customer growth and retention • Brand and community development Invest to grow and keep the promise Y H W Return growth aligned to financial metrics for stakeholders W O H W O H • Replicate the strengths of our in branch customer experience across all channels • Build customer relationships and meet their financial needs through preferred service channels • Technology and digital investment • Operational investment Our future state 1. 1 2. 2 3 Exceptional customer centricity. Growing efficiently above system. Profitable, growing, and a sound investment. 1. 4 2. 5 6 Forward looking, focused and responsive. A place where our people are our advocates. Integrating a great acquisition or alliance. 5 2 0 2 - 3 2 0 2 22 Auswide Bank FINANCIAL REPORT DIRECTORS’ STATUTORY REPORT ....................................................... 25 AUDITOR’S INDEPENDENCE DECLARATION ...................................... 44 CONSOLIDATED STATEMENT OF PROFIT OR LOSS ACCOUNT ...... 45 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ....... 46 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ................ 47 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY .................. 48 CONSOLIDATED STATEMENT OF CASH FLOWS ................................ 52 NOTES TO THE FINANCIAL STATEMENTS .......................................... 53 Annual Report for the year ended 30 June 2023 23 24 Auswide BankDirectors’ statutory report REVIEW AND RESULTS OF OPERATIONS Auswide Bank has delivered record loan book growth and materially improved market share during the 2022/23 financial year. Loan growth at 14.23% was over 3 times mortgage system growth. Investment and ongoing capacity improvement has demonstrated the bank’s capability to accelerate growth. Expansion of the Private Bank service model and ongoing success in generating loans via the broker channel have elevated the bank’s capacity to grow. The net interest margin and expenses were under pressure across H2 of the financial year as the effects of intense competition in the lending and deposit market were experienced. The economic environment presented several challenges, including the increasing interest rates, maturity of fixed loans and escalating personnel, technology/cyber, fraud management/ detection and compliance costs. Despite the volatile macroeconomic environment and intense market competition, the bank was able to deliver a record underlying NPAT of $25.067m. Auswide Bank’s underlying NPAT has seen ten years of continuous improvement. Results Auswide Bank has performed strongly in a highly competitive market, again returning favourable financial results. UNDERLYING NPAT $20.1m $17.2m $24.2m $25.0m $25.1m JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 The record underlying consolidated NPAT for the year ended 30 June 2023 was $25.067m, an increase on the prior year’s underlying NPAT of $24.956m, representing an increase of 0.44%. The statutory consolidated NPAT for the year ended 30 June 2023 was $25.067m, a decrease of 4.08% when compared to the result of $26.132m achieved in the prior year. FY22 contained one off items, net of tax of $1.176m which were disclosed in the prior year. The loan book grew from $3.855b at 30 June 2022 to $4.403b at 30 June 2023, an increase of $548.462m or 14.23%. This compares very favourably to the Reserve Bank of Australia (RBA) Financial Aggregates data which discloses credit provided to the private sector as having increased by 5.5% over the 12 months to June 2023. LOAN BOOK $4,403m $3,131m $3,266m $3,593m $3,855m JUN 19 JUN 20 JUN 21 JUN 22 JUN 23 Home loan settlements across the financial year totalled $1.362b, a gain of 27.90% on the $1.065b achieved for home loan settlements in the 2021/22 year. This substantial increase demonstrated the capacity increase and volume capability Auswide Bank has been able to build over several years of investment and focus. Net Interest Margin The second half of the year saw a substantial elevation in mortgage and deposit competition, as well as a substantial rise in wholesale funding costs. The impact of rapid escalation in funding costs and intense home loan competition exerted pressure on the NIM. Auswide Bank has an ongoing focus on the management of the funding mix and pricing to ensure that the loan book growth is reflected in the net interest revenue. The net interest margin for the 2022/23 financial year was 1.88% compared to 1.94% in the prior financial year, a decline of 6 bps. We expect further pressure on the NIM through the first half of FY24 with recovery occurring in the second half. Annual Report for the year ended 30 June 2023 25 DIRECTORS’ STATUTORY REPORT Deposits and funding Retail deposits continue to be Auswide Bank’s largest source of funding, increasing from $3.059b at 30 June 2022 to $3.414b at June 2023, an uplift of $354.842m or 11.60%. The growth in retail deposits was supplemented by sales into securitisation warehouses to fund the significant increases in the loan book. The level of customer deposits as a percentage of total funds has reduced from 73.16% at 30 June 2022 to 72.37% at 30 June 2023. Transformation and Technology During the year Auswide has continued to accelerate growth through investment in digital capabilities with proactive investments to improve the broker digital experience and the development of a new retail website for customers. Elula, an artificial intelligence machine possessing learning capabilities was successfully implemented to improve customer home loan retention. Investment in data and robotics capabilities is ongoing. Customers The bank grew its customer base by over 5% across FY23. Over the past financial year Auswide Bank has maintained an emphasis on enhancing customer experience and delivering on the digital strategy. This was achieved by prioritising home loan support coupled with retention for existing customers. Technology was utilised to provide an improved loan experience, including auto decisioned loans, digital documentation and automated processes to ensure a positive banking experience for customers, whether it’s face-to-face, on the phone via the Customer Hub or through digital channels. During the year the bank undertook it’s first industry aligned customer satisfaction survey and achieved outstanding results compared to the industry, with customer net promoter score of 31 and customer satisfaction of 97%. Mortgage brokers continue to represent an important distribution channel and significant growth opportunity for Auswide Bank, as third-party loans account for a larger portion of the home loan market, however, competition in the marketplace is intense. Strong broker flows were a key driver behind growth in Southeast Queensland, which remains the largest contributor to the loan book by region and experienced a 12.1% uplift in the portfolio. The loan book outside of Queensland continues to diversify as portfolios across New South Wales and Victoria increased by 16.7% and 28.1% respectively. A significant demand for the quality offering provided by Private Bank continued amongst 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 to create an experience that is aligned with the needs of these customers. Material growth during the financial year has increased the portfolio from $352m at 30 June 2022 to $438m at 30 June 2023. The adoption of the new corporate strategy targets significant investment in the digital framework to enhance capabilities across acquisition through partners, customer choice, digital uplift, and automation in the coming years. Cyber resilience, customer fraud management, data protection and cloud governance will continue to be at the forefront of the technology strategy with increased investment to manage cyber and data risk. Capital The capital adequacy ratio for the Group has continued to strengthen and as at 30 June 2023 was 13.70% (2022: 12.90%). The tier 1 capital ratio at 30 June 2023 was 11.43% (2022: 10.63%). Capital remains strong and meets APRA’s “unquestionably strong” minimums. During the year APRA introduced its new capital framework for ADIs. This change in calculation methodology resulted in a benefit to the ratio, however, the benefit was negated by a similar increase to minimum capital levels mandated by APRA. 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 and banking services to personal and business customers across Australia, principally in Queensland, Sydney and Melbourne. The majority of the company’s loan book is comprised of residential mortgage loans. Auswide Bank also offers personal loans and credit cards although these portfolios are not a material part of the loan book. Branch network Auswide Bank has a diversified branch network consisting of 16 branches across Queensland, including a business centre in Brisbane. In addition, Auswide’s Business Development Managers located in Sydney and Melbourne assist 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 a focus on ensuring future investments are aligned with growth opportunities and strategic initiatives, ensuring a consistent review of historical investments including branches. 26 Auswide BankDIRECTORS’ STATUTORY REPORT LOAN BOOK ARREARS 20m 0.46% $4.6m 0.39% 0.39% $ $3.5m $3.2m $0.9m $1.6m $1.1m 0.26% 0.25% $3.4m $3.0m $0.1m $0.7m 0.20% 0.18% $3.3m $0.5m $3.2m $0.3m $6.4m $7.5m $9.9m $5.3m $5.2m $3.5m $3.4m 0m 0.5% % 0 0.09% $1.5m $0.5m $1.9m 0.10% $2.4m $0.3m $1.7m JUN 19 DEC 19 JUN 20 DEC 20 JUN 21 DEC 21 JUN 22 DEC 22 JUN 23 Over 90 days past due 60-90 days past due 30-60 days past due Arrears as % of Loan Book Arrears and collections Auswide Bank’s loan book continues to be of high quality with amongst the lowest arrears in the industry. Total arrears greater than 30 days past due decreased from $6.976m at 30 June 2022 to $4.232m at 30 June 2023. Arrears past due 30 days have decreased as a percentage of the Group’s total loan book from 0.18% at 30 June 2022 to 0.10% at 30 June 2023. Environmental, Social and Governance (ESG) Auswide Bank’s ESG Committee assists 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. During the year the ESG Committee continued to evolve and develop the bank’s Sustainability Strategy, which is focused on the six foundational pillars of Customer, Our People, Community, Environment, Financial and Technology and Data. During the year Auswide Bank reviewed the ESG risk management framework as part of the Prudential Standard CPS 220 Risk Management. This process contributed to an alignment of the approach to ESG risk throughout the organisation. The Sustainability Strategy is supported through the establishment of metrics introduced into Executive score cards with reporting and measurement indicators embedded into performance. Going forward, the ESG Committee will focus on scoping climate change and emission strategies which is an ongoing project and expected to be delivered over a 2-3 year period. In the meantime, the ESG Committee will continue to monitor, identify and elevate the ESG issues that impact the business and matter most to our stakeholders. Risk Auswide Bank has demonstrated and maintained 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 and interest only lending together with a continued review of underwriting, debt to income ratios and serviceability assessments ensures that Auswide Bank is well placed to manage the risks associated with its lending portfolio. The Board Risk Committee provides strong oversight of the risk framework across the organisation. The Annual Report for the year ended 30 June 2023 27 DIRECTORS’ STATUTORY REPORT 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. LENDING OUTLOOK The current lending environment is highly challenging with new originations slowing in response to the interest rate environment. Additionally, competition has driven margins to below the cost of capital for many home loan providers. Since July there has been some easing in competition and most have stopped cashback offers (Auswide Bank did not offer cashback at anytime). While the bank experienced record loan book growth during the 2022/23 financial year, the Board has resolved to target more subdued growth for 2023/24. The competition for both loans and deposits, in conjunction with further interest rate uncertainty, has resulted in a budget which provides for modest growth, NIM protection and control of expenses. It is expected that the Private Bank and broker channel will continue to provide growth opportunities as the industry experiences declining system growth and the maturity of a material volume of fixed rate loans. The Board and management will continue to focus on profitable high-quality lending, managing funding and pricing to ensure the loan book growth flows through to the net interest revenue of the bank. We will continue to monitor competition and have the capacity and capability to respond quickly to the emergence of improved profitable loan growth. ACQUISITIONS The Board will continue to monitor opportunities to acquire loan books or suitable institutions as the opportunity presents itself and the Board will review any offers made which may complement the overall operations of the Group. DIVIDENDS A fully franked interim dividend of 22.0 cents per ordinary share was declared and paid on 24 March 2023 (18 March 2022: 21.0 cents). A fully franked final dividend of 21.0 cents per ordinary share has been declared by the Board and will be paid on 22 September 2023 (30 September 2022: 21.0 cents). GOING CONCERN The strength of the financial result for FY23 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 assessed 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 situation 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. 28 Auswide Bank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 a partner at PricewaterhouseCoopers for 16 years until her retirement in 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 the Tasmanian Finance Corporation, Adore Beauty Limited, Horizon Oil Limited and 7-11 Holdings and its subsidiaries. She is an independent member of the Audit Committee of the Reserve Bank of Australia, and Deputy Chancellor 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 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 and is an independent 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 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, McGregor’s 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 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 an Independent Non-Executive Director of MLC Life Insurance and a Non-Executive Director of Nuix. Ms Korhonen is also on the Board of au.Domain Administration Limited (AuDA), the governing body of the Australian internet domain and a Non- Executive Director of the Civil Aviation Safety Authority (CASA). Ms Korhonen is a member of the Board Remuneration Committee, the Board Audit Committee, the Board Risk Committee and is an independent Director. Mr Cameron Mitchell BBus, MAppFin Mr Mitchell was appointed to the Board on 1 February 2023. Mr Mitchell is an experienced business leader with an executive career that spans more than 25 years in Banking and Financial Services, both domestically and internationally. He has significant experience working with regulators to ensure the highest levels of risk management and compliance. Mr Mitchell has partnered with all levels of Banking segmentation including Retail, SME, Business, Private and Institutional banking to deliver customer growth, customer insight, data, transformation, and strategy. Mr Mitchell is the Executive Chairman and Managing Director of FX Risk Solutions. Mr Mitchell is a member of the Board Audit Committee, the Board Risk Committee and the Board Remuneration Committee and is an independent Director. Ms Lyn T McGrath BA, MBA, SFFinsia, GAICD Ms McGrath was appointed to the Board on 1 March 2023. Ms McGrath has extensive executive experience in the financial services sector throughout her roles as Group Executive Retail Banking at BOQ and Executive General Manager, Retail at CBA. Ms McGrath’s experience extends across retail banking, wealth management and retail distribution. Ms McGrath has significant experience in digital transformation and business turnarounds. Ms McGrath is currently a non-executive director of Credit Corp Group Ltd (ASX:CCP) and Challenger Bank Ltd (ASX: CGF). She is also Chair and non-executive Director of togetherAI Pty Ltd, and a non-executive Director and Chair of the Audit and Risk Committee for Australian Digital Health Agency. Ms McGrath is a member of the Board Audit Committee, Board Risk Committee and Board Remuneration 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 Annual Report for the year ended 30 June 2023 29 DIRECTORS’ STATUTORY REPORT 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 served on the Board for a period of eleven years before retiring from the Board on 27 November 2022. 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. Martin is an executive Director. COMPANY SECRETARY Mr William R Schafer BCom, CA Mr Schafer was appointed Company Secretary in August 2001. He has extensive experience in public accounting and management. He is an Associate of the Institute of Chartered Accountants. Directors’ meetings During the financial year, 11 meetings of the Directors, 5 meetings of the Audit Committee, 3 meetings of the Remuneration Committee and 4 meetings of the Risk Committee were held, in respect of which each Director attended the following number: Board Attended Audit Remuneration Risk Attended Attended Attended S Birkensleigh* G Kenny G Murdoch J Korhonen C Mitchell L McGrath B Dangerfield M Barrett* 11 10 10 10 5 3 4 11 5 5 4 5 3 2 2 5 1 3 3 3 1 1 2 1 4 3 3 4 2 2 1 4 * M Barrett who is not a member of the Audit, Risk or Remuneration Committees, attended the Audit, Risk and Remuneration Committee meetings by invitation. S Birkensleigh who is not a member of the Remuneration Committee attended 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: S Birkensleigh G Kenny G Murdoch J Korhonen C Mitchell (appointed 1 February 2023) L McGrath (appointed 1 March 2023) B Dangerfield (ceased 27 November 2022) M Barrett Related party disclosure Ordinary Shares Nil holding 15,000 14,000 Nil holding Nil holding Nil holding 43,291 324,659 No persons or entities related to key management personnel provided services to the Company during the year. 30 Auswide BankDIRECTORS’ STATUTORY REPORT Remuneration report The Board Remuneration Committee consists of independent Directors Ms Jacqueline Korhonen, Mr Greg Kenny, Mr Grant Murdoch, Mr Cameron Mitchell after his appointment to the Board on 1 February 2023 and Ms Lyn McGrath after her appointment to the Board on 1 March 2023. Mr Barry Dangerfield was a member and Chairman of the Committee until his retirement from the Board in November 2022, subsequently Ms Jacqueline Korhonen was appointed to the Chair. 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 2022/23 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 BEAR) 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 2022/23 was subject to ratification by the Remuneration Committee. Annual Report for the year ended 30 June 2023 31 DIRECTORS’ 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 consist of the following: > Fixed Annual Remuneration (FAR) provided as cash and any contracted additional benefits (including employer superannuation); > variable remuneration in cash based STIs 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 LTIs 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 (KPIs) including financial and non-financial measures 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. Maximum STI awards, expressed as follows: Chief Executive Officer up to a maximum contracted value and Senior Executives up to the contracted percentage ranging from 15% to 25%. 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 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. 32 Auswide BankDIRECTORS’ STATUTORY REPORT 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, NPAT and ROE. These measures reasonably capture the effects of a number of material risks and minimise actions that promote short-term results at the expense of longer-term business growth and success. STI risk adjustment STI reward outcomes can be adjusted for risk at a number of levels. Individual Scorecards - Senior Executives will have specific risk related measures related to their role included in their scorecard and are aligned with the Risk Appetite Statement where appropriate. Compliance Gateway - Senior Executives must support Auswide Bank’s risk and compliance culture. Individuals who do not pass the compliance expectations of their role will have their STI reduced in part, or in full, depending on the severity of the breach. Risk adjustment of business outcomes - whilst performance is assessed against compliance with the agreed risk measures and risk appetite, the 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 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. Note: This clause does not apply where a Senior Executive has provided formal notice of retirement. Martin Barrett, Managing Director has provided the Board with his intention to retire from the workforce at 31 December 2023 which has been accepted. 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 2022, and were paid on 15 September 2022. The Board Remuneration Committee have provided the performance-based payments under the STI scheme for the year ended 30 June 2023. 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 2023. KMP Position M Barrett W Schafer D Hearne G Job S Johnson C Lonergan Managing Director Chief Financial Officer Chief Customer Officer Chief People and Property Officer Chief Information Officer Chief Risk Officer M Rasmussen Chief Operating Officer R Stephens Chief Transformation Officer STI award FY23 (to be paid Sept 2023) $ STI award FY22 (paid 15 Sept 2022) $ 171,600 180,000 60,969 58,498 43,802 36,456 45,113 41,681 41,823 51,727 66,923 33,443 32,052 35,751 35,612 34,109 Annual Report for the year ended 30 June 2023 33 DIRECTORS’ STATUTORY REPORT 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 three year 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 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 performance measurements and conditions The performance measurements and conditions that will apply to Performance Rights granted from the 2019 PRP Offer are: > Earnings per Share (EPS): half (50%) of the Performance Rights will be subject to an EPS hurdle, based on the Company’s average EPS over the vesting period compared to a pre-determined target set by the Board (EPS hurdle); > Return on Equity (ROE): half (50%) of the Performance Rights will be subject to an ROE hurdle, based on the Company’s average ROE performance over the vesting period compared to a pre-determined target set by the Board (ROE hurdle); and > Satisfaction of conditions based on your ‘Accountability Obligations’: vesting of any Performance Rights will also be subject to meeting the obligations that apply to ‘accountable persons’ under section 37CA of the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Act 2018. Further detail regarding each of these performance measurements and conditions is provided below. Earnings per Share EPS measures the earnings generated by the Company attributable to each share on issue. The EPS hurdle compares the Company’s average actual EPS over the vesting period to the Company’s averaged budgeted EPS target over the vesting period. For the purpose of the EPS hurdle, EPS for a financial year will be calculated as: EPS = Net Profit After Tax (NPAT) Average number of ordinary Shares on issue during the financial year 34 Auswide BankDIRECTORS’ STATUTORY REPORT The Company’s average EPS over the vesting period will be calculated as: The Company’s average ROE over the vesting period will be calculated as: Average EPS = (Year 1 EPS + Year 2 EPS + Year 3 EPS) 3 Average ROE = (Year 1 ROE + Year 2 ROE + Year 3 ROE) 3 The percentage of Performance Rights subject to the EPS hurdle that vest, if any, will be determined by reference to the Company’s average actual EPS achieved compared to the Company’s average budgeted EPS target over the vesting period, as follows: The percentage of Performance Rights subject to the ROE hurdle that vest, if any, will be determined by reference to the average actual ROE achieved compared to the Company’s average budgeted target ROE over the vesting period, as follows: Average actual EPS over the vesting period compared as a percentage to the average budgeted EPS target Rights subject to EPS hurdle that vest (%) Average actual ROE over the vesting period compared as a percentage to the average budgeted ROE target Rights subject to ROE hurdle that vest (%) At average budgeted target EPS or above 100% At average budgeted target ROE or above 100% Between 97.5% - 100% of average budgeted target EPS Vesting between 50% to 100% at Board’s discretion Between 97.5% - 100% of average budgeted target ROE Vesting between 50% to 100% at Board’s discretion Between 95% - >97.5% of average budgeted target EPS Vesting between 0% to 50% at Board's discretion Between 95% - >97.5% of average budgeted target ROE Vesting between 0% to 50% at Board's discretion Below 95% of average budgeted target EPS 0% Below 95% of average budgeted target ROE 0% The number of Performance Rights subject to the EPS hurdle that vest at each level of performance will be determined by the Board at its discretion. The Board retains discretion to adjust the EPS hurdle (including the approach to calculating EPS, Target EPS, and the vesting schedule) to ensure that there is neither advantage nor disadvantage by matters outside management’s control that affect the EPS hurdle. Any Performance Rights subject to the EPS hurdle that do not vest on testing of the EPS hurdle will lapse immediately and will not be re-tested. Return on Equity ROE measures the amount of cash earnings generated as a percentage of shareholders’ equity. The ROE hurdle compares the Company’s average ROE over the vesting period to the Company’s averaged budgeted target over the vesting period. For the purpose of the ROE hurdle, ROE for a financial year will be calculated as: The number of Performance Rights subject to the ROE hurdle that vest at each level of performance will be determined by the Board at its discretion. The Board retains discretion to adjust the ROE hurdle (including the approach to calculating ROE, Target ROE, and vesting schedule) to ensure that there is neither advantage nor disadvantage by matters outside management’s influence that materially affect achievement of the ROE hurdle. Any Performance Rights that do not vest on testing of the ROE hurdle will lapse immediately and will not be re-tested. Satisfaction of conditions - accountability obligations Vesting of performance rights will be subject to obligations that apply to ‘Accountable Persons’ under section 37CA of the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Act 2018, which are to: > act with honesty, integrity, and with due skill, care ROE = Net Profit After Tax (NPAT) and diligence; Shareholders’ equity (total assets - total liabilities) > 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. Annual Report for the year ended 30 June 2023 35 DIRECTORS’ STATUTORY REPORT 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 the 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 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 of 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 59(b) of APRA Prudential Standard CPS511 - Remuneration 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; > any other date determined by the Board, subject > treatment of awards due to fraud, gross misconduct to the requirements of BEAR. or material misstatement; and 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. > treatment of awards under the PRP rules will be subject to the requirements of the BEAR. 36 Auswide BankDIRECTORS’ 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 22/23 year Lapsed/ forfeited in 22/23 year Not yet assessed for vesting M Barrett 2018 offer 2019 offer 2020 offer 2021 offer 2022 offer W Schafer 2018 offer 2019 offer 2020 offer 2021 offer 2022 offer D Hearne 2018 offer 2019 offer 2020 offer 2021 offer 2022 offer G Job 2018 offer 2019 offer 2020 offer 2021 offer 2022 offer S Johnson 2021 offer 2022 offer C Lonergan 2018 offer 2019 offer 2020 offer 2021 offer 2022 offer M Rasmussen 2018 offer 2019 offer 2020 offer 2021 offer 2022 offer R Stephens 2021 offer 2022 offer 5,812 21,154 20,576 17,613 18,338 1,221 5,288 5,202 4,404 4,585 1,313 7,040 6,451 6,024 6,137 1,221 5,288 5,251 4,404 4,585 4,424 4,898 1,221 5,288 4,728 4,404 4,585 1,221 5,288 4,675 4,404 4,585 2,202 4,585 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2025 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2025 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2025 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2025 1/7/2024 1/7/2025 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2025 1/7/2022 1/7/2022 1/7/2023 1/7/2024 1/7/2025 1/7/2024 1/7/2025 5,812 21,154 - - - 1,221 5,288 - - - 1,313 7,040 - - - 1,221 5,288 - - - - - 1,221 5,288 - - - 1,221 5,288 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20,576 17,613 18,338 - - 5,202 4,404 4,585 - - 6,451 6,024 6,137 - - 5,251 4,404 4,585 4,424 4,898 - - 4,728 4,404 4,585 - - 4,675 4,404 4,585 2,202 4,585 Annual Report for the year ended 30 June 2023 37 DIRECTORS’ STATUTORY REPORT The Board Remuneration Committee have provided the allocation of performance rights under the LTI scheme for the financial year under review which are expected to be awarded in September 2023. 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 Position M Barrett W Schafer D Hearne G Job S Johnson C Lonergan Managing Director Chief Financial Officer Chief Customer Officer Chief People and Property Officer Chief Information Officer Chief Risk Officer M Rasmussen Chief Operating Officer R Stephens Chief Transformation Officer LTI award 2023 offer (Vesting date 1/7/2026) $ 124,800 60,969 58,498 43,802 36,456 45,113 41,681 41,823 38 Auswide Bank2 2 0 2 3 2 0 2 2 2 0 2 3 2 0 2 2 2 0 2 3 2 0 2 2 2 0 2 3 2 0 2 2 2 0 2 3 2 0 2 2 2 0 2 3 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 3 6 4 4 8 1 , 0 7 4 4 8 1 , 2 1 3 5 1 1 , 4 9 2 5 1 1 , 2 1 3 5 1 1 , 4 9 2 5 1 1 , 2 1 3 5 1 1 , 4 9 2 5 1 1 , - - 2 9 8 7 4 , 3 2 0 9 3 , 2 1 3 5 1 1 , 1 6 5 6 4 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9 6 7 6 1 , 9 2 5 7 1 , 3 8 4 0 1 , 6 5 9 0 1 , 3 8 4 0 1 , 6 5 9 0 1 , 3 8 4 0 1 , 6 5 9 0 1 , - - 1 5 5 4 , 8 0 7 3 , 3 8 4 0 1 , 4 2 4 4 , - - - - - - - - - - - - - - , 4 9 6 7 6 1 1 4 9 6 6 1 , ) c e x e - n o n ( n a m i r i a h C h g e s n e k r i B S l , 9 2 8 4 0 1 8 3 3 4 0 1 , ) c e x e - n o n ( r o t c e r i D y n n e K G , 9 2 8 4 0 1 8 3 3 4 0 1 , ) c e x e - n o n ( r o t c e r i D h c o d r u M G , 9 2 8 4 0 1 8 3 3 4 0 1 , ) c e x e - n o n ( r o t c e r i D n e n o h r o K J - - 1 4 3 3 4 , 5 1 3 5 3 , , 9 2 8 4 0 1 7 3 1 2 4 , c e x e - n o n ( l r o t c e r i D d e fi r e g n a D B ) 2 2 0 2 r e b m e v o N 7 2 d e s a e c ( ) c e x e - n o n ( r o t c e r i D h t a r G c M L ) 3 2 0 2 h c r a M 1 d e t n o p p a ( i c e x e - n o n ( r o t c e r i D l l e h c t i M C ) 3 2 0 2 y r a u r b e F 1 d e t n o p p a ( i 3 1 7 3 8 8 , , 9 7 4 9 1 0 1 , 9 9 0 3 5 , 4 1 4 3 6 1 , 5 6 4 4 1 , 1 1 5 7 1 , 8 6 5 3 2 , 2 9 2 5 2 , 0 9 3 6 8 1 , 0 0 0 0 8 1 , , 1 9 1 6 0 6 2 6 2 3 3 6 , r o t c e r i D g n g a n a M i t t e r r a B M , 4 2 4 9 2 5 1 , , 7 0 3 3 8 6 1 , 9 9 0 3 5 , 4 1 4 3 6 1 , 5 6 4 4 1 , 1 1 5 7 1 , 9 6 2 2 8 , 2 7 3 8 8 , , 0 9 3 6 8 1 0 0 0 0 8 1 , , 1 0 2 3 9 1 1 , , 0 1 0 4 3 2 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 0 7 5 6 4 4 , 8 7 5 3 0 5 , 8 5 5 4 1 , 5 4 4 9 3 , 7 0 5 0 1 , 6 9 3 3 1 , 8 6 5 3 2 , 2 9 2 5 2 , 6 7 4 1 5 , 7 2 7 1 5 , , 1 6 4 6 4 3 8 1 7 3 7 3 , r e c ffi O l i i i a c n a n F f e h C r e f a h c S W 3 3 5 8 7 2 , 5 5 9 1 9 2 , - - 2 0 1 3 3 4 , 8 1 2 1 8 4 , 4 5 4 6 1 , 9 1 6 0 5 , 7 7 6 2 0 3 , 3 7 3 1 4 3 , 8 5 5 4 1 , 5 4 4 9 3 , 4 6 3 3 2 3 , 4 8 7 9 5 3 , 8 5 5 4 1 , 5 4 4 9 3 , 8 6 9 9 1 3 , 1 4 3 1 6 3 , 8 5 5 4 1 , 5 4 4 9 3 , 5 8 9 2 7 2 , 3 3 6 0 0 3 , - - 2 0 6 6 , 7 2 7 9 , 2 3 5 9 , 7 0 7 5 , 8 8 6 5 , 1 2 3 6 , 2 6 4 7 , 1 8 3 5 2 , 2 9 2 5 2 , 0 2 4 9 6 , 4 2 9 6 6 , , 5 4 2 5 1 3 1 2 9 0 3 3 , r e c ffi O r e m o t s u C i f e h C e n r a e H D 3 1 7 1 1 , 5 3 7 2 2 , 7 3 9 3 2 , 0 0 8 2 3 , 3 4 4 3 3 , 7 5 8 2 2 2 , 5 3 8 2 3 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 b o i l J G 5 6 9 7 , 5 7 4 6 , 8 6 6 6 , 8 8 8 4 , 4 6 6 2 2 , 8 8 6 3 2 , 7 3 1 0 3 , 2 5 0 2 3 , , 0 0 2 6 1 2 0 5 2 8 2 2 , 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 S 8 6 5 3 2 , 2 9 2 5 2 , 7 4 1 5 3 , 1 5 7 5 3 , , 4 8 3 4 4 2 1 2 8 2 5 2 , i i r e c ffi O k s R f e h C n a g r e n o L C 8 6 5 3 2 , 2 9 2 5 2 , 6 9 0 5 3 , 2 1 6 5 3 , , 8 5 0 1 4 2 4 2 3 4 5 2 , r e c ffi O g n i t a r e p O i f e h C n e s s u m s a R M 4 2 9 2 2 , 2 6 1 4 2 , 8 3 4 6 1 , 0 1 1 4 3 , 2 0 3 7 2 2 , 3 7 4 7 3 2 , r e c ffi O n o i t a m r o f s n a r T f e h C s n e h p e t S R i , 9 9 1 7 7 3 2 , , 2 8 8 9 3 6 2 , 6 8 6 4 7 , 9 9 3 8 0 2 , 4 8 0 4 5 , 7 6 5 8 5 , , 8 0 4 4 6 1 , 5 5 9 2 7 1 , 4 1 5 0 7 2 9 1 6 9 8 2 , , 7 0 5 3 1 8 1 , , 2 4 3 0 1 9 1 , y e K r e h t O - 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 Annual Report for the year ended 30 June 2023 39 2 m r e t - g n o L s e v i t n e c n I 1 m r e t - t r o h S s e v i t n e c n I , 0 0 0 0 6 1 $ , 0 0 0 0 2 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 i l s h t n o m m r e t 9 1 0 2 / 5 0 / 1 3 2 2 0 2 / 1 1 / 9 0 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 M : 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 P M K d e m a n i l l A T R O P E R Y R O T U T A T S ’ S R O T C E R D I 40 s t c a r t n o c t n e m y o p m E l 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 % 0 2 % 0 2 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 2 % 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 i l r u o F % 0 2 % 0 2 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 2 % 0 2 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 2 % 0 2 % 0 2 % 0 2 % 0 2 % 0 2 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 e e r h T l 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 e e r h T l 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 e e r h T l 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 2 2 0 2 / 1 1 / 9 0 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 W 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 D m r e t 2 2 0 2 / 1 1 / 9 0 m r e t 2 2 0 2 / 1 1 / 9 0 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 G 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 S m r e t 0 2 0 2 / 1 1 / 9 0 2 2 0 2 / 1 1 / 9 0 m r e t 6 1 0 2 / 1 1 / 9 2 6 1 0 2 / 2 1 / 9 0 2 2 0 2 / 1 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 C m r e t 6 1 0 2 / 2 1 / 2 1 2 2 0 2 / 1 1 / 9 0 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 M d e x fi o N 2 2 0 2 / 1 1 / 9 0 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 s n e h p e t S R m r e t 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 1 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 ’ e c n a m r o f r e p s y n a p m o C e h t o t j t c e b u s s i , l l i s e u R n a P s t h g R e c n a m r o f r e P e d w s u A e h t i f o s n o i t i d n o c d n a s m r e t e h t r e d n u , s t h g i r e c n a m r o f r e p f o t n a r g e h T - s e v i t n e c n i m r e t g n o L 2 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 . s i s a b l a u n n a n a n o y n a p m o C e h t d n a l 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 h t r e d n u e d a m s d r a w a d n a e t a p c i t r a p o t i t h g i r e h T . ) e e t t i m m o C n o i t a r e n u m e R d r a o B e h t y b d e n m r e t e d s a r o i ( r a e y h c a e e n u J h t 0 3 e h t t a s a ) l i 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 e m e h c 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 l i 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 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 Auswide Bank 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 three or five 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 2023 Balance 30 June 2022 Interest* charged $ Write-off $ Balance 30 June 2023 Number in Group 30 June 2023 Directors Executives (629,183) (3,562,533) Total: Key management personnel (4,191,716) 18,239 69,026 87,265 - - - (813,367) (3,624,107) (4,437,474) 1 6 7 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 Individuals with loans above $100,000 in reporting period Balance 30 June 2022 Interest* charged $ Write-off $ Balance 30 June 2023 Highest in period $ Directors M Barrett Executives W Schafer D Hearne C Lonergan M Rasmussen S Johnson (629,183) 18,239 (310,062) (1,224,433) (726,309) (1,015,982) (211,694) 1,599 25,151 14,543 24,361 3,372 - - - - - - (813,367) (1,034,372) (311,689) (347,067) (1,193,453) (1,224,433) (867,677) (867,877) (982,978) (1,023,413) (185,169) (211,694) * Actual interest charged is affected by the use of the Company’s offset account. Does not include G Job as the loan amount was under the $100,000 threshold. Annual Report for the year ended 30 June 2023 41 DIRECTORS’ 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 G Kenny G Murdoch B Dangerfield* (ceased 27 November 2022) M Barrett Executives W Schafer D Hearne G Job S Johnson C Lonergan M Rasmussen Total * Balance at cease date Balance 30 June 2022 15,000 14,000 43,291 Received as remuneration Net change other - - - - - - Balance 30 June 2023 15,000 14,000 43,291 285,080 26,966 12,613 324,659 62,000 - 149,006 64,217 35,462 5,500 673,556 6,509 8,353 6,509 - 6,509 6,509 61,355 4,000 - 10,619 5,000 7,554 - 72,509 8,353 166,134 69,217 49,525 12,009 39,786 774,697 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 2023: 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 2023 $’000 35,917 25,067 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 2023 30 June 2022 30 June 2021 30 June 2020 30 June 2019 $6.09 $5.39 $6.49 $6.09 $4.84 $6.49 $5.13 $4.84 $5.63 $5.13 22.00 cps 21.00 cps 19.00 cps 17.00 cps 16.00 cps 21.00 cps 21.00 cps 21.00 cps 10.75 cps 18.50 cps 55.64 cps 60.48 cps 56.66 cps 43.80 cps 40.81 cps 55.64 cps 60.48 cps 56.66 cps 43.80 cps 40.81 cps Dividends franked to 100% at 30% corporate income tax rate. 42 Auswide BankDIRECTORS’ 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 2023, 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 2023 $ 79,749 79,749 2022 $ 24,669 24,669 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 28 August 2023 GB Murdoch Director Brisbane 28 August 2023 Annual Report for the year ended 30 June 2023 43 AUDITOR’S INDEPENDENCE DECLARATION 28 August 2023 The Board of Directors Auswide Bank Ltd PO Box 1063 28 August 2023 BUNDABERG QLD 4670 Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Deloitte Touche Tohmatsu Tel: +61 3 9671 7000 ABN 74 490 121 060 Fax: +61 3 9671 7001 www.deloitte.com.au 477 Collins Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Tel: +61 3 9671 7000 Fax: +61 3 9671 7001 www.deloitte.com.au The Board of Directors Dear Board Members Auswide Bank Ltd PO Box 1063 AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd BUNDABERG QLD 4670 In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Auswide Bank Ltd. Dear Board Members As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2023, I AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo AAuusswwiiddee BBaannkk LLttdd 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 • of independence to the directors of Auswide Bank Ltd. 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. As lead audit partner for the audit of the financial report of Auswide Bank Ltd for the year ended 30 June 2023, I declare that to the best of my knowledge and belief, there have been no contraventions of: Yours faithfully • 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. Yours faithfully DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Mark Stretton Partner Chartered Accountants Mark Stretton Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 44 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Auswide Bank Financial statements CONSOLIDATED STATEMENT OF PROFIT OR LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2023 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) Notes 2.1 2.1 2.2 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 189,562 105,967 189,562 105,967 (100,380) (23,923) (100,380) (23,923) 89,182 11,342 100,524 27,205 3,193 822 1,516 16,728 15,461 410 82,044 12,388 94,432 23,924 3,011 486 1,454 14,255 13,855 677 89,182 11,342 100,524 27,205 3,193 822 1,516 16,728 15,461 410 82,044 12,388 94,432 23,924 3,011 486 1,454 14,255 13,855 677 65,335 57,662 65,335 57,662 4.5.5 (728) (714) (728) (714) 2.3 64,607 35,917 10,850 25,067 56,948 37,484 11,352 26,132 64,607 35,917 10,848 25,069 56,948 37,484 11,341 26,143 25,067 26,132 25,069 26,143 2.4 2.4 55.64 55.64 60.48 60.48 The above consolidated statement of profit or loss account should be read in conjunction with the accompanying notes. Annual Report for the year ended 30 June 2023 45 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2023 Profit for the year 25,067 26,132 25,069 26,143 Consolidated Company Notes 2023 $’000 2022 $’000 2023 $’000 2022 $’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 1,785 17,074 1,785 17,074 (10,376) 1,120 (10,376) 1,120 2,577 (5,458) 2,577 (5,458) (6,014) 12,736 (6,014) 12,736 Other comprehensive income/(loss) for the year, net of income tax (6,014) 12,736 (6,014) 12,736 Total comprehensive income for the year 19,053 38,868 19,055 38,879 Total comprehensive income attributable to: Owners of the Company 19,053 38,868 19,055 38,879 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 46 Auswide BankCONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2023 Consolidated Company Notes 2023 $’000 2022 $’000 2023 $’000 2022 $’000 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 3.1 3.2 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 3.5 203,247 178,537 203,247 178,491 3,000 11,773 3,000 11,773 402,432 412,058 443,856 437,095 4,377,803 3,827,565 4,377,803 3,827,564 1,488 18,914 2,975 3,315 1,414 20,648 2,839 3,367 2,179 18,914 2,975 3,311 2,486 20,648 2,839 3,366 46,363 46,363 46,363 46,363 5,059,537 4,504,564 5,101,648 4,530,625 4,042,906 3,617,342 4,043,323 3,617,342 101,013 150,806 101,013 150,806 43,283 33,128 43,221 33,072 530,755 370,761 572,179 395,798 46 1,627 4,029 613 3,896 3,956 46 1,627 4,029 602 3,896 3,956 42,000 42,000 42,000 42,000 4,765,659 4,222,502 4,807,438 4,247,472 293,878 282,062 294,210 283,153 211,818 199,784 212,135 200,388 22,271 59,789 28,435 53,843 22,296 59,779 28,934 53,831 293,878 282,062 294,210 283,153 ASSETS Cash and cash equivalents Due from other financial institutions Other financial assets Loans and advances Other investments Property and equipment Other intangible assets 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. Annual Report for the year ended 30 June 2023 47 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 3 4 - - - - - - 3 4 - 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 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 , 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 4 8 3 5 , e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i , 4 8 7 9 9 1 i e d w s u A r o f y c i l o p g n i t n u o c c a n i e g n a h C i s t h g R e c n a m r o f r e P y t i t n e d e t a d i l o s n o C 2 2 0 2 y l u J 1 t a e c n a a B l 5 0 1 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 , 6 8 8 3 5 , , 4 8 7 9 9 1 e h t i f o g n n n i g e b e h t t a y t i u q e l a t o t d e t a t s e R 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 3 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 48 6 4 4 ) 6 9 5 ( 7 6 0 5 2 , ) 1 9 5 8 , ( 7 7 5 2 , - 6 4 4 ) 6 9 5 ( - - 2 9 4 ) 3 9 1 ( 8 4 4 1 1 , ) 4 6 1 9 1 , ( 6 6 2 1 2 - - - - - - 8 0 0 1 0 3 , 5 3 5 - - - ) 1 9 5 8 , ( 7 7 5 2 , 4 9 8 4 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 6 0 5 2 , - - - - - 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 3 5 9 8 7 , , 4 8 7 9 9 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ) 4 6 1 9 1 , ( 2 9 4 ) 3 9 1 ( 8 4 4 1 1 , - 6 6 2 1 2 8 7 8 3 9 2 , 5 3 5 4 9 8 4 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 9 8 7 9 5 , , 8 1 8 1 1 2 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 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 r a e y l a i c n a n fi 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 l e u a v r i a f o t x a t d e r r e f e D e g d e h w o fl l a t o t - b u S l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I s t s o c e u s s i e r a h S e v i t n e c n i l e e y o p m e o t e u d l a t i p a c e r a h s n i ) s s o l ( / n a G i s e r a h s y r u s a e r t n i t n e m e v o M 3 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 e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T Auswide Bank i d t L k n a B e d w s u A f o s r e n w o o t e b a t u b i r t t A l l a t o T 0 0 0 $ ’ y t i u q e 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 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 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 , 3 2 8 5 4 , , 8 1 2 5 9 1 1 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 3 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 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 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 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 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 l e u a v r i a f o t x a t d e r r e f e D e g d e h w o fl l a t o t - b u S l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I e v i t n e c n i l e e y o p m e o t e u d l a t i p a c e r a h s n i ) s s o l ( / n a G i 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 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 e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I . s e 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 Annual Report for the year ended 30 June 2023 49 ) 7 2 0 1 , ( ) 0 7 0 1 , ( - - - - - 3 4 - 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 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 , 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 1 3 8 3 5 , e r a h S l a t i p a c 0 0 0 $ ’ y r a n d r o i , 8 8 3 0 0 2 6 2 1 2 8 2 , 4 1 1 8 0 9 0 1 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 4 7 8 3 5 , 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 6 4 4 9 6 0 5 2 , ) 1 9 5 8 , ( 7 7 5 2 , - 6 4 4 - - 7 2 6 1 0 3 , 0 6 5 2 9 4 ) 3 9 1 ( 8 4 4 1 1 , ) 4 6 1 9 1 , ( 0 1 2 4 9 2 , - - - - 0 6 5 4 9 8 4 , 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , - - ) 1 9 5 8 , ( 7 7 5 2 , 4 9 8 4 , - - - - - - - - - - - - - - - - - - - - - - - 9 6 0 5 2 , - - - - 8 8 3 2 , 6 7 6 2 , 4 3 8 5 , 4 4 9 5 , 3 4 9 8 7 , , 8 8 3 0 0 2 - - - - - - - - - - - - - - - - - - - ) 4 6 1 9 1 , ( 9 7 7 9 5 , - 2 9 4 ) 3 9 1 ( 8 4 4 1 1 , , 5 3 1 2 1 2 . 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 3 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 e h t i f o g n n n i g e b e h t t a y t i u q e l a t o t d e t a t s e R r a e y l a i c n a n fi 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 i e d w s u A r o f y c i l o p g n i t n u o c c a n i e g n a h C i s t h g R e c n a m r o f r e P 2 2 0 2 y l u J 1 t a e c n a a B l y n a p m o C 50 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 l e u a v r i a f o t x a t d e r r e f e D e g d e h w o fl l a t o t - b u S l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I s t s o c e u s s i e r a h 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 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 3 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 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 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 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 8 5 4 , , 1 2 1 6 9 1 1 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 3 2 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 3 4 1 6 2 , 6 2 3 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 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 s n e p x e 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 : 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 n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I e g d e h w o fl h s a c f o l a t o t - b u 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 2 2 0 2 e n u J 0 3 t a e c n a a B l 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 . 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 Annual Report for the year ended 30 June 2023 51 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2023 Cash flows from operating activities Interest received Dividends received Consolidated Company Notes 2023 $’000 2022 $’000 2023 $’000 2022 $’000 184,957 105,245 184,957 105,245 20 - 20 - Other non-interest income received 16,526 14,209 16,526 13,802 Interest paid (77,497) (24,843) (77,497) (24,843) Net movement in loans and advances (549,061) (271,057) (549,061) (270,884) Net movement in deposits and short term borrowings 375,771 268,053 376,188 268,051 Income tax paid (11,108) (10,697) (11,095) (10,693) Cash paid to suppliers and employees (inclusive of goods and services tax) (73,022) (37,840) (73,025) (37,478) Net cash used in operating activities 6.1 (133,414) 43,070 (132,987) 43,200 Cash flows from investing activities Net movement in investment securities Net movement in amounts due from other financial institutions Net movement in other investments Payments for purchase of property, equipment and intangible assets Effect of change in accounting policy for Auswide Performance Rights Net cash used in investing activities Cash flows from financing activities 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 1,143 8,773 (74) 3,105 (15,244) (925) 1,017 8,773 1,017 (17) 306 (17) (2,305) (2,743) (2,305) (2,743) 43 - 43 - 7,580 1,362 (8,427) (2,668) (1,780) (1,502) (1,780) (1,502) 299 137 548 503 299 (624) 548 327 (7,715) (14,394) (7,715) (14,394) 159,603 36,323 175,990 40,353 150,544 24,710 21,478 65,910 166,170 24,756 25,332 65,864 178,537 112,627 178,491 112,627 4.1.1 203,247 178,537 203,247 178,491 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. 52 Auswide BankCONTENTS OF THE NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION ............................. 54 1.1 Reporting entity ............................................... 54 1.2 Statement of compliance ............................ 54 1.3 Basis of preparation ...................................... 54 1.4 Basis of consolidation ................................... 54 1.5 Rounding of amounts ................................... 55 1.6 Goods and Services Tax (GST) ................... 55 1.7 Application of new and revised Accounting Standards ................................... 55 1.8 Standards and interpretations on issue not yet adopted ............................. 55 1.9 Comparative figures ....................................... 56 1.10 Going concern ................................................... 56 2. FINANCIAL PERFORMANCE ......................... 57 2.1 Interest revenue and interest expense ... 57 2.2 Other non-interest income ........................ 59 2.3 Income taxes ..................................................... 59 2.4 Earnings per share ......................................... 62 2.5 Business and geographical segment information ........................................................ 62 3. INVESTMENTS AND FINANCING ............... 63 3.1 Property and equipment ............................. 63 3.2 Other intangible assets ................................ 67 3.3 Goodwill ............................................................... 68 3.4 Contributed equity ......................................... 70 3.5 Reserves .............................................................. 71 3.6 Dividends paid .................................................. 73 4. FINANCIAL ASSETS, LIABILITIES AND RELATED FINANCIAL RISK MANAGEMENT .................................................. 74 4.1 Categories of financial instruments ....... 74 4.2 Capital risk management ............................ 80 4.3 Market risk management ........................... 81 4.4 Liquidity risk management ........................ 84 4.5 Credit risk management .............................. 89 4.6 Fair value measurements ........................... 102 5. GROUP STRUCTURE AND RELATED PARTIES ............................................ 106 5.1 Subsidiaries, associates and other related parties ..................................... 106 5.2 Key management personnel disclosures .......................................................... 108 6. OTHER FINANCIAL INFORMATION .......... 109 6.1 Cash flow statement reconciliation ....... 109 6.2 Expenditure commitments ........................ 109 6.3 Contingent liabilities and credit commitments ................................................... 110 6.4 Provisions ........................................................... 110 6.5 Other non-financial assets ......................... 111 6.6 Remuneration of auditors .......................... 111 6.7 Events subsequent to balance date ....... 111 INDEPENDENT AUDITOR’S REPORT ..................... 113 CORPORATE GOVERNANCE SUMMARY .............. 118 SHAREHOLDER INFORMATION ............................... 120 FINANCIAL GLOSSARY ................................................ 123 Annual Report for the year ended 30 June 2023 53 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 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 2022, 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. 54 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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’ statutory 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: > AAASB 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 > AASB 2020-3 Amendments to Australian Accounting Standards - Annual Improvements 2018-2020 and Other Amendments 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 2023 reporting period are set out below and have not been early adopted by the Group Continued over page... Annual Report for the year ended 30 June 2023 55 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 1 January 2023 30 June 2024 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 $293.878m, recorded positive loan book growth, consistent operating results 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. 56 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2023 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 2023 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 Average balance $’000 Interest $’000 Average interest rate % 166,157 335,662 4,187,891 41,699 4,731,409 469,448 3,210,040 384,484 215,385 42,000 143,117 4,547 4,469,021 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 4,845 11,573 171,332 1,812 189,562 20,579 56,138 12,315 8,282 2,584 270 212 100,380 89,182 83 1,913 101,885 2,086 105,967 5,931 13,442 904 1,672 1,442 285 247 23,923 82,044 2.92 3.45 4.09 4.35 4.01 4.38 1.75 3.20 3.85 6.15 0.19 4.66 2.25 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 Annual Report for the year ended 30 June 2023 57 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 Interest revenue Interest expense Net interest spread Average balance $’000 Interest $’000 Average interest rate % 4,731,409 4,469,021 189,562 100,380 Plus benefit of net interest-free assets, liabilities and equity Net interest margin - on average interest earning assets 4,731,409 89,182 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 4.01 2.25 1.76 0.12 1.88 2.50 0.61 1.90 0.04 1.94 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. 58 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 9,600 1,742 9,729 2,659 9,600 1,742 9,729 2,659 11,342 12,388 11,342 12,388 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 2023 $’000 10,650 200 10,850 2022 $’000 10,220 1,132 11,352 2023 $’000 10,648 200 10,848 2022 $’000 10,172 1,169 11,341 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. The amount of benefits brought to account or which may be realised in the future is based on the Annual Report for the year ended 30 June 2023 59 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Tax consolidation legislation The Company and its wholly-owned Australian resident entities (with the exception of Auswide Performance Rights Pty Ltd) formed an income tax consolidated Group under the Australian Consolidation System as of the financial year ended 30 June 2008. Auswide Bank Ltd is the head entity in the tax consolidated Group, and as a consequence recognises current and deferred tax amounts relating to transactions, events and balances of the wholly-owned Australian controlled entities in this Group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and balances. The tax consolidated Group has not entered into a tax sharing agreement. 2.3.2 Numerical reconciliation of income tax expense to prima facie tax payable Tax on profit before income tax at 30% (2022: 30%) 10,775 11,245 10,775 11,245 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 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: Total income tax recognised directly in other comprehensive income 71 (4) 8 71 (7) 43 71 (2) 4 71 3 22 10,850 11,352 10,848 11,341 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 - - - - - - - - (2,577) 5,458 (2,577) (2,577) 5,458 (2,577) 5,458 5,458 - - - - (2,577) 5,458 (2,577) 5,458 60 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 2.3.4 Current tax assets and liabilities Consolidated Company Current tax assets/ (liabilities) Current tax liabilities 2023 $’000 2022 $’000 2023 $’000 2022 $’000 (46) (46) (613) (613) (46) (46) (602) (602) 2.3.5 Deferred tax balances Consolidated Company Deferred tax liabilities Deferred tax assets Employee leave provisions Expected credit losses Capital losses available Premium on loans purchased Subordinated capital notes prepaid expenses Lease liabilities net of right of use assets Other items Deferred tax liabilities Property and equipment Asset revaluation reserve Prepayments Cash flow hedging reserve Performance Rights cash contributions in excess of accounting expense 2023 $’000 (1,627) (1,627) 2022 $’000 (3,896) (3,896) 2023 $’000 (1,627) (1,627) 2022 $’000 (3,896) (3,896) Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 1,136 1,221 754 95 48 219 311 1,072 1,443 874 101 22 238 384 1,136 1,221 754 95 48 219 311 1,072 1,443 874 101 22 238 384 3,784 4,134 3,784 4,134 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 737 2,547 - 2,098 29 706 2,547 10 4,675 92 737 2,547 - 2,098 29 706 2,547 10 4,675 92 5,411 8,030 5,411 8,030 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. Annual Report for the year ended 30 June 2023 61 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Movement in deferred tax balances Balance at beginning of year Deferred income tax income/(expense) recognised directly in profit or loss Consolidated Company 2023 $’000 (3,896) 2022 $’000 2,834 2023 $’000 (3,896) 2022 $’000 2,834 (200) (1,168) (200) (1,168) Deferred tax recognised in other comprehensive income 2,577 (5,458) 2,577 (5,458) Deferred tax arising on: Reduction in deferred tax asset on capital losses Prior period adjustments Balance at end of year (120) 12 (120) 16 (120) 12 (120) 16 (1,627) (3,896) (1,627) (3,896) 2.4 Earnings per share Basic and diluted earnings per share From continuing operations Total basic and diluted earnings per share 2023 Cents per share 2022 Cents per share 55.64 55.64 60.48 60.48 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 2023 $’000 2022 $’000 25,067 26,132 25,067 26,132 2023 Shares No. 2022 Shares No. 45,054,862 43,207,991 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. 62 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 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 2023 $’000 15,862 3,052 18,914 10,862 5,000 15,862 2022 $’000 16,140 4,508 20,648 11,104 5,036 16,140 2023 $’000 15,862 3,052 18,914 10,862 5,000 15,862 2022 $’000 16,140 4,508 20,648 11,104 5,036 16,140 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 11,345 (483) 10,862 11,104 (242) 10,862 11,345 (241) 11,104 11,345 (241) 11,104 11,345 (483) 10,862 11,104 (242) 10,862 11,345 (241) 11,104 11,345 (241) 11,104 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 15,493 (10,493) 5,000 5,036 1,519 14,834 (9,798) 5,036 5,442 1,385 15,493 (10,493) 5,000 5,036 1,519 14,834 (9,798) 5,036 5,442 1,385 (1,278) (1,143) (1,278) (1,143) (104) (173) 5,000 (165) (483) 5,036 (104) (173) 5,000 (165) (483) 5,036 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. Annual Report for the year ended 30 June 2023 63 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 64 Auswide Bank3.1.1 Right-of-use assets Consolidated entity Right-of-use assets at cost Balance as at 1 July 2022 Additions during the year Modification to lease terms Variable lease payment adjustments Balance as at 30 June 2023 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2023 Consolidated entity 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 2022 Additions during the year Modification to lease terms Variable lease payment adjustments Balance as at 30 June 2023 Accumulated depreciation Depreciation charge for the year Right-of-use assets as at 30 June 2023 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 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Property $’000 Vehicles $’000 Total $’000 4,404 - 59 (11) 4,452 (1,548) 2,904 104 84 83 1 272 4,508 84 142 (10) 4,724 (124) 148 (1,672) 3,052 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 4,404 - 59 (11) 4,452 (1,548) 2,904 104 84 83 1 272 4,508 84 142 (10) 4,724 (124) 148 (1,672) 3,052 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 Annual Report for the year ended 30 June 2023 65 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 $’000 2022 $’000 2023 $’000 2022 $’000 1,846 2,172 4,018 1,807 1,975 3,782 212 212 1,991 1,991 1,892 3,882 5,774 1,851 3,452 5,303 246 246 1,748 1,748 1,846 2,172 4,018 1,807 1,975 3,782 212 212 1,991 1,991 1,892 3,882 5,774 1,851 3,452 5,303 246 246 1,748 1,748 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. 66 Auswide Bank NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 Consolidated Company 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 2023 $’000 2,975 2,975 2022 $’000 2,839 2,839 2023 $’000 2,975 2,975 2022 $’000 2,839 2,839 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 8,224 (5,249) 2,975 2,839 786 - (822) 172 2,975 7,178 (4,339) 2,839 1,483 1,359 - (486) 483 2,839 8,224 (5,249) 2,975 2,839 786 - (822) 172 2,975 7,178 (4,339) 2,839 1,483 1,359 - (486) 483 2,839 Annual Report for the year ended 30 June 2023 67 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 $’000 46,363 46,363 4,306 42,057 46,363 2022 $’000 46,363 46,363 4,306 42,057 46,363 2023 $’000 46,363 46,363 4,306 42,057 46,363 2022 $’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. 68 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 a value in use calculation using cash flow projections on financial forecasts covering a five-year period. A pre-tax discount rate of 11.25% (2022: 11.25%) is used and calculated from inputs provided by an independent third party. The key assumptions used by management in setting the financial forecasts for the initial five-year period were as follows: > Loan growth assumed to be 2.6% in FY24 and 9% for the remaining forecast period. > Cash flow projections beyond the five-year period have been extrapolated using 2.5% (2022: 2.0%) per annum growth rate which is below the rate of growth in net assets. Sensitivity to changes in assumptions The Board of Directors have conducted a sensitivity analysis of the key assumptions within the impairment test. Reasonable changes in the discount rate (increasing the discount rate up to 12.75%) or terminal growth rates (reduced to 0%) do not give rise to an impairment. A sustained reduction in loan growth rates within the five year financial forecast could result in the carrying value exceeding the recoverable amount. Sensitivity analysis shows a reduction in the loan growth rate by 50%, without adjusting other key assumptions, could lead to an impairment. Historically, the Group has demonstrated stable performance in the growth rate of the loan portfolio, thus, management believe that growth rate applied in the model is reasonably achievable. Annual Report for the year ended 30 June 2023 69 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 Share issue costs Gain/ (loss) in share capital on disposal of treasury shares Treasury shares 2023 Shares No. 2023 Shares $’000 2022 Shares No. 2022 Shares $’000 43,524,064 199,784 42,793,034 195,218 3.4.1 3.4.2 94,978 492 93,345 2,197,994 11,448 586,840 - - (193) 21 - - 549 3,718 - 44 Movement in treasury shares 3.4.3 36,193 266 50,845 255 Balance at end of year 45,853,229 211,818 43,524,064 199,784 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 10 January 2023, 94,978 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. Consolidated Company 2023 Shares No. 2022 Shares No. 2023 Shares No. 2022 Shares No. Shares issued to employees since the inception of plan 3,307,382 3,212,404 3,307,382 3,212,404 Shares issued to employees during the financial year 94,978 93,345 94,978 93,345 Total market value at date of issue (10 January 2023) Total amount paid or payable for the shares at that date 2023 $’000 561 492 2022 $’000 650 549 2023 $’000 561 492 2022 $’000 650 549 70 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 3.4.2 Dividend Reinvestment Plan (DRP) The Board of Directors resolved to maintain the Dividend Reinvestment Plan (DRP) in respect of the final dividend for the 2021/22 financial year, payable on 30 September 2022. The DRP was fully underwritten. The Board resolved to maintain the DRP for the interim dividend payable on 24 March 2023 for the 2022/23 financial year. 24 March 2023 - 429,903 ordinary shares were issued 30 September 2022 - 1,768,091 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 24 March 2023 were issued at a discount of 3.5% and shares issued under the DRP on 30 September 2022 were issued at a discount of 5% on the weighted sale price of the Company’s shares sold during the five trading days immediately following the Record Date. 3.4.3 Treasury shares As at the reporting date Auswide Performance Rights Pty Ltd holds 53,297 shares, $316,873. (2022: 89,490 shares, $582,407) 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 Asset revaluation reserve Balance at beginning of year Balance at end of year Notes 3.5.1 3.5.2 3.5.3 3.5.4 3.5.5 3.5.6 Consolidated Company 2023 $’000 5,944 4,894 535 2,676 5,834 2,388 2022 $’000 5,944 10,908 685 2,676 5,834 2,388 2023 $’000 5,944 4,894 560 2,676 5,834 2,388 2022 $’000 5,944 10,908 1,184 2,676 5,834 2,388 22,271 28,435 22,296 28,934 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 5,944 5,944 5,944 5,944 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. Annual Report for the year ended 30 June 2023 71 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 3.5.2 Cash flow hedge reserve Cash flow hedge reserve Balance at beginning of year Fair value gain/(loss) arising on hedging instruments during the period Income tax related to gains/losses recognised in other comprehensive income Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 10,908 (1,828) 10,908 (1,828) (8,591) 18,194 (8,591) 18,194 2,577 (5,458) 2,577 (5,458) Balance at end of year 4,894 10,908 4,894 10,908 The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the relevant accounting policy. There were no cumulative gains/losses arising on changes in fair value of hedging instruments reclassified from equity into profit or loss during the year. 3.5.3 Share based payments reserve Consolidated Company Share based payments reserve Balance at beginning of year Recognition of vested shares Expensed during the year Vested during the year Balance at end of year 2023 $’000 2022 $’000 2023 $’000 2022 $’000 685 - 446 (596) 535 482 - 326 (123) 685 1,184 (1,070) 446 - 560 858 - 326 - 1,184 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. 72 Auswide Bank3.6 Dividends paid Dividends paid during the year Interim for current year Final for previous year NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 10,005 9,159 19,164 9,096 9,016 18,112 10,005 9,159 19,164 9,096 9,016 18,112 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 ($9.640m), for the six months to 30 June 2023, payable on 22 September 2023. The final dividend for the six months to 30 June 2022 ($9.159m) was paid on 30 September 2022, and was disclosed in the 2021/22 financial accounts. The tax rate at which the dividends have been franked is 30% (2022: 30%). The amount of franking credits available for the subsequent financial year are: Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Balance as at the end of the financial year 39,958 36,932 33,609 36,932 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 46 602 46 602 (4,132) (3,925) (4,132) (3,925) 35,872 33,609 29,523 33,609 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 22.00 21.00 22.00 21.00 Final dividend paid for the previous year Fully franked dividend on ordinary shares 21.00 21.00 21.00 21.00 Annual Report for the year ended 30 June 2023 73 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 4. Financial assets, liabilities and related financial risk management 4.1 Categories of financial instruments Consolidated Company Notes Classification 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Financial assets Cash and cash equivalents 4.1.1 Amortised cost 203,247 178,537 203,247 178,491 Due from other financial institutions 4.1.2 Amortised cost 3,000 11,773 3,000 11,773 Other financial assets; - Certificates of deposit 4.1.3 Amortised cost 345,528 351,957 345,528 351,957 - Investments in Managed Investment Schemes FVTPL - Notes – securitisation program and other Amortised cost 25,159 21,819 7,916 2,010 26,857 16,294 16,400 550 25,159 63,243 7,916 2,010 26,857 41,331 16,400 550 FVTPL Amortised cost 4.1.4 Amortised cost 4,377,803 3,827,565 4,377,803 3,827,565 4.1.5 FVTOCI 918 918 918 918 4,987,400 4,430,851 5,028,824 4,455,842 - 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 4,042,906 3,617,342 4,043,323 3,617,342 Other borrowings 4.1.7 Amortised cost 101,013 150,806 101,013 150,806 Payables and other liabilities 4.1.8 - Payables and creditors - Derivative liabilities Amortised cost 42,358 32,310 42,296 32,253 FVTPL 925 818 925 818 Loans under management 4.1.4 Amortised cost 530,755 370,761 572,179 395,798 Subordinated capital notes 4.1.9 Amortised cost 42,000 42,000 42,000 42,000 Total financial liabilities 4,759,957 4,214,037 4,801,736 4,239,017 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). 74 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. Annual Report for the year ended 30 June 2023 75 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 76 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 $’000 80,747 122,500 2022 $’000 89,037 89,500 2023 $’000 80,747 122,500 2022 $’000 88,991 89,500 203,247 178,537 203,247 178,491 Consolidated Company 2023 $’000 3,000 3,000 2022 $’000 11,773 11,773 2023 $’000 3,000 3,000 2022 $’000 11,773 11,773 In accordance with our undertakings with the RBA and APRA the Deposits with Special Service Providers (SSPs) represents the mandated prudential funds held with Indue Limited. 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 2023 $’000 2022 $’000 2023 $’000 2022 $’000 345,528 351,957 345,528 351,957 25,159 21,819 7,916 2,010 26,857 16,294 16,400 550 25,159 63,243 7,916 2,010 26,857 41,331 16,400 550 402,432 412,058 443,856 437,095 Cash held within securitised trusts at 30 June 2023 of $21.819m (2022: $16.294m) is restricted for use only by the trusts. Annual Report for the year ended 30 June 2023 77 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 4.1.4 Loans and advances Term loans Continuing credit loans Interest receivable Deferred mortgage broker commissions Expected credit loss Total loans and advances Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 4,322,921 3,768,019 4,322,921 3,768,018 39,598 8,035 11,279 51,305 4,447 8,612 39,598 8,035 11,279 51,305 4,447 8,612 4,381,833 3,832,383 4,381,833 3,832,382 (4,030) (4,818) (4,030) (4,818) 4,377,803 3,827,565 4,377,803 3,827,564 For details on ECL recognised against loans and advances see Note 4.5 - Credit risk management. Loans and advances include an amount of $689.556m of which have been issued under the federal government’s First Home Loan Deposit Scheme (FHLDS) 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 $530.755m (2022: $370.761m). Class B notes of $41.424m (2022: $25.037m) 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 and investment in subsidiary. Unlisted shares Equity accounted investment Investment in subsidiary 4.1.6 Deposits and short term borrowings Call deposits Term deposits Consolidated Company 2023 $’000 918 570 - 2022 $’000 918 496 - 2023 $’000 918 570 691 1,488 1,414 2,179 2022 $’000 918 496 1,072 2,486 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 1,578,019 1,740,050 1,578,436 1,740,050 1,835,518 1,318,645 1,835,518 1,318,645 Negotiable certificates of deposit (NCDs) 394,369 358,647 394,369 358,647 Floating rate notes (FRNs) 235,000 200,000 235,000 200,000 4,042,906 3,617,342 4,043,323 3,617,342 78 Auswide Bank4.1.7 Other borrowings NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 RBA Term Funding Facility (TFF) 101,013 150,806 101,013 150,806 101,013 150,806 101,013 150,806 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 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 2023 $’000 2,422 925 28,560 7,594 3,782 43,283 2022 $’000 3,012 818 5,678 18,317 5,303 33,128 2023 $’000 2,356 925 28,560 7,598 3,782 43,221 2022 $’000 2,956 818 5,678 18,317 5,303 33,072 Consolidated Company 2023 $’000 42,000 42,000 2022 $’000 42,000 42,000 2023 $’000 42,000 42,000 2022 $’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 2022 and 2023. Annual Report for the year ended 30 June 2023 79 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2022 and 2023 financial years the capital adequacy ratios of both the Group and Company were maintained above the target ratio. APRA introduced a revised ADI capital framework effective 1 January 2023. Capital adequacy calculations at 30 June 2023 have been performed in accordance with the revised standard. Calculations at 30 June 2022 have not been recalculated under the new standard. The capital adequacy calculations at 30 June 2023 and 30 June 2022 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. 80 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Details of the capital adequacy ratio on a Company and Consolidated basis are set out below: Total risk weighted assets Capital base Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 1,950,328 1,953,487 1,951,041 1,954,528 267,214 251,970 267,625 253,144 Risk-based capital ratio 13.70% 12.90% 13.72% 12.95% The loan portfolio of the Company does not include any loan which represents 10% or more of capital. 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). Annual Report for the year ended 30 June 2023 81 % 2 2 0 2 % 3 2 0 2 2 2 0 2 0 0 0 $ ’ 3 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 3 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 3 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 3 2 0 2 0 0 0 $ ’ 2 2 0 2 0 0 0 $ ’ 3 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 3 2 0 2 E N U J 0 3 82 2 1 0 . 1 0 0 . 1 9 0 . 0 6 2 . - 3 4 0 . 9 1 0 . 2 2 1 . 6 6 3 . 6 4 2 . 0 8 1 . 0 4 3 . 3 7 3 . - 6 6 1 . 9 1 0 . 2 2 4 . 5 1 6 . 7 3 5 8 7 1 , 7 4 2 3 0 2 , 9 3 0 1 , ) 5 5 8 7 , ( 3 7 7 1 1 , 0 0 0 3 , 8 5 6 5 9 3 , 6 1 5 4 9 3 , , 5 6 5 7 2 8 3 , , 3 0 8 7 7 3 4 , , 3 3 5 3 1 4 4 , , 6 6 5 8 7 9 4 , - 5 9 1 4 2 8 , 5 7 3 9 , - 5 9 4 8 2 5 1 , 4 2 5 7 , - - - - - - - - 7 5 8 6 2 , 9 5 1 5 2 , 8 0 5 2 5 3 , 8 3 5 7 4 3 , 7 9 4 7 7 1 , 2 0 1 1 1 2 , 8 7 6 1 1 , 4 9 2 6 1 , 5 0 9 2 , 9 1 8 1 2 , , 3 8 7 0 1 5 1 , , 4 8 6 3 5 0 1 , , 0 4 6 7 3 5 1 , , 3 4 8 8 7 0 1 , 9 8 8 3 8 4 , , 8 1 0 9 2 8 , 7 9 3 6 3 8 , 6 5 5 6 7 1 1 , , 2 5 6 4 2 8 1 , , 1 2 1 0 3 0 2 , , 7 1 8 9 7 4 2 , , 3 4 6 5 1 7 2 , , 2 4 3 7 1 6 3 , , 6 0 9 2 4 0 4 , - - 9 5 3 7 9 1 , 3 5 8 2 5 , , 3 3 9 9 7 6 1 , , 8 1 6 1 1 4 2 , , 0 5 0 0 4 7 1 , , 5 3 4 8 7 5 1 , s n o i t u t i t s n i l i a c n a n fi r e h t o m o r f e u D i s g n w o r r o b m r e t t r o h s d n a s t i s o p e D s e i t i l i b a i l r e h t o d n a s e b a y a P l i s g n w o r r o b r e h t O s t e s s a l i a c n a n fi r e h t O s e c n a v d a d n a s n a o L s t e s s a l a i c n a n fi l a t o T s e i t i l i b a i l l a i c n a n i F l i s t n e a v u q e h s a c d n a h s a C 0 1 3 2 3 , 8 5 3 2 4 , 0 1 3 2 3 , 8 5 3 2 4 , - - 6 0 8 0 5 1 , 3 1 0 1 0 1 , 1 6 7 0 7 3 , 5 5 7 0 3 5 , 0 0 0 2 4 , 0 0 0 2 4 , - - - - - - - - 6 0 8 0 5 1 , 3 1 0 1 0 1 , 3 4 3 6 4 1 , 6 4 7 7 2 1 , - - 2 7 8 6 4 , 0 0 0 2 4 , , 9 1 2 3 1 2 4 , , 2 3 0 9 5 7 4 , 0 1 3 2 3 , 8 5 3 2 4 , 8 0 5 4 9 4 , 2 1 6 1 8 2 , , 5 0 8 8 6 7 1 , - - - - - - , 8 0 5 0 0 1 6 4 5 7 7 1 , 1 0 5 2 0 3 , t n e m e g a n a m r e d n u s n a o L 0 0 0 2 4 , - - s e t o n l a t i p a c d e t a n d r o b u S i , 6 2 1 4 5 5 2 , , 6 9 5 7 1 9 1 , , 6 3 9 0 8 8 1 , s e i t i l i b a i l l a i c n a n fi l a t o T Auswide Bank NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 At the reporting date, if interest rates had been 2.0% higher or 2.0% lower and all other variables were held constant the Group’s net profit before tax would increase by $0.638m or decrease by $0.397m respectively (2022: 2.0% higher an increase of $0.165m or 1.0% lower a decrease of $0.081m). This is mainly due to the Company’s exposures to variable rate loans, and deposit and securitisation liabilities. The sensitivity analysis was derived from the 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 ABA Trust No. 7 ABA Trust 2017-1 WB Trust 2010-1 2023 $’000 (925) 8,757 (725) - - 2022 $’000 (814) 2,105 - 30 (3) 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 $7.916m and $0.925m respectively (2022: $16.400m and $0.818m). 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. Annual Report for the year ended 30 June 2023 83 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 $’000 53,501 31,298 84,799 2022 $’000 27,086 67,133 94,219 Concentration risk The Company’s deposit portfolio does not include any deposit which represents 10% or more of total liabilities. 84 Auswide Bankl a t o T 0 0 0 $ ’ 0 0 0 3 , 0 5 9 8 , 7 4 2 3 0 2 , 5 1 5 4 9 3 , , 3 0 8 7 7 3 4 , , 5 1 5 7 8 9 4 , 3 1 0 1 0 1 , 7 7 5 8 3 , 5 5 7 0 3 5 , 0 0 0 2 4 , , 6 0 9 2 4 0 4 , , 1 5 2 5 5 7 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 : 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 y t i t n e d e t a d i l o s n o C 3 2 0 2 e n u J 0 3 s t e s s a l a i c n a n i F 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 3 2 0 2 E N U J 0 3 - - - - 0 0 0 3 , 0 0 0 3 , - - - - - - - - - 7 2 7 7 3 1 , , 0 8 3 5 2 3 4 , , 7 0 1 3 6 4 4 , - - - - - - - - 2 6 0 2 , 0 5 9 7 3 1 , 8 7 3 2 4 , 0 9 3 2 8 1 , - - 8 8 6 1 5 9 3 5 , 0 0 0 2 4 , 9 3 6 6 9 , . - - - 8 9 4 6 , 7 8 5 5 , 5 8 0 2 1 , - - 0 9 3 8 5 4 4 , , 8 3 8 8 1 1 6 8 6 3 2 1 , - - - - , 7 4 2 3 0 2 , 7 4 2 3 0 2 - 9 3 0 1 6 , 0 0 9 3 1 , , 1 1 1 9 0 3 - 4 7 9 9 3 , 9 8 9 3 2 , , 4 4 6 1 2 2 - - - - , 3 8 0 7 1 1 1 , , 4 5 8 3 9 2 1 , , 8 1 0 8 7 5 1 , , 3 3 1 1 0 5 1 , , 1 6 4 9 7 5 1 , , 8 1 0 8 7 5 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 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 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 * Annual Report for the year ended 30 June 2023 85 l 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 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 3 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 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 86 - - - - 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 , - - - 0 1 4 5 , 8 0 5 2 5 3 , 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 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 $ ’ 0 0 0 3 , 0 5 9 8 , 7 4 2 3 0 2 , 9 3 9 5 3 4 , , 3 0 8 7 7 3 4 , , 9 3 9 8 2 0 5 , , 3 2 3 3 4 0 4 , 3 1 0 1 0 1 , 4 1 5 8 3 , 9 7 1 2 7 5 , 0 0 0 2 4 , , 9 2 0 7 9 7 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 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 3 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 2 0 2 e n u J 0 3 y n a p m o C - - - - 0 0 0 3 , 0 0 0 3 , - - - - - - - - - 1 5 1 9 7 1 , , 0 8 3 5 2 3 4 , , 1 3 5 4 0 5 4 , - - - - - - - - 2 6 0 2 , 0 5 9 7 3 1 , 8 7 3 2 4 , 0 9 3 2 8 1 , 1 5 9 3 5 , - - 8 8 6 0 0 0 2 4 , 9 3 6 6 9 , . - - - 8 9 4 6 , 7 8 5 5 , 5 8 0 2 1 , - - 0 9 3 8 5 4 4 , , 8 3 8 8 1 1 , 6 8 6 3 2 1 - - - - , 7 4 2 3 0 2 , 7 4 2 3 0 2 , 3 8 0 7 1 1 1 , , 4 5 8 3 9 2 1 , , 5 3 4 8 7 5 1 , - 9 3 0 1 6 , 0 0 9 3 1 , , 2 6 9 5 3 3 - 4 7 9 9 3 , 6 2 9 3 2 , , 7 1 2 6 3 2 - - - - , 4 8 9 7 2 5 1 , , 1 7 9 3 9 5 1 , , 5 3 4 8 7 5 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 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 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 * Annual Report for the year ended 30 June 2023 87 l a t o T 0 0 0 $ ’ 1 9 4 8 7 1 , 3 7 7 1 1 , 5 6 4 1 , 5 9 6 0 2 4 , , 6 3 6 8 2 8 3 , , 0 6 0 1 4 4 4 , 6 0 8 0 5 1 , 4 4 1 4 , 1 5 9 6 2 , 8 9 7 5 9 3 , 0 0 0 2 4 , , 2 4 3 7 1 6 3 , , 1 4 0 7 3 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 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 3 2 0 2 E N U J 0 3 s t e s s a l a i c n a n i F 2 2 0 2 e n u J 0 3 y n a p m o C 88 - - - - 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 , - 5 5 7 6 6 7 , 3 9 7 9 4 , 1 9 4 1 , 6 3 1 2 , 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 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 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 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 4.5 Credit risk management The company has a diversified branch network consisting of 16 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 past due loans in the portfolio, as well as economic forecasts, and adherence to the credit procedures on a timely and accurate basis is monitored and supervised by management through monthly reports and the Board of Directors through bi-monthly reports. 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. Annual Report for the year ended 30 June 2023 89 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 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 2023 $’000 Expected credit loss 2023 $’000 Maximum exposure to credit risk 2022 $’000 Expected credit loss 2022 $’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 203,247 3,000 Certificates of deposit 4.1.3 Other financial assets 345,528 Notes – securitisation program and other Interest receivable Loans and advances Total 4.1.3 Other financial assets 21,819 4.1.3 4.1.4 Other financial assets 2,010 Loans and advances 4,679,436 - - - - - 178,537 11,773 351,957 16,294 550 - - - - - 3,998 3,998 4,108,260 4,667,371 4,705 4,705 32 - 32 184,335 640 184,975 113 - 113 5,255,040 84,135 1,260 85,395 Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 6.3 6.3 90 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. 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. Annual Report for the year ended 30 June 2023 91 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 using 92 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023, 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. Scenario ECL Jun 23 $’000 Macroeconomic forecast Reported ECL 4,030 100% base case 3,571 Includes a reasonable level of portfolio stress. By the end of 2023 the unemployment rate is expected to be 4.2% with further deterioration beyond that. Unemployment is forecast to be 5.3% by the end of 2024. Forecast GDP growth of between 0.6% and 1.0% due to tightening monetary policies to tackle significant inflation pressures. 100% downside 4,331 Assumes a moderate but reasonable level of portfolio stress. 100% severe downside 5,381 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 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. Accordingly, the Group’s ECL estimates are inherently uncertain and, as a result, actual results may differ from these estimates. Annual Report for the year ended 30 June 2023 93 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Judgement/ Assumption Description Changes and considerations during the year ended 30 June 2023 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 remained steady reflecting a tight labour market. 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 2023. Base case economic forecast The Group derives a forward-looking “base case” economic scenario which reflects Auswide Bank’s view of the most likely future macroeconomic conditions. There have been no changes to the types of forward-looking variables (key economic drivers) used as model inputs in the current year. Probability weighting of each scenario (base case, downside and severe downside scenarios) Management overlays Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base case scenario. Management have assessed the weightings applied to the downside and severe downside scenarios and increased the weighting accordingly in view of inflationary pressures and increasing interest rates. Management overlays to the ECL allowance are used where it is judged that existing inputs, assumptions and model techniques do not adequately capture the risk factors in the lending portfolio. An overlay for model error risk continues to be applied. Management has reduced the additional overlay due to the downside and severe downside weightings being increased. 94 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 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 203,247 3,000 Certificate of deposit 345,528 Notes – securitisation program and other Total 21,819 573,594 Loans and advances* - - - - - - - - - - 203,247 3,000 345,528 21,819 573,594 - - - - - - - - - - - - - - - - - - - - - Mortgage lending 4,583,706 5,089 4,949 4,593,744 3,110 218 592 3,920 - Personal lending - Commercial lending 36,688 48,973 - 30 1 - 36,689 49,003 62 14 - 1 1 - 63 15 Total 4,669,367 5,119 4,950 4,679,436 3,186 219 593 3,998 Off-balance sheet exposures Loans approved not advanced (LANA) Bank guarantees Total 84,135 1,260 85,395 - - - - - - 84,135 1,260 85,395 32 - 32 - - - - - - 32 - 32 * Maximum exposure to credit risk includes undrawn credit limits and uses scheduled balances. Carrying amount as at 30 June 2023 is $4.378b. Annual Report for the year ended 30 June 2023 95 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 3,999,108 8,648 5,917 4,013,673 3,235 - Personal lending - Commercial lending 31,678 62,766 8 123 12 - 31,698 62,889 144 40 Total 4,093,552 8,779 5,929 4,108,260 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 BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 3,804,623 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 2023 6,124 (3,597) (3,221) (587,307) 1,234,590 (98,758) 4,352,454 * Excludes interest receivable and deferred mortgage brokers commissions. 8,773 (4,598) 3,812 (811) (2,488) 877 (449) 5,116 5,928 (1,526) (215) 4,032 3,819,324 - - - (3,646) (593,441) - 376 1,235,467 (98,831) 4,949 4,362,519 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 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. Annual Report for the year ended 30 June 2023 97 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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. * 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 2023 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 3,536 270 (53) (18) (671) 664 (499) 3,229 388 (197) 66 (77) (81) 19 101 219 894 (73) (13) 95 - 425 582 (746) (1,498) 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 (210) (1,632) (2,463) - 295 388 - 537 894 811 471 4,818 Total $’000 4,818 - - - 683 27 4,030 Total $’000 5,999 - - - * Excludes interest receivable and deferred mortgage brokers commissions. No ECL is recognised on any other financial asset, as this has been assessed as immaterial in both the current and comparative periods. 98 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 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 2022 4.5.6 Credit risk concentrations Loans and advances $’000 4,705 (648) (59) 3,998 Loans and advances $’000 5,999 (686) (608) 4,705 LANA $’000 113 (81) - 32 LANA $’000 140 (27) - 113 Total $’000 4,818 (729) (59) 4,030 Total $’000 6,139 (713) (608) 4,818 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. 2023 $’000 2022 $’000 4,291,698 3,744,091 33,829 36,992 26,393 48,840 4,362,519 3,819,324 Annual Report for the year ended 30 June 2023 99 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Consolidated entity Loans and advances at amortised cost* Concentration by region Queensland New South Wales Australian Capital Territory Victoria South Australia Western Australia Tasmania Northern Territory Total 2023 $’000 2022 $’000 2,803,366 2,654,406 641,593 88,371 522,650 67,687 205,548 14,599 18,705 499,313 57,834 405,852 35,671 134,057 14,214 17,977 4,362,519 3,819,324 * Excludes interest receivable and deferred mortgage brokers commissions. LANA of $84.135m (2022: $184.335m) 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 $1.474m (2022: $2.345m) 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 $25.159m at 30 June 2023 (2022: $26.857m). The change in fair value due to credit risk for the MISs designated at FVTPL is $0.410m for the year (2022: $0.677m). The Group uses the performance of the portfolio to determine the change in fair value attributable to changes in credit risk of its MISs designated at FVTPL. 4.5.9 Equity instruments classified at FVTOCI The maximum exposure to credit risk of the equity instrument designated at FVTOCI is their carrying amount. 4.5.10 Analysis of financial instrument by days past due status Under the Group’s monitoring procedures a significant increase in credit risk is identified before the exposure has defaulted and at the latest when the exposure becomes 30 days past due. The table below provides an analysis of the gross carrying amount of loans and advances by past due status, that are over 30 days past due. Consolidated Company 2023 $’000 2,407 283 590 - 139 813 2022 $’000 3,444 331 910 1,602 - 689 2023 $’000 2,407 283 590 - 139 813 2022 $’000 3,444 331 910 1,602 - 689 4,232 6,976 4,232 6,976 30 days and less than 60 days 60 days and less than 90 days 90 days and less than 182 days 182 days and less than 273 days 273 days and less than 365 days 365 days and over 100 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 $’000 2022 $’000 757,446 535,458 1,499,370 1,062,835 1,286,954 1,236,558 49,182 100,258 8,128 18,609 690,618 790,373 2023 $’000 564 1,229 1,378 8 321 420 2022 $’000 365 832 2,207 12 525 550 4,291,698 3,744,091 3,920 4,491 Loans issued under the federal government’s First Home Loan Deposit Scheme (FHLDS) 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 2023 $’000 2022 $’000 2023 $’000 2022 $’000 21,203 11,958 3,831 - - 15,846 19,627 10,596 418 2,353 9 4 2 - - 36,992 48,840 15 17 32 7 - 2 58 Other financial assets The Group holds other financial assets at amortised cost with a carrying amount of $575.032m (2022: $557.599m) and at FVTOCI with a carrying amount of $0.918m (2022: $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. Annual Report for the year ended 30 June 2023 101 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 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 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 Company 30 June 2023 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 - - - - - - - 7,916 - 7,916 925 925 25,159 - 918 26,077 - - 25,159 7,916 918 33,993 925 925 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 - - - - - - - 7,916 - 7,916 925 925 25,159 - 918 26,077 - - 25,159 7,916 918 33,993 925 925 102 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 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. Annual Report for the year ended 30 June 2023 103 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 $’000 918 - - - - 2022 $’000 918 - - - Balance at end of year 918 918 2023 $’000 26,857 1,295 - 7,000 (9,993) 25,159 2022 $’000 37,424 1,605 - 7,750 (19,922) 26,857 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 2023 $’000 918 - - - - 2022 $’000 918 - - - - Balance at end of year 918 918 2023 $’000 26,857 1,295 - 7,000 (9,993) 25,159 2022 $’000 37,424 1,605 - 7,750 (19,922) 26,857 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 2023 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 203,247 3,000 363,235 - 569,482 - - - - - - - - 203,247 203,247 3,000 3,000 363,235 369,357 4,385,384 4,385,384 4,377,803 4,385,384 4,954,866 4,953,407 - - - - - - 4,032,917 99,119 - - - 42,296 4,032,917 4,042,906 99,119 42,296 101,013 42,358 533,527 42,000 - - 533,527 530,755 42,000 42,000 4,707,563 42,296 4,749,859 4,759,032 104 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 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. Annual Report for the year ended 30 June 2023 105 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 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 2023 % 2022 % 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Australia 100.0 100.0 Australia 100.0 100.0 - (2) - (11) - - - - Widcap Securities Pty Ltd 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 held by the Group Proportion of voting power held by the Group Financial Advice Matters Group Pty Ltd (FAMG) Financial Planning Australia 23.8% 25.0% 25.0% 25.0% 2023 2022 2023 2022 Financial Advice Matters Group Pty Ltd (FAMG) is accounted for using the equity method in these consolidated financial statements. 106 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 $’000 683 687 (265) (45) 1,060 2023 $’000 1,470 194 (49) 145 145 65 2022 $’000 585 689 (245) (51) 977 2022 $’000 1,445 187 (28) 159 159 63 The above figures were based on the unaudited accounts of FAMG as at 30 June 2023. Annual Report for the year ended 30 June 2023 107 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 GN Kenny Director - Non-executive J Korhonen Director - Non-executive B Dangerfield (ceased 27 November 2022) Director - Non-executive C Mitchell (appointed 1 February 2023) Director - Non-executive MJ Barrett Managing Director GB Murdoch Director - Non-executive LT McGrath (appointed 1 March 2023) Director - Non-executive s e v i t u c e x E WR Schafer Chief Financial Officer, Company Secretary SD Johnson Chief Information Officer MS Rasmussen Chief Operating Officer DR Hearne Chief Customer Officer CA Lonergan Chief Risk Officer R Stephens Chief Transformation Officer GM Job Chief People and Property 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 2023 $’000 3,144 470 261 372 76 2022 $’000 3,007 457 247 128 69 2023 $’000 3,144 470 261 372 76 2022 $’000 3,007 457 247 128 69 4,323 3,908 4,323 3,908 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 $314,900 (2022: $269,274) 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. 108 Auswide BankNOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 6. Other financial information 6.1 Cash flow statement reconciliation Reconciliation of profit from ordinary activities after tax to the net cash flows from operations: Consolidated Company 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Profit after tax from continuing operations 25,067 26,132 25,069 26,143 Depreciation and amortisation Bad debts expense (Profit)/loss on disposal of non-current assets 4,014 (728) 104 3,496 (714) 164 4,014 (728) 104 3,496 (714) 164 Movement in assets Loans and advances Accrued interest on investments Prepayments and other receivables Deferred tax asset Movement in liabilities (549,060) (271,057) (549,061) (270,884) (5,048) 5,932 - (651) 1,065 2,834 (5,048) 5,932 - (651) 1,065 2,834 Deposits and short term borrowings 375,771 268,053 376,188 268,051 Creditors and accruals Income tax payable Deferred tax payable Employee benefit provisions Other provisions Reserves 10,719 (578) (2,258) 213 (139) 2,577 15,527 (618) 3,896 133 268 (5,458) 10,719 (569) (2,258) 213 (139) 2,577 Net cash generated from operating activities (133,414) 43,070 (132,987) 15,482 (625) 3,896 133 268 (5,458) 43,200 Accounting policies Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 6.2 Expenditure commitments Capital expenditure commitments Capital expenditure contracted for within one year Consolidated Company 2023 $’000 1,394 1,394 2022 $’000 793 793 2023 $’000 1,394 1,394 2022 $’000 793 793 Annual Report for the year ended 30 June 2023 109 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 6.3 Contingent liabilities and credit commitments Approved but undrawn loans Approved but undrawn credit limits Bank guarantees Consolidated Company 2023 $’000 84,135 73,668 1,260 2022 $’000 184,335 85,506 640 2023 $’000 84,135 73,668 1,260 2022 $’000 184,335 85,506 640 159,063 270,481 159,063 270,481 The Group holds an agency settlement facility amounting to $3 million. As at 30 June 2023, the amount of facility used is $0 (30 June 2022: $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 2023 $’000 3,574 641 (429) 3,786 3,338 448 3,786 243 4,029 2022 $’000 3,441 391 (258) 3,574 3,105 469 3,574 382 3,956 2023 $’000 3,574 641 (429) 3,786 3,338 448 3,786 243 4,029 2022 $’000 3,441 391 (258) 3,574 3,105 469 3,574 382 3,956 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. 110 Auswide Bank6.5 Other non-financial assets Prepayments Other NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 Consolidated Company 2023 $’000 2,820 495 3,315 2022 $’000 3,107 260 3,367 2023 $’000 2,816 495 3,311 2022 $’000 3,106 260 3,366 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 2023 $’000 2022 $’000 2023 $’000 2022 $’000 414,403 402,361 414,403 402,361 Subsidiaries and joint operations 30,000 28,080 30,000 28,080 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 444,403 430,441 444,403 430,441 115,000 114,800 115,000 114,800 115,000 114,800 115,000 114,800 15,500 15,485 15,500 15,485 15,500 15,485 15,500 15,485 79,749 79,749 24,669 24,669 79,749 79,749 24,669 24,669 Total auditors' remuneration 654,652 585,395 654,652 585,395 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. Annual Report for the year ended 30 June 2023 111 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2023 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 2023 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 2023. 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 28 August 2023 GB Murdoch Director Brisbane 28 August 2023 112 Auswide Bank Deloitte 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 78 Melbourne VIC 3001 Australia Tel: +61 3 9671 7000 Fax: +61 3 9671 7001 www.deloitte.com.au Deloitte Touche Tohmatsu ABN 74 490 121 060 Deloitte Touche Tohmatsu 477 Collins Street ABN 74 490 121 060 Melbourne VIC 3000 GPO Box 78 477 Collins Street Melbourne VIC 3001 Australia Melbourne VIC 3000 GPO Box 78 Tel: +61 3 9671 7000 Melbourne VIC 3001 Australia Fax: +61 3 9671 7001 www.deloitte.com.au Tel: +61 3 9671 7000 Fax: +61 3 9671 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Auswide Bank Ltd RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrttss Opinion 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 2023, the statements Independent Auditor’s Report to the Members of Auswide Bank Ltd of profit or loss and other comprehensive income, the statements of changes in equity and the statements of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting Independent Auditor’s Report to the Members of Auswide Bank Ltd policies and other explanatory information, and the directors’ declaration. RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrttss their financial performance for the year then ended; and their financial performance for the year then ended; and their financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (i) giving a true and fair view of the Group and the Company’s financial position as at 30 June 2023 and of In our opinion, the accompanying financial reports of the Group and the Company are in accordance with the RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrttss Opinion Corporations Act 2001, including: We have audited the financial reports of Auswide Bank Ltd (the “Company”) and its subsidiaries (the “Group”) Opinion which comprise the Group and the Company’s statements of financial position as at 30 June 2023, the statements 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 cash which comprise the Group and the Company’s statements of financial position as at 30 June 2023, the statements flows for the year then ended, and notes to the financial statements, including a summary of significant accounting of profit or loss and other comprehensive income, the statements of changes in equity and the statements of cash policies and other explanatory information, and the directors’ declaration. flows for the year then ended, and notes to the financial statements, including a summary of significant accounting Basis for Opinion In our opinion, the accompanying financial reports of the Group and the Company are in accordance with the policies and other explanatory information, and the directors’ declaration. Corporations Act 2001, including: We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those In our opinion, the accompanying financial reports of the Group and the Company are in accordance with the standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our (i) giving a true and fair view of the Group and the Company’s financial position as at 30 June 2023 and of Corporations Act 2001, including: report. We are independent of the Group in accordance with the auditor independence requirements of the (i) giving a true and fair view of the Group and the Company’s financial position as at 30 June 2023 and of Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities in Basis for Opinion accordance with the Code. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those Basis for Opinion We confirm that the independence declaration required by the Corporations Act 2001, which has been given to standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our the directors of the Company (the “directors”), would be in the same terms if given to the directors as at the time We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those report. We are independent of the Group in accordance with the auditor independence requirements of the of this auditor’s report. standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s report. We are independent of the Group in accordance with the auditor independence requirements of the APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities in opinion. APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are accordance with the Code. relevant to our audit of the financial reports in Australia. We have also fulfilled our other ethical responsibilities in Key Audit Matters We confirm that the independence declaration required by the Corporations Act 2001, which has been given to accordance with the Code. the directors of the Company (the “directors”), would be in the same terms if given to the directors as at the time Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of We confirm that the independence declaration required by the Corporations Act 2001, which has been given to of this auditor’s report. the financial report of the Group for the current period. These matters were addressed in the context of our audit the directors of the Company (the “directors”), would be in the same terms if given to the directors as at the time of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our of this auditor’s report. on these matters. opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of Key Audit Matters the financial report of the Group for the current period. These matters were addressed in the context of our audit Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion the financial report of the Group for the current period. These matters were addressed in the context of our audit on these matters. of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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. Annual Report for the year ended 30 June 2023 113 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD KKeeyy AAuuddiitt MMaatttteerr IImmppaaiirrmmeenntt ooff llooaannss aanndd aaddvvaanncceess As at 30 June 2023, the Group has recognised a loss allowance for Expected Credit Losses (ECL) amounting to $4.03 m 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 macroeconomic 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 capacity and forward-looking macroeconomic 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 loans displaying indicators of significant 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 loss allowance (including overlays) to the loan book, taking into account recent history, performance and de-risking of the relevant portfolios. We also assessed adequacy of the disclosures in Note 4 to the financial statements. 114 Auswide Bank INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD KKeeyy AAuuddiitt MMaatttteerr HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr IImmppaaiirrmmeenntt ooff nnoonn--ccuurrrreenntt aasssseettss Our procedures included, but were not limited to: As at 30 June 2023, the Group’s non-current assets include goodwill amounting to $46.3m as disclosed in Note 3.3. The determination of the recoverable amount of goodwill is complex and requires management to exercise significant judgement including: - - Identification of appropriate Cash Generating Units (CGU) to which goodwill is allocated for the purpose of impairment testing; Selection of appropriate valuation methodology; and - Determination of assumptions and estimates, in particular the 5 year forecast cashflows, growth rates, terminal growth rate and the discount rate. IInnffoorrmmaattiioonn tteecchhnnoollooggyy The Group's operations and financial reporting processes are heavily dependent on IT systems for the processing and recording of a significant volume of transactions. Due to this, we consider the operation of financial reporting IT systems and controls to be a key audit matter. The IT systems and controls, as they impact the financial recording and reporting of transactions, has a significant impact on our audit approach, and is dependent on the effective operation of the Group’s IT controls. - Obtaining an understanding of any changes to the internal and external impairment indicators in assessing goodwill impairment through inquiries with management and external market evidence; - - - Assessing management’s position paper and board minutes to identify the CGU to which goodwill has been allocated and ensured that the CGU is not defined at a higher level than its operating segment; Evaluating consistency of management’s projections, historical track record and external market evidence; In conjunction with our valuation specialists, assessing the integrity of value in use models used, including the accuracy of the underlaying calculation formulas and challenging key assumptions used in the model prepared by management, including the 5 years forecast cashflows, growth rates, terminal growth rate and discount rate; We have also assessed the adequacy of the disclosures in Note 3.3 to the financial statements. Our procedures, performed in conjunction with our IT specialists included, but were not limited to: - Developing an understanding of the business processes, IT systems used to generate and support those balances, associated IT application controls and IT dependencies in manual controls; - Understanding and evaluating the design of relevant controls where applicable; Where we identified control deficiencies relating to IT systems or application controls relevant to our audit we evaluated the operating effectiveness of manual controls where applicable and varied the nature, timing and extent of our substantive procedures. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report which we obtained prior to the date of this auditor’s report, and also includes the following information which will be included in the Group and the Company’s annual report (but does not include the financial reports and our auditor’s report thereon): Chairman’s Report, Managing Director’s Report, Corporate Governance Summary and Shareholder Information, which is expected to be made available to us after that date. Annual Report for the year ended 30 June 2023 115 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD 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. 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. Responsibilities of the Directors for the Financial Reports 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. Auditor’s Responsibilities for the Audit of the Financial Reports 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 auditor’s report. However, future events or conditions may cause the Group or the Company to cease to continue as going concerns. 116 Auswide Bank INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSWIDE BANK LTD • 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 Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 7 to 18 of the Directors’ Report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Auswide Bank Ltd for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Mark Stretton Partner Chartered Accountants Melbourne, 28 August 2023 Annual Report for the year ended 30 June 2023 117 CORPORATE GOVERNANCE SUMMARY Corporate governance summary 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 Corporate > Governance section of the Company’s website located at www.auswidebank.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 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 Policies section of its website at www.auswidebank.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 Corporate > Governance section at www.auswidebank.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 Corporate > Governance section at www.auswidebank.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 Code of Conduct and Ethics located in the Corporate > Governance section at www.auswidebank.com.au. 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. 118 Auswide BankCORPORATE GOVERNANCE SUMMARY Declarations have been signed by the Managing Director and Chief Financial Officer before the Board approves 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 Corporate > Governance section at www.auswidebank.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 Corporate > Governance section at www.auswidebank.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 Corporate > Governance section at www.auswidebank.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 Corporate > Governance section at www.auswidebank.com.au. The Group’s approach to Environmental and Social Sustainability can be found at www.auswidebank.com.au under the Corporate > Sustainability section. 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 Corporate > Governance section at www.auswidebank.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. 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. Annual Report for the year ended 30 June 2023 119 SHAREHOLDER INFORMATION 30 JUNE 2023 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. 2023 Annual General Meeting The 2023 Annual General Meeting is to be held on Friday 24 November 2023. This year the Company will hold a hybrid AGM - both in-person at Auswide Bank’s Bundaberg Office, as well as virtually for those who are not able to attend in-person. The online platform will enable all shareholders, regardless of location, to participate in the meeting. Voting rights of shareholders A shareholder is entitled to exercise one vote in respect of each fully paid ordinary permanent share held in accordance with the provisions of the Constitution. 120 Auswide BankSHAREHOLDER INFORMATION 30 JUNE 2023 Key dates Annual General Meeting 24 November 2023 Full year results and final dividend announcement 30 August 2023 Ex dividend date Record date 07 September 2023 08 September 2023 Participation in DRP (final date for receipt of application) 11 September 2023 Dividend payment 22 September 2023 Half year results and interim dividend announcement 27 February 2023 Ex dividend date Record date Participation in DRP (final date for receipt of application) Dividend payment E. Securities information 03 March 2023 10 March 2023 13 March 2023 24 March 2023 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 15 September 2023 are: Class of security Permanent ordinary shares ASX Code Number ABA 45,906,526 Distribution of shareholdings Permanent ordinary shares 15 September 2023 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 3,792 2,273 737 681 59 7,542 287 Annual Report for the year ended 30 June 2023 121 SHAREHOLDER INFORMATION 30 JUNE 2023 Top 20 shareholders Permanent ordinary shares 15 September 2023 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Name National Nominees Limited Citicorp Nominees Pty Limited Ronald Ernest Hancock & Lorraine Pearl Hancock 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 Horrie Pty Ltd ATF Horrie Superannuation A/c Craig Thomas Kennedy Kathleen Fay Sawyer HSBC Custody Nominees (Australia) Limited Ron Hancock Super Pty Ltd ATF The Hancock Superfund A/c Cloud 7 Nominees Australia Pty Ltd ATF Peter Sawyer Fam Acct No2 A/c Ronald Ernest Hancock & Lorraine Pearl Hancock ATF the Hancock Family A/c Hestearn Pty Ltd Sawfam Pty Ltd ATF Sawyer Super Fund No2 A/c Delma Cran Lohse Holdings Pty Ltd ATF Peter Lohse Super Fund A/c J P Morgan Nominees Australia Pty Limited Noela Olsen Graham and Suzanne Messer Superannuation Fund Pty Ltd Top 20 holders of fully paid ordinary shares No. of shares % of total 1,435,954 1,317,824 890,750 706,816 545,975 545,559 538,627 509,045 432,719 423,286 365,932 328,486 320,000 308,543 296,362 264,074 260,000 249,163 247,520 237,170 10,223,805 3.13 2.87 1.94 1.54 1.19 1.19 1.17 1.11 0.94 0.92 0.80 0.72 0.70 0.67 0.65 0.58 0.57 0.54 0.54 0.52 22.29 Substantial shareholders The following organisations have disclosed a substantial shareholding notice to the ASX. Name RE Hancock (associated entities + associates)(1) (1) Substantial shareholder notice dated 19/05/2016. On-market buyback There is no on-market buy back. No. of shares % of total 2,182,863 5.42 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 Results and Reporting. 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. 122 Auswide BankFINANCIAL 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 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. Annual Report for the year ended 30 June 2023 123 FINANCIAL 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 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. RMBS Securitisation SSP Subordinated Capital Notes Tier 1 Capital Tier 2 Capital Underlying NPAT 124 Auswide BankHead Office Auswide Bank 16 - 20 Barolin Street PO Box 1063 Bundaberg QLD 4670 T 07 4150 4000 F 07 4152 3499 E auswide@auswidebank.com.au 1300 138 831 auswidebank.com.au AUSWIDE BANK LTD ABN 40 087 652 060 Australian Financial Services & Australian Credit Licence 239686 

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