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Annual Financial Report 2014
A
Contact us
Bendigo and Adelaide Bank Limited
ABN 11 068 049 178
Registered head office
The Bendigo Centre
22-44 Bath Lane
Bendigo VIC
Australia 3550
Telephone: 1300 361 911
Facsimile: 03 5485 7000
Customer Help Centre
1300 361 911 (local call)
8.30am to 7.30pm weekdays
Australian Eastern Standard Time/Australian
Eastern Daylight Time
Shareholder enquiries
Share Registry
1800 646 042
Email: share.register@bendigoadelaide.com.au
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In an effort to reduce our paper consumption and impact on
the environment, this Annual Financial Report is printed on
FSC certified paper using environmentally friendly inks.
B
Table of contents
Directors’ Report
Operating and financial review
Group performance highlights
Group performance overview
Analysis of group performance
Overview of loan and deposit portfolios
Capital adequacy
Divisional performance
Risk management framework,
business uncertainties and significant business risks
Directors’ information
Meetings of directors
Other matters
Remuneration report
Five year history
Five year comparison
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Cash flow statement
Notes to the financial statements
1. Corporate information
2. Summary of significant accounting policies
3. Profit
4. Segment results
5. Cash earnings
6. Income tax expense
7. Capital management
8. Earnings per ordinary share
9. Dividends
10. Cash flow statement reconciliation
11. Cash and cash equivalents
12. Financial assets held for trading
13. Financial assets available for sale - debt securities
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4
9
10
11
13
14
14
16
21
23
24
28
48
49
50
51
52
53
55
56
56
56
73
75
78
79
81
82
83
85
86
87
88
14. Financial assets available for sale - equity investments
15. Financial assets held to maturity
16. Loans and other receivables
17. Impairment of loans and advances
18. Particulars in relation to controlled entities
19. Investments accounted for using the equity method
20. Property, plant and equipment
21. Investment property
22. Intangible assets and goodwill
23. Impairment testing of goodwill
24. Other assets
25. Deposits and notes payable
26. Other payables
27. Provisions
28. Convertible preference shares
29. Subordinated debt
30. Issued capital
31. Retained earnings and reserves
32. Employee benefits
33. Share based payment plans
34. Auditors’ remuneration
35. Related party disclosures
36. Risk management
37. Financial instruments
38. Derivative financial instruments
39. Commitments and contingencies
40. Standby arrangements and uncommitted credit facilities
41. Fiduciary activities
42. Securitisation and transferred assets
43. Involvement with unconsolidated entities
44. Business combinations
45. Events after balance sheet date
Directors’ Declaration
Independent Audit Report
Additional information
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90
91
92
93
95
99
101
102
104
105
106
107
108
110
111
112
114
116
117
122
123
126
143
150
153
160
161
162
163
165
166
167
168
170
1
2013–14 ANNUAL REPORT Directors’
Report
The Directors of Bendigo and Adelaide Bank Limited present
their report together with the 150th Financial Report
of Bendigo and Adelaide Bank Limited (“Bank”) and its
controlled entities (“Group”) for the year ended 30 June 2014.
Principal activities
The principal activities of the Group during the financial year
were the provision of a broad range of banking and other
financial services including consumer, residential, business
and commercial lending, deposit taking, payments services,
wealth management, funds management and superannuation,
treasury and foreign exchange services. The Group conducts
its activities solely in Australia. There was no significant
change in the nature of the activities during the year.
Operating results
The consolidated profit after providing for income tax of the
Group amounted to $372.3 million, an increase of 5.7% on the
2013 result of $352.3 million.
During the year the Group took a number of significant steps
to strengthen its capital base and funding capacity. This
included a successful $300 million institutional subordinated
debt offering and a $380 million capital raising that was well
supported by institutional and retail investors.
The Group continued to focus on profitable growth through
writing quality business which was evident in the profit result
and overall credit performance.
The Group’s operating income grew by $109.2 million (8.2%)
which was mainly due to higher net interest income following
a 5.1% increase in average interest earning assets. This was
complemented by a 5 basis point increase in net interest
margin achieved by maintaining a disciplined approach to
managing the interest margin and the balance sheet.
Operating expenses increased by $37.3 million (4.8%). The
main increases related to staff costs ($28.1 million) and
occupancy costs ($14.7 million). These increases are largely
driven by our investment in the Basel II project, contractual
wage and salary adjustments and the new headquarters
based in Adelaide.
The bad and doubtful debt expense increased by $12.0
million (17.2%) to $81.9 million for the financial year.
Balance sheet growth was strong with total assets increasing by
$4.8 billion (8.0%) and total liabilities increasing by $4.3 billion
(7.6%). The movements within the major components include:
Net loans and other receivables increased by $2.6 billion
(5.2%) primarily driven by growth in residential lending of $2.1
billion (6.4%) and growth in commercial and business lending
of $813 million. This growth was partially offset by declines in
the consumer and margin lending portfolios.
The provision for credit impairment increased by $18.6 million
(6.7%), mainly driven by an increase in the collective provision,
credit losses in the Rural Bank portfolio and a provision for an
isolated construction exposure in the retail portfolio.
Growth in customer deposits of $4.9 billion (10.4%) comprised
growth in retail deposits of $2.6 billion (6.1%) and growth of
$1.7 billion in domestic wholesale deposits.
Information on dividends paid and declared is presented below.
Further details on the Group’s operating results are contained
in the Chairman’s Report, Managing Director’s Report and the
Operating and Financial Review section of this report.
Dividends
The Directors announced on 11 August 2014 a fully franked
final dividend of 33 cents per fully paid ordinary share. The
final dividend is payable 30 September 2014. The proposed
payment is expected to amount to $146.5 million.
The following fully franked dividends were paid by the Bank
during the year on fully paid ordinary shares:
}} A final dividend for the 2013 financial year of 31 cents per
share, paid on 30 September 2013 (amount paid: $125.1
million); and
}} An interim dividend 2014 of 31 cents per share, paid on 31
March 2014 (amount paid: $126 million).
Further details on the dividends provided for or paid during
the 2014 financial year on the Bank’s ordinary and preference
shares are provided at Note 9 of the Financial Statements.
Review of operations
An analysis of the Group’s operations for the financial year
and the results of those operations, including the financial
position, business priorities and prospects, are presented in
the Chairman’s Report, Managing Director’s Report and the
Operating and Financial Review section of this report.
2
State of affairs
Rounding of amounts
In the opinion of the Directors there have been no significant
changes in the state of affairs of the Group during the
financial year. Information on events and matters that
affected the Group’s state of affairs is presented in the
Operating and Financial Review section of this report.
Pursuant to Australian Securities & Investments Commission
Class Order 98/100 (as amended) and pursuant to section
341 (1) of the Corporations Act 2001, the amounts in this
report, unless otherwise indicated, have been rounded to
the nearest million dollars. The Bank is an entity to which the
Class Order applies.
After balance date events
The Bank declared a final dividend of 33 cents per ordinary
share on 11 August 2014.
The Bank completed the acquisition of the business and
assets of Rural Finance Corporation of Victoria on 1 July
2014 for $1.78 billion. The acquisition has strengthened the
Group’s commitment to rural and regional customers. The
loan portfolio at the date of acquisition was $1.7 billion.
On 24 July 2014 the Bank announced that it has entered
into an agreement to conclude the class actions brought by
investors in managed investment schemes operated by Great
Southern. Under the agreement, which is subject to Court
approval, the members of the class actions have admitted
that their loans are valid and enforceable and have provided a
broad release from future litigation.
The Directors are not aware of any other matter or
circumstance which arose since the end of the financial year
to the date of this report that has significantly affected or may
significantly affect the operations of the Group, the results
of those operations, or the state of affairs of the Group in
subsequent financial years.
Future developments
Disclosure of information relating to major developments in
the operations of the Group and the expected results of those
operations in future financial years, which, in the opinion of
the Directors, will not unreasonably prejudice the interests of
the Group, is included in the Chairman’s Report, the Managing
Director’s Report and the Operating and Financial Review
section of this report.
3
2013–14 ANNUAL REPORT
Operating and
Financial Review
Overview
The Group operates primarily in Australia and is a community
focused retail bank that commenced operations in 1858. Our
major headquarters are in Bendigo, Adelaide and Melbourne.
We have nearly 7,000 staff and operate a national network of
more than 500 branches (Company-owned and Community
Bank®) and 105 customer service agencies.
Our Business Model
Bendigo Wealth
We provide our financial services primarily to retail customers
and small to medium sized businesses through four specific
customer-facing divisions comprising Retail Bank, Third Party
Banking, Bendigo Wealth and Rural Bank.
Retail Banking
Retail Banking, operating under the ‘Bendigo Bank’ and
‘Delphi Bank’ brands, provides a full suite of traditional retail
banking, wealth and risk management services to retail
customers via our national branch network, call centres,
agencies and on-line banking services.
The major revenue sources are net interest income from
traditional banking services (i.e. lending and taking deposits)
and fee income for the provision of services.
Community Bank® is a franchise model with the community
owning the rights to operate a Bendigo Bank branch.
Essentially, a locally owned public company invests in the
rights to operate a branch. The Bank supplies all banking and
back office services while the community company operates
the retail outlet.
Bendigo Wealth is our wealth management division that
provides margin lending, superannuation, managed
investments, traditional trustee and financial planning
products and services through Sandhurst Trustees, Leveraged
Equities and Bendigo Financial Planning, all of which are
subsidiaries of the Bank.
The major revenue sources are fees, commissions and net
interest income from the provision of margin lending, wealth
management, wealth deposit, cash management and financial
planning products and services.
Rural Bank
Rural Bank is a wholly-owned subsidiary with a separate
banking licence. Rural Bank provides specialised banking
products and services to primary producers and agribusiness
participants.
Rural Bank products and services are available at regional
locations nationally including Bendigo Bank branches, Elders
Rural Services branches and our metropolitan investment
centres based in Adelaide and Perth.
The Bank shares the revenue with the Community Bank®
branch network, enabling communities to earn revenue
from their own banking and channel this revenue back into
community enterprise and development.
The major revenue sources of this business are net interest
income and fees predominantly derived from the provision
of loans and deposits to agribusinesses based in rural and
regional Australia.
Third Party Banking
Our vision and strategy
Third Party Banking, operating under the ‘Adelaide Bank’
brand distributes residential mortgage, commercial and
consumer finance through intermediaries, including mortgage
managers and brokers. It also includes our portfolio funding
business which provides wholesale funding to third party
financiers in the commercial and consumer finance markets,
and our investment in Homesafe Solutions.
The major revenue sources are net interest income and
fees derived from the provision of residential, commercial,
consumer and business lending and the contribution from
Homesafe.
Our vision is to be Australia’s most customer connected bank
and our strategy is to focus on the success of our customers,
people, partners and communities. For this purpose:
• We take a long term (100 year) view of the business which
means that we make decisions that will generate value for
years to come. We will not be price driven or willing to cut
costs at the expense of long term value;
• We will listen and respond. With technology advancements
and high levels of competition, listening to what it is our
customers and partners want to achieve will help us to
tailor products and services to meet their needs;
4
• We respect every customer’s choice, needs and objectives.
We look to put our customers in control of how they want to
define their banking relationship with us and how they want
to deal with us; and
officially opened by the Prime Minister Tony Abbott on
5 February 2014. This multi-million dollar investment
demonstrates our ongoing commitment to our customers,
partners, shareholders and staff in South Australia.
• We partner for sustainable outcomes.
We believe our success comes from our focus on the success
of others. If we do this we will be relevant, connected and
valued, with the benefits flowing to all of our stakeholders
including shareholders, customers, our people, partners and
the wider community.
Key developments
Following is a summary of the more significant developments
which took place during the year:
}} Early in the year we decided to reinvigorate our margin lending
business. We appointed a new head of margin lending as
a member of our Executive and repositioned the business
to broaden its distribution capability across all avenues of
growth. We are optimistic that we will start to see improved
demand for this business in the near term, although this will
be largely dependent on changing consumer sentiment and
the performance of the equity market.
}} In August 2013 the Managing Director formed a new
division called Customer Voice which unites all our direct
customer feedback activities outside our customer facing
business units. Listening to customer feedback through
the internet and social media is another opportunity for
us. The focus of this activity is to listen to the ‘customer
voice’ through structured conversations, unstructured
data, market research and customer focus groups to
improve our understanding of our customers’ needs and
expectations and to provide them with relevant products
and solutions.
}} At the same time the Managing Director announced a
review of our Community Bank® model called Project
Horizon. This project will seek to set a shared (Bank and
Partner) vision for the model for the next 15 years.
}} The Managing Director also formed a new division called
Customer Service Improvement in November 2013.
Customer Service Improvement brings together our
continuous improvement, processing centre, business
process management and enterprise architecture
activities.
}} The focus of Customer Service Improvement is to simplify
our business processes, reduce non-value add effort,
oversee the simplification program for our information
technology and to assist Customer Voice implement
changes based on customer feedback. The initial
focus is an improvement program for our end to end
lending process, overseeing improvements to our online
account opening process and continuing other process
improvements already underway.
}} In January 2014 we announced a successful institutional
subordinated debt offering that raised $300 million. The
offer represented Australia’s first Basel III compliant
subordinated debt offering targeted specifically to
institutional investors. The subordinated debt qualifies
as Tier 2 capital under the Basel III capital adequacy
framework of the Australian Prudential Regulation
Authority (“APRA”). The proceeds were used to supplement
the Bank’s regulatory capital requirements.
}} Our new Adelaide home located at 80 Grenfell Street, in
the heart of the city’s business and retail district, was
}} The new headquarters brings together more than 1,000
staff from across the Group, including our wholly-owned
subsidiary Rural Bank, enhancing a one-team environment
and encouraging greater connectivity. This investment is
bigger than a new building. It’s a symbol of our long-term
relationship with the people of South Australia. The building
is complemented by an innovative flagship branch which
sets the benchmark for in-branch customer experience.
}} The Bank was recently named as Australia’s most
recommended by customers participating in the latest
Roy Morgan research. Almost two-thirds of our customers
said they would recommend the Bank to friends and
colleagues. We were also voted as one of Australia’s most
trusted brands (2013) by Readers Digest Australia and
named Business Bank of the Year (2013) at Roy Morgan
Research’s Customer Satisfaction Awards in February
2014. This marks the third consecutive year the Bank has
received this accolade. Our SmartStart Super product was
also awarded a five-star rating by CANSTAR.
}} In February 2014 we announced the issue of $500 million
of residential mortgage backed securities under the
Torrens Series securitisation program. The transaction
received strong support from a range of domestic and
overseas investors and provided us with funding and
capital benefits.
}} In May 2014 we successfully completed an underwritten
institutional placement of 21,198,157 ordinary shares at
an issue price of $10.85. The placement received strong
support from a broad range of domestic and international
investors. Funding raised from the placement was used
to acquire the business and assets of Rural Finance
Corporation of Victoria (“Rural Finance”).
}} We also offered eligible shareholders an opportunity to
participate in a non-underwritten share purchase plan
(“plan”). Under the plan eligible shareholders could apply
for new ordinary shares up to a maximum value of $7,500.
The support from retail shareholders was again very
pleasing with 13,954,090 new shares issued to retail
investors. Proceeds raised from the share issue were also
used to fund the purchase of Rural Finance.
}} We successfully completed the acquisition of the business
and assets of Rural Finance Corporation of Victoria (“Rural
Finance”) on 1 July 2014. Rural Finance is a specialist
rural lender that provides financial packages to fund the
purchase, expansion and development of farm businesses.
The purchase strengthens our commitment to regional
and rural customers across Victoria. Rural Finance adds
significantly to our agribusiness capabilities and enables
us to provide a broader and more dynamic offering to
Australian farmers.
}} In July 2014 we welcomed the settlement (pending court
approval) of the Great Southern class actions brought
against the Bank. We have always maintained our conduct
was appropriate and that we are entitled to be repaid
the monies loaned to Great Southern borrowers. The
settlement endorsed our position.
}} Also during the year we announced a number of new and
innovative customer focused technologies that make it
easier for customers to do business with us. We recently
launched:
> “Redy” - a new payment solution developed in
conjunction with Community Telco and our partner
Strategic Payment Services. Redy is a secure mobile
5
2013–14 ANNUAL REPORT payments platform. Customers can download an app and
link it to their Bendigo Bank savings account or any Visa
or Mastercard. It allows customers to make purchases
on mobile devices and earn rewards on those purchases.
The customer can choose to use the rewards on future
purchases or donate them to charities or community
groups.
> “Bendigo MicroPay” – a small mobile EFTPoS device
for businesses developed in conjunction with Quest
Payment Systems and Strategic Payments Services.
MicroPay uses new technology that makes accepting
card payments more portable and easier for business
operators and their customers. It is a pocket-sized,
lightweight payment card reader that connects to
any network, giving business owners more freedom
and connectivity than ever before. It will enable our
customers to receive payments on the spot while
offering their customers greater convenience.
}} We are also ready to introduce a new mobile e-banking
app, and the first of our combined offerings of Banking
and Telco products in the form of a bundled home loan
with internet and phone services. In the first half of the
new financial year we will add to the customers’ digital
experience with:
> e-Statements;
> website enhancements to accelerate customer
acquisition and product sales with online account
opening;
> mobile engagement app for business and financial
planning customers;
> mobile digital wallet;
> universal terminal for merchants;
> optional Token or PIN for e-Banking; and
> a bundled Telco and Banking solution for business
customers.
Bigger than a bank campaign
During the year we launched our new retail bank campaign,
‘Bigger than a bank’. Launched in South Australia in February
2014 to coincide with the opening of our new Adelaide office,
the campaign was launched nationally in May 2014 with a
partnership of the highly successful season of Masterchef
Australia on the Channel Ten television network before
expanding to other media in June 2014.
The campaign aims to increase consumers’ consideration of
us by expounding our banking credentials while showcasing
the many ways in which our actions are ‘bigger’ than those
normally associated with banks.
Basel II Advanced accreditation project
The project to become accredited under APRA’s advanced
capital measurement model (Basel II) is one of the most
significant projects undertaken by the Bank.
Under the current prudential framework there are two
methodologies for measuring capital requirements. The first
methodology, currently adopted by the Bank and a number of
other banks, is referred to as the Standardised Approach.
Under this approach, capital requirements are calculated
based on certain fixed formulae and risk assessments
determined by APRA. The advantage of this approach is that
it is a relatively straight forward way of assessing capital
requirements.
However, one of the potential disadvantages of this approach
6
is that the Bank may end up holding more capital than it
requires if APRA’s assessment of risk is higher than our own
assessment and experience. There is a cost in holding more
capital than prudently required and this is more than likely a
cost absorbed by our customers and shareholders.
The second methodology, referred to as the Advanced
Approach, allows banks to calculate their own capital
requirements, subject to certain strict conditions and
requirements set by APRA. This approach aims to encourage
banks to invest heavily in sophisticated and contemporary
risk management techniques to enable a more accurate
measurement of risk at a far more detailed level when
compared to the Standardised Approach.
Broadly, under the Advanced Approach, capital requirements
are based on a bank’s internal assessment of its risks. This
requires various risk models to be built and implemented
across the business supported by system, process and policy
changes.
The project to move to the Advanced Approach is about
improving the way we do business, by improving the way
we identify and manage risk and service our customers.
Importantly this is an initiative that we as an organisation
have elected to pursue. The key benefits of achieving the
advanced accreditation status include:
}} Further improving our banking systems and processes and
consequently the customers’ experience;
}} Further improving our business and risk management
processes and practices;
}} Strengthening our market profile amongst shareholders,
ratings agencies and regulators; and
}} Operating a more capital efficient business which will
benefit our customers, communities and shareholders.
The project is progressing well. We have made solid progress
on developing the required models as well as enhancing our
systems, processes and policies which is either complete or
nearing completion.
We’ve implemented a range of new risk adjusted performance
measurement and capital allocation methodologies and we
are currently consulting with APRA on the likely timing of our
application. As at 30 June 2014 our total spend stood at
$50.6 million of which $38.6 million has been capitalised.
Basel III
The Basel Committee released in 2010 a series of
consultation papers which propose changes to the Basel II
framework (“Basel III”). The aim of the Basel III proposals is
to strengthen global capital and liquidity framework and to
improve the banking sector’s ability to absorb shocks arising
from financial and economic stress.
APRA subsequently announced that it supported the Basel
III framework and would incorporate the requirements of the
framework into the prudential standards.
The new Basel III minimum capital requirements commenced
1 January 2013 for Australian banks. We adopted the Basel III
measurement and monitoring of regulatory capital from this
date as required by APRA.
In January 2014, APRA issued its updated standard on
liquidity management to implement the Basel III liquidity
reforms. The standard contains a number of qualitative
requirements that came into effect on 1 January 2014 with
the exception of a new liquidity coverage ratio (“LCR”) that
comes into effect on 1 January 2015.
Under the LCR requirements the Bank must hold sufficient
high-quality liquid assets as defined under the liquidity
prudential standard. As there is insufficient volume of eligible
government securities in the domestic market to enable
banks to meet the LCR requirements, the Reserve Bank
has advised that it will make available to Australian banks a
“Committed Liquidity Facility” that will support compliance
with the LCR requirements. The Bank continues to consult
with APRA on the operational structure and requirements of
the Committed Liquidity Facility.
We publish the information required under APRA’s Prudential
Standard APS 330 on our website at:
http://www.bendigoadelaide.com.au/public/shareholders/
announcements/aps_330.asp
Challenges and opportunities
We anticipate that the operating environment for the coming
year will again be very challenging given the subdued
consumer and business sentiment and high level of
competition in the credit markets.
However, we believe we continue to be well positioned for
growth and other opportunities should they emerge given
our distinctive offering and unique market positioning, our
investment in systems, customer service improvement, social
media, digital technologies and distribution network as well as
our long history of trusted service.
We will continue to invest in our business to further
understand the needs and aspirations of customers by
developing our customer information and management
platforms and by connecting with customers through social
media forums and emerging technologies.
Challenges
Low credit growth environment and price competition
It is expected that the sector will continue to experience
relatively subdued credit growth and this should in turn drive
strong competition as financial institutions compete for the
limited demand for credit. In line with this subdued demand
we experienced a significant increase in price competition for
credit during the second half of the year.
We expect the continued low credit demand will again make
growth in interest revenue challenging. Our loan approvals for
the year were relatively solid. However, a large percentage of our
borrowers are continuing to make loan repayments ahead of their
minimum contractual obligations. We believe we are well placed
to generate sound credit growth given the relative youth of our
retail network, our market positioning and value proposition.
Continued competition for deposits
It will be important that we remain competitive in the pricing
of term deposits. The demand for retail deposit funding,
combined with low absolute interest rates, is again expected
to continue to place some pressure on bank margins,
including our own.
We will again commence the new financial year with a very
strong funding profile. The strong level of deposit funding,
in the order of 78% of our overall funding mix, places
us in a strong position. In addition, wholesale funding
markets continue to improve and our conservative funding
profile should enable us to access these markets where
economically sensible to do so.
This year we successfully completed a further residential
mortgage-backed security issue, unsecured senior debt
issuances and a Swiss franc senior debt issuance under our
Euro Medium Term Note Program.
Credit ratings
The Bank’s credit ratings at the date of this report are:
Short Term
Long Term
Outlook
Standard & Poor’s
Fitch Ratings
Moody’s
A-2
F2
P-1
A-
A-
A2
Stable
Stable
Stable
Regulatory change
Our business is subject to significant regulatory oversight. It is
regulated by APRA, the Reserve Bank (“RBA”), the Australian
Securities Exchange (“ASX”), the Australian Securities and
Investments Commission (“ASIC”), the Australian Competition
and Consumer Commission (“ACCC”) and Australian Transaction
Reports and Analysis Centre (“Austrac”) amongst others.
Regulation of the banking and financial services sector
is increasingly complex and extensive. Some of the more
significant changes we will need to incorporate into our
business structures include implementing the new minimum
liquidity risk management standards and capital requirements
under the Basel III reforms outlined earlier as well as other
prudential reforms.
Other regulatory developments that will impact our business
include the new regulations relating to the Foreign Account
Tax Compliance Act, tighter anti-money laundering and
counter-terrorism financing rules, the future of financial
advice reforms, over-the-counter derivatives reforms, stronger
governance regulations around financial advice and the
development of a new industry payments platform.
These reforms typically require a significant resource
allocation in order to implement the supporting information
technology changes as well as required policy, system and
procedure changes as well as training of our staff.
We welcomed the interim report of the Financial Services
Inquiry. The inquiry recognises the environment has changed
for lots of reasons and has taken a balanced approach in
identifying the key issues, including the uneven playing field
tilted in favour of larger banks. We look forward to working with
the inquiry towards an appropriate resolution of these issues.
Opportunities
Our core focus on understanding the needs and objectives of
our customers is unchanged. Customer behaviour and insight
drives a lot of what we do and our Customer Voice team will
coordinate the response to changes in customer behaviour
and expectations.
Increasing the level of business activity and engagement with
customers will also be a major focus. This opportunity goes
directly to our point of difference.
We will continue to invest in our community and partner
based activities, increasing the awareness of the benefits
of our banking model and deepening the relationships with
customers.
Making it easier for customers to do business with us will
7
2013–14 ANNUAL REPORT continue to be a key priority for the business. Through our
Customer Service Improvement division we will continue
to identify system and process changes to help address
frustrations experienced by customers and to make it simpler
and easier for customers to bank with us.
We will continue to invest in our online, mobile and social
strategies through a number of initiatives. This investment will
help us grow our connection to our customers utilising social
media networks and making improvements to our mobile
e-banking application as well as our internet banking platform
and website.
Other opportunities include:
Network maturity and growth
The relative youth of our distribution network provides a
significant platform for growth. We now have more than 500
branches across Australia and more than 160 of these have
been operating for less than ten years.
The expansion of our retail network is evidence of our
commitment to our customers and their communities and it is
expected that this investment will continue to generate growth
opportunities for us in years to come.
Funding tenure and diversity
The Group operates with a conservative funding structure
and retail deposits continue to make up approximately 78% of
the total funding. This continues to be in line with our funding
strategy of maintaining a retail funding base ranging between
75% and 80% of total funding.
As demonstrated over recent years, funding markets can go
through periods of significant disruption. More recently, the
improved stability and liquidity in these markets have been
welcomed by all participants.
As a result we have been able to access wholesale funding in
both senior unsecured formats as well as secured residential
mortgage backed securitisation funding. These transactions
have provided us with new investors as well as an extension
of our overall funding profile.
With the success of these transactions and the heightened
awareness of our business model and credit rating, more
opportunities are likely to arise to further diversify the investor
base and potentially lengthen the term debt profile where
economically sensible.
Systems and efficiency gains
We have started to work on upgrading our core lending
platforms with the first of these relating to our third party
mortgage business. We are working towards a single
consolidated lending system right across the Bank, which
should deliver significant efficiencies and savings, and just
as importantly a more seamless and improved customer
experience.
Continuous Improvement, driven by our Customer Service
Improvement activity and a continuous improvement culture
using LEAN techniques, is the centrepiece of our intention to
make it easier for customers to do business with us and to
deliver further operational efficiencies and cost savings.
It is through this process, that we will strive to improve our
service delivery, grow customer business and to improve our
efficiency by doing more things within the existing cost base.
Banking and telco convergence
We will continue to progress activities related to the
convergence of banking and telecommunications. This
project is about challenging and rethinking our on-line
banking service as well as making additional investment into
8
technology that will allow customers to define how and when
they deal with us.
The digital strategy, of which these initiatives are a part, is
principally being driven by our Customer Voice team. This
is an exciting area of development and crosses on line
product and service delivery channels, payments systems,
telecommunications and social media.
Customer and staff engagement
In addition to our industry-leading customer satisfaction
levels, the organisation has staff engagement levels which are
above the Australian high-performance benchmark. There are
significant advantages for an organisation that has engaged
staff and the organisation will continue to use these strengths
to the best advantage.
Consolidation opportunities
The organisation has an established record of successfully
acquiring businesses that add shareholder value.
In recent years we have completed a number of small
acquisitions that we believe add significant value including
the Bank of Cyprus Australia (now called Delphi Bank) which is
performing ahead of expectations, Community Telco Australia
and Rural Bank. More recently the addition of Rural Finance
Corporation to our Rural Bank offering makes us a more
substantial player in this market. These purchases have all
complemented our strategic goals and national distribution
network.
The highly competitive environment, the regulatory burden
and the pace of technological change is expected to result in
more consolidation across the industry. We are well placed to
take advantage of opportunities that may arise.
Looking forward
Looking forward we do not expect any significant change in
the operating environment. After a period of consolidation and
strengthening, we are now in an investment phase focusing on
our Basel II program, consolidation opportunities and further
business and system innovations.
We aim to capitalise on the many opportunities before us.
More specifically our businesses will:
}} Seek to gain a better understanding of the needs,
aspirations and behaviours of customers by tapping into
their “Customer Voice” and translating this into increased
business from a more engaged and connected customer
base.
}} Aim to achieve above system growth in residential,
business and agribusiness lending whilst maintaining our
disciplined approach to margin management.
}} Draw more customers to www.bendigobank.com.au
through the delivery of our improved website service.
}} Improve the experience for our third party lending
customers through the launch of a new and more robust
online banking site.
}} Identify and invest in system and process improvements
that improve our operational efficiency and the customer
experience.
}} Continue to invest in our margin lending business and
position the business for a future turnaround in the
investor confidence.
}} Start to realise the opportunities and benefits from our
‘convergence strategy’ that involves the amalgamation of
banking, telecommunications and payment services.
}} Further develop our wealth proposition with a specific
emphasis on lifting our presence in the growing
superannuation market.
And just as importantly, we will continue to test and challenge
everything we do to ensure we are operating as efficiently
as possible.
Group performance
highlights
We achieved an after tax statutory profit of $372.3 million
for the year ended 30 June 2014, a 5.7% increase on the
prior corresponding period.
The statutory earnings per ordinary share was 87.7 cents
(FY2013: 84.9 cents), an increase of 3.3%, and the statutory
return on average ordinary equity was 8.59% (FY2013: 8.52%).
The cash earnings result for the 2014 financial year was
$382.3 million, representing a 9.9% improvement on the
previous financial year ($348 million). The cash earnings per
ordinary share was 91.5 cents, an increase of 7.1% on the
previous financial year (85.4 cents).
The results show a continued improvement in a range of
profitability and efficiency measures including net profit, cash
earnings, net interest margin, dividend, earnings per share
and cost to income ratio.
Net interest margin, in particular, was strong over the year
improving by 5 basis points. This demonstrates the Bank’s
pricing discipline whilst providing rates that are fair to both
our customers and our shareholders.
We continue to enjoy the strong support of our customers and
the communities we operate in. This has again been reflected
in reasonable asset growth across a range of portfolios,
particularly in the second half.
We have maintained a conservative funding base and
balance sheet structure and we have a highly engaged staff.
Together these factors place us in a sound position to benefit
from market opportunities that may be presented as well
as any improvement in market sentiment and the general
operating environment.
Business performance
Net interest income increased by 8.8% to $1,118.2 million
(FY2013: $1,027.5 million).
We increased our net interest margin to 2.24% for the year,
an increase of 5 basis points on the prior year and our non-
interest income before specific items was $315.7 million
(FY2013: $297.2 million), an increase of 6.2%.
The operating expenses before specific items increased by
4.8% to $816.3 million (FY2013: $779.0 million) and the cost
to income ratio was 55.4% compared to 57.0% in 2013.
As expected, our expenses were impacted by increased costs
from additional investment to improve our premises and
capability, such as the Basel II Advanced Accreditation project
and the new Adelaide building.
This continuing investment, combined with industry leading
customer satisfaction and brand advocacy, has allowed the
business to maintain its competitiveness and to grow with
total new loan approvals increasing at a rate of 16.0% over
the past twelve months. However, this was partially offset by
high rates of loan repayments in the residential and business
lending portfolios.
Credit quality
The bad and doubtful debts expense was $81.9 million
(FY2013: $69.9 million), an increase of 17.2%.
Credit costs continue to be impacted by seasonal and trade
disruptions to the north Queensland cattle sector, as well as
an isolated construction exposure.
Despite this, 90-day arrears rates in our residential, business,
consumer and agribusiness portfolios all performed better
than at the same period last year, and this augers well for the
coming financial year.
Capital
We look to maintain a conservative and prudent capital base
that adequately supports the risks associated with our normal
business activities. This includes providing for effective and
efficient capital buffers to protect depositors and investors,
and allowing the business to grow.
Our capital management strategy also plans and manages
for changes in business conditions, including economic
cycles, regulatory and legislative change and to support any
acquisition opportunities. Our capital base is structured
to ensure that minimum capital standards are always met,
and that management is afforded the greatest flexibility in
pursuing its business objectives.
Our capital position has been further strengthened through
the recent share placement and share purchase plan
completed towards the end of the year. Common Equity Tier 1
increased to 8.73%, Tier 1 capital remained steady at 9.99%
and total capital increased by 154 basis points to 12.25%.
Liquidity and funding
Domestic retail deposits remain central to our funding
strategy and this complements the overall strategy. Wholesale
markets are also utilised to achieve our funding objectives
which include lengthening the contractual profile of liabilities
and diversifying our funding sources. We also look to
participation in markets that provide economic financing
opportunities for the business.
Securitisation continues to be an important part of the
Group’s funding and capital management strategies. We are
committed to achieving the right balance in our funding mix
and we will continue to monitor the securitisation market and
participate where and when appropriate.
Through the year, wholesale markets have continued to
improve from both an availability and cost perspective.
This has provided additional flexibility in managing
liquidity requirements as well as funding to support growth
opportunities as they have arisen.
9
2013–14 ANNUAL REPORT Dividends
The Board announced an increase in the final dividend to 33
cents per share. This represents an increase of 6.5% on the
prior half and takes the full-year dividend to 64 cents per
share.
Outlook
The extended period of absolute low interest rates looks
likely to continue for the foreseeable future. The transition in
investment from the mining sector to the non-mining sector
is still working its way through the domestic economy and,
to date, the pace of transition is probably a little slower than
some had hoped. While some parts of the domestic economy
are experiencing above average trend growth other sectors
are a little more subdued.
Generally speaking, our customer base continues to improve their
personal balance sheet position as reflected by our borrowers
making repayments ahead of schedule. The low interest rate
environment coupled with rising house prices and equity
market growth has translated into an overall improvement in
household wealth. We are confident that our unique, customer-
focused banking model will continue to be relevant and underpin
continued growth and improved performance.
Group performance
overview
Financial highlights
Profit after tax attributable to parent
Profit after tax and before specific items
Cash earnings
Net interest income
Non-interest income (before specific items)
Bad and doubtful debts expense
Expenses (before specific items)
Retail deposits
Ordinary equity
Funds under management
Loans under management
New loan approvals
Residential
Non-residential
Cost to income ratio
Net interest margin before Community Bank/alliances share of net interest income
Return on average ordinary equity - statutory basis
Return on average ordinary equity - cash basis
Return on average tangible equity - cash basis
10
FY13
to
FY14
%
5.7
10.4
9.9
8.8
6.2
17.2
4.8
6.1
13.1
14.8
4.4
16.0
16.6
14.9
Jun-14
Jun-13
Total
$m
372.3
372.8
382.3
Total
$m
352.3
337.6
348.0
1,118.2
1,027.5
315.7
81.9
816.3
297.2
69.9
779.0
FY13
to
FY14
$m
20.0
35.2
34.3
90.7
18.5
12.0
37.3
44,843.0
42,245.8
2,597.2
4,700.8
3,390.5
4,156.1
2,954.3
53,980.7
51,689.2
16,357.4
14,101.4
10,522.3
5,835.1
9,023.1
5,078.3
Jun-14
Jun-13
%
55.4%
2.24%
8.59%
8.96%
%
57.0%
2.19%
8.52%
8.58%
13.34%
13.48%
544.7
436.2
2,291.5
2,256.0
1,499.2
756.8
FY13
to
FY14
%
(2.8)
2.3
0.8
4.4
(1.0)
Jun-14
cents
87.7
91.5
64.0
Jun-13
cents
84.9
85.4
61.0
FY13
to
FY14
%
3.3
7.1
4.9
Earnings per ordinary share (statutory basis)
Earnings per ordinary share (cash basis)
Dividend per share
Analysis of group
performance
Financial performance and business review
The 2014 financial year performance reflected the continuing
improvement in our operating businesses. We maintained our
focus on achieving growth at profitable prices and achieved a
reasonable level of balance sheet growth.
Net interest margin was strong throughout the year with a five
basis point improvement in a very competitive market. Net
interest income increased by $90.7 million on last year’s result.
Non-interest income increased to $315.7 million. This
represents a 6.2% increase on the prior year’s performance
of $297.2 million. The improvement was mainly due to an
increase of $25.2 million in the contribution from Homesafe,
reflecting stronger residential real estate prices in Sydney and
Melbourne. The increase also included an improvement in
commission income due to growth in managed funds. These
increases were offset to some degree by reduced liability
product fee income and other income.
Cost containment and efficiency continued to be a major
focus of management and, over the reporting period,
operating expenses grew by just 4.8%, enabling us to
achieve our long term cost-to-income target of 55%. The
most significant movements related to occupancy, staff and
information technology costs.
During the year our provisions for credit losses increased
however, overall arrears were significantly lower when
compared to the previous reporting period. Our overall credit
quality continues to be very healthy, although there were a
few isolated additional specific provisions relating to lending
activity no longer undertaken by the Group.
We have strengthened our balance sheet through the
subordinated debt issue and ordinary share issues as part of
the share placement and share purchase plan completed in
preparation for the Rural Finance acquisition.
Our underlying cash earnings was $382.3 million which
represents an increase of 9.9% on the previous year. This
equates to a cash earnings per share result of 91.5 cents
and represents an increase of 7.1% on the prior year.
The components of the cash earnings performance are
set out below:
Cash earnings movement ($m)
25.2
(6.7)
90.7
348.0
(28.1)
(12.0)
(9.2)
(24.9)
(0.7)
382.3
Up 9.9%
June 2013
Net interest
income
Homesafe
Other Income
Staff costs
Credit
Other
expenses
Tax
Cash
adjustments
June 2014
11
2013–14 ANNUAL REPORT
Analysis of net interest margin (%)
The improved margin performance resulted from our
disciplined approach to product pricing. The easing in deposit
competition and wholesale funding spreads provided us with
an opportunity to improve the margin on our liability side.
We continue to focus on managing our net interest margin
in a way that produces a fair outcome for all stakeholders,
including customers, shareholders and our partners who
share that margin.
Interest Margin1
In the second half of the year we experienced strong pricing
competition on the lending side of our balance sheet as well
as a customer propensity to move to fixed rate mortgages
which tend to have a lower margin compared to variable
rate mortgages.
These factors have generated some headwinds for our net
interest margin in the new financial year. Also, our margin was
adversely impacted in the second half by the additional funding
we raised in preparation for the Rural Finance purchase.
2.19%
0.39%
0.44%
0.04%
0.03%
0.06%
2.24%
0.19%
0.06%
June 2013
Variable rate
asset pricing
Fixed rate
asset pricing
Asset growth
Retail deposit
pricing
Wholesale
deposit pricing
Liability mix
Derivative
expense
June 2014
1 Before payments to Community Banks and alliances
Analysis of operating expenses
The increase in salaries and staff related expense was mainly
due to ordinary annual salary and wage increases plus staff
increases and our continued investment in strategic projects.
The staff costs include an additional 65 staff that were
transferred to the Group as part of the Community Telco
Australia purchase. It also includes additional contractor
costs associated with our Basel II project.
The increase in information technology costs was mainly due
to increased software maintenance costs and the cost of
upgrading our website.
The occupancy cost increase was largely due to the inclusion
of rental on the new Adelaide headquarters and annual rental
increases on other premises.
Operating expenses ($m)
28.1
14.7
5.4
(10.9)
816.3
779.0
Up 4.8%
June 2013
Staff costs
Rent
IT
Other
June 2014
12
Overview of loan
and deposit portfolios
Loans
Residential
66.5%
Loan portfolio by purpose
Commercial
23.4%
Margin
lending
3.4%
Provisions for doubtful debts ($m)
263.2
102.9
31.8
128.5
276.9
104.1
34.5
138.3
295.5
114.4
42.8
138.3
56bps*
244.2
91.4
41.9
110.9
June 2011
June 2012
June 2013
June 2014
General
Collective
Specific
Consumer
6.7%
Deposits
We grew our loan portfolio for the year by 4.8%, compared
to system growth of 7.2%. The majority of the growth was
reflected in our residential portfolio.
New loan approvals increased by 16% compared to the
previous financial year. The majority of the increase related
to our residential portfolio and the rate of approvals in our
residential portfolio continues to increase. However, overall
net growth performance continues to be offset by higher rates
of principal repayments.
The below analysis demonstrates the very high percentage
(97.8%) of loans secured by mortgages or listed securities.
Loss provisions and reserves for doubtful debts totalled $295.5
million as at year end. This is an increase of $18.6 million since
June 2013. The main reasons for the increase are explained in
the Group Performance Highlights section of this report.
Total deposits grew by 8.2% during the year, well above
system growth (5.9%).
In part, this was due to the requirement to raise the necessary
funds to complete the Rural Finance acquisition. The funding
task was predominantly managed through the deposit market,
demonstrating the strength of our brands and franchise.
The growth in liabilities also reflects the shift in focus of price
competition in the industry away from deposits and towards
loans. In recent reporting periods, when there was extremely
strong competition for deposits, our deposit growth was
generally below system, and during that period we tended
to outperform on the asset side. This year, the pricing focus
swapped to assets, and we were able to grow our deposits at
profitable prices.
Although we have increased our wholesale funding activity
over the last couple of halves, the percentage of deposit
funding of the total portfolio remains around the middle of our
target ratio of 75% to 80%.
We expect to continue to actively participate in wholesale
markets, including the RMBS market, but the funding mix is
expected to remain in, or around, our target band.
The mix of deposits at year end is set out in the following table.
Residential
mortgages
69.9%
Historical funding mix
80%
80%
78%
79%
78%
Loan portfolio by security
commercial
mortgages
24.5%
listed
securities
& managed
funds
3.4%
other
0.5%
unsecured
1.7%
13%
8%
9%
11%
12%
10%
11%
10%
13%
9%
June 2012
Dec 2012
June 2013
Dec 2013
June 2014
Wholesale
Securitisation
Retail
13
2013–14 ANNUAL REPORT
Capital
adequacy
We continue to maintain a conservative capital management
program based on the low risk and highly secured nature of
our loan portfolio.
During the year we successfully completed a share placement
and share purchase plan, raising more than $380 million of
ordinary share capital. Participation in the share purchase
plan, in particular, exceeded expectations, providing us with a
strong capital position going into FY2015.
Our common equity Tier 1 (CET1) capital ratio as at
30 June 2014 was 8.73% an increase of 91 basis points
on the previous year. After adjusting for the acquisition of
Rural Finance the CET1 ratio sat at 8.02%, a 20 basis point
improvement over the course of the year.
We have significant capacity going forward for additional
capital efficiency primarily through the issuance of Tier 1
hybrid capital and Tier 2 subordinated debt.
The movement in the Group’s CET1 ratio is set out in the
following chart.
Common Equity Tier 1 movement
7.82
0.31
0.15
1.24
(0.57)
(0.14)
(0.08)
8.73
0.71
8.02
Jun-13
Retained
earnings
DRP
Insto plc
& SPP (RFC)
Risk weighted
assets
Deferred tax
assets & other
Capitalised
expenses
Jun-14
RFC settled 1
(1 July 2014)
Pro-forma
1 Shows pro-forma impact to capital adequacy of the Rural Finance acquisition which was completed 1 July 2014
2 Included in the 57bps movement in CET1 for RWA is 8bps from the changes to certain loan products terms and conditions.
Divisional
performance
Retail Banking
Financial performance and business review
Retail Banking ($m)
The profit contribution from our largest business segment,
Retail, increased from $203.5 million to $241.7 million, before
tax. The key driver of the increase was the improvement in net
interest income. The benefits of the easing in term deposit
pricing and the growth in the at-call deposits is reflected in
the performance of our retail banking business.
Operating expenses increased over the year as we continue
to invest in this key business segment. The increase in credit
expense was mainly due to an isolated construction exposure.
86.6
(2.6)
30.7
15.1
241.7
203.5
Up 18.8%
June 2013
Net interest
income
Other
income
Operating
expenses
Credit
expenses
June 2014
14
Third Party Banking
Rural Bank
Financial performance and business review
Financial performance and business review
Third Party Banking ($m)
Rural Bank ($m)
25.0
1.4
(14.4)
204.0
42.9
7.4
0.6
4.0
12.0
167.7
(1.1)
Up 22.1%
Down 18.6%
34.9
June 2013
Net interest
income
Other
income
Operating
expenses
Credit
expenses
June 2014
June 2013
Net interest
income
Other
income
Operating
expenses
Credit
expenses
June 2014
The contribution from the Third Party Banking segment
increased for the year to $204.0 million, before tax.
Rural Bank’s segment contribution for the year was $34.9
million before tax, versus $42.9 million for the prior year.
The underlying performance of the Third Party Banking
segment was stable. The increase in other income reflects the
increased contribution from Homesafe and the improvement
in credit expenses is a reflection of the improved credit
performance of the Great Southern portfolio.
Wealth
Financial performance and business review
Wealth ($m)
42.7
(2.2)
1.5
(1.2)
0.7
41.5
Down 2.8%
June 2013
Net interest
income
Other
income
Operating
expenses
Credit
expenses
June 2014
The profit performance of the Wealth business segment for
the year was reasonably flat, down $1.2 million, to $41.5
million before tax.
Net interest income decreased, mainly due to a reduction in
the contribution from the margin lending business, offset to
some extent by improved margins on wealth deposits.
Non-interest income has increased as our Wealth business
builds on the investment in developing a broader product
range for our customer base, and we expect this trend to
continue into the next period.
Rural Bank’s lending grew at 2.2% for the year which was
above system. This was achieved despite historically high
levels of principal repayments due to the excellent seasonal
results for many customers through the southern markets.
The improvement in net interest income was largely
attributable to an improved net interest margin that resulted
from an easing in pricing of deposits. Rural Bank maintained
its strategy of being predominantly retail funded.
The main contributor to the increase in operating costs
was the reallocation of the Rural Banking team to the new
Adelaide headquarters and the transfer of the Bendigo Bank
rural banking team to Rural Bank.
Elevated credit losses continue to be incurred due to the
ongoing difficulties with exposures secured by properties
located in the northern regions of Australia. Drought
conditions impacting much of Queensland have continued to
depress security values and transaction activity, resulting in
the need for further provisioning. While property prices in this
market are showing some signs of stabilisation, it is expected
that the operating conditions for the farming communities in
this region will continue to be challenging for the foreseeable
future.
The medium term outlook for the agricultural industry
remains generally positive, helped by recent improvements in
international trade and a modest decline in the value of the
Australian dollar.
Further information about the Group’s financial results and
financial position are presented in the Annual Financial
Report.
15
2013–14 ANNUAL REPORT Risk management framework,
business uncertainties and
significant business risks
The Board is responsible for the risk management strategy
which includes approving changes to the risk appetite and
risk management framework and monitoring the operation
and effectiveness of the risk management framework and
related policies and standards.
The Risk Committee and Credit Committee assist the Board
by providing objective oversight of the risk profile and its
alignment with the risk appetite and risk management
framework. This includes overseeing the risk management
framework for credit risk, operational risk, interest rate risk,
traded market risk, liquidity risk and strategic risk.
Further information on the Group’s risk governance and risk
management framework is presented in the 2014 Corporate
Governance Statement available from the Bank’s website.
Risk factors and dependencies
Our business is exposed to a number of risk factors and
uncertainties that could adversely impact our risk profile
and earnings performance. The timing and extent of these
uncertainties is difficult to predict and managing their impact
is largely outside of our control.
Dependence on prevailing macro-economic conditions
Our revenues and earnings are dependent on the level of
economic activity and demand for financial services by our
customers. In particular, lending is dependent on customer
and investor confidence, the overall state of the economy,
the residential lending market and the prevailing interest rate
environment.
These factors are, in turn, impacted by domestic and
international economic and political events, natural disasters
and the general state of global economies and financial markets.
A downturn in the Australian economy could adversely impact
our trading and financial performance, our ability to access
funding at economically viable prices and our ability to access
capital needed to support our business objectives and comply
with prudential requirements.
Our business and its performance may also be adversely
impacted by volatility in domestic and global financial markets.
Volatility in these markets may result in reducing the availability
of funding and / or increase the cost of funding needed to
support our business activities.
This volatility may also lead to decreases in the value and
liquidity of assets, including assets held as collateral, and an
increased risk of borrower or counterparty default and credit
losses.
Natural disasters such as cyclones, floods and earthquakes,
and the economic and financial market implications of these
disasters can adversely affect our trading performance and
financial condition.
16
We also have an exposure to the rural sector. The
performance of this sector is impacted by national weather
patterns and commodity price movements which in-turn may
impact our overall earnings performance.
Market Competition
The markets in which we operate are highly competitive and
could become even more so, particularly in those segments
that are considered to provide higher growth prospects or are
in greatest demand (for example, consumer loans).
Factors that contribute to competition risk include industry
regulation, mergers and acquisitions, changes in customers’
needs and preferences, entry of new participants, the
development of new distribution and service methods,
increased diversification of products by competitors and
current non-competitors as well as regulatory changes to
the rules governing the operations of banks and non-bank
competitors.
Increasing competition for customers could also potentially
lead to reduced business volumes, a compression in our net
interest margins as well as increased advertising and related
expenses to attract and retain customers.
Additionally, measures by the Australian government
designed to further promote competitive and a sustainable
banking system in Australia could have the effect of limiting
or reducing the revenue earned from banking products or
operations.
Significant slowdown in the Australian real estate market
Residential, commercial and rural property lending, together
with property finance (including real estate development and
investment property finance) constitute important businesses
to us. Overall, the performance of the property market has
continued to be variable.
A significant slowdown in the Australian real estate market
could reduce our lending volumes and increase the losses
that we may experience from existing loans, which, in either
case, could materially and adversely impact our financial
condition and financial performance.
Material business risks
The material risks directly associated with our business
activities are credit risk, market risk, liquidity risk and
operational risk.
Credit Risk
Credit risk is the risk of financial loss due to the unwillingness
or inability of counterparties to fully meet their contractual
debts and obligations. The majority of our credit risk exposure
arises from general lending activities and the funding, trading
and risk management activities of Group Treasury.
Business or economic conditions, whether generally or in a
specific industry sector or geographic region, could cause
customers or counterparties to experience an adverse
financial situation, thereby exposing us to the increased risk
of customers failing to repay their loans or counterparties
failing to meet their obligations in accordance with agreed
terms and conditions.
Our exposure to credit risk may be increased by a number of
factors including deterioration in the financial condition of the
individual borrower or counterparty, the value of assets we
hold as collateral and the market value of the counterparty
instruments and obligations it holds.
Credit risk is primarily monitored by the Board Credit
Committee and the Management Credit Committee. The
Bank’s credit risk framework and supporting policies are
managed by our independent credit risk unit. Further
information on our approach to managing credit risk is
described at Note 36 of the Financial Statements.
Market Risk
Market risk is the risk of loss arising from changes and
fluctuations in interest rates, foreign currency exchange rates,
equity prices and indices, commodity prices, debt securities
prices, credit spreads and other market rates and prices
(Traded Market Risk). It also includes Non-Traded Market Risk
(Interest Rate Risk in the Banking Book) which is the risk of
a loss in earnings or in the economic value on banking book
items as a consequence of movements in interest rates.
Changes in financial markets, including changes in interest
rates, foreign currency exchange rates and returns from
equity, property and other investments, will affect our financial
performance due to the nature of our business activities.
Market risk is monitored through the Risk Committee and
the Asset and Liability Management Committee (ALMAC) and
is managed by Group Treasury. Further information on our
approach to managing market risk is described at Note 36 of
the financial statements.
Liquidity Risk
Liquidity risk is the risk that the Group is unable to meet
its payment obligations as they fall due, including repaying
depositors or maturing wholesale debt, or that the Group has
insufficient capacity to fund its asset growth.
Reduced liquidity could lead to an increase in the cost of our
borrowings and possibly constrain the volume of new lending,
which could adversely affect our profitability. A significant
deterioration in investor confidence could materially impact
our cost of borrowings and our ongoing operations.
Further information on our approach to managing liquidity risk
is described at Note 36 of the financial statements.
Operational Risk
Operational risk is defined as the risk of impact on objectives
or risk of loss resulting from inadequate or failed internal
processes, people and systems or from external events.
Operational risk can directly impact our reputation and result
in financial losses which could adversely affect our financial
performance or financial condition. Operational risk (other
than financial reporting risk) is primarily monitored by the Risk
Committee and the Operational Risk Committee. The Audit
Committee has responsibility for the oversight of financial
reporting risk.
Operational risk is governed by the Group operational risk
management framework. The framework complies with the
guidelines and principles set out in the International Standard
for Risk Management ISO 31000 and the Basel Committee on
Banking Supervision “Sound Practices for the Management
and Supervision of Operational Risk” (“Sound Practices”).
The operational risk tolerances are articulated through the
use of the escalation matrix and a set of defined key risk
indicators which are monitored by the Risk Committee.
Our business divisions are responsible for the day to day
management of operational risk. Examples of operational risk
and operational risk event categories include:
}} Internal fraud and external fraud;
}} Clients, products and business practices;
}} Business disruption;
}} Employment practices and workplace safety;
}} Damage to physical assets; and
}} Execution, delivery and process management.
The Group has also defined the top operational risk themes
directly attributable to its activities and include compliance with
regulatory requirements, business disruption, implementation of
business change initiatives and vendor failure.
The consequences of each theme have been assessed taking
into account the associated risk management and control
framework. Key risk indicators have also been developed to
monitor the themes.
Following is an overview of significant business risks and key
operational risk themes directly associated with our activities.
Change to Credit Ratings
Our credit ratings have a significant impact on both our
access to, and the cost of, capital and wholesale funding.
Credit ratings may be withdrawn, made subject to
qualifications, revised, or suspended by the relevant credit
rating agency at any time and the methodologies by which
they are determined may be revised.
Group Treasury is responsible for implementing liquidity risk
management strategies in accordance with approved risk
appetite and policies. Compliance with the liquidity strategies
and policies is monitored by the ALMAC and Risk Committee.
A downgrade or potential downgrade to our credit rating may
reduce access to capital and wholesale debt markets, potentially
leading to an increase in funding costs, as well as affecting the
willingness of counter parties to transact with the Bank.
17
2013–14 ANNUAL REPORT Managing the Capital Base
The capital base is critical to the management of our
businesses and our ability to access funding. We are required
to maintain adequate capital and reserves to comply with
prudential requirements. In addition, we need to maintain
appropriate capital levels to support our business priorities
and to protect against unexpected losses.
There can be no certainty that any additional capital required
would be available or could be raised on reasonable terms.
Global and domestic regulators have released proposals,
including the Basel III proposals, to strengthen, among other
things, the liquidity and capital requirements of banks and
other regulated entities.
Our investor relations and capital management function has
the day to day responsibility for capital management including
compliance with internal and prudential capital limits. Capital
adequacy is monitored by the ALMAC and Risk Committee.
Reputation Risk
Reputation risk may arise as a result of an external event
or our own actions, and adversely affect perceptions about
us held by the public (including customers), shareholders,
investors, regulators or rating agencies.
The impact of a risk event on our reputation may exceed any
direct cost of the risk event itself and may adversely impact
our earnings, capital adequacy or market value. Accordingly,
damage to our reputation may have wide-ranging impacts,
including adverse effects on our profitability, capacity and
cost of sourcing funding, and availability of new business
opportunities.
We have implemented various structures including policies,
systems and procedures designed to protect the brand and
reputation of the organisation. The Executive Committee
manages and oversees brand and reputation risk on a day to
day basis.
Strategic Risk
There is a risk that adverse business decisions, ineffective
or inappropriate business plans or a failure to respond to
changes in the operating environment will impact our ability to
deliver our strategy and business objectives.
Also, the Bank regularly examines new initiatives and market
opportunities, including acquisitions and disposals, with a
view to determining whether the opportunities will enhance
shareholder value.
The risks associated with these strategic and business
decisions could, for a variety of reasons, have a material
adverse effect on our current and future financial position or
performance.
Regulatory changes or a failure to comply with regulatory
standards, law or policies
We are subject to the laws, regulations, policies and codes
of practice in countries in which we trade or raise funds
or, in respect of, which we have some other connection.
In particular, our banking, funds management and
superannuation activities are subject to extensive regulation,
mainly relating to corporate governance, liquidity, capital, risk
management and license conditions.
The regulations are generally designed to protect the interests
of financial service users including depositors and investors,
18
and the overall stability of the banking and finance sector.
The Australian government and its agencies, including APRA,
the Reserve Bank of Australia and other regulatory bodies
including the Australian Securities Exchange and Australian
Securities & Investments Commission have supervisory
oversight of the Group.
A failure to comply with any standards, laws, regulation or
policies in any of those jurisdictions could result in sanctions
by these or other regulatory agencies, the exercise of any
discretionary powers that the regulators hold or compensatory
action by affected persons, which may in turn cause
substantial damage to our reputation. To the extent that these
regulatory requirements limit our operations or flexibility, they
could adversely impact our profitability and prospects.
These regulatory and other governmental agencies (including
revenue and tax authorities) frequently review banking and tax
laws, regulations, codes of practice and policies.
Changes to laws, regulations, codes of practice or policies,
including changes in interpretation or implementation of laws,
regulations, codes of practices or policies, could affect the
business in significant and unpredictable ways.
These may include increasing required levels of liquidity
and capital, limiting the types of financial services and
products we can offer and/or increasing the ability of non-
banks to offer competing financial services or products as
well as changes to accounting standards, taxation laws and
prudential requirements.
Any such changes may adversely affect our business,
operations and financial condition. The changes may lead
us to, among other things, change our business mix, incur
additional costs as a result of required system and process
changes, raise additional amounts of higher quality capital
(such as ordinary shares), hold additional levels of liquid
assets and restructure the maturity profile of our wholesale
funding base to more closely match our asset maturity profile.
We have established a framework of systems, policies
and procedures to monitor regulatory change and manage
compliance risk. The regulatory compliance function,
within our operational risk unit, monitors changes to, and
compliance with, regulatory requirements applicable to our
business operations. This includes codes of conduct and
approved policies and procedures.
Fraud Risk
We are exposed to the risk of fraud, both internal and
external. Financial crime is an inherent risk within financial
services, given the ability for employees and external parties
to obtain advantage for themselves or others.
An inherent risk also exists due to systems and internal
controls failing to prevent or detect all instances of fraud,
particularly if fraud is committed by persons in collusion or
people in positions of trust, who intentionally over-ride control
systems in order to misappropriate funds.
There is a risk of intentional actions by our employees in
order to gain an advantage from the Group or related third
parties (for example stealing assets and/or information) and a
risk of persons external to the Group dishonestly obtaining a
benefit, financial or otherwise or causing a loss, by deception
or other means.
We have established a control framework of systems, policies,
procedures to monitor and manage fraud risk and continue
to invest in new techniques and capabilities to detect and
prevent fraud.
All actual or alleged fraud is investigated under the authority
of our financial crimes unit to:
• Identify and take action against the offender/s of fraud;
• Minimise the impact of any losses and where possible
recover funds;
• Identify and rectify deficiencies in processes and controls
as well as analyse trends that enable us to minimise
losses; and
• Utilise the information obtained to assist in analysis and
training.
Disruption of information technology systems or failure to
successfully implement new technology systems
Our business is highly dependent on information systems and
technology and there is a risk that these, or the services the
business uses or is dependent upon, might fail.
Most of our daily operations are computer-based and
information technology systems are essential to the day to
day provision of banking services. The exposure to systems
risks includes the complete or partial failure of information
technology systems or data centre infrastructure, the
inadequacy of internal and third-party information technology
systems due to, among other things, failure to keep pace
with industry developments and the capacity of the existing
systems to effectively accommodate growth and integrate
existing and future acquisitions and alliances.
To manage these risks, we have robust disaster recovery
and information technology governance structures in place.
However, any failure of these systems could result in business
interruption, loss of customers, financial compensation,
damage to reputation and/or a weakening of our competitive
position, which could adversely impact our reputation
and business and have an adverse effect on our financial
condition and performance.
In addition, we constantly need to update and implement
new information technology systems, in part to assist us to
satisfy regulatory demands, ensure data security, improve our
computer-based banking services and to integrate the various
segments of our business.
There is a risk we may not implement these projects
effectively or execute them efficiently, which could lead to
increased project costs, delays in the ability to comply with
regulatory requirements, failure in our information security
controls or a decrease in our ability to service customers.
We have implemented a risk control framework to manage
this risk. The framework includes our enterprise change
process, business impact analysis and prioritisation
processes, technology infrastructure monitoring, application
software maintenance and business system portfolio
management structures.
Data and Information Security Risk
Information security means protecting our information
and information systems from unauthorised access, use,
disclosure, disruption, modification, perusal, inspection,
recording or destruction. By its nature, the Bank handles a
considerable amount of personal and confidential information
about its customers and its own internal operations.
We have a team of information security specialists who are
responsible for the development and implementation of
information security policies and procedures. We are conscious
that threats to information security are continuously evolving
due to the increasing use of the internet and other devices to
communicate data and conduct financial transactions.
The risk of security breaches, external attacks and
unauthorised access to our systems has increased with the
growing sophistication of fraud and other criminal activities.
We have established a range of measures to detect and
respond to cyber attacks and we closely monitor and
conduct regular reviews to ensure new or potential threats
are identified, evolving risks are mitigated, policies and
procedures are updated and good practice is maintained.
However, there is a risk that information may be inadvertently
or inappropriately accessed or distributed or illegally
accessed or stolen. Any unauthorised use of confidential
information could potentially result in breaches of privacy
laws, regulatory sanctions, legal action and claims of
compensation or erosion to our competitive position, which
could adversely affect our financial position and reputation.
Impairment to capitalised software, goodwill and other
intangible assets
In certain circumstances we could be exposed to a reduction
in the value of intangible assets. The Bank carries goodwill
principally related to its equity investments and intangible
assets principally relating to assets recognised on acquisition
of subsidiaries and capitalised software balances and
capitalised project costs.
We are required to assess the carrying value of the goodwill
and other intangible assets on an annual basis in accordance
with accounting requirements. The basis of assessment is
described in the financial statements.
A change to the assumptions on which goodwill calculations
are based, together with expected changes in future cash
flows, could materially impact this assessment and result in a
write-off of part or all of the goodwill.
In the event that an intangible asset is no longer in use, or
that the cash flows generated by the asset do not support
the carrying value, an impairment may be recorded that
adversely impacts our financial condition. The carrying value
of intangible assets is monitored by Finance and Accounting
and the Audit Committee.
Vendor failure or non-performance
We source a number of key services from external suppliers
and service providers. The failure of a key service provider, or
the inability of a key service provider to meet their contractual
obligations, including key service standards, could disrupt our
operations and ability to comply with regulatory requirements.
This risk is managed by the relevant business divisions who
are responsible for the service provider relationship. The
business divisions are supported by our corporate sourcing
function to ensure the contracted services comply, where
applicable, with prudential requirements and the Group’s
outsourcing policy.
19
2013–14 ANNUAL REPORT Inability to manage demand for, and impacts of, business
change initiatives
We continue to undertake an increasing number of significant
change projects. The projects are driven by various factors
including regulatory reforms, business demand, strategic
projects and rapid advancements in information technology.
The size and complexity of the projects require substantial
resource allocations and time commitment from management.
The projects may also involve significant amounts of
information technology, system, process and policy change as
well as impacting day to day operational activities.
This may divert management and staff attention from
business as usual responsibilities and could adversely affect
our day to day operations including the delivery of banking
services and compliance with operational and regulatory
requirements.
An inability to meet change demand or to appropriately manage
the volume of business change could adversely impact our
operations, performance and reputation. This risk is managed
through a framework of change management structures,
policies and systems including the enterprise change process
which is overseen by the Executive Committee.
Community Bank®
We now have Community Bank® branches operating in
all States and Territories. The branches are operated by
companies that have entered into franchise and management
agreements with the Bank to manage and operate a
Community Bank® branch. Under the franchise agreement
the Bank derives revenue from franchisees through the
payment of franchise fees and other fees, as well as through
revenue sharing arrangements.
Franchisee staff are trained by the Bank and, in some cases,
are seconded from the Bank. Whilst we carefully assess the
suitability of potential franchisees there can be no guarantee
of the success of a Community Bank® branch.
A material portion of this network is still relatively immature
and there are risks that may develop over time. For example, it
is possible that branches may not be able to sustain the level
of revenue or profitability that they currently achieve (or that it
is forecasted that they will achieve).
Further, under the franchise agreement each franchise
is subject to periodic renewal, subject to the franchisee
satisfying certain conditions. It is possible that a franchisee
will not want to (or be able to) renew its franchise.
This may impact on the number of Community Bank®
branches in operation. Poor performance by one or more
franchisees, or the termination of one or more franchise
agreements, may cause a loss in revenue and cause harm to
our brand and reputation and adversely impact our operations
and performance.
We have a number of support and oversight structures for this
network including:
Our Community Banking and Engagement Team provides
support to the State Offices and Community Bank®
Boards through a range of activities including community
company network communications, co-ordinating the State
and National Conference program, franchise renewals and
Director education.
20
The Community Bank® branches are integrated into the
company-owned retail network once they commence trading.
As a result the branches are included in the day to day
operational support and administration structures of the retail
division which include monitoring compliance with internal
policies and procedures, staffing requirements and reporting.
The Community Bank® Strategic Advisory Board, comprising
representatives from the Bank and representatives elected
by the Community Bank® network, is the forum established
to initiate, lead and respond to strategic issues and
opportunities that enhance the sustainability, resilience and
prospects of the Community Bank® model.
Contagion Risk
We have a number of subsidiaries that are trading entities.
These subsidiaries are also holders of Australian Financial
Services Licences and/or Australian Credit Licences regulated
by Australian Securities and Investment Commission. There
are two subsidiaries that are also subject to prudential
regulatory requirements of the Australian Prudential
Regulation Authority. The Board monitors the activities and
performance of these subsidiaries.
Subsidiary dealings and exposures principally arise from
the provision of administrative, corporate, distribution
and general banking services by the Bank. The majority of
subsidiary resourcing and infrastructure is provided by the
Bank’s centralised back office functions. Other dealings
arise from the provision of funding, guarantees and equity
contributions.
These dealings could give rise to contagion risk. The Bank has
established a framework of policies and supporting systems,
limits and controls to mitigate the risks associated with
dealings and exposures between the Bank and its subsidiary
companies.
This includes systems and controls relating to intra-group
exposures, badging and branding arrangements as well as the
distribution of financial products issued by these subsidiaries.
Dealings between the Bank and its related entities that are
not conducted on an arms-length basis must be approved by
the Board.
Litigation risk
From time to time, Bendigo and Adelaide Bank may be subject
to material litigation, regulatory actions, legal or arbitration
proceedings and other contingent liabilities which, if they
crystallise, may adversely affect Bendigo and Adelaide Bank’s
results.
There is a risk that these contingent liabilities may be
larger than anticipated or that additional litigation or other
contingent liabilities may arise.
In relation to the Great Southern litigation, the Bank
announced on 24 July 2014 that that it has entered into an
agreement to conclude the class actions brought by investors
in managed investment schemes operated by Great Southern.
Under the agreement, which is subject to Court approval, the
members of the class actions have admitted that their loans
are valid and enforceable and have provided a broad release
from future litigation.
Directors’
information
The names and details of the directors in office during
the financial year and until the date of this report are as
follows. Directors were in office for this entire period unless
otherwise stated.
Robert Johanson, Chair, Independent
BA, LLM (Melb), MBA (Harvard), 63 years
Jenny Dawson, Independent
BBus (Acc), FCA, MAICD, 49 years
Term of office: Robert has been a director of the Bank for 26
years. He was appointed Chairman in 2006.
Skills, experience and expertise: Robert has experience
in banking and financial services and expertise in corporate
strategy, capital management, risk management and
mergers and acquisitions. He has over 30 years experience in
providing corporate advice on capital market transactions to a
wide range of public and private companies.
Board committees: Governance and HR, Technology and
Change
Group and joint venture directorships: Rural Bank Ltd and
Homesafe Solutions Pty Ltd (Chair).
Other director and memberships (current and within last
3 years): Member, Takeovers Panel; Deputy Chancellor,
University of Melbourne, Chairman, Australia India Institute
and Chairman of The Conversation; Director, Robert Salzer
Foundation Ltd and Grant Samuel Group Pty Ltd.
Mike Hirst, Managing Director, not independent
BCom (Melb), SFin, 56 years
Term of office: Mike was appointed as Managing Director and
Chief Executive Officer of the Bank in 2009.
Skills, experience and expertise: Mike joined the Group
when he was appointed as a director of Sandhurst Trustees
Limited (a wealth management subsidiary of the Bank) in
2001 and he became an employee of the Bank later in 2001.
Mike has extensive experience in banking, treasury, funds
management and financial markets, including previous senior
executive and management positions with Colonial Ltd, Chase
AMP Bank Ltd and Westpac Banking Corporation.
Board committees: Mike has a standing invitation to attend
meetings of all Board committees. He is not a member of
these Board committees.
Group and joint venture directorships: Rural Bank Ltd
Other director and memberships (current and within last
3 years): Member, Financial Sector Advisory Council and
Business Council of Australia; Deputy Chairman, Australian
Bankers’ Association Council; Member, Centre for Workplace
Leadership Advisory Board; Deputy Chairman, Treasury
Corporation of Victoria.
Term of office: Jenny joined the Board in 1999.
Skills, experience and expertise: Jenny has experience
in financial reporting and audit, IT internal control reviews,
internal audit and risk management. Jenny worked with Arthur
Andersen for ten years in the audit and IT controls division, and
also worked for the Bank (her employment ended in 1999).
Board committees: Audit (Chair), Credit
Group and joint venture directorships: Sandhurst Trustees
Ltd (Chair), Community Sector Banking Pty Ltd, Community
Sector Enterprises Pty Ltd
Other director and memberships (current and within
last 3 years): Member, Victorian Regional Policy Advisory
Committee; Chair, Regional Development Australia Committee
for the Loddon Mallee Region; Independent Chair, Audit
Committee - Goulburn-Murray Water; Former Director,
Goulburn-Murray Water (ended 2012).
Jim Hazel, Independent
BEc, SFFin, FAICD, 63 years
Term of office: Jim joined the Board in 2010.
Skills, experience and expertise: Jim is a professional public
company director who has had an extensive career in banking
and finance, including in the regional banking industry. Jim
was Chief General Manager at Adelaide Bank (his employment
ended in 1999).
Board committees: Risk (Chair), Credit, Governance and HR
Group and joint venture directorships: Rural Bank Ltd
Other director and memberships (current and within last
3 years): Chairman, Ingenia Communities Group Ltd (ASX listed,
period June 2012 to present); Director, Centrex Metals Ltd (ASX
listed, period of directorship: 2010 to present), Impedimed
Ltd (ASX listed, period of directorship: 2007 to present), Motor
Accident Commission and Coopers Brewery Ltd.
21
2013–14 ANNUAL REPORT Jacqueline Hey, Independent
BCom (Melb), Graduate Certificate in Management (Southern
Cross University), GAICD, 48 years
David Matthews, Independent
Dip BIT, GAICD, 56 years
Note: Standing for re-election at the 2014 AGM
Term of office: Jacquie joined the Board in July 2011.
Skills, experience and expertise: Jacquie has experience in
the areas of information technology, telecommunications and
marketing, including as CEO / Managing Director of Ericsson in
the UK and in Australia. Jacquie worked with Ericsson for more
than 20 years in finance, marketing and sales and in leadership
roles in Australia, Sweden, the UK and the Middle East.
Board committees: Audit, Risk, Technology and Change
(Chair)
Group and joint venture directorships: n/a
Other director and memberships (current and within last
3 years): Director, Qantas Airways Limited (ASX listed, period
August 2013 to present), Australian Foundation Investment
Company Limited (ASX listed, period July 2013 to present),
Special Broadcasting Service (SBS), Cricket Australia,
Melbourne Business School and Honorary Consul of Sweden
for Victoria.
Robert Hubbard, Independent
BA(Hons) Accy, FCA, MAICD, 55 years
Term of Office: Rob joined the Board in April 2013.
Skills, experience and expertise: Rob is an accountant
and auditor based in Brisbane. He retired as a partner of
PricewaterhouseCoopers in March 2013 after 22 years
practising in the areas of corporate advice and audit, where he
was the auditor of some of Australia’s largest listed companies.
Rob also provided accounting and due diligence services
for acquisitions, divestments, capital raisings and public
takeovers. Rob is now a professional non-executive Director.
Board committees: Audit, Risk
Group and joint venture directorships: n/a
Other director and memberships (current and within last
3 years): Director, Orocobre Ltd (ASX and TSX listed, period
of directorship November 2012 to present); Director, Central
Petroleum Ltd (ASX listed, period December 2013 to present);
Chairman of Opera Queensland, Director of JK Tech Pty Ltd,
Multiple Sclerosis Australia, MS Research Australia and
Council member of the University of the Sunshine Coast.
22
Term of office: David joined the Board in 2010.
Skills, experience and expertise: David has experience in
small business and agri-business. David has involvement in a
number of agricultural industry bodies including as a Director
and Vice Chairman of Pulse Australia and as a former Director
of Australian Field Crops Association. David has a strong
connection to regional communities and is an advocate and
supporter of the Community Bank® model. He chaired the
first Community Bank® company in Rupanyup and Minyip
when it was first established in 1998.
Board committees: Credit, Audit
Group and joint venture directorships: Rural Bank Ltd
Former Co-Chair and current member of the Community
Bank® Strategic Advisory Board.
Other director and memberships (current and within last
3 years): Director, Pulse Australia and Rupanyup/Minyip
Finance Group Ltd.
Deb Radford, Independent
B.Ec, Graduate Diploma Finance & Investment, 58 years
Term of office: Deb joined the Board in 2006.
Skills, experience and expertise: Deb has over 20 years
experience in the banking industry with both international and
local banks. Deb also worked in the Victorian State Treasury,
and ran her own consulting business between 2001 and 2007
advising the government on commercial transactions.
Board committees: Credit (Chair), Technology and Change,
Governance and HR
Group and joint venture directorships: n/a
Other director and memberships (current and within last
3 years): Director, SMS Management & Technology Ltd (ASX
listed, period September 2013 to present); Former Director,
Forestry Tasmania (ceased 30 June 2012) and City West
Water (ceased 30 September 2011).
Tony Robinson, Independent
BCom (Melb), ASA, MBA (Melb), 56 years
Term of office: Tony joined the Board in 2006.
Skills, experience and expertise: Tony has many years’
experience in financial services, particularly wealth management
and insurance. Tony’s previous roles include Managing Director
of Centrepoint Alliance Limited, Chief Executive Officer of
IOOF Holdings Ltd, Managing Director of OAMPS Limited,
joint Managing Director of Falkiners Stockbroking, Managing
Director of WealthPoint, and senior executive positions at Link
Telecommunications and Mayne Nickless.
Board committees: Risk, Governance and HR (Chair)
Group and joint venture directorships: n/a
Other director and memberships (current and within
last 3 years):Executive Director, Oncard International
Limited (ASX listed, period June 2014 to present); Former
Director, Centrepoint Alliance Limited (ASX listed, period of
directorship: 2009 to 2013).
Meetings
of Directors
Information on Board and committee meeting attendance for the year is presented in the following table:
Director
Board
Committees
Audit
Credit
Risk
Governance & HR
Technology
& Change
A
9
9
9
9
B
9
9
9
9
A
7
7
7
7
B
7
7
6
6
A
7
7
7
7
B
6
7
6
6
A
5
5
5
5
B
5
5
5
5
A
5
5
5
B
5
5
5
Meetings during the year
Robert Johanson
Jenny Dawson
Jim Hazel
Jacquie Hey
Mike Hirst
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
A = Number eligible to attend
B = Number attended
A
17
17
17
17
17
17
17
17
17
B
16
17
15
17
16
16
17
15
16
Directors’ Interests in Equity
The relevant interest of each Director (in accordance with section 205G of the Corporations Act 2001) in shares and units of
the Bank or a related body corporate at the date of this report is as follows:
Director
Robert Johanson
Mike Hirst 1
Jenny Dawson
Jim Hazel
Jacquie Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
Ordinary
Shares
No.
203,840
711,398
29,718
17,024
4,227
5,192
16,594
1,900
10,692
Preference
Shares
No.
Performance
Shares
No.
Sandhurst IML
Industrial Share
Fund (Units) 2
500
-
100
-
250
-
-
1,390
-
-
152,438
-
-
-
-
-
-
-
83,675
-
-
-
-
-
-
-
-
Sandhurst
Professional IML
Industrial Share
Fund (Units) 2
Bendigo Growth
Wholesale /
Index Fund
(Units) 2
-
-
58,175
128,744
-
35,921
-
-
-
-
-
-
-
-
-
-
-
-
1 Ordinary shares includes 50,000 shares issued under the Bendigo Employee Share Ownership Plan and deferred shares issued under the Salary Sacrifice, Deferred
Share and Performance Share Plan.
2 Relevant interests in managed investment schemes made available by Sandhurst Trustees Ltd, a subsidiary of the Bank.
23
2013–14 ANNUAL REPORT
Other matters
Share Options and Rights
Environmental Regulation
The Group endeavours to conduct its operations in a manner
that minimises its impact on the environment. Information on the
Group’s environmental performance and activities to manage the
Group’s environmental impact are provided in the 2014 Annual
Review which is available from the Group’s website.
The Group’s operations are not subject to any significant
environmental regulations under either Commonwealth or
State legislation. However, the Board believes that the Group
has adequate systems in place for the management of its
environmental requirements and is not aware of any breach of
environmental requirements.
The Group is not subject to the Federal Government’s
National Greenhouse and Energy Reporting (NGER) Scheme
which requires controlling corporations to report annually on
greenhouse gas emissions, energy production and energy
consumption, if they exceed certain threshold levels. Whilst
not meeting the threshold the Group does measure and
monitor all greenhouse gas emissions relevant to the NGER
Act and voluntarily reports on these emissions.
Indemnification of Officers
The Bank’s constitution (Rule 105) provides that the Bank
is to indemnify, to the extent permitted by law, each officer
of the Bank against liabilities (including costs, charges,
losses, damages, expenses, penalties and liabilities of any
kind including, in particular, legal costs incurred in defending
any proceedings or appearing before any court, tribunal,
government authority or other body) incurred by an officer in
or arising out of the conduct of the business of the Bank or
arising out of the discharge of the officer’s duties.
As provided under the Bank’s Constitution, the Bank has
entered into deeds providing for indemnity, insurance and
access to documents for each of its current directors and
former directors. The Bank has also entered into deeds
providing for indemnity and insurance for each Executive
Committee member and the Company Secretary as well
as deeds providing for indemnity, insurance and access to
documents for each director who held office of a subsidiary
company during the year.
The deeds require the Bank to indemnify, to the extent
permitted by law, the officers for all liabilities (including costs,
charges, losses, damages, expenses, penalties and liabilities
of any kind) incurred in their capacity as an officer of the
relevant company.
Rights to ordinary shares in the Bank (called “performance
shares”) are issued under the salary sacrifice, deferred share
and performance share plan (“Plan”). Each performance share
represents an entitlement to one fully-paid ordinary share in
the Bank, is issued at no cost to the recipient and has a nil
exercise price.
During or since the end of the financial year the Bank granted
300,528 (2013: 202,739) performance shares. This includes
260,368 performance shares that were granted to key
management personnel (excluding Non-executive Directors).
There have been no grants of performance shares to Non-
executive Directors.
As at the date of this report there are 571,408 performance
shares that are exercisable or may become exercisable at a
future date under the Plan. The last date for the exercise of
the rights ranges between 2015 and 2017.
During or since the end of the financial year 228,955 (2013:
198,712) performance shares vested and were automatically
exercised to acquire 228,955 ordinary shares in the Bank.
No new fully paid ordinary shares have been issued by the
Bank during or since the end of the financial year as a result
of rights granted being exercised.
For the period 1 July 2014 to the date of this report, 91,522
performance shares lapsed as they were not exercised before
the expiry date.
Under the terms of grants the Board may decide how to
treat the participant’s performance shares to make sure the
participant is neither advantaged nor disadvantaged as a
result of any capital reconstruction including bonus issues or
rights issues.
There were no options over unissued ordinary shares at the
start of the financial year and no options to acquire ordinary
shares in the Bank were issued during or since the end of the
financial year.
Further details of equity holdings of key management
personnel for the 2014 financial year and as at the date of
this report are detailed in the Remuneration Report.
Further details of rights issued over ordinary shares granted
during the 2014 financial year, rights on issue as at the date
of this report and shares allocated as a result of the exercise
of rights granted during the financial year are detailed in
the Remuneration Report and Note 33 of the 2014
Financial Report.
Corporate Governance
An overview of the Bank’s corporate governance structures
and practices is presented in the 2014 Corporate Governance
Statement. The Bank has elected to early adopt the 3rd
edition of the ASX Corporate Governance Council’s Principles
and Recommendations and has also elected to publish
this year’s Corporate Governance Statement on the Bank’s
website at www.bendigoadelaide.com.au/public/corporate_
governance/index.asp
24
Indemnification of Auditor
To the extent permitted by law and professional regulations,
the Bank has agreed to indemnify its auditors, Ernst & Young,
as part of the terms of its audit engagement agreement
against all claims by third parties and resulting liabilities,
losses, damages, costs and expenses (including reasonable
external legal costs) arising from the audit engagement
including any negligent, wrongful or wilful act or omission by
the Bank. The indemnity does not apply to any loss resulting
from Ernst & Young’s negligent, wrongful or wilful acts or
omissions. No payment has been made to indemnify Ernst &
Young during or since the financial year.
Insurance of Directors and Officers
During or since the financial year end, the Bank has paid
premiums to insure certain officers of the Bank and its related
bodies corporate. The officers of the Bank covered by the
insurance policy include the Directors, the Company Secretary
and Directors or Company Secretaries of controlled entities
who are not also Directors or Company Secretaries of the
Bank. The insurance does not provide cover for the external
auditor of the Bank or of a related body corporate of the Bank.
Disclosure of the nature of the liability and the amount of
the premium is prohibited by the confidentiality clause of the
contract of insurance.
Company Secretary
William Conlan, LL.B (Melb), GradDip Applied Finance and
Investment
Mr Conlan was appointed as Company Secretary of the Bank
in 2011, having worked with the Bank for almost 10 years in
strategy, capital management and compliance. Mr Conlan is a
practising lawyer and, prior to commencing employment with
the Bank, worked as a lawyer in Melbourne.
Declaration by Chief Executive Officer and Chief
Financial Officer
The Managing Director and Chief Financial Officer have
provided the required declarations to the Board in accordance
with section 295A of the Corporations Act 2001 and
recommendation 4.2 of the ASX Corporate Governance
Principles and Recommendations in relation to the financial
records and financial statements.
The Managing Director and Chief Financial Officer also
provided declarations to the Board, consistent with the
declarations under section 295A of the Corporations Act
2001 and recommendation 4.2 of the ASX Corporate
Governance Principles and Recommendations, in relation to
the financial statements for the half year ended 31 December
2013.
To support the declaration a formal due diligence and
verification process, including attestations from senior
management, is conducted. This assurance is provided each
six months in conjunction with the Bank’s half year and full
year financial reporting obligations. The statements are made
on the basis that they provide a reasonable but not absolute
level of assurance and do not imply a guarantee against
adverse circumstances that may arise in future periods.
Auditor Independence and Non-audit Services
The Audit Committee has conducted an assessment of the
independence of the external auditor for the year ended 30
June 2014.
The assessment was conducted on the basis of the Bank’s
audit independence policy and the requirements of the
Corporations Act 2001. The assessment included a review of
non-audit services provided by the auditor and an assessment
of the independence declaration issued by the external
auditor for the year ended 30 June 2014. A copy of the
auditor’s independence declaration is presented below.
Non-Audit Services
Non-audit services are those services paid or payable to the
Group’s external auditor, Ernst & Young (Australia), which do
not relate to Group statutory audit engagements.
In its capacity as the Group’s external auditor, Ernst & Young
are periodically engaged to provide assurance services to the
Group in accordance with Australian Auditing Standards.
All assignments are subject to engagement letters in
accordance with Australian Auditing Standards. They include
audit services required for regulatory and prudential purposes
and the amounts shown are GST exclusive.
25
2013–14 ANNUAL REPORT Details of all non-audit services for the year ended 30 June 2014:
(a) Audit related fees (Regulatory)
Service Category
AFSL audits, APS 310 and APS 910 audits
Comfort Letter – Euro Medium Term Note Program
AFSL audit and APS 310 audit
Sub-total: Audit related fees (Regulatory)
(b) Audit related fees (Non-regulatory)
In its capacity as the Group’s external auditor, Ernst & Young are
periodically engaged to provide assurance and related services
not required by statute or regulation but are reasonably related
to the performance of the audit or review of the Group’s financial
statements which are traditionally performed by the external
auditor. The amounts shown are GST exclusive.
Service Category
Debt Issuance
Fees
$
210,602
30,076
71,379
312,057
Entity
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
Rural Bank Limited
Fees
$
15,914
Entity
Bendigo and Adelaide Bank Limited
Data, model and scorecard validation for the Basel II advanced accreditation program
778,590
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
Entity
Bendigo and Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
3,605
798,109
Fees
$
800
4,429
5,229
1,115,395
Euro Medium Term Note Programme audit procedures
Sub-total: Audit related fees (Non-regulatory)
(c) Non audit related fees
Service Category
Tax advice
Professional services
Sub-total: non audit related fees
Total: non audit services
The Audit Committee has reviewed the nature and scope of the
above non-audit services provided by the external auditor. In
doing so, the Audit Committee has confirmed that the provision of
those services is consistent with the audit independence policy
and compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. This confirmation
was provided to, and accepted by, the full board.
This assessment was made on the basis that the non-audit
services performed did not represent the performance of
management functions or the making of management decisions,
nor were the dollar amounts of the non-audit fees considered
sufficient to impair the external auditor’s independence.
26
27
2013–14 ANNUAL REPORT Remuneration
Report
This Remuneration Report is for Bendigo and Adelaide Bank
Limited (“Bank”) and the consolidated entity (“Group”) for
the year ended 30 June 2014.
The Remuneration Report explains the Group’s approach to
the remuneration of key management personnel (“KMP”)
comprising Non-executive Directors, the Managing Director
and other Senior Executives. It also explains the link between
performance and remuneration outcomes and details the
remuneration provided. The Remuneration Report has been
prepared in accordance with section 300A of the Corporations
Act 2001 and the Corporations Regulations 2001 and has
been audited.
In accordance with the Corporations Regulations 2001, this
year’s Remuneration Report includes a number of additional
tables that were previously presented in the financial
statements (refer Tables 7 to 10).
In this report the term “Senior Executive” is used to refer to
all executives who fall within the definition of KMP – i.e. those
persons with authority and responsibility for planning, directing
and controlling the activities of the Group, directly or indirectly.
1. Key Management Personnel (KMP)
Name
Position
Term as KMP
Non-Executive Directors
Robert Johanson
Chairman
Jenny Dawson
Jim Hazel
Jacqueline Hey
Director
Director
Director
Robert Hubbard
Director
David Matthews
Director
Deb Radford
Tony Robinson
Director
Director
Senior Executives
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Mike Hirst
Managing Director & Chief
Executive Officer
Full Year
Marnie Baker 1
Executive: Customer Voice
Full Year
Dennis Bice
Executive: Retail Banking
Full Year
John Billington
Executive: Bendigo Wealth
Full Year
Richard Fennell 1
Executive: Finance, Treasury
& Change
Full Year
Russell Jenkins
Robert Musgrove
Executive: Customer and
Community
Executive: Community
Engagement
Ended: 19 August 2013
2. Non-executive Director remuneration
The remuneration of Non-executive Directors is based on
the following principles and arrangements. There is no direct
link between Non-executive Director fees and the annual
results of the Group. Non-executive Directors do not receive
bonuses or incentive payments, nor participate in the Group’s
employee equity participation plans.
Shareholders approved an aggregate fee pool for Non-
executive Directors of $2,500,000 at the 2011 Annual
General Meeting. This fee pool covers payments (including
superannuation) for the main Board and payments to the
Bank’s Non-executive Directors appointed to subsidiary
boards and the Community Bank® Strategic Advisory Board.
The Governance & HR Committee (“the Committee”)
recommends to the Board the remuneration policy and
remuneration for Non-executive Directors. The base fee
is reviewed annually by the Committee and the following
considerations are taken into account in setting the base fee:
• The scope of responsibilities of Non-executive Directors
and time commitments. This includes taking into account
any changes in the operations of the Group and industry
developments which impact director responsibilities, at
both the Board and committee level.
• Fees paid by peer companies and companies of similar
market capitalisation and complexity, including survey data
and peer analysis to understand the level of director fees
paid in the market by companies of a relatively comparable
size and complexity, particularly in the banking and finance
sector.
Non-executive Directors receive a fixed annual fee plus
superannuation contributions at 9.25% (FY2013: 9.0%) of
the base fee. The base fee is reviewed annually. In relation to
superannuation contributions, Non-executive Directors can
elect to receive amounts above the maximum contributions
limit as cash or additional superannuation contributions.
The Chairman receives a higher base fee in recognition of
the additional time commitment and responsibilities. No
additional fees are paid for serving on Board Committees.
Additional fees were paid to Non-executive Directors who are
also members of the Rural Bank or Sandhurst Trustees or
Community Bank® Strategic Advisory Boards. The base fee
for the reporting period was:
From: 19 August 2013
• $169,125 for Directors
Tim Piper
Executive: Risk
Stella Thredgold
Executive: Corporate
Resources
Full Year
Full Year
Alexandra Tullio
Andrew Watts 1
Executive: Geared Solutions
(Margin Lending)
From: 5 July 2013
Executive: Customer Service
Improvement
Full Year
• $422,813 for the Chairman (two and half times the base fee).
The Board decided to increase the base fee by 2.5% in
August 2013 in line with general market movements in
Director fees. In relation to the 2015 financial year, the
Board decided to increase the base fee by 3%. The Board
also decided to change the Director fee structure from base
fee plus superannuation to a fixed fee model inclusive of
1. On 19 August 2013 the Managing Director announced that Marnie Baker (previously Executive: Banking & Wealth) will head up, as a continuing executive member, a
new Customer Voice division. On 25 November 2013 the Managing Director announced the creation of a new Customer Service Improvement division to be headed by
Andrew Watts. Andrew Watts continued to oversee the Change division for an interim period. Responsibility for the Change division was transferred to Richard Fennell
later in the year.
28
superannuation. The change was made to accommodate
amendments to superannuation legislation.
The Directors contribute $5,000 each to the Bank’s
scholarship program. The program was established to
assist disadvantaged students meet tertiary education
accommodation and direct study costs. The contributions are
deducted from base fee payments.
The amounts paid to Non-executive Directors for the 2014
and 2013 financial years are disclosed in Table 1.
3. Remuneration governance
The Committee provides assistance to the Board in relation to
the Group’s remuneration arrangements. The Board makes all
final decisions in relation to those arrangements. The current
members of the Committee are all independent Non-executive
Directors:
1. Tony Robinson (Chairman)
2. Jim Hazel
3. Robert Johanson
4. Deb Radford
The Committee has responsibility for providing input into
the Group’s risk management framework in relation to
remuneration risk, in particular, recommending to the Board
the remuneration arrangements for the Senior Executives. A
summary of the Committee’s remuneration responsibilities is
presented below and the Committee Charter is available from
the Corporate Governance section of the Bank’s website at
www.bendigoadelaide.com.au.
The Committee’s remuneration responsibilities include
conducting regular reviews of, and making recommendations
to the Board on, the remuneration strategy and policy
taking into account the Group’s objectives, risk profile,
shareholder interests, regulatory requirements and market
developments. The Committee is also responsible for making
recommendations to the Board on:
a. The remuneration arrangements for the Senior Executives
including the terms on which performance based
remuneration will be provided;
b. The performance based remuneration outcomes for the
Senior Executives; and
c. The pool of funds available for distribution as short term
incentives and bonuses.
The Committee makes recommendations to the Board on
the exercise of the Board’s discretion to adjust incentive and
performance-based remuneration to reflect the outcomes of
business activities and the risks relating to those activities.
The Committee is also responsible for recommending to the
board the remuneration matters specified by the Australian
Prudential Regulation Authority under Prudential Standard
CPS 510 Governance relating to other designated responsible
persons, risk and financial control personnel and material
risk takers.
The Committee may consult a professional adviser or expert, at
the cost of the Bank, if the Committee considers it necessary
to carry out its duties and responsibilities. No remuneration
recommendations were obtained from external consultants in
relation to any of the KMP during the reporting period.
4. Senior Executive remuneration
The Group has a Remuneration Policy, the key features of
which are set out below. There were no significant changes
to the Remuneration Policy during the year. The Board has
sought to maintain a remuneration framework that provides
flexibility and supports the Group’s strategy whilst recognising
the need to align remuneration with shareholder interests.
The following principles apply to the Group’s remuneration
framework:
• Remuneration should facilitate the delivery of superior
long term results for the business and shareholders and
promote sound risk management principles.
• Remuneration should support the corporate values and
desired culture.
• Remuneration should promote behaviour that meets
customers’ reasonable expectations and protects their
interests.
• Remuneration should support the attraction, retention,
motivation and alignment of the talent we need to achieve
our business goals.
• Remuneration should reinforce leadership, accountability,
teamwork and innovation.
• Remuneration should be aligned to the contribution and
performance of the businesses, teams and individuals.
4.1 Remuneration components
The Remuneration Policy provides for the following
remuneration components:
a. Base pay comprising:
> Fixed base remuneration (includes any salary sacrifice
arrangements and superannuation)
> Deferred base pay (annual grants of deferred shares); and
b. Performance based “at-risk” pay comprising:
> Short Term Incentive (‘STI’) – awarded in cash or a
combination of cash and deferred equity;
> Long Term Incentive (‘LTI’) - involving grants of
performance rights (called “performance shares”).
The remuneration mix for all Senior Executives includes each
of the above components. The deferred base pay, deferred
STI and LTI are equity based components designed to further
align Senior Executive remuneration with the interests of
shareholders.
The details of Senior Executive remuneration for the 2014 and
2013 financial years are disclosed in Table 2 and Table 3.
4.2 Remuneration changes
The Board increased the Managing Director’s fixed base
remuneration by 2.5% from 3 October 2013. During the
year the Board also approved changes to the remuneration
arrangements for certain Senior Executives to recognise
changes in their roles and responsibilities. Overall, the fixed
base remuneration paid to Senior Executives (other than the
Managing Director) increased by 1.2%.
On 26 March 2013 the Bank announced a two year extension
of the Managing Director’s employment contract. The initial
five year fixed term contract, originally scheduled to end on
2 July 2014, is now scheduled to end on 2 July 2016. The
Managing Director’s equity based remuneration arrangements
under the original five year fixed term contract completed on
2 July 2014. For the two year extension period, the Board
has sought to align the Managing Director’s equity based
remuneration arrangements with the deferred base pay and
LTI arrangements of other Senior Executives. The Managing
Director’s deferred base pay and LTI arrangements for the two
year extension period were approved by shareholders at the
Bank’s 2013 Annual General Meeting.
29
2013–14 ANNUAL REPORT Under the terms approved by shareholders the combined
number of deferred shares and performance shares granted
for each additional year of the Managing Director’s contract is
the same number of performance shares that were granted to
the Managing Director under the original five year fixed term
contract. The following grants have been completed since the
end of the 2014 financial year in accordance with the terms
approved at the 2013 Annual General Meeting:
• 152,438 deferred shares were granted as deferred
base pay. The deferred shares are subject to a two year
continued service and a risk adjustment condition.
An additional one year dealing restriction also applies
to vested deferred shares. The deferred shares are
beneficially owned by the Managing Director from the grant
date but are held on trust by the plan trustee for the two
year service and one year restriction period.
• 152,438 performance shares were granted in two annual
parcels as set out below. Each parcel is subject to a twelve
month performance period for cash EPS testing and a
three year performance period for TSR testing.
Tranche 1
Tranche 2
Number of
Performance Shares
1st Performance Period
(EPS Measure)
2nd Performance
Period (TSR Measure)
76,219
76,219
30.06.2014 –
30.06.2015
30.06.2015 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2013 –
30.06.2016
Service Condition
Dealing Restriction
01.07.2013 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2016 -30.06.2017
01.07.2016 -30.06.2017
Any deferred shares or performance shares that do not vest
at the end of the performance and service condition period
will lapse.
4.3 Fixed base remuneration
Fixed base remuneration is made up of cash salary,
salary sacrifice and superannuation. The superannuation
contributions are capped at the applicable concessional
contribution limit. Fixed base remuneration is designed to
recognise an individual’s skills, competencies and value in
addition to their particular role and responsibilities. Senior
Executive base remuneration is reviewed annually and is set
having regard to market and internal relativities, the Group’s
financial outlook and the need to attract, motivate and retain
key senior management. In setting the remuneration of Senior
Executives the Board takes into account general market
and peer information with a view to maintaining a moderate
market positioning. The Managing Director has input on the
base remuneration of the other Senior Executives.
4.4 Deferred base pay (deferred share grants)
Senior Executives receive annual deferred share grants as part
of their base pay that are subject to the following conditions:
1. Service condition – continued employment for the two
years from the beginning of the financial year in respect of
which the grant is made; and
2. Risk adjustment – any adjustment the Board decides
to make to take into account the outcomes of business
activities and the risks related to the business activities.
Deferred base pay was introduced to further align the
remuneration of Senior Executives with the interests of
shareholders.
The deferred shares are fully paid ordinary shares granted
at no cost. They have no exercise price and are beneficially
owned by the Senior Executive from the grant date but held
on trust for two years by the plan trustee. Senior Executives
are entitled to vote and to receive any dividend, bonus issue,
return of capital or other distribution made in respect of
deferred shares. Senior Executives are not entitled to deal in
the deferred shares until they vest and the Board may treat
shares as forfeited before vesting. Deferred shares that do
not vest at the end of the deferral period will be forfeited.
There is no dealing restriction on vested deferred shares.
If a Senior Executive ends their employment with the Bank or
30
were to act fraudulently, dishonestly or, in the Board’s opinion,
in breach of his or her legal duties before the conditions
have been met, the deferred shares will be forfeited on the
Senior Executive’s last day of employment, unless there are
exceptional circumstances and the Board decides otherwise
to vest some or all of the deferred shares.
If a Senior Executive’s employment ends because of death,
disability, redundancy, or any other reason approved by the
Board for this purpose, the deferred shares will continue to be
held as if the Senior Executive’s employment has not ended,
and the service condition will be treated as waived, unless the
Board decides otherwise. If the Board does decide otherwise,
it may determine that some or all of the deferred shares are
forfeited, which would occur on the last day of employment.
If there is a takeover or change of control of the Bank, the
Board has discretion to decide that the dealing restriction will
end at a time decided by the Board.
Details of deferred share grants made by the Bank to Senior
Executives are disclosed in Tables 4, 5 and 6.
4.5 Short term incentive (“STI”)
Senior Executive remuneration includes an annual incentive
component that is awarded in cash and, if the award
exceeds $50,000 (2013: $30,000), one third of the award
is deferred equity in the Bank through grants of deferred
shares on substantially the same terms as deferred base pay
discussed above. The incentive is designed to reward the
achievement of annual financial and business goals, taking
into account risk management and compliance objectives,
and Senior Executive contributions to longer term growth
and performance. The STI target for each Senior Executive is
set by the Board at the start of each year and the maximum
potential STI for each Senior Executive is the same amount as
the approved STI target.
The Board determined that the criteria for establishing a
performance bonus pool for the 2014 financial year had
been met and a bonus pool was established for the 2014
financial year. Further information on the structure of STI
arrangements, performance measures and STI payments for
the year are disclosed in Section 5 and Table 3.
Forfeiture of the STI deferred component occurs if an
employee’s employment with the Group ends, if an employee
acts fraudulently or dishonestly and in other cases decided at
the discretion of the Board (for example, due to an adjustment
for risk).
4.6 Long term incentive (“performance share grants”)
LTI is discretionary equity based remuneration designed to
drive and reward long-term growth and sustained shareholder
value. At the Board’s discretion, the Senior Executives may
be invited to participate in LTI plans involving grants of
performance shares. The grants are subject to long-term
performance and service conditions designed to link Senior
Executive reward with key performance measures that
underpin sustainable longer term growth in shareholder value.
The following performance share grants are in place.
Managing Director
Other Senior Executives
1. 2009 Performance share grant
comprising five annual tranches
1. 2013 Performance share grant
2. 2014 Performance share grant
2. 2014 Performance share grant
If a Senior Executive ends their employment with the Bank or
were to act fraudulently, dishonestly or, in the Board’s opinion,
in breach of his or her legal duties before the conditions
have been met, the deferred shares will be forfeited on the
Senior Executive’s last day of employment, unless there are
exceptional circumstances and the Board decides otherwise
to vest some or all of the deferred shares.
If a Senior Executive’s employment ends because of death,
disability, redundancy, or any other reason approved by the
Board for this purpose, the deferred shares will continue to be
held as if the Senior Executive’s employment has not ended,
and the service condition will be treated as waived, unless the
Board decides otherwise. If the Board does decide otherwise,
it may determine that some or all of the deferred shares are
forfeited, which would occur on the last day of employment.
If there is a takeover or change of control of the Bank, the
Board has discretion to decide that the dealing restriction will
end at a time decided by the Board.
The Group also has a loan-based limited recourse employee
share ownership plan (ESOP) that was open to general staff
and Senior Executives (including the Managing Director) and
was previously used by the Group as the long-term incentive
arrangement. Information on the ESOP, including share grants
and loan details are disclosed at Notes 33 and 35 of the
Annual Financial Report. This plan was discontinued in 2006.
Further information on the structure of the performance share
grants for the Managing Director and Senior Executives is
presented at Section 6 and Tables 4, 5 and 6.
4.7 Risk adjustment
The Board has absolute discretion to adjust variable
remuneration (Deferred base pay, Deferred STI and LTI) to
reflect the following:
a. The outcomes of business activities;
b. The risks related to the business activities taking into account,
where relevant, the cost of the associated capital; and
c. The time necessary for the outcomes of those business
activities to be reliably measured.
This includes adjusting performance-based components of
remuneration downwards, to zero if appropriate. On an annual
basis the Committee reviews the appropriateness of releasing
deferred equity components taking into account the Group’s
performance outlook and any other matter that might impact
the financial soundness of the Group.
4.8 Mix of remuneration components
The following table sets out the Senior Executive
remuneration mix for FY2014. The at-risk components for
Senior Executives vary depending on their role and ability to
influence the Group’s performance and financial standing.
This includes the deferred base pay which remains at-risk
until it has vested.
Fixed
Remuneration 1
Deferred
Base Pay 2, 5
Mike Hirst
Marnie Baker
Dennis Bice
John Billington
Richard Fennell
Robert Musgrove
Tim Piper
Stella Thredgold
Alexandra Tullio
Andrew Watts
49%
56%
59%
56%
50%
59%
58%
53%
59%
58%
18%
10%
7%
10%
10%
9%
12%
8%
9%
7%
STI 3
15%
17%
20%
21%
21%
18%
12%
23%
18%
21%
LTI 4, 5
18%
17%
14%
13%
19%
14%
18%
16%
14%
14%
1 Fixed remuneration comprises base cash salary, salary sacrifice and
superannuation,
2 For the Managing Director, this represents the service component of the
2009 performance share grant applicable to the financial year. For other Senior
Executives, this represents grants of deferred shares subject to continued
service and risk adjustment.
3 These amounts are subject to target performance levels being achieved in
relation to values, risk and performance.
4 These amounts are subject to target performance levels being achieved and
continued service with the Bank.
5 The percentages are the remuneration value of the equity grants. In the
case of the Managing Director, this is the annual remuneration value of the
performance share grant set by the Board in 2009.
4.9 Hedging
A Senior Executive or their closely related parties may not
enter into a transaction designed to remove the at-risk
element of the equity before it has vested. This also applies to
the at-risk element of equity after it has vested, if it is subject
to a holding lock. These restrictions are in the staff trading
policy and remuneration policy.
The Bank treats compliance with these policies as important.
At the end of each financial year each participant is required to
confirm that they have complied with these restrictions. If an
employee breaches either of these restrictions the employee
forfeits all variable remuneration in the form of equity that is
subject to the prohibition at the time of the breach.
4.10 Margin loan facility restriction
The staff trading policy also prohibits designated officers,
including Non-executive Directors and Senior Executives,
from using the Bank’s securities as collateral in any margin
loan arrangements.
5. STI specific arrangements and measures
5.1 Setting annual STI components and measures
The maximum potential STI component for Senior Executives
is set by the Board at the start of each financial year. In
setting the potential STI component the Board takes into
account market data and the Senior Executive’s role and
responsibilities. The objective is to link an appropriate
proportion of Senior Executive remuneration with the Group’s
31
2013–14 ANNUAL REPORT
annual performance and the achievement of short and
medium term business priorities that enhance the future
prospects of the Group. The STI is set at a level that does not
promote short term outcomes or risk taking at the expense of
longer term growth and sustainability.
5.2 Group bonus pool
The payment of STI awards is dependent on the establishment
of a group bonus pool which is the total amount available for
the payment of STI awards and staff bonuses.
At the start of each year the Board sets the minimum level
of Group performance to be achieved before a bonus pool
will be established. The Board also sets the parameters to
determine the amount of funds allocated to the bonus pool if
the minimum level of performance is exceeded.
For the 2014 financial year the performance and bonus pool
allocation parameters were again based on the Group’s cash
earnings performance and consisted of:
1. A threshold hurdle requiring an improvement in cash
earnings compared to the previous financial year;
2. A targeted cash earnings result for the financial year; and
3. A maximum potential bonus pool allocation based on 110%
of the targeted cash earnings result.
The bonus pool accrues using predetermined percentages
approved by the Board. The bonus pool accrual rate for
performance above the targeted cash earnings is higher
than the accrual rate for performance between the threshold
hurdle and the targeted cash earnings.
The Board also set the financial and risk measures that
may be used to adjust, at the discretion of the Board, any
bonus pool allocation calculated using the cash earnings
formula. The measures include targeted return on equity,
capital, liquidity and cost to income ratios. These measures
were selected to balance the allocation of profit between
shareholder returns, employee reward and financial
soundness of the organisation. For the 2014 financial year the
Board established a bonus pool based on the above criteria.
The bonus pool was 57% of the maximum capped amount
(FY2013: 44%).
5.3 STI performance assessments and payments
The payment of individual STI awards to Senior Executives
is at the discretion of the Board and takes into account the
Group’s capacity to pay STI awards to both general staff and
Senior Executives. The potential maximum STI awards to
Senior Executives will be adjusted to reflect the size of the
bonus pool allocation. Where the bonus pool is less than the
maximum potential pool, the STI award will be proportionately
adjusted downwards as follows:
Individual Adjusted STI Award = (Actual Group Bonus Pool /
Maximum Potential Bonus Pool) x Individual’s Maximum STI
The Board maintained the Managing Director’s maximum
STI award at $400,000. This was set taking into account the
remuneration objectives discussed earlier and the Managing
Director’s target remuneration mix. The maximum STI award
is subject to adjustment based on the bonus pool allocation
discussed above.
The Non-executive Directors assess the Managing Director’s
performance with reference to quantitative and qualitative
measures set at the start of the year (refer below). The
assessment is completed after the end of each financial year.
Taking into account the size of the bonus pool, the Board will
decide the Managing Director’s STI award based upon the
achievement of agreed performance measures. This allows for
an objective assessment of the achievement of performance
measures while enabling any necessary risk adjustments to
32
occur at the Board’s discretion.
The Board also assesses the achievement of the priorities
set out below, and based on the assessment, makes any
further adjustment to the Managing Director’s STI award
based on the assessment. These measures were chosen
to link the Managing Director’s performance to the Group’s
annual financial and risk management performance and
the achievement of key business priorities. The qualitative
measures are:
Measure
Description
1. Risk and
Compliance
a. The level of risk associated with the Group’s
performance was within the Group’s risk appetite; and
b. An effective risk culture is promoted and maintained.
This will be demonstrated through the completion
of the annual risk declaration process as well as
proactive Board discussions and monitoring of risk
across the Group.
2. Medium term
targets
Significant progress has been made towards achieving
the following medium term targets set by the Board:
a. Shareholder Targets: focusing on improved and
sustainable shareholder value;
b. Customer Targets: focusing on customer satisfaction
rankings, customer service and growing the customer
base;
c. Financial Targets: focusing on improving economic
performance including balance sheet and earnings
growth;
d. Partner Targets: focusing on the performance of the
partner network including community and partner
satisfaction rankings; and
e. People Targets: focusing on employee engagement,
diversity and organisational effectiveness.
3. Strategic
project
Significant progress having been made towards
achieving Basel II advanced accreditation by the target
date.
4. Public
representation
The Group continues to be represented effectively to
government (state and federal) and in industry and
public forums.
For the 2014 financial year the Board determined that the
Managing Director met the quantitative measures as well
as the above qualitative measures and, taking into account
the bonus pool established by the Board, awarded an STI
payment of $228,000. This award represents 57% of the
potential maximum opportunity for the Managing Director,
which corresponds with the proportion of the maximum
bonus pool available for the Group. The Board considered
the achievement of the strategic priorities outlined above,
assessed that achievement against those priorities was on
track and decided not to make any further adjustment to the
Managing Director’s STI award for FY14.
The Managing Director assesses the performance of other
Senior Executives after the end of the financial year and
recommends STI awards for consideration by the Governance
& HR Committee and decision by the Board. The performance
assessment takes into account the individual’s performance
including business unit performance, the individual’s
contribution to team performance and their contribution to
meeting risk and compliance requirements.
The recommended STI awards are determined on the basis
of the performance assessment taking into account the size
of the bonus pool available for the payment of STI awards
and bonuses. The method of assessment has been chosen
as the Managing Director is best placed to make an informed
assessment of each Senior Executive’s performance and
overall contribution while the Board retains ultimate oversight
of STI awards and any necessary risk adjustments.
The performance objectives and measures for Senior
Executives (other than the Managing Director) include:
a. Group financial and strategic performance including
achievement of targeted statutory and cash earnings
performance;
b. Business unit (team) financial and strategic performance
taking into account the achievement of division or
business unit growth and financial performance targets,
implementation of specific business initiatives and projects
in line with project targets and timeframes, independent
industry focused customer satisfaction and advocacy
rankings and customer and community engagement
initiatives;
c. Individual contribution to team performance taking into
account the achievement of overall division or business
unit targets and business and risk objectives, assessment
of extent to which a “one-team” culture has been
promoted, assessment of continuous improvement in
processes and procedures;
d. Individual performance, including alignment with corporate
values and meeting performance objectives, based on an
assessment of leadership, management of business unit
resourcing and compliance with corporate values and code
of conduct; and
e. Contribution to meeting risk and compliance requirements
at a Group, team and individual level.
The risk and compliance requirements also represent a
gateway to whether a payment is made and the size of the
payment. Notwithstanding financial performance and the
individual’s contribution and performance, if the individual,
team or Group does not meet or only partially meets risk
and compliance requirements, no award or a reduced award
will be made. The measures include compliance with risk
management and operational policies and procedures.
The performance assessments were completed for the year in
accordance with the process described above and STI awards
have been made for the year in line with those assessments.
6. Specific measures and conditions for
performance share grants
6.1 Performance shares - terms
Each performance share represents an entitlement to one
ordinary share in the Bank. Accordingly, the maximum number
of shares that may be acquired is equal to the number of
performance shares issued (subject to the vesting conditions
being met). Performance shares are granted at no cost to the
recipient and have no exercise price.
The performance measures selected for performance
share grants are the Group’s cash EPS performance and
TSR performance. The EPS hurdle is used because it is a
fundamental indicator of financial performance, both internally
and externally, and links directly to the Group’s long-term
objective of growing earnings. The EPS hurdle ensures
improvement in the Group’s performance and capital efficiency
is achieved before any performance shares can vest.
The TSR hurdle is used because it aligns shareholder return
with reward for Senior Executives and provides a relative,
external market performance measure, having regard to the
TSR performance of other companies in a comparator group.
The TSR is independently calculated by an external provider.
For the purpose of the grants under the plan, the comparator
group is the ASX 100 Accumulation Index (excluding the
Bank, property trusts and resources). This group was chosen
because it is frequently used by listed companies and there
are insufficient companies of comparable size in the banking
or financial services sector alone to benchmark against
performance of an industry-specific group.
The Board may make an adjustment to the number of
performance shares that vest to take into account any
unforseen or unexpected circumstances or consequences and
risk. This includes risk adjustment to reflect the outcomes of
business activities, the risks related to the business activities
and the time necessary for the outcomes of those business
activities to be reliably measured.
Performance shares do not vest until the participant has been
advised by the Board to what extent the performance shares
have vested. Performance shares that do not vest at the
end of the performance period (in the case of the Managing
Director, at the end of the final performance period) will be
forfeited and lapse.
6.2 Managing Director
The Managing Director’s performance share grant for FY2014
was set in 2009. Shareholders approved an issue of five
equal annual parcels of performance shares to the Managing
Director, with the performance periods measured over one to
five years (the final performance period ended 30 June 2014).
Each tranche comprised two components or grants:
Grant A - 50% of each annual tranche is subject to an EPS
gateway hurdle. If that hurdle is met, the grant is then subject
to a TSR performance hurdle.
Grant B - The other 50% of each annual tranche is subject to
continuing service with the Company.
The vested shares are subject to a dealing restriction and the
Managing Director is not entitled to sell, transfer or otherwise
deal with the shares allocated to him until two years after the
end of the tranche’s performance period.
In setting the five year performance period (and the additional
dealing restriction) the Board took into account the initial five
year term of the Managing Director’s contract (July 2009 –
July 2014) and the importance of rewarding the Managing
Director for taking a longer-term perspective on the Group’s
progress and performance.
In setting the structure and value of the performance share
grant, the Board included a component that was subject
to continued service with the Bank. This took into account
the moderate market setting of the Managing Director’s
remuneration package. This component effectively represents
a deferred part of the Managing Director’s fixed reward linked
to the long term performance of the Group and further aligns
the Managing Director’s remuneration with the interests
of shareholders.
The grants represented an aggregate remuneration value of
$5 million (representing an annualised amount over each of
the five years of $1 million) based on the volume weighted
average price of the Bank’s shares traded on the ASX for the
five days before 1 July 2009 (being $6.56).
The vesting of the performance shares in Grant A is subject to
a gateway cash EPS hurdle. The gateway hurdle will be met if
there is an increase in the Group’s cash EPS performance during
the financial year immediately before vesting for each tranche
(i.e. the final year of the performance period for that tranche).
The second performance condition for Grant A is based
on the Bank’s market relative TSR performance over the
performance period. To the extent that the performance
conditions attaching to performance shares granted under
the plan are not satisfied at the end of the relevant tranche’s
33
2013–14 ANNUAL REPORT 6.3 Other senior executives
The Board implemented a new performance share arrangement
for other Senior Executives in 2013. The first annual
performance share grant was made in August 2012 and a
second grant was made in December 2013. Both grants were
made as a single tranche with a four year performance period.
The 4 year performance period consists of a 12 month initial
performance period for EPS testing followed by a 3 year
performance period for relative TSR testing.
• EPS hurdle: The grant is reduced by 50% at the end of the
initial performance period if the cash earnings per share
are not equal to or better than the cash earnings per share
for the previous year.
• TSR hurdle: During the 3 year TSR performance period,
vesting of the performance shares (as adjusted for the
EPS performance hurdle) will be conditional on TSR being
at least equal to the median performance of a peer group
consisting of the ASX100 Companies (excluding property
trusts and resources). Median performance will result in
65% of the performance shares vesting, with 100% vesting
if the Group’s relative TSR performance is 75% or above.
The performance shares are also subject to the Senior
Executive’s continued employment with the Bank for the
performance period and notification from the Board whether,
and to what extent, the performance conditions have been
met including to what extent performance shares have vested
taking into account any necessary risk adjustment determined
by the Board. There is no dealing restriction on vested shares.
performance period, the performance shares that do not vest
will be carried forward and retested. Performance shares that
do not vest will be treated as forming part of the following
tranche and will be tested together with other performance
shares at the end of the following tranche’s performance
period. Performance shares that do not vest at the end of the
final (fifth) performance period will lapse.
The Board believes that retesting in these circumstances is
appropriate because it ensures that the Managing Director is
not disadvantaged by short-term average performance over
a longer-term period of strong performance. Having regard
to the service and performance conditions, the potential
minimum value of the grant (at the grant date) was nil.
The maximum number of ordinary shares that may be
allocated to the Managing Director is equal to the number
of performance shares issued, being 762,190. Performance
shares granted to the Managing Director under the plan vest
in accordance with the following table provided the cash EPS
gateway condition has been met.
Company’s TSR ranking against
TSR of peer group
Percentage of performance
shares that vest
TSR below 50th percentile
TSR between 50th percentile and
75th percentile
TSR above 75th percentile
Nil
65%
100%
The Managing Director is entitled to vote and to receive any
dividend, bonus issue, return of capital or other distribution
made in respect of shares allocated on vesting of the
performance shares. Dividends paid on vested performance
shares are reinvested into shares in the Bank (less an amount
distributed to the Managing Director to meet tax obligations
on the dividends) and are held in trust on the same terms as
the performance shares during the dealing restriction period.
Following is a summary of the grants and vesting results to date:
Performance
shares
N0.
Fair value
Performance period
Outcome to date
Tranche 1
Grant A
Grant B
76,219
76,219
$7.19
$8.56
1 year
(1 July 2009 to 30 June 2010)
Tranche 2
Grant A
Grant B
76,219
76,219
$6.61
$8.19
2 years
(1 July 2009 to 30 June 2011)
Tranche 3
Grant A
Grant B
76,219
76,219
$6.19
$7.83
3 years
(1 July 2009 to 30 June 2012)
Tranche 4
Grant A
Grant B
76,219
76,219
$5.70
$7.50
4 years
(1 July 2009 to 30 June 2013)
Tranche 5
Grant A
Grant B
76,219
76,219
$5.02
$7.17
5 years
(1 July 2009 to 30 June 2014)
No of shares vested: 125,761
Grant A – 49, 542
Grant B – 76, 219
Released: 18 August 2014
Value at time of vesting: $8.18 per share
No of shares carried into next tranche: 26,677 (from Grant A)
No of shares vested: 143,102
Grant A – 66,883
Grant B – 76, 219
Released: 18 August 2014
Value at vesting time: $8.86
No of shares carried into next tranche: 36,013 (from Grant A)
No of shares vested: 76,219
Grant A – Nil
Grant B – 76, 219
Released: 18 August 2014
Value at vesting time: $7.30
No of shares carried into next tranche: 112,232 (from Grant A)
No of shares vested: 198,712
Grant A – 122,493
Grant B – 76, 219
Value at vesting time: $10.07
No of shares carried into next tranche: 65,958 (from Grant A)
No of shares vested: 168,635
Grant A – 92,416
Grant B – 76, 219
Value at vesting time: $12.20
No of performance shares that lapsed: 49,762 (from Grant A)
34
7. Company performance
The short term incentive is designed to reward the
achievement of annual financial and business goals, taking
into account risk management and compliance objectives,
and Senior Executive contributions to longer term growth and
performance. The measures used to determine STI awards
are annual cash earnings, business and risk management
objectives.
The performance share grants are designed to drive and
reward long-term growth and sustainable shareholder value,
aligning the interests of Senior Executives and shareholders.
The measures used to determine awards of performance
shares are cash earnings per share performance and total
shareholder return.
Following is an overview of the Group’s performance for the
2014 financial year which includes the key financial outcomes
used to determine STI and performance share awards. The
below table and graphs also illustrate the Group’s progress
in the key performance indicators on a year-on-year basis for
the past 5 years. Information on the achievement of strategic,
business and risk management goals for the year is presented
in the Operating and Financial Review section of the Annual
Financial Report.
Company performance measure
Financial year ending
June 2014
June 2013
June 2012
June 2011
June 2010
Basic earnings per share (cents)
Cash earnings per share (cents)
NPAT ($m)
Cash earnings ($m)
Dividends paid and payable (cents per
share)
Share price at start of financial year
Share price at end of financial year
Absolute shareholder return
87.7
91.5
372.3
382.3
64.0
$10.07
$12.20
28%
84.9
85.4
352.3
348.0
61.0
$7.41
$10.07
44%
48.6
84.2
195.0
323.0
60.0
$8.86
$7.41
(9.6%)
91.5
92.3
342.1
336.2
60.0
$8.18
$8.86
16%
67.4
83.3
242.6
291.0
58.0
$6.95
$8.18
26%
The following graph shows the cash earnings over the past
year and four previous years, with the average STI payment
(as a percentage of the maximum STI) paid to Senior
Executives, which demonstrates the relationship between
performance and STI payments.
The following graph compares the Group’s total shareholder
return (TSR) against the ASX 100 Accumulation Index for the
past five years. The ASX 100 is the comparator group against
which the Group’s TSR performance is measured for the
current long term incentive plan.
94
92
90
88
86
84
82
80
78
)
s
t
n
e
c
(
S
P
E
h
s
a
C
2010
2011
2012
2013
2014
Cash EPS (cents)
Average STI paid (as a % of maximum STI)
TSR BEN vs ASX 100 Accumulation Index
240
220
200
180
160
140
120
100
80
60
40
20
0
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11 Jan 12 Jul 12 Jan 13 Jul 13
Jan 14
Jul 14
Total return basis index July 2009 = 100 (source: Bloomberg)
BEN
ASX 100 AI
35
2013–14 ANNUAL REPORT
Performance and remuneration outcomes
As discussed at section 5.2 above, the criteria to establish
a short term incentive (STI) bonus pool was met for the
financial year. Based on an assessment of the Group’s
financial performance, the achievement of business and risk
management objectives and individual performance, the
Board approved STI awards to Senior Executives for the year.
There was a general increase in the percentage of maximum
potential STI awards paid to Senior Executive when compared
to the previous financial year which reflects the continued
improvement in financial performance and progress of the
business. Details of individual STI awards are provided at
Table 3.
In relation to the Managing Director’s performance share
grant, the Group’s market relative TSR performance exceeded
the median for the 2014 performance period and as the EPS
gateway hurdle was also met, 65% of the performance shares
that are subject to these performance measures vested.
The performance shares that did not vest have lapsed. The
performance shares subject to the service condition also
vested for FY2014.
In relation to LTI grants for other Senior Executives, the
EPS test for the parcel tested on 30 June 2014 was met
and accordingly 100% of the performance shares have
been carried forward for testing over the three year TSR
performance period. None of the performance shares have
vested or lapsed.
The current grants of deferred shares comprise the 2013
deferred base pay grant, the 2014 deferred base pay grant
and the 2013 deferred STI grant. The grants are subject to
continued employment and risk adjustment conditions. The
2013 deferred base pay grant was tested and having regard
to the financial soundness of the organisation it was decided
by the Board to vest the deferred shares. The 2014 deferred
base pay grant has not vested as the grant will be tested in a
future financial period. Also, the deferred component of the
2013 STI award has not vested as it will be tested in a future
financial period.
8. Senior Executive termination arrangements
The remuneration and other terms of employment for Senior
Executives are contained in contracts. The material terms
of the contracts for the Senior Executives at the date of this
report are set out below.
Issue
Description
What is the duration of the contracts?
Fixed term to 2016, subject to the termination provisions summarised below,
and then continuing unless otherwise agreed by the Board or Managing Director.
What notice must be provided by a Senior
Executive to end the contract without cause?
Up to 12 months’ notice. No notice period required if material change in duties
or responsibilities.
On-going until notice is given by either party.
Applies to
Managing Director
Senior Executives
All Senior Executives (a)
What notice must be provided by the Bank to end
the contract without cause? (b)
12 months’ notice or payment in lieu.
All Senior Executives (a)
What payments must be made by the Bank for
ending the contract without cause?
Payment of gross salary in lieu of period of notice (including payment of accrued
/ unused leave entitlements calculated to end of relevant notice period).
All Senior Executives
What are notice and payment requirements if the
Bank ends the contract for cause?
Termination for cause does not require a notice period. Payment of pro-rata
gross salary and benefits (including payment of accrued / unused leave
entitlements) is required to date of termination.
All Senior Executives
Are there any post-employment restraints?
12 month non-competition and non-solicitation (employees, customers and
suppliers) restriction.
Managing Director
12 month non-solicitation (employees, customers and suppliers) restriction.
Senior Executives
(a) This does not include Mr Dennis Bice. Mr Bice has been employed by the Company for more than 35 years and under his employment contract is entitled to 99 weeks
notice or payment in lieu.
(b) In certain circumstances, such as a substantial diminution of responsibility, the Bank may be deemed to have ended the employment of a Senior Executive and will
be liable to pay a termination benefit as outlined at the row titled “What payments must be made by the Bank for ending the contract without cause”.
36
Table 1: Non-executive Director
remuneration paid
The following payments were made to Non-executive Directors
in the 2014 and 2013 financial years.
Non-executive Director
Fees 1
Non-monetary benefits 2
Superannuation
contributions 3
Short-term benefits
Post-employment benefits
R Johanson (Chairman) 5
2014
J Dawson 6
J Hazel 7
J Hey
R Hubbard 4
D Matthews 8
T O’Dwyer 4
D Radford
T Robinson
Aggregate totals
2013
2014
2013
2014
2013
2014
2013
2014
2013 (part year)
2014
2013
2014
2013 (part year)
2014
2013
2014
2013
2014
2013
$514,976
$501,644
$253,649
$250,000
$248,836
$245,186
$168,649
$165,000
$168,649
$37,443
$191,264
$195,000
-
$19,039
$168,649
$165,000
$145,855
$142,206
$1,860,527
$1,720,518
$4,550
$3,850
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$22,794
$22,794
$27,344
$26,644
Total
$537,301
$526,113
$277,112
$272,500
$271,853
$267,253
$184,249
$179,850
$184,249
$40,813
$208,956
$212,550
-
$20,752
$184,249
$179,850
$184,249
$179,850
$17,775
$20,619
$23,463
$22,500
$23,017
$22,067
$15,600
$14,850
$15,600
$3,370
$17,692
$17,550
-
$1,713
$15,600
$14,850
$15,600
$14,850
$144,347
$132,369
$2,032,218
$1,879,531
1. Fee amounts include the $5,000 director contribution to the board scholarship program for FY2013 and FY2014.
2. Represents fee sacrifice component of base director fee amount paid into superannuation.
3. Company superannuation contributions.
4. Appointment: Mr Hubbard was appointed on 2 April 2013. Retirement: Mr O’Dwyer retired on 13 August 2012.
5. Subsidiary fees: Fees were paid by Rural Bank Limited to Mr Johanson of $70,186 for FY2014 (FY2013: $70,186) plus superannuation. The fees paid to Mr Johanson
also include a payment of $27,717 in lieu of superannuation contributions above the maximum contribution limit.
6. Subsidiary fees: The fees paid by the Bank to Ms Dawson for FY2014 and FY2013 include an additional fee of $85,000 (plus superannuation) as chair of Sandhurst
Trustees Ltd.
7. Subsidiary fees: Fees were paid by Rural Bank Limited to Mr Hazel of $80,187 plus superannuation for FY2014 (FY2013; $80,187) .
8. The fees paid to Mr Matthews include $22,615 plus superannuation for FY2014 (FY2013: $30,000) for his role as Co-Chair of the Community Bank® Strategic
Advisory Board (“CBSAB”) which ceased in January 2014. Mr Matthews receives an annual fee of $14,000 as a continuing member of the CBSAB.
37
2013–14 ANNUAL REPORT Table 2: Senior Executive remuneration paid
The statutory Senior Executive remuneration disclosures for
the 2014 and 2013 financial years are set out in the table
below. The following remuneration disclosures have been
prepared in accordance with the Corporations Act 2001 and
Australian Accounting Standards.
Short-term employee benefits
Cash
salary 1
Cash
bonuses
(STI) 2
Non-
monetary
benefits 3
$1,340,342
$1,167,494
$152,000
$117,333
$31,308
$31,308
$506,441
$479,496
$87,500
$66,667
$9,731
$26,894
$404,514
$385,654
$57,000
$50,000
$5,100
$6,340
$399,446
$407,504
$56,667
$24,000
-
-
$510,278
$486,679
$112,500
$66,667
$4,841
$6,052
Other 4
$6,624
$7,579
$4,999
$5,719
$2,372
$2,714
-
-
-
-
$62,245
$466,115
$6,712
$58,667
$3,204
$21,987
$672
$5,726
Share-based payments 7
Super-
annuation
benefits 5
Other
long-term
benefits 6
Performance
shares 8, 10
Deferred
shares 9
Total
$17,775
$16,470
($11,548)
$19,931
$1,287,847
$1,006,091
$29,329
$50,000
$2,853,677
$2,416,206
$17,091
$16,470
$17,775
$16,470
$17,775
$16,470
$17,775
$16,470
$2,386
$16,470
$10,094
$8,129
$25,588
$6,163
-
-
$91,887
-
($3,125)
$7,371
$42,149
$22,603
$121,184
$83,333
$799,189
$709,311
$22,471
$11,302
$27,745
$16,575
$64,755
$36,663
$599,575
$515,306
$76,644
$53,334
$578,277
$517,883
$44,942
$22,603
$121,184
$83,333
$903,407
$681,804
$3,034
$22,603
$16,000
$76,666
$91,128
$675,605
Senior Executive
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Jenkins 11
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
R Musgrove 11
2014
$255,963
$32,899
$20,778
$1,792
$26,402
$1,743
$7,252
$23,600
$370,429
T Piper
S Thredgold
2014
2013
2014
2013
$490,229
$363,114
$50,000
$44,000
$7,111
$7,310
$316,025
$296,104
$57,000
$30,000
$5,340
$11,734
A Tullio 11
2014
$294,790
$37,584
$1,327
-
-
-
-
-
$17,775
$16,470
$17,775
$16,470
$17,580
$13,532
$28,885
$8,581
$11,878
$33,706
$16,952
$103,015
$58,332
$715,368
$535,063
$22,471
$11,302
$59,757
$38,329
$486,949
$415,817
-
$8,285
$38,868
$398,434
A Watts
2014
2013
$379,552
$360,297
$57,000
$43,333
$11,830
$29,326
$1,098
$1,257
$17,775
$16,470
($18,289)
($14,909)
$28,122
$16,952
$75,590
$54,166
$552,678
$506,892
Aggregate totals 2014
2013
$4,959,825
$4,412,457
$706,862
$500,667
$100,570
$140,951
$17,557
$22,995
$187,884
$148,230
$118,463
$67,448
$1,528,024
$1,146,983
$729,926
$534,156
$8,349,111
$6,973,887
1. Cash salary amounts include the net movement in the Senior Executive’s annual leave accrual for the year.
2. These amounts represent STI cash awards to Senior Executives for the financial year. The cash component is expected to be paid in September 2014. Refer also to footnote 9
below for discussion on the deferral of STI components.
3. “Non-monetary” relates to sacrifice components of Senior Executive salary such as superannuation contributions and motor vehicle costs.
4. “Other” relates to the notional value of the interest free loan benefit provided under the Group’s employee share plans. A notional benefit is calculated using the average
outstanding loan balance and the Bank’s average cost of funds. Details on loans provided to Senior Executives under the employee share plans are disclosed in the Annual
Financial Report at Note 33.
5. Represents company superannuation contributions made on behalf of Senior Executives. Company superannuation contributions form part of the Senior Executive’s fixed
base remuneration and are paid up to the statutory maximum contributions base.
6. The amounts disclosed relate to movements in long service leave entitlement accruals.
7.
In accordance with the requirements of Australian Accounting Standards, remuneration includes a proportion of the fair value of equity compensation granted or outstanding
during the year. The fair value of equity instruments is calculated as at the grant date and is progressively allocated over the vesting period. The amount included as
remuneration is not related to or indicative of the benefit (if any) that individual Senior Executives may ultimately realise should the equity instruments vest. The fair value of
performance shares as at the grant date has been calculated under AASB 2 Share-based Payments applying a Black-Scholes-Merton valuation method incorporating a Monte
Carlo simulation option pricing model to estimate the probability of achieving the Total Shareholder Return hurdle and the number of performance shares that vest.
The assumptions underpinning these valuations are set out in Table 4.
8. The amortised fair value amount disclosed for the Managing Director for the 2014 financial year comprises the following two fair value allocations due to the grants having
overlapping performance periods:
> The final annual allocation of the amortised fair value of the Managing Director’s 2009 performance share grant: $929,109, and
> The first annual allocation of the Managing Director’s 2014 performance share grant: $358,737.
9. The amounts included in the deferred share column comprise:
> The fair value of deferred STI components amortised over a two year deferral period. The deferred STI component for the 2013 financial year is amortised over 2014 and
2015 financial years and the deferred STI component for the 2014 financial year is amortised over the 2015 and 2016 financial years.
> The fair value of the deferred base pay grants amortised over a two year deferral period. The deferred base pay grant made during the 2013 financial year is amortised over
the 2013 and 2014 financial years and the deferred share grant made during the 2014 financial year is amortised over the 2014 and 2015 financial years.
10. The amortised value of performance shares as a percentage of total remuneration was: M Hirst 45% (2013: 42%), M Baker 5% (2013: 3%), D Bice 4% (2013:2 %), J Billington
5% (2013: 3%), R Fennell 5% (2013: 3%), R Jenkins 3% (2013: 3%), R Musgrove 2% (2013: 0%), T Piper 5% (2013: 3%), S Thredgold 5% (2013: 3%), A Tullio 2% (2013: 0%),
A Watts 5% (2013: 3%).
11. Mr Jenkins ceased as a KMP on 19 August 2013, Mr Musgrove commenced as a KMP on 19 August 2013 and Ms Tullio commenced as a KMP on 5 July 2013. The
remuneration details for these KMP are presented on a pro-rata basis.
38
Table 3: Senior Executive STI payments
The following short term incentives were awarded to Senior
Executives for FY2014. The short term incentives forfeited are
also set out in the table below.
Senior Executive
STI Target / Maximum
award available 2
STI payment
Paid as cash
Deferred into shares 1
STI payment as % of
maximum STI
% of maximum STI
payment forfeited
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Jenkins 3
T Piper
R Musgrove 3
S Thredgold
A Tullio 3
A Watts
$400,000
$175,000
$150,000
$160,000
$225,000
$20,137
$100,000
$86,575
$150,000
$98,904
$150,000
$152,000
$87,500
$57,000
$56,667
$112,500
$6,712
$50,000
$32,899
$57,000
$37,584
$57,000
$76,000
$43,750
$28,500
$28,333
$56,250
$3,356
$25,000
$16,449
$28,500
$18,792
$28,500
57%
75%
57%
53%
75%
50%
75%
57%
57%
57%
57%
43%
25%
43%
47%
25%
50%
25%
43%
43%
43%
43%
1. One-third of STI awards that exceed the $50,000 threshold set by the Board are subject to deferral for two years into shares in the Bank. The allocation of deferred shares
relating to STI deferral for FY2014 is expected to be completed in October 2014.
2. The STI award is subject to the achievement of financial and non-financial measures. Accordingly, the minimum potential STI award is nil.
3. Mr Jenkins ceased as a KMP on 19 August 2013, Mr Musgrove commenced as a KMP on 19 August 2013 and Ms Tullio commenced as a KMP on 5 July 2013.The STI amounts
are presented a pro-rata basis.
Table 4: All plans – equity valuation inputs
The following tables summarise the valuation inputs for
current equity instruments issued by the Bank.
a. Deferred Shares
Instrument
Deferred Base Pay (2013)
Deferred Base Pay (2014)
Grant date
31.08.2012
17.12.2013
Deferred Shares – STI (2013)
18.10.2013
Terms & Conditions for each Grant
Issue price
/ Fair value 1
Exercise price
Share price
at grant date
$7.30
$10.86
$10.38
-
-
-
$7.58
$10.98
$10.47
Restriction
period end
30.06.2014
30.06.2015
30.06.2015
1. The fair value of deferred share grants (for STI deferral and deferred base pay) is calculated using the volume weighted average closing price of the Bank’s shares for the five
day period ending on the grant date.
b. Performance shares
Instrument
Grant date
Fair value 1
Exercise
price
Risk-free
interest rate
Dividend
yield
Expected
volatility
Expected life
Performance
period end
Terms & Conditions for each Grant
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
11.12.2009
Performance Shares
31.08.2012
Performance Shares
17.12.2013
$7.19
$8.56
$6.61
$8.19
$6.19
$7.83
$5.70
$7.50
$5.02
$7.17
$3.30
$4.45
-
-
-
-
-
-
-
-
-
-
-
-
4.25%
4.25%
4.47%
4.47%
4.77%
4.77%
5.02%
5.02%
5.15%
5.15%
2.49%
2.91%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
4.5%
6.5%
7.5%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
25%
22%
1. The fair value is calculated as at grant date in accordance with AASB2 Share-based Payments using an independent valuation.
1 year
1 year
2 years
2 years
30.06.2010
30.06.2010
30.06.2011
30.06.2011
3 years
30.06.2012
3 years
30.06.2012
4 years
4 years
5 years
5 years
4 years
4 years
30.06.2013
30.06.2013
30.06.2014
30.06.2014
30.06.2016
30.06.2017
39
2013–14 ANNUAL REPORT Table 5: All plans – grants of instruments
The following terms apply to current equity instruments issued
by the Bank.
Senior
Executive
M Hirst
M Baker
D Bice
J Billington
R Fennell
Instrument
Performance Shares
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
R Musgrove
Performance Shares
Deferred Base Pay
T Piper
S Thredgold
A Tullio
A Watts
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Date Granted
07.12.2009
18.10.2013
Securities
granted
No. (a) (b)
762,190
5,651
Years payable
2009 - 2014
2015
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
17.12.2013
17.12.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
17.12.2013
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
27,397
17,570
13,699
10,040
3,211
13,699
10,040
6,849
5,020
2,408
20,091
10,040
10,046
7,362
27,397
20,080
13,699
10,040
3,211
7,530
5,020
20,548
15,060
10,274
10,040
2,119
13,699
10,040
6,849
5,020
1,445
7,530
5,020
2,320
20,548
10,040
10,274
5,020
2,087
2016
2017
2014
2015
2015
2016
2017
2014
2015
2015
2016
2017
2014
2015
2016
2017
2014
2015
2015
2017
2015
2016
2017
2014
2015
2015
2016
2017
2014
2015
2015
2017
2015
2015
2016
2017
2014
2015
2015
Maximum value
of grant (c)
Vesting
/ exercise date
$5,332,283
$58,667
$200,000
$175,000
$100,000
$100,000
$33,333
$100,000
$100,000
$50,000
$50,000
$25,000
$146,667
$100,000
$73,333
$73,333
$200,000
$200,000
$100,000
$100,000
$33,333
$75,000
$50,000
$150,000
$150,000
$75,000
$100,000
$22,000
$100,000
$100,000
$50,000
$50,000
$15,000
$75,000
$50,000
$24,080
$150,000
$100,000
$75,000
$50,000
$21,667
30.06.2014
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2017
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2017
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
Expiry date
30.06.2014
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2017
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
30.06.2017
30.06.2015
30.06.2015
30.06.2016
30.06.2017
30.06.2014
30.06.2015
30.06.2015
a. The grants to Senior Executives in FY2014 constituted 100% of the grants available for the year and were made on the terms described at Sections 4 and 6. The remuneration
value of performance share and deferred base pay grants to Senior Executives (excluding the Managing Director) are determined by the Board. The number of deferred shares
(deferred base pay) and performance shares allocated to Senior Executives (excluding the Managing Director) is calculated by dividing the remuneration value by the volume
weighted average closing price of the Bank’s shares for the last five trading days of the financial year prior to year of the grant. The approach to determining the remuneration
value and number of deferred shares and performance shares granted to the Managing Director is explained earlier in the Remuneration Report. The number of deferred
shares (deferred STI) allocated to Senior Executives is calculated by dividing the deferred STI remuneration value by the volume weighted average closing price of the Bank’s
shares for the five trading days ending on the grant date.
b. The performance shares vest subject to performance and continued service over the period 1 July 2009 to 30 June 2014 for the Managing Director and the applicable
performance period for other Senior Executives. The exercise price for the performance shares and deferred shares is nil.
c.
In relation to the Managing Director, the maximum value of the performance share grants has been estimated using the fair values presented at Table 4. In relation to other
Senior Executives, the maximum value of the performance share and deferred base pay grants have been estimated using the volume weighted average closing price of the
Company’s shares for the last five trading days of the financial year prior to the year of grant. The maximum value of STI deferred share grants have been estimated using the
volume weighted average closing price of the Company’s shares for the five trading days ending on the grant date. The minimum total value of the grants, if the applicable
performance and / or service conditions are not met is nil.
40
Table 6: All plans - number of instruments
The table below sets out the number and value of equity
instruments granted by the Bank including details of
instruments granted in prior years that vested during the
year and equity instruments that were forfeited or lapsed
during FY2014.
Movements in number
Movements in value (a)
Senior
Executive
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Musgrove
T Piper
S Thredgold
A Tullio
A Watts
Instrument
Grant date
Granted
Performance Shares
Deferred Shares STI
11.12.2009
18.10.2013
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Deferred Base Pay
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
Performance Shares
Deferred Base Pay
Deferred Shares STI
Performance Shares
Performance Shares
Deferred Base Pay
Deferred Base Pay
Deferred Shares STI
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
17.12.2013
17.12.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
17.12.2013
17.12.2013
18.10.2013
31.08.2012
17.12.2013
31.08.2012
17.12.2013
18.10.2013
-
5,651
-
17,570
-
10,040
3,211
-
10,040
-
5,020
2,408
-
10,040
-
7,362
-
20,080
-
10,040
3,211
7,530
5,020
-
15,060
-
10,040
2,119
-
10,040
-
5,020
1,445
7,530
5,020
2,320
-
10,040
-
5,020
2,087
Exercised
/ Vested
168,635
-
Forfeited
/ Lapsed
49,762
-
Granted (b)
Exercised
/ Vested (c)
Forfeited
/ Lapsed (d)
-
$58,667
$1,056,738
-
$274,793
-
-
-
13,699
-
-
-
-
6,849
-
-
-
-
10,046
-
-
-
13,699
-
-
-
-
-
-
10,274
-
-
-
-
6,849
-
-
-
-
-
-
-
10,274
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$78,187
-
$109,034
$33,333
-
$44,678
-
$54,517
$25,000
-
$44,678
-
$79,951
-
$89,356
-
$109,034
$33,333
$33,509
$54,517
-
$67,017
-
$109,034
$22,000
-
$44,678
-
$54,517
$15,000
$33,509
$54,517
$24,080
-
$44,678
-
$54,517
$21,667
-
-
$100,000
-
-
-
-
$50,000
-
-
-
-
$73,333
-
-
-
$100,000
-
-
-
-
-
-
$75,000
-
-
-
-
$50,000
-
-
-
-
-
-
-
$75,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
a. For the Managing Director, the percentage of performance shares that vested during the year was 65% (Grant A) and 100% (Grant B). The performance shares that did not vest
for Grant A have lapsed. For other Senior Executives, the percentage of performance shares that vested, or were forfeited, during the year was nil as the performance shares
will be tested over future periods. The percentage of the deferred base pay grant made in FY 2013 that vested during the year was 100%. The percentage of the deferred
share grant and deferred STI grant made in FY 2014 that vested during the year was nil as the grants will be tested over future periods.
b. The grant value of the performance shares and deferred shares is the fair value (refer Table 4). The minimum total value of the grants, if the applicable performance and
service conditions are not met, is nil.
c. The number of vested performance shares for the Managing Director comprises performance shares that were carried forward from tranches one, two, three and four that
were eligible for re-testing at 30 June 2014 together with performance shares from tranche five that were tested at 30 June 2014 and which vested. The value of vested
performance shares is measured using the fair values applicable to the grant of performance shares that vested. The applicable fair values are presented at Table 4. As each
performance share represents an entitlement to one ordinary share in the Bank, the number of ordinary shares that will be allocated is the same as the number of vested
performance shares. The instruments are scheduled to be allocated in October 2014.
d. The value of each instrument on the date it lapses or is forfeited is calculated using the fair value of the instrument. Performance shares and deferred shares lapse where
the applicable performance and service condition are not satisfied. As the performance shares and deferred shares only vest on satisfaction of performance and service
conditions which are to be tested in future financial periods, none of the Senior Executive forfeited performance shares or deferred shares during the 2014 financial year.
41
2013–14 ANNUAL REPORT Table 7: Non-executive Director equity holdings
The details of shareholdings in the Bank held (directly or
nominally) by Non-executive Directors or their related parties
(their close family members or any entity they, or their close
family members, control, jointly control or significantly
influence) are set out below.
Name
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
1 July 2013
Net Change
30 June 2014
Non-executive Directors
R Johanson
J Dawson
J Hazel
J Hey
R Hubbard 1
D Matthews
D Radford
A Robinson
229,042
26,751
15,420
3,338
4,500
11,407
1,900
10,000
1,000
100
-
250
-
-
-
-
7,681
2,967
1,604
889
692
5,187
-
692
(500)
236,723
-
-
-
-
-
1,390
-
29,718
17,024
4,227
5,192
16,594
1,900
10,692
500
100
-
250
-
-
1,390
-
Name
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
Ordinary shares
Pref Shares
1 July 2012
Net Change
30 June 2013
Non-executive Directors
R Johanson
J Dawson
J Hazel
J Hey
R Hubbard 1
D Matthews
T O’Dwyer 1
D Radford
A Robinson
241,821
24,954
12,462
3,114
-
7,295
74,530
1,900
6,921
500
100
-
-
-
-
-
-
-
(12,779)
1,797
2,958
224
4,500
4,112
(74,530)
-
3,079
500
-
-
250
-
-
-
-
-
229,042
1,000
26,751
15,420
3,338
4,500
11,407
-
1,900
10,000
100
-
250
-
-
-
-
-
1. Mr Hubbard was appointed on 2 April 2013 and Mr O’Dwyer retired on 13 August 2012.
Equity transactions: Managing Director
and Senior Executives
All equity transactions with Senior Executives have been
entered into under terms and conditions no more favourable
than those the Group would have adopted if dealing at arm’s
length other than shares issued under the Employee Share
Ownership Plan. Issues of shares under the Employee Share
Plan are made under conditions disclosed in the Annual
Financial Report at Note 33.
42
Table 8: Movements in performance shares
Performance shares and deferred shares are granted as
equity compensation under the Employee Salary Sacrifice,
Deferred Share and Performance Share Plan (“Plan”) to
Senior Executives as long term incentive and deferred base
remuneration components. The movements in performance
shares granted by the Bank for FY2014 and FY2013 are set
out below.
30 June 2014
Senior Executive
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Musgrove 1
T Piper
S Thredgold
A Tullio 1
A Watts
30 June 2013
Senior Executive
M Hirst
M Baker
D Bice
J Billington
R Fennell
R Jenkins 1
T Piper
S Thredgold
A Watts
Balance at
1-Jul-13
Granted as
Remuneration
Number
Exercised
/ Vested
Number Lapsed
/ Expired
Balance at
30-Jun-14
Exercisable
Not Exercisable
218,397
-
(168,635)
(49,762)
27,397
13,699
20,091
27,397
12,004
20,548
13,699
-
20,548
17,570
10,040
10,040
20,080
7,530
15,060
10,040
7,530
10,040
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44,967
23,739
30,131
47,477
19,534
35,608
23,739
7,530
30,588
-
-
-
-
-
-
-
-
-
-
-
44,967
23,739
30,131
47,477
7,530
35,608
23,739
7,530
30,588
Balance at
1-Jul-12
Granted as
Remuneration
Number
Exercised
/ Vested
Number Lapsed
/ Expired
Balance at
30-Jun-13
Exercisable
Not Exercisable
417,109
-
(198,712)
-
-
-
-
-
-
-
-
27,397
13,699
20,091
27,397
27,397
20,548
13,699
20,548
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
218,397
27,397
13,699
20,091
27,397
27,397
20,548
13,699
20,548
-
-
-
-
-
-
-
-
-
218,397
27,397
13,699
20,091
27,397
27,397
20,548
13,699
20,548
1. Mr Jenkins ceased as a KMP on 19 August 2013, Mr Musgrove commenced as a KMP on 19 August 2013 and Ms Tullio commenced as a KMP on 5 July 2013. As at 19 August
2013, Mr Jenkins held 27,397 performance shares.
43
2013–14 ANNUAL REPORT Table 9: Movements in other equity holdings
The movements in shareholdings in the Bank for Senior
Executives (including their related parties) are below:
1 July
2013
-
660,811
-
13,699
187,392
500
6,849
70,033
-
10,046
42,493
-
13,699
97,474
-
-
16,054
-
10,274
61,761
-
6,849
33,545
-
-
-
-
10,274
66,316
-
Granted as
remuneration
5,651
-
-
Received on
vesting 2
-
168,635
-
13,251
(13,699)
-
-
-
-
7,428
(6,849)
-
-
-
-
7,362
(10,046)
-
-
-
-
13,251
(13,699)
-
-
5,020
-
-
-
-
-
-
-
12,159
(10,274)
-
-
-
-
6,465
(6,849)
-
-
7,340
-
-
-
-
-
-
-
7,107
(10,274)
-
-
-
-
Net change
other
-
23,863
-
-
7,893
50
-
2,506
-
-
1,292
-
-
2,278
-
-
6,002
-
-
(4,644)
-
-
881
-
-
71
-
-
1,322
-
30 June
2014
5,651
853,309
-
13,251
195,285
550
7,428
72,539
-
7,362
43,785
-
13,251
99,752
-
5,020
22,056
-
12,159
57,117
-
6,465
34,426
-
7,340
71
-
7,107
67,638
-
Senior
Executive
M Hirst
Type 1
Deferred shares
Ordinary shares
Preference shares
M Baker
Deferred shares
D Bice
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
J Billington
Deferred shares
Ordinary shares
Preference shares
R Fennell
Deferred shares
Ordinary shares
Preference shares
R Musgrove 3
Deferred shares
T Piper
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
S Thredgold
Deferred shares
Ordinary shares
Preference shares
A Tullio 3
Deferred shares
Ordinary shares
Preference shares
A Watts
Deferred shares
Ordinary shares
Preference shares
44
Senior
Executive
M Hirst
Type 1
Deferred shares
Ordinary shares
Preference shares
M Baker
Deferred shares
D Bice
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
J Billington
Deferred shares
Ordinary shares
Preference shares
R Fennell
Deferred shares
Ordinary shares
Preference shares
R Jenkins 3
Deferred shares
T Piper
Ordinary shares
Preference shares
Deferred shares
Ordinary shares
Preference shares
S Thredgold
Deferred shares
Ordinary shares
Preference shares
A Watts
Deferred shares
Ordinary shares
Preference shares
1 July
2012
12,936
428,761
-
8,624
171,615
500
3,018
80,089
-
4,312
36,250
-
8,624
84,836
-
6,899
159,770
-
5,390
63,371
-
3,449
28,780
-
4,312
60,030
-
Granted as
remuneration
Received on
vesting 2
Net change
other
-
-
-
13,699
-
-
6,849
-
-
10,046
-
-
13,699
-
-
13,699
-
-
10,274
-
-
6,849
-
-
10,274
-
-
-
198,712
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(12,936)
33,338
-
(8,624)
15,777
-
(3,018)
(10,056)
-
(4,312)
6,243
-
(8,624)
12,638
-
(6,899)
(10,890)
-
(5,390)
(1,610)
-
(3,449)
4,765
-
(4,312)
6,286
-
1. Ordinary share amounts include ordinary shares issued under the employee share ownership plan.
2. Shares allocated in relation to vested performance shares.
3. Mr Jenkins ceased as a KMP on 19 August 2013, Ms Tullio commenced as a KMP on 5 July 2013 and Mr Musgrove commenced as a KMP on 19 August 2013.
30 June
2013
-
660,811
-
13,699
187,392
500
6,849
70,033
-
10,046
42,493
-
13,699
97,474
-
13,699
148,880
-
10,274
61,761
-
6,849
33,545
-
10,274
66,316
-
45
2013–14 ANNUAL REPORT Table 10: Loans to Non-executive Directors
and Senior Executives
Details of individuals (including their related parties) with
loans above $100,000 in the reporting period are as follows:
Balance
at beginning
of period
$’000
2,132
1,923
5,597
4,859
7,729
6,782
Non-executive Directors
2014
2013
Senior Executives 1
2014
2013
Total directors and executives
2014
2013
Interest
charged
$’000
Interest
not charged
$’000
Write-off
$’000
Balance at
end of period
$’000
Number at
period end
119
121
252
261
371
382
-
-
21
23
21
23
-
-
-
-
-
-
1,635
2,132
6,112
5,130
7,747
7,262
5
5
9
7
14
12
Balances include interest-free loans provided to Senior Executives in connection with share issues under employee share plans as
described at Note 33. Details of individuals with loans in the reporting period are as follows:
Balance
at beginning
of period
$’000
Interest
charged
$’000
Interest
not charged
$’000
Write-off
$’000
2014
Non-executive Directors
R Johanson
J Dawson
D Radford
T Robinson
D Matthews
Senior Executives
M Hirst
Staff share loan
Loans
M Baker
Staff share loan
Loans
D Bice
Staff share loan
Loans
J Billington
Loans
R Fennell
Loans
R Jenkins 2
Staff share loan
Loans
R Musgrove 2
Staff share loan
Loans
S Thredgold
Loans
A Tullio 2
Loans
46
576
383
291
500
382
183
120
136
87
65
594
711
452
136
1,678
63
404
968
-
57
16
7
15
24
-
7
-
4
-
32
42
27
-
88
-
21
23
8
-
-
-
-
-
7
-
5
-
2
-
-
-
5
-
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at
end of period
Highest owing
in period4
$’000
1,118
26
41
5
445
160
103
112
98
56
517
872
481
112
1,581
58
403
969
590
$’000
1,020
421
101
-
457
183
130
136
142
65
674
889
481
136
1,697
63
430
974
977
2013
Non-executive Directors
R Johanson
J Dawson
D Radford 3
T Robinson
D Matthews
Senior Executives
M Hirst
Staff share loan
Loans
M Baker
Staff share loan
Loans
D Bice
Staff share loan
Loans
J Billington
Loans
R Fennell
Loans
R Jenkins
Staff share loan
Loans
S Thredgold
Loans
Balance
at beginning
of period
$’000
Interest
charged
$’000
Interest
not charged
$’000
Write-off
$’000
Balance at
end of period
Highest owing
in period4
$’000
$’000
504
405
54
500
460
206
137
159
43
74
617
374
464
159
2,066
560
38
24
1
30
28
-
9
-
4
-
42
32
28
-
117
29
-
-
-
-
-
8
-
6
-
3
-
-
-
6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
576
383
291
500
382
183
120
136
87
65
594
711
452
136
1,678
968
542
477
101
-
466
206
167
159
103
74
656
784
492
159
2,245
976
1. The opening balance has been adjusted to include the loan balances of Ms Tullio and Mr Musgrove who were appointed as executives during the year.
2. Mr Jenkins ceased as a KMP on 19 August 2013, Ms Tullio commenced as a KMP on 5 July 2013 and Mr Musgrove commenced as a KMP on 19 August 2013.
3. The facilities were fully repaid shortly after the start of the financial year. In addition the facilities were not redrawn until late in the financial year.
4. Represents aggregate highest indebtedness of the KMP during the financial year. All other items in this table relate to the KMP and their related parties.
Terms and conditions of director and Senior Executive loans
The loans to Non-executive Directors and Senior Executives are made in the ordinary course of the Group’s business
and on an arms-length basis. The loans are processed and approved in accordance with the Group’s standing lending
processes and prevailing terms and conditions.
Terms and conditions of the loans under Employee Share Ownership Plan
Loans have been provided to Senior Executives under the terms of the Group’s legacy Employee Share Ownership Plan
(“Plan”). Details of the Plan’s terms and conditions are provided in the Annual Financial Report at Note 33.
This Directors Report is signed in accordance with a resolution of the board of directors
Robert Johanson
Chairman
2 September 2014
Mike Hirst
Managing Director
47
2013–14 ANNUAL REPORT
Five year history
The Bendigo and Adelaide Bank Group
Financial Performance for the year ended 30 June
2014
$m
2,928.2
1,810.0
1,118.2
315.8
81.9
815.6
536.5
164.2
-
372.3
10.0
382.3
2013 1
$m
3,140.5
2,113.0
1,027.5
321.8
69.9
791.8
487.6
135.3
-
352.3
(4.3)
348.0
2012 2
$m
3,440.8
2,490.7
950.1
262.8
32.4
854.4
326.1
131.1
-
195.0
128.0
323.0
2011
$m
3,385.8
2,450.6
935.2
300.8
44.2
767.3
424.5
77.9
(4.5)
342.1
(5.9)
336.2
65,064.9
52,932.8
716.1
242.5
8,217.9
2,955.6
4,974.2
60,272.5
50,511.5
383.8
293.9
6,447.4
2,635.9
4,434.0
57,237.8
48,670.0
288.8
272.2
5,372.5
2,634.3
4,217.7
55,004.5
46,409.8
469.0
201.6
5,296.8
2,627.3
3,960.1
2010 3
$m
2,712.2
1,857.6
854.6
280.4
44.7
739.6
350.7
90.8
(17.3)
242.6
48.4
291.0
52,222.5
43,603.2
760.5
279.7
4,848.6
2,730.5
3,880.4
57,615.8
53,839.6
50,983.7
48,975.0
46,217.4
-
261.4
655.5
-
259.2
354.3
1,558.0
1,385.4
89.5
-
436.9
1,510.0
89.5
-
575.7
1,404.2
89.5
-
532.9
1,502.3
Interest income
Interest expense
Net interest income
Other income
Bad & doubtful debts expense
(net of bad debts recovered)
Other expenses
Profit before income tax expense
Income tax expense
Net (profit)/loss attributable to
non-controlling interest
Profit after income tax expense
Cash earnings adjustments
Cash basis earnings
Financial Position at 30 June
Total assets
Net loans and other receivables
Cash and cash equivalents
Due from other financial institutions
Financial assets and derivatives
Other assets
Equity
Deposits and notes payable
Reset preference shares
Convertible preference shares
Subordinated debt
Other liabilities
Share Information
Net tangible assets per ordinary share
$7.26
$6.62
$6.16
$5.76
$5.27
Earnings per ordinary share (statutory basis) -
cents
Earnings per ordinary share (cash basis) - cents
Dividends per ordinary share:
Interim - cents
Final - cents
Total - cents
Ratios
87.7
91.5
31.0
33.0
64.0
84.9
85.4
30.0
31.0
61.0
48.6
84.2
30.0
30.0
60.0
91.5
92.3
30.0
30.0
60.0
67.4
83.3
28.0
30.0
58.0
Profit after tax before specific items return
0.61%
0.58%
0.35%
0.64%
0.48%
on average assets
Return on average assets (cash basis)
Return on average ordinary equity (cash basis)
Return on average ordinary equity (after tax)
0.63%
8.96%
8.59%
0.60%
8.58%
8.52%
0.57%
8.36%
4.84%
0.63%
9.07%
8.99%
0.58%
8.18%
6.61%
Figures for 2013 includes Community Telco Australia from December 2012 as a wholly owned subsidiary.
Figures for 2012 include Delphi Bank from 1 March 2012.
Figures for 2010 include the fully consolidated trading of Rural Bank from 1 October 2009, Tasmanian Banking Services
from 1 August 2009.
1
2
3
48
Five year comparison
The Bendigo and Adelaide Bank Group
Financial Performance for the year ended 30 June
2014
2013 1
2012 2
2011
2010 3
Key Trading Indicators
Total loans approved
Financial assets, derivatives & cash
equivalents
Total liabilities
Financial assets, derivatives & cash
equivalents as proportion of total liabilities
Number of branches 4
Number of staff (excluding
Community Banks)
Assets per staff member
Dissection of Loans by Security 5
Residential loans
Commercial loans
Margin lending
Unsecured loans
Other
Gross loans
($m)
16,357.4
14,101.4
12,665.6
13,885.5
11,916.6
($m)
($m)
(%)
(FTE)
($m)
($'000)
8,934.0
60,090.7
14.87
512
4,387
6,831.2
55,838.5
12.23
489
4,251
5,933.5
53,020.1
11.19
486
4,189
5,967.4
51,044.4
11.69
466
4,019
5,888.8
48,260.7
12.20
448
3,847
14.8
14.2
13.7
13.7
13.6
37,108.8
13,027.1
1,822.7
906.7
248.5
35,009.5
12,662.0
1,915.6
824.2
267.8
33,768.8
11,622.1
2,333.2
869.2
238.7
31,522.3
10,784.2
3,202.2
834.6
220.5
28,875.5
10,182.1
3,627.0
823.7
191.0
53,113.8
50,679.1
48,832.0
46,563.8
43,699.3
Dissection of Loans by Security 5
Residential loans
(%)
Commercial loans
Margin lending
Unsecured loans
Other
Total
Asset Quality
Impaired loans
Specific provisions
Net impaired loans
Net impaired loans % of gross loans
Specific provision for impairment
Specific provision % of gross loans
Collective provision
General reserve for credit losses (GRCL)
(general provision)
Collective provision & GRCL
as a % of risk-weighted assets
Write-offs as % of average total assets
($m)
(%)
($m)
(%)
($m)
($m)
(%)
(%)
69.87
24.53
3.43
1.71
0.46
69.08
24.98
3.78
1.63
0.53
69.15
23.80
4.78
1.78
0.49
67.70
23.16
6.88
1.79
0.47
66.08
23.30
8.30
1.88
0.44
100.00
100.00
100.00
100.00
100.00
411.8
(113.6)
298.2
0.56
114.4
0.22
42.8
390.1
(103.3)
286.8
0.57
104.1
0.21
34.5
358.5
(102.1)
256.4
0.53
102.9
0.21
31.8
358.7
(90.6)
268.1
0.58
91.4
0.20
41.9
282.2
(78.3)
203.9
0.47
79.1
0.18
47.1
138.3
138.3
128.5
110.9
104.7
0.56
0.11
0.57
0.12
0.53
0.06
0.54
0.07
0.54
0.10
1
2
3
4
5
Figures for 2013 includes Community Telco Australia from December 2012 as a wholly owned subsidiary.
Figures for 2012 include Delphi Bank from 1 March 2012.
Figures for 2010 include the fully consolidated trading of Rural Bank from 1 October 2009, Tasmanian Banking Services
from 1 August 2009.
Includes Retail and Community Bank ® branches. (June 14 includes 14 Delphi and 2 Rural Bank branches)
For the purposes of this dissection, overdrafts and personal loans secured by residential and commercial
property mortgages are included in residential and commercial loan categories respectively.
2013 - 14 ANNUAL REPORT
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
49
(1)
(1)
(1)
Income statement
for the year ended 30 June 2014
Income
Net interest income
Interest income
Interest expense
Total net interest income
Other revenue
Dividends
Fees
Commissions
Other revenue
Total other revenue
Other income
Ineffectiveness in cash flow hedges
Other
Total other income
Share of net profit accounted for using the equity method
Consolidated
Parent
Note
2014
$m
2013
$m
2014
$m
2013
$m
3
3
3
3
19
2,928.2
1,810.0
3,140.5
2,113.0
2,456.9
1,480.8
2,567.3
1,694.6
1,118.2
1,027.5
976.1
872.7
0.8
160.5
51.0
103.2
315.5
0.1
-
0.1
0.2
0.7
167.6
44.7
82.6
0.2
141.1
16.5
58.5
115.7
145.2
15.9
53.1
295.6
216.3
329.9
(1.8)
26.4
24.6
1.6
0.1
-
0.1
1.1
(6.6)
(12.3)
(18.9)
1.9
Total income
1,434.0
1,349.3
1,193.6
1,185.6
Expenses
Bad and doubtful debts
Bad and doubtful debts
Bad and doubtful debts recovered
Total bad and doubtful debts
Other expenses
Staff and related costs
Occupancy costs
Amortisation of intangibles
Property, plant & equipment costs
Fees and commissions
Impairment loss on goodwill
Integration costs
Other
Total other expenses
Profit before income tax expense
Income tax expense
Net profit for the year
Earnings per share (cents)
Basic
Diluted
Dividends per share (cents)
50
85.6
(3.7)
81.9
72.7
(2.8)
69.9
57.1
(3.6)
53.5
54.5
(2.7)
51.8
435.1
407.0
385.1
363.6
85.3
36.8
9.7
26.5
-
-
222.2
815.6
536.5
70.6
43.8
10.6
28.6
6.2
9.9
215.1
791.8
487.6
81.7
25.6
9.2
8.2
-
-
223.6
733.4
406.7
(164.2)
(135.3)
(124.0)
372.3
352.3
282.7
67.6
33.1
10.2
10.0
-
9.9
203.1
697.5
436.3
(81.1)
355.2
87.7
83.6
84.9
79.9
64.0
61.0
3
3
6
8
8
9
Statement of comprehensive income
for the year ended 30 June 2014
Profit for the year
Items which may be reclassified subsequently
to the profit & loss:
Net gain on available for sale - equity investments
Transfer to income on sale of available for sale assets
Net gain/(loss) on cash flow hedges taken to equity
Net gain/(loss) on reclassification from cash flow hedge
reserve to income
Net unrealised gain on debt securities in available for sale portfolio
Tax effect on items taken directly to or transferred from equity
Items which will not be reclassified subsequently
to the profit & loss:
Actuarial gain/(loss) on superannuation defined benefits plan
Revaluation of land and buildings
Tax effect on items taken directly to or transferred from equity
Net income recognised directly in equity
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Consolidated
Parent
Note
2014
$m
2013
$m
2014
$m
2013
$m
372.3
352.3
282.7
355.2
31
31
31
31
31
31
31
31
31
1.4
-
(5.9)
0.1
-
1.3
(3.1)
1.6
0.9
(0.8)
1.7
1.1
(37.1)
75.8
(1.8)
4.2
(14.4)
27.8
2.3
-
(0.7)
1.6
0.6
-
-
-
(18.4)
60.2
0.1
36.8
(5.8)
13.3
1.6
0.3
(0.6)
1.3
(6.6)
4.2
(18.6)
39.2
2.3
-
(0.7)
1.6
370.9
381.7
297.3
396.0
Members of the Parent
370.9
381.7
297.3
396.0
2013 - 14 ANNUAL REPORT
51
Balance sheet
as at 30 June 2014
Assets
Cash and cash equivalents
Due from other financial institutions
Amounts receivable from controlled entities
Financial assets held for trading
Financial assets available for sale - debt securities
Financial assets held to maturity
Financial assets available for sale - equity investments
Derivatives
Loans and other receivables - investment
Net loans and other receivables
Investments accounted for using the equity method
Shares in controlled entities
Property, plant & equipment
Deferred tax assets
Investment property
Assets held for sale
Intangible assets and goodwill
Other assets
Total Assets
Liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Loans payable to securitisation trusts
Income tax payable
Provisions
Deferred tax liabilities
Other payables
Convertible preference shares
Subordinated debt
Total Liabilities
Net Assets
Equity
Issued capital - ordinary
Perpetual non-cumulative redeemable convertible preference shares
Step up preference shares
Employee Share Ownership Plan (ESOP) shares
Reserves
Retained earnings
Total Equity
52
Consolidated
Parent
Note
2014
$m
2013
$m
2014
$m
2013
$m
11
11
12
13
15
14
38
16
16
19
20
6
21
22
24
11
25
25
38
6
27
6
26
28
29
30
30
30
30
31
31
716.1
242.5
-
383.8
293.9
-
610.5
242.4
283.8
258.1
292.2
544.7
7,265.4
5,465.2
7,265.8
5,465.8
619.3
286.6
24.3
22.3
608.9
323.3
18.1
31.9
397.1
554.1
1,292.6
1,362.9
2.0
4.9
203.0
397.1
1.8
4.5
182.6
554.1
52,535.7
49,957.4
47,277.5
44,691.3
15.7
-
96.8
127.2
404.9
3.3
15.6
-
63.4
132.1
348.9
25.4
15.1
575.4
92.4
105.7
-
-
13.8
526.5
59.5
96.6
5.9
-
1,504.4
1,518.2
803.3
532.3
1,380.3
1,543.8
1,390.0
1,220.2
65,064.9
60,272.5
61,292.3
56,670.5
363.5
379.5
363.0
371.4
52,359.4
47,439.0
48,975.3
44,121.7
5,256.4
6,400.6
98.4
310.4
77.7
350.3
85.7
79.2
-
17.5
103.8
79.8
914.2
261.4
655.5
-
4,760.4
5,829.9
47.1
93.5
78.2
688.7
259.2
354.3
17.5
99.7
101.7
1,018.9
261.4
603.3
47.1
90.3
88.0
887.9
259.2
302.2
60,090.7
55,838.5
56,589.3
52,433.7
4,974.2
4,434.0
4,703.0
4,236.8
4,183.3
3,758.0
4,183.3
3,758.0
88.5
100.0
(16.2)
101.1
517.5
88.5
100.0
(18.7)
108.1
398.1
88.5
100.0
(16.2)
134.7
212.7
88.5
100.0
(18.7)
122.9
186.1
4,974.2
4,434.0
4,703.0
4,236.8
At 30 June 2014
1 refer to note 30 Issued capital for further details
2 refer to note 31 Retained earnings and reserves for further details
4,183.3
172.3
For the year ended 30 June 2013
Statement of changes in equity
For the year ended 30 June 2014
Consolidated
At 1 July 2013
Opening balance b/fwd
Comprehensive income:
Profit for the period
Other comprehensive income
Total comprehensive income for
the period
Transactions with owners in their
capacity as owners:
Shares issued
Share issue expenses
Reduction in employee share
ownership plan (ESOP) shares
Share based payment
Transfer from asset revaluation reserve
Equity dividends
At 1 July 2012
Opening balance b/fwd
Comprehensive income:
Profit for the period
Other comprehensive income
Total comprehensive income for
the period
Transactions with owners in their
capacity as owners:
Shares issued
Reduction in employee share
ownership plan (ESOP) shares
Movement in general reserve for
credit losses (GRCL)
Share based payment
Equity dividends
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
Other
Issued
Retained
capital 1
earnings
Reserves 2
$m
$m
$m
$m
Total
equity
$m
3,758.0
169.8
398.1
108.1
4,434.0
-
-
-
427.8
(2.5)
-
-
-
-
-
-
-
-
-
2.5
-
-
-
372.3
1.1
-
(2.5)
372.3
(1.4)
373.4
(2.5)
370.9
-
-
-
-
2.8
(256.8)
517.5
-
-
-
(1.7)
(2.8)
-
427.8
(2.5)
2.5
(1.7)
-
(256.8)
101.1
4,974.2
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
Other
Issued
Retained
capital 1
earnings
Reserves 2
$m
$m
$m
$m
Total
equity
$m
3,681.8
167.2
296.5
72.2
4,217.7
-
-
-
76.2
-
-
-
-
-
-
-
-
2.6
-
-
-
352.3
1.6
-
27.8
352.3
29.4
353.9
27.8
381.7
-
-
(9.8)
-
(242.5)
398.1
-
-
9.8
(1.7)
76.2
2.6
-
(1.7)
-
(242.5)
108.1
4,434.0
2013 - 14 ANNUAL REPORT
53
At 30 June 2013
1 refer to note 30 Issued capital for further details
2 refer to note 31 Retained earnings and reserves for further details
3,758.0
169.8
Statement of changes in equity (continued)
For the year ended 30 June 2014
Parent
At 1 July 2013
Opening balance b/fwd
De-registered subsidiary company
Comprehensive income:
Profit for the period
Other comprehensive income
Total comprehensive income for
the period
Transactions with owners in their
capacity as owners:
Shares issued
Share issue expenses
Reduction in employee share
ownership plan (ESOP) shares
Share based payment
Equity dividends
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
Other
Issued
Retained
capital 1
earnings
Reserves 2
$m
$m
$m
$m
Total
equity
$m
3,758.0
169.8
186.1
122.9
4,236.8
-
-
-
-
427.8
(2.5)
-
-
-
-
-
-
-
-
-
2.5
-
-
(0.4)
282.7
1.1
-
-
13.5
(0.4)
282.7
14.6
283.8
13.5
297.3
-
-
-
-
(256.8)
212.7
-
-
-
(1.7)
-
427.8
(2.5)
2.5
(1.7)
(256.8)
134.7
4,703.0
At 30 June 2014
1 refer to note 30 Issued capital for further details
2 refer to note 31 Retained earnings and reserves for further details
4,183.3
172.3
For the year ended 30 June 2013
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
Other
Issued
Retained
capital 1
earnings
Reserves 2
$m
$m
$m
$m
Total
equity
$m
At 1 July 2012
Opening balance b/fwd
Acquired in business combination
Comprehensive income:
Profit for the period
Other comprehensive income
Total comprehensive income for
the period
Transactions with owners in their
capacity as owners:
Shares issued
Reduction in employee share
ownership plan (ESOP) shares
Movement in general reserve for
credit losses (GRCL)
Share based payment
Equity dividends
3,681.8
167.2
-
-
-
-
76.2
-
-
-
-
-
-
-
-
-
2.6
-
-
-
At 30 June 2013
1 refer to note 30 Issued capital for further details
2 refer to note 31 Retained earnings and reserves for further details
3,758.0
169.8
54
87.1
(0.6)
355.2
1.6
70.7
4,006.8
-
-
39.2
(0.6)
355.2
40.8
356.8
39.2
396.0
-
-
(14.7)
-
(242.5)
186.1
-
-
14.7
(1.7)
76.2
2.6
-
(1.7)
-
(242.5)
122.9
4,236.8
Cash flow statement
for the year ended 30 June 2014
Cash flows from operating activities
Interest and other items of a similar nature received
Interest and other costs of finance paid
Receipts from customers (excluding effective interest)
Payments to suppliers and employees
Dividends received
Income taxes paid
Consolidated
Parent
Note
2014
$m
2013
$m
2014
$m
2013
$m
2,856.1
3,079.5
2,476.6
2,471.2
(1,793.8)
(2,129.6)
(1,462.6)
(1,679.4)
269.7
265.2
233.0
(751.6)
(781.0)
(980.1)
0.8
0.7
0.2
(185.8)
(177.2)
(104.1)
222.6
(784.4)
115.7
(124.5)
221.2
Net cash flows from operating activities
10
395.4
257.6
163.0
Cash flows from investing activities
Cash paid for purchases of property, plant and equipment
Cash proceeds from sale of property, plant and equipment
Cash paid for purchases of investment property
Cash proceeds from sale of investment property
Cash paid for purchases of equity investments
Cash proceeds from sale of equity investments
Capital injection into subsidiaries
(53.3)
1.9
(28.2)
22.8
(5.8)
-
-
(13.0)
0.9
(32.0)
20.1
(2.0)
109.8
-
(52.6)
(12.5)
1.5
-
5.6
(10.8)
-
-
0.8
-
6.7
(2.0)
-
(36.0)
Net increase of loans and other receivables outstanding
(2,503.1)
(1,670.9)
(4,467.4)
(2,775.9)
Net increase in balance of investment securities
Net cash paid on acquisition of a business combination
Net cash flows used in investing activities
(1,773.9)
(1,124.7)
(611.3)
(4.4)
(259.6)
-
(867.1)
(257.4)
(4,344.0)
(2,971.4)
(5,135.0)
(3,943.4)
Cash flows from financing activities
Proceeds from issue of shares
Net increase in balance of retail deposits
Net increase in balance of wholesale deposits
Proceeds from/(payments to) subordinated debt holders
Repayment of subordinated debt
Dividends paid
Net decrease in balance of notes payable
Repayment of ESOP shares
Payment of share issue costs
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
11
379.6
179.4
379.6
179.4
2,597.2
1,582.7
2,514.1
2,712.8
2,323.2
1,283.6
2,339.5
1,229.4
301.2
-
(0.5)
(82.0)
301.2
-
(211.5)
(166.1)
(211.5)
(1,144.2)
2.5
(2.5)
(10.4)
2.6
(11.1)
(39.9)
2.5
(2.5)
-
(59.0)
(166.1)
(113.9)
2.6
(11.1)
4,245.5
2,778.2
5,283.0
3,774.1
296.9
298.2
595.1
64.4
233.8
298.2
311.0
178.9
489.9
51.9
127.0
178.9
2013 - 14 ANNUAL REPORT
55
Notes to the financial statements
1. Corporate information
The financial report of Bendigo and Adelaide Bank Limited (the
Company) for the year ended 30 June 2014 was authorised
for issue in accordance with a resolution of the directors on
2 September 2014.
Bendigo and Adelaide Bank Limited is a company limited by
shares incorporated in Australia whose shares are publicly
traded on the Australian Securities Exchange.
The domicile of the Company is Australia.
The registered office of the Company is:
The Bendigo Centre
22 – 44 Bath Lane
Bendigo, Victoria
2. Summary of significant
accounting policies
2.1 Basis of preparation
Bendigo and Adelaide Bank Limited is a “prescribed
corporation” in terms of the Corporations Act 2001.
Financial reports prepared in compliance with the Banking
Act are deemed to comply with the accounts provisions
of the Corporations Act 2001.
The financial report is a general purpose financial report
which has been prepared in accordance with the Banking
Act, Australian Accounting Standards, Corporations Act 2001
and the requirements of law so far as they are applicable
to Australian banking corporations, including the
application of ASIC Class Order 10/654 allowing the
Reference
Title
Summary
disclosure of parent entity financial statements due to
Australian Financial Services Licensing obligations.
The financial report has been prepared in accordance
with the historical cost convention, except for certain
assets and liabilities where the application of fair value
measurement is required or allowed by relevant
accounting standards.
The preparation of the financial report requires the use
of certain critical accounting estimates. Areas involving a
higher degree of assumptions and estimates are outlined
in Note 2.6 Significant accounting judgements, estimates
and assumptions.
The amounts contained in the financial statements have
been rounded off under the option available to the
Company under ASIC Class Order 98/0100. The Company
is an entity to which the Class Order applies. The Class
Order allows for rounding to the nearest one hundred
thousand dollars ($’00,000).
2.2 Compliance with IFRS
The financial report complies with Australian Accounting
Standards and International Financial Reporting
Standards (IFRS).
Recently issued or amended standards not yet
effective
Australian Accounting Standards that have recently been
issued or amended but are not yet effective have not
been adopted for the annual reporting period ended
30 June 2014.
Applicat-
ion date of
Standard 1
Impact on
Group financial
report
Applicat-
ion date
for the
Group 1
AASB 2012-3 Amendments to
AASB 2012-3 adds application guidance to
1-Jan-14 The Group has not
1-Jul-14
Australian Account-
AASB 132 Financial Instruments: Presentation
ing Standards -
to address inconsistencies identified in applying
Offsetting Financial
some of the offsetting criteria of AASB 132,
Assets and Financ-
including clarifying the meaning of "currently
ial Liabilities
has a legally enforceable right of set-off" and
that some gross settlement systems may be
considered equivalent to net settlement.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
Interpretation Levies
This Interpretation confirms that a liability to
1-Jan-14 The Group has not
1-Jul-14
21
pay a levy is only recognised when the activity
that triggers the payment occurs. Applying the
going concern assumption does not create a
constructive obligation.
1 Designates the beginning of the applicable annual reporting period unless otherwise stated.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
56
2. Summary of significant
accounting policies (continued)
2.2 Compliance with IFRS (continued)
Applicat-
ion date of
Standard 1
Impact on
Group financial
report
Applicat-
ion date
for the
Group 1
Summary
Reference
Title
AASB 9
Financial
AASB 9 includes requirements for the
1-Jan-18 2 The Group has not
1-Jul-18 2
Instruments
classification and measurement of financial
assets. It was further amended by AASB 2010-7
to reflect amendments to the accounting for
financial liabilities.
These requirements improve and simplify the
approach for classification and measurement of
financial assets compared with the require-
ments of AASB 139.
yet determined the
extent of the impacts
of the amendments.
AASB 2013-3 Amendments to
AASB 2013-3 amends the disclosure
1-Jan-14 The Group has not
1-Jul-14
AASB 136 –
Recoverable
Amount
Disclosures for
Non-Financial
Assets
requirements in AASB 136 Impairment of Assets.
The amendments include the requirement to
disclose additional information about the fair
value measurement when the recoverable
amount of impaired assets is based on fair
value less costs of disposal.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
AASB 2013-4 Amendments to
AASB 2013-4 amends AASB 139 to permit the
1-Jan-14 The Group has not
1-Jul-14
Australian Account-
continuation of hedge accounting in specified
ing Standards -
circumstances where a derivative, which has
Novation of derivat-
been designated as a hedging instrument, is
ives & Continuation
novated from one counterparty as a
of Hedge Account-
consequence of laws or regulations.
ing [AASB 139]
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
AASB 2013-5 Amendments to
These amendments define an investment entity
1-Jan-14 The Group has not
1-Jul-14
Australian
Accounting
Standards –
and require that, with limited exceptions, an
investment entity does not consolidate its
subsidiaries or apply AASB 3 Business
Investment Entities Combinations when it obtains control of another
[AASB 1, AASB 3,
entity.
AASB 7, AASB 10,
These amendments require an investment
AASB 12, AASB
entity to measure unconsolidated subsidiaries
107, AASB 112,
at fair value through profit or loss in its
AASB 124, AASB
consolidated and separate financial
127, AASB 132,
statements.
AASB 134 & AASB
These amendments also introduce new
139]
disclosure requirements for investment entities
to AASB 12 and AASB 127.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
Annual
Annual
This standard sets out amendments to
1-Jul-14 The Group has not
1-Jul-14
Improvements Improvements to
International Financial Reporting
2011–2013
IFRSs 2011–
Standards (IFRS) and the related bases for
Cycle 3
2013 Cycle
conclusions and guidance made during the
International Accounting Standards Board’s
Annual Improvements process. These
amendments have not yet been adopted by the
AASB. The following items are addressed by this standard.
IFRS 13 - Clarifies that the portfolio exception
in paragraph 52 of IFRS 13 applies to all
contracts within the scope of IAS 39 or IFRS 9,
regardless of whether they meet the definitions.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
1 Designates the beginning of the applicable annual reporting period unless otherwise stated.
2 In February 2014, the IASB tentatively decided that the mandatory effective date for the AASB 9 will be for annual periods
beginning on or after 1 January 2018, however it is available for application now.
3 These IFRS amendments have not yet been adopted by the AASB. In order to claim compliance with IFRS, these
amendments should be noted in the financial statements.
2013 - 14 ANNUAL REPORT
57
2. Summary of significant
accounting policies (continued)
2.2 Compliance with IFRS (continued)
Applicat-
ion date of
Standard 1
Impact on
Group financial
report
Applicat-
ion date
for the
Group 1
Summary
Reference
Title
Annual
Annual
of financial assets or financial liabilities as
1-Jul-14 The Group has not
1-Jul-14
Improvements
Improvements to
defined in IAS 32.
2011–2013
IFRSs 2011–
IAS 40 - Clarifies that judgment is needed to
Cycle 3
(continued)
2013 Cycle
determine whether an acquisition of investment
property is solely the acquisition of an
investment property or whether it is the
acquisition of a group of assets or a business
combination in the scope of IFRS 3 that includes
an investment property. That judgment is based
on guidance in IFRS 3.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
AASB 2013-9
Amendments to
The Standard contains three main parts and
4 The Group has not
4
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
Australian
Accounting
makes amendments to a number of Standards
and Interpretations.
Standards –
Part A of AASB 2013-9 makes consequential
Conceptual
Framework,
amendments arising from the issuance of AASB
CF 2013-1.
Materiality and
Part B makes amendments to particular
Financial
Australian Accounting Standards to delete
Instruments
references to AASB 1031 and also makes minor
editorial amendments to various other
standards.
Part C makes amendments to a number of
Australian Accounting Standards, including
incorporating Chapter 6 Hedge Accounting into
AASB 9 Financial Instruments.
IFRS 14 3, 5
Interim standard
This interim standard provides first-time
1-Jan-16 The Group has not
1-Jul-16
on regulatory
adopters of IFRS with relief from derecognising
deferral accounts
rate-regulated assets and liabilities until a
comprehensive project on accounting for such
assets and liabilities is completed by the IASB. It
is intended to encourage rate-regulated entities
to adopt IFRS while bridging the gap with entities
that already apply IFRS, but do not recognise
regulatory deferral accounts.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
Amendments
Clarification of
IAS 16 and IAS 38 both establish the principle for
1-Jan-16 The Group has not
1-Jul-16
to IAS 16 and
IAS 38 3
Acceptable
Methods of
the basis of depreciation and amortisation as
being the expected pattern of consumption of the
Depreciation and
future economic benefits of an asset.
Amortisation
The IASB has clarified that the use of revenue-
(Amendments to
based methods to calculate the depreciation of
IAS 16 and IAS 38) an asset is not appropriate because revenue
generated by an activity that includes the use of
an asset generally reflects factors other than the
consumption of the economic benefits
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
1 Designates the beginning of the applicable annual reporting period unless otherwise stated.
2 In February 2014, the IASB tentatively decided that the mandatory effective date for the AASB 9 will be for annual periods
beginning on or after 1 January 2018, however it is available for application now.
3 These IFRS amendments have not yet been adopted by the AASB. In order to claim compliance with IFRS, these amendments
should be noted in the financial statements.
4 The application dates of AASB 2013-9 are as follows:
Part A - period ending on or after 20 December 2013 Application date for the Group: period ending 30 June 2014
Part B - period beginning on or after 1 January 2014 Application date for the Group: period beginning 1 July 2014
Part C - reporting periods beginning on or after 1 January 2015 Application date for the Group: period beginning 1 July 2015
5 The application of this IFRS is highly unlikely to have an impact for Australian entities.
58
2. Summary of significant
accounting policies (continued)
2.2 Compliance with IFRS (continued)
Reference
Title
Summary
Applicat-
ion date of
Standard 1
Impact on
Group financial
report
Applicat-
ion date
for the
Group 1
Amendments
Clarification of
embodied in the asset.
1-Jan-16 The Group has not
1-Jul-16
to IAS 16 and
IAS 38 3
(continued)
Acceptable
Methods of
The IASB also clarified that revenue is generally
presumed to be an inappropriate basis for
Depreciation and measuring the consumption of the economic
Amortisation
benefits embodied in an intangible asset. This
(Amendments to
presumption, however, can be rebutted in
IAS 16 and IAS 38)
certain limited circumstances.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
IFRS 15 3
Revenue from
IFRS 15 establishes principles for reporting
1-Jan-17 The Group has not
1-Jul-17
Contracts with
useful information to users of financial statements
Customers
about the nature, amount, timing and uncertainty
of revenue and cash flows arising from an entity’s
contracts with customers.
yet determined the
extent of the impacts
of the amendments,
however it is not
expected to result
in a material impact.
1 Designates the beginning of the applicable annual reporting period unless otherwise stated.
2 In February 2014, the IASB tentatively decided that the mandatory effective date for the AASB 9 will be for annual periods
beginning on or after 1 January 2018, however it is available for application now.
3 These IFRS amendments have not yet been adopted by the AASB. In order to claim compliance with IFRS, these amendments
should be noted in the financial statements.
2013 - 14 ANNUAL REPORT
59
2. Summary of significant
accounting policies (continued)
2.3 Basis of consolidation
The consolidated financial statements comprise the financial
statements of Bendigo and Adelaide Bank Limited and all of its
controlled entities (“the Group”). Interests in joint arrange-
ments and associates are equity accounted and are not part
of the consolidated Group.
A controlled entity is any entity (including special purpose
entities) over which Bendigo and Adelaide Bank Limited has
the power to govern, directly or indirectly, decision-making in
relation to financial and operating policies, so as to obtain
benefits from their activities. The existence and effect of
potential voting rights that are currently exercisable or
convertible are considered when assessing whether the
Group controls another entity.
Controlled entities prepare financial reports for consolidation
in conformity with Group accounting policies. Adjustments
are made to bring into line any dissimilar accounting policies
that may exist. The financial statements of controlled entities
are prepared for the same reporting period as the parent
company.
All inter-company balances and transactions between entities
in the Group have been eliminated on consolidation. Where
a controlled entity has been sold or acquired during the year
its operating results have been included to the date control
ceased or from the date control was obtained.
Investments in subsidiaries held by Bendigo and Adelaide
Bank Limited are accounted for at cost in separate financial
statements of the parent entity.
The acquisition of subsidiaries is accounted for using the
purchase method of accounting. The purchase method of
accounting involves allocating the cost of the business
combination to the fair value of the assets acquired and the
liabilities and contingent liabilities assumed at the date of
acquisition.
Minority interests not held by the Group are allocated their
share of net profit after tax in the income statement and are
presented within equity in the consolidated balance sheet,
separately from the parent shareholders’ equity.
2.4 Business combinations
The acquisition accounting method is used to account
for all business combinations regardless of whether
equity instruments or other assets are acquired. Cost is
measured as the fair value of the assets given, shares
issued or liabilities incurred or assumed at the date of
exchange. Where equity instruments are issued in a
business combination, the fair value of the instruments is
their published price at the date of exchange unless, in rare
circumstances, it can be demonstrated that the published
price at the date of exchange is an unreliable indicator of
fair value and that other evidence and valuation methods
provide a more reliable measure of fair value. Transaction
60
costs arising on the issue of equity instruments are
recognised directly in equity.
Acquisition related costs are expensed as incurred.
Except for non-current assets or disposal groups classified
as held for sale (which are measured at fair value less costs
to sell), all identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition
date, irrespective of the extent of any minority interest. The
excess of the cost of the business combination over the net
fair value of the Group’s share of the identifiable net assets
acquired is recognised as goodwill. If the cost of acquisition
is less than the Group’s share of the net fair value of the
identifiable net assets of the subsidiary, the difference is
recognised as a gain in the income statement, but only after
a reassessment of the identifiable net assets and measure-
ment of the net assets acquired.
Where settlement of any part of the consideration is
deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The
discount rate used is the entity’s incremental borrowing rate,
being the rate at which a similar borrowing could be obtained
from an independent financier under comparable terms and
conditions.
2.5 Changes in accounting policies
The accounting policies are consistent with those applied in
the previous financial year except as follows:
The Group has adopted the following new and amended
Australian Accounting Standards and AASB Interpretations
as at 1 July 2013:
> AASB 10 Consolidated Financial Statements
> AASB 11 Joint Arrangements
> AASB 12 Disclosures of Interest in Other Entities
> AASB 13 Fair Value Measurement
> AASB 119 Employee Benefits
> AASB 2012-2 Amendments to Australian Accounting
Standards - Disclosures - Offsetting Financial
Assets and Financial Liabilities
> AASB 2012-5 Amendments to Australian Accounting
Standards arising from Annual Improvements
2009-2011 Cycle
> AASB 2012-9 Amendment to AASB 1048 arising from
the withdrawal of Australian Interpretation 1039
Where the adoption of the Standard or Interpretation has
been deemed to have an impact on the financial statements
or performance of the Group, its impact is described below:
AASB 10 Consolidated Financial Statements
This standard establishes a new control model that applies
to all entities. It replaced AASB 127 Consolidated
and Separate Financial Statements dealing with the
accounting for consolidated financial statements and
UIG-112 Consolidation - Special Purpose Entities .
2. Summary of significant
accounting policies (continued)
2.5 Changes in accounting policies (continued)
AASB 119 Employee Benefits
As a result of AASB 10, the Group has changed its accounting
policy for determining whether it has control over, and
consequently whether it consolidates other entities. AASB 10
introduces a new control model that focuses on whether the
Group has power over an investee, exposure or rights to
variable returns from its involvement with the investee and
the ability to use its power to affect those returns.
The Group has reassessed its control conclusions as of
1 July 2013. There has been no material impact on the
Group's financial statements.
AASB 11 Joint Arrangements
This standard uses the principal of control in AASB 10 to define
joint control, and therefore the determination of whether joint
control exists may change. It removes the option to account for
jointly controlled entities (JCE's) using proportionate
consolidation. There has been no change to the Group's
financial statements.
AASB 12 Disclosure of Interests in Other Entities
This standard includes all disclosures relating to an entity's
interest in subsidiaries, joint arrangements, associates and
structured entities. New disclosures have been introduced
about the judgements made by management to determine
whether control exists, and to require summarised information
about joint arrangements, associates, structured entities and
subsidiaries with non-controlling interests.
As a result of AASB 12, the Group has expanded disclosures
about its interests in subsidiaries and involvement with
unconsolidated structured entities.
AASB 13 Fair Value Measurement
This standard establishes a single source of guidance for
determining the fair value of assets and liabilities. The
standard does not change when an entity is required to use
fair value, but rather, provides guidance on how to determine
fair value when fair value is required or permitted.
Application of this definition may result in different fair values
being determined for the relevant assets.
In accordance with the transitional provisions of the standard,
the Group has applied the new definition of fair value
prospectively. The change had no significant impact on the
measurements of the Group's assets and liabilities, but the
Group has included new disclosures in the financial statements,
which are required under the standard. These new disclosure
requirements are not included in the comparative information.
However, to the extent that disclosures were required by
other standards before the effective date of the standard, the
Group has provided the relevant comparative disclosures under
those standards.
The main change resulting from the amendments is to revise
the accounting for defined benefit plans. The amendment
removes the options for accounting for the liability, and
requires that the liability arising from such plans is
recognised in full with actuarial gains and losses being
recognised in other comprehensive income. It also revised
the method of calculating the return on plan assets.
Interest cost and expected return on plan assets has been
replaced with a net interest amount that is calculated by
applying a discount rate to the net defined benefit asset/
liability. The standard changes the definition of short-term
employee benefits. The distinction between short and long
term benefits is now based on whether the benefits are
expected to be settled wholly within 12 months after the
reporting date.
AASB 2012-2 Amendments to Australian
Accounting Standards - Disclosures - Offsetting
Financial Assets and Financial Liabilities
This standard principally amends AASB 7 Financial
Instruments: Disclosures to require disclosures of the
effect or potential effect of netting arrangements, including
rights of set-off associated with the entity's recognised
financial assets and recognised financial liabilities, on the
entity's balance sheet, when all the offsetting criteria of
AASB 132 are not met.
As a result of the amendments to the standard, the Group
has expanded disclosures about offsetting financial assets
and financial liabilities.
AASB 2012-5 Amendments to Australian Account-
ing Standards arising from Annual Improvements
2009-2011 Cycle
AASB 2012-5 makes amendments resulting from the
2009-2011 Annual Improvements Cycle.
2.6 Significant accounting judgments,
estimates and assumptions
(i) Significant accounting judgments
In the process of applying the Group’s accounting policies,
management has made the following judgments, apart from
those involving estimations, which have the most significant
effect on the amounts recognised in the financial
statements.
Cash earnings
Cash earnings are considered by management as a key
indicator representing the performance of the core business
activities of the Group. The basis for determining cash earn-
ings is the statutory profit after tax, adjusted for specific
items after tax, acquired intangibles amortisation after tax
and preference share/step up preference share appropriat-
ions. Cash earnings have been used in a number of key
indicator calculations such as Note 8 – Earnings per
ordinary share.
2013 - 14 ANNUAL REPORT
61
2. Summary of significant
accounting policies (continued)
2.6 Significant accounting judgments,
estimates and assumptions (continued)
Specific items
Specific items are those items that are deemed to be
outside of our core activities and such items are not
considered to be representative of the Group’s ongoing
financial performance.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary
differences as management considers that it is probable
that future taxable profits will be available to utilise those
temporary differences.
Consolidation
In the process of applying the Group's accounting policy,
management has made the following significant
assumptions in relation to the consolidation of certain
entities:
Managed investment funds
Sandhurst Trustees Limited, a subsidiary of the Group, acts
as a responsible entity for certain managed investment funds.
The decision-making rights of the funds are restricted by the
Product Disclosure Statements. The fees that are received
are not variable, are commensurate with the services
provided, and are consistent with similar funds in the market.
Where Sandhurst Trustees Limited holds investments in the
funds and is exposed to variability of returns, the magnitude
of the variability is assessed to determine if it is significant
enough to result in Sandhurst Trustees Limited being a
principal. As long as the aggregated economic interest
(taking into account any fees and direct holdings) by
Sandhurst Trustees Limited represents less than 37% of the
total units in the fund, it is concluded that Sandhurst Trustees
Limited is an agent and consolidation is not required. This
percentage may change depending on certain factors, such
as dilution of unit ownership and duration of operation.
Community Banks
Community Banks are not consolidated by the
Group as the Group does not have power to govern decision
making, and while the Group’s returns are variable they are
calculated as a percentage of the gross margin. In some
cases the Group holds shares in some Community Bank
Branches and has representation on the Board.
Consolidation of a Community Bank Branch would occur
when the Group has power to affect returns through majority
representation on the Board.
Other Entities
Entities in which the Group holds a 50% interest and have
joint control are classified as joint arrangements. Where
the Group holds, directly or indirectly, 20% or more of the
voting power of an entity and is able to significantly
influence the decisions about the affairs of the entity, that
entity is classified as an associate and is accounted for
using the equity method.
(ii) Significant accounting estimates and
assumptions
The carrying amounts of certain assets and liabilities are
often determined based on estimates and assumptions
of future events. The key estimates and assumptions that
have a significant risk of causing a material adjustment
to the carrying amounts of certain assets and liabilities
within the next annual reporting period are:
Impairment of goodwill and intangibles with
indefinite useful lives
The Group determines whether goodwill and intangibles with
indefinite useful lives are impaired at least on an annual
basis. This requires an estimation of the recoverable amount
of the cash-generating units to which the goodwill and
intangibles with indefinite useful lives are allocated. The
assumptions used in this estimation of recoverable amount
and the carrying amount of goodwill and intangibles with
indefinite useful lives are discussed in Note 23.
Securitisation
The Group conducts an asset securitisation program through
which it packages and sells asset backed securities to
investors through Special Purpose Entities (SPE's). The
Group is entitled to any residual income of the SPE after all
payments to investors and costs of the programs have been
met.
Impairment of financial assets and property,
plant & equipment
The Group has to make a judgment as to whether an
impairment trigger is evident at each balance date. If a
trigger is evident the asset must be tested for impairment,
which requires the estimation of future cash flows and the
use of an appropriate discount rate.
SPEs are consolidated by the Group where the Group has
the power to govern directly or indirectly decision making in
relation to financial and operational policies and receives
the majority of the residual income or is exposed to the
majority of the residual risk associated with the SPEs.
Liabilities associated with the programs are accounted for
on an amortised cost basis using the effective interest
method. Interest rate swaps and liquidity facilities are
provided at arm's length to the SPEs.
62
Impairment of non-financial assets other
than goodwill
The Group assesses impairment of all assets at each
reporting date by evaluating conditions specific to the Group
and to the particular asset that may lead to impairment. If
an impairment trigger exists, the recoverable amount of the
asset is determined. This involves value in use calculations,
which incorporate a number of key estimates and
assumptions.
2. Summary of significant
accounting policies (continued)
2.6 Significant accounting judgments,
estimates and assumptions (continued)
Employee benefits (leave provisions)
The carrying amount of leave liabilities is calculated based
on assumptions and estimates of when employees will take
leave and the prevailing wage rates at the time the leave
will be taken. Long service leave liability also requires a
prediction of the number of employees that will achieve
entitlement to long service leave.
Superannuation defined benefit plan
Various actuarial assumptions are required when determin-
ing the Group’s superannuation obligations. The Group’s
policy on superannuation defined benefit plan is disclosed
in Note 2.24 and Note 39.
Loan provisioning
The Group determines whether loans are impaired on an
ongoing basis. This requires an estimation of the value of
future cash flows. The Group’s policy for calculation of loan
loss allowance is disclosed in Note 2.13.
Investment property
The fair value of investment properties are based on
estimated future cash flows using market indices of property
values and long term discount rates. The Group’s policy for
calculation of the fair value is disclosed in Note 2.17.
Fair Value of Financial Instruments
Fair value is the amount for which an asset could be
exchanged or a liability settled, between willing parties in
an arm's length transaction. Wherever possible, the fair
value is determined by reference to the quoted bid or offer
price in the most active market to which the Group has
immediate access. The Group uses valuation techniques
that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, using
relevant observable inputs and minimising the use of
unobservable inputs. In accordance with AASB 13 Fair
Value Measurement , the Group categorises financial
instruments carried on the balance sheet at fair value using
the following three level hierarchy. Financial instruments are
categorised as follows:
> Level 1 - quoted market prices in an active market for
identical assets/liabilities.
> Level 2 - derived inputs other than quoted prices within
level 1 that are observable either directly/indirectly.
> Level 3 - inputs that are unobservable.
2.7 Comparatives
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
2.8 Trustee and funds management activities
Controlled entities of the Group act as the Trustee and/or
Manager for a number of funds. The assets and liabilities
of these funds are not included in the consolidated financial
statements. An assessment of each fund has occurred as per
AASB 10 Consolidated financial statements . Note 43 provides
the relevant information regarding the unstructured entities.
Commissions and fees earned in respect of the Group's trust
and funds management activities are included in the income
statement.
2.9 Foreign currency transactions
and balances
Both the functional and presentation currency of Bendigo
and Adelaide Bank Limited and each of its subsidiaries is
Australian dollars (AUD). Transactions in foreign currencies
are initially recorded in the functional currency at the
exchange rates ruling on the date of the transaction.
All amounts are expressed in Australian currency and all
references to "$" are to Australian dollars unless otherwise
stated. Amounts receivable and payable in foreign
currencies at balance date are converted at the rates of
exchange ruling at that date. Exchange differences relating
to amounts payable and receivable in foreign currencies
are brought to account as exchange gains or losses in the
income statement in the financial year in which the
exchange rates change.
2.10 Cash and cash equivalents
Cash on hand and in banks and short-term deposits are
stated at nominal value.
For the purposes of the cash flow statement, cash includes
cash on hand and in banks, short-term money market
investments readily convertible into cash within two working
days, net of outstanding overdrafts.
Bank overdrafts are carried at amortised cost. Interest is
recognised in the income statement using the effective
interest method.
2.11 Classification of financial instruments
Financial instruments in the scope of AASB 139 Financial
Instruments: Recognition and Measurement are classified
into one of five categories, which determine the accounting
treatment of the financial instrument.
The classification depends on the purpose for which the
instruments were acquired. Designation is re-evaluated at
each financial year end, but there are restrictions on
reclassifying to other categories.
The classifications are:
> Loans & receivables - measured at amortised cost
> Held to maturity - measured at amortised cost
> Held for trading - measured at fair value with changes in
fair value charged to the income statement
> Available for sale - measured at fair value with changes in
fair value taken to equity
> Non-trading liabilities - measured at amortised cost
All derivative contracts are recorded at fair value in the
balance sheet.
2013 - 14 ANNUAL REPORT
63
2. Summary of significant
accounting policies (continued)
2.12 Financial assets and financial liabilities
Financial assets held for trading
Financial assets are classified as held for trading if they are
acquired for the purpose of selling or repurchasing in the
near term. These assets are measured at fair value.
For liabilities carried at amortised cost, gains and losses
are recognised in the income statement when the
instruments are derecognised. Treasury funding instruments
that are hedged are treated in accordance with the account-
ing policy for derivatives.
Gains or losses on investments held for trading are
recognised in the income statement.
Financial assets – available for sale debt securities
Available for sale investments are non-derivative financial
assets that are designated as available for sale or are not
categorised into any of the categories of fair value through
profit or loss, loans and receivables or held to maturity.
Available for sale investments primarily comprise debt
securities and restricted bank deposits.
Available for sale investments are initially recognised at fair
value plus directly attributable transaction costs and sub-
sequently measured at fair value. Gains and losses arising
from changes in fair value are included in the available for
sale investments reserve within equity until disposal, when
the cumulative gain or loss is transferred to the income
statement. Upon disposal or impairment, the
accumulated changes in fair value in the available for sale
investments reserve is recognised in the income statement.
Financial assets – held to maturity
Non-derivative financial assets with fixed or determinable
payments and fixed maturity are classified as held-to-
maturity where the Group has the positive intention and
ability to hold to maturity. Investments intended to be
held for an undefined period are not included in this
classification.
Investments that are intended to be held to maturity are
subsequently measured at amortised cost using the
effective interest method.
Amortised cost is calculated by taking into account any
discount or premium on acquisition, over the period
to maturity.
For investments carried at amortised cost, gains and losses
are recognised in income when the investments are
derecognised or impaired, as well as through the
amortisation process.
Financial liabilities – deposits and
subordinated debt
All funding instruments are initially recognised at
cost, being the fair value of the consideration given and
including charges associated with the issue of the instru-
ment. They are subsequently measured at amortised cost
using the effective interest method.
Amortised cost is calculated by taking into account any
discount or premium on acquisition, over the period to
maturity.
64
Funding instruments that are issued in currencies other than
AUD are accounted for at amortised cost. These transactions
are restated to AUD equivalents each month with adjustments
taken directly to income.
Financial assets – available for sale equity
investments
Investment securities available for sale consist of securities
that are not actively traded by the Group.
Fair value of quoted investments in active markets are
based on current bid prices. If the relevant market is not
considered active (or the securities are unlisted), the Group
establishes fair value by using valuation techniques, includ-
ing recent arm's length transactions, discounted cash flow
analysis, option pricing models and other valuation
techniques commonly used by market participants.
Gains or losses on available-for-sale investments are
recognised as a separate component in equity until the
investment is sold, collected or otherwise disposed of, or
until the investment is determined to be impaired, at which
time the cumulative gain or loss previously reported in
equity is included in the income statement.
Offsetting financial assets and financial liabilities
The Group has in place International Swaps and Derivatives
Association ("ISDA") and similar master netting
arrangements which do not meet the criteria for offsetting in
the balance sheet. This is because they create for the parties
to the agreement a right of set-off of recognised amounts that
is enforceable only following an event of default, insolvency
or bankruptcy of the Group or the counterparties or following
other predetermined events. In addition, the Group and its
counterparties do not intend to settle on a net basis or to
realise the assets and settle the liabilities simultaneously.
2.13 Loans and receivables
Loans and receivables are carried at amortised cost, using
the effective interest method. The effective interest rate
calculation includes the contractual terms of loans together
with all fees, transaction costs and other premiums or
discounts.
Loans with renegotiated terms are accounted for in the
same manner, taking account of any change to the terms of
the loan.
All loans are subject to continuous management review to
assess whether there is any objective evidence that any
loan or group of loans is impaired.
Impairment loss is measured as the difference between
the loan's carrying amount and the value of estimated future
cash flows (excluding future credit losses that have not been
2. Summary of significant
accounting policies (continued)
2.13 Loans and receivables (continued)
the holding entity reflects the share of the results of
incurred) discounted at the loan's original effective interest
rate. Impairment losses are recognised in the income
statement.
Deferred costs include costs associated with the acquisition,
origination or securitisation of loan portfolios. These costs
are amortised through the income statement over the life of
the loans in these portfolios.
Specific provision
A specific provision is recognised for all impaired loans
when there is reasonable doubt over the collectability of
principal and interest in accordance with the loan agree-
ment. All bad debts are written off against the specific provis-
ion in the period in which they are classified as not recover-
able.
The provision is determined by specific identification or by
estimation of expected losses in relation to loan portfolios
where specific identification is impractical, based on
historical impairment experience for these portfolios.
These portfolios include unsecured credit cards, overdrawn
accounts and personal loans, unsecured mortgage loans
(property realisation shortfalls) where provisions are
calculated based on historical loss experience.
Collective provision
Individual loans not subject to specific provisioning are group-
ed together according to their risk characteristics and are then
assessed for impairment. Based on historical loss data and
current available information for assets with similar risk
characteristics, the appropriate collective provision is raised.
Adjustments to the collective provision are recognised in
the income statement.
General reserve for credit losses
The Australian Prudential Regulation Authority (“APRA”) requires
that banks maintain a general reserve for credit losses to
cover risks inherent in loan portfolios. In certain circumstances
the collective provision can be included in this assessment.
Movements in the general reserve for credit losses are
recognised as an appropriation of retained earnings.
2.14 Investments accounted for using the
equity method
The Group's investment in joint arrangements is accounted for
under the equity method of accounting in the consolidated
financial statements. The financial statements of joint
arrangements are used by the Group to apply the equity
method. The accounting policies of the joint arrangements
and the Group are consistent.
The investments in the joint arrangements are carried at cost
plus post-acquisition changes in the holding entity's
share of the results of operations of the joint arrangements,
less any impairment in value. The income statement of
operations of the joint arrangements.
Dividends receivable from joint arrangements are recognised
in the holding entity’s income statement when received.
When the Group’s share of losses in a joint arrangement
equals or exceeds its interest in the joint arrangement,
including any unsecured long-term receivables and loans, the
Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the joint
arrangement.
2.15 Property, plant & equipment
Cost and valuation
Plant and equipment is measured at cost less accumulated
depreciation and any impairment in value. Land is measured
at fair value. Buildings are measured at fair value less
accumulated depreciation.
2014
40
Depreciation is calculated on a straight-line basis over the
estimated useful life of the asset as follows:
Asset category
Freehold buildings
Leasehold
improvements
Plant & equipment
Furniture, fixtures
and fittings
Motor vehicles
10-12
4-10
10-12
4-10
2013
40
4-5
5
4-5
5
The carrying values of plant and equipment are reviewed
for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. If any
such indication exists and where the carrying values exceed
the estimated recoverable amount, the assets are written
down to their recoverable amount.
Revaluations
Following initial recognition at cost, land and buildings are
carried at a revalued amount which is the fair value at the
date of the revaluation less any subsequent accumulated
depreciation on buildings and accumulated impairment
losses.
The fair value of property is assessed at each reporting
date. External valuations are performed every three years
(or more often if circumstances require) ensuring that the
carrying amount does not differ materially from the asset's
fair value at the balance sheet date.
Any revaluation surplus is credited to the asset revaluation
reserve included in the statement of comprehensive income
and within equity unless it reverses a revaluation decrease
of the same asset previously recognised in the income
statement.
Any revaluation deficit is recognised in the income state-
ment unless it directly offsets a previous surplus of the
2013 - 14 ANNUAL REPORT
65
2. Summary of significant
accounting policies (continued)
2.15 Property, plant & equipment (continued)
2.18 Goodwill
Goodwill on acquisition is initially measured at cost being
the excess of the cost of the business combination over the
acquirer's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities at date of
acquisition.
Following initial recognition, goodwill is measured at cost
less any accumulated impairment loss. Goodwill is not
amortised. Goodwill is reviewed for impairment annually,
or more frequently, if events or changes in circumstances
indicate that the carrying value may be impaired.
Management has identified cash generating units and
applicable impairment indicators in accordance with
AASB 136 Impairment of Assets.
Goodwill with respect to business combinations is allocated
to identified cash generating units expected to benefit from
the synergies of the combination.
Impairment is determined by assessing the recoverable
amount of the cash generating unit to which the goodwill
relates.
Where the recoverable amount of the cash generating unit
is less than the carrying amount, which includes the
allocated goodwill, an impairment loss is recognised in the
income statement, with the goodwill being impaired first.
Impairment losses of goodwill are not subsequently
reversed.
Where goodwill forms part of a cash generating unit and
part of the operation within that unit is disposed of, the
goodwill associated with the operation disposed of is
included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured on
the basis of the relative values of the operation disposed
of and the portion of the cash generating unit retained.
same asset recognised in the asset revaluation reserve.
An annual transfer from the asset revaluation reserve is
made to retained earnings for the depreciation relating to
the revaluation surplus. In addition, any accumulated
depreciation as at the revaluation date is eliminated
against the gross carrying amount of the asset and the net
amount is restated to the revalued amount of the asset.
Upon disposal, any revaluation reserve relating to the
particular asset being disposed of is transferred to retained
earnings.
Derecognition
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in
the income statement in the year the item is derecognised.
2.16 Assets held for sale
Assets are classified as held for sale, when their carrying
amounts are expected to be recovered principally through
sale within twelve months.
They are measured at the lower of carrying amount or fair
value less costs to sell, unless the nature of the assets
requires they be measured in line with another accounting
standard.
Assets classified as held for sale are neither amortised nor
depreciated.
2.17 Investment properties
Investment properties are measured initially at cost, includ-
ing transaction costs.
Subsequent to initial recognition, fair value is determined
by discounting the expected future cash flows of the
portfolio, taking account of the restrictions on the ability to
realise the investment property due to contractual
obligations. Assumptions used in the modelling of future
cash flows are sourced from market indices of property
values and long term growth/discount rates appropriate to
residential property. Gains or losses arising from changes
in the fair values of investment properties are recognised in
the income statement in the year in which they arise.
66
2. Summary of significant
accounting policies (continued)
2.19 Intangible assets
Acquired both separately and from a business
combination
Intangible assets acquired separately are capitalised at
cost and from a business combination are capitalised at fair
value as at the date of acquisition.
Following initial recognition, the cost model is applied to
the class of intangible assets.
The useful lives of these intangible assets are assessed to
be either finite or indefinite.
Where amortisation is charged on assets with finite lives,
this expense is taken to the income statement. Intangible
assets, excluding development costs, created within the
business are not capitalised and expenditure is charged
against profit in the year in which the expenditure is
incurred.
Intangible assets are tested for impairment where an
indicator of impairment exists, and in the case of indefinite
useful life intangibles, annually, either individually or at the
cash generating unit level. Useful lives are also examined
on an annual basis and adjustments, where applicable, are
made on a prospective basis.
The only intangible asset with an indefinite useful life
currently carried by the Group is the trustee licence relating
to Sandhurst Trustees Limited.
A summary of the policies applied to the Group's intangible
assets (excluding goodwill) is as follows:
Useful lives
Method used
Trustee Licence
Indefinite
Not amortised or revalued
Internally generated/
acquired
Impairment test/
recoverable amount testing
Acquired
Annually and where an
indicator of impairment exists
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and
are recognised in the income statement where the asset is
derecognised.
2.20 Trade and other payables
Liabilities for trade creditors and other amounts are carried
at amortised cost, which is the fair value of the considerat-
ion to be paid in the future for goods and services received,
whether or not billed to the consolidated entity. Payables
to related parties are carried at the amortised cost.
Computer software
Computer software, other than software that is an integral
part of the computer hardware, is capitalised as intangible
software and amortised on a straight-line basis over the
useful life of the asset which are between 2.5 and 10 years.
Research and development costs
Research costs are expensed as incurred.
Development expenditure incurred on an individual project
is carried forward when it is probable the future economic
benefits attributable to the asset will flow to the Group.
Following the initial recognition of the development
expenditure, the cost model is applied requiring the asset to
be carried at cost less any accumulated amortisation and
accumulated impairment losses.
Any expenditure carried forward is amortised over the period
of expected future sales from the related project or expected
useful life.
The carrying value of development costs is reviewed for
impairment annually when the asset is not yet in use, or
more frequently when an indicator of impairment arises
during the reporting period indicating that the carrying value
may not be recoverable.
Computer software/
development costs
Finite
Usually not in excess of 5 yrs -
straight line (major software
systems - 10 yrs)
Internally generated or
acquired
Annually and where an
indicator of impairment exists
Intangible assets
acquired in
a business combination
Finite
Straight line over life of asset
(2 - 15yrs)
Acquired
Annually and where an
indicator of impairment
exists
exists
Deferred cash settlements are recognised at the present
value of the outstanding consideration payable on the
acquisition of an asset discounted at prevailing
commercial borrowing rates.
Interest, when charged by the lender, is recognised using
the effective interest method.
Interest, when charged on payables to related parties, is
recognised as an expense on an accrual basis using the
effective interest method.
2013 - 14 ANNUAL REPORT
67
2. Summary of significant
accounting policies (continued)
2.21 Deposits
All deposits and borrowings are initially recognised at cost,
being the fair value of the consideration received net of
issue costs associated with the borrowing. After initial
recognition, interest-bearing borrowings are subsequently
measured at amortised cost using the effective interest
method. Amortised cost is calculated by taking into
account any issue costs, and any discount or premium
on settlement.
Gains and losses are recognised in the income statement
when the liabilities are derecognised.
2.22 Notes payable
The notes payable are predominately notes issued through
securitisation programs. The notes are generally initially
recognised at fair value less directly attributable transaction
costs and subsequently measured at amortised cost using
the effective interest method.
In accordance with AASB 119 Annual leave exceeding twelve
months is discounted to take into account the time value of
money. Annual leave liabilities are accrued on the basis of
full pro-rata entitlement at their nominal amounts, being the
amounts estimated to apply when the leave is paid. Sick
leave liability has been calculated at balance date in
accordance with the relevant Group policy, which provides
entitlement dependent on an individual employees’ years
of service and unused sick leave.
Long Service Leave
Long service leave has been assessed at full pro rata
entitlement in respect of all employees with more than one
year's service. The amount provided meets the requirement
of Accounting Standard AASB 119 Employee Benefits , which
requires the assessment of the likely number of employees
that will ultimately be entitled to long service leave, the
estimated salary rates that will apply when the leave is paid,
discounted to take account of the time value of money.
Interest is recognised in the income statement. Where the
parent has designated the notes payable as available for sale,
the change in fair value is recognised in equity.
Annual leave, sick leave and long service leave liabilities
are recognised in provisions.
2.23 Provisions
Provisions are recognised when the Group has a legal,
equitable or constructive obligation to make a future
sacrifice of economic benefits to other entities as a result of
past transactions or other past events, and it is probable
that a future sacrifice of economic benefits will be required
and a reliable estimate can be made of the amount of the
obligation.
If the effect of the time value of money is material,
provisions are determined by discounting the expected cash
flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where
appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision
due to the passage of time is recognised as a finance cost.
A provision for dividend is not recognised as a liability
unless the dividend is declared, determined or publicly
recommended on or before the reporting date.
2.24 Employee benefits
Wages and Salaries, Annual leave and Sick leave
Liabilities for wages and salaries have been recognised and
measured as the amount which the Group has a present
obligation to pay, at balance date, in respect of employees'
service up to that date. Liabilities have been calculated at
nominal amounts based on wage and salary rates current
at balance date and include related on-costs. Wages and
salaries liabilities are recognised in payables.
68
Superannuation accumulation fund
Contributions are made to an employee accumulation
superannuation fund and are charged to the income
statement when incurred.
Defined benefit plan
Contributions made to the defined benefit plan by entities
within the consolidated entity are added to the superannuat-
ion asset on the balance sheet. Any actuarial gains or losses
are applied to the retained earnings with other fund move-
ments being recognised in the statement of comprehensive
income.
2.25 Share based payments
The Group provides benefits to its employees (including key
management personnel) in the form of share-based
payments, whereby employees render services in exchange
for shares, rights or options over shares.
There are a number of plans in place to provide these
benefits:
1. the Employee Share Plan (“ESP”), which
provides benefits only to the general staff.
Executives (including the Managing Director) may
not participate in it.
Under the terms of the ESP, shares are issued at the
prevailing market value at the time of the issues. The
shares must be paid for by the staff member. The ESP
provides staff members with an interest-free loan for the
sole purpose of acquiring Bendigo and Adelaide Bank
shares. Dividends paid on shares issued under the plan
are applied primarily to repay the loans. Staff cannot deal
in the shares until the loan has been repaid.
2. Summary of significant
accounting policies (continued)
2.25 Share based payments (continued)
over the period in which the performance conditions are
The unpaid portion of the issued shares, reflected in the
outstanding balance of interest-free loans advanced to
employees, is accounted for as ESP shares. The outstanding
loan value of the ESP shares is deducted from equity in the
balance sheet.
The cost of issues under the plan is measured by reference
to the fair value of the equity instruments at the date at
which they are granted. Shares granted under the ESP, vest
immediately and are expensed to the income statement with
the employee benefits reserve increasing by a correspond-
ing amount.
The last issue under this plan was made in January 2008.
2. The Employee Share Grant Scheme
This Plan was introduced in 2008 and is open to employees
(excluding directors and senior executives) of Bendigo and
Adelaide Bank and its subsidiaries. Employees may be
granted shares annually up to a maximum number
determined by the directors having regard to the Group’s
performance. When an eligible employee accepts an invitation
to participate in the Scheme, the trustee of the Scheme will
acquire shares on behalf of the employee and hold the
shares on trust for the employee. Three years after the
trustee acquires the shares, they will be transferred to the
employee.
The cost of issues under the Scheme is measured by
reference to the fair value of the equity instruments at the
date at which they are granted. Shares granted under the
Scheme vest immediately and are expensed to the income
statement.
3. Employee Salary Sacrifice, Deferred Share
and Performance Share Plan
This Plan was introduced in September 2008 as the
Employee Salary Sacrifice and Deferred Share Plan, as a
vehicle for employees to purchase shares in the Group via
salary sacrifice. It was amended in August 2009 to allow for
the grant of performance shares. Performance shares may
be granted to any person employed by or on behalf of the
Group who the Board decides are eligible to receive grants.
The employee will not have beneficial title to the underlying
shares until the relevant performance conditions have been
met. The shares will be held by a trustee until that time.
The cost of equity-settled transactions under this Plan is
measured by reference to the fair value of the equity
instruments at the date at which they are granted. The fair
value is determined with the assistance of an external
valuer using a Black-Scholes-Merton option pricing model.
The cost of equity-settled transactions is recognised, together
with a corresponding increase to employee benefits reserve,
fulfilled (the vesting period), ending on the date on which
the relevant executive becomes fully entitled to the award.
The dilutive effect, if any, of outstanding options is reflected
as additional share dilution in the computation of diluted
earnings per share.
4. The Executive Incentive Plan (“EIP”), which
provides for grants of performance options and
rights to key executives, including the Managing
Director (discontinued).
Under the EIP, eligible executives are granted options and
performance rights subject to performance conditions set by
the Board. If the performance conditions are satisfied
during the relevant performance period, the options and
performance rights will vest.
The cost of these equity-settled transactions under the EIP is
measured by reference to the fair value of the equity
instruments at the date at which they are granted. The fair
value is determined with the assistance of an external
valuer using a binomial model.
The cost of equity-settled transactions is recognised, together
with a corresponding increase to employee benefits reserve,
over the period in which the performance conditions are
fulfilled (the vesting period), ending on the date on which
the relevant executive becomes fully entitled to the award.
The dilutive effect, if any, of outstanding options is reflected
as additional share dilution in the computation of diluted
earnings per share.
2.26 Leases
The determination of whether an arrangement is/or contains
a lease is based in the sustance of the arrangement and
requires an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset or
assets and the arrangement conveys a right to use the asset.
Lease payments for operating leases, where substantially
all the risks and benefits remain with the lessor, are charged
as expenses over the period of the lease on a straight line
basis unless another systematic basis is more representative
of the time pattern of the benefit.
The Group has no leases deemed to be finance leases where
substantially all the risks and benefits are incidental to the
ownership of the asset, but not the legal ownership, are
transferred to entities within the Group.
2.27 Financial guarantees
Bank guarantees have been issued by the bank on behalf of
customers whereby the bank is required to make specified
payments to reimburse the holders for a loss they may incur
because the customer fails to make a payment.
2013 - 14 ANNUAL REPORT
69
2. Summary of significant
accounting policies (continued)
2.27 Financial guarantees (continued)
Loan origination and loan application fees
The fair value of financial guarantee contracts has been
assessed using a probability weighted discounted cash flow
approach.
In order to estimate the fair value under this approach the
following assumptions have been made:
> Probability of default (PD): This represents the
likelihood of the guaranteed party defaulting in a 1 year
period and is assessed on historical default rates.
> Loss given default (LGD): This represents the propor-
tion of the exposure that is not expected to be recovered in
the event of a default by the guaranteed party and is based
on historical experience.
> Exposure to default (EAD): This represents the
maximum loss that Bendigo and Adelaide Bank is exposed
to if the guaranteed party were to default. The model
assumes that the guaranteed loan/facility/contract is at
maximum possible exposure at the time of default.
The value of the financial guarantee over each future year
of the guarantees’ life is then equal to PD x LGD x EAD,
which is discounted over the contractual term of the
guarantee, to reporting date to determine the fair value.
The discount rate adopted is the five year Commonwealth
government bond yield at 30 June 2014. The contractual
term of the guarantee matches the underlying obligations
to which it relates.
As guarantees issued by the bank are fully secured and the
bank has therefore never incurred a loss in relation to
financial guarantees, the LGD (proportion of the exposure that
is not expected to be recovered) is zero.
Therefore, the fair value of financial guarantees has not
been included in the balance sheet. The nominal value of
financial guarantees is disclosed in Note 39 of the report.
2.28 Revenue
Revenue is recognised to the extent that it is probable that
the economic benefits will flow to the entity and the revenue
can be reliably measured. The following specific recognition
criteria must also be met before revenue is recognised.
Interest, fees and commissions
Control of a right to receive consideration for the provision
of, or investment in, assets has been attained.
Interest, fee and commission revenue is brought to account
on an accrual basis. Interest is accrued using the
effective interest method, which is the rate that exactly
discounts estimated future cash receipts through the
expected life of the financial instrument.
70
Loan origination and application fees are recognised as
components of the calculation of the effective interest
method in relation to originated loans. They therefore affect
the interest recognised in relation to this portfolio of loans.
The average life and interest recognition pattern of loans in
the relevant loan portfolios is reviewed annually to ensure
the amortisation methodology for loan origination fees is
appropriate.
Unearned income
Unearned income on the Group's personal lending and
leasing is brought to account over the life of the contracts
on an actuarial basis.
Dividends
Dividends are recognised when control of a right to receive
consideration for the investment in assets is established.
2.29 Borrowing costs
Borrowing costs are recognised as an expense when
incurred unless they are incurred in relation to qualifying
assets.
Borrowing costs for qualifying assets are capitalised as part
of the cost of that asset.
2.30 Income tax
The income tax for the period is the tax payable on the
current period's taxable income based on the national
income tax rate, adjusted for changes in deferred tax assets
and liabilities and unused tax losses.
The Group has adopted the balance sheet liability method
of tax effect accounting, which focuses on the tax effects of
transactions and other events that affect amounts
recognised in either the balance sheet or a tax-based
balance sheet.
Deferred tax assets and liabilities are recognised for
temporary differences, except where the deferred tax
asset/liability arises from the initial recognition of an asset
or liability in a transaction that is not a business
combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised directly in
equity.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets
and unused tax losses, to the extent that it is probable that
taxable profit will be available against which the deductible
temporary differences, and the carry-forward of unused tax
assets and unused tax losses can be utilised.
2. Summary of significant
accounting policies (continued)
2.30 Income tax (continued)
The carrying amount of deferred income tax assets is
reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred
income tax asset to be utilised. Unrecognised deferred tax
balances are reviewed annually to determine whether they
should be recognised.
Deferred income tax assets and liabilities are measured at
the tax rates that are expected to apply to the year when the
asset is realised or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively
enacted at the balance sheet date.
2.31 Goods and services tax (“GST”)
Revenues, expenses and assets are recognised net of the
amount of GST except:
> where the GST incurred on a purchase of goods and
services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item as
applicable; and
> receivables and payables are stated with the amount
of GST included.
The net amount of GST recoverable from or payable to the
taxation authority is included as part of receivables or
payables in the balance sheet. Cash flows are included in the
cash flow statement on a gross basis, the GST component
of cash flows arising from investing and financing activities,
which are recoverable from or payable to the taxation
authority are classified as operating cash flows.
2.32 Derecognition of financial instruments
The derecognition of a financial instrument takes place
when the Group no longer controls the contractual rights that
comprise the financial instrument, which is normally the
case when the instrument is sold, or all the cash flows
attributable to the instrument are passed through to an
independent third party.
2.33 Derivative financial instruments
The Group uses derivative financial instruments such as
foreign currency contracts and interest rate swaps to hedge
its risks associated with interest rate and foreign currency
fluctuations. Such derivative financial instruments are
stated at fair value.
The fair value of forward exchange contracts is calculated
by reference to current forward exchange rates with similar
maturity profiles. The fair value of interest rate swap
contracts is determined by discounting the expected future
cash flows associated with the swaps. Discount rates are
determined by reference to swap curves available through
independent market data providers.
For the purpose of hedge accounting, hedges are classified
as either fair value hedges where they hedge the exposure
to changes in the fair value of a recognised asset or liability,
or cash flow hedges where they hedge exposure to
variability in cash flows that is either attributable to a
particular risk associated with a recognised asset or
liability or a forecasted transaction.
In relation to fair value hedges which meet the conditions
for hedge accounting, any gain or loss from remeasuring the
hedging instrument at fair value is recognised immediately
in the income statement.
Any gain or loss attributable to the hedged risk on
remeasurement of the hedged item is adjusted against the
carrying amount of the hedged item and recognised in the
income statement. Where the adjustment is to the carrying
amount of a hedged interest-bearing financial instrument,
the adjustment is amortised to the income statement such
that it is fully amortised by maturity.
In relation to cash flow hedges, to hedge firm commitments
which meet the conditions for hedge accounting, the portion
of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised directly
in equity and the ineffective portion is recognised in the
income statement.
The Group tests each of the designated cash flow hedges for
effectiveness on a monthly basis both retrospectively and
prospectively using regression analysis. A minimum of 30
data points is used for regression analysis and if the testing
falls within the 80:125 range the hedge is considered highly
effective and continues to be designated as a cash flow
hedge.
When the hedged firm commitment results in the recognition
of an asset or liability, then, at the time the asset or
liability is recognised, the associated gains or losses that
had previously been recognised in equity are included in the
initial measurement of the acquisition cost or other carrying
amount of the asset or liability. For all other cash flow
hedges, the gains or losses that are recognised in equity are
transferred to the income statement in the same year in
which the hedged firm commitment affects the net profit and
loss, for example when the future sale actually occurs.
For derivatives that do not qualify for hedge accounting, any
gains or losses arising from changes in fair value are taken
directly to profit or loss for the year.
Hedge accounting is discontinued when the hedging instru-
ment expires or is sold, terminated or exercised, or no
longer qualifies for hedge accounting.
2013 - 14 ANNUAL REPORT
71
Cash flow hedge reserve
The reserve is used to record fair value gains or losses
associated with the effective portion of designated cash
flow hedging instruments. Amounts are reclassified to
profit and loss when the hedged transaction impacts the
profit and loss.
Acquisition reserve
The reserve is used to record the difference between the
carrying value of the non-controlling interest and the
consideration paid to acquire the remaining interest of
the non-controlling interest.
General reserve for credit losses
APRA prudential standard APS 220 "Credit Quality" requires
a reserve to be held to recognise credit losses inherent
in the Group's lending portfolio, but not yet identified.
The general reserve for credit losses is an appropriation
of retained profits to non-distributable reserves.
2.37 Earnings per ordinary share (EPS)
Basic EPS is calculated as net profit after tax adjusted
for distributions on preference shares and step up
preference shares divided by the weighted average number
of ordinary shares.
Diluted EPS is calculated as net profit after tax adjusted for
distributions for preference, step up and convertible
preference shares add back dividends on dilutive preference
shares divided by the weighted average number of ordinary
shares and potential dilutive ordinary shares.
Cash basis EPS is calculated as net profit after tax adjusted
for after tax intangibles amortisation (except intangible
software amortisation), after tax specific income and
expense items and distributions for preference shares and
step up preference shares divided by the weighted average
number of ordinary shares.
2. Summary of significant
accounting policies (continued)
2.33 Derivative financial instruments (continued)
At that point in time, any cumulative gain or loss on the
hedging instrument recognised in equity is kept in equity
until the forecasted transaction occurs.
If a hedged transaction is no longer expected to occur, the
net cumulative gain or loss recognised in equity is transferred
to profit or loss for the year.
2.34 Issued ordinary capital
Issued and paid up ordinary capital is recognised at the fair
value of the consideration received by the company. Any
transaction costs (net of any tax benefit) arising on the issue
of ordinary shares are recognised directly in equity as a
reduction of the share proceeds received.
2.35 Hybrid capital instruments
Perpetual non-cumulative redeemable
convertible preference shares
Preference capital is recognised at the fair value of the
consideration received by the company. Any transaction
costs (net of any tax benefit) arising on the issue of
preference shares are recognised directly in equity as a
reduction of the share proceeds received. Dividends
are recognised as a distribution of equity.
Convertible preference shares
These instruments are classified as debt within the balance
sheet and distributions to the holders are treated as
interest expense in the income statement.
Step up preference shares
These instruments are classified as equity and the
dividends are recognised as a distribution of equity.
2.36 Reserves
Asset Revaluation Reserve - property
The reserve is used to record revaluation adjustments
on the Group's property assets. In the event the assets
are sold or disposed the balance in the reserve will be
transferred to retained earnings.
Asset revaluation reserve -available
for sale investments
The reserve includes changes in the fair value of the
available for sale assets. These changes are transferred
to income statement when the asset is derecognised or
impaired.
72
3
3. Profit
Profit before income tax expense has been determined as follows:
Income
Interest income
Controlled entities
Loans and other receivables
Other persons/entities
Cash and cash equivalents
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Loans and other receivables
Interest expense
Controlled entities
Wholesale - domestic
Other persons/entities
Deposits
Retail
Wholesale - domestic
Wholesale - offshore
Other borrowings
Notes payable
Reset preference shares
Convertible preference shares
Subordinated debt
Total net interest income
Other revenue
Dividends
Controlled entities
Other
Distribution from unit trusts
Fees
Assets
Liabilities & other products
Trustee, management & other services
Commissions
Wealth solutions
Insurance
Other
Income from property
Foreign exchange income
Factoring products income
Trading profit - held for trading securities
Homesafe revaluation income
Other
Other income
Ineffectiveness in cash flow hedges
Profit on disposal of IOOF shares
Loss on disposal of RMBS notes
Share net profit accounted for using the equity method
1
1.1
1.4
1.3
1.2
1
1.5
1.6
1.7
2.1
2.2
2.2
1.8
10.4
10
10.2
2
2.5
2.7
3.2
3.4
6
4.3
8.7
2.9
8.8
2.3
8.3
8.4
8.6
Consolidated
2014
$m
2013
$m
Parent
2014
$m
2013
$m
-
-
40.0
50.2
2.4
147.7
20.9
15.4
2,741.8
3.2
147.2
18.5
37.4
2,934.2
1.9
147.7
17.6
-
2,249.7
2.7
147.2
14.4
-
2,352.8
2,928.2
3,140.5
2,456.9
2,567.3
-
-
1.3
1.8
1,369.1
1,645.5
1,241.3
1,481.8
180.5
16.6
170.8
10.0
199.3
247.3
-
14.5
30.0
1.8
10.1
27.5
172.9
16.6
8.0
-
14.5
26.2
162.6
10.0
4.5
1.8
10.1
22.0
1,810.0
1,118.2
2,113.0
1,027.5
1,480.8
1,694.6
976.1
872.7
-
0.2
0.6
0.8
62.4
93.1
5.0
160.5
34.4
16.6
51.0
2.2
18.3
12.0
1.5
50.3
18.9
103.2
0.1
-
-
0.1
0.2
-
0.2
0.5
0.7
61.3
101.0
5.3
167.6
28.5
16.2
44.7
1.9
17.0
13.6
2.9
25.1
22.1
82.6
(1.8)
38.7
(12.3)
24.6
1.6
-
0.2
-
0.2
50.1
90.6
0.4
115.4
0.3
-
115.7
48.1
96.7
0.4
141.1
145.2
1.7
14.8
16.5
2.2
18.3
12.0
1.5
-
24.5
58.5
0.1
-
-
0.1
1.1
1.4
14.5
15.9
1.7
16.8
13.6
2.9
-
18.1
53.1
(6.6)
-
(12.3)
(18.9)
1.9
73
2013 - 14 ANNUAL REPORT
Consolidated
Parent
2014
$m
74.0
8.3
3.3
(3.7)
81.9
2013
$m
64.8
2.7
5.2
(2.8)
69.9
2014
$m
48.7
5.8
2.6
(3.6)
53.5
2013
$m
47.1
2.9
4.5
(2.7)
51.8
368.0
341.4
326.1
303.6
32.8
5.1
20.6
2.5
(1.2)
7.3
29.5
7.7
18.2
2.9
0.2
7.1
28.9
4.8
18.0
2.2
(1.2)
6.3
26.2
8.8
16.0
2.6
0.1
6.3
435.1
407.0
385.1
363.6
48.5
40.4
48.1
40.0
9.2
7.4
7.9
4.5
4.5
3.3
7.3
4.7
6.6
4.3
4.3
3.0
9.1
6.9
5.7
4.4
4.4
3.1
7.1
4.6
4.6
4.2
4.2
2.9
85.3
70.6
81.7
67.6
21.6
15.2
36.8
-
9.7
26.5
-
32.6
70.0
32.6
32.5
9.3
4.0
7.9
33.3
24.1
19.7
43.8
6.2
10.6
28.6
9.9
33.0
64.6
32.0
35.4
9.1
3.2
6.7
31.1
12.2
13.4
25.6
-
9.2
8.2
-
38.1
59.1
30.0
32.2
10.6
3.5
6.8
43.3
15.3
17.8
33.1
-
10.2
10.0
9.9
37.3
53.6
29.1
35.3
8.4
2.8
5.7
30.9
222.2
215.1
223.6
203.1
28
28.3
28.2
28.5
20
20.1
20.2
20.4
20.5
20.8
20.6
22
22.2
22.4
22.6
22.7
22.8
22.9
33.1
33.2
33.3
27
11
50.3
13
14
14.3
14.5
15.1
15.2
15.3
15
3. Profit (continued)
Expenses
Bad and doubtful debts
Specific provision
Collective provision
Bad debts written off
Bad debts recovered
Staff and related costs
Salaries, wages and incentives
Superannuation contributions
Employee provisions
Payroll tax
Fringe benefits tax
Executive equity transactions expense
Other
Occupancy costs
Operating lease rentals
Depreciation of leasehold improvements
Property rates, taxes and outgoings
Repairs and maintenance
Utilities
Cleaning
Other
Amortisation of intangibles
Amortisation of intangible assets
Amortisation of intangible software
Impairment losses on goodwill
Depreciation of property, plant & equipment
Fees and commissions
Integration costs
Other
Communications, postage and stationery
Computer systems and software costs
Advertising & promotion
Other product & services delivery costs
Consultancy expense
Legal expense
Travel expense
Other expenses
74
4
4. Segment results
Segment information
Wealth
The Group has identified its operating segments based on
Fees, commissions and interest from the provision of
the internal reports that are reviewed and used by the
financial planning services, wealth management and
executive management team in assessing performance
margin lending activities. Commission received as
and determining the allocation of resources.
Responsible Entity for managed investment schemes
and for corporate trusteeships and other trustee and
The operating segments are identified according to the
custodial services.
nature of products and services provided and the key
delivery channels, with each segment representing a
Rural Bank
strategic business unit that offers a different delivery
The principal activities of Rural Bank are the provision
method and/or different products and services. Discrete
of banking services to agribusiness, rural and regional
financial information about each of these operating
Australian communities.
businesses is reported to the Managing Director on a
monthly basis.
Central functions
Functions not relating directly to a reportable operating
Segment assets and liabilities reflect the value of loans
segment.
and deposits directly managed by the operating segment.
All other assets of the group are managed centrally.
Accounting policies and inter-segment
Types of products and services
Retail banking
transactions
The accounting policies used by the Group in the
reporting segments internally are the same as those
Net interest income predominantly derived from the
contained in note 2 of the annual financial report.
provision of mortgage finance and deposit facilities; and
fee income from the provision of banking services
Revenue and expenses associated with each business
delivered through the company-owned branch network
segment are included in determining their result. Trans-
and the Group's share of net interest and fee income
actions between business segments are based on agreed
from the Community Bank ® branch network. Delphi
recharges between operating segments. Segment net
Bank and Community Telco Australia are included within
interest income is recognised based on an internally set
the retail banking operating segment.
transfer pricing policy based on pre-determined market
rates of return on the assets and liabilities of the
Third party banking
segment.
Net interest income and fees derived from the manufacture
and processing of residential home loans, distributed
Major customers
through mortgage brokers, mortgage managers, mortgage
Revenues from no individual customer amount to greater
originators and alliance partners. Within third party
than 10% of the Group's revenues.
banking we include the contribution from the Homesafe Trust.
2013 - 14 ANNUAL REPORT
75
4. Segment results (continued)
For the year ended 30 June 2014
Operating segments
Total
Retail
Third party
operating
Central
banking
$m
banking
$m
Wealth
$m
Rural Bank
$m
segments
$m
functions
$m
Total
$m
Net interest income
Other income
695.4
189.1
230.6
65.8
72.1
41.1
120.1
6.1
1,118.2
302.1
Share of net profit accounted for using
the equity method
-
-
-
-
-
Total segment income
884.5
296.4
113.2
126.2
1,420.3
Operating expenses
Credit expenses
Segment result
602.4
40.4
241.7
79.9
12.5
204.0
70.5
1.2
41.5
63.5
27.8
34.9
816.3
81.9
522.1
-
13.4
0.2
13.6
-
-
13.6
1,118.2
315.5
0.2
1,433.9
816.3
81.9
535.7
For the year ended 30 June 2013
Operating segments
Total
Retail
Third party
operating
Central
banking
$m
banking
$m
Wealth
$m
Rural Bank
$m
segments
$m
functions
$m
Total
$m
Net interest income
Other income
608.8
191.7
231.7
40.8
74.3
39.6
112.7
5.5
1,027.5
277.6
Share of net profit accounted for using
the equity method
-
-
-
-
-
Total segment income
800.5
272.5
113.9
118.2
1,305.1
Operating expenses
Credit expenses
Segment result
571.7
25.3
203.5
78.5
26.9
167.1
69.3
1.9
42.7
59.5
15.8
42.9
779.0
69.9
456.2
-
18.0
1.6
19.6
-
-
19.6
1,027.5
295.6
1.6
1,324.7
779.0
69.9
475.8
Operating segments
Total
Retail Third party
operating
Central
banking
$m
banking
$m
Wealth
$m
Rural Bank
$m
segments
$m
functions
$m
Total
$m
29,527.5
28,107.4
17,767.1
16,656.8
1,853.8
1,996.3
4,398.6
4,341.4
53,547.0
51,101.9
11,517.9
9,170.6
65,064.9
60,272.5
35,841.4
33,687.4
1,111.5
475.0
4,524.8
4,725.4
3,700.4
3,645.7
45,178.1
42,533.5
9,656.2
6,904.4
54,834.3
49,437.9
Reportable segment assets
As at 30 June 2014
As at 30 June 2013
Reportable segment liabilities
As at 30 June 2014
As at 30 June 2013
76
4. Segment results (continued)
Reconciliation between segment and statutory results
The table below reconciles the segment result back to the
relevant statutory result presented in the financial report.
Reconciliation of total segment income to Group income
Total segment income
Ineffectiveness in cash flow hedges
Specific income items 1
Total Group income
Reconciliation of segment expenses to Group total expenses
Segment operating expenses
Specific expense items 1
Total Group expenses
Reconciliation of segment credit expenses to bad and doubtful debts on loans and receivables
Segment credit expenses
Bad and doubtful debts on loans and receivables
Reconciliation of segment result to Group profit before tax
Total segment result
Ineffectiveness in cash flow hedges
Specific income items
Specific expense items
Group profit before tax
1 refer to Note 5 - Cash earnings for further details.
Reportable segment assets
Total assets for operating segments
Total assets
Reportable segment liabilities
Total liabilities for operating segments
Securitisation funding
Total liabilities
Geographic Information
The allocation of revenue and assets is based on the geographic location of the customer.
The Group operates in all Australian states and territories, providing banking and other financial services.
Consolidated
2014
$m
2013
$m
1,433.9
1,324.7
0.1
-
(1.8)
26.4
1,434.0
1,349.3
816.3
(0.7)
815.6
779.0
12.8
791.8
81.9
81.9
69.9
69.9
535.7
475.8
0.1
-
0.7
(1.8)
26.4
(12.8)
536.5
487.6
Consolidated
As at
As at
June 2014
$m
June 2013
$m
65,064.9
60,272.5
65,064.9
60,272.5
54,834.3
49,437.9
5,256.4
6,400.6
60,090.7
55,838.5
2013 - 14 ANNUAL REPORT
77
5
5. Cash earnings
Cash earnings is used to represent the performance of the core business activities.
Profit after income tax expense
Adjusted for:
Specific items after tax 1
Amortisation of acquired intangibles after tax
Distributions paid on preference shares
Distributions paid on step-up preference shares
Cash basis earnings after tax
Specific income and expense items after tax comprise 1 :
Income
Ineffectiveness in cash flow hedges expense
Profit on sale of IOOF shares
Loss on sale of RMBS notes
Expense
Gain relating to Employee Share Plan
Integration costs
Impairment loss goodwill
Specific tax benefits
Tax benefit relating to mergers and acquisitions
De-recognition of deferred tax asset
Consolidated
2014
$m
2013
$m
372.3
352.3
0.5
15.2
(2.6)
(3.1)
382.3
(0.1)
-
-
(0.5)
-
-
1.1
-
0.5
(14.7)
16.9
(3.1)
(3.4)
348.0
1.3
(38.7)
8.6
(2.3)
6.9
6.2
-
3.3
(14.7)
1 Specific items are those items that are deemed to be outside of our core activities and such items are not considered
to be representative of the Group’s ongoing financial performance.
Cash earnings is a non-IFRS key financial performance measure used by the bank. It is calculated by excluding certain
items which are included within the statutory net profit attributable to owners of the Company. These specified items
are excluded in order to better reflect what the bank considers to be the underlying performance of the Group. It is not a
statutory measure and it is not presented in accordance with Australian Accounting Standards nor audited or reviewed
in accordance with Australian Auditing Standards. It does not refer to any amount represented on the cash flow
statement.
78
Income tax expense reported in the income statement
164.2
135.3
124.0
6
6. Income tax expense
Major components of income tax expense are:
Income statement
Current income tax
Current income tax charge
Imputation credits
Adjustments in respect of current income tax of previous years
Deferred income tax
De-recognition of temporary differences
Adjustments in respect of deferred income tax of previous years
Relating to origination and reversal of temporary differences
Statement of changes in equity
Deferred income tax related to items charged or credited directly in equity
Net gain/(loss) on cash flow hedge
Net gain/(loss) on available-for-sale investments
Net gain on debt securities in-available-for-sale portfolio
Net gain/(loss) on revaluation of land and buildings
Actuarial gain on superannuation defined benefits plan
Other
Income tax expense reported in equity
A reconciliation between tax expense and the product of accounting profit
before income tax multiplied by the Group's applicable income tax rate is as follows:
Income tax expense attributable to:
Accounting profit before income tax
The income tax expense comprises amounts set aside as:
Provision attributable to current year at statutory rate, being
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
161.5
143.7
129.5
208.3
(0.2)
(5.4)
-
4.0
4.3
(0.2)
(7.8)
3.8
(0.4)
(3.8)
(0.1)
(5.0)
-
4.1
(4.5)
(1.7)
0.4
-
0.3
0.5
(1.2)
(1.7)
22.2
(9.0)
-
(0.1)
0.7
-
13.8
(5.5)
0.2
11.1
0.1
0.5
(1.2)
5.2
(0.1)
(4.9)
0.4
(1.4)
(121.2)
81.1
16.1
1.3
-
(0.1)
0.7
-
18.0
536.5
487.6
406.7
436.3
Prima facie tax on accounting profit before tax
161.0
146.3
122.0
130.9
Under/(over) provision in prior years
Tax credits and adjustments
Expenditure not allowable for income tax purposes
Other assessable income
Other non assessable income
Tax effect of tax credits and adjustments
De-recognition of temporary differences
Utilisation of previously unrecognised tax losses
Other
(1.4)
(0.2)
4.9
-
(0.1)
0.1
-
-
(0.1)
(8.2)
(0.2)
6.4
0.9
(1.0)
0.1
3.8
(13.4)
0.6
(0.9)
(0.1)
5.4
-
(1.8)
-
-
-
(0.6)
(6.3)
(0.1)
4.5
0.6
(36.5)
-
0.4
(13.4)
1.0
Income tax expense reported in the consolidated income statement
164.2
135.3
124.0
81.1
2013 - 14 ANNUAL REPORT
79
6. Income tax expense (continued)
Deferred income tax
Deferred income tax at 30 June relates to the following:
Balance sheet
Gross deferred tax liabilities
Available-for-sale financial assets
Deferred expenses
Derivatives
Intangible assets on acquisition
Investment property (Homesafe)
Lease receivable
Plant, furniture, fittings, office equipment & vehicles
Superannuation defined benefits plan
Other
Gross deferred tax assets
Derivatives
Employee entitlements
Intangible liabilities on acquisition
Available for sale financial assets
Prepaid income
Provisions
Leasehold improvements
Other
Consolidated
Parent
2014
$m
2013
$m
1.1
4.0
5.5
19.7
34.1
-
6.3
1.5
7.6
0.9
3.7
9.4
25.4
21.6
2.8
6.6
1.0
6.8
2014
$m
11.6
4.0
59.7
11.7
-
(0.1)
6.2
1.5
7.1
2013
$m
0.5
3.7
54.6
15.1
-
2.7
6.5
1.0
3.9
79.8
78.2
101.7
88.0
22.0
27.1
0.1
1.1
0.6
53.1
11.5
11.7
24.2
24.9
5.8
-
0.5
48.1
10.1
18.5
21.6
25.8
0.1
1.1
0.6
39.6
11.4
5.5
127.2
132.1
105.7
20.5
24.0
0.2
-
0.5
31.6
10.0
9.8
96.6
47.1
Tax payable/(receivable) attributable to members of the tax
17.5
47.1
17.5
consolidated group
At 30 June 2014, there is no unrecognised deferred
income tax liability (2013: Nil) for taxes that would be
payable on the unremitted earnings of certain
Group’s subsidiaries or joint ventures, as the Group has
no liability for additional taxation should such amounts
be remitted.
At 30 June 2014, unused tax losses (capital in nature)
of $91.5m (2013: $74.3m) exist in the consolidated
Group. Deferred tax assets have not been recognised in
respect of these losses as it is not probable that future
taxable capital gains will be available against which the
consolidated Group can utilise the benefit of the losses.
Tax consolidation
Bendigo and Adelaide Bank Limited and its 100% owned
subsidiaries form the tax consolidated Group. Members
of the Group entered into a tax sharing agreement to
allocate income tax liabilities to the wholly-owned sub-
sidiaries should the head entity default on its tax payment
obligations. At the balance date, the possibility of default
is remote. The head entity of the tax consolidated Group
is Bendigo and Adelaide Bank Limited.
Tax effect accounting by members of the tax
consolidated group
Members of the tax consolidated Group have entered
into a tax funding agreement. The tax funding agreement
provides for the allocation of current taxes to members
80
17.5
47.1
17.5
47.1
of the tax consolidated Group on a group allocation
method based on a notional stand alone calculation,
while deferred taxes are calculated by members of
the tax consolidated Group in accordance with
AASB 112 Income Taxes.
The allocation of taxes under the tax funding agree-
ment is recognised as an increase/decrease in the
subsidiaries inter-company accounts with the tax
consolidated Group head company, Bendigo and
Adelaide Bank Limited. The tax funding agreement is
in accordance with AASB Interpretation 1052 Tax
Consolidation Accounting (UIG 1052). Where the tax
funding agreement is not in accordance with UIG 1052,
the difference between the current tax amount that is
allocated under the tax funding agreement and the
amount that is allocated under an acceptable method
is recognised as a contribution/distribution in the
subsidiaries' equity accounts.
Taxaxtion of Financial Arrangements ("TOFA")
The taxing regime for financial instruments (TOFA)
began to apply to the Tax Consolidated Group on
1 July 2010. The regime aims to align the tax and
accounting treatment of financial arrangements.
The Tax Consolidated Group made a transitional
election to bring pre-existing arrangements into TOFA.
The deferred tax in relation to the transitional adjust-
ment was fully amortised as at 30 June 2014.
7
7. Capital management
Bendigo and Adelaide Bank Limited's key capital
taking institutions. Accordingly, Bendigo and Adelaide
management objectives are to:
Bank Limited is required to maintain a minimum
> Maintain a sufficient level of capital above the
determined by APRA. As part of the Group’s capital
regulatory minimum to provide a buffer against loss
management process, the board considers the Group’s
arising from unanticipated events, and allow the Group
strategy, financial performance objectives, credit ratings
to continue as a going concern;
and other factors relating to the efficient management of
prudential capital ratio at both Level 1 and Level 2 as
> Optimise the level and use of capital resources to
regulatory required levels. These processes are
enhance shareholder value through maximising financial
formalised within the Group’s Internal Capital Adequacy
performance;
Assessment Process (or ICAAP).
capital in setting target ratios of capital above the
> Ensure that capital management is closely aligned
The Basel III measurement and monitoring of capital has
with the Group’s business and strategic objectives; and
been effective from 1 January 2013. The requirement
> Achieve progressive improvement to short and long
capital is divided into Common Equity Tier 1, Tier 1 and
term credit ratings.
Tier 2 capital.
defines what is acceptable as capital. Regulatory
The Group manages capital adequacy according to the
Common equity Tier 1 capital primarily consists of share-
framework provided by the APRA Prudential Standards.
holders equity less goodwill and other prescribed adjust-
Capital adequacy is measured at two levels:
ments. Tier 1 capital is comprised of common equity Tier
> Level 1 includes Bendigo and Adelaide Bank Limited
to APRA. Tier 2 capital is comprised primarily of lower
and certain controlled entities that meet the Australian
rated hybrid and debt instruments acceptable to APRA.
1 plus other highly rated capital instruments acceptable
Prudential Regulation Authority ("APRA") definition of
extended licensed entities; and
Total capital is the aggregate of Tier 1 and Tier 2 capital.
The Group has adopted the Prudential Capital Adequacy
> Level 2 consists of the consolidated Group, excluding
Standardised Approach to credit risk, operational risk
non-controlled subsidiaries and subsidiaries involved in
and market risk, which requires the Group to determine
insurance, funds management, non-financial operations
capital requirements based on standards set by APRA.
and special purpose vehicles.
The Group has satisfied the minimum capital require-
ments at Levels 1 and 2 throughout the 2013/14
APRA determines minimum prudential capital ratios
financial year.
(eligible capital as a percentage of total risk-weighted
assets) that must be held by all authorised deposit-
2013 - 14 ANNUAL REPORT
81
8
8. Earnings per ordinary share
Basic
Diluted
Cash basis
Reconciliation of earnings used in the calculation of basic earnings per ordinary
share
Profit after tax
Distributions paid/accrued on preference shares
Distributions paid/accrued on step up preference shares
Reconciliation of earnings used in the calculation of diluted earnings per ordinary
share
Earnings used in calculating basic earnings per ordinary share
Add back dividends on dilutive preference shares
Reconciliation of earnings used in the calculation of cash basis earnings per ordinary
share
Earnings used in calculating basic earnings per ordinary share
After tax intangibles amortisation (excluding software amortisation)
After tax specific income and expense items (Note 5)
Consolidated
2014
2013
Cents per share
Cents per share
87.7
83.6
91.5
84.9
79.9
85.4
$m
$m
372.3
(2.6)
(3.1)
366.6
366.6
15.9
382.5
366.6
15.2
0.5
382.3
352.3
(3.1)
(3.4)
345.8
345.8
13.6
359.4
345.8
16.9
(14.7)
348.0
Weighted average number of ordinary shares used in basic and cash basis earnings
per ordinary share
Effect of dilution - executive performance rights
Effect of dilution - preference shares
Weighted average number of ordinary shares used in diluted earnings per ordinary
share
No. of shares
No. of shares
417,934,373
407,408,624
1,018,919
889,445
38,799,357
41,620,085
457,752,649
449,918,154
Information on the classification of securities - Executive performance rights
Executive performance rights are treated as dilutive from the date of issue and remain dilutive so long as the
performance conditions are satisfied. In the event of a performance condition not being satisfied, the number of
dilutive rights would be reduced to the number that would have been issued if the end of the period was the end
of the contingency period.
Potentially dilutive instruments
The following instruments are potentially dilutive as at the reporting date:
Preference shares
Step up preference shares
Convertible preference shares
Executive share options
Executive performance rights
Subordinated Note (with non viability clause)
82
Dilutive
2014
2013
Yes
Yes
Yes
No
Yes
No
Yes
Yes
Yes
No
Yes
N/A
9
9. Dividends
Dividends paid or proposed
Ordinary shares
Dividends paid during the year:
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
Interim dividend (31.0 cents per share) (2013 - 30.0 cents per share)
Final dividend (31.0 cents per share) (2013 - 30.0 cents per share)
215
216
126.0
125.1
251.1
118.3
117.7
236.0
126.0
125.1
251.1
118.3
117.7
236.0
Dividends proposed since the reporting date, but not recognised as a liability:
Final dividend (33.0 cents per share) (2013: 31.0 cents per share)
Franked dividends per ordinary shares (cents per share)
146.5
64.0
125.1
61.0
146.5
64.0
125.1
61.0
All dividends paid were fully franked. Proposed dividends will be fully franked out of existing franking credits or out of
franking credits arising from payment of income tax provided for in the financial statements for the year ended
30 June 2014.
Preference shares
Dividends paid during the year:
74.71 cents per share paid on 16 September 2013 (2012: 91.81 cents)
71.20 cents per share paid on 16 December 2013 (2012: 87.54 cents)
71.35 cents per share paid on 17 March 2014 (2013: 77.63 cents)
72.34 cents per share paid on 16 June 2014 (2013: 83.45 cents)
Step up preference shares
Dividends paid during the year:
85.00 cents per share paid on 10 July 2013 (2012: 105.00 cents)
81.00 cents per share paid on 10 October 2013 (2012: 94.00 cents)
77.00 cents per share paid on 10 January 2014 (2013: 87.00 cents)
76.00 cents per share paid on 10 April 2014 (2013: 83.00 cents)
Reset preference shares (recorded as debt instruments)
Dividends paid during the year:
Nil (2012: 309.68 cents ) Reset preference shares were fully repaid in
November 2012.
Convertible preference shares (recorded as debt instruments)
Dividends paid during the year:
273.62 cents per share paid on 13 December 2013 (2012: 65.49 cents)
266.49 cents per share paid on 13 June 2014 (2013: 282.72 cents)
0.7
0.6
0.6
0.7
2.6
0.8
0.8
0.8
0.7
3.1
-
-
7.3
7.2
14.5
0.8
0.8
0.7
0.8
3.1
1.1
0.9
0.9
0.8
3.7
2.8
2.8
1.8
7.6
9.4
0.7
0.6
0.6
0.7
2.6
0.8
0.8
0.8
0.7
3.1
-
-
7.3
7.2
14.5
0.8
0.8
0.7
0.8
3.1
1.1
0.9
0.9
0.8
3.7
2.8
2.8
1.8
7.6
9.4
2013 - 14 ANNUAL REPORT
83
9
9. Dividends (continued)
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
Dividend franking account
Balance of franking account as at end of financial year
327.1
257.3
Franking credits that will arise from the payment of income tax
provided for in the financial report
17.5
47.1
Impact of dividends proposed or declared before the financial report
was authorised for issue but not recognised as a distribution of
equity holders during the period
The tax rate at which dividends have been franked is 30% (2013: 30%)
Dividends proposed will be franked at the rate of 30% (2013: 30%)
(63.1)
281.5
(54.0)
250.4
Dividend paid
Dividends paid by cash or satisfied by the issue of shares under the dividend
reinvestment plan during the year were as follows:
Paid in cash
Satisfied by issue of shares
Dividend Reinvestment Plan
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
211.5
45.3
256.8
166.1
76.4
242.5
211.5
45.3
256.8
166.1
76.4
242.5
The Dividend Reinvestment Plan provides shareholders with
receiving a dividend. The issue price of the shares is
the opportunity of converting their entitlement to a dividend
equal to the volume weighted average price of
into new shares. The issue price of the shares is equal to the
Bendigo and Adelaide Bank shares traded on the
volume weighted average share price of Bendigo and Adelaide
Australian Securities Exchange over the fifteen
Bank shares traded on the Australian Securities Exchange
trading days commencing 25 August 2014. Shares
over the fifteen trading days commencing 25 August 2014.
issued under this scheme rank equally with all other
Shares issued under this Plan rank equally with all other
ordinary shares.
ordinary shares.
Bonus Share Scheme
The last date for the receipt of an election notice for
participation in either the Dividend Reinvestment
The Bonus Share Scheme provides shareholders with
Plan or Bonus Share Scheme for the 2014 final
the opportunity to elect to receive a number of bonus
dividend was 22 August 2014.
shares issued for no consideration instead of
84
10
10. Cash flow statement reconciliation
Profit after tax
Non-cash items
Bad debts expense
Amortisation
Depreciation (including leasehold improvements)
Revaluation increments
Equity settled transactions
Share of net profit from joint ventures' and arrangements'
Loss on sale of investment securities
Ineffectiveness in cash flow hedges
Changes in assets and liabilities
Decrease in tax provision
Increase/(decrease) in deferred tax assets & liabilities
(Increase)/decrease in derivatives
Increase in accrued interest
Increase in accrued employees entitlements
Decrease in other accruals, receivables and provisions
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
372.3
352.3
282.7
355.2
81.9
36.8
18.9
72.7
50.0
17.9
(48.3)
(24.8)
2.0
(0.2)
-
(0.1)
(29.6)
6.5
(9.6)
(39.6)
7.2
(2.8)
0.2
(1.6)
12.3
1.8
(39.7)
11.8
(64.0)
(58.7)
16.2
(88.8)
53.5
25.6
18.3
-
2.0
(1.1)
-
(0.1)
(29.6)
4.6
(28.4)
(41.2)
6.3
54.5
33.1
17.3
(0.2)
0.1
(1.9)
12.3
6.6
(39.7)
(109.3)
339.2
(41.3)
17.9
(129.6)
(422.6)
Net cash flows from operating activities
395.4
257.6
163.0
221.2
Cash flows presented on a net basis
Cash flows arising from the following activities are presented on a net basis in the cash flow statement:
Loans and other receivables, investment securities, retail deposits and wholesale deposits.
2013 - 14 ANNUAL REPORT
85
11
11. Cash and cash equivalents
Notes and coins
Cash at bank
Investments at call
Total cash and cash equivalents
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash
equivalents includes:
Cash and cash equivalents
Due from other financial institutions
Due to other financial institutions
Consolidated
Parent
2014
$m
177.6
392.7
145.8
716.1
2013
$m
150.9
129.2
103.7
383.8
2014
$m
177.6
327.2
105.7
610.5
2013
$m
150.9
23.4
83.8
258.1
1240
1,001
716.1
242.5
383.8
293.9
610.5
242.4
258.1
292.2
(363.5)
(379.5)
(363.0)
(371.4)
595.1
298.2
489.9
178.9
86
12
12. Financial assets held for trading
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
Discount securities
Floating rate notes
Government securities
3410
1045
3408
3,348.1
2,351.5
3,348.5
2,352.1
980.0
2,937.3
1,122.1
1,991.6
980.0
2,937.3
1,122.1
1,991.6
Total financial assets held for trading
7,265.4
5,465.2
7,265.8
5,465.8
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
3,705.6
2,028.0
3,705.6
2,028.0
2,314.4
2,400.1
2,314.4
2,400.1
1,245.4
1,037.1
1,245.4
1,037.1
-
-
0.4
0.6
7,265.4
5,465.2
7,265.8
5,465.8
2013 - 14 ANNUAL REPORT
87
13
1031
1037
1036
1701
13. Financial assets available for sale
- debt securities
Negotiable securities
Negotiable certificates of deposit
Mortgage backed securities
Notes to securitisations
Liquidity collateral
Total financial assets available for sale
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Recognised gains/(losses) before tax:
Gain/(loss) recognised directly in equity
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
104.5
455.8
-
59.0
619.3
105.5
20.0
473.3
20.5
619.3
109.5
426.0
-
73.4
-
455.8
836.8
-
-
426.0
936.9
-
608.9
1,292.6
1,362.9
95.5
47.2
418.8
47.4
537.6
20.0
434.8
300.2
629.6
32.4
392.8
308.1
608.9
1,292.6
1,362.9
-
4.2
36.8
4.2
88
14
14. Financial assets available for sale
- equity investments
Share investments at fair value
Listed share investments
Unlisted share investments
Total financial assets available for sale
Consolidated
Parent
2014
$m
2.0
22.3
24.3
2013
$m
1.4
16.7
18.1
2014
$m
1.9
3.0
4.9
2013
$m
1.4
3.1
4.5
3009
Fair value of share investments is determined as follows:
> Level 1 - Listed shares - quoted market price at balance date.
> Level 2 - Unlisted shares - valuation techniques based on derived inputs other than quoted prices within Level 1 that are
observable either directly/indirectly.
> Level 3 - Unlisted shares - where there is no quoted prices and fair value cannot be reliably measured these investments
are carried at cost less impairment.
> Management believes the estimated fair values resulting from the valuation techniques and recorded in the balance
sheet and the related changes in fair values recorded in equity are reasonable and the most appropriate at the balance
sheet date.
Recognised gains / (losses) before tax:
Gain/(loss) recognised directly in equity
Amount removed from equity and recognised in (profit)/loss
1.4
-
1.1
(37.1)
0.6
-
-
-
2013 - 14 ANNUAL REPORT
89
15
1013
1065
1077
1076
15. Financial assets held to maturity
Negotiable securities
Negotiable certificates of deposit
Other
Total negotiable securities
Non negotiable securities
Deposits - other
Other
Total non negotiable securities
Total financial assets held to maturity
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
197.3
82.3
279.6
289.8
30.6
320.4
5.5
1.5
7.0
1.6
1.3
2.9
286.6
323.3
179.4
295.3
17.8
81.8
7.6
10.0
14.6
3.4
286.6
323.3
-
0.5
0.5
-
1.5
1.5
2.0
-
-
-
2.0
2.0
-
0.5
0.5
-
1.3
1.3
1.8
-
-
-
1.8
1.8
90
16. Loans and other receivables
16
Consolidated
2014
$m
2013
$m
Parent
2014
$m
2013
$m
Loans and other receivables - investments
397.1
554.1
397.1
554.1
Overdrafts
Credit cards
Term loans
Margin lending
Lease receivables
Factoring receivables
Other
2400
2300
2130
4,096.9
280.4
4,345.8
282.4
4,070.4
280.4
4,305.7
282.4
45,902.4
42,931.7
42,457.2
39,556.7
1,822.7
460.9
67.5
85.9
1,915.6
472.5
98.6
78.4
-
404.6
67.5
85.9
-
437.3
98.6
78.4
Gross loans and other receivables
52,716.7
50,125.0
47,366.0
44,759.1
Specific provision for impairment (Note 17)
Collective provision for impairment (Note 17)
Unearned income
Total provisions and unearned income
Deferred costs paid
Net loans and other receivables
Impaired loans
Loans - without provisions
Loans - with provisions
Restructured loans
Less: specific impairment provisions
Net impaired loans
(114.4)
(42.8)
(106.9)
(264.1)
83.1
(104.1)
(34.5)
(109.0)
(247.6)
80.0
(74.2)
(36.6)
(56.1)
(166.9)
78.4
(51.3)
(30.8)
(56.2)
(138.3)
70.5
52,535.7
49,957.4
47,277.5
44,691.3
120.3
276.8
14.7
(113.6)
298.2
135.8
191.7
62.6
(103.3)
286.8
21.8
153.4
12.5
(73.4)
114.3
18.6
89.0
18.0
(50.5)
75.1
Net impaired loans % of loans and other receivables
0.56%
0.57%
0.24%
0.17%
Portfolios facilities - past due 90 days, not well secured
Less: specific impairment provisions
Net portfolio facilities
4.0
(0.8)
3.2
4.2
(0.8)
3.4
4.0
(0.8)
3.2
4.2
(0.8)
3.4
Loans past due 90 days
Accruing loans past due 90 days, with adequate security balance
Net fair value of properties acquired through the enforcement of
security
Interest income recognised
Interest income recognised in respect of impaired loans
Interest income forgone in respect of impaired loans
635.5
750.7
590.1
650.5
97.1
139.9
82.4
120.7
2.7
29.5
1.6
5.7
1.6
6.6
1.6
5.1
Interest income recognised is the interest income actually received subsequent to these balances becoming impaired
or restructured.
Interest income forgone is the gross interest income that would have been recorded during the financial year had the
interest on such loans been included in income.
Maturity analysis 1
At call / overdrafts
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Longer than 5 years
9,179.2
1,047.4
1,865.9
6,951.8
7,601.0
1,369.6
1,834.4
7,222.4
6,769.9
921.0
1,596.8
5,239.8
5,237.3
954.0
1,332.8
5,294.6
34,069.5
32,651.7
33,235.6
32,494.5
53,113.8
50,679.1
47,763.1
45,313.2
1 Balances exclude specific and general provisions for doubtful debts and unearned revenue, and are categorised
by the contracted maturity date of each loan facility.
2013 - 14 ANNUAL REPORT
91
17. Impairment of loans and advances
17
Specific provision for impairment
Opening balance
Provision acquired in business combination
Transfer of business
Charged to income statement
Impaired debts written-off applied to specific impairment provision
Closing balance
Collective provision for impairment
Opening balance
Transfer of business
Charged to income statement
Closing balance
General reserve for credit losses
Opening balance
Transfer of business
Charged to equity
Closing balance
Total provision/reserve doubtful debts
Bad and doubtful debts expense
Specific provisions for impairment
Collective provision
Bad debts written off
Bad debts recovered
Total bad and doubtful debts expense
Ratios
Specific provision as % of gross loans
Total provision/reserve for doubtful debts to gross loans
Collective provision & general reserve for credit losses as a % of risk-weighted assets
Consolidated
Parent
2014
$m
2013
$m
2014
$m
104.1
102.9
51.3
-
-
74.0
(63.7)
3.4
-
64.8
(67.0)
114.4
104.1
34.5
-
8.3
42.8
31.8
-
2.7
34.5
-
-
48.7
(25.8)
74.2
30.8
-
5.8
36.6
2013
$m
60.0
1.8
1.2
47.1
(58.8)
51.3
27.7
0.2
2.9
30.8
138.3
128.5
119.7
105.0
-
-
138.3
295.5
74.0
8.3
3.3
(3.7)
81.9
-
9.8
138.3
276.9
64.8
2.7
5.2
(2.8)
69.9
-
-
119.7
230.5
48.7
5.8
2.6
(3.6)
53.5
4.9
9.8
119.7
201.8
47.1
2.9
4.5
(2.7)
51.8
0.22%
0.56%
0.56%
0.21%
0.55%
0.57%
92
18
18. Particulars in relation to controlled entities
Chief entity
Principal Activities
Bendigo and Adelaide Bank Limited
Banking
Directly Controlled Operating Entities 1
AB Management Pty Ltd
ABL Custodian Services Pty Ltd
ABL Nominees Pty Ltd
Adelaide Managed Funds Ltd
ACN 092 167 904 (BOCA) Pty Ltd
Hindmarsh Adelaide Property Trust
Hindmarsh Financial Services Pty Ltd
Pirie Street Holdings Pty Ltd
Community Insurance Solutions Pty Ltd
Bendigo Funding (Ararat) Pty Ltd
Leveraged Equities Ltd
Adelaide Equity Finance Pty Ltd
Leveraged Equities 2009 Trust
Pirie Street Custodian Ltd
BBS Nominees Pty Ltd
Bendigo Finance Pty Ltd
Bendigo Financial Planning Ltd
Community Telco Australia Pty Ltd
Homesafe Trust
Securitisation Manager
Security Trustee
Trustee company
Responsible Entity for listed trusts
Banking
Property Owner
Investment company
Non-operating
Insurance services
Investment company
Margin Lending
Margin Lending
Securitisation
Provider of share nominee services for margin lending
Administration company
Leasing finance
Financial advisory services
Telecommunications services
Homesafe product financier
National Mortgage Market Corporation Pty Ltd
Mortgage origination & management
Rural Bank Limited
TDCC Holdings Pty Ltd
TDCC Developments No. 1 Pty Ltd
TDCC Developments No. 2 Pty Ltd
TDCC Developments No. 3 Pty Ltd
TDCC Developments No. 4 Pty Ltd
TDCC Developments No. 5 Pty Ltd
TDCC Developments No. 6 Pty Ltd
TDCC Developments No. 7 Pty Ltd
TDCC Developments No. 8 Pty Ltd
TDCC Developments No. 9 Pty Ltd
TDCC Developments No. 10 Pty Ltd
TDCC Developments No. 11 Pty Ltd
TDCC Developments No. 12 Pty Ltd
TDCC Developments No. 13 Pty Ltd
TDCC Developments No. 14 Pty Ltd
Sandhurst Trustees Ltd
Bendigo Asset Management Pty Ltd
CS Subcust 1 Pty Ltd
CS Subcust 2 Pty Ltd
CS Cust 1 Pty Ltd
CS Cust 2 Pty Ltd
CS Cust 3 Pty Ltd
Banking
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Property/land development
Trustee company
Trustee company
Provider of custodian services
Provider of custodian services
Provider of custodian services
Provider of custodian services
Provider of custodian services
1 All entities are 100% owned and incorporated in Australia.
2013 - 14 ANNUAL REPORT
93
18. Particulars in relation to
controlled entities (continued)
Chief entity
Principal Activities
Directly Controlled Operating Entities (continued) 1
CS Cust 4 Pty Ltd
CS Cust 5 Pty Ltd
CS Cust 6 Pty Ltd
CS Cust 7 Pty Ltd
CS Cust 8 Pty Ltd
CS Cust 9 Pty Ltd
Sandhurst Nominees (Victoria) Ltd
Pirie Street Nominees Pty Ltd
Securitisation
ABL Portfolio Funding Trust 2007-1
AIL Trust No. 1
Lighthouse Warehouse Trust No 1
Lighthouse Warehouse Trust No 2
Lighthouse Warehouse Trust No 14
Torrens Series 2005-1 Trust
Torrens Series 2006-1(E) Trust
Torrens Series 2007-1 Trust
Torrens Series 2008-1 Trust
Torrens Series 2008-3 Trust
Torrens Series 2008-4 Trust
Torrens Series 2009-1 Trust
Torrens Series 2009-3 Trust
Torrens Series 2010-1 Trust
Torrens Series 2010-2 Trust
Torrens Series 2010-3 Trust
Torrens Series 2011-1(E) Trust
Torrens Series 2011-2 Trust
Torrens Series 2012-1 Trust
Torrens Series 2013-1 Trust
Torrens Series 2013-2 Trust
Torrens Series 2014-1 Trust
Provider of custodian services
Provider of custodian services
Provider of custodian services
Provider of custodian services
Provider of custodian services
Provider of custodian services
Nominee services
Financial services
Securitisation
Securitisation
(
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
1 All entities are 100% owned and incorporated in Australia.
Investments in controlled entities
Consolidated
Parent
At cost
Significant restrictions
2014
$m
-
-
2013
$m
-
-
2014
$m
575.4
575.4
2013
$m
526.5
526.5
The Group does not have any significant restrictions on its
levels of regulatory capital and liquid assets, limit their
ability to access or use its assets and settle its liabilities
exposure to other parts of the Group and comply with other
other than those resulting from the supervisory frameworks
ratios. The carrying amounts of banking subsidiaries’ assets
within which banking subsidiaries operate. The supervisory
and liabilities are $4.3 billion and $3.7 billion, respectively
framework require banking subsidiaries to keep certain
(2013: $4.2 billion and $3.7 billion, respectively).
94
Ownership
interest held by
consolidated entity
Balance date
2014
%
50.0
50.0
50.0
49.5
49.5
49.5
49.5
49.0
49.0
36.0
47.5
50.0
2013
%
50.0
50.0
50.0
49.5
49.5
49.5
49.5
-
49.0
40.0
30 June
30 June
30 June
30 June
30 June
30 June
30 June
30 June
30 June
30 June
47.5 31 December
50.0
30 June
19. Investments accounted for using the
equity method
19
Name
Joint Arrangements
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Associates
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
Dancoor Community Finances Ltd 1
Homebush Financial Services Ltd
Linear Financial Holdings Pty Ltd
Strategic Payments Services Pty Ltd
Vic West Community Enterprise Pty Ltd
1 Dancoor Community Finances Ltd (effective January 2014)
(i) Principal activities of joint arrangements
Community Sector Enterprises Pty Ltd - financial services
Homesafe Solutions Pty Ltd - trust manager
Silver Body Corporate Financial Services Pty Ltd - financial services
(ii) Principal activities of associates
Aegis Correctional Partnership Pty Ltd - trustee services
Aegis Securitisation Nominees Pty Ltd - trustee services
Aegis Correctional Partnership Trust - project management and financial services
Aegis Securitisation Trust - financial services
Dancoor Community Finances Ltd - financial services (acquired January 2014)
Homebush Financial Services Ltd - financial services
Linear Financial Holdings Pty Ltd - asset management services
Strategic Payments Services Pty Ltd - payment processing services
Vic West Community Enterprise Pty Ltd - telecommunications services
All joint arrangements and associates are incorporated in Australia.
2013 - 14 ANNUAL REPORT
95
19
19. Investments accounted for using the
equity method (continued)
(iii) Share of joint arrangements revenue and profits
Share of profit/(loss) after income tax:
Revenue
Expense
Profit after income tax
Share of joint arrangements operating profits after income tax:
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Consolidated
Parent
2014
$m
7.6
6.8
0.8
2014
$m
0.3
0.4
0.1
0.8
2013
$m
6.9
6.4
0.5
2013
$m
0.2
0.2
0.1
0.5
2014
$m
7.2
6.5
0.7
2014
$m
0.3
0.4
-
0.7
2013
$m
6.5
6.1
0.4
2013
$m
0.2
0.2
-
0.4
The consolidated entity's share in the retained profits and reserves of joint arrangements are not available for payment of
dividends to shareholders of Bendigo and Adelaide Bank Limited until such time as those profits and reserves are
distributed by the joint arrangements.
(iv) Share of associates revenue and profits
Share of profit/(loss) after income tax:
Revenue
Expense
Profit after income tax
Share of associates operating profits after income tax:
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
Dancoor Community Finances Ltd
Homebush Financial Services Ltd
Linear Financial Holdings Pty Ltd
Strategic Payments Services Pty Ltd
Vicwest Community Enterprise Ltd
Consolidated
Parent
2014
$m
16.8
17.4
(0.6)
2014
$m
-
-
-
-
-
-
(1.0)
0.3
0.1
(0.6)
2013
$m
9.2
8.1
1.1
2013
$m
-
-
-
-
-
-
(0.4)
1.6
(0.1)
1.1
2014
$m
15.1
14.7
0.4
2014
$m
-
-
-
-
-
-
-
0.3
0.1
0.4
2013
$m
6.6
5.1
1.5
2013
$m
-
-
-
-
-
-
-
1.6
(0.1)
1.5
The consolidated entity's share in the retained profits and reserves of associates are not available for payment of
dividends to shareholders of Bendigo and Adelaide Bank Limited until such time as those profits and reserves are
distributed by the associates.
96
19
19. Investments accounted for using the
equity method (continued)
(v) Carrying amount of investments in joint arrangements
Balance at the beginning of financial year
Return of capital investment
Dividends received from joint arrangements
Share of total comprehensive income
Carrying amount of investments in joint arrangements
Consolidated
Parent
2014
$m
1.7
(0.6)
(0.3)
0.8
2013
$m
1.5
(0.1)
(0.2)
0.5
2014
$m
1.3
(0.6)
-
0.7
2013
$m
1.1
(0.1)
(0.1)
0.4
at the end of the financial year
1.6
1.7
1.4
1.3
Total comprehensive income from joint arrangements
Profit or loss from continuing operations
Other comprehensive income
Total comprehensive income
All operations are continuing.
Carrying amount of investments represented by the following:
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
There are no impairment losses relating to investments in joint arrangements.
(vi) Carrying amount of investments in associates
Balance at the beginning of financial year
Carrying amount of investment acquired during the year
Share of total comprehensive income
Carrying amount of investments in associates
at the end of the financial year
Total comprehensive income from associates
Profit or loss from continuing operations
Other comprehensive income
Total comprehensive income
All operations are continuing.
0.8
-
0.8
0.5
-
0.5
0.7
-
0.7
0.4
-
0.4
2014
$m
1.2
0.2
0.2
1.6
2014
$m
13.9
0.8
(0.6)
2013
$m
0.9
0.4
0.4
1.7
2013
$m
11.4
1.4
1.1
2014
$m
1.2
0.2
-
1.4
2014
$m
12.5
0.8
0.4
2013
$m
0.9
0.4
-
1.3
2013
$m
9.6
1.4
1.5
14.1
13.9
13.7
12.5
(0.6)
-
(0.6)
1.1
-
1.1
0.4
-
0.4
1.5
-
1.5
2013 - 14 ANNUAL REPORT
97
19
19. Investments accounted for using the
equity method (continued)
(vi) Carrying amount of investments in associates (continued)
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
Dancoor Community Finances Ltd
Homebush Financial Services Ltd
Linear Financial Holdings Pty Ltd
Strategic Payment Services Pty Ltd
Vicwest Community Enterprise Ltd
There are no impairment losses relating to investments in associates.
(vii) The consolidated entity's share of the assets and
liabilities of joint arrangements in aggregate
Assets
Liabilities
Net Assets of joint arrangements
(viii) The consolidated entity's share of the assets and liabilities of
associates in aggregate
Assets
Liabilities
Net Assets of associates
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
-
-
-
-
0.8
0.8
0.4
10.5
1.6
14.1
2014
$m
2.6
1.3
1.3
2014
$m
13.0
7.4
5.6
-
-
-
-
-
0.8
1.4
10.2
1.5
13.9
2013
$m
3.8
2.3
1.5
2013
$m
12.3
6.4
5.9
-
-
-
-
0.8
0.8
-
10.5
1.6
13.7
2014
$m
2.3
1.2
1.1
2014
$m
11.2
4.0
7.2
-
-
-
-
-
0.8
-
10.2
1.5
12.5
2013
$m
3.4
2.3
1.1
2013
$m
10.3
3.6
6.7
Subsequent events affecting joint arrangements and associates profits/losses for the ensuing year (if any) are disclosed
in the Events after balance sheet date Note 45.
The consolidated entity's share of joint arrangements and associates commitments and contingent liabilities (if any) are
disclosed in the Commitments and contingencies Note 39.
Significant restrictions
There are no significant restrictions on the ability of joint arrangements or associates to transfer funds to the Group in
the form of cash dividends, or to repay loans or advances made by the entity.
98
20
20. Property, plant and equipment
(a) Carrying Value
Property
Freehold land - at fair value
Closing balance
Freehold buildings - at fair value
Accumulated depreciation
Closing balance
Total land and buildings
Leasehold improvements - at cost
Accumulated depreciation
Closing balance
Plant, furniture, fittings, office equipment & vehicles - at cost
Accumulated depreciation
Closing balance
3610
3620
3621
3690
3691
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
1.3
1.3
1.7
-
1.7
3.0
115.9
(51.7)
64.2
126.5
(96.9)
29.6
1.0
1.0
1.1
(0.1)
1.0
2.0
84.2
(45.8)
38.4
168.3
(145.3)
23.0
0.3
0.3
0.4
-
0.4
0.7
114.9
(51.3)
63.6
122.9
(94.8)
28.1
0.3
0.3
0.2
-
0.2
0.5
82.8
(45.3)
37.5
164.8
(143.3)
21.5
Total property, plant and equipment
96.8
63.4
92.4
59.5
(b) Reconciliations
Freehold land
Carrying amount at beginning of financial year
Revaluations
Balance at the end of year
Freehold buildings
Carrying amount at beginning of financial year
Revaluations
Balance at the end of year
Leasehold improvements - at cost
Carrying amount at beginning of financial year
Additions
Disposals
Depreciation expense
Transfer assets from subsidiary to parent
Balance at the end of year
1.0
0.3
1.3
1.0
0.7
1.7
38.4
35.7
(0.7)
(9.2)
-
64.2
1.0
-
1.0
1.0
-
1.0
39.8
6.0
(0.1)
(7.3)
-
38.4
0.3
-
0.3
0.2
0.2
0.4
37.5
35.7
(0.5)
(9.1)
-
63.6
0.3
-
0.3
0.2
-
0.2
36.0
6.0
(0.1)
(7.1)
2.7
37.5
2013 - 14 ANNUAL REPORT
99
20
20. Property, plant and equipment
(continued)
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
(b) Reconciliations (continued)
Plant, furniture, fittings, office equipment & vehicles
Carrying amount at beginning of financial year
Additions
Additions through acquisition of entities
Disposals
Depreciation expense
Transfer assets from subsidiary to parent
Balance at the end of year
23.0
17.6
-
(1.3)
(9.7)
-
29.6
27.2
7.1
0.1
(0.8)
(10.6)
-
23.0
If land and buildings were measured using the cost model the carrying amounts would be as follows:
Land
Buildings
Accumulated depreciation and impairment
Net carrying amount
0.4
0.6
(0.4)
0.6
0.4
0.6
(0.4)
0.6
21.5
16.9
-
(1.0)
(9.2)
(0.1)
28.1
0.1
0.1
(0.1)
0.1
24.1
6.5
-
(0.7)
(10.2)
1.8
21.5
0.1
0.1
(0.1)
0.1
100
21. Investment property
21
Consolidated
Parent
Opening balance
Additions
Additions through acquisition of entities
Disposals
3500
Net gain from fair value adjustments through the Income
statement
Total investment property
Total gains for the reporting period related to
assets held at the end of the reporting period in
2014
$m
348.9
28.2
-
(20.5)
48.3
404.9
2013
$m
298.9
32.0
12.5
(17.6)
23.1
348.9
the Income statement
48.3
23.1
2014
$m
5.9
-
-
(5.9)
-
-
-
2013
$m
-
-
12.5
(6.6)
-
5.9
-
Investment properties are measured initially at cost,
Assumptions used in the modelling of future cash
including transaction costs.
flows are sourced from market indices of property
values (Residex) and long term growth/discount rates
Investment property has been determined to be a
appropriate to residential property and historical
Level 3 investment as per the fair value hierarchy
experience of contracts that have been closed out. The
(Note 37 - Financial Instruments).
discounted cash flow model is prepared on a monthly
basis.
Valuation Methodology
Subsequent to initial recognition, fair value is deter-
Inputs that form part of the discounted cash flow
mined by discounting the expected future cash flows of
model include rates of property appreciation,
the portfolio, taking into account the restrictions on
discount rates, selling costs, mortality rates and
the ability to realise the investment property due to
future CPI increases.
contractual obligations.
Sensitivity of Level 3 fair value measurements to reasonably possible alternative assumptions
Valuation technique
Significant
unobservable
inputs
$m
Range of
estimates
(weighted
-average) for
unobservable
input
Fair value
measurement
sensitivity to
unobservable
inputs
Effect of reasonably
possible alternative
assumptions
Favourable
change $m
Unfavourable
change $m
Discounted cash flow
Rates of property
appreciation - 7%
404.9
5%-9%
Discount rates -
8.75%
404.9
6.75%-10.75%
Significant
increases in these
inputs would result
in higher fair values.
Significant
increases in these
inputs would result
in lower fair values.
124.8
(78.8)
129.1
(81.9)
Where valuation techniques use non-observable inputs
and the discount rates. There are interdependencies
that are significant to a fair value measurement in its
between a number of the assumptions made which
entirety, changing these inputs will change the resultant
mean that no single factor is likely to move
fair value measurement.
independent of others, however the sensitivities
disclosed above assume all other assumptions remain
The most significant inputs impacting the carrying value
unchanged.
of the investment property are the long term growth rates
2013 - 14 ANNUAL REPORT
101
22
22. Intangible assets and goodwill
Customer list 1
Carrying amount at beginning of financial year
Acquisition through business combination
Adjustment due to sale
Amortisation charge
Closing balance
Computer software 2
Carrying amount at beginning of financial year
Acquisition through business combination
Additions
Transfers
Amortisation charge
Closing balance
Trustee licence 3
Carrying amount at beginning of financial year
Closing balance
Trade name 4
Carrying amount at beginning of financial year
Amortisation charge
Closing balance
Customer relationship 5
Carrying amount at beginning of financial year
Amortisation charge
Closing balance
Management rights 6
Carrying amount at beginning of financial year
Amortisation charge
Closing balance
Core deposits 7
Carrying amount at beginning of financial year
Amortisation charge
Closing balance
Goodwill
Carrying amount at beginning of financial year
Acquisition through business combination
Transfer from subsidiary
Impairment of goodwill
Closing balance
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
6.1
6.2
(0.5)
(2.5)
9.3
50.9
-
17.3
-
(15.2)
53.0
8.4
8.4
4.8
(0.7)
4.1
32.7
(8.6)
24.1
9.6
(1.0)
8.6
37.3
(8.8)
28.5
4.9
3.0
-
(1.8)
6.1
67.4
0.7
1.8
-
(19.0)
50.9
8.4
8.4
7.7
(2.9)
4.8
41.3
(8.6)
32.7
10.6
(1.0)
9.6
47.8
(10.5)
37.3
2.3
-
(0.5)
(0.7)
1.1
48.1
-
16.4
-
(13.4)
51.1
-
-
3.3
(0.4)
2.9
9.3
(3.6)
5.7
9.6
(1.0)
8.6
28.5
(6.5)
22.0
-
3.0
-
(0.7)
2.3
65.3
-
1.0
(1.1)
(17.1)
48.1
-
-
5.8
(2.5)
3.3
12.9
(3.6)
9.3
10.6
(1.0)
9.6
36.7
(8.2)
28.5
1,368.4
1,360.1
1,288.9
1,277.1
-
-
-
14.5
-
(6.2)
-
-
-
2.7
9.1
-
1,368.4
1,368.4
1,288.9
1,288.9
Total intangible assets and goodwill
1,504.4
1,518.2
1,380.3
1,390.0
102
22
22. Intangible assets and goodwill
(continued)
1 Customer lists are acquired through business
compliance procedures in place to ensure that these
combinations and have been capitalised at fair value.
conditions are met.
The customer lists have been assessed as having a
finite life and are amortised using a method that
4 Trade names have been acquired through business
reflects the pattern of the economic benefits of the
combinations and have been capitalised at fair value.
asset over a five year period.
Trade names are amortised to reflect the period and
pattern of economic benefit over a period of between
2 Computer software includes internally developed
5 and 15 years.
software and software that is not an integral part of
the related hardware. Intangible software is
5 The customer relationships have been acquired
capitalised at cost and is amortised on a straight line
through business combinations and have been
basis over the assessed useful life of the asset, being
capitalised at fair value. Customer relationships are
between 2.5 years and 10 years for core banking
amortised to reflect the period and pattern of
software. The carrying value of internally developed
economic benefit over a period of between 7 and
software is tested annually for impairment, using
12 years.
estimates of future cash flows over the assets
remaining useful life.
3 The trustee licence represents an intangible asset
6 The management rights have been acquired
through business combinations and have been
capitalised at fair value. Management rights are
purchased through the effect of the Sandhurst
amortised to reflect the period and pattern of economic
Trustees Limited business combination and the cost
benefit over a period of 15 years.
method is utilised for measurement. The useful life
of this asset has been estimated as indefinite as the
7 The core deposits have been acquired through
authorisation for Sandhurst Trustees Limited to trade
business combinations and have been capitalised at
as a trustee company has no end period. Revocation
fair value. Core deposits are amortised to reflect the
of the authority is unlikely and would occur only in the
period and pattern of economic benefit over a period of
event of non-compliance with conditions under which
between 2 and 10 years.
authorisation is granted. There are specific
2013 - 14 ANNUAL REPORT 103
23
23. Impairment testing of goodwill
For the purpose of impairment testing, goodwill
the goodwill is allocated represent the core business
acquired in a business combination is allocated at
operations of the Group and are also reportable
acquisition date to the cash generating unit that is
segments; as defined in Note 4.
expected to benefit from the synergies of the
combination. The cash generating units to which
Goodwill has been allocated as follows:
Retail
Third Party
Wealth
Rural Bank
Key assumptions used in value in use
calculations
2014
$m
677.5
464.4
209.7
16.8
2013
$m
677.5
464.4
209.7
16.8
1,368.4
1,368.4
Impairment testing of goodwill is performed by
percentage of a weighted average cost of capital for each
comparing the carrying amount of the cash generating
cash generating unit, determined on a post-tax basis and
unit to which the goodwill has been allocated with its
adjusted to reflect any risks specific to the cash
recoverable amount. The recoverable amount of the
generating unit for which future estimates of cash flows
cash generating units has been determined based on
have not been adjusted.
value in use calculations. These calculations have
been performed for each cash generating unit using
The terminal growth rate of 3.0% represents the growth rate
management's approved forecast which is then
applied to extrapolate cash flows beyond the forecast
extrapolated using a constant growth rate for five years
period and is calculated for each cash generating unit,
then discounted back to the present value using
and is representative of long term growth rates including
an appropriate discount rate, plus a terminal value.
inflation in Australia.
The discount rate reflects the current market assess-
The table below contains the key assumptions used in
ment of risk specific to each cash generating unit.
the calculation of the recoverable amount for each cash
The discount rate is calculated based on the average
generating unit.
Retail
Third Party
Wealth
Rural Bank
Discount
rate
10.74%
10.74%
11.34%
10.74%
Sensitivity to changes in assumptions
Management has considered the impact of changes in
The results of the sensitivity analysis support the
the key assumptions on the calculated recoverable
conclusion that goodwill is not impaired.
amount of each cash generating unit.
Sensitivity analysis - rates required before impairment becomes evident
Retail
Third Party
Wealth
Rural Bank
104
Discount
rate
12.90%
11.10%
11.75%
12.80%
Long term
growth rate
0.00%
2.50%
2.45%
0.00%
24. Other assets
Accrued income
Prepayments
Sundry debtors
Accrued interest
Deferred expenditure
Total other assets
24
1690
1650
3925
2984
Consolidated
Parent
2014
$m
24.2
26.0
504.7
175.5
72.9
803.3
2013
$m
22.3
24.0
246.2
186.3
53.5
2014
$m
17.9
20.7
1,290.8
141.9
72.5
2013
$m
15.6
18.7
986.4
146.1
53.4
532.3
1,543.8
1,220.2
2013 - 14 ANNUAL REPORT
105
25
25. Deposits and notes payable
Deposits
Retail
At call
Term
Treasury
Total retail deposits
Wholesale
Domestic
Offshore
Total wholesale deposits
Total deposits
Deposits by geographic location
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas
Total deposits
Consolidated
2014
$m
2013
$m
Parent
2014
$m
2013
$m
16,175.5
21,206.4
7,461.1
14,076.7
21,857.2
6,311.9
14,345.9
21,206.4
6,112.2
12,195.2
21,856.9
5,098.2
44,843.0
42,245.8
41,664.5
39,150.4
6,612.9
903.5
7,516.4
4,929.6
263.6
5,193.2
6,407.3
903.5
7,310.8
4,707.7
263.6
4,971.3
52,359.4
47,439.0
48,975.3
44,121.7
22,505.4
12,528.2
21,061.8
10,285.3
21,777.7
11,366.2
1,089.6
5,329.3
5,332.6
3,388.6
938.3
1,247.4
968.5
4,908.2
5,697.2
2,981.9
907.5
628.6
1,001.8
4,912.8
4,800.7
3,011.3
863.5
1,241.3
20,416.1
9,236.8
938.4
4,527.8
4,869.7
2,670.9
840.7
621.3
52,359.4
47,439.0
48,975.3
44,121.7
Total notes payable
5,256.4
6,400.6
310.4
350.3
106
26. Other payables
26
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
Sundry creditors
Accrued expenses and outstanding claims
Accrued interest
Prepaid interest
Total other payables
4811
4452
35.0
585.9
260.9
32.4
914.2
54.5
291.7
311.5
31.0
24.6
749.3
245.0
-
187.3
410.2
290.4
-
688.7
1,018.9
887.9
Sundry creditors are non-interest bearing and are generally settled
Accrued interest is credited to customer accounts in
within 30 days.
accordance with the terms of the investment products
held by the customer, but generally within a twelve
month period.
2013 - 14 ANNUAL REPORT
107
27. Provisions
(a) Balances
Employee benefits (Note 32)
Rewards program 1
Property rent 2
Dividends 3
Uninsured losses 4
Total provisions
27
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
90.3
83.8
86.2
80.6
4571
4576
4570
5.3
7.3
0.9
-
4.8
1.1
0.9
2.9
5.3
7.3
0.9
-
4.8
1.1
0.9
2.9
103.8
93.5
99.7
90.3
1 The provision for rewards program is to recognise the liability to customers in relation to points earned by them under the
Bendigo and Adelaide Bank Rewards Program and is measured on the basis of full value of points outstanding at balance
date. As reward points "expire" after three years, the balance will be utilised, or forfeited within a three year period.
2 The provision for property rent is to recognise the difference between actual property rent paid and the property rent
expense recognised in the income statement. The value recognised in the income statement is in accordance with
Accounting Standard AASB 117 Leases whereby the lease expense is to be recognised on a straight-line basis over the
period of the lease. The provision is expected to be utilised over the period of the respective leases, typically a period
between three and ten years. However, it is expected that a balance will continue as old leases expire and are replaced
by new leases.
3 The provision for dividends represents the residual carried forward balance in relation to ordinary shareholders that
participate in the dividend reinvestment plan. It is expected that the current balance will be utilised within a twelve month
period. However, an ongoing balance will continue unless all outstanding balances are paid to shareholders upon ceasing
participation in the dividend reinvestment plan. The provision also includes accrued dividends relating to preference shares.
4 The provision for uninsured losses represents the expected loss in relation to fraud not covered under insurance
contracts.
(b) Movements
Employee benefits
Opening balance
Provision acquired in business combination
Additional provisions recognised
Increase due to change in discount rate
Amounts utilised during the year
Closing balance
Consolidated
2014
$m
2013
$m
Parent
2014
$m
83.8
0.3
46.9
-
(40.7)
90.3
71.1
0.5
43.1
0.8
(31.7)
83.8
80.6
-
44.4
-
(38.8)
86.2
2013
$m
66.2
-
42.8
0.8
(29.2)
80.6
108
27
27. Provisions (continued)
(b) Movements (continued)
Rewards program
Opening balance
Additional provisions recognised
Amounts utilised during the year
Closing balance
Property rent
Opening balance
Additional provisions recognised
Amounts utilised during the year
Closing balance
Dividends
Opening balance
Additional dividends provided
Dividends paid during the year
Closing balance
Uninsured losses
Opening balance
Additional provisions recognised/(released)
Amounts utilised during the year
Closing balance
Consolidated
Parent
2014
$m
4.8
2.6
(2.1)
5.3
1.1
7.2
(1.0)
7.3
2013
$m
4.2
2.4
(1.8)
4.8
1.5
-
(0.4)
1.1
2014
$m
4.8
2.6
(2.1)
5.3
1.1
7.2
(1.0)
7.3
2013
$m
4.2
2.4
(1.8)
4.8
1.5
-
(0.4)
1.1
0.9
256.8
(256.8)
0.9
1.0
242.7
(242.8)
0.9
0.9
256.8
(256.8)
0.9
1.0
242.7
(242.8)
0.9
2.9
(2.8)
(0.1)
-
2.9
0.2
(0.2)
2.9
2.9
(2.8)
(0.1)
-
2.9
0.2
(0.2)
2.9
2013 - 14 ANNUAL REPORT
109
28
28. Convertible preference shares
Convertible preference shares - 2,688,703 fully paid $100
preference shares
Unamortised issue costs
Total convertible preference shares
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
268.9
(7.5)
261.4
268.9
(9.7)
259.2
268.9
(7.5)
261.4
268.9
(9.7)
259.2
In November 2012, the bank issued 2.7m convertible preference shares. The preference shares may be redeemed at the
discretion of Bendigo and Adelaide Bank for a price per preference share on 13 December 2017. Any preference shares not
already converted will be converted on 13 December 2019 into ordinary shares.
The preference shares carry a dividend which will be determined semi-annually, payable half yearly in arrears on 13 June and
13 December. If the bank is unable to pay a dividend because of insufficient profits, the dividend is non-cumulative. The
convertible shares rank ahead of the ordinary shares in the event of liquidation, they are perpetual and do not have a fixed
maturity date. The dividend rate will be the floating Bank Bill Rate plus the initial fixed margin, adjusted for franking credits.
110
29
29. Subordinated debt
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
Subordinated capital notes
655.5
354.3
603.3
302.2
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
-
63.0
9.5
583.0
655.5
-
-
72.5
281.8
354.3
-
30.4
-
572.9
603.3
-
-
30.4
271.8
302.2
2013 - 14 ANNUAL REPORT
111
30
30. Issued capital
Issued and paid up capital
Ordinary shares fully paid - 452,006,957 (2013:
412,007,864 )
Preference shares of $100 face value fully paid - 900,000
(2013: 900,000 fully paid)
Step-up preference shares of $100 face value fully paid -
1,000,000 (2013: 1,000,000)
Employee share ownership plan shares
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
6100
4,183.3
3,758.0
4,183.3
3,758.0
6300
88.5
88.5
88.5
88.5
6310
6400
100.0
(16.2)
100.0
(18.7)
100.0
(16.2)
100.0
(18.7)
4,355.6
3,927.8
4,355.6
3,927.8
Effective 1 July 1998, the corporations legislation in
Step up Preference share dividends are non-
place abolished the concepts of authorised capital
cumulative and are payable quarterly in arrears, at the
and par value shares. Accordingly, the parent does
discretion of the directors, based on a dividend rate equal
not have authorised capital nor par value in respect
to the sum of the 90 day bank bill rate plus the initial
of its issued shares. Fully paid ordinary shares carry
margin multiplied by one minus the company tax rate.
one vote per share and carry the right to dividends.
It is expected that dividends paid will be fully franked.
Preference share dividends are non-cumulative
redeemed by Bendigo and Adelaide Bank subject to prior
The Step up Preference Shares are perpetual, but may be
and are payable quarterly in arrears, at the discretion
approval of APRA.
of the directors, based on a dividend rate equal to the
sum of the 90 day bank bill rate plus the initial margin
Employee share ownership plan shares is the value of
multiplied by one minus the company tax rate. It is
loans outstanding in relation to shares issued to
expected that dividends paid will be fully franked. The
employees under this plan and effectively represents
Preference Shares are perpetual, but may be redeemed
the unpaid portion of the issued shares.
by Bendigo and Adelaide Bank subject to prior approval
of APRA.
Movements in ordinary shares on issue
Opening balance 1 July - 412,007,864 (2013: 402,233,266)
Shares issued under:
Bonus share scheme - 259,797 @ $10.17; 226,848 @ $11.14
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
3,758.0
3,681.8
3,758.0
3,681.8
6100
6550
(2013: 402,549 @ $7.39; 403,561 @ $9.92)
-
-
-
-
Dividend reinvestment plan - 2,105,049 @ $10.17; 2,145,304 @ $11.14
(2013: 4,957,637 @ $7.39; 4,010,851 @ $9.92)
45.3
76.4
45.3
76.4
Institutional placement and entitlement offer - 21,198,157
@ $10.85 (2013: Nil)
Retail entitlement offer - 13,789,655 @ $10.85 (2013: Nil)
Employee share plan - 274,283 @ $10.47 (2013: Nil)
Share issue costs
Closing balance 30 June - 452,006,957 (2013:
412,007,864)
230.0
149.6
2.9
(2.5)
-
-
-
(0.2)
230.0
149.6
2.9
(2.5)
-
-
-
(0.2)
4,183.3
3,758.0
4,183.3
3,758.0
112
30
30. Issued capital (continued)
Movements in preference shares on issue
Opening balance 1 July - 900,000 fully paid (2013: 900,000
fully paid)
Closing balance 30 June - 900,000 fully paid to $100
(2013: 900,000 fully paid)
Movements in step up preference shares on issue
Opening balance 1 July - 1,000,000 (2013: 1,000,000)
Closing balance 30 June - 1,000,000 fully paid to $100
(2013: 1,000,000)
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
6300
88.5
88.5
88.5
88.5
88.5
88.5
88.5
88.5
6310
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Movements in Employee share ownership plan shares
Opening balance
6400
Reduction in Employee share ownership plan shares
Closing balance
Total other issued and paid up capital
(18.7)
2.5
(16.2)
(21.3)
2.6
(18.7)
(18.7)
2.5
(16.2)
(21.3)
2.6
(18.7)
172.3
169.8
172.3
169.8
Total issued and paid up capital
4,355.6
3,927.8
4,355.6
3,927.8
2013 - 14 ANNUAL REPORT
113
31
31. Retained earnings and reserves
Retained earnings
Movements
Opening balance
Profit for the year
Transfer from asset revaluation reserve
Movements in general reserve for credit losses
Dividends
Deregistration of subsidiary company
Defined benefits actuarial adjustment
Tax effect of defined benefits actuarial adjustment
Transfer of business - Delphi Bank
Closing balance
Other reserves
(a) Balances
Employee benefits reserve
Asset revaluation reserve - property
Asset revaluation reserve - available for sale equity investments
Asset revaluation reserve - available for sale debt securities
Cash flow hedge reserve
General reserve for credit losses
Acquisitions Reserve
Closing balance
(b) Movements
Employee benefits reserve 1
Opening balance
Net increase/(decrease) in reserve
Closing balance
Asset revaluation reserve - property
Opening balance
Transfer asset revaluation reserve to retained earnings
Tax effect of movement in asset revaluation reserve
Net revaluation increments
Tax effect of net revaluation increments
Tax adjustment relating to prior years
Closing balance
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
398.1
372.3
2.8
-
296.5
352.3
-
(9.8)
186.1
282.7
-
-
87.1
355.2
-
(14.7)
(256.8)
(242.5)
(256.8)
(242.5)
-
1.6
(0.5)
-
-
2.3
(0.7)
-
(0.4)
1.6
(0.5)
-
-
2.3
(0.7)
(0.6)
517.5
398.1
212.7
186.1
16.8
18.5
1.3
2.7
1.1
(38.7)
138.3
(20.4)
101.1
18.5
(1.7)
16.8
3.5
(4.0)
1.2
0.9
(0.3)
-
1.3
3.5
1.7
1.1
(34.6)
138.3
(20.4)
108.1
20.2
(1.7)
18.5
3.4
-
-
-
-
0.1
3.5
16.8
0.4
0.9
26.9
(30.0)
119.7
-
18.5
0.2
0.5
1.2
(17.2)
119.7
-
134.7
122.9
18.5
(1.7)
16.8
0.2
-
-
0.3
(0.1)
-
0.4
20.2
(1.7)
18.5
0.1
-
-
-
-
0.1
0.2
1 The employee benefits reserve is used to record the assessed cost of shares issued to non-executive employees under the
Employee Share Plan and the assessed cost of options granted to executive employees under the Executive Incentive Plan.
114
31
31. Retained earnings and reserves (continued)
Other reserves (continued)
(b) Movements (continued)
Asset revaluation reserve - available for sale equity investments
Opening balance
Transfer asset revaluation reserve to retained earnings (sold assets)
Tax effect of asset revaluation reserve to profit (sold assets)
Net revaluation increments
Tax effect of net revaluation increments
Tax adjustments relating to prior years
Closing balance
Asset revaluation reserve - available for sale debt securities
Opening balance
Net unrealised gains
Tax effect of net unrealised gains
Closing balance
Cash flow hedge reserve
Opening balance
Changes due to mark to market
Tax effect of changes due to mark to market
Changes due to transfer to the income statement
Tax effect of changes due to transfer to the income statement
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
1.7
-
-
1.4
(0.4)
-
2.7
1.1
-
-
1.1
(34.6)
(5.9)
1.7
0.1
-
28.7
(37.1)
10.6
1.1
(0.3)
(1.3)
1.7
(1.8)
4.2
(1.3)
1.1
(86.4)
75.8
(22.7)
(1.8)
0.5
0.5
-
-
0.6
(0.2)
-
0.9
1.2
36.8
(11.1)
26.9
(17.2)
(18.4)
5.5
0.1
-
1.8
-
-
-
-
(1.3)
0.5
(1.7)
4.2
(1.3)
1.2
(54.7)
60.2
(18.1)
(6.6)
2.0
Closing balance
(38.7)
(34.6)
(30.0)
(17.2)
General reserve for credit losses 2
Opening balance
Establishment of GRCL on transfer of business
Increase/(decrease) in GRCL
Closing balance
Acquisition Reserve 3
Opening balance
Closing balance
Total reserves
138.3
128.5
119.7
105.0
-
-
-
9.8
-
-
4.9
9.8
138.3
138.3
119.7
119.7
(20.4)
(20.4)
(20.4)
(20.4)
-
-
-
-
101.1
108.1
134.7
122.9
1 The employee benefits reserve is used to record the assessed cost of shares issued to non-executive employees under the
Employee Share Plan and the assessed cost of options granted to executive employees under the Executive Incentive Plan.
2 The general reserve for credit losses records the value of a reserve maintained to recognised credit losses inherent in the
Group's lending portfolio, but not yet identified. The Bank is required to maintain general provisions (includes general
reserve for credit losses and collective provision) by APRA.
3 The acquisition reserve is used to record the difference between the carrying value of non-controlling interest and
the consideration paid to acquire the remaining interest of the non-controlling interest. The reserve is attributable to the
equity of the parent.
2013 - 14 ANNUAL REPORT
115
32
32. Employee benefits
Employee benefits liability
Provision for annual leave
Provision for Employee shares shortfall
Provision for other employee payments
Provision for long service leave
Provision for sick leave bonus
Aggregate employee benefits liability
Consolidated
Parent
2014
$m
2013
$m
2014
$m
2013
$m
4510
4569
4525
4555
4520
24.0
-
11.2
48.8
6.3
90.3
23.5
0.7
9.1
44.8
5.7
83.8
22.2
-
10.7
47.0
6.3
86.2
21.7
0.7
9.1
43.4
5.7
80.6
It is anticipated that annual leave provided at balance date will be paid in the ensuing 12 month period.
Provision for employee shares shortfall is in relation to possible losses associated with employee loans under the
Employee share plan. This provision will only be utilised if:
(a) employees instruct the administrator of the plan to sell their shares in settlement of the employee loan relating to those
shares: and,
(b) at the time of the sale the market price of Bendigo and Adelaide Bank Limited shares is below the outstanding value of
those shares in the loan account.
Other employee payments include short-term incentives and are expected to be paid in September 2014.
Long service leave is taken with agreement between employee and employer, or on termination of employment.
Sick leave bonus is paid to entitled employees on termination of employment.
116
33. Share based payment plans
The Company operates the following employee equity plans.
If that hurdle is met, the grant is then subject to a TSR
These plans are an important component of the Company’s
performance hurdle.
remuneration framework. Further information on the plans
(b) Grant B - The other 50% of each annual tranche
including the terms and conditions applicable to grants
is subject to continuing service with the Company.
under the Plans are set out in the 2014 Remuneration
Report.
In the case of other Participants, each annual grant is
subject to a twelve-month initial performance period for
Salary Sacrifice, Deferred Share and
EPS testing and a further three-year performance period for
Performance Share Plan (Current)
relative TSR testing. The grant will be reduced by 50%
The Company has established an Employee Salary
at the end of the initial performance period if the cash
Sacrifice, Deferred Share and Performance Share Plan
earnings per share are not equal to or better than the
(the “Plan”) used as the vehicle for senior executive
cash earnings per share for the previous year.
long term incentive arrangements. The Plan provides
for grants of performance shares to the Managing
During the TSR performance period (for all Participants),
Director, senior executives and key senior manage-
vesting of the performance shares is conditional on TSR
ment (the “Participants”) as determined by the Board.
being at least equal to the median performance of a peer
group consisting of the ASX100 Companies (excluding property
In addition, the plan is used to provide grants of
trusts and resources). Median performance will result in
deferred shares to Participants as deferred base
65% of the performance shares vesting, with 100% vesting
remuneration that is subject to a service based
if the Company’s relative TSR performance is 75% or above.
condition and risk adjustment. The Plan is also used
to provide grants of deferred shares in connection with
Performance shares are granted at no cost to the Participants.
the deferral of short-term incentive (“STI”) awards to
The Plan rules provide that the Board may determine that
senior executives and senior management into equity
a price is payable upon exercise of an exercisable performance
in the Company.
share. The board has determined that no exercise price will
apply to exercisable performance shares.
Performance shares
Under the Plan, Participants are invited to receive awards
The number of performance shares granted to Participants
of performance rights (called “performance shares”) that
is determined by dividing the remuneration value of the
are subject to performance conditions set by the Board.
proposed grant by the volume weighted average closing price
If the performance conditions are satisfied during the
of the Company’s shares for the last five trading days of the
relevant performance period, the performance shares will
financial year prior to the year of grant. The fair value of
vest. Each performance share represents an entitlement to
performance share grants under the Plan are measured at
one fully-paid ordinary share in the Company. Accordingly,
grant date by external valuation and are set out in the
the maximum number of ordinary shares that may be
below table.
allocated to Participants is equal to the number of
performance shares granted.
The Participants are entitled to vote and to receive any
dividend, bonus issue, return of capital or other distribution
The maximum number of performance shares that may
made in respect of shares they are allocated on vesting
vest is subject to the achievement of performance conditions
and exercise of their performance shares. The grants to the
set by the board during the performance period (being 5
Managing Director are also subject to a further two-year
years for the Managing Director and 4 years for other
dealing restriction. There is no dealing restriction on the
Participants). Vesting of performance shares is subject to
current grant of performance shares to other Participants.
the achievement of the following:
In the case of the managing director, each annual
tranche comprises two components or grants:
(a) Grant A - 50% of each annual tranche is subject to
an EPS gateway hurdle requiring an increase in the cash
EPS performance of the Company for the performance period.
Dec-09
Dec-10
Sep-11
Aug-12
Dec-13
The current grants under the Plan are as follows:
Grant Date
Number
Granted
1,540,360
Weighted
Average Fair
$7.17
90,030
110,201
202,739
148,090
$9.03
$6.82
$3.30
$4.45
2013 - 14 ANNUAL REPORT
117
33. Share based payment plans (continued)
The grants were made in accordance with the terms disclosed
The following table illustrates the number (No.), weighted average
in the 2014 Remuneration Report and were valued and
exercise price (WAEP) and movements in performance shares
expensed in accordance with applicable accounting
issued during the year.
requirements and the expense is recognised in the
income statement.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Vested / Exercised during the year
Expired during the year
Outstanding at the end of the year
2014
No.
591,357
148,090
(17,400)
(228,955)
(74,122)
418,970
2014
WAEP
2013
No.
587,330
202,739
-
(198,712)
-
591,357
-
-
-
-
-
-
2013
WAEP
-
-
-
-
-
-
The outstanding balance as at 30 June 2014 is
deferral of STI awards. Deferred shares are fully-paid ordinary
represented by 418,970 rights (‘performance shares’) over
shares in the Company. Accordingly, the maximum number of
ordinary shares with an exercise price of nil, each exercis-
shares that may be acquired by the Participants is equal to the
able upon meeting the above conditions, and until 2017.
number of deferred shares granted.
The fair value of the performance shares granted under the
Deferred shares issued in relation to deferred base remuneration
Plan takes into account the terms and conditions upon which
are subject to a service condition and risk adjustment as
the performance shares were granted. The fair value is
decided by the Board. The deferred shares are granted at no
estimated as at the date of grant using the Black-Scholes-
cost, have no exercise price and are beneficially owned by the
Merton Option Pricing Model incorporating a Monte Carlo
Participant from the grant date. They are held on trust for a two
simulation option pricing model to estimate the probability
year deferral period.
of achieving the TSR hurdle and the number of shares vesting.
The following table lists the inputs to the model used for the
the Board are subject to deferral for two-years into equity in the
2013 and 2014 financial years.
Company. Deferred shares issued in relation to the deferral of
One-third of STI awards that exceed the $50,000 threshold set by
Grant
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of performance
shares (years)
Exercise price ($)
STI awards are subject to a two year continued service condition
2014
2013 and risk adjustment as decided by the Board.
7.50% 6.50%
22%
25% If the service condition is satisfied at the end of the deferral
2.91% 2.49% period, the deferred shares will vest subject to any financial and
risk adjustment decided by the Board.
4
Nil
4
Nil
The weighted average fair value of each performance share
Fair value share price at grant date ($)
$10.98 $7.58 granted under the Plan is set out in the following table. The fair
value of the deferred shares granted under the Plan takes into
The expected life of the performance shares is based on
account the terms and conditions upon which the deferred
historical data and is not necessarily indicative of exercise
shares were granted.
patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of
The number of shares granted as part of the STI deferral is
future trends, which may also not necessarily be the actual
calculated by dividing the value of the deferred STI
outcome. No other features of shares granted were
remuneration by the volume weighted average closing price of
incorporated into the measurement of fair value.
the Company’s shares for the five days ending on the grant dates.
Deferred shares
Under the Plan, the Participants are granted deferred shares
as deferred base remuneration and in relation to the
118
In relation to deferred base remuneration, the number of shares
granted is calculated by dividing the deferred remuneration
33. Share based payment plans (continued)
value by the volume weighted average closing price of the
The current grants under the Plan are as follows:
Company’s shares for the last five trading days of the financial
year prior to the year of grant. The fair value is measured
as at the date of grant using the volume weighted average
Grant
closing price of the company’s shares traded on the ASX
for five trading days ending on the grant date.
The Participants are entitled to vote and to receive any
dividend, bonus issue, return of capital or other distribution
Weighted
Number
Average
granted
74,466
94,521
Fair Value
$7.73
$7.30
30,397
$10.38
September 2011 (Deferred STI)
August 2012 (Deferred Base)
October 2013 (Deferred STI)
December 2013 (Deferred Base)
80,152
$10.86
made in respect of shares they are allocated on vesting of
The following table illustrates the number (No.), weighted
their deferred shares.
average exercise price (WAEP) and movements in deferred
shares issued during the year.
The grants were made in accordance with the terms disclosed
in the 2014 Remuneration Report and were valued and
expensed in accordance with applicable accounting
requirements and the expense recognised in the income
statement.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Vested / Exercised during the year
Expired during the year
Outstanding at the end of the year
2014
No.
94,521
110,549
-
(94,521)
-
110,549
2014
WAEP
-
-
-
-
-
-
2013
No.
74,466
94,521
(2,781)
(71,685)
-
94,521
2013
WAEP
-
-
-
-
-
-
The outstanding balance as at 30 June 2014 is
The grants to general employees under the ESGS are as
represented by 110,549 deferred shares with an
follows:
exercise price of nil, each exercisable upon the
(a) January 2009: 764,504 fully paid ordinary shares issued
Participant meeting the conditions outlined above,
at $10.78 with a fair value of $10.78;
and until 30 June 2015.
(b) March 2010: 340,039 fully paid ordinary shares issued
at $10.03 with a fair value of $10.03;
Share Grant Scheme (Current)
(c) February 2011: 327,233 fully paid ordinary shares issued
The Company has established a tax-exempt Employee
at $9.78 with a fair value of $9.78; and
Share Grant Scheme (“ESGS”) as the main equity
(d) October 2013: 274,251 fully paid ordinary shares issued
participation platform for general employees. The ESGS is
at $10.47 with a fair value of $10.47
open to all full-time and permanent part-time staff in
the Group (excluding directors and senior executives)
There were no grants under the ESGS during the 2012 and
who can elect to acquire fully paid ordinary shares in the
2013 financial years.
Company. It was intended that grants under the ESGS
would be made annually subject to board discretion and
The shares are issued at nil cost to eligible employees. The
having regard to the Company’s performance.
issue price is calculated using the volume weighted average
price of the Company’s shares traded over the five days prior
Employees will generally be entitled to participate in
to the issue date. The share issues were valued and expensed
rights attached to the shares including to receive dividends
in accordance with applicable accounting requirements and
and to vote at general meetings. The shares are restricted
the expense is recognised in the income statement. As at
for three years unless the employee leaves the Company.
30 June 2014 there were 262,555 fully paid ordinary shares
held by the Plan Trustee.
2013 - 14 ANNUAL REPORT
119
33. Share based payment plans (continued)
The following table illustrates the number (No.), weighted
average exercise price (WAEP) and movements in Plan
shares during the year.
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
2014
No.
278,310
274,251
-
(290,006)
-
262,555
-
2014
WAEP
-
-
-
-
-
-
-
2013
No.
584,946
-
-
(306,636)
-
278,310
-
2013
WAEP
-
-
-
-
-
-
-
Employee Share Plan (Current)
been repaid. The primary benefit under the terms of the Plan
The Company established a loan-based limited recourse
is the financial benefit of the limited recourse interest-free loan.
Employee Share Plan (“Plan”) in 2006. The Plan is
substantially the same as the legacy plan (employee
The first issue to general staff under this plan was completed
share ownership plan) that was in place from 1995 to
in September 2006. A grant to Community Bank® employees
2006. However, the new Plan is only available to general
was made in December 2007. There have been no further
staff. Senior executives (including the Managing Director)
issues under this Plan. Share issues under the Plan are valued
may not participate in this Plan.
and expensed in accordance with applicable accounting
requirements. The expense recognised in the income statement
Under the terms of the Plan, shares are issued
in relation to share-based payments is disclosed on the
at the prevailing market value. The shares must be
following page. The following table illustrates the number (No.),
paid for by the staff member. The Plan provides
weighted average exercise price (WAEP) and movements in Plan
staff members with an interest-free loan for the
shares (including the employee share ownership plan)
sole purpose of acquiring Plan shares.
during the year.
Net cash dividends after personal income tax
obligations are applied to reduce the loan balance
and staff cannot deal in the shares until the loan has
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
2014
No.
3,313,037
-
-
2014
WAEP
$5.65
-
-
2013
No.
3,683,212
-
-
2013
WAEP
$5.78
-
-
(165,448)
$5.67
(370,175)
$6.90
-
3,147,589
3,147,589
-
$5.16
$5.16
-
3,313,037
3,313,037
-
$5.65
$5.65
The outstanding balance as at 30 June 2014 is represented
The fair value of the shares granted under the Plan is
by 3,147,589 ordinary shares with a market value of
estimated as at the date of each grant using the Black-Scholes-
$38,400,586 at 30 June 2014 (30 June 14 share price $12.20), Merton Option Pricing Model taking into account the terms and
exercisable upon repayment of the employee loans.
conditions upon which the shares were granted. The fair
The acquisition price for shares issued under the
life of the share options is based on historical data and is not
Plan is calculated using the volume weighted average share
necessarily indicative of exercise patterns that may occur.
value is determined by independent valuation. The expected
price of the company’s shares traded on the ASX in the
seven days trading ending one calendar week before the
invitation date.
120
33
33. Share based payment plans (continued)
Employee Share Plan (Current) (continued)
The loan will be repayable progressively out of after tax
The expected volatility reflects the assumption that the historical
dividends (if any) paid on the shares and the sale of
volatility is indicative of future trends, which may also not
unexercised renounceable rights (if any). A participant is
necessarily be the actual outcome. No other features of
not otherwise obliged to repay all or part of the outstanding
shares granted were incorporated into the measurement
loan while he or she is an employee of the Bank.
of fair value. The exercise price of the shares issued will
reduce over time as dividends are applied to repay the staff
The loan must be fully repaid when a participant ends
loans.
Employee Share Ownership Plan (Discontinued)
employment and before the participant can sell, transfer,
mortgage or otherwise deal with the shares.
In 2006 the Company discontinued the existing loan-based
If a participant’s employment ends and the participant has
Employee Share Ownership Plan (“Plan”) that was open to
not repaid the loan within the time period specified by the
all employees in the Group, including the Managing Director
Board, the Company may sell, transfer or realise the
and Senior Executives. The Plan will continue as a legacy plan
participant’s shares and apply those funds to cover the
until such time as the loans provided to fund share purchases
costs of the sale and to repay the loan. If there is a
under the Plan have been repaid. There have been no issues
shortfall in repaying the loan once the participant’s shares
of shares under this Plan since November 2004.
are sold, the Company will not have any further recourse
against the participant.
Shares were issued under the Plan at market value. The terms
of the Plan are consistent with the Share Ownership Plan
Information on the number, weighted average exercise
described earlier. The Plan provides staff members with an
price, loan balances and movements in Plan shares during
interest-free loan for the sole purpose of acquiring Plan shares.
the year have been aggregated into the tables presented
Staff cannot deal in the shares until the loan has been repaid.
above under the heading “Employee Share Plan (Current)”.
The primary benefit under the terms of the Plan is the financial
The notional value of limited recourse interest-free loans
benefit of the limited recourse interest-free loan.
provided to relevant Senior Executives under this Plan
is also disclosed in the remuneration tables in the 2014
Remuneration Report.
2013 - 14 ANNUAL REPORT
121
34
34. Auditors' remuneration
Total fees paid or due and payable to Ernst & Young (Australia)1
Audit and review of financial statements 2
2,275,370
1,817,403
1,618,026
1,297,440
Consolidated
2014
$
2013
$
Parent
2014
$
2013
$
Audit-related fees
Regulatory 3
Non-regulatory 4
Total audit-related fees
All other fees 5
Taxation services
Other services
Total other fees
312,057
798,109
620,318
3,502
240,678
798,109
565,985
3,502
1,110,166
623,820
1,038,787
569,487
800
4,429
5,229
125,705
50,470
176,175
800
-
800
93,205
-
93,205
Total remuneration of Ernst & Young Australia
3,390,765
2,617,398
2,657,613
1,960,132
1 Fees exclude goods and services tax.
2 Audit and review of financial statements includes payments for the audit of the financial statements of the Group and
Parent, including controlled entities that are required to prepare financial statements.
3 Audit-related fees (Regulatory) consist of fees for services required by statute or regulation that are reasonably related to
the performance of the audit of the Group's financial statements and are traditionally performed by the external auditor.
These services include assurance of the Group’s compliance with APRA and Australian Financial Services Licensing
reporting and compliance requirements.
4 Audit-related (Non-regulatory) consist of fees for assurance and related services not required by statute or regulation but
are reasonably related to the performance of the audit or review of the Group's financial statements which are traditionally
performed by the external auditor. These services include assurance of the Group's acquisition accounting, tax
consolidation processes and data and model validation for Basel II advanced accreditation.
5 All other fees, including taxation services and other advice are incurred under the audit committee's pre-approval policies
and procedures, having regard to the auditor’s independence requirements of applicable laws, rules and regulations, and
assessment that each of the non-audit services provided would not impair the independence of Ernst & Young.
122
35. Related party disclosures
Ultimate Parent Entity
controlled entities which are financed via unsecured
Bendigo and Adelaide Bank Limited is the ultimate
interest free intercompany loans. The loans have no
parent entity, which is incorporated in Australia.
fixed repayment date. Amounts due from and due to
Wholly owned Group transactions
controlled entities at balance date are shown in the
balance sheet. The balance of these intercompany
Bendigo and Adelaide Bank Limited is the parent entity
loans is included in the net amount owing from
of all entities listed in Note 18 - Particulars in relation
subsidiaries balance in the table below.
to controlled entities.
Transactions undertaken during the financial year
to controlled entities and dividends received and
with those entities are eliminated in the consolidated
receivable from controlled entities is disclosed in
financial report. The transactions principally arise
Note 3 - Profit.
Interest received or receivable from and paid or payable
from the provision of administrative, distribution,
corporate and general banking services.
Additionally, Bendigo and Adelaide Bank pays operating
dividends between Bendigo Adelaide Bank and its
costs and banks receipts on behalf of certain
subsidiaries during the period were:
The aggregate of material transactions excluding
Opening balance at beginning of financial year
Net receipts and fees received from subsidiaries
Supplies, fixed assets and services charged to subsidiaries
Net amount owing from subsidiaries at 30 June 2014
2014
$m
(379.6)
263.0
(99.3)
(215.9)
2013
$m
(787.5)
462.5
(54.6)
(379.6)
Bendigo and Adelaide Bank provides funding and
from subsidiaries in the above table. All funding
guarantee facilities to several subsidiary companies
and guarantee facilities are provided to subsidiary
as detailed in the following table. The balance outstanding
companies on normal commercial terms and
on these facilities are included in the net amount owing
conditions.
Subsidiary
Sandhurst Trustees Limited
Facility
Guarantee
Dividends paid by the subsidiaries are disclosed below:
Sandhurst Trustees Limited
Leveraged Equities
All transactions between Group entities are eliminated on consolidation.
Drawn/issued at
30 June 2014
$m
-
2013
$m
55.4
60.0
Limit
$m
0.5
2014
$m
-
-
2013 - 14 ANNUAL REPORT
123
35. Related party disclosures (continued)
Other related party transactions
Securitised and sold loans
with the joint arrangement entities and associates,
principally relating to commissions received and paid,
The Bank securitised loans totalling $498.4 million
services and supplies procured from joint arrange-
(2013: $3,053.0 million) during the financial year.
ments and associates and fees charged in relation to
The consolidated Group does invest in some of its
the provision of banking, administrative and corporate
own securitisation programs where the Bank
services. These revenue and expense items are
holds A & B notes equivalent to $5,265.9 million as at
included in the relevant values disclosed in Note 3 -
30 June 2014 (2013: $6,520.4 million). The Bank
Profit. The transactions are conducted on terms and
does invest in other securitisation programs
conditions no more favourable than those which it is
unrelated to the Bank as part of normal investment
reasonable to expect would have been adopted if
activities.
Joint arrangement entities and associates
dealing with the joint arrangement entities and
associates at arm's length in the same circumstances.
Bendigo and Adelaide Bank Limited has investments in
During the financial year, transactions took place
joint arrangement entities and associates as
between the Bendigo and Adelaide Bank Group and
disclosed in Note 19 - Investments accounted for
joint arrangement entities and associates as follows:
using the equity method. The Group has transactions
Supplies and
Commissions
services
Amount owing
and fees paid
to joint arrangements
provided to joint
arrangements
to/(from) joint
arrangements
Homesafe Solutions Pty Ltd
Community Sector Enterprises Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Strategic Payments Services Pty Ltd
Dancoor Community Finances Ltd 1
Linear Financial Holdings Pty Ltd
Homebush Financial Services Ltd
Vicwest Community Enterprises Ltd
1 Dancoor Community Finances Ltd (effective January 2014)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2014
2013
2014
2013
2014
2013
$m
4.4
4.3
9.0
8.6
0.8
0.8
8.4
12.2
0.2
-
-
0.5
0.6
0.1
0.1
$m
-
-
3.8
3.8
0.4
0.5
-
-
0.1
-
-
0.2
0.1
6.6
3.0
$m
0.8
0.9
0.3
0.3
0.4
0.7
5.6
4.4
0.1
(5.2)
(4.7)
-
0.1
(3.2)
(2.9)
Dividends received and receivable from joint arrange-
The loans have agreed repayment terms which vary
ments and associates are disclosed in Note 3 – Profit.
according to the nature of the facility. These loans are
Bendigo and Adelaide Bank Limited provides loans,
arrangements and associates in the above table.
included in the net amount owing from joint
guarantees and/or overdraft facilities to joint arrange-
ments and associates in connection with cash flow
management, and the payment of administration
costs on behalf of the joint arrangements and associates.
124
35. Related party disclosures (continued)
Other related party transactions
Key management personnel
Key management personnel are those persons having
The Group's key management personnel are those
authority and responsibility for planning, directing and
members of the Bendigo and Adelaide Bank Group
controlling the activities of the Group.
Executive Committee together with its non-Executive
The table below details on an aggregated basis, key
management personnel compensation:
Directors.
Compensation
Salaries and other short term benefits
Post-employment benefits
Other long term benefits
Share-based payments
Closing balance
30 June 2014
$'000's
30 June 2013
$'000's
7,672.7
332.3
118.5
2,257.9
10,381.4
6,824.0
281.0
67.0
1,681.0
8,853.0
The table below details, on an aggregate basis,
The equity holdings comprise of ordinary share, prefer-
key management personnel equity.
ence shares, performance shares and deferred shares.
Equity holdings
Opening balance 1
Shares granted/purchased
Shares exercised/sold
Closing balance
The table below details, on an aggregated basis,
loan balances outstanding at the end of the year, together
with information relating to other transactions
between the Group and its key management personnel.
Loans
Opening balance 1
Advances
Interest
Repayments
Closing balance
Loans to directors and senior executives are made in
the ordinary course of the Company's business and
on an arm's length basis. The loans are processed and
approved in accordance with the Bank's standing lending
processes and prevailing terms and conditions.
30 June 2014
No.
30 June 2013
No.
1,985,557
1,962,272
352,025
(218,397)
471,224
(286,021)
2,119,185
2,147,475
30 June 2014
$'000's
30 June 2013
$'000's
7,728.9
2,596.2
371.3
(2,949.5)
7,746.9
6,782.1
1,978.9
381.6
(1,881.1)
7,261.5
1 Mr Jenkins ceased as a KMP on 19 August 2013, Mr Musgrove commenced as a KMP on 19 August 2013 and
Ms Tullio commenced as a KMP on 5 July 2013. The opening balance has been amended to account for the changes in
key management personnel. For the purposes of these disclosures the changes were treated as effective from the
start of the 2014 financial year.
2013 - 14 ANNUAL REPORT
125
36
36. Risk management
Financial Risk Management
The management of risk is an essential element of the Group’s strategy and the way we operate our business. The key financial
risks associated with the Group’s activities are:
a. Credit Risk;
b. Market Risk – Traded;
c. Market Risk – Non Traded (Interest Rate Risk in the Banking Book); and
d. Liquidity and Funding Risk.
The above financial risks are managed within the Group’s risk appetite and risk management framework which is overseen by
the Board and the Board Risk Committee and Board Credit Committee. These committees are supported by executive
management committees including the Management Credit Committee, Operational Risk Committee and Asset and Liability
Management Committee ("ALMAC") which oversee the Group’s risk profile, risk appetite and risk management framework.
The Board sets the risk appetite and risk management strategy. The types and level of risk that the Group is willing to accept to
achieve its strategic objectives and business plans are documented in a Risk Appetite Statement. The strategy and approach to
managing risks associated with the Group’s activities are articulated in the Board approved Group Risk Management Framework.
The Group applies the ‘3 lines of defence’ approach to risk management. The first line of defence is represented by the Group’s
business divisions which are responsible for the day to day management of risk including identifying, assessing and
implementing strategies to manage the risks associated with their business activities within the approved risk appetite.
The second line of defence is represented by the Group Risk and Middle Office functions. The Group Risk function reports to the
Executive – Risk and the Middle Office function reports to the Chief Financial Officer. The second line of defence is responsible
for the risk management framework and supporting policies and standards. The Group Risk and Middle Office functions assist
the Group’s business units in managing risk and provide independent challenge, oversight, monitoring and reporting of risk.
The third line of defence is the Group Assurance function. Group Assurance independently tests and validates the operation and
effectiveness of the risk management framework and the supporting systems and controls.
Further information on the Group’s risk management framework and the approach to managing risk, including Board, senior
management and business unit responsibilities, is contained in the Operating and Financial Review section of the
Annual Financial Report. An overview of the Group’s risk appetite and approach to managing the key financial risks is
presented below.
Credit risk
Credit risk is the potential that the Group will suffer a financial loss due to the unwillingness or inability of counterparties to fully
meet their contractual debts and obligations. The Board has set an appetite for the maximum amount of credit risk that it is
willing to assume at various levels across the organisation. The Group is predominantly exposed to credit risk as a result of its
commercial, business and consumer lending activities as well as counterparty exposures arising from the funding activities of
Group Treasury.
The risk appetite for credit risk is articulated through a number of selected credit risk measures. The credit risk characteristics
considered by the Board in the setting credit risk appetite included customer concentrations, partner concentrations, portfolio
concentrations (including geographic and industry), listed securities and managed fund exposures as well as stress testing
scenarios and outcomes.
The Board approved credit risk appetite is expressed through the following exposure and concentration limits:
> Maximum large exposure limit (based on a portfolio percentage - excluding the treasury portfolio and intergroup loan
advances);
> Maximum top 20 exposure limit (based on a portfolio percentage - excluding treasury portfolio and inter-group loan advances);
> Maximum top 20 exposure limit (based on a portfolio percentage including treasury portfolio and inter-group loan advances);
> Tolerable expected loss per individual transaction;
> Compliance with the following aggregate portfolio exposure limits:
> Maximum Treasury Counterparty Exposure;
> Maximum Geographic Exposure;
> Maximum Industry Sector Exposure;
> Maximum Business Sector Exposure;
> Maximum Lenders Mortgage Insurance Exposure;
> Maximum Lo Doc Portfolio Limit;
> Margin Lending; and
> Unsecured Exposure Limits.
126
36. Risk management (continued)
The Board has approved a credit risk management
ratings, credit standards, loan documentation and
framework (“framework”) that sets out the approach
administration. The Board has also established
to managing credit risk. The objective of the
levels of delegated lending authority under which
framework is to ensure there are effective structures,
the business, various levels of management (including
controls and governance practices to manage credit
the Management Credit Committee) and partners
risk. This includes arrangements to monitor and
can approve credit transactions.
report adherence with the credit risk appetite.
The framework comprises the strategy, governance,
The table below shows the maximum exposure to credit
measurement, reporting and control structures used
risk for the components of the balance sheet,
to manage credit risk. The framework is supported
including derivatives. The maximum exposure is
by a range of credit policies and manuals that govern
shown gross, before the effect of mitigation through
exposure and concentration limits as well as
the day to day provision of credit including credit
the use of master netting and collateral agreements.
Consolidated
Parent
Gross maximum exposure
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale - debt securities
Financial assets held to maturity
Other assets
Financial assets available for sale - equity
investments
Derivatives
Shares in controlled entities
Amounts receivable from controlled entities
Loans and other receivables - investment
Gross loans and other receivables
Contingent liabilities
Commitments
Total credit risk exposure
Where financial instruments are recorded at
fair value the amounts shown above represent
the current credit risk exposure but not the
maximum risk exposure that could arise in the
future as a result of changes in values.
The effect of collateral and other risk mitigation
techniques is shown in the ageing table within
this note.
Concentrations of the maximum exposure
to credit risk
Concentration of risk is managed by client or counter-
Gross maximum exposure
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas/other
Total credit risk exposure
2014
$ m
538.5
242.5
7,265.4
619.3
286.6
680.2
24.3
22.3
-
-
397.1
52,716.7
62,792.9
266.9
5,320.1
5,587.0
68,379.9
2013
$ m
232.9
293.9
5,465.2
608.9
323.3
432.5
18.1
31.9
-
-
554.1
50,125.0
58,085.8
232.9
5,474.3
5,707.2
63,793.0
2014
$ m
432.9
242.4
7,265.8
1,292.6
2.0
1,432.7
4.9
203.0
575.4
283.8
397.1
47,366.0
59,498.6
264.2
5,122.9
5,387.1
64,885.7
2013
$ m
107.2
292.2
5,465.8
1,362.9
1.8
1,132.5
4.5
182.6
526.5
544.7
554.1
44,759.1
54,933.9
227.8
5,212.6
5,440.4
60,374.3
party, by geographical region and by industry sector.
The maximum credit exposure to any client or counter-
party as at 30 June 2014 was $803.5 million
(2013: $856.4 million) before taking account of collateral
or other credit enhancements and $803.5 million
(2013: $856.4 million) net of such protection.
Geographic
The Group’s financial assets, before taking into
account any collateral held or other credit enhance-
ments can be analysed by the following geographic
regions.
Consolidated
2014
$ m
25,258.1
14,897.7
944.7
10,406.1
7,404.3
7,663.3
1,425.8
379.9
68,379.9
2013
$ m
22,359.3
13,183.5
840.0
9,836.3
7,907.9
7,552.7
1,504.9
608.4
63,793.0
Parent
2014
$ m
25,527.8
14,310.4
914.3
9,365.7
6,903.4
6,259.3
1,241.8
363.0
64,885.7
2013
$ m
23,689.4
11,775.7
807.5
8,537.5
7,476.8
6,139.9
1,356.8
590.7
60,374.3
2013 - 14 ANNUAL REPORT
127
36. Risk management (continued)
Industry Sector
An industry sector analysis of the Group’s financial assets, before taking into account collateral held or other credit
enhancements, is as follows:
Industry Concentration
Consolidated
Parent
Accommodation and food services
Administrative and support services
Agriculture, forestry and fishing
Arts and recreation services
Construction
Education and training
Electricity, gas, water and waste services
Financial and insurance services
Financial services
Health care and social assistance
Information media and telecommunications
Manufacturing
Margin Lending
Mining
Other
Other services
Professional, scientific and technical services
Public administration and safety
Rental, hiring and real estate services
Residential/consumer
Retail trade
Transport, postal and warehousing
Wholesale trade
Gross
maximum
exposure
2014
$ m
725.0
294.6
5,229.8
213.9
2,677.9
402.9
201.2
1,400.5
9,405.7
956.8
174.5
920.8
1,822.7
216.9
351.7
690.3
880.0
573.4
4,763.4
33,888.4
1,412.8
742.5
434.2
Gross
maximum
exposure
2013
$ m
699.2
307.8
5,174.5
206.2
2,564.1
413.9
209.1
1,515.7
7,214.3
1,180.7
184.5
924.1
1,915.6
236.6
229.3
712.6
874.1
670.3
4,157.7
31,758.8
1,414.7
775.6
453.6
Gross
maximum
exposure
2014
$ m
723.4
294.2
1,410.8
213.6
2,631.9
402.9
201.2
1,395.5
11,492.8
956.8
174.5
919.0
-
216.9
356.8
690.1
879.5
575.3
4,750.2
34,014.2
1,412.5
739.6
434.0
Gross
maximum
exposure
2013
$ m
698.9
307.8
1,495.1
206.2
2,522.6
413.9
209.1
1,514.5
9,461.9
1,180.7
192.8
922.6
-
236.6
223.6
712.4
873.6
669.7
4,138.6
31,753.2
1,414.3
775.2
451.0
68,379.9
63,793.0
64,885.7
60,374.3
The amount and type of collateral required
property, inventory and trade receivables or cash, and
depends on an assessment of the credit risk of
guarantees.
the counterparty. Guidelines are implemented
> For margin lending - charges over listed securities
regarding the acceptability of types of collateral
and managed funds.
and valuation parameters.
> For personal loans - approximately 50% are secured
by a charge over a specified asset, whilst credit cards
The main types of collateral obtained are as
are predominately unsecured.
follows:
> For home loans - charges over borrowers’
Management monitors the market value of collateral,
residential property, other properties or cash.
requests additional collateral in accordance with the
Further, lenders mortgage insurance (LMI) is taken
underlying agreement, and monitors the market value
out for most loans with a loan to valuation ratio
of collateral obtained during the review of the adequacy
(LVR) higher than 80%.
of the allowance for impairment losses. It is the
> For commercial loans - charges over specified
Group’s policy to dispose of repossessed properties in
assets such as commercial and residential
an orderly fashion. The proceeds are used to reduce or
128
repay the outstanding claim.
40
36. Risk management (continued)
Credit quality
The credit quality of financial assets is managed by the Group using internal credit ratings. The table below shows the credit
quality by class of asset for financial asset balance sheet lines, based on the Group’s credit rating system.
Consolidated
2014
Neither past due or impaired
Sub-
Past
High Standard standard
grade
grade
grade
Unrated
Consumer
loans 1
due or
impaired
$ m
$ m
$ m
$ m
$ m
$ m
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale - debt
securities
Financial assets held to maturity
Other assets
Financial assets available for sale - equity
investments
Derivatives
Loans and other receivables - investment
538.5
242.5
7,265.4
619.3
286.6
-
-
22.3
16.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
59.9
5.6
-
-
-
-
-
680.2
24.3
-
4.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$ m
538.5
242.5
7,265.4
619.3
286.6
680.2
24.3
22.3
291.8
18.9
397.1
Loans and other receivables
3,789.7
8,823.9
922.6
530.1
35,874.6
2,775.8
52,716.7
12,780.9
8,883.8
928.2
1,238.9
36,166.4
2,794.7
62,792.9
2013
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale - debt
securities
Financial assets held to maturity
Other assets
Financial assets available for sale - equity
investments
Derivatives
232.9
293.9
5,465.2
608.9
323.3
-
-
31.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
432.5
18.1
-
Loans and other receivables - investment
-
302.4
221.7
17.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
232.9
293.9
5,465.2
608.9
323.3
432.5
18.1
31.9
12.8
554.1
Loans and other receivables
3,473.6
8,377.3
1,134.7
606.7
33,681.6
2,851.1
50,125.0
10,429.7
8,679.7
1,356.4
1,074.5
33,681.6
2,863.9
58,085.8
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
2013 - 14 ANNUAL REPORT
129
40
36. Risk management (continued)
Credit Quality (continued)
Parent
2014
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale - debt
securities
Financial assets held to maturity
Other assets
Financial assets available for sale - equity
investments
Derivatives
Loans and other receivables - investment
Neither past due or impaired
Sub-
Past
High Standard standard
grade
grade
grade
Unrated
Consumer
loans 1
due or
impaired
$ m
$ m
$ m
$ m
$ m
$ m
432.9
242.4
7,265.8
1,292.6
2.0
-
-
203.0
16.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
59.9
5.6
-
-
-
-
-
1,432.7
4.9
-
4.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
291.8
18.9
Total
$ m
432.9
242.4
7,265.8
1,292.6
2.0
1,432.7
4.9
203.0
397.1
Loans and other receivables
332.4
7,242.5
681.4
517.3
36,273.9
2,318.5
47,366.0
Amounts receivable from controlled entities
Shares in controlled entities
-
-
-
-
-
-
283.8
575.4
-
-
-
-
283.8
575.4
9,787.7
7,302.4
687.0
2,818.4
36,565.7
2,337.4
59,498.6
2013
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale - debt
securities
Financial assets held to maturity
Other assets
Financial assets available for sale - equity
investments
Derivatives
Loans and other receivables - investment
Loans and other receivables
Amounts receivable from controlled entities
Shares in controlled entities
107.2
292.2
5,465.8
1,362.9
1.8
-
-
182.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
302.4
83.0
6,768.7
-
-
-
-
221.7
807.4
-
-
-
-
-
-
-
1,132.5
4.5
-
17.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12.8
107.2
292.2
5,465.8
1,362.9
1.8
1,132.5
4.5
182.6
554.1
964.9
33,684.4
2,450.7
44,759.1
544.7
526.5
-
-
-
-
544.7
526.5
7,495.5
7,071.1
1,029.1
3,190.3
33,684.4
2,463.5
54,933.9
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
130
40
36. Risk management (continued)
Credit Quality (continued)
Ageing
Ageing analysis of past due but not impaired loans and other receivables.
Consolidated
Parent
2014
2013
2014
2013
Less than
30 days
$ m
31 to
60 days
$ m
61 to More than
91 days
90 days
$ m
$ m
Fair value of
collateral
$m
Total
$ m
1,310.3
1,560.7
315.2
321.6
122.5
133.8
634.9
457.6
2,382.9
6,063.8
2,473.7
8,486.8
1,214.4
1,552.3
258.4
276.4
87.4
120.1
589.4
376.1
2,149.6
4,673.7
2,324.9
7,857.1
Renegotiated terms
and the expected dividend payout should bankruptcy ensue,
Generally, the terms of loans are only renegotiated on a
the availability of other financial support and the realisable
temporary basis in the event of customer hardship. In these
value of collateral, and the timing of expected cash flows.
cases the term of the loan is extended, but no longer than
the maximum term entitlement for the product. Original
The impairment losses are evaluated on a continuous basis.
terms are typically re-instated within a 3 to 6 month period.
Allowances are assessed on a portfolio basis for losses on
The majority of retail customers proactively contact the
loans and receivables that are not individually significant
Bank prior to the loan becoming past due or impaired.
(including unsecured credit cards, personal loans,
Therefore, the carrying value of financial assets that would
overdrafts, unsecured mortgage loans) and where specific
otherwise be past due or impaired whose terms have been
identification is impractical. Provisions are calculated for
renegotiated is considered immaterial.
these portfolios based on historical loss experience.
Impairment assessment
Collectively assessed provisions (collective provisions)
The main considerations for the loan impairment assessment
Where individual loans are found not to be specifically
include whether any payments of principal or interest are
impaired they are grouped together according to their risk
overdue by more than 90 days or there are any known
characteristics and are then assessed for impairment.
difficulties in the cash flows of counterparties, credit rating
Based on historical loss data and current available
downgrades, or infringement of the original terms of the
information for assets with similar risk characteristics, the
contract. The Group addresses impairment assessment in
appropriate collective provision is raised. The collective
three areas: individually assessed allowances (specific
provisions are re-assessed at each balance date.
provisions), collectively assessed allowances (collective
provisions) and a prudential reserve (general reserve for
Prudential reserve (general reserve for credit losses)
credit losses).
A general reserve for credit losses is maintained to cover
risks inherent in the loan portfolios. Australian Prudential
Individually assessed provisions (specific provisions)
Regulation Authority (“APRA”) requires that banks maintain
The Group determines the impairment provision appropriate
a general reserve for credit losses to cover risks inherent in
for each individually significant impaired loan or advance
loan portfolios. In certain circumstances the collective
on an individual basis. Items considered when determining
provision can be included in this assessment. Movements
provision amounts include the sustainability of the counter-
in the general reserve for credit losses are recognised as
party’s business plan, its ability to improve performance
an appropriation of retained earnings. The Bank maintained
once a financial difficulty has arisen, projected receipts
a GRCL at 0.56% as at 30 June 2014 (2013:0.57%).
2013 - 14 ANNUAL REPORT
131
36. Risk management (continued)
Liquidity risk
Liquidity risk is defined as the risk that the Group is unable to meet its payment obligations as they fall due, including repaying depositors or
maturing wholesale debt, or the Group having insufficient capacity to fund increases in assets. The principal objectives are to ensure that all
cash flow commitments are met in a timely manner, minimum liquidity and prudential requirements continue to be met, the return on
investments is maximised, funding costs are minimised and to ensure exchange and other settlement obligations are met on a cost efficient and
timely basis. Liquidity risk is inherent in all banking operations due to the timing mismatch between cash inflows and cash outflows.
The Board has established a liquidity risk management framework (“framework”) which is supported by documented liquidity management
policies and procedures. In accordance with the framework the Group maintains:
> Robust liquidity risk management structures to manage daily cash flows and to ensure the group meets all obligations as they fall
due and to provide a cushion of unencumbered high quality liquid assets to withstand a range of stress events;
> A clearly articulated liquidity risk appetite which includes risk tolerances, policies and procedures and linkage to business
strategy and objectives;
> A funding strategy that provides appropriate diversification in the sources and tenor of funding and which maintains a strong
presence in funding markets to support the diversification strategy;
> An effective funds transfer pricing framework that allocates liquidity costs, benefits and risks in the internal pricing, performance
and measurement process;
> A stress testing framework which incorporates a variety of short term and extended “name” and “market-wide” scenarios which
identify liquidity vulnerabilities and aim to confirm that current liquidity exposures are in accordance with the established liquidity risk
tolerances;
> Contingency plans to deal with a name crisis, and
> The ability to achieve maximum profitability within the confines of the above objectives.
The framework incorporates limits, monitoring and escalation processes to ensure sufficient liquidity is maintained.
The Board has also established the liquidity risk tolerances used to determine the maximum level of liquidity risk that is accepted by the
business. The liquidity risk appetite specifies the minimum holdings of high quality liquid assets that must be held at all times and requires the
ongoing maintenance of prudent levels of liquidity to ensure that day-to-day liquidity requirements are met. The liquidity risk appetite statement
contains a comprehensive set of measures comprising:
> Liquidity Ratio
> High Quality Liquid Asset Ratio
> Times Cover Ratio
> APRA Going Concern Scenario Modelling
> APRA Name Crisis Scenario Modelling
> RBA Exchange Settlement Account (ESA) Balance
> Portfolio Composition, Diversification and Funding Sources
The Group obtains its funding from a variety of sources including customer deposits and wholesale funding from domestic and international
markets to meet its funding requirements.
A funding strategy is approved by the Board each year as part of the approval of annual business and financial targets. In addition, Finance and
Treasury prepare and maintain a funding plan that is considered by the ALMAC on a monthly basis and reviewed by the Board Risk Committee.
Group Treasury is responsible for implementing liquidity risk management strategies in accordance with approved policies, limits and tolerances.
This includes maintaining prudent levels of liquid reserves and a diverse range of funding options to meet daily, short-term and long-term
liquidity requirements.
The Group’s liquidity risk management system measures net cash outflows and inflows and tolerances to ensure sufficient liquidity is available
at all times. This includes normalised business operations as well as over an extended crisis horizon and includes alternative crisis scenarios
to assist in anticipating cash flow needs and providing adequate reserves. The Group maintains a portfolio of high quality assets that can be
liquidated and readily converted to cash in the event of an unforeseen interruption of cash flow.
132
36. Risk management (continued)
Liquidity risk (continued)
The liquidity position is also assessed and managed under
is also supported by liquidity standards and policies which are
a variety of scenarios, giving due consideration to stress factors
regularly reviewed and updated to reflect prevailing market
relating to both the market in general and specifically to the
conditions, changes in operational requirements and regulatory
Group. The most important of these is to maintain limits on the
obligations.
ratio of net liquid assets to customer liabilities, set to reflect
market conditions. Net liquid assets consist of cash, short term
The Group also maintains a significant amount of contingent
bank deposits and liquid debt securities available for immediate
liquidity in the form of internal securitisation whereby the collateral
sale, less deposits for banks and other issued securities and
can be presented to the Reserve Bank of Australia for cash in extra-
borrowings due to mature within the next month.
ordinary circumstances such as systemic liquidity issues.
The Group has established a set of early warning indicators to
The Group is transitioning its liquidity risk management practices
support the liquidity risk management process, in particular, to
to comply with the Basel III Liquidity requirements under new
alert management of emerging or increased risk or vulnerability
Prudential Standard APS 210 which come into effect
in its liquidity position. The liquidity risk management framework
on 1 January 2015.
The liquidity ratio during the financial year was as follows:
30 June
Average during the financial year
Highest
Lowest
Analysis of financial liabilities by remaining
contractual maturities
2014
%
14.56
12.12
14.80
11.13
2013
%
11.91
11.63
13.20
10.90
The tables below summarises for the Group the maturity
Cash flows which are subject to notice are treated as if notice
profile of the financial liabilities at 30 June 2014 based on
were to be given immediately. However, the Group expects that
contractual undiscounted cash flows, and the contractual
many customers will not request repayment on the earliest
expiry by maturity of the contingent liabilities and commitments.
date the Group could be required to pay and the table does not
The table includes commitments which are not exposed to
reflect the expected cash flows indicated by the Group’s
credit risk.
Consolidated
2014
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Other payables
Income tax payable
Convertible preference shares
Subordinated debt - at amortised cost
Total financial liabilities
Contingent liabilities & commitments
Contingent liabilities
Commitments
Total contingent liabilities and commitments
deposit retention history.
Not longer
than
3 months
$ m
At call
$ m
3 to 12
months
$ m
1 to 5
years
$ m
363.5
14,235.8
8.5
-
837.0
17.5
-
-
-
21,696.3
441.3
94.0
-
-
-
10.0
-
13,309.6
345.3
208.9
-
-
14.3
58.6
-
3,477.8
2,745.3
506.4
-
-
297.2
150.8
Longer
than
5 years
$ m
-
1.0
1,721.6
40.2
-
-
-
729.1
Total
$ m
363.5
52,720.5
5,262.0
849.5
837.0
17.5
311.5
948.5
15,462.3
22,241.6
13,936.7
7,177.5
2,491.9
61,310.0
266.9
5,320.1
5,587.0
-
18.9
18.9
-
56.5
56.5
-
187.5
187.5
-
172.3
172.3
266.9
5,755.3
6,022.2
2013 - 14 ANNUAL REPORT
133
36. Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities (continued)
Consolidated
2013
Financial liabilities
Not longer
than
3 months
$ m
At call
$ m
3 to 12
months
$ m
1 to 5
years
$ m
Longer
than
5 years
$ m
Total
$ m
Due to other financial institutions
379.5
-
-
-
-
379.5
Deposits
Notes payable
Derivatives
Other payables
Income tax payable
Convertible preference shares
Subordinated debt - at amortised cost
Total financial liabilities
12,516.6
21,044.2
12,246.8
2,058.4
1.2
47,867.2
-
-
504.9
47.1
-
-
549.6
184.7
-
-
-
6.0
10.8
1,454.1
4,392.2
6,406.7
144.7
373.0
47.2
-
-
14.7
17.7
-
-
320.4
117.4
-
-
-
375.2
749.6
504.9
47.1
335.1
516.3
13,448.1
21,784.5
12,434.7
4,323.3
4,815.8
56,806.4
Contingent liabilities & commitments
Contingent liabilities
Commitments
Total contingent liabilities and commitments
232.9
5,474.3
5,707.2
-
15.7
15.7
-
47.2
47.2
-
149.6
149.6
-
232.9
185.6
5,872.4
185.6
6,105.3
Parent
2014
Financial liabilities
At call
Not longer
than
3 months
$ m
$ m
3 to 12
months
$ m
1 to 5
years
$ m
Longer
than
5 years
$ m
Total
$ m
Due to other financial institutions
363.0
-
-
-
-
363.0
Deposits
Notes payable
Derivatives
Other payables
Loans payable to securitisation trusts
Income tax payable
Convertible preference shares
Subordinated debt - at amortised cost
Total financial liabilities
Contingent liabilities & commitments
Contingent liabilities
Commitments
Total contingent liabilities & commitments
134
14,050.2
20,420.5
11,345.1
3,414.8
0.3
49,230.9
-
-
975.3
-
17.5
-
-
328.5
90.8
-
-
201.2
429.9
-
-
-
-
9.0
-
-
-
-
-
-
14.3
55.7
297.2
135.6
-
40.2
-
328.5
762.1
975.3
4,760.4
4,760.4
-
-
674.6
17.5
311.5
874.9
15,406.0
20,848.8
11,616.3
4,277.5
5,475.5
57,624.1
264.2
5,122.9
5,387.1
-
18.4
18.4
-
55.0
55.0
-
180.2
180.2
-
264.2
163.4
5,539.9
163.4
5,804.1
36. Risk management (continued)
40
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities (continued)
Parent
2013
Financial liabilities
At call
Not longer
than
3 months
$ m
$ m
3 to 12
months
$ m
1 to 5
years
$ m
Longer
than
5 years
$ m
Total
$ m
Due to other financial institutions
371.4
-
-
-
-
371.4
Deposits
Notes payable
Derivatives
Other payables
Loans payable to securitisation trusts
Income tax payable
Convertible preference shares
Subordinated debt - at amortised cost
12,336.7
19,787.4
10,273.7
2,007.6
0.5
44,405.9
-
-
775.7
-
47.1
-
-
350.3
98.7
-
-
135.9
198.8
-
-
-
-
5.0
-
-
-
-
-
-
14.7
14.8
320.4
102.0
-
47.2
-
350.3
480.6
775.7
5,829.9
5,829.9
-
-
316.9
47.1
335.1
438.7
Total financial liabilities
13,530.9
20,241.4
10,439.1
2,628.8
6,194.5
53,034.7
Contingent liabilities & commitments
Contingent liabilities
Commitments
227.8
5,212.6
-
15.7
-
47.1
-
-
227.8
149.6
185.6
5,610.6
Total contingent liabilities & commitments
5,440.4
15.7
47.1
149.6
185.6
5,838.4
Market risk (including interest rate and
currency risk)
Market risk is defined as the risk of loss arising from
changes and fluctuations in interest rates, foreign
currency exchange rates, equity prices and indices,
commodity prices, debt securities prices, credit
spreads and other market rates and prices
(“Traded Market Risk"). It also includes non-traded
market risk, primarily represented by Interest Rate
Risk in the Banking Book (“IRRBB”) defined as the
risk of loss in earnings or in the economic value on
banking book items as a consequence of movements
in interest rates.
The Board has approved a risk management framework
(‘framework’) for traded market risk. The objective
of the framework is to ensure the Group maintains
an appropriate control structure to manage trading
book activities and to set the governance structures
and measures for managing the exposure to traded
market risk.
The Group operates a Trading Book as an integral
part of its liquidity risk management function and the
portfolio consists of securities held for trading and
liquidity purposes. Traded Market Risk arises pre-
dominantly from positions held in the Trading Book.
The approach to managing traded market risk
involves the management of market sensitive assets
and liabilities by controlling the gap, volume and mix
of securities to achieve a desired position. The aim of
this approach is to minimise the exposure to market
risk and reduce potential volatility in earnings.
Foreign currency trading is governed by a series of
limits and is primarily used for the purpose of provid-
ing Group customers with access to foreign exchange
products. Foreign exchange activities are limited by
conservative spot and forward limits set out in a
Board approved policy statement.
The Board has set a risk appetite for the maximum
amount of Traded Market Risk that it is willing to take
within the Group’s treasury and foreign exchange
activities based on the potential net losses incurred
with the Trading Book portfolios as a result of an
adverse parallel movement in the yield curve. Stress
testing is conducted monthly to determine the
potential exposure for Traded Market Risk.
The potential net losses incurred with the Trading
Book portfolios must not exceed $10,000,000 as a
result of an adverse parallel movement in the yield
The Trading Book positions include permitted financial
curve of 0.50% (including the maximum expected loss
instruments including derivatives.
attributable to the Foreign Exchange portfolio).
2013 - 14 ANNUAL REPORT
135
41
36. Risk management (continued)
Market risk (including interest rate and currency risk)
The Board has approved a risk management framework (“framework”) supported by documented policies and procedures to manage
non-traded market risk (IRRBB). The framework sets out the approach to managing non-traded market risk. The objective of the
framework is to ensure there are effective governance structures, responsibilities, systems as well as key controls and measures for
managing non-traded market risk.
Non-traded market risk arises predominantly from the Group’s general lending activities as well as balance sheet funding activities.
The sources of interest rate risk are:
> Repricing risk that arises from changes on overall interest rate levels and the inherent mismatch in the maturity or repricing term of
banking book business;
> Basis risk that arises from differences between actual and expected interest margins on banking book business above the implied
cost of funding that business;
> Yield curve risk that arises from an adverse shift in market interest rates associated with investing in a fixed income instrument.
The risk is associated with either a flattening or steepening of the yield curve, which is a result of changing yields among comparable
fixed term securities with different maturities.
> Optionality risk is the risk of a loss in earnings or economic value due to the existence of stand-alone or embedded options to the
extent that the potential for those losses is not included in the measurement of repricing, yield curve or basis risks.
The approach to managing non-traded market risk focuses on balancing the prudent management of non-traded market risk inherent
in the balance sheet whilst managing net interest income volatility. The aim is to manage the exposure to large movements in interest
rates and to reduce the volatility in current and future earnings.
The Group currently uses both a static and dynamic approach to model the effect of interest rate movements on net interest income
(‘NII’) and market value of equity (‘MVE’). The primary interest rate monitoring tools used are simulation models and gap analysis.
The interest rate simulation model is a dynamic technique that allows the performance of risk management strategies to be tested
under a variety of rate environments over a range of timeframes extending out to five years. The results of this testing are then
compared to the risk appetite limits for NII.
The Group’s MVE is defined as the market value of its assets less the market value of its liabilities plus (or minus) the market value of
any off-balance sheet positions. MVE fluctuations are tested against both immediate and permanent movements in market rates.
Testing is undertaken using both actual and forecast balance sheet positions. The results of this testing are then compared to the
risk appetite limits for a negative shift in MVE as a percentage of total equity.
The Board has also set a limit for the maximum amount of interest rate risk that the business is willing to assume. This limit defines
the Group’s appetite for market risk, measured on the basis of adverse impacts on earnings and/or economic value as a result of
current and future movements in interest rates. The following limits have been set by the Board:
> NII at risk limit: The 12 month rolling forecast NII is to fall no more than 5% for every 1% parallel adverse shift in interest rates ;
> MVE limit: MVE is to fall no more than 2.5% of total equity for every 1% per annum parallel adverse shift in interest rates.
136
36. Risk management (continued)
Interest Rate risk (continued)
Consolidated
Fixed interest rate repricing
Floating
interest
rate
$m
Less than
3 months
$m
Between
3 and 6
months
$m
Between
6 and 12
months
$m
Between
1 and 5
years
$m
After
5 years
$m
Non
interest
earning/
bearing
$m
Total Weighted
average
effective
interest
rate
%
carrying
value per
Balance
sheet
$m
473.8
18.1
-
-
-
-
-
-
-
-
656.3
3,990.0
1,886.7
226.7
505.7
59.0
560.3
-
-
268.7
17.9
-
-
-
-
-
-
-
-
-
224.2
716.1
1.58
242.5
242.5
-
-
-
-
7,265.4
3.02
619.3
3.48
286.6
3.17
33,538.2
-
6,885.5
-
1,231.2
-
2,754.5
-
8,494.1
-
29.3
-
-
22.3
52,932.8
22.3
5.65
-
As at 30 June 2014
Assets
Cash & cash equivalents
Due from other
financial institutions
Financial assets held
for trading
Financial assets avail-
able for sale debt
securities
Financial assets held to
maturity
Loans & other
receivables
Derivatives
Total financial assets
34,727.3 11,722.6
3,135.8
2,981.2
8,999.8
29.3
489.0 62,085.0
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Derivatives
Convertible preference
shares
Subordinated debt
Total financial
liabilities
-
14,678.6
356.1
-
-
24,167.5
4,900.3
-
-
8,787.1
-
-
-
3,559.5
-
-
-
1,166.4
-
-
-
-
-
643.5
261.4
-
-
12.0
-
-
-
0.3
-
-
-
-
363.5
-
-
79.2
363.5
52,359.4
5,256.4
79.2
-
-
261.4
655.5
-
2.92
3.81
-
7.72
6.06
15,034.7 29,711.3
9,048.5
3,571.5
1,166.4
0.3
442.7 58,975.4
2013 - 14 ANNUAL REPORT
137
36. Risk management (continued)
Interest Rate risk (continued)
Consolidated
Floating
interest
rate
$m
162.3
-
-
Fixed interest rate repricing
Less than
3 months
$m
Between
3 and 6
months
$m
Between
6 and 12
months
$m
Between
1 and 5
years
$m
After
5 years
$m
-
-
-
-
-
-
3,146.9
2,294.2
24.1
73.4
520.5
14.9
0.1
-
318.3
5.0
-
-
-
-
-
-
-
-
-
-
-
Non
interest
earning/
bearing
$m
Total Weighted
average
effective
interest
rate
%
carrying
value per
Balance
sheet
$m
221.5
383.8
1.16
293.9
293.9
-
-
-
-
5,465.2
2.94
608.9
3.66
323.3
3.18
35,097.6
-
6,184.9
-
1,064.6
-
2,406.4
-
5,659.4
-
95.4
-
3.2
31.9
50,511.5
31.9
6.13
-
As at 30 June 2013
Assets
Cash & cash equivalents
Due from other
financial institutions
Financial assets held
for trading
Financial assets avail-
able for sale debt
securities
Financial assets held to
maturity
Loans & other
receivables
Derivatives
Total financial assets
35,333.3 10,170.6
3,378.7
2,430.6
5,659.4
95.4
550.5 57,618.5
Liabilities
Due to other
financial institutions
-
-
-
-
-
12,566.5
22,702.0
8,111.4
2,923.0
1,135.6
49.0
6,221.6
130.0
-
-
-
-
-
342.3
-
259.2
-
-
-
-
-
-
-
-
12.0
-
0.5
-
-
-
-
379.5
379.5
-
-
47,439.0
6,400.6
98.4
98.4
-
-
259.2
354.3
-
3.45
4.01
-
7.80
6.67
12,615.5 29,265.9
8,500.6
2,923.0
1,147.6
0.5
477.9 54,931.0
Deposits
Notes payable
Derivatives
Convertible preference
shares
Subordinated debt
Total financial
liabilities
138
36. Risk management (continued)
Interest Rate risk (continued)
Parent
Fixed interest rate repricing
Total Weighted
Non
carrying
average
Floating
Between
Between
Between
interest
value per
effective
interest
Less than
3 and 6
6 and 12
1 and 5
After
earning/
Balance
interest
As at 30 June 2014
$m
$m
$m
$m
$m
$m
$m
rate
3 months
months
months
years
5 years
bearing
sheet
$m
rate
%
Assets
Cash & cash equivalents
427.4
Due from other financial
institutions
-
Financial assets held
-
-
-
-
-
-
-
-
for trading
656.3
3,990.3
1,886.8
226.7
505.7
-
-
1,292.6
2.0
-
-
-
-
-
-
Financial assets avail-
able for sale
Financial assets held to
maturity
Loans & other
receivables
Derivatives
-
-
-
-
-
183.1
610.5
1.75
242.4
242.4
-
-
-
-
7,265.8
3.02
1,292.6
3.82
2.0
3.43
28,856.3
6,812.1
1,184.5
2,281.1
8,149.2
27.0
364.4
47,674.6
5.62
-
-
-
-
-
-
203.0
203.0
Total financial assets
29,940.0 12,097.0
3,071.3
2,507.8
8,654.9
27.0
992.9 57,290.9
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Loans payable to
-
-
-
-
-
14,281.2
22,356.0
7,946.0
3,045.7
1,112.4
310.4
-
-
-
-
securitisation trusts
3,422.2
138.0
139.5
290.2
770.5
-
-
-
-
-
603.3
-
261.4
-
-
-
-
-
-
-
Derivatives
Convertible preference
shares
Subordinated debt
Total financial
liabilities
-
0.3
363.0
363.0
233.7
48,975.3
-
-
-
-
-
-
-
310.4
4,760.4
77.7
77.7
-
-
261.4
603.3
-
-
2.87
-
5.54
-
7.72
5.98
18,013.8 23,097.3
8,346.9
3,335.9
1,882.9
0.3
674.4 55,351.5
2013 - 14 ANNUAL REPORT
139
36. Risk management (continued)
Interest Rate risk (continued)
Parent
Fixed interest rate repricing
Total Weighted
Non
carrying
average
Floating
Between
Between
Between
interest
value per
effective
interest
Less than
3 and 6
6 and 12
1 and 5
After
earning/
Balance
interest
As at 30 June 2013
$m
$m
$m
$m
$m
$m
$m
rate
3 months
months
months
years
5 years
bearing
sheet
$m
rate
%
Assets
Cash & cash equivalents
128.1
Due from other financial
institutions
Financial assets held
for trading
Financial assets avail-
able for sale
Financial assets held to
maturity
Loans & other
receivables
Derivatives
-
-
-
-
-
-
3,147.3
2,294.4
24.1
1,362.8
1.8
-
-
0.1
-
-
-
-
-
-
-
-
-
-
-
130.0
258.1
1.38
292.2
292.2
-
-
-
-
5,465.8
2.94
1,362.9
4.00
1.8
3.83
-
-
-
-
30,213.8
6,089.7
1,003.5
2,075.4
5,345.4
92.3
425.3
45,245.4
6.01
-
-
-
-
-
-
182.6
182.6
-
-
3.39
5.92
-
-
7.80
6.58
Total financial assets
30,341.9 10,601.6
3,297.9
2,099.6
5,345.4
92.3
1,030.1 52,808.8
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Loans payable to
securitisation trusts
Derivatives
Reset preference shares
Subordinated debt
Total financial
liabilities
-
-
-
-
-
12,174.8
20,793.4
7,335.3
2,458.6
1,073.0
-
0.5
371.4
371.4
286.1
44,121.7
-
-
-
-
-
350.3
-
-
-
302.2
-
-
-
268.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
350.3
5,829.8
5,829.8
85.7
-
-
85.7
268.9
302.2
12,174.8 21,445.9
7,604.2
2,458.6
1,073.0
0.5
6,573.0 51,330.0
140
36. Risk management (continued)
The following table demonstrates the sensitivity to a
for sale financial assets (including the effect
reasonably possible change in interest rates, with all other
of any associated hedges), and swaps designated as
variables held constant, on the Group’s income statement
cash flow hedges, at 30 June 2014 for the effects of
and equity.
the assumed changes in interest rates. The sensitivity
of equity is analysed by maturity of the asset or swap.
The sensitivity of the income statement is the effect of
With sensitivity based on the assumption that there
assumed changes in interest rates on the net interest for
are parallel shifts in the yield curve.
one year, based on the floating rate financial assets
and financial liabilities held at 30 June 2014, including
Monitoring of adherence to policies, limits and
the effect of hedging instruments. The sensitivity of
procedures is controlled through the ALMAC and the
equity is calculated by revaluing fixed rate available
board risk committee.
Consolidated
+100 basis
points
-100 basis
points
+100 basis
points
-100 basis
points
Net interest income
Ineffectiveness in derivatives
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
Parent
Net interest income
Ineffectiveness in derivatives
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
The movements in profit are due to higher/lower interest
costs from variable rate debt and cash balances. The move-
ment in equity is also affected by the increase/decrease
in the fair value of derivative instruments designated as cash
flow hedges, where these derivatives are deemed effective.
This analysis reflects a scenario where no management actions
are taken to counter movements in rates.
2014
$ m
34.8
4.3
(11.7)
27.4
27.4
178.9
(53.7)
2014
$ m
(38.4)
(4.3)
12.8
(29.9)
(29.9)
(178.9)
53.7
2013
$ m
9.4
0.5
(3.0)
6.9
2013
$ m
(16.4)
(0.5)
5.1
(11.8)
6.9
135.9
(40.8)
(11.8)
(135.9)
40.8
152.6
(155.1)
102.0
(106.9)
+100 basis
points
-100 basis
points
+100 basis
points
-100 basis
points
2014
$ m
28.9
4.3
(9.9)
23.3
2014
$ m
(35.3)
(4.3)
11.9
(27.7)
23.3
175.4
(52.6)
(27.7)
(175.4)
52.6
146.1
(150.5)
2013
$ m
2.2
0.5
(0.8)
1.9
1.9
129.5
(38.9)
92.5
2013
$ m
(10.8)
(0.5)
3.4
(7.9)
(7.9)
(129.5)
38.9
(98.5)
2013 - 14 ANNUAL REPORT
141
36. Risk management (continued)
Foreign currency risk
The foreign currency trading is limited by conservative
The Group does not have any significant exposure to foreign
spot and forward limits as specified by policy and
currency risk, as all borrowings through the company’s Euro
comprises:
Medium Term Note program (EMTN) and Euro Commercial Paper
> Limited physical and forward transactional activity
program (ECP) are fully hedged. At balance date the principal of
from warehousing customer transactions; and
foreign currency denominated borrowings under these programs
> Limited option transactions conducted on a strictly
was AUD $900.0m (2013: AUD $266.0m) with all borrowings fully
back to back basis to facilitate customer transactions.
hedged by cross currency swaps, and foreign exchange
swaps. Retail and business banking FX transactions are
The Group’s discretionary interest rate and foreign
managed by the Group’s Financial Markets unit, with
exchange trading activities are governed by the Trading
resulting risk constrained by Board approved spot and
Book Policy and Group Treasury is responsible for the
forward limits. Adherence to limits is independently
management of the day to day trading book activities.
monitored by the Middle Office function.
Equity price risk
The Group conducts discretionary interest rate and
The Group’s exposure to equity securities at 30 June
foreign exchange trading. This trading forms part of the
2014 is $24.3m (2013: $18.1m) with $2.0m (2013: $1.4m)
trading book activity within the liquidity management function.
of these listed on a recognised stock exchange. The fair
The trading book positions include approved financial
value of listed investments is affected by movements in
instruments, both physical and derivative.
market prices, whilst unlisted investment fair values are
determined using other valuation methods.
Trading positions are taken with the intent to benefit from
actual and/or expected price movements as well as to
Equity securities price risk arises from investments in
hedge exposures within the trading book. The vast majority
equity securities and is the risk that the fair values of
of the trading book comprises securities that are repo-
equities decrease as the result of changes in the levels
eligible with the RBA. The liquid nature of the trading
of equity indices and the value of individual stocks.
assets remains the prime criteria for their purchase.
The majority of the value of equity investments held are
of a high quality and are publicly traded on either the
Discretionary interest rate activity comprises outright
ASX or BSX.
position taking in domestic financial instruments and
derivatives, principally arising from the management of
The Group's equity investments represent approximately
the Group’s liquids portfolio and market making in financial
0.03% of total group assets and are predominantly long
instruments with the intention of benefiting from price
term strategic holdings, therefore short term volatility in
movements ancillary to management of the liquidity portfolio.
fair values is not considered significant and a sensitivity
This is not a core component of the Group’s trading activity.
analysis has not been completed.
142
37
37. Financial instruments
a) Measurement basis of financial assets and liabilities
The accounting policies in Note 2 describe how different
losses, are recognised. The following table analyses the
classes of financial instruments are measured, and how
carrying amount of the financial assets and liabilities by
income and expenses, including fair value gains and
category and by balance sheet heading.
Consolidated
At fair value
through
profit & loss
At fair value
through
reserves
30 June 2014
Financial assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale -
debt securities
Financial assets available for sale -
equity investments
Loans & other receivables -
investment
Loans & other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
30 June 2013
Financial assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale -
debt securities
Financial assets available for sale -
equity investments
Loans & other receivables -
investment
Loans & other receivables
Derivatives
Total financial assets
Derivatives
$m
-
-
-
-
-
-
-
-
22.3
22.3
-
-
-
79.2
-
-
79.2
$m
-
-
-
-
-
-
-
-
31.9
31.9
Held for
trading
$m
-
-
-
7,265.4
-
-
-
-
-
Available
for sale
$m
Held at
Loans and
Receivables amortised cost
$m
$m
Total
$m
-
-
-
-
619.3
24.3
-
-
-
-
-
-
-
-
-
397.1
52,535.7
-
716.1
716.1
242.5
286.6
-
-
-
-
-
-
242.5
286.6
7,265.4
619.3
24.3
397.1
52,535.7
22.3
7,265.4
643.6
52,932.8
1,245.2
62,109.3
-
-
-
-
-
-
-
-
$m
-
-
5,465.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$m
608.9
18.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
363.5
52,359.4
5,256.4
-
261.4
655.5
363.5
52,359.4
5,256.4
79.2
261.4
655.5
58,896.2
58,975.4
$m
$m
$m
383.8
383.8
293.9
323.3
-
-
-
-
-
-
293.9
323.3
5,465.2
608.9
18.1
554.1
49,957.4
31.9
554.1
49,957.4
-
5,465.2
627.0
50,511.5
1,001.0
57,636.6
2013 - 14 ANNUAL REPORT
143
37. Financial instruments (continued)
Consolidated (continued)
30 June 2013
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
Parent
30 June 2014
Financial assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale -
debt securities
Financial assets available for sale -
equity investments
Loans & other receivables -
investment
Loans & other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
Parent
30 June 2013
Financial Assets
Cash and cash equivalents
Due from other financial
institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale -
debt securities
Financial assets available for sale -
equity investments
Loans & other receivables -
investment
Loans & other receivables
Derivatives
Total financial assets
144
At fair value
through
profit & loss
Held for
trading
$m
At fair value
through
reserves
Available
for sale
$m
Derivatives
$m
Loans and
Held at
Receivables amortised cost
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$m
379.5
47,439.0
6,400.6
98.4
259.2
354.3
379.5
47,439.0
6,400.6
-
259.2
354.3
54,832.6
54,931.0
$m
$m
$m
610.5
610.5
242.4
2.0
-
-
-
-
-
-
242.4
2.0
7,265.8
1,292.6
4.9
397.1
47,277.5
203.0
397.1
47,277.5
-
363.0
48,975.3
310.4
-
261.4
603.3
363.0
48,975.3
310.4
77.7
261.4
603.3
50,513.4
50,591.1
$m
$m
$m
258.1
258.1
292.2
1.8
-
-
-
-
-
-
292.2
1.8
5,465.8
1,362.9
4.5
554.1
44,691.3
182.6
554.1
44,691.3
-
-
-
-
-
-
-
-
-
$m
-
-
7,265.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$m
1,292.6
4.9
-
-
-
-
-
-
-
-
-
-
-
$m
-
-
5,465.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$m
1,362.9
4.5
-
-
-
7,265.8
1,297.5
47,674.6
854.9
57,295.8
5,465.8
1,367.4
45,245.4
552.1
52,813.3
-
-
-
98.4
-
-
98.4
$m
-
-
-
-
-
-
-
-
203.0
203.0
-
-
-
77.7
-
-
77.7
$m
-
-
-
-
-
-
-
-
182.6
182.6
37. Financial instruments (continued)
Parent (continued)
At fair value
through
profit & loss
At fair value
through
reserves
30 June 2013
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
Derivatives
$m
Held for
trading
$m
Available
for sale
$m
Loans and
Held at
Receivables amortised cost
$m
$m
-
-
-
85.7
-
-
85.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
371.4
44,121.7
350.3
-
259.2
302.2
45,404.8
45,490.5
Total
$m
371.4
44,121.7
350.3
85.7
259.2
302.2
b) Fair Values of financial assets & liabilities
The following table summarises the carrying value of
table are at a specific date and may be significantly
financial assets and liabilities presented on the
different from the amounts which will actually be paid or
Group's balance sheet. The fair values presented in the
received on the maturity or settlement date.
Consolidated
Financial assets
Cash and cash equivalents
Due from other financial instruments
Financial assets held for trading
Financial assets held to maturity
Financial assets available for sale -debt securities
Financial assets available for sale - equity
investments
Loans & other receivables - investment
Loans & other receivables
Derivatives
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
2014
2013
Carrying
Value
$m
716.1
242.5
Fair
Value
$m
716.1
242.5
Carrying
Value
$m
383.8
293.9
Fair
Value
$m
383.8
293.9
7,265.4
7,265.4
5,465.2
5,465.2
286.6
619.3
24.3
397.1
286.6
619.3
24.3
404.3
323.3
608.9
18.1
554.1
323.3
608.9
18.1
568.0
52,535.7
52,720.9
49,957.4
50,150.4
22.3
22.3
31.9
31.9
363.5
363.5
379.5
379.5
52,359.4
52,453.4
47,439.0
47,578.7
5,256.4
5,323.6
6,400.6
6,465.2
79.2
261.4
655.5
79.2
279.8
654.1
98.4
259.2
354.3
98.4
275.1
355.6
2013 - 14 ANNUAL REPORT
145
37. Financial instruments (continued)
Parent
2014
2013
Financial assets
Cash and cash equivalents
Due from other financial instruments
Financial assets held for trading
Financial assets held to maturity
Financial assets available for sale -debt securities
Financial assets available for sale - equity
investments
Loans & other receivables - investment
Loans & other receivables
Derivatives
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Carrying
Value
$m
610.5
242.4
7,265.8
2.0
1,292.6
4.9
397.1
47,277.5
203.0
363.0
48,975.3
310.4
77.7
261.4
603.3
Fair
Value
$m
610.5
242.4
7,265.8
2.0
1,292.6
4.9
404.3
47,444.4
203.0
363.0
49,060.7
310.4
77.7
279.8
598.2
Carrying
Value
$m
258.1
292.2
5,465.8
1.8
1,362.9
4.5
554.1
44,691.3
182.6
371.4
44,121.7
350.3
85.7
259.2
302.2
Fair
Value
$m
258.1
292.2
5,465.8
1.8
1,362.9
4.5
568.0
44,841.5
182.6
371.4
44,226.9
350.3
85.7
275.1
296.9
The carrying amount for the following financial instruments
Valuation of financial assets and liabilities
is a reasonable approximation of the fair value: cash and
The Group measures fair values using the following fair
cash equivalents, due from other financial instruments
value hierarchy, which reflects the significance of the
and due to other financial instruments.
inputs in making the measurement.
c) Fair Value measurement
Level 1
Fair value is the price that would be received to sell an
Level 1 fair value measurements are those derived from
asset or paid to transfer a liability in an orderly transaction
unadjusted quoted prices in active markets for identical
between market participants at the measurement date.
assets or liabilities.
Wherever possible, fair values have been calculated
Level 2
using unadjusted quoted market prices in active markets
Level 2 fair value measurements are those derived from
for identical instruments held by the Group. For all other
inputs other than quoted prices within level 1 that are
financial instruments, the group determines fair value
observable either directly (as prices) or indirectly (derived
using other valuation techniques.
from prices).
Valuation control framework
Level 3
The Group has an established control framework with
Level 3 fair value measurements are from inputs that
respect to the measurement of the fair values including
are unobservable. Where equity investments have no
independent price verification. The framework is independent
quoted market price and fair value cannot be reliably
of the front office management and reports directly to
measured these investments are carried at cost
the Chief Financial Officer.
less impairment.
Specific controls include:
> verification of observable pricing,
> a review and approval process for new products,
> analysis and investigation of significant daily valuation
movements.
146
37. Financial instruments (continued)
Financial assets and liabilities carried at fair value
Valuation Hierarchy
Consolidated
30 June 2014
Financial assets held for trading
Financial assets available for sale -debt securities
Financial assets available for sale - equity investments
Derivatives
Total financial assets carried at fair value
Derivatives
Total financial liabilities carried at fair value
30 June 2013
Financial assets held for trading
Financial assets available for sale -debt securities
Financial assets available for sale - equity investments
Derivatives
Total financial assets carried at fair value
Derivatives
Total financial liabilities carried at fair value
Parent
30 June 2014
Financial assets held for trading
Financial assets available for sale -debt securities
Financial assets available for sale - equity investments
Derivatives
Total financial assets carried at fair value
Derivatives
Total financial liabilities carried at fair value
30 June 2013
Financial assets held for trading
Financial assets available for sale -debt securities
Financial assets available for sale - equity investments
Derivatives
Total financial assets carried at fair value
Derivatives
Total financial liabilities carried at fair value
Level 1
$m
-
-
2.0
-
2.0
-
-
Level 1
$m
-
-
1.4
-
1.4
-
-
Level 1
$m
-
-
1.9
-
1.9
-
-
Level 1
$m
-
-
1.4
-
1.4
-
-
Level 2
$m
7,265.4
619.3
19.4
22.3
7,926.4
79.2
79.2
Level 2
$m
5,465.2
608.9
13.6
31.9
6,119.6
98.4
98.4
Level 2
$m
7,265.8
1,292.6
-
203.0
8,761.4
77.7
77.7
Level 2
$m
5,465.8
1,362.9
-
182.6
7,011.3
85.7
85.7
Level 3
$m
-
-
2.9
-
2.9
-
-
Level 3
$m
-
-
3.1
-
3.1
-
-
Level 3
$m
-
-
3.0
-
3.0
-
-
Level 3
$m
-
-
3.1
-
3.1
-
-
Total
$m
7,265.4
619.3
24.3
22.3
7,931.3
79.2
79.2
Total
$m
5,465.2
608.9
18.1
31.9
6,124.1
98.4
98.4
Total
$m
7,265.8
1,292.6
4.9
203.0
8,766.3
77.7
77.7
Total
$m
5,465.8
1,362.9
4.5
182.6
7,015.8
85.7
85.7
Transfers between levels are deemed to have occurred
There were no significant transfers between levels during
at the beginning of the reporting period in which
the year for the Group or Parent.
instruments are transferred.
2013 - 14 ANNUAL REPORT
147
37. Financial instruments (continued)
Valuation methodology
Financial instruments & financial
instruments - debt securities
Each month market security investment valuations are
pricing models as appropriate. The most significant inputs
into the valuations are interest rate yields which are
developed from publicly quoted rates.
determined by the middle office department of the
Movements in level 3 portfolio
Group's Finance and Treasury division. This involves an
The following table shows a reconciliation from the
analysis of market rate sheets provided by institutions
beginning balances to the ending balances for fair value
independent of Bendigo and Adelaide Bank. From these
measurements in Level 3 of the fair value hierarchy.
independent rate sheets, market average valuations are
Financial assets - equity investments
calculated within the Group's Treasury management
system, thereby updating the value of the investments.
investments
Consolidated
Parent
Financial Instruments - Equity investments
As at 30 June 2013
Gains or losses in equity
Level 1 - Listed investments relates to equity held that
are on listed exchanges. Level 2 - unlisted investments
are equity holdings in unlisted managed investment
Purchases
Sales
Transfers in/out
schemes. For managed scheme investments the most
As at 30 June 2014
recent prices provided by the fund manager are used.
Gains recognised in the income
Level 3 - unlisted investments are equity holdings
statement
in small unlisted entities. Given there are no quoted
$m
3.1
-
-
-
(0.2)
2.9
-
$m
3.1
-
-
-
(0.1)
3.0
-
market prices and fair value cannot be reliably
Financial assets and liabilities carried at
measured, investments are held at cost less
impairment.
Derivatives
amortised cost
Valuation Hierarchy
The table below analyses the fair value of the financial
assets and liabilities of the Group which are carried at
Where the Group's derivative assets and liabilities are not
amortised cost. They are categorised into levels 1 to 3
traded on an exchange, they are valued using valuation
based on the degree to which their fair value is observable.
methodologies, including discounted cash flow and option
Consolidated
30 June 2014
Financial assets
Financial assets held to maturity
Loans & other receivables - investment
Loans & other receivables
Financial liabilities
Deposits
Notes payable
Convertible preference shares
Subordinated debt
Level 1
$m
-
-
-
-
-
279.8
-
Level 2
$m
286.6
-
-
52,453.4
5,323.6
-
654.1
Total Fair
Value
$m
Total
Carrying
amount
$m
286.6
404.3
286.6
397.1
Level 3
$m
-
404.3
52,720.9
52,720.9
52,535.7
-
-
-
-
52,453.4
52,359.4
5,323.6
5,256.4
279.8
654.1
261.4
655.5
148
37. Financial instruments (continued)
Parent
Financial assets
Financial assets held to maturity
Loans & other receivables - investment
Loans & other receivables
Financial liabilities
Deposits
Notes payable
Convertible preference shares
Subordinated debt
Level 1
$m
Level 2
$m
Level 3
$m
Total Fair
Value
$m
Total
Carrying
amount
$m
-
-
-
-
-
279.8
-
2.0
-
-
-
404.3
2.0
404.3
2.0
397.1
47,444.4
47,444.4
47,277.5
49,060.7
310.4
-
598.2
-
-
-
-
49,060.7
48,975.3
310.4
279.8
598.2
310.4
261.4
603.3
Note: Comparatives not provided as disclosure not required in 2013
Transfers between levels are deemed to have occurred
at the beginning of the reporting periods in which
the instruments were transferred. There have been
no transfers between levels during the reporting period.
Valuation Methodology
Financial assets
Financial instruments - held to maturity
Financial liabilities
Deposits
The fair value of financial assets held to maturity, including
The carrying value of deposits at call is considered to be fair
bills of exchange, negotiable certificates of deposit, govern-
value. The fair value for all term deposits is calculated
ment securities and bank and other deposits, which are
using a discounted cash flow model applying market rates,
predominantly short-term, is measured at amortised book
or current rates for deposits of similar maturities.
value. Carrying value of these assets approximates fair
value.
Notes Payable
Loans & other receivables
The fair value for all Notes payable is calculated using a
discounted cash flow model applying market rates and
(including Loans & other receivables - investments)
margins for similar instruments.
The carrying value of loans and other receivables is
net of specific and collective provisions for doubtful debts.
Convertible preference shares
For variable rate loans, excluding impaired loans, the
The closing share price of the convertible preference
carrying amount is a reasonable estimate of fair value.
shares on 30 June is used to calculate the fair value of
The net fair value for fixed loans is calculated by utilising
discounted cash flow models (i.e. the net present value of
Subordinated debt
these financial liabilities.
the portfolio future principal and interest cash flows),
The fair value of subordinated debt is calculated based on
based on the maturity of the loans. The discount rates
quoted market prices, where applicable. For those debt
applied represent the rate the market is willing to offer for
issues where quoted market prices were not available, a
these loans at arms-length.
The net fair value of impaired loans is calculated by
discounting expected cash flows using these rates.
discounted cash flow model using a yield curve approp-
riate to the remaining maturity of the instrument is used.
2013 - 14 ANNUAL REPORT
149
38
38. Derivative financial instruments
The Group uses derivatives primarily to hedge banking operations and for asset and liability management. Some derivatives
transactions may qualify as either cash flow or fair value hedges. The accounting treatment of these hedges is outlined in Note 2.33
Derivative Financial Instruments.
The Group is exposed to volatility in interest cash flows inherent in its loan portfolio and that of the securitisation vehicles. Interest
rate swaps are used to hedge the risk that this volatility creates.
During the 2014 financial year the consolidated entity recognised a gain of $0.1 m (2013: a loss of $1.8m) due to hedge
ineffectiveness.
Consolidated 2014
Consolidated 2013
Notional
Amount
$m
Fair Value
Assets
$m
Fair Value
Liabilities
$m
Net Fair
Value
$m
Notional
Amount
$m
Fair Value
Assets
$m
Fair Value
Liabilities
$m
Net Fair
Value
$m
Included in derivatives category
Derivatives held for trading
Futures
Interest rate swaps
Foreign exchange
contracts
Derivatives
431.1
1,036.7
46.0
1,513.8
3.4
10.1
0.5
14.0
-
(18.9)
(0.3)
(19.2)
3.4
(8.8)
0.2
(5.2)
500.0
1,300.0
95.3
1,895.3
0.4
16.0
0.6
17.0
-
-
-
-
(15.9)
(0.6)
(16.5)
0.4
0.1
-
0.5
(3.6)
(3.6)
-
(3.6)
-
(3.6)
(2.5)
(2.5)
57.1
-
(2.5)
-
(2.5)
0.4
57.5
(16.8)
(40.7)
(57.5)
(16.8)
(32.4)
(49.2)
241.7
14,393.8
14,635.5
1.1
13.8
14.9
(22.8)
(55.5)
(78.3)
(21.7)
(41.7)
(63.4)
Derivatives held as fair value hedges
Interest rate swaps
Embedded
derivatives
Derivatives
50.9
0.1
51.0
Derivatives held as cash flow hedges
Cross currency
swaps
195.6
-
-
-
-
Interest rate swaps
17,694.1
Derivatives
17,889.7
8.3
8.3
Total derivatives
19,454.5
22.3
(79.2)
(56.9)
16,588.3
31.9
(98.4)
(66.5)
150
38. Derivative financial instruments (continued)
Parent 2014
Parent 2013
Notional
Amount
$m
Fair Value
Assets
$m
Fair Value
Liabilities
$m
Net Fair
Value
$m
Notional
Amount
$m
Fair Value
Assets
$m
Fair Value
Liabilities
$m
Net Fair
Value
$m
Included in derivatives category
Derivatives held for trading
Futures
431.1
Interest rate swaps
10,419.0
3.4
191.0
-
3.4
500.0
(30.0)
161.0
10,124.6
0.4
170.0
-
0.4
(31.5)
138.5
Foreign exchange
contracts
Derivatives
92.1
0.5
(0.3)
0.2
95.3
0.6
(0.6)
-
10,942.2
194.9
(30.3)
164.6
10,719.9
171.0
(32.1)
138.9
Derivatives held as fair value hedges
Interest rate swaps
Derivatives
50.9
50.9
Derivatives held as cash flow hedges
Cross currency
swaps
140.9
-
-
-
Interest rate swaps
Derivatives
17,395.2
17,536.1
8.1
8.1
(2.5)
(2.5)
(2.5)
(2.5)
57.1
57.1
(7.8)
(37.1)
(44.9)
(7.8)
(29.0)
(36.8)
-
13,996.0
13,996.0
-
-
-
11.6
11.6
(3.6)
(3.6)
(3.6)
(3.6)
-
(50.0)
(50.0)
-
(38.4)
(38.4)
Total derivatives
28,529.2
203.0
(77.7)
125.3
24,773.0
182.6
(85.7)
96.9
2013 - 14 ANNUAL REPORT
151
42
38. Derivative financial instruments (continued)
As at 30 June hedged cash flows are expected to occur and affect the income statement as follows:
Consolidated
2014
Forecast cash inflows (Assets)
Forecast cash outflows (Liabilities)
Forecast net cash inflow
Income statement
2013
Forecast cash inflows (Assets)
Forecast cash outflows (Liabilities)
Forecast net cash inflow
Income statement
Parent
2014
Forecast cash inflows (Assets)
Forecast cash outflows (Liabilities)
Forecast net cash inflow
Income statement
2013
Forecast cash inflows (Assets)
Forecast cash outflows (Liabilities)
Forecast net cash inflow
Income statement
Within
1 year
$ m
269.7
(302.9)
(33.2)
(26.2)
323.0
(329.4)
(6.4)
(21.5)
Within
1 year
$ m
263.2
(292.0)
(28.8)
(21.9)
1 to 2
years
$ m
207.0
(233.2)
(26.2)
(21.7)
122.9
(128.1)
(5.2)
(20.0)
1 to 2
years
$ m
135.8
(159.1)
(23.3)
(19.9)
231.6
(234.7)
(3.1)
(15.4)
90.0
(118.6)
(28.6)
(13.3)
Net gains /(losses) arising from hedge ineffectiveness
Gains/(losses) on hedging instruments
(Losses)/gains on the hedged items attributable to the hedged risk
(Losses)/gains arising from cash flow hedges
(Losses)/gains on hedge ineffectiveness
152
2 to 3
years
$ m
53.3
(66.5)
(13.2)
(13.2)
203.3
(212.7)
(9.4)
(7.8)
2 to 3
years
$ m
52.0
(64.2)
(12.2)
(12.6)
34.5
(49.0)
(14.5)
(5.7)
2014
$ m
1.0
(1.1)
3 to 4
years
$ m
27.0
(32.8)
(5.8)
(8.9)
14.1
(20.7)
(6.6)
(3.2)
3 to 4
years
$ m
26.9
(32.6)
(5.7)
(8.8)
13.7
(19.8)
(6.1)
(2.8)
2013
$ m
0.9
(0.8)
4 to 5
years
$ m
170.6
(173.9)
(3.3)
(4.5)
9.9
(11.6)
(1.7)
(1.2)
4 to 5
years
$ m
170.6
(173.9)
(3.3)
(4.5)
9.9
(11.4)
(1.5)
(1.1)
2014
$ m
1.0
(1.1)
Greater
than
5 years
$ m
39.7
(40.2)
(0.5)
(0.3)
46.4
(47.2)
(0.8)
(0.6)
Greater
than
5 years
$ m
39.7
(40.2)
(0.5)
(0.3)
46.4
(47.2)
(0.8)
(0.6)
2013
$ m
0.9
(0.8)
0.2
0.1
(1.9)
(1.8)
0.2
0.1
(6.7)
(6.6)
39
39. Commitments and contingencies
(a) Commitments
The following are outstanding expenditure and
These leases have various terms and some property
credit related commitments as at 30 June 2014.
leases include optional renewal periods included in
Except where specified, all commitments are
the contracts.
payable within one year.
There are no restrictions placed upon the lessee by
Operating lease commitments -
entering into these leases.
Group as lessee
The Group has entered into commercial property
Future minimum rentals payable under non-
leases and commercial leases on certain motor
cancellable operating leases as at 30 June:
vehicles and items of office equipment.
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Consolidated
Parent
2014
$m
70.3
187.5
172.3
430.1
2013
$m
58.3
149.6
185.6
393.5
2014
$m
68.3
180.2
163.4
411.9
2013
$m
58.2
149.6
185.6
393.4
Operating lease commitments - Group as lessor
The Group has entered into commercial property
All leases have a clause to enable upward revision of
leases on the Group's surplus office space.
the rental charge on a regular basis according to
These non-cancellable leases have various terms.
prevailing market conditions.
Future minimum rentals receivable under non-cancellable
operating leases as at 30 June:
Not later than 1 year
Later than 1 year but not later than 5 years
Other expenditure commitments
Sponsorship commitments not paid as at
Consolidated
Parent
2014
$m
1.2
2.5
3.7
Consolidated
2014
$m
2013
$m
1.2
1.3
2.5
2013
$m
2014
$m
1.2
2.5
3.7
Parent
2014
$m
2013
$m
1.2
1.3
2.5
2013
$m
balance date, payable not later than one year
5.1
4.6
5.1
4.6
Credit related commitments
Gross loans approved, but not advanced to
borrowers
Credit limits granted to clients for overdrafts
and credit cards
Total amount of facilities provided
Amount undrawn at balance date
1,506.3
1,219.1
1,457.9
1,201.2
10,095.6
3,813.8
10,871.2
4,255.2
9,180.3
3,665.0
9,887.4
4,011.4
Normal commercial restrictions apply as to use and withdrawal of the facilities.
2013 - 14 ANNUAL REPORT
153
43
39. Commitments and contingencies (continued)
(b) Superannuation commitments
The Bendigo and Adelaide Bank Group has a legally
The Superannuation Industry Supervision (SIS) legislation
enforceable obligation to contribute to a superannuation
governs the superannuation industry and provides the
plan for employees either on an accumulation basis
framework within which superannuation plans operate.
(including the Superannuation Guarantee Charge)
or on a defined benefits basis (Adelaide Bank staff
The SIS Regulations require an actuarial valuation to be
superannuation plan) which provides benefits on
performed for each defined benefit superannuation plan every
retirement, disability or death based on years of service
three years, or every year if the plan pays defined benefit
and final average salary. Employees contribute to the
pensions.
plan at a fixed percentage of remuneration.
The Group’s contribution to the defined benefit plan is
The Trustee has a legal obligation to act solely in the best
The Plan's Trustee is responsible for the governance of the Plan.
determined by the Trustee after consideration of actuarial
interests of Plan beneficiaries.
advice. At balance date, the Directors believe that funds
available were adequate to satisfy all vested benefits
The Trustee has the following roles:
under the plan.
Accounting Policy
> Administration of the plan and payment to the beneficiaries
from Plan assets when required in accordance with the Plan
rules;
Actuarial gains and losses are recognised in retained
> Management and investment of the Plan assets; and
earnings.
Plan Information
> Compliance with superannuation law and other applicable
regulations.
Defined benefit members receive lump sum benefits on
The prudential regulator, APRA, licenses and supervises
retirement, death, disablement and withdrawal. The defined
regulated superannuation plans.
benefit section of the Plan is closed to new members.
All new members are entitled to become members of the
accumulation categories of the fund.
Actual Return
Actual return on Plan assets less interest income
Significant Actuarial Assumptions
Discount rate
Expected salary increase rate
Reconciliation of the Fair Value of
Plan assets
Fair value of plan assets at beginning of the year
Add Interest income
Add Actual return on plan assets less interest income
Add Employer contributions
Add Contributions by plan participants
Less Benefits paid
Less Taxes, premiums and expenses paid
Consolidated
2014
$ m
1.1
3.5% pa
3.0% pa
$ m
10.6
0.4
1.1
-
0.1
0.2
0.1
Fair value of plan assets at the end of the year
11.9
2013
$ m
1.6
3.2% pa
3.0% pa
$ m
8.9
0.2
1.6
0.2
0.1
0.3
0.1
10.6
154
43
39. Commitments and contingencies (continued)
(b) Superannuation commitments
Fair value of plan assets at end of the year
Present value of defined benefit obligations at beginning of the
year
Add Current service cost
Add Interest cost
Add Contributions by Plan participants
Add Actuarial (gains)/losses
Less Benefits paid
Less Taxes, premiums and expenses paid
Less Adjustments to OCI following adoption
to revised AASB 119
Fair value of plan assets at end of the year
Reconciliation of the assets and liabilities
recognised in the balance sheet
Defined Benefit Obligation ^
Less Fair value of Plan assets
Surplus
Consolidated
2014
$ m
7.1
0.3
2013
$ m
8.0
0.3
0.2 0.2
0.1
(0.3)
0.2
-
0.1
(1.1)
0.3
0.1
0.2 -
7.0
Consolidated
2014
$ m
7.0
11.9
(4.9)
7.1
2013
$ m
7.1
10.6
(3.5)
Net defined benefit (asset)/liability
(4.9) (3.5)
^ includes defined benefit contributions tax provision
Movements in Net defined benefit liability / (asset) recognised in
the Balance Sheet
Net defined benefit liability (asset) at beginning of the year
(3.5) (0.9)
Add Adjustment to OCI following adoption
of revised AASB 119
Adjusted Net defined benefit liability/(asset) at beginning of the
year
Add Defined benefit cost
Add Remeasurements
Less Employer contributions
(0.2)
-
(3.7) (0.9)
0.2 0.3
(1.4)
-
(2.7)
0.2
Net defined benefit liability/(asset) at end of the year
(4.9) (3.5)
Expense Recognised in Income Statement
Service cost
Net interest
Defined benefit cost recognised in profit or loss
0.3
(0.1)
0.2
0.3
-
0.3
Amount recognised in Other Comprehensive Income ("OCI")
Actuarial gain
(0.3) (1.1)
Less Actual return on Plan assets less Interest income
Less Adjustment to OCI following adoption of revised AASB119
Total remeasurements recognised in other comprehensive
income
1.1
0.2
1.2
-
(1.6) (2.3)
2013 - 14 ANNUAL REPORT 155
43
39. Commitments and contingencies (continued)
(b) Superannuation commitments (continued)
Plan Assets
The percentage invested in each asset class at the balance sheet date:
Australian Equity
International Equity
Fixed Income
Property
Alternatives
Cash
Risk Exposures
Consolidated
2014
$ m
36%
31%
16%
5%
6%
6%
2013
$ m
34%
29%
16%
10%
5%
7%
Timing of members leaving service - As the Plan has
There are a number of risks to which the Plan exposes the
only a small number of members, if members, with large
Company. The more significant risks relating to the defined
benefits or groups of members leave this may have an impact
benefits are:
on the financial position of the Plan, depending on the
financial position of the Plan at the time they leave. The impact
Investment Risk - The risk that investment returns will
may be positive or negative, depending upon the circumstances
be lower than assumed and the Company will need to
and timing of the withdrawal.
increase contributions to offset this shortfall.
Salary Growth Risk - The risk that wages or salaries (on
Option, a Mercer Superannuation Investment Trust investment
which future benefit amounts will be based) will rise more
product, and Bendigo and Adelaide Bank Limited Shares
rapidly than assumed, increasing defined benefit amounts
(referred to as Bank Shares). The assets have a 67% weighting
and thereby requiring additional employer contributions.
to equities and therefore the Plan has a significant concentration
The defined benefit assets are invested in the Mercer Growth
Legislative Risk - The risk is that legislative changes
the allocation both globally and across the sectors is
of equity market risk. However, within the equity investments,
could be made which increase the cost of providing the
diversified.
defined benefits.
Sensitivity Analysis
The effect of reasonably possible changes in key assumptions
on the value of the Plan under various scenarios are outlined
below.
Base Case
3.5% pa
3.0% pa
7.0
Scenario A
-0.5% pa discount rate
Scenario B
+0.5% pa discount rate
3.0% pa
3.0% pa
4.0% pa
3.0% pa
7.4 6.7
Discount rate
Salary increase rate
Defined benefit obligation 1 ($'m)
Discount rate
Salary increase rate
Defined benefit obligation 1 ($m's)
1 includes defined benefit contributions tax provision
156
43
39. Commitments and contingencies (continued)
(b) Superannuation commitments (continued)
Discount rate
Salary increase rate
Defined benefit obligation 1 ($m's)
1 includes defined benefit contributions tax provision
Scenario C
Scenario D
-0.5% pa salary increase rate
+0.5% pa salary increase rate
3.5% pa
2.5% pa
3.5% pa
3.5% pa
6.7 7.3
Contribution Recommendations
Nature of Asset
The financial position of the defined benefits is reviewed
Bendigo and Adelaide Bank has recognised an asset in the
regularly by the Bank, at least annually, to ensure that
Balance Sheet (under other assets) in respect of its defined
the contribution amount remains appropriate.
benefit superannuation arrangements. If a surplus exists in
Funding Method
the Plan, Bendigo and Adelaide Bank may be able to take
advantage of it in the form of a reduction in the required
The method used to determine the employer contribution
contribution rate, depending on the advice of the Plan’s
recommendations is the Attained Age Normal method.
actuary.
The method adopted affects the timing of the cost to
The Bendigo and Adelaide Bank Staff Superannuation Plan,
the Bank.
a sub-plan of the Spectrum Super, does not impose a legal
liability on Bendigo and Adelaide Bank to cover any deficit
Under the Attained Age Normal method, a “normal cost”
that exists in the Plan. If the Plan were wound up, there would
is calculated which is the estimated employer contribution
be no legal obligation on the Bank to make good any shortfall.
rate required to provide benefits in respect of future
The rules of the Plan state that if the Plan winds up, the
service after the review date. The “normal” cost is then
remaining assets are to be distributed amongst the Members
adjusted to take into account any surplus (or deficiency)
as determined by the Trustee of the Plan.
of assets over the value of liabilities in respect of service
prior to the review date. Any surplus or deficiency can
The Bank may at any time terminate its contributions by giving
be used to reduce or increase the “normal” employer
a month’s notice in writing to the Trustee.
contribution rate over a suitable period of time.
Economic Assumptions
Expected Contributions
The long-term economic assumptions adopted are:
Financial year ending
Expected salary increase rate
3.0% pa
Expected employer contributions
2015
$m
0.1
2013 - 14 ANNUAL REPORT 157
43
39. Commitments and contingencies (continued)
(c) Legal claim
From time to time, Bendigo and Adelaide Bank may be
On 23 July 2014, the Bank announced that it had
subject to material litigation, regulatory actions, legal
entered into an agreement to conclude the class
or arbitration proceedings and other contingent
actions. Under the agreement, which is subject to
liabilities which, if they crystallise, may adversely
approval by the court, borrowers that are members of
affect the financial position or financial performance
the class actions admit that their loans are valid and
of the Bank.
enforceable and have provided a broad release from
future litigation. Should the court not approve the
A specific litigation risk exists in relation to the Bank’s
agreement, the class actions will proceed to
Great Southern loan portfolio. Class actions involving
judgement.
the Bank and other parties were commenced by
investors in managed investment schemes operated
The Bank continues to maintain that its conduct
by Great Southern Managers Australia Ltd, a
was at all times appropriate, the loan deeds are valid
subsidiary of Great Southern Limited (in liquidation).
and enforceable, and that borrowers are obliged to
repay the loans.
The Bank either acquired or advanced loans to
investors in the managed investment schemes. Not
Bendigo and Adelaide Bank has raised provisions and
all borrowers are members of the class actions as
in some cases made write-offs in relation to the Great
they relate to specific schemes and categories of
Southern loan portfolio, having regard to the
borrowers.
performance of the portfolio and other relevant
factors.
While no wrongdoing was alleged against the Bank,
the class actions sought to have the loan deeds of
borrowers that are members of the class actions
deemed void or unenforceable and for all money paid
under those loans to be repaid to borrowers by the
Bank. The trial for the Group Proceedings concluded
in October 2013.
158
43
39. Commitments and contingencies (continued)
(d) Contingent liabilities and contingent assets
Consolidated
2014
$m
2013
$m
Parent
2014
$m
2013
$m
255.2
217.0
252.7
212.0
Contingent liabilities
Guarantees
The economic entity has issued guarantees on
behalf of clients
Other
Documentary letters of credit & performance
related obligations
11.7
15.9
11.5
15.8
As the probability and value of guarantees, letters of credit and performance related obligations that may be called on is
unpredictable, it is not practical to state the timing of any potential payment.
Contingent assets
As at 30 June 2014, the economic entity does not have any contingent assets.
2013 - 14 ANNUAL REPORT 159
44
40. Standby arrangements and uncommitted
credit facilities
Amount available:
Offshore borrowing facility
Domestic note program
Amount utilised:
Offshore borrowing facility
Domestic note program
Amount not utilised:
Offshore borrowing facility
Domestic note program
Consolidated
2014
$m
2013
$m
Parent
2014
$m
2013
$m
8,502.0
5,750.0
8,755.0
5,750.0
8,502.0
5,000.0
8,755.0
5,000.0
900.0
2,943.0
266.0
1,731.0
900.0
2,890.0
266.0
1,678.0
7,602.0
2,807.0
8,489.0
4,019.0
7,602.0
2,110.0
8,489.0
3,322.0
The Parent has a $US 5,000m Euro Commercial
As at 30 June 2014 the Parent has a $5,000m
Paper program of which $US 708m (2013: $US 243m)
Domestic Note program of which $2,890m
was drawn down as at 30 June 2014, and a
(2013: $1,678m) was issued and the consolidated
$US 3,000m Euro Medium Term Note program
Group has an additional $750m Domestic Note
of which $US 140m (2013: nil) was drawn down as at
program through its subsidiary Rural Bank Limited, of
30 June 2014.
which $53m (2013: $53m) was issued.
160
45
41. Fiduciary activities
The Group conducts investment management and
The amounts of the funds concerned, which are not
other fiduciary activities as trustee, custodian or
included in the Group's statement of financial position
manager for a number of funds and trusts, including
is as follows:
superannuation, unit trusts and mortgage pools.
Funds under trusteeship
Assets under management
Funds under management
Consolidated
2014
$m
3,616.2
1,703.9
1,686.6
2013
$m
3,491.1
1,665.3
1,609.9
As an obligation arises under each type of duty the
against the assets of the applicable trusts. As these
amount of funds has been included where that duty
assets are sufficient to cover liabilities, and it is there-
arises. This may lead to the same funds being shown
fore not probable that the Group companies will be
more than once where the Group acts in more than one
required to settle them, the liabilities are not included
capacity in relation to those funds e.g. manager and
in the financial statements. Bendigo and Adelaide
trustee. Where controlled entities, as trustees,
Bank does not guarantee the performance or
custodian or manager incur liabilities in the normal
obligations of its subsidiaries.
course of their duties, a right of indemnity exists
2013 - 14 ANNUAL REPORT
161
46
42. Securitisation and transferred assets
Transfer of financial assets
Securitisation programs
In the normal course of business the Group enters
The Group through its loan securitisation program,
into transactions by which it transfers financial
securitises mortgage loans to the Torrens Trusts and
assets to counterparties or directly to Special
Lighthouse Trusts (“the trusts”) which in turn issue
Purpose Entities (SPE’s). These transfers do not
rated securities to the investors.
give rise to de-recognition of those financial assets
for the Group.
Repurchase agreements
The Bank holds income and capital units in the trusts
at nominal values, which entitles the Bank to receive
excess income, if any, generated by securitised assets,
Securities sold under agreement to repurchase
while the capital units receive upon termination of the
are retained on the balance sheet when
trusts any residual capital value.
substantially all the risks and rewards of ownership
remain with the group, and the counterparty
Investors in the trusts have no recourse against the
liability is included separately on the balance sheet
Group if cash flows from the securitised loans are in-
when cash consideration is received.
adequate to service the obligations of the trusts.
Consolidated
Carrying amount of transferred assets 1
Carrying amount of associated liabilities 2
Fair value of transferred assets
Fair value of associated liabilities
Net Position
Parent
Carrying amount of transferred assets
Carrying amount of associated liabilities 3
Fair value of transferred assets
Fair value of associated liabilities
Net Position
Repurchase Agreements
Securitisation
2014
$m
310.3
310.3
2013
$m
350.3
350.3
2014
$m
4,743.8
4,910.3
4,724.1
4,978.5
(254.4)
Repurchase Agreements
Securitisation
2014
$m
310.3
310.3
2013
$m
350.3
350.3
2014
$m
9,194.2
9,600.8
9,228.0
9,703.6
(475.6)
2013
$m
5,806.4
6,015.0
5,829.0
6,079.6
(250.6)
2013
$m
11,379.7
11,862.1
11,418.6
11,926.7
(508.1)
1 Represents the carrying value of the loans transferred to the trust.
2 Securitisation liabilities of the Group include RMBS notes issued by the SPE's and held by external parties.
3 Securitisation liabilities of the Bank include borrowings from SPE's including the SPE's that issue internally held notes
for repurchase with central banks, recognised on transfer of residential mortgages by the Bank.
162
44
43. Involvement with unconsolidated entities
Structured entities
A structured entity is an entity that has been designed
influence, joint control or control over the structured
so that voting or similar rights are not the dominant
entity. The structured entities over which control can be
factor in deciding who controls the entity, such as
exercised are consolidated.
when voting rights relate to the administrative tasks
only and the relevant activities are directed by means
The Group has no contractual arrangements that
of contractual arrangements. Involvement with
would require it to provide financial or other support
structured entities varies and includes debt financing
to a consolidated or unconsolidated structured entity.
of these entities as well as other relationships. In
The Group has not previously provided financial
accordance with Note 2, it is established whether
support to a consolidated or unconsolidated structured
the involvement with these entities results in significant
entity, and has no current intentions to provide such
support.
Interests in unconsolidated structured entities
The table below describes the types of structured
entities that the Group does not consolidate but in
which it holds an interest.
Type of
structured entity
Nature and purpose
Interest held by the Group
Securitisation vehicles -
To generate:
Investments in notes issued by the vehicles.
for loans and advances
> external funding for third
originated by third parties
parties; and
> investment opportunities for
the Group.
These vehicles are financed
through the issue of notes
to investors.
Managed investment
To generate:
Investment in units issued by the funds
funds
> a range of investment
Management fees
opportunities for external investors;
and
> fees from managing assets
on behalf of third party investors
for the Group.
Risks associated with unconsolidated
structured entities
The following table summarises the carrying values
recognised in the balance sheet in relation to
unconsolidated structured entities as of 30 June 2014:
Balance sheet
Cash and cash equivalents
Loans and other receivables – investment
Financial assets available for sale – equity investments
Derivatives
Total
Assets
$m
0.1
396.8
19.4
0.8
417.1
2013 - 14 ANNUAL REPORT
163
44
43. Involvement with unconsolidated
entities (continued)
Maximum exposure to loss
For retained and purchased notes and investments,
the maximum exposure to loss is the current carrying
value of these interests representing the amortised
swaps is unlimited and unquantifiable as these swaps
pay a floating rate of interest which is uncapped.
cost at reporting date.
The following table summarises the Group’s maximum
exposure to loss from its involvement at 30 June 2014 and 2013
The maximum loss exposure for the interest rate
with structured entities.
Cash and cash equivalents
Senior notes
Investment
Interest rate swap
Carrying
amount
2014
$m
0.1
396.8
19.4
0.8
Maximum
loss exposure
2014
$m
0.1
396.8
19.4
**
Carrying
amount
2013
$m
0.1
546.7
13.6
1.1
Maximum
loss exposure
2013
$m
0.1
546.7
13.6
**
** Maximum loss exposure not disclosed as it is deemed to be potentially unlimited and not quantifiable.
Sponsored unconsolidated structured entities
where no interest exists at the reporting date
The Group considers itself the sponsor of a structured
In October 2010, a management agreement between the
entity when it is primarily involved in the design and
Group and Lead On Australia Limited was executed which
establishment of the structured entity, it supports the
allows the Group to manage the operations and strategic
ongoing operations of the entity and/or it provides
direction of the company. The Group pays the wages of the
financial support.
company’s employees and any ongoing expenses.
The Group has sponsored Lead On Australia Limited, a
Limited during the reporting period and the fair value of
youth and community development organisation which
any assets transferred was $0.3 million.
No income was received by the Group from Lead On Australia
aims to strengthen relationships between young people
and the broader community. Lead On Australia Limited,
a not-for-profit company limited by guarantee, was
created and designed by the Group in 1999.
Significant restrictions
There are no significant restrictions imposed by any
unconsolidated structured entity on the Group's ability
to access or use its assets or settle its liabilities.
164
45
44. Business combinations
Acquisitions in 2014
Rural Finance
On 1 July 2014 Bendigo and Adelaide Bank Group acquired 100% of the business activities and selected assets of Rural Finance
Corporation of Victoria. The acquisition has strengthened the Group's commitment to rural and regional customers.
The consideration for the acquisition of net assets was $1.78b cash.
Rural Finance is based in Bendigo with 11 branches located across regional Victoria. Rural Finance is a leading lender to
Victorian primary producers. The activities and responsibilities of Rural Finance include the Commercial activities as a
speciality financier in the Victorian agricultural sector.
The following table shows the effect on the Group's assets:
Assets
Loans
Motor vehicles and office equipment
Receivables
Total Assets
Liabilities
Employee Provisions
Total Liabilities
Net identifiable assets attributable to Bendigo and Adelaide Bank Limited
Cost of acquisition
Fair value of net assets acquired
Provisional goodwill on acquisition
Provisional
fair value on
acquisition
$m
1,682.3
2.3
20.5
1,705.1
1.9
1.9
1,703.2
1,780.8
1,703.2
77.6
As the acquisition occurred on 1 July 2014 there was no impact to the Group financial statements year ended 30 June 2014.
The acquisition accounting method for a business combination is still being completed and as such the fair value of
the net assets acquired on 1 July 2014 has not been finalised. It is expected that the full contractual amounts will be
collected.
The provisional goodwill recognised is not expected to be deductible for income tax purposes.
2013 - 14 ANNUAL REPORT
165
45. Events after balance sheet date
45
On the 1 July 2014, the Group completed the acquisition
No other matters or circumstances have arisen since
of the Rural Finance business and net assets for $1.78 billion.
the end of the financial year which significantly
The acquisition has strengthened the Group's commitment
affected or may significantly affect the operations of
to rural and regional customers. The loan portfolio at the
the economic entity, the results of those operations,
date of acquisition was $1.7 billion. This will reduce the
or the state of affairs of the economic entity in
Group's capital ratio from 12.25% to 11.39% as at
subsequent financial years.
July 2014.
On the 23 July 2014, the Group announced that
it had entered into an agreement to conclude the class
actions brought by investors in managed investment
schemes operated by Great Southern. Under the
agreement, which is subject to approval by the court,
the Group's borrowers who are members of the class
actions have admitted that their loans are valid and
enforceable and have provided a broad release
from future litigation.
166
Directors' Declaration
In accordance with a resolution of the directors of Bendigo and Adelaide Bank Limited, we state that:
In the opinion of the directors:
(a) the financial statements and notes of the Company and the Bendigo and Adelaide Bank Group are in accordance
with the Corporations Act 2001 , including:
(i) giving a true and fair view of the Company's and the Bendigo and Adelaide Bank Group’s financial position as at
30 June 2014 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and
Corporations Regulations 2001; and
(b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed
in note 2.2 and
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable;
(d) this declaration has been made after receiving the declarations required to be made to the directors in
accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2014.
On behalf of the board
Robert Johanson
Chairman
2 September 2014
Mike Hirst
Managing Director
2013 - 14 ANNUAL REPORT
167
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent auditor's report to the members of Bendigo and Adelaide Bank Limited
Report on the financial report
We have audited the accompanying financial report of Bendigo and Adelaide Bank Limited, which comprises the
consolidated balance sheet as at 30 June 2014, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended,
notes comprising a summary of significant accounting policies and other explanatory information, and the directors'
declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from
time to time during the financial year.
Directors' responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view
in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as
the directors determine are necessary to enable the preparation of the financial report that is free from material
misstatement, whether due to fraud or error. In Note 2.2, the directors also state, in accordance with Accounting
Standard AASB 101 Presentation of Financial Statements , that the financial statements comply with International
Financial Reporting Standards.
Auditor's responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
considers internal controls relevant to the entity's preparation and fair presentation of the financial report 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 entity's internal controls. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations Act 2001 . We
have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included
in the directors’ report.
168
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards
Legislation
Opinion
In our opinion:
a. the financial report of Bendigo and Adelaide Bank Limited is in accordance with the
Corporations Act 2001 , including:
i giving a true and fair view of the consolidated entity's financial position as at 30 June 2014
and of its performance for the year ended on that date; and
ii complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and
b. the financial report also complies with International Financial Reporting Standards as disclosed in
Note 2.2.
Report on the remuneration report
We have audited the Remuneration Report included in pages 28 to 47 of the directors' report for the year ended
30 June 2014. 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.
Opinion
In our opinion, the Remuneration Report of Bendigo and Adelaide Bank Limited for the year ended 30 June 2014,
complies with section 300A of the Corporations Act 2001 .
Ernst & Young
T M Dring
Partner
Melbourne
2 September 2014
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards
Legislation
169
Additional information
1. Material differences
There are no material differences between the information supplied in this report and the information in the preliminary final report
supplied by Bendigo and Adelaide Bank Limited to the Australian Securities Exchange on 11 August 2014.
2. Audit Committee
As at the date of the Directors' Report the Group had an audit committee of the Board of Directors.
3. Corporate governance practices
The corporate governance practices adopted by Bendigo and Adelaide Bank Limited are as detailed in the Corporate Governance
statement. Please refer to www.bendigoadelaide.com.au/public/corporate_governance for further details.
4. Substantial shareholders
As at 13 August 2014 there were no substantial shareholders in Bendigo and Adelaide Bank Limited as detailed in substantial
holdings notices given to the Company.
5. Distribution of shareholders
Range of Securities as at 13 August 2014 in the following categories:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of Holders
Securities on Issue
6. Marketable parcel
Fully Paid
Fully Paid
BPS
Ordinary
Employee
Preference
Convertible
Preference
Shares
36,645
38,727
8,058
4,278
99
Shares
4,218
640
54
12
2
Shares
3,024
68
3
6
-
Shares
5,150
283
25
13
1
Step Up
Preference
Shares
2752
75
7
8
-
87,807
4,926
3,101
5,472
2,842
447,910,914
4,260,478
900,000
2,688,703
1,000,000
Based on a closing price of $12.70 on 13 August 2014 the number of holders with less than a marketable parcel of the Company's
main class of securities (Ordinary Shares), as at 13 August 2014 was 6,274.
7. Unquoted securities
The number of unquoted equity securities that are on issue and the number of holders of those securities are shown in the
above table under the heading of Fully Paid Employee shares.
170
Additional information (continued)
8. Major shareholders
Names of the 20 largest holders of Fully Paid Ordinary shares, including the number of shares each holds and the percentage of
capital that number represents as at 13 August 2014 are:
Fully paid ordinary shares
Rank
Name
Percentage held of
Number of fully paid
Issued
Ordinary Shares
Ordinary Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
68,834,102
15.22%
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMS PTY LTD
AMP LIFE LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
QIC LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
41,930,390
28,967,979
19,929,858
5,709,708
4,964,344
2,895,352
2,222,815
1,671,548
1,432,968
NAVIGATOR AUSTRALIA LTD
1,258,904
CARLTON HOTEL LIMITED
1,117,147
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
984,532
NEWECONOMY COM AU NOMINEES PTY LIMITED
<900 ACCOUNT>
CITICORP NOMINEES PTY LIMITED
BKI INVESTMENT COMPANY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
NULIS NOMINEES (AUSTRALIA) LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
YARABIE ESTATES PTY LTD
968,727
905,687
838,000
823,096
630,065
551,908
510,000
9.27%
6.41%
4.41%
1.26%
1.10%
0.64%
0.49%
0.37%
0.32%
0.28%
0.25%
0.22%
0.21%
0.20%
0.19%
0.18%
0.14%
0.12%
0.11%
BBS Nominees Pty Ltd, trustee for the Bendigo and Adelaide Employee Share Plan and Pacific Custodians Pty Limited, trustee for the
Employee Share Grant Scheme, held a combined total of 4,260,478 unquoted shares as at the date of this report.
These shares have not been included in the above table, but are included in total of issued ordinary share capital.
187,147,130
41.39%
171
Additional information (continued)
8. Major shareholders (continued)
Names of the 20 largest holders of Bendigo and Adelaide Preference shares, including the number of shares each holds and the
percentage of preference share capital that number represents as at 13 August 2014 are:
Fully paid preference shares
Rank
Name
Percentage held of
Number of fully paid
Issued
Preference Shares
Preference Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RBC INVESTOR SERVICE AUSTRALIA NOMINEES PTY LIMITED
CITICORP NOMINEES PTY LIMITED
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
MS JILLIAN ROSEMARY BROADBENT
CARBON MAX PTY LTD
MR ROBERT PYLE DEAM
DYLAC PTY LTD
ROYAL QUEENSLAND BUSH CHILDREN'S HEALTH SCHEME
TRUSTEES OF THE DIOCESE OF TASMANIA
DECEMBER FORCE PTY LTD
MR JEFFREY FREDERICK EDWARDS & MRS JUNE ROSE
EDWARDS
MR JOHN HENRY KILIAN BRUNNER
J & S MCKINNON FOUNDATION PTY LTD
WORLD WIDE FUND FOR NATURE AUSTRALIA
GREEN SUPER PTY LTD
MR JAMES BOSTOCK & MR JOHN BRIAN MARSHALL & MR RSL
CUSTODIAN PTY LTD
50,466
42,973
33,912
25,454
24,675
10,968
7,744
5,917
5,624
4,100
4,000
3,000
3,000
2,840
2,794
2,778
2,674
2,660
2,531
2,474
5.61%
4.77%
3.77%
2.83%
2.74%
1.22%
0.86%
0.66%
0.62%
0.46%
0.44%
0.33%
0.33%
0.32%
0.31%
0.31%
0.30%
0.30%
0.28%
0.27%
240,584
26.73%
172
Additional information (continued)
8. Major shareholders (continued)
Names of the 20 largest holders of Bendigo and Adelaide Convertible Preference shares, including the number of shares each
holds and the percentage of convertible preference share capital that number represents as at 13 August 2014 are:
Fully paid convertible preference shares
Rank
Name
Convertible Preference Shares
Preference Shares
Number of fully paid
Issued Convertible
Percentage held of
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BNP PARIBAS NOMS PTY LTD
101,200
CITICORP NOMINEES PTY LIMITED
NORTHERN METROPOLITAN CEMETERIES T/A MACQUARIE
PARK CEMETERY
J P MORGAN NOMINEES AUSTRALIA LIMITED
QUESTOR FINANCIAL SERVICES LIMITED
NATIONAL NOMINEES LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
SANDHURST TRUSTEES LTD
WORONORA GENERAL CEMETERY & CREMATORIUM
VESADE PTY LTD
SANDHURST TRUSTEES LTD
NETWEALTH INVESTMENTS LIMITED
HAMPTON PTY LTD
G E MALLAN INVESTMENTS PTY LTD
BAPTIST FINANCIAL SERVICES AUSTRALIA LIMITED
JOHN E GILL TRADING PTY LTD
MARENTO PTY LTD
NOILLY PTY LTD
RANDLEWOOD PTY LTD
TRISTAR METALS PTY LTD
50,276
40,000
32,264
31,723
30,942
30,113
24,704
15,000
15,000
14,571
13,130
12,173
10,300
10,000
10,000
10,000
10,000
10,000
10,000
3.76%
1.87%
1.49%
1.20%
1.18%
1.15%
1.12%
0.92%
0.56%
0.56%
0.54%
0.49%
0.45%
0.38%
0.37%
0.37%
0.37%
0.37%
0.37%
0.37%
481,396
17.89%
173
Additional information (continued)
8. Major shareholders (continued)
Names of the 20 largest holders of Bendigo and Adelaide Step Up Preference shares, including the number of shares each holds
and the percentage of step up preference share capital that number represents as at 13 August 2014 are:
Fully paid step up preference shares
Rank
Name
Percentage held of
Number of fully paid
Issued Step Up
Step Up Preference Shares
Preference Shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
NATIONAL NOMINEES LIMITED
UBS NOMINEES PTY LTD
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
SANDHURST TRUSTEES LTD
MS HEATHER MALLOCH SCOVELL & DR IAN LESLIE GARDNER
J P MORGAN NOMINEES AUSTRALIA LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
NAVIGATOR AUSTRALIA LTD
RETURNED SERVICES LEAGUE OF AUSTRALIA (QUEENSLAND
BRANCH)
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
POST PERFECT PTY LTD
AUST EXECUTOR TRUSTEES LTD
PAISLEY & NICHOLSON PTY LTD
ESCOR INVESTMENTS PTY LTD
TANK LORD PTY LTD
BNP PARIBAS NOMS PTY LTD
CARBON MAX PTY LTD
CARBON MAX PTY LTD
BALLABRADACH PTY LTD
QUESTOR FINANCIAL SERVICES LIMITED
59,834
57,028
20,784
13,323
13,000
11,021
10,425
10,062
10,000
8,951
7,863
7,650
7,500
5,635
5,443
5,000
4,972
4,559
4,474
4,307
5.98%
5.70%
2.08%
1.33%
1.30%
1.10%
1.04%
1.01%
1.00%
0.90%
0.79%
0.77%
0.75%
0.56%
0.54%
0.50%
0.50%
0.46%
0.45%
0.43%
271,831
27.19%
9. Voting rights
The holders of ordinary shares are entitled to vote at meetings of shareholders in the first instance by a show of hands of the
shareholders present and entitled to vote. If a poll is called, each shareholder has one vote for each fully paid share held.
Holders of partly paid shares have a vote which carries the same proportionate value as the proportion that the amount paid up on
the total issue price bears to the total issue price of the share.
In the case of an equality of votes the Chairman has, on both a show of hands and at a poll, a casting vote in addition to the vote to
which the Chairman may be entitled as a shareholder, proxy, attorney or duly appointed representative of a shareholder.
174