2013 Annual Report
Bank of Queensland Limited ABN 32 009 656 740. AFSL No. 244616.
LOVE
YOUR
BANK
Over the last two years BOQ has built the foundations
to return to profitable and sustainable growth. In May
2013 we shared our brand position for the future,
launching our new brand with the tagline
“It’s possible to love a bank”.
Our new brand builds on our reputation for superior
customer service. As a smaller bank we’re more
flexible and responsive to our customers.
We’ve grown from humble beginnings in 1874 as
the first permanent building society in Queensland to
today where we have around 270 branches across
every state and territory in Australia.
We’re proud to continue challenging financial industry
norms and we’re working hard every day to prove
that it’s possible to love a bank.
2013 Annual Report
CASH
EARNINGS
after tax $250.9M
STATUTORY
PROFIT
FULL YEAR
after tax $185.8M
dividend 58¢ PER
share
$ million
Cash earnings after tax
Statutory net profit after tax
Profit before loan impairment expense and tax
Year End Performance
Aug-13
250.9
185.8
477.4
Aug-12
30.6
(17.1)
443.5
Full year dividend
58¢ per share
52¢ per share
contents
CHAIRMAN & MD’S REVIEW
CORPORATE GOVERNANCE
DIRECTORS’ REPORT
LEAD AUDITOR’S INDEPENDENCE
DECLARATION
INCOME STATEMENTS
STATEMENTS OF
COMPREHENSIVE INCOME
3
4
11
41
42
43
BALANCE SHEETS
STATEMENTS OF CASH FLOWS
STATEMENTS OF CHANGES IN EQUITY
44
45
46
NOTES TO THE FINANCIAL STATEMENTS 50
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS
SHAREHOLDING DETAILS
116
117
119
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2013 Annual Report
CHAIRMAN & MD’S REVIEW
Dear Shareholder,
Over the course of the 2013 financial year we continued to strengthen our
business, deliver on strategic priorities and increase shareholder returns.
While challenges remain, particularly around the external market and
economic volatility, much of the work required to transform ourselves into
a fit, focused and different organisation is underway or nearing completion.
This work is driving stronger financial returns. Our cash earnings after tax for
the full year to 31 August 2013 was $250.9 million, up from $30.6 million in
FY12, although a direct comparison is difficult due to the significant bad debt
provisions that impacted last year’s result. The after-tax statutory net profit
was $185.8 million compared to a loss of $17.1 million in FY12.
We increased cash net interest margin to 1.69% and reduced our cost to
income ratio to 44.3%.
Loan impairment expense to gross loans and advances reduced to 32 basis
points compared to 116 basis points in FY12.
The Bank’s capital position also remained strong with common equity tier 1
and total capital adequacy ratio remaining at market-leading levels of 8.63%
and 12.24% respectively.
Our strong financial performance and ongoing confidence in BOQ’s future
prospects allowed us to increase the final dividend to 30 cents per share
fully franked, taking the full year dividend to 58 cents per share up from 52
cents last year.
In a low credit growth environment, we are taking a disciplined approach
to pricing and credit, not buying market share. This will allow us to build
sustainable long-term growth. During 2013, our management team delivered
on six of the seven key management targets for the year.
Our focused strategy, financial strength and strong business performance was
validated by the decision of ratings agency Standard & Poor’s in September
2013 to upgrade our long-term credit rating to ‘A-’.
This is the highest credit rating the Bank has ever held and should not only
increase the range of funding opportunities available to us but, over time, help
lower our cost of funding.
Vision and strategy
Last year we communicated our vision and strategy, focusing on four key areas
of performance that we believe are critical for the Bank as we position
ourselves for growth.
These are multi-channel optimisation, making it easier for our customers to do
business with us in the manner they prefer; risk/return balance; operational
excellence; and talent, capability and culture.
Multi-channel distribution
Although our owner-manager and corporate branch network has always
been, and will continue to be, an essential part of our distribution network, it
is important we give our customers more choice in how they want to interact
with us.
We did this initially through a mortgage broker program in Western Australia,
which has now been extended to New South Wales and Victoria, and by
improving our digital and online banking offerings. We also acquired Virgin
Money Australia, giving us access to an incredibly powerful brand, digital
expertise and a further platform to offer banking products to different
customers.
Risk/Return balance
Underlying improvement in the credit quality of our portfolio was evidenced by
improvement across all key metrics. Impairment expense was down 71% to
$114.6 million and total impaired assets fell 27% to $381.6 million.
To achieve the right balance of return for risks taken, we are diversifying
our balance sheet by pursuing higher margin and higher return on equity
segments in business banking and agribusiness.
We also introduced a new balanced scorecard for owner-managed branches
that balances lending, deposits, cross-sales and compliance components
and closely aligns the interests of Owner-Managers, BOQ and shareholders.
Significant work is underway to make sure we have the best possible branch
mix and locations.
Operational excellence
Operational improvements mean we are now a far fitter organisation. During
2013, we continued to consolidate back-office operations and remove
administrative tasks from branches. This allowed us to drive our cash cost to
income ratio to 44.3%, down from 45.7% last year. The savings from these
activities were reinvested into our business to help improve our products,
processes and systems.
There is still more work to do in this area as the recent announcement
regarding legacy product issues showed. As we improve the way we operate by
introducing new products and initiatives such as simplified lending processes,
these types of issues will be minimised. Our new Clear Path lending product is
a good example of this improvement.
Talent, capability and culture
In a relatively generic financial services market, our organisation’s talent,
capability and culture continue to differentiate us from competitors and
reinforce our challenger model.
Indeed, we believe our ongoing focus on customer service together with the
fact that we are one of the few remaining independent banking options in
the local market, will increasingly provide us with additional opportunities to
successfully compete in attractive market segments.
The true essence of this positioning strategy is captured by our new branding
position, “It’s possible to love a bank”. Our ability to deliver this brand position
clearly depends on the ability of our people to build long-lasting customer
relationships and to go the extra mile for them wherever possible.
Because of our size, culture and operating model, we believe we are the
best positioned of all the Australian banks to consistently achieve this goal
and, significantly in this regard, we were recently voted Australia’s best SME
business bank for the fifth consecutive year in customer research conducted
by banking advisory group East & Partners.
Renewal is important for every organisation and we continue to invest in
employee development and recruitment to bring new skill sets and experience
into the organisation.
This has consistently occurred across the Bank’s management ranks during
2013 and also at Board level with Neil Summerson and John Reynolds both
retiring during the year whilst Neil Berkett joined the Board from Virgin Media
in the United Kingdom. We would particularly like to acknowledge Neil
Summerson’s many years of service as a Director and Chairman and wish
him the best for the future.
Finally, we would like to recognise the efforts of the Executive Team and all
employees – this year’s achievements were made possible by their efforts.
We would also like to thank shareholders for their ongoing support.
Roger Davis
Chairman
Stuart Grimshaw
Managing Director and
Chief Executive Officer
3
CORPORATE GOVERNANCE
Overview
Directors and Management of Bank of Queensland Limited (the “Bank”
or “BOQ”) and its subsidiaries (the “Group”) are committed to excellence
in corporate governance. In striving to achieve its objectives, the Group
endeavours to be a bank that looks after its staff, values and services its
customers, rewards its shareholders and partners with the community.
Corporate governance is not just about compliance, but about our values and
our behaviour. We believe in excellence in corporate governance because it
is in the best interests of the Group and all of its stakeholders.
The Board has over many years developed and implemented policies and
practices which at the time of publishing this statement are consistent with
the applicable ASX Corporate Governance Principles and Recommendations,
Second Edition with 2010 Amendments (‘Principles’) updated by the ASX
Corporate Governance Council in 2010, and the corporate governance
standards set out in Prudential Standard CPS 510 “Governance”.
In addition, the Board has adopted a fit and proper policy as required by
CPS 520 “Fit and Proper”, which sets out the requirements for regulated
authorised deposit-taking institutions to assess the competencies and
fitness for office of persons appointed as directors, senior managers and
auditors. The Bank’s subsidiaries St Andrew’s Insurance (Australia) Pty
Ltd (‘SAI’) and St Andrew’s Life Insurance Pty Ltd (‘SALI’) (together, the “St
Andrew’s Group”) are subject to APRA’s prudential supervision as insurance
companies and subject to similar Corporate Governance and Fit and Proper
standards as those applicable to authorised deposit-taking institutions. The
Bank’s Group policies comply with all of these standards.
The Nomination & Governance Committee is responsible for reviewing
the Group’s corporate governance framework and policies and makes
recommendations to the Board in relation to governance improvements. As
part of its process of continual improvement, the Bank has carried out a full
review of all of its corporate governance policies during the year, and where
necessary, has refined its code, policies and charters.
The Group’s key policies, Board and Committee charters and
a checklist detailing its compliance with the Principles appear on the
Bank’s website.
The Group is required to disclose in this report the extent to which it has
followed the best practice recommendations in the Principles throughout the
2012/2013 financial year. The Group has followed those recommendations
throughout the year. A summary of the Group’s corporate governance
policies and practices, organised in order of the Principles, is set out below.
Principle 1:
Lay solid foundations for management
and oversight
BOQ Board and Management
The BOQ Board Charter sets out the key governance principles adopted by
the BOQ Board in governing the Group. There is a functional difference
between the Board’s role and responsibilities and that of management which
is recognised in the Board Charter.
The responsibilities of the Board include:
•
the overall corporate governance of the Group, such as:
• overseeing regulatory compliance; and
• ensuring the Group observes appropriate ethical standards.
•
the overall strategy and direction of the Group, including approving,
monitoring and reviewing strategic, financial and operational plans;
4
•
•
•
the appointment of the CEO and Managing Director, including the
delegation of powers to the CEO and Managing Director within
authorised discretionary levels;
the appointment of Directors to subsidiary companies of the Group; and
succession planning, including Board and Committee composition.
In order to fulfil these responsibilities, the Board reserves to itself certain
powers including:
•
•
•
•
reviewing and approving the Group’s strategic plan at least annually,
approving budgets and reviewing and approving financial results;
determining dividend policy;
dealing with matters outside discretions conferred on the CEO and
Managing Director;
ensuring that areas of significant business risk within the Group are
identified and effectively managed;
• monitoring the effectiveness of Group risk management practices;
•
setting targets for and assessing the performance of the CEO and
Managing Director; and
•
establishing Board committees.
Certain powers are delegated to the CEO and Managing Director and senior
management including:
•
responsibility for day to day management of the Group within the
overall strategies and frameworks approved by the Board including the
following:
• developing strategy for approval by the Board;
• financial and capital management and reporting;
• operations;
• information technology;
• marketing the current business of the Group and acquiring new
business;
• customer relationship service;
• developing and maintaining key external relationships, including with
investors, media, analysts and industry participants;
• human resources, people development, performance and the creation
of a safe and enjoyable workplace; and
• risk management;
• reporting to the Board on the performance of the Group and its
management; and
• performing duties that are delegated by the Board.
The Board undertakes an annual performance review of the CEO and
Managing Director. Management has a program for annual performance
reviews for all levels of management. The review program includes the
annual setting of key performance indicators at the start of the financial
year and a formal evaluation against those indicators at the conclusion
of the financial year. Reviews have been carried out in accordance
with the program for all levels of management, including the CEO and
Managing Director.
An induction program exists for all staff.
The powers of the Board are also governed by the Bank’s constitution.
Shareholder approval was obtained at the 2012 Annual General Meeting for
the adoption of a new constitution. A copy of the constitution is available on
the Bank’s website.
2013 Annual Report
CORPORATE GOVERNANCE (CONTINUED)
Principle 1:
Lay solid foundations for management
and oversight (continued)
The Board has established the following Committees:
• Audit Committee
• Risk Committee
• Human Resources and Remuneration Committee
• Nomination & Governance Committee
•
Information Technology Committee
A separate Charter has been prepared for each Committee and is reviewed
at least annually.
The composition of the Board Committees is reviewed annually. Details
of the current membership of the Board Committees are contained in the
Directors’ Report.
St Andrew’s Group Board
During the year, the membership of the boards of SAI and SALI changed, and
now comprise the following persons:
Mr Jeff Dowling (independent, non-executive Chairman);
Mr Neil Summerson (independent, non-executive director);
Mr Stuart Grimshaw (non-executive director);
Ms Michele Dolin (independent, non-executive director);
Mr Jon Sutton (non-executive director); and
Mr David Willis (independent, non-executive director).
The boards of these entities comply with CPS 510 and 520. With the
exception of Mr Willis, each of the St Andrew’s Group board members are
also members of the St Andrew’s Group Audit & Risk Committee and the
Chair of the Committee is Ms Dolin. The BOQ Group Human Resources
and Remuneration Committee continues to act for the St Andrew’s Group,
and Mr Willis is the Chair of that Committee. The following specific policies
have been adopted by the St Andrew’s Group board, and appear on the
BOQ website – SAI Board Charter, SALI Board Charter, SAI & SALI Policy on
Independence of Directors, SAI & SALI Board Performance & Renewal Policy,
SAI & SALI Audit & Risk Committee Charter. Where not replaced by a specific
policy, other BOQ Group policies apply.
Principle 2:
Structure the Board to add value
Board Structure
The Board currently has eight Directors (including the Chairman), seven
of whom are non-executive Directors (Mr John Reynolds retired from the
Board on 13 December 2012, Mr Neil Summerson retired from the Board on
30 July 2013, and Mr Neil Berkett was appointed to the Board on 30 July
2013). The CEO and Managing Director, appointed on 1 November 2011, is
an executive Director.
Skills & Experience
The Board considers that individually and collectively, the Directors have an
appropriate mix of skills, qualifications and experience to enable them to
appropriately discharge their duties effectively.
The Board has robust succession planning in place and plans ahead to
ensure that membership contains a diverse range of skills and experience
that are relevant to the business undertaken by the Bank, both now and
into the future. As part of this process, a board skills matrix is used which
addresses factors such as age, gender, location of residence, professional
network, and professional experience and qualifications, in order to promote
a diverse range of views.
The Board seeks to ensure that its members have a diverse range of skills
and experience that reflect the breadth of operation of the Bank’s business
and its future strategy. Accordingly, the Board has been structured to
include suitably qualified men and women with experience in financial
markets, insurance, banking, funds and wealth management, strategy,
superannuation, information technology and agribusiness. Several members
also hold directorships on other ASX-listed entities.
The skills and experience of the Directors and their length of service,
membership of Board committees and record of attendance at meetings, are
set out in the Directors’ Report.
Prior to commencement, all new directors sign formal letters of appointment.
The Bank provides an induction program for new Board members.
Every Director and Committee of the Board has the right to seek independent
professional advice in connection with carrying out their duties at the
expense of the Bank. Prior written approval of the Chairman is required.
Nomination
The Board seeks to ensure that it has an appropriate mix of skills and diversity
in its membership. During the year the Nomination Committee merged
with the Corporate Governance Committee, and the merged Nomination
& Governance Committee monitors the skills and experience of existing
Directors and the balance between this experience and any new skills which
may be required and which may lead to consideration of appointments of new
Directors. The Nomination & Governance Committee considers Board and
Committee succession planning, the process for evaluating the performance
of the Board, its Committees and subsidiary Boards, the Chairman and
individual Directors, and has oversight of the process of selecting the CEO.
The names and qualifications of those appointed to the Nomination
& Governance Committee, and number of meetings of the Nomination
& Governance Committee, during the financial year are set out in the
Directors’ Report.
The Charter of the Nomination & Governance Committee, which details its
duties, objectives, responsibilities and membership requirements, appears
on the Bank’s website.
When appointing a new Director, the Board has regard to the Board
Performance Review & Renewal Policy and considers the need to balance
the skills, tenure, experience, diversity and perspectives of its directors as
a whole, and endeavours to achieve an appropriate mix of these factors to
enable the Board to facilitate achievement of the Group’s strategic goals.
Potential candidates for board positions are sourced using the Board’s
contacts and market intelligence, as well as through the services of specialist
external advisers. When considering whether to support an incumbent
Director’s nomination for election or re-election, the Board considers that
Director’s performance to date, and the skills, experience and diversity that
the Director brings to the Board.
Fit & Proper
All new and existing Directors are subject to assessment of their fitness
and propriety to hold office, both at the time of initial appointment and then
annually, under the Bank’s Fit and Proper Policy. This policy was established
under CPS 520 and also applies to the Bank’s APRA-regulated insurance
subsidiaries. This involves an assessment of the Director’s qualifications and
experience against documented criteria for the competencies required for
the office. The assessment includes checks on the Director’s propriety such
as police checks and bankruptcy checks.
Independence
The Board assesses Director independence prior to initial appointment and
then on at least an annual basis, or, if it feels it is warranted, depending upon
disclosures made by individual Directors.
5
2013 Annual Report
It is the responsibility of the Board to determine the independence of
Directors in accordance with the Policy and the Board has assessed that all
of the current non-executive Directors are “independent”.
In reaching its decision regarding individual director independence, the Board
reserves the right (except in the case of the Audit Committee membership)
to consider a director to be independent even though they may not meet one
or more of the specific thresholds or tests set out in the document, having
regard to the underlying policy of the independence requirement and the
qualitative nature of the director’s circumstances.
The basis of the Board’s assessment is its independence policy which
takes into account whether Directors have relationships with the Bank, its
shareholders or advisers which are likely to materially interfere with the
exercise of the Director’s unfettered and independent judgment, having
regard to all the circumstances. The Bank has established both quantitative
and qualitative guidelines to determine the materiality, which include the
value of a contractual relationship being the greater of $500,000 or 5%
of the other company’s consolidated gross revenues and the strategic
importance of the relationship. A copy of the policy is available on the on
the Bank’s website.
The Board Charter requires that all Directors bring an independent mind to
bear on all matters coming before the Board for consideration.
The Bank does not consider that the length of service on the Board of any
of the independent Directors is currently a factor affecting the Director’s
ability to act independently and in the best interests of the Bank. The Board
generally judges independence against the ability, integrity and willingness of
the Director to act, and places less emphasis on length of service as a matter
which impairs independence.
Board and Director Performance
The Bank conducts its business in a complex and constantly changing
regulatory and business environment. It is important that the Board review
its own performance and that of its Committees from time to time, with the
objective of achieving and maintaining a high level of performance in such
an environment.
Under the Board Performance Review and Renewal Policy, the performance
of the Board is assessed annually. While the Board believes in the value
of a review, it does not consider that a full-scale review is necessarily
required every year, and in the years in which this does not occur, a review
is conducted internally and progress against any recommendations arising
from the most recent externally facilitated review are considered, together
with any new issues which may have arisen.
The Chairman meets at least once a year with each individual Director to
discuss Board and Committee performance and the individual Director’s
performance, and at least once a year on a formal basis with the Managing
Director to discuss management’s view of the Board’s performance, the
performance of Board Committees and the level of interaction with, and
support of, management. Informal meetings on such matters are held
between the Chairman and the Managing Director throughout the year.
The evaluation of director performance will have regard to factors including
the following:
•
The expectation that each Director will actively seek a full appreciation
of the business of the Bank (or subsidiary, as applicable) including key
business drivers, the risks facing the Bank (or subsidiary) and applicable
risk management policies, the regulatory environment in which the
company operates and banking, finance and insurance sector issues (as
applicable to the company);
•
•
Actively participate in open, honest discussion and bring an independent
mind to bear on matters before the Board and the Committees on which
the Director serves;
The expectation that Directors and the Board as a whole will perform
their duties:
• in the interests of shareholders and other stakeholders;
• in a manner consistent with the Bank’s CANDO behaviours –
Collaborative, Accountable, No problems, Do what we say &
Openness; and
• in accordance with the duties and obligations imposed by applicable
laws.
• Attendance at briefings, seminars and ongoing training programs.
In addition, the Chairman is available to the Board and to senior executives at
any time to discuss Board and Board Committee performance.
During the 2012/13 financial year, the Board engaged an independent
external facilitator to undertake a review of Board and Committee
performance.
The rationale for the review was to allow the Chairman and the Board
to obtain an objective view of the operation of the Board. As part of this
process, the facilitator sought and obtained input from each Director through
the completion of interviews and an online questionnaire.
Based on the information provided and material reviewed, the external
facilitator rated the Board’s and the Chairman’s practices across a range
of criteria including the effectiveness of the Board, the performance and
leadership of the Chairman, and the quality of meetings (including issues
such as the effectiveness of agendas and papers, the working relationship
between the Board and management and the performance of Board
members). A comprehensive report, detailing the findings of the review and
recommending areas for discussion and improvement, was presented to
the Board in December 2012 and discussed in more detail at the February
2013 Board meeting. The Chairman and the Board continue to discuss and
explore ways to improve Board and Committee performance.
The Board considers that the benefits gained from the review include the
improvement of Board and Committee processes and effectiveness.
Principle 3:
Promote ethical and responsible
decision-making
Code of Conduct
The Group’s Code of Conduct sets out the principles which all Directors,
officers, employees, agents, owner-managers and their staff and contractors
are expected to uphold in order to promote the interests of the Group and
its shareholders and drive its relationships with employees, customers
and the community. The Code details the Group’s expectations regarding
ethical standards, professionalism, respect for the law, conflicts of interest,
confidentiality, environment and good corporate citizenship. Through annual
training and enforcement of the Code, the Group actively promotes ethical
and responsible decision-making within the Group. The Code of Conduct is
available on the Bank’s website.
Securities Trading Policy
The Group’s Securities Trading Policy provides a framework to assist
Directors, employees, owner-managers, agents and contractors of the
Bank to understand their legal obligations with respect to insider trading.
The Group’s Securities Trading Policy meets the requirements of the ASX
Listing Rules.
6
2013 Annual Report
Principle 3:
Promote ethical and responsible
decision-making (continued)
Diversity
In order to attract and retain a diverse workforce, the Group is committed
to providing an environment in which all employees are treated fairly and
equitably, and where diversity (gender, age, ethnicity, cultural background,
impairment or disability, sexual preference, religion) is embraced, and to
maintaining a workforce that reflects the diversity of the Australian population.
The Group has established a Diversity Policy to reflect the Group’s ongoing
commitment to diversity. A copy of the policy is available on the ‘Corporate
Governance’ page on the Bank’s website. The Group’s annual report to the
Workplace Gender Equality Agency (WGEA) was submitted in May 2013 and
is available on the WGEA website www.search.wgea.gov.au/ or by contacting
humanresources@boq.com.au.
In line with this commitment, the Group’s policy is to value the differences
that a diverse workforce brings and to provide a workplace where:
•
•
All employees are valued and respected for their skills, experiences and
perspectives;
Structures, policies and procedures are in place to assist employees to
balance their work, family and other responsibilities effectively;
• Decision-making processes in recruitment take account of diversity;
•
•
Employees have access to opportunities based on merit;
The Group’s culture is free from discrimination, harassment and
bullying; and
•
Employment decisions are transparent, equitable and procedurally fair.
The Group recognises that gender diversity is an important component to
achieve its goals, and fully supports the ASX recommendations on diversity.
The Group’s current objectives and targets for gender diversity include:
•
•
•
•
increasing the representation of women on its Board;
continuing to grow the number of women in senior roles, with a target
of 25% of women in senior management roles by 2015. Senior
Management roles are defined as Levels 1-4 of the Bank’s occupational
categories, being Managing Director, Group Executive, General Manager
or Head of Division;
encouraging the participation of women in leadership programs; and
encouraging women to participate in the Bank’s My Mentor Program,
to support the development of women in professional and management
roles.
The Group’s gender diversity achievements include:
• 25% of the Board are female;
•
•
•
There are 22% of women in senior management roles (17.9% in
2010/11, 14% in 2011/12);
62 women participated in the My Mentor Program during 2013. To
date, 10% of participants who have completed the program have been
subsequently promoted; and
67% of participants in the Group’s management training are women
(62% in 2012).
Women currently constitute 57% of the Group’s total workforce (57% in
2011/12). During the year, the Group employed 163 staff on a part-time
basis (equating to 10% of the total workforce) (162 in 2011/12 or 9.9% of
the workforce), 91% of which were women (92% in 2011/12), and 97 staff
on a casual basis (76% of which were women) (50 in 2011/12, 86% of
which were women).
in the 2012/13 financial year, as compared to the prior year. Although the
number of women in senior roles improved in comparison to the prior year,
the Board, Managing Director and Group Executives have a continued focus
on gender diversity and are aware that further work must be done to drive
the changes necessary to achieve a more diverse workplace and the Group’s
stated gender diversity targets.
During the 2012/13 financial year, the Group built upon the work undertaken
in the 2011/12 financial year to build a more flexible and diverse workplace.
The following steps were taken towards achieving this objective:
•
•
•
•
The enhancement of the Group’s recruitment processes to actively
source a more diverse pool of candidates;
The completion of Unconscious Bias and Harassment, Discrimination
& Bullying training with Group Executives and their senior leadership
teams, along with further refining of the Group’s policies and processes
for dealing with harassment and discrimination complaints;
The completion of a gender pay equity review; and
The adoption of measures and targets to increase management
engagement and awareness of diversity
talent
in
management and succession planning processes.
the Group’s
The Group has three key goals – to be ‘Fit, Focused and Different’. To
demonstrate its commitment to its diversity objectives, the Group has
embedded its diversity targets into its stated goals in the key performance
indicators for all Group Executives.
The Group’s Human Resources and Remuneration Committee annually
assesses the Group’s progress against diversity targets and objectives,
including the representation of women at levels within the organisation.
In addition, during the course of the year, the Human Resources and
Remuneration Committee undertook a gender pay analysis across all
Group employees.
The Group is committed to facilitating the inclusion of women in all ranks
within the organisation, and removing barriers that may restrict career
progression. To support this position, the Diversity Policy stipulates that
selection process for board and senior management appointments is to
involve the creation of a short-list identifying potential candidates for the
appointment which must include an equal balance of gender wherever
possible. Further, all managers and employees are responsible for behaving
in a way that does not discriminate against other employees, prospective
employees, agents, contractors, customers and suppliers, and are expected
to promote the spirit of diversity and equal opportunity to the full.
Principle 4:
Safeguard integrity in financial reporting
Audit Committee
The Audit Committee is comprised in accordance with the recommendations
in the Principles and the requirements of CPS 510.
The Audit Committee assists the Directors in discharging the Board’s
responsibilities of oversight and governance in relation to financial and audit
matters. The Committee operates under a Charter approved by the Board,
and is responsible for reviewing and making recommendations to the Board
on the following issues:
•
•
•
External financial reporting, APRA and ASIC reporting requirements;
Adequacy of the external audit and the independence of the external
auditor;
The internal audit procedures, scope of the internal audit work program,
and management’s responsiveness to findings from the internal audit
process;
In the current reporting period, the Group continued the restructuring of the
Executive team, and the number of women in senior management increased
• Actuarial engagements and independence; and
•
The results of the Credit Risk review process.
7
CORPORATE GOVERNANCE (CONTINUED) The Audit Committee will refer to the Risk Committee any matters that have
come to the Committee’s attention that are relevant for the Risk Committee
for noting and consideration, or which should be dealt with by that Committee.
The Audit Committee comprises non-executive members of the Board with
the majority of members being independent directors. The Audit Committee
is chaired by an independent director, who is not the Chairman of the
Board and has at least three members. The Committee’s charter requires
that at least one member must have professional accounting or financial
management expertise. The names and qualifications of those appointed to
the Audit Committee, and number of meetings of the Audit Committee during
the financial year are set out in the Directors’ Report.
The Bank has established an Auditor Independence Policy, which is available
on the website and requires the External Auditor to comply with the
requirements of the Corporations Act 2001, APRA Prudential Standard CPS
510 ‘Governance’ and Accounting and Ethical Standards Board APES 110
– Code of Ethics for Professional Accountants, section 290 ‘Independence’.
The policy requires that the lead partner and review partner of the External
Auditor is rotated so that neither role is performed by the same partner for
more than 5 years, or more than five years out of seven successive years.
The Bank has an External Auditor Evaluation Policy, and under this policy, the
Audit Committee provides feedback to the Board annually in relation to the
performance, capability and service provided by the External Auditor.
The External Auditor contributes to the safeguarding of the integrity of the
Bank’s financial reporting. Accordingly, the Bank considers that the External
Auditor must demonstrate the following attributes:
•
•
•
Be an internationally recognised and respected accountancy firm which
has access to expert accounting standards research and sufficient
resources and technical expertise to carry out the engagement;
Have partners and staff that possess professional standing and
appropriate skills, knowledge and experience;
An ability to provide high audit quality control processes and efficient
audit services;
•
Independence; and
• An ability to satisfy the terms of the Fit & Proper Policy.
The procedure adopted for the selection and appointment of the External
Auditor may vary from time to time. The selection process may involve firms
tendering by invitation or by the Bank holding an open tender.
Key aspects of the External Auditor selection and appointment process are
as follows:
•
•
•
•
The Audit Committee will annually review the External Auditor’s
performance and independence and periodically benchmarks the cost
and scope of the external audit engagement;
The Audit Committee, in consultation with management, will approve the
scope of the audit, the terms of the annual engagement letter and audit
fees;
The Board is responsible for appointing the External Auditor, subject to
shareholder approval; and
Upon engagement, the External Auditor will have unfettered access to
management, staff, records and company facilities, and is permitted
reasonable, agreed time to conduct the audit.
The officers who perform a Chief Executive Officer function and a Chief
Financial Officer function state in writing to the Board that the Bank’s
financial reports present a true and fair view, in all material respects, of the
Bank’s financial condition and operational results in accordance with the
relevant accounting standards.
The Bank’s Group Assurance function reports to the Audit Committee in
relation to the effectiveness of internal controls which may have a significant
impact on the annual financial report.
8
Principle 5:
Make timely and balanced disclosure
During the year, the Board approved significant changes to the Group’s
Market Disclosure Policy. This document provides a framework to assist
the Group in achieving its aims of keeping the market informed of material
information and enhancing its communication with the market, thereby
ensuring its compliance with legal requirements.
The Group is committed to creating and maintaining an informed market in
its securities and enhancing corporate governance by encouraging a culture
of transparency in relation to its corporate activities. The Group will also
provide relevant information to media organisations, to ensure the broadest
possible communication with investors and the general market.
The Policy requires Group employees to notify a Designated Disclosure Officer
when they become aware of information which may require release to the
market. The Managing Director and the Company Secretary are responsible
for communications with the ASX. Continuous disclosure is a permanent
item on the agenda for Board meetings. All announcements made by the
Group to the ASX are accessible via the Bank’s website. A copy of the Market
Disclosure Policy is available on the Bank’s website.
Principle 6:
Respect rights of shareholders
The Group’s Investor Relations Policy was merged with the Market Disclosure
Policy during the course of the year. The revised Market Disclosure Policy
is designed to promote effective communication with shareholders, provide
them with ready access to balanced, understandable information about the
Group and simplify their participation at general meetings.
All information released to the market and the media is available via the
Bank’s website. Speeches and presentations for significant conferences and
meetings will also be posted on the website, and webcast or teleconferenced
where possible. Shareholders can access the last three years’ press releases
and market announcements, and financial data, on the website.
Feedback from shareholders is also welcomed through the Bank’s branch
network or through the ‘Contact us’ page on the Bank’s website.
Principle 7:
Recognise and Manage Risk
The Board believes that risk management is a critical part of the Bank’s
operations and a comprehensive risk management program has been
developed.
Management of risk is overseen by the Board and the Risk Committee. The
role of the Board in this respect is outlined in its Charter which states that it
is responsible for, inter alia:
• Setting the risk appetite for the Group;
•
Monitoring the effectiveness of risk management of the Group, including
reviewing and approving risk management policies, operational risk
policies and procedures and systems of internal controls within the
Group, to ensure that they take account of changing risk profiles of Group
entities; and
•
Ensuring that areas of significant business risk are identified and
effectively managed.
The Risk Committee is a sub-committee of the Board of Directors and
assists the Board to discharge its responsibilities. The Risk Committee is
responsible for performing its duties in accordance with its Charter and
making recommendations to the Board on the effective discharge of its
responsibilities for the key risk areas and for the management of the Group’s
compliance obligations.
2013 Annual Report The Board has received a report from management as to the effectiveness of
the Group’s management of its material business risks, that the declaration
provided in accordance with section 295A of the Corporations Act is founded
on a sound system of risk management and internal control, and that the
system is operating effectively in all material respects in relation to financial
reporting risks.
Key Business Risks
BOQ is a diversified financial services organisation that offers a range of
financial products and services to a number of different customer segments
across a large geographic area (but predominantly Australia and New
Zealand). The following categories of risk have been identified as the
material business risks of BOQ under its risk management framework:
•
•
•
•
•
risk-based controls
Compliance Risk, being the risk to earnings of capital arising from
violations of or non-conformance with
laws, rules, regulations,
prescribed practices or ethical standards. It also includes overseeing
the establishment and maintenance of
to
mitigate the risks associated with money laundering and terrorism
financing. The policies adopted to manage Compliance Risk include
a Conflicts of Interest Policy, Whistleblowing Policy and Breach &
Incident Management Process. The Group also undertakes a range of
compliance training of employees to manage Compliance Risk, including
in relation to Consumer Credit Insurance, Consumer Protection, Code of
Banking Practice, National Consumer Credit Protection and Anti-money
Laundering & Counter Terrorism Financing.
Credit Risk, being the risk that a debtor or transactional counterparties
will default and/or fail to be their contractual obligations, and includes
the risk of loss of value of assets due to deterioration in credit quality.
This risk primarily arises from BOQ’s lending activities and the holding of
various financial instruments for investment or liquidity purposes. BOQ
has a set of well documented credit risk policies to manage these risks
within the limits set by the Board. They include the Treasury Credit
Policy & Credit Risk Management Systems, the Delegated Approval
Authority Policy, and specific credit policies for each customer segment
and their respective lending products.
Insurance Risk, which is the risk that BOQ incorrectly assesses its
risk of exposure to financial loss and inability to meet its liabilities
due to inadequate or inappropriate insurance product design, claims
management or reinsurance management.
Liquidity and Funding Risk, which is the risk that BOQ, although balance
sheet solvent, cannot meet or generate sufficient cash resources to
meet its payment obligations in full as they fall due, or can only do so at
materially disadvantageous terms. BOQ’s Liquidity Policy and Liquidity
Contingency Plan are used to manage this risk.
Market Risk, which includes Traded Market Risk (the risk that the value
of an investment will decrease due to moves in market factors such as
foreign exchange rates, interest rates, equity prices, commodity price
and credit spreads) and Non Traded Market Risk (the risks arising from
the various structural dimensions of the balance sheet including Interest
Rate Risk in the Banking Book (IRRBB), Liquidity, Funding, Securitisation
and Capital Risk). BOQ has adopted a number of Treasury Risk Policies
to manage Market Risk.
Principle 7:
Recognise and Manage Risk (continued)
Other responsibilities of the Risk Committee include the following:
•
•
•
•
Review of any changes anticipated for the economic and business
environment, including consideration of emerging trends and other
factors relevant to the Bank’s risk profile;
Oversight of APRA statutory reporting requirements pertaining to risk
matters, and deal promptly with APRA reviews;
Oversight of adequacy of internal risk monitoring and reporting
requirements; and
Regular liaison with the Chairperson of the Audit Committee on
relevant audit matters that should come to the attention of the
Risk Committee.
A copy of the Risk Committee’s Charter is available on the ‘Corporate
Governance’ page of the Bank’s website. The names and qualifications of
those appointed to the Risk Committee, and number of meetings of the Risk
Committee during the financial year are set out in the Directors’ Report.
BOQ’s Risk Management Framework
BOQ has an integrated risk management framework in place to identify,
assess, manage and report risks on a consistent and reliable basis.
The risk management framework requires each business to manage the
outcome of its risk-taking activities and allows it to benefit from the resulting
risk-adjusted returns. Accountability for risk management is structured by a
“Three Lines of Defence” model as follows:
•
•
•
First Line – Business Management. Management within each of
BOQ’s business areas are responsible for managing the risks for their
business. This includes agreeing with the Chief Executive Officer and
Chief Risk Officer the level of risk they wish to take, determining and
implementing an approach to the management of these risks, and using
risk management outcomes and considerations as part of their day-to-
day business making processes.
Second Line – Group Risk. Group Risk Management provides risk
management expertise and oversight for Business Management risk-
taking activities. Group Risk develop specialist policies and procedures
for risk management and ensure they are embedded and in use as
part of the day-to-day management of the business. Group Risk also
establishes and maintains aligned and integrated risk management
frameworks and monitors compliance with the frameworks, policies and
procedures.
Third Line – Group Assurance. Group Assurance, BOQ’s internal audit
function, provides independent assurance to key stakeholders regarding
the adequacy and effectiveness of the Group’s system of internal
controls, risk management procedures and governance processes. It is
responsible for reviewing risk management frameworks and Business
Unit practices for risk management and internal controls. To maintain
independence and to prevent any conflict of interest, the Head of Group
Assurance reports directly to the Chairman of the Audit Committee.
The Group Assurance strategic plan is approved and monitored by the
Audit Committee.
Management is responsible for implementing the policies and controls
established by the Board. To enable management to effectively do this a
number of committees have been established, including an Asset and Liability
Committee, an Executive Committee, an Executive Credit Committee and
an Operational Risk Committee. Operating under their respective charters,
each committee has a role in the effective management and oversight of
risk management in BOQ. The Executive Committee is also charged with
ensuring that the Group has appropriately trained and skilled staff to identify
measure and monitor risk throughout the business.
9
CORPORATE GOVERNANCE (CONTINUED) Website
The following documents appear in the Corporate Governance section of the
Bank’s website;
• Constitution
• Board Charter
• Policy on Independence of Directors
•
Information Technology Committee Charter
• Nomination & Governance Committee Charter
• Audit Committee Charter
• Risk Committee Charter
• Human Resources & Remuneration Committee Charter
• Diversity Policy
• Market Disclosure Policy
• Securities Trading Policy
• St Andrew’s Group charters and policies
• BOQ Group Fit and Proper Policy
• Code of Conduct
• AML / CTF Statement
• Award Rights Plan
•
•
•
Operational Risk, which is the risk of loss resulting from inadequate or
failed internal processes, people and systems, or from external events.
Operational risk management covers a wide variety of risks including
legal risk, franchise risk, environmental sustainability, Enterprise
Continuity Management (comprising business continuity management,
crisis management and disaster recovery, and technology/system risk)
and human resources risk management. The Group has implemented a
number of systems and policies to address Operational risks including a
Code of Conduct, Outsourcing Policy, Product Approval Policy, Workplace
Health & Safety Policy, Workplace Rehabilitation Policy and Harassment,
Discrimination & Bullying Policy.
Reputation Risk, being the risk to earnings or capital arising from
negative public opinion resulting from the loss of reputation, public
trust or standing, and is considered to be a risk derived from business
activities and is considered in conjunction with the underlying risks
resulting from those activities.
Residual Value Risk, being the risk of loss on the sale of leased equipment
or assets that have been returned at the end of their contractual lease
term. This risk arises in the operation of the BOQ Finance asset finance
business on certain operating lease contracts. BOQ has a sophisticated
residual value management process in place to determine the level of
residual value risk it takes on individual lease contracts and portfolios of
similar asset classes to manage this risk.
•
Strategic Risk, being the potential for financial loss associated with
the vulnerability of business earnings to changes in the strategic
environment.
Principle 8 :
Remuneration
The Human Resources and Remuneration Committee is charged with
assisting the Board to discharge its responsibilities regarding the public
reporting of remuneration information, remuneration policies, director fees
and entitlements and other matters. A copy of the Remuneration Charter is
available on the ‘Corporate Governance’ page of the Bank’s website.
The Human Resources and Remuneration Committee is comprised solely of
non-executive directors and has been in place for the whole of the financial
year. The names and qualifications of those appointed to the Committee, and
number of meetings of the Committee during the financial year are set out
in the Directors’ Report.
The Board has approved a remuneration policy which is in accordance with
the APRA requirements set out in CPS 510 (see the Directors’ Report). The
remuneration of the Board, the Managing Director and senior management
is overseen by the Human Resources and Remuneration Committee. Non-
executive Directors’ remuneration is distinguished from the remuneration of
the CEO & Managing Director and senior managers.
Directors’ retirement benefits were frozen in 2003 and the practice
discontinued. Directors are entitled on retirement to their accrued benefit as
at 31 August 2003 (increased annually in line with CPI increases).
Further information in relation to remuneration is contained in the
Remuneration Report.
The Group’s Securities’ Trading Policy provides that all employees are
strictly prohibited from entering into hedging arrangements (the use of
financial products to protect against or limit the risk associated with equity
instruments such as shares, securities or options) in relation to any employee
shares, securities or options received as part of their performance-based
remuneration, whether directly or indirectly. Any employee who attempts
to hedge any shares, securities or options renders those instruments liable
to forfeiture.
10
2013 Annual Report DIRECTORS’ REPORT
The Directors present their report together with the financial report of Bank of Queensland Limited (“the Bank”) and of the Consolidated Entity, being the Bank and
its controlled entities for the year ended 31 August 2013 and the independent auditor’s report thereon.
DIRECTORS
The Directors of the Bank at any time during or since the end of the financial year are:
Name, qualifications and independence status
Age
Experience, special responsibilities and other Directorships
Roger Davis
B.Econ. (Hons),
Master of Philosophy
Chairman
Non-Executive Independent Director
Stuart Grimshaw
PMD, MBA, BCA
Managing Director and
Chief Executive Officer
Executive Non-Independent Director
Steve Crane
B Com, SF Fin, FAICD
Non-Executive Independent Director
Carmel Gray
B Bus
Non-Executive Independent Director
61
52
61
64
Roger Davis was appointed Chairman on 28 May 2013 and has been a Director since
August 2008. He has 32 years’ experience in banking and investment banking in
Australia, the US and Japan. He is currently a consulting Director at Rothschild Australia
Limited. He was previously a Managing Director at Citigroup where he worked for over 20
years and more recently was a Group Managing Director at ANZ Bank. He is a Director of
AIG Australia Ltd, Argo Investments Limited, Ardent Leisure Management Ltd and Ardent
Leisure Ltd, Aristocrat Leisure Ltd and The Trust Company. Mr Davis was formerly Chair of
Charter Hall Office REIT and Esanda, and a Director of ANZ (New Zealand) Limited, CitiTrust
in Japan and Citicorp Securities Inc. in the US. He has a Bachelor of Economics (Hons)
degree from the University of Sydney, a Master of Philosophy degree from Oxford and is
a Rhodes Scholar. Mr Davis is Chair of the Nomination & Governance Committee and a
member of both the Audit and Risk Committees. He attends all other Board Committee
meetings.
Stuart Grimshaw joined BOQ in November 2011 as Managing Director and Chief
Executive Officer. Prior to joining BOQ Mr Grimshaw was a Non-Executive Director of
Suncorp Group Ltd and Chief Executive Officer of Caledonia Investments Pty Ltd; an
investment house. Before joining Caledonia, Mr Grimshaw spent seven years leading a
variety of functions at Commonwealth Bank of Australia, including Chief Financial Officer
and Group Executive, Wealth Management; and a decade at National Australia Bank
Limited in a variety of roles, culminating in the position of Chief Executive Officer – Great
Britain.
Steve Crane was appointed a Director of the Bank at the Annual General Meeting on
11 December 2008. He has over 40 years’ experience in financial markets in Australia,
including experience at both AMP and BZW Australia, where he was promoted to
Managing Director – Financial Markets in 1995 and became Chief Executive in 1996. In
1998, when ABN AMRO Australia Pty Limited acquired BZW Australia and New Zealand,
Mr Crane became Chief Executive and remained in this role until his retirement in June
2003. He is now a member of the CIMB Advisory Council and a Director of Transfield
Services, APA Pipeline Limited, Taronga Conservation Society Australia, and Chairman of
nib holdings limited and Global Valve Technology Limited. Mr Crane is Chair of the Risk
Committee and a member of both the Nomination & Governance and Human Resources
& Remuneration Committees.
Carmel Gray was appointed a Director of the Bank on 6 April 2006. Ms Gray has had an
extensive career in IT and Banking. Ms Gray was Group Executive Information Technology
at Suncorp from 1999 to 2004. Prior to her Suncorp appointment she was General
Manager of Energy Information Solutions Pty Ltd and Managing Director of Logica Pty
Ltd. She is a Non-Executive Chair of Bridge Point Communications Pty Ltd. Ms Gray is
a member of each of the Audit, Information Technology and Nomination & Governance
Committees.
11
Name, qualifications and independence status
Age
Experience, special responsibilities and other Directorships
Michelle Tredenick
B Sc, FAICD
Non-Executive Independent Director
David Willis
B Com, ACA, ICA
Non-Executive Independent Director
Richard Haire
B.Ec, FAICD, FAIM
Non-Executive Independent Director
Neil Berkett
B Com and Admin
Non-Executive Independent Director
52
57
54
57
Michelle Tredenick was appointed a Director of the Bank in February 2011. She has
more than 30 years’ experience in the banking, insurance and wealth management
industries across Australia and New Zealand. Ms Tredenick has been a member of the
Executive Committee for National Australia Bank, MLC and Suncorp as well as serving
as an Executive Director for NAB and MLC companies. She is Chair of IAG and NRMA
Superannuation Pty Ltd and Chair of Comparehealth Pty Ltd. She is also a Member of the
Review Panel and Policy Council for the Banking and Finance Oath Board. Ms Tredenick
is Chair of the Information & Technology Committee and a member of both the Risk and
Human Resources & Remuneration Committees.
David Willis is a qualified Accountant and has over 33 years’ experience in financial
services with major, regional and foreign owned Banks. He has worked in Asia, the UK
and USA. He has been a non executive director for the past five years and is currently
a member of the boards of New Zealand Post, Kiwi Bank, CBH (a grain cooperative in
Western Australia) and Interflour Holdings, a Singapore based flour milling company. Mr
Willis also chairs a Sydney based charity ‘The Horizons Program’. He was appointed
a Director of the Bank in February 2010 and is Chair of the Human Resources &
Remuneration Committee. He is also a member of the Risk Committee.
Richard Haire was appointed a Director of the Bank on 18 April 2012. Mr Haire has
more than 28 years’ experience in the international cotton and agribusiness industry,
including 26 years in agricultural commodity trading and banking. He is a Director
of the Australian Institute of Company Directors (Qld Div) and Cotton Research and
Development Corporation and formerly a Director of Open Country Dairy (NZ) and New
Zealand Farming Systems Uruguay. Mr Haire is Chair of the Audit Committee and a
member of both the Risk and Information Technology Committees.
Neil Berkett was appointed a Director of the Bank on 30 July 2013. His career spans
a range of sectors and geographies in both the consumer and enterprise space with
an emphasis on managing significant change. For six years finishing in mid-2013 he
was the Chief Executive Officer of Virgin Media, a NASDAC listed company where he
oversaw the successful turnaround, differentiation and growth of the UK cable company.
Mr Berkett then led the sale of the company to Liberty Global in June 2013. His previous
career included senior roles at Lloyds TSB, Prudential, St George Bank in Australia,
Citibank and Eastwest Airlines. He is the non-executive chairman of the Guardian Media
Group, is a non-executive director with the Sage Group plc and a Trustee for the NSPCC.
Mr Berkett is a member of both the Audit and Information Technology Committees.
John Reynolds
Retired as a Director on 13 December 2012.
Neil Summerson
Retired as Chairman on 28 May 2013 and as Director on 30 July 2013.
COMPANY SECRETARY
Melissa Grundy, Company Secretary
BCom, GradDipAppFin (Sec Inst), GradDipACG, CPA, F Fin, FCSA, ASAIM, GAICD
Ms Grundy was appointed Company Secretary on 4 June 2012. Prior to joining the Bank, she held various roles within the Compliance division of ASX Limited,
with the most recent being State Manager (Qld) and Manager, Listings (Brisbane).
12
2013 Annual Report DIRECTORS MEETINGS
The number of meetings of the Bank’s Directors (including meetings of Committees of Directors) and the number of meetings attended by each Director during
the financial year were:
Board of
Directors
Risk
Committee
Audit
Committee
Nomination &
Governance
Committee
Human
Resources &
Remuneration
Committee
Nomination
Committee
Budget
Committee
Investment
Committee (1)
Information
Technology
Committee
Due
Diligence
Committee
A
9
11
10
11
11
2
11
12
11
2
B
11
12
12
12
12
2
12
12
12
2
A
B
A
4 (2)
6
6
7
6
-
6
1
7
-
4
7
7
7
6
-
7
1
7
-
7
8
-
9
4
2
-
-
9
1
B
8
9
-
9
4
2
-
-
9
1
A
1 (2)
2
2
1
2
-
-
1
-
-
B
1
2
2
2
2
-
-
1
-
-
A
6 (2)
8
1
2 (4)
2
4
8
9
-
-
B
7
9
1
2
2
4
9
9
-
-
A
-
1
1
1
1
-
-
-
-
-
B
-
1
1
1
1
-
-
-
-
-
A
B
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
A
2
3
-
-
-
3
3
-
3
-
B
3
3
-
-
-
3
3
-
3
-
A
1 (2)
7
-
3 (4)
5
2
8
-
7
1
B
5
8
-
3
5
2
8
-
8
1
A
4
3
-
4
4
-
-
-
4
-
B
4
4
-
4
4
-
-
-
4
-
12
7
9
2
9
1
-
3
8
4
Neil Summerson
Stuart Grimshaw(3)
Steve Crane
Roger Davis
Carmel Gray
John Reynolds (5)
Michelle Tredenick
David Willis
Richard Haire
Neil Berkett (6)
Total number of
meetings held
A - Number of meetings attended
B - Number of meetings held during the time the Director was a member of the Board / Committee during the year
(1) The composition of the Investment Committee is not fixed. Composition and meetings held are set by the Board on an as required basis.
(2) Neil Summerson retired as Chairman on 28 May 2013 and as a Non-Executive Director on 30 July 2013. Neil attended these Committee meetings but is not a formal Committee member.
(3) Stuart Grimshaw attends these Committee meetings but is not a formal Committee member.
(4) Roger Davis become Chairman 29 May 2013 and attended these Committee meetings but is not a formal Committee member.
(5) John Reynolds retired as a Non-Executive Director on 13 December 2012.
(6) Neil Berkett was appointed as a Non-Executive Director on 30 July 2013.
OPERATING AND PERFORMANCE REVIEW
Overview of BOQ
The Bank has grown from being the first permanent building society
in Queensland in 1874 to the current day with a network of around 270
branches spanning every state and territory in Australia. Over the last two
years the Bank has built the foundations for sustainable growth and in May
2013, the Bank launched its new brand position “It’s Possible to Love a
Bank” which supports its strategic direction, customer proposition and
internal cultural transformation.
The new brand positioning builds on a long established reputation for
superior customer service. As a regional bank, flexibility and responsiveness
to customer needs are paramount and the focus on this area will complement
the progress being made under the Bank’s four strategic pillars and
contribute to future growth.
Principal activities
The principal activity of the Bank is the provision of financial services and
insurance to the community. The Bank has an authority to carry on banking
business under the Banking Act 1959 (Commonwealth) (as amended). There
were no significant changes during the year in the nature of the activities of
the Consolidated Entity.
Business strategies and prospects for
the future
The Bank continues to focus and deliver under the four strategic pillars of
multi-channel optimisation, risk/return balance, operational excellence along
with a focus on talent, capability and culture.
In terms of multi-channel optimisation, the Bank is continuing to expand its
source of originations through entry into the mortgage broker market as well
as improvements to mobile banking, call centre, online and social media.
A mortgage broker program in WA was expanded to NSW in August 2013.
In the Retail network, a new balanced scorecard has been introduced for
Owner Managed branches. The new scorecard balances lending, deposits,
cross sales and compliance components and is aimed at providing greater
alignment between the interests of Owner Managers and the Bank. It is
intended that the new scorecard will form the basis of a new standardised
franchise agreement to be rolled out in the 2014 year. There is also significant
work underway to optimise branch mix and locations.
The recent acquisition of Virgin Money (Australia) Pty Limited will extend
the Bank’s reach into currently untapped, complementary market segments,
providing access to opportunities that come with an iconic brand with proven
capability in online customer acquisition, customer advocacy and product
distribution.
To achieve the right balance of return for risk taken, the Bank continues to
diversify the balance sheet by pursuing higher margin and return on equity
segments in Business Banking and Agribusiness. In Business Banking, a
tiered approach to origination through the Bank’s distribution channels has
been embedded to reflect deal complexity and seven agribusiness centres
have opened across Australia in Financial Year 2013. A new behavioural
scorecard for assessing mortgage origination was introduced reflecting the
Bank’s new risk appetite framework. Business mix changes reflecting a
core focus on credit quality were evident across the retail portfolio, with the
relative over concentration of poorer performing line of credit mortgages
being substantially reduced.
The pursuit of operational excellence has seen continued back office
consolidation and a focus on removing administrative tasks from branches.
The Bank continues to improve processes and systems, particularly to
13
DIRECTORS’ REPORT (CONTINUED) continue to remain at high levels. This is expected to continue nationally
with market confidence increasing with the federal election completed and
available supply starting to reduce. The Bank is well positioned as it builds
its multi-channel distribution strategy to leverage this growth.
Whilst funding markets have improved, both in access and pricing, and the
Bank’s recent credit rating upgrade to A- is welcomed, retail product pricing
remains competitive. The transition to the Basel III capital and liquidity rules
will continue to be closely monitored with any potential margin impacts
expected to be offset by repricing initiatives.
Challenges
Domestic Economy
The Bank’s earnings are linked to economic activity in the Australian
economy and in particular the demand for credit in the economy. Ongoing
global uncertainty continues to impact economic growth locally and any
future downturns will adversely impact the Bank’s results.
Australian Property Markets
The Bank has substantial exposure to the Australian property market through
its secured lending portfolio and recent years have demonstrated the
fluctuating nature of property prices. Large decreases in property valuations
may increase losses on the Bank’s loan portfolio and also decrease asset
growth from new lending. This could adversely impact the Bank’s earnings.
Competition
The Bank operates in a competitive market environment. Potential new
entrants to the market could heighten competition and reduce margins or
increase costs of participation.
Credit Ratings
The Bank’s credit rating impacts the Bank’s cost of capital and wholesale
funding mix. Potential downgrades to credit ratings may limit access to
funding markets, increase funding costs and limit the ability of the Bank to
fund potential asset growth.
Natural Disasters
Natural disasters such as floods and earthquakes could have economic
implications which may adversely impact the Bank’s earnings.
reduce the turnaround time on compliant retail and business lending
applications. A new Customer Relationship Management system has been
successfully piloted in the Retail network and regulatory approval is currently
being sought for full rollout and implementation of the system. FY2014 will
see work commence to digitise retail and commercial lending origination.
In the new year, the Bank is looking to further simplify the product suite to
reinvigorate the customer offering and a simple low cost mortgage offering
‘Clear Path’ was launched in September 2013.
The Bank’s focus on talent, capability and culture has seen a number of
selected external recruits brought in below the executive team to complement
existing talent while a review of talent across the Group has been completed.
Retention of staff was improved with voluntary turnover of 19% in FY13 and
Women in Management (levels 1 to 4) increased from 12% in November
2012 to 22% at August 2013.
A major brand refresh was launched in May 2013 with the line “It’s
Possible to Love a Bank” and this has resulted in an increase in national
unprompted awareness of the BOQ brand. The Bank has also launched a
reward and recognition program titled “Love Your Work”. This is further re-
focussing employees on the right behaviours and particularly collaboration,
accountability and openness. This is further reflected in the external Net
Promoter Score where the Bank continues to demonstrate strong satisfaction.
Through the continued focus on its four strategic pillars, the Bank aims
to deliver sustainable growth across Retail and Business Banking whilst
maintaining credit and pricing discipline and managing expense growth
below inflation.
Credit Rating
The Bank has taken significant measures to strengthen the balance
sheet with a renewed focus on asset quality of the commercial and retail
portfolios, non-performing asset realisations, improved arrears performance,
strengthening of capital levels and increasing the retail versus wholesale
funding mix.
On 4 September 2013, Standard & Poor’s Ratings Services upgraded its
long-term credit rating on the Bank to A- from BBB+ and affirmed the
short-term credit rating at A2. Outlook is stable for both long and short-term
ratings.
On 4 June 2013, Moody’s Investors Service affirmed a long-term credit
rating on the Bank at Baa1 and a short-term credit rating at P-2. The outlook
remains stable for both the long and short-term ratings.
On 20 December 2012, Fitch Ratings affirmed the Bank’s long-term credit
rating at BBB+ and the short term rating at F2. The outlook remains stable
for the long and short-term ratings.
Outlook
The global business environment remains uncertain but financial conditions
remain supportive of economic growth. Domestically, there is still an
expectation of weak demand as the Australian economy transitions away
from the resources boom. However, the downside risks to the Australian
economy are, to a degree, balanced by the declining Australian dollar and
increasing net exports.
The demand for housing finance has continued to strengthen in NSW
and WA, consistent with rising dwelling prices and lower interest rates.
Queensland however, continues to lag the other states, although early signs
of improvement have emerged. Average house prices in most state capitals
increased over the six months to June 2013 and auction clearance rates
14
2013 Annual Report Financial Performance
2013 statutory earnings movement ($’m)
Highlights
2013
2012
Aug 13
vs Aug
12
Net Profit After Tax - Statutory $’m
185.8
(17.1)
n/a
Net Profit After Tax - Cash $’m
250.9
30.6
720%
Return on Equity - Statutory %
Return on Equity - Cash %
Dividend (cents)
Basic Earnings per Share - Statutory (cents)
Basic Earnings per Share - Cash (cents)
7.0
9.4
58.0
58.4
79.2
(0.7)
770bps
1.3
810bps
52.0
12%
(10.2)
673%
7.9
903%
Market Capitalisation $’m
3,070.2
2,331.4
Common Equity Tier 1 %
8.63
8.58
32%
5bps
Statutory Profit is prepared in accordance with the Corporations Act 2001
and the Australian Accounting Standards, which comply with International
Financial Reporting Standards. The Cash Earnings provided is used by
Management to present a clear view of the Bank’s underlying operating
results. It excludes a number of items that result in volatility and/or one-
off distortions of the Bank’s performance, and allows for a more consistent
comparison of the Bank’s performance across accounting periods.
The table below provides a reconciliation of Statutory Profit to Cash Earnings:
$ million
Aug-13
Aug-12
Aug 13
vs Aug
12
Cash Earnings / (Loss) after Tax
250.9
30.6
720%
Amortisation of customer contracts
(acquisition)
Amortisation of fair value adjustments
(acquisition)
Hedge ineffectiveness
Government guarantee break fee
Integration / due diligence costs
Asset impairment
Legacy items
Restructuring costs
(9.1)
(10.5)
14%
(1.0)
(3.9)
74%
2.4
(3.3)
173%
(5.2)
(3.7)
(2.2)
(136%)
(1.0)
(270%)
-
(6.6)
n/a
(37.5)
(14.9)
152%
(11.0)
(5.3)
(108%)
Statutory Net Profit / (Loss) after Tax
185.8
(17.1)
n/a
The Bank has delivered a sound financial result with a strong increase in
statutory profit after tax to $185.8m compared with an after tax loss of $17.1m
in 2012. The turnaround from the prior year result reflects improvement in
loan impairment charges, margin growth and prudent expense management.
The statutory return on average tangible equity increased to 8.9%.
92.2
286.4
185.8
10.0
41.6
42.9
(17.1)
Aug 12
NII
Other
Expenses
BDD
Tax
Aug 13
Income
The largest contributor to the improved profitability was a 71% reduction
in the loan impairment expense, driven by improved credit management
practices and a tighter risk appetite framework that has delivered a significant
improvement in the credit quality of the balance sheet. In line with the revised
risk appetite, an enhanced behavioural scorecard model for housing loans
was introduced in the first half, and a focus maintained on target segments
such as SME and Agribusiness.
There has been sustained improvement in key credit metrics over the
course of 2013. Impaired assets reduced by 27% from both a reduction in
new impaired assets and improved realisations. Only one account greater
than $5m shifted into impaired status over the course of the second half.
Accounts now shifting into impaired status are of a smaller size and generally
better secured. Arrears performance is also demonstrating a reducing profile
as retail arrears are assisted by historically low interest rates. Commercial
arrears, whilst still dealing with challenging trading conditions, are showing
the benefits of early identification and improved workout practices.
Overall lending growth of 2%, or 0.6x system, in the portfolio reflects
the Bank’s renewed focus on quality origination and optimising margin
performance. Portfolio growth was impacted by impaired asset runoff and the
planned exit of exposures outside the Bank’s revised risk appetite, particularly
in reducing the Bank’s over concentration in the poorer performing Line of
Credit product. The Bank’s regional exposure to Queensland, which has
lagged the national average mortgage growth over the year, also contributed
to lower mortgage growth against system.
Focus on expansion of the Business Banking division has shown positive
results, with commercial lending growth of 7.5% over the year. This excludes
the run-off in legacy portfolios which have been actively managed in line
with the Bank’s revised risk appetite, delivering a significant improvement in
the credit quality of the balance sheet. In a low credit growth environment
where many competitors are discounting heavily to achieve growth in their
mortgage portfolios, the Bank has pursued profitable growth by focusing on
higher margin, higher return commercial lending to high quality Business &
Agribusiness customers.
15
DIRECTORS’ REPORT (CONTINUED) The Bank’s lending growth over the year was more than fully funded by retail
deposit growth, with the deposit to loan ratio increasing 4% to 68%, and
a continued reduction in reliance on wholesale funding. The Bank took the
opportunity to repurchase $1.2bn in Government Guaranteed debt during the
year, providing a more manageable refinancing profile. The Bank’s recent
credit rating upgrade to A- (Standard & Poor’s) will provide the Bank with
further opportunity to improve funding diversification over time.
Net Interest Margin (“NIM”) on a statutory basis increased four basis points
from the prior year, benefiting from asset mix and re-pricing, and a focus on
managing deposit spreads. The Bank was disciplined in ensuring appropriate
risk adjusted return hurdles are being met on new lending whilst reducing its
reliance on the higher cost deposit segments of the market.
Operating Expenses continue to be prudently managed. On a statutory basis,
full year growth of 10% reflects the product review costs of $46m (pre-tax).
On a cash basis, expense growth was less than inflation at 2% and within
management targets. Back office support activities have been consolidated,
minimising duplication across the Group, while there has been continued
investment in improving frontline capabilities.
The Bank has continued to further strengthen its balance sheet and
its Common Equity Tier 1 Ratio of 8.63% is amongst the highest in its
peer group.
The Board has declared a final dividend of 30 cents per share fully franked,
an increase of 2 cents per share on the first half and 4 cents per share on the
previous corresponding period. The full year dividend of 58 cents per share
represents a 12% increase on 2012.
Income
Total operating income increased by 6% over the year to $855.9m
compared with $804.3m in the prior year. The main driver of this increase
was net interest income growth of $41.6m (6%) reflecting improved
margin management through a disciplined approach to product pricing and
improving the composition of retail deposits.
Net Interest Margin
1.99%
0.11%
0.34%
1.65%
0.03%
0.04%
0.01%
2.02%
0.33%
1.69%
FY12
Asset Pricing
& Mix
Funding & Mix Capital & Low
Cost Deposits
3rd Party
FY13
Net Interest Margin
Third Party Costs
The statutory NIM increased by four basis points over the year to 1.69
percent. This movement was attributable to a number of factors:
•
•
Asset pricing – the Bank benefited from the asset pricing conducted in
FY13 as well as receiving the full benefit of the prior year repricing of the
fixed rate mortgage and leasing portfolios.
Funding costs – An increase in retail funding costs over the prior year
reflected higher competition for deposits, though this was mitigated by
reduced costs of hedging as volatility in financial markets reduced.
16
•
Capital & replicating portfolio – the investment return on the capital and
low-cost deposit replicating portfolio has reduced, in line with the lower
interest rate environment.
The Bank’s Convertible Preference Shares (“CPS”) issue had a negative
impact to NIM (2bps). The instrument is classified as debt, replacing the
Perpetual Preference Shares (“PEPS”) which were classified as equity for
accounting purposes and hence excluded from NIM. The increased size
and cost of the CPS compared to the PEPS represented just under half of
the impact, and the accounting treatment reclassification effect the balance.
Other Income, excluding insurance income, increased by 10% to $122.5m
due to an increase in net income from financial instruments and derivatives
at fair value, as well as increased commission income.
Insurance income decreased 2% to $40.3 million from the prior comparative
year of $41.3 million. This was a result of lower premium volumes driven by
a slowing in housing credit growth.
Expenses
Operating expenses on a statutory basis increased by 10% to $465.5m
(2012: $422.6m) which included $46m of product review costs ($34.5m
customer refunds and $11.5m of costs) which were incurred in the second
half. The Bank’s statutory cost to income ratio for the current financial year
is 54.4%.
Total operating expenses on a cash basis increased by 1.6% to $379.4m
for the full year. On a cash basis, the Bank’s cost to income ratio improved
from 45.7% to 44.3%.
Cost to Income (Cash)
49.9%
45.8%
45.7%
44.5%
44.3%
2009
2010
2011
2012
2013
The Bank’s Efficiency and Effectiveness Program delivered good results with
the successful implementation of a number of initiatives (eg: shared services,
back office consolidation) in the last 12 months that not only reduced costs,
but improved operational effectiveness.
Employee expenses marginally increased in the second half due to higher
staff numbers as the business further invests in operational capability.
Included in the second half result was $3m of restructuring costs, which
have historically been treated as normalised items and excluded from
Cash Earnings.
A full end to end review of loan origination and processing across the Bank to
streamline the response time is underway which will drive further efficiencies
and improve the customer experience.
The Bank remains committed to achieving measured expense growth whilst
continuing to invest in core system platforms and frontline capabilities.
2013 Annual Report Asset quality and provisioning
2013 witnessed significant improvement in the credit quality of the Bank’s
lending portfolio evidenced by gains across key metrics. The following table
summarises the Bank’s key credit indicators with comparison against the
2012 financial year.
Year End Performance
Aug-13
Aug-12
Aug 13 vs
Aug 12
114.6
401.0
71%
32
116
84bps
381.6
523.0
525.3
600.7
270.8
346.6
27%
13%
22%
110
139
(29bps)
Loan impairment expense
Bad and Doubtful Debts /
Gross Loans & Advances
Impaired Assets
30+ Arrears
90+ Arrears
Collective Provision & General
Reserve Credit Loss / RWA (1)
($m)
bps
($m)
($m)
($m)
bps
(1) The General Reserve for Credit Loss is grossed up for tax effect.
Loan impairment expense improved significantly over the year to $114.6m, a
71% reduction on the prior year which saw a significant review of the Retail
and Commercial portfolios. The full year result reflects the improved credit
management practices implemented and a tighter risk appetite framework.
The full year loan impairment expense to gross loans and advances ratio
reduced to 32bps (2012: 116bps) and was within the disclosed 2013
management target of 28-34 bps.
Impaired assets reduced by $143m (27%) over the year with both a reduction
in new impaired assets and improved realisation performance. Significant
realisations have been achieved in the large impaired exposures and solid
momentum is continuing in the realisation profile of those remaining.
Impaired Assets ($m)
11.4
60.9
52.7
16.0
77.2
128.7
6.7
58.9
117.9
9.0
100.6
120.7
478.5
24.0
172.9
281.6
525.3
26.3
214.6
284.4
381.6
19.4
156.6
205.6
Aug 12
New
Impaired
Realisations
Feb 13
New
Impaired
Realisations
Aug 13
Retail
Commercial
BOQ Finance
Retail arrears performance has continued to trend favourably this financial
year with a 30bps and 33bps decrease on the respective 30+ and 90+
arrears positions. This reflects the implementation of improved collection and
recovery procedures and has also been assisted by historically low interest
rates. In January 2013, APRA sought to standardise industry practices on
arrears reporting around hardship accounts. As a consequence, hardship
variation accounts are now included in arrears reporting and the impact of
this change on the Bank’s retail arrears position at 31 August 2013 was
13bps and 5bps on respective 30+ and 90+ arrears positions.
Retail Arrears
2.06%
2.08%
1.27%
1.67%
1.55%
1.39%
1.07
0.91%
0.80%
0.85%
1.46%
1.25%
0.68%
0.58%
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
30DPD
90DPD
Commercial 30+ arrears have improved by 17bps over the year while 90+
have remained relatively static. Trading conditions for small business remains
challenging, however early intervention of deteriorating loans has provided
improved success in the ability to pursue early workout / exit strategies.
Commercial Arrears
3.39%
3.43%
3.38%
4.16%
3.92%
3.62%
2.01%
2.04%
2.10%
2.44%
2.43%
2.35%
3.21%
2.14%
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
30DPD
90DPD
There has been a reduction in the collective provision of $55m (29%) over the
year driven predominantly by a migration of lower rated accounts (identified in
the Asset Quality Review) to impaired status in the first half. The improving
retail arrears position combined with the external refinancing of a number of
poorly rated commercial accounts has also contributed to the lower collective
provision. The Bank’s collective provisioning (including general reserve for
credit loss) levels remain at a premium compared to peers.
Collective Provision & General Reserve for Credit Losses / Risk
Weighted Assets vs Peers
0.94%
0.76%
1.09%
0.22%
1.00%
0.13%
0.97%
0.11%
0.96%
0.09%
0.91%
0.04%
0.61%
0.65%
0.87%
0.87%
0.86%
0.87%
0.87%
1.10%
0.46%
0.64%
0.33%
0.11%
Regional 1
BOQ FY13
Regional 2
Majors
Average
CP
Major 1
Major 2
Major 3
Major 4
GRCL
Note: RWAs of Majors and Regional bank’s are not comparable due to the
major banks’ advanced regulatory accreditation.
17
DIRECTORS’ REPORT (CONTINUED)
Tax Expense
Commercial Lending
Corporate tax expense for the full year increased to $90m, representing a
32.6% tax rate. The effective tax rate is above the Australian company tax
rate of 30%, primarily as a result of the non-deductibility of CPS interest and
intangibles amortisation.
Divisional Performance
The Bank operates two segments, banking and insurance.
St Andrews Insurance experienced a slight reduction in segmental profit after
tax to $19.2m. Gross Written Premium (net of refunds) reduced by 4% which
reflects a lower volume of new policy sales driven by a slowing in housing
credit growth.
The slight decrease in the underwriting result of 1% over the full year
reflected higher acquisition costs offset by lower claims. Other insurance
income reduced with lower yields on the cash based Investment portfolio
which is consistent with the 100 basis point decline in the Reserve Bank
cash rate over the year.
Review of Assets and Liabilities
Loans under management of $35.1bn (net of specific provisions) represented
growth of 2.3% over the year. The Bank continued to fund asset growth from
customer deposits with retail deposits now representing 62% of total funding
(2012: 59%).
Loans Under Management ($bn)
32.0
3.9
5.1
33.4
3.7
5.3
34.3
3.7
5.1
35.1
3.6
5.2
23.0
24.4
25.5
26.3
28.9
3.2
4.7
21.0
Commercial lending increased to $5.2bn over the year. The portfolio continues
to manage run-off in legacy portfolios deemed to be outside the Bank’s
amended risk appetite with realisation of impaired assets totalling $0.3bn
during the year. Excluding this, Commercial lending growth was 7.5%, which
was 3.6x system, This reflects investment in a renewed relationship banking
team and execution of the targeted customer acquisition strategy.
The Bank continues to invest in developing its Agribusiness capability with
seven new Agribusiness centres having been opened. Business banking
continues to focus on cross-sell opportunities into financial markets, leasing
and transactional banking.
BOQ Finance
BOQ Finance asset levels were $3.6bn, which is a positive result considering
the contraction that is occurring across the industry. The business maintains
leading capability in general equipment, debtor, vendor and dealer finance.
A focus on selling in the retail and business banking channels of BOQ is
expected to deliver above system growth going forward.
Funding
Significant progress was made over the last twelve months in strengthening
the balance sheet, creating a sustainable funding profile and improving
capital generation. This progress was reflected in ratings agency Standard &
Poor’s upgrading BOQ’s long-term credit rating from “BBB+” to “A-”. This is
the first time the Bank has held an “A” category rating in its history.
The Bank has continued to actively manage its wholesale maturity profile
over the year. With the Bank successfully completing the repurchase of
$1.2bn of Government Guaranteed liabilities, there are no significant
refinancing towers in the Bank’s wholesale liquidity profile until March 2015.
In the year, retail deposits increased by $1.7bn for an annual increase of
8% and more than fully funding loan growth for the year. The Deposits to
Lending ratio has increased by 4% and at 68% remains comfortably within
an operating range of 65-70%, appropriate for the Bank’s balance sheet
mix. The recent rating upgrade will provide further opportunity to improve
the diversification and stability of the Bank’s liability base.
2009
2010
2011
2012
2013
Deposits to Loan Ratio %
BOQ Finance
Commercial
Retail
68%
64%
Retail Deposits ($bn)
Housing Lending
Housing lending increased by 3% to $26.3bn over the year. Growth continues
to be prudently managed within a tighter risk framework and the new credit
decisioning behavioural scorecard for mortgage originations.
The Bank continued to actively reduce over concentration to its Line of Credit
product reducing its exposure by $700m (16%) over 2013 to $4.2bn at year
end. This has reduced the Line of Credit from 22% of the portfolio two years
ago to 16% as at August 2013. Excluding the Line of Credit reduction, the
growth rate in Housing would have been 5.6% and 1.1x System.
The Bank continues to pursue geographic diversification of the portfolio.
The mortgage broker offering in WA has now been extended to NSW with a
view to national rollout on a measured basis. The Bank’s brand refresh was
launched nationally in May 2013 which has raised national brand awareness
by 7%. A new simplified housing loan product was launched in September
2013. These initiatives are expected to support greater market penetration
through the Bank’s broadening channel presence.
61%
20.3
57%
57%
18.1
16.2
22.3
24.0
2009
2010
2011
2012
2013
18
2013 Annual Report Capital
The Bank continued to strengthen its Capital levels over the course of the
year. Common Equity Tier 1 increased to 8.63% from 8.58% in August
2012. The Bank’s cash earnings generated enough organic capital to
support dividends and risk weighted asset growth. Although risk weighted
asset growth was subdued due to slow credit growth and the impact of
securitisation, the chart below demonstrates that the Bank’s earnings are
capable of supporting much higher levels of asset growth.
In December 2012, the Bank successfully raised approximately $300 million
of CPS including an exchange of approximately $180 million PEPS that were
reinvested into CPS. The CPS qualify as Additional Tier 1 capital under the
Basel III capital adequacy framework, which took effect 1 January 2013.
The Bank redeemed all remaining PEPS on issue on 15 April 2013 in
accordance with the PEPS terms of issue. The remaining 198,661 PEPS
were redeemed at the redemption price of $100 per PEPS plus the final
PEPS dividend paid on 15 April 2013.
Common Equity Tier 1 Ratio - Full Year 2013
0.52%
1.16%
0.23%
0.30%
0.06%
Underlying capital
generation
8.58%
8.63%
Aug 12
Cash Earnings Net Dividends
RWA
Significant
net of DRP
Movement
items
VMA
Acquisition
Aug 13
(1) Other includes $3m of restructuring which has been taken to statutory profit in the second half, a decrease
in the available for sale reserve of $9m due to the sale of bonds and a decrease in the cash flow hedge
reserve of $9m due to upward sloping yield curve.
Basel III Capital Changes
Effective 1 January 2013 the Basel III framework came into effect. The key
impacts on the Bank’s August 2013 capital position are as follows:
•
•
Changes to instruments qualifying as what is now referred to as
“Additional Tier 1 Equity”. These changes effectively precluded
Innovative Tier 1 instruments from qualifying as Common Equity Tier
1. Further conditions were implemented in determining qualification as
Additional Tier 1 instruments and these included introduction of “Non-
Viability” clauses. Transitional relief is available for instruments issued
prior to the announcement of the proposed changes to regulations. The
Bank was granted transitional relief in respect of the existing Perpetual
Equity Preference shares (“PEPS”). These instruments were largely
exchanged for Convertible Preference shares (“CPS”), qualifying as
Additional Tier 1 capital and the residual PEPS were redeemed on 15
April 2013;
Changes to instruments qualifying as Tier 2 Capital. These changes
included introduction of “Non-Viability” clauses. Transitional relief
on existing instruments has been approved by Australian Prudential
Regulation Authority (“APRA”) and this relief effectively provides a cap
for existing issues that amortises the eligible amount over a 10 year
period. Currently the Bank has a $17m excess of Tier 2 issues relative
to the cap, hence existing issues should remain effective under the
transitional relief;
•
Regulatory deductions previously were deducted 50% from Tier 1 capital
and 50% from Tier 2 capital and are now deducted 100% from Common
Equity Tier 1. The major impact on the Bank is that the deduction for
investment in non-consolidated subsidiaries (i.e. subsidiaries outside
the Banking regulated group, including its investment in St Andrews
Insurance) is now fully deducted from Common Equity Tier 1;
•
Dividends no longer need be deducted from Common Equity Tier 1 until
declared. Previously they were deducted on an accrual basis net of
expected dividend reinvestment;
•
Asset Revaluation Reserves previously were included as Tier 2 capital
though limited to 45% of those reserves. Under the new regulations,
they are Common Equity Tier 1 capital to their full extent. The Bank has
some credit in its Available for Sale reserve relating to Banking Book
assets that qualify now as Common Equity Tier 1 though the amounts
represent less than 6bps of capital; and
•
Changes to the General Reserve for Credit Losses (“GRCL”) allow
for qualifying collective provisions to be grossed up for tax whereas
previously they were treated net of tax. The deferred tax asset relating
to these provisions must now be deducted from Common Equity Tier 1.
Liquidity
The Bank continues to maintain a strong liquidity position holding $5.3bn of
high quality liquid assets at August 2013. This is a substantial premium over
the Bank’s short term funding and provides a material buffer in the event of
market dislocation.
The Bank also maintains significant secondary holdings through its on balance
sheet securitisation structure of more than $2.3bn currently established for
immediate access in a crisis scenario. Significant further liquidity would be
available with the majority of the Bank’s retail lending assets eligible to be
placed as collateral into the structure.
Shareholder returns
Statutory diluted earnings per share have increased to 57.2 cents per share
for the year 31 August 2013, compared to the prior year loss per share of
10.2 cents.
The increase in diluted earnings per share is largely a result of decreased
loan impairment charges and improved underlying performance for the year
compared to the prior year.
Dividends
The Board announced an increase in the final dividend to 30 cents per share.
This takes the full year dividend to 58 cents per share and represents an
increase of 12% on the prior year.
All the dividends paid or declared by the Bank since the end of the previous
financial year were fully franked at the tax rate of 30%.
The balance of the Bank of Queensland Limited dividend franking account at
the date of this report, after adjusting for franking credits and debits that will
arise on payment of income tax and dividends relating to the year ended 31
August 2013, is $106.2 million credit calculated at the 30% tax rate (2012:
$124.9 million credit).
It is anticipated, based on these franking account balances that the Bank will
continue to pay fully franked dividends in the foreseeable future.
Environmental regulation
The Consolidated Entity’s operations are not subject to any significant
environmental regulations under either Commonwealth or State legislation.
The Board believes that the Consolidated Entity is not aware of any breach of
environmental requirements as they apply to the Consolidated Entity.
19
DIRECTORS’ REPORT (CONTINUED) Director and Management changes
Neil Summerson retired as Chairman on 28 May 2013 and as a Director on
30 July 2013 and John Reynolds retired from the Board on 13 December
2012. Roger Davis was appointed Chairman at 28 May 2013 and Neil
Berkett also joined the Board on 30 July 2013.
During the year, Karyn Munsie (Corporate Affairs, Investor and Government
Relations), Julie Bale (Chief Information Officer) and Brian Bissaker (CEO,
Virgin Money Australia) were appointed to the Executive Team.
Acquisitions
The Bank completed the acquisition of Virgin Money (Australia) Pty Ltd on
30 April 2013.
Series 2012-1E REDS Trust was opened on 15 November 2012.
Series 2013-1 EHP REDS Trust was opened on 17 May 2013.
Series 2013-1 REDS Trust was opened on 26 July 2013.
Refer to Note 31 of the financial report for further information.
Disposals
Series 2005-1 REDS Trust was closed on 12 February 2013.
Refer to Note 31 of the financial report for further information.
Events subsequent to balance date
Dividends have been declared after 31 August 2013, refer to Note 7. The
financial effect of this transaction has not been brought to account in the
financial statements for the year ended 31 August 2013.
Likely developments
The Bank will continue to provide a wide range of banking and financial
services for the benefit of its customers, expanding and developing these
where appropriate. This will require further investment, particularly in
systems and information technology.
REMUNERATION REPORT
Introductory Message
In 2013 the Chairs of the Board and the Human Resources and
Remuneration Committee met with a number of BOQs shareholders and
their representatives. Following feedback concerning the value of further
commentary to the Remuneration Report this introduction seeks to provide
further context for 2013 remuneration.
In 2011/12 the Board agreed that with the flow on effects of the Global
Financial Crisis, natural disasters particularly in Queensland and an outlook
for slower economic growth, a different senior management team was
required for a different economic environment and in order to maximise the
performance of BOQ for shareholders.
In the period since then the Board has recruited a Managing Director (“MD”)
(Stuart Grimshaw) in 2011 and through him a substantially new executive
team. The majority of this recruitment has come from major financial
institutions including the big four bank’s with additional remuneration cost
implications. Whilst we have recognised BOQ is smaller than a number
of these institutions, the philosophy underpinning our strategy is that we
compete directly with these entities for customers and executive talent.
Further that the value to be added for shareholders by recruiting the best
executives we could attract is well in excess of the associated cost increase
and that we will manage total Bank costs.
The broad approach adopted in executing this strategy has been:
•
non-payment of bonuses to departing executives (exceptions to this
have been contractual obligations in one case for the previous 2012
year and in the 2013 year departure of a senior executive where his
role was made redundant);
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•
•
•
•
•
•
•
no up-front cash payments for new recruits. Payment of compensation
for any short or long term incentives forgone at previous employers
have been made by way of equity for varying periods and with varying
hurdles based on a discounting of the benefits forgone. In the case of
two senior executives we deferred the issuance of equity until their
potential had been confirmed;
structuring of the new executives packages with approximately one
third fixed and two thirds at risk with the at risk portions of Short Term
Incentives (“STI”) and Long Term Incentives (“LTI”) being approximately
one third of the total package each;
capping the STI awards, including a Net Profit After Tax (“NPAT”)
gateway hurdle, incorporating performance levels and providing 50%
two year deferrals which for Key Management Personnel (“KMP”)
is into restricted stock (restricted share plan subject to shareholder
approval);
express involvement of the Chief Risk Officer providing feedback
concerning risk behaviours during the year;
capping the LTI scheme which has Total Shareholder Return (“TSR”)
vesting hurdles;
providing for claw back on deferred STI and unvested LTI with complete
Board discretion; and
Board discretion for KMP also extends to the final determination of STI
and LTI awards for all Responsible Persons (as defined by CPS510
Governance for ADIs) where consideration is given to a number
of factors not specifically covered in an individual executives Key
Performance Indicators (“KPIs”), for example TSR.
In 2013 the Human Resources and Remuneration Committee determined
that following more than 12 months service and a general view of strong
performance we should undertake a full review of the MDs remuneration
arrangements. Formal advice was taken from the Board Remuneration
advisor and this was further checked with two other independent experts.
The Board subsequently agreed to the following changes for 2014:
•
•
•
•
•
•
an increase in the MDs fixed pay from $1.25m per annum to $1.35m
per annum from the 1 September 2014 financial year;
an increase in the MDs target STI from 67% of fixed pay to 90% in
line with independent advice with the added definition of “target” being
broadly defined as the approved business plan including both financial
and non-financial measures which must include a level of stretch;
A reduction in the MDs maximum STI awardable from 160% to 150%
of fixed remuneration;
Deferral of 50% of the MDs STI into restricted equity vesting over
a 2 year period. This applies to all KMP once the full STI award is
greater than $100,000. (The issuance of restricted shares will require
appropriate shareholder approvals);
Confirmation of the LTI award cap at 100% of fixed pay for Performance
Award Rights; and
Retention of clawback on deferred STI and unvested LTI with complete
Board discretion.
As part of its role the Human Resources and Remuneration Committee has
also reviewed remuneration for:
•
significant movement in individual remuneration below the senior
executive level;
total remuneration cost to BOQ;
•
• moderation of performance rankings and payments;
•
spread of performance rankings and payments; and
•
remuneration equity by gender.
2013 Annual Report Specifically with regard to the 2013 remuneration review:
1. Key Management Personnel
Fixed remuneration increases have been restricted to those cases where it
was felt material misalignment existed following independent advice. In the
KMP group three individuals including the MD will receive fixed pay increases.
2013 has been a challenging year for the Board to determine appropriate
levels of STI for its senior executives specifically and for the Bank generally.
Whilst each KMP has financial and personal performance indicators and
these are scored, weighted and aligned to the relevant STI performance
level, the Board has complete discretion and overlay on formulaic results. In
determining this overlay we are conscious that realignment of the Bank for
the new environment may take several years to demonstrate differentiated
value for shareholders. Having said this the profit result has been strong
in comparison with a poor 2012 and with the 2013 budget. Further, whilst
the Cost to Income ratio is very close to budget there has been meaningful
improvement as compared to the 2012 year. In 2013 considerable KMP time
has been taken in strengthening the Bank’s processes and systems. This work
together with a strengthening of the Balance Sheet and a return to improved
levels of profitability has seen the Bank’s credit rating go from negative
watch to an upgrade from BBB+ to single A- and acts as a good indicator
of the general health of the business. Finally the committee considered both
the total return derived by shareholders in the 2013 financial year (TSR) and
the increase in market value of the Bank. In the current financial year the
TSR equated to 34.3% compared to 16.7% for the 2012 year. Additionally
the market capitalisation increased from $2.3bn to $3.1bn during the 2013
year. Consideration of these factors resulted in the Human Resources and
Remuneration Committee moderating awards calculated by the STI formula.
LTI has been awarded within the scheme’s caps and based on potential
and retention. We have noted that the majority of the executive team have
been with the Bank for less than two years and in general feel this is a
strong executive group capable of generating solid returns for shareholders.
Accordingly we have awarded PARs at 100% and DARs up to 15% of fixed
remuneration.
The pages which follow as part of the Board’s Remuneration Report reflect
the above context for remuneration and meet our disclosure obligations as
required by the Corporations Act. In an attempt to make the report more
readable we have shortened it this year in the hope that shareholders will
find the information more understandable. In future years we will continue to
take feedback from shareholders and their representatives.
DAVID WILLIS
CHAIRMAN OF THE HUMAN RESOURCES AND REMUNERATION COMMITTEE
2013 REMUNERATION REPORT - AUDITED
This Remuneration report is prepared for consideration by shareholders
at the 2013 Annual General Meeting of the Bank. It outlines the overall
remuneration strategy, framework and practices adopted by the Consolidated
Entity for the period 1 September 2012 to 31 August 2013 and has been
prepared in accordance with Section 300A of the Corporations Act 2001 and
its regulations.
Contents
1. Key management personnel
2. Remuneration governance
3. Remuneration policy
4. Executive remuneration framework
5. Non-executive Director remuneration framework
6. Remuneration disclosures
7. Executive contracts
8. Senior Manager’s options and rights
KMP include those Directors and executives that have authority and
responsibility for planning, directing and controlling the activities of the Bank
and the Consolidated Entity.
The KMP for the financial year ended 31 August 2013 are as follows:
(i) Directors
Current
Roger Davis
Chairman (Non-executive)
Stuart Grimshaw
Managing Director and Chief Executive Officer
Steve Crane
Carmel Gray
Director (Non-executive)
Director (Non-executive)
Michelle Tredenick
Director (Non-executive)
David Willis
Director (Non-executive)
Richard Haire
Director (Non-executive)
Neil Berkett
Director (Non-executive) (appointed 30 July 2013)
Former
Neil Summerson
Retired as Chairman (Non-executive) on 28 May
2013 and as a Director on 30 July 2013
John Reynolds
Retired as Director (Non-executive)
on 13 December 2012
(ii) Executives
Current
Jon Sutton
Chief Operating Officer
Anthony Rose
Chief Financial Officer
Peter Deans
Chief Risk Officer
Brendan White
Group Executive, Business Banking, Agribusiness &
Financial Markets
Matthew Baxby
Group Executive, Retail and Online Banking
Karyn Munsie
Julie Bale
Brian Bissaker
Former
Chris Nilon
Renato Mazza
Group Executive, Corporate Affairs,
Investor Relations & Government Relations
(appointed 19 November 2012)
Chief Information Officer
(appointed 17 December 2012)
Chief Executive Officer, Virgin Money
(appointed 30 April 2013)
Group Executive, IT & Operations
(until 20 December 2012)
Group Executive, Insurance
(until 27 February 2013)
2. Remuneration Governance
The Human Resources & Remuneration Committee makes recommendations
to the Board on remuneration policies and Directors’ and executives’
remuneration (which includes the Company Secretary). This Committee
considers remuneration issues regularly and obtains advice from external
independent remuneration specialists to assist in its deliberations.
Under the Consolidated Entity’s Human Resources & Remuneration
Committee Charter, the Committee undertakes to do the following:
•
Conduct annual reviews of the Consolidated Entity’s Remuneration
Policy to ensure compliance with the Consolidated Entity’s objectives
and relevant standards;
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DIRECTORS’ REPORT (CONTINUED) adjust to changes in the business cycle.
The Board’s objective is to ensure remuneration packages properly reflect
employees’ duties, responsibilities and levels of performance, as well as
ensuring that remuneration attracts and motivates people of the highest
calibre. The Consolidated Entity’s executive reward structure is therefore
designed to:
• Incentivise executives to pursue the short and long-term growth and
success of the Consolidated Entity within an appropriate risk control
framework;
• Demonstrate a clear relationship between executive performance and
remuneration;
• Provide sufficient rewards to ensure the Consolidated Entity attracts and
retains suitably qualified and experienced executives for key roles; and
• Ensure that an element of these rewards is deferred to assist in ensuring
appropriate risk based decision making and behaviour.
4. Executive Remuneration Framework
The remuneration structure in place for the KMP (including the MD) is
consistent with the Consolidated Entity’s Remuneration Policy and is based
on a total remuneration approach comprising an appropriate mix of fixed
(salary and benefits) and variable pay in the form of cash and equity-based
incentives. This equity portion is delivered over time and subject to continued
tenure of the participant, the performance of the Consolidated Entity and
compliance gateways.
4.1 Current remuneration framework
Total remuneration for the KMP (including the MD) consists of the following
three components:
• fixed remuneration;
• short term incentives - at-risk remuneration consisting of cash and
equity; and
• long term incentives - at-risk equity remuneration.
4.2 Fixed remuneration
The KMP (including the MD) are offered a competitive fixed component
of pay and rewards that reflect the core performance requirements and
expectations of their roles.
The level of fixed remuneration is approved by the Board and reviewed at
least annually, with reference to market data provided by remuneration
consultants, to ensure that it has regard to remuneration within the financial
services sector and those organisations serving similar customers. There
was no increase to fixed remuneration for all KMP in FY 2013.
KMP’s fixed remuneration is set out in Table 10 of this report.
• Review and provide recommendations to the Board on remuneration,
recruitment, retention and termination policies and procedures for
senior executives;
• Review and provide annual recommendations to the Board on the
individual remuneration arrangements of the MD, KMP and risk and
governance personnel (“Responsible Persons”);
• Review and provide annual recommendations to the Board on the
remuneration principles for employees in Group Risk, Credit, Finance
and Legal functions on a group basis;
• Review and provide recommendations to the Board on the remuneration
of any employees specified by Australia Prudential Regulation Authority
(“APRA”) as KMP or Responsible Persons;
• Review and provide recommendations to the Board on the remuneration
for all remaining groups of employees not otherwise specified; and
• Consider and approve Non-Executive Director (“NED”) remuneration,
including ensuring that the structure of NED remuneration is clearly
distinguished from senior executives.
The Human Resources & Remuneration Committee has undertaken to
ensure that the Remuneration Policy continues to adequately support the
Consolidated Entity’s overall risk management framework. This has resulted
in a review of the STI policy being conducted during FY 2013, as well as
the introduction of STI deferral into restricted shares for all KMP from the
FY 2013 award (subject to shareholder approval). The Human Resources &
Remuneration Committee meets at least six times per year and in the 2013
financial year nine meetings were held.
2.1 Use of External Advisors and Remuneration Consultants
Where necessary, the Board seeks advice from independent experts and
advisors including remuneration consultants. Remuneration consultants are
engaged by and report directly to the Human Resources & Remuneration
Committee which ensures, upon engagement, that the appropriate level of
independence exists from the Consolidated Entity’s management. Where the
consultant’s engagement requires a recommendation, the recommendation
is provided to, and discussed directly with the Chairman of the Human
Resources & Remuneration Committee to ensure management cannot
unduly influence the outcome.
During the year, the Board paid an amount of $60,060 to Egan Associates in
respect of remuneration advice covering a number of remuneration related
issues including benchmarking and determination of pay for the MD and
KMPs. Egan Associates provided no advice directly to management. The
Board is satisfied that remuneration advice made during the year are free
from undue influence by members of KMP to whom the advice relate.
3. Remuneration Policy
The remuneration arrangements for the Consolidated Entity employees are
designed to be competitive in each of the markets in which it competes
for talent and to vary accordingly from business to business, function to
function and among individuals. Fundamental to all arrangements is that
they contribute to the achievement of short and long-term objectives,
enhance shareholder value, avoid unnecessary or excessive risk-taking and
discourage behaviours that are contrary to the Consolidated Entity’s stated
values. The Human Resources & Remuneration Committee monitors and
reshapes remuneration programs to support these underlying objectives,
respond to proposed and enacted legislation and regulatory initiatives and
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2013 Annual Report 2013 REMUNERATION REPORT (CONTINUED)
4.3 Short term incentive - At-risk cash remuneration
The target award for each participant is stated as a percentage of total fixed
remuneration. For the 2013 STI Plan, the STI opportunity ranges are as
follows:
MD
COO,GE Business Banking, Agribusiness & Financial
Markets, GE Retail and Online Banking, GE Virgin Money
CRO & CFO
Other KMP
Table 1 provides an overview of the 2013 STI plan.
0 – 150%
0 – 140%
0 – 100%
0 – 100%
KMP, Responsible Persons and Senior Management participate in the 2013
STI Plan under which the participants receive payments in accordance
with specified quantifiable results and within appropriate risk management
parameters. The short term incentive links individual performance with that
of the Consolidated Entity. It is designed to ensure that the participants have
a performance focussed work environment whilst exercising an appropriate
level of risk.
Business objectives and the STI Plan design features are reviewed
annually by the Human Resources and Remuneration Committee prior to
the commencement of the plan year. Adjustments to the STI Plan have
been made in FY 2013 to ensure the inclusion of consistent KPIs from the
Executive team down throughout the Consolidated Entity, as well as improved
alignment between the business objectives going forward, and individual
KPIs of the MD and Executive team.
The Board has also reviewed the newly implemented deferral mechanism
and determined that (subject to appropriate shareholder approvals) deferral
for the KMP (including the MD) will be into shares subject to restrictions on
disposal from the FY 2013 STI award. The restricted shares will deliver the
participants dividends, but also provide an additional incentive to act in the
shareholder’s long-term interest over the deferral period. The decision to
release deferrals will be at the complete discretion of the Board and it may
request advice from the CRO.
Table 1
2013 STI Plan
Participants
Link between
performance
and award
2013 STI Plan
The 2013 STI Plan is an incentive plan under which participants have the opportunity to receive amounts in cash and equity, having
regard for quantifiable results achieved within appropriate risk management parameters.
KMP (including the MD), Responsible Persons and Senior Management, being those individuals who have the ability to influence
achievement of the Board’s objectives. KMP will have a higher STI opportunity and proportion of STI tied to the financial performance
of the Consolidated Entity than other less senior participants.
The performance hurdles for the KMP include:
• The Consolidated Entity’s performance against target NPAT;
• The Consolidated Entity’s cost to income ratio;
• Individual performance criteria; and
• Adherence with the Consolidated Entity’s risk framework and expected behaviours.
Net Profit After Tax
The NPAT hurdle is included as it is a direct and transparent measure of the financial performance of the Consolidated Entity. As the
level of NPAT increases, the quantum of STI payable in respect of the NPAT component increases.
NPAT also acts as a gateway for the other performance measures in the STI. Achievement of a threshold of 90% of target NPAT will
enable payment under the other measures based on performance against each specific measure. If performance does not meet the
NPAT threshold, no payment will be made in respect of the NPAT hurdle and payments under the other measures will be at the sole
discretion of the Board. In exercising this discretion the Board will have regard for a range of factors including performance against
the specific measures and TSR over the period.
Cost to Income Ratio
Participants will receive a percentage of the STI payment if the Consolidated Entity achieves its budgeted cost to income ratio,
increasing on a sliding scale as the ratio improves and decreasing as performance deteriorates.
The cost to income ratio is included as a measure within the STI to assist in driving cost management and discipline and align
participants with the financial growth of the Consolidated Entity. This measure directly aligns with the operational excellence
component of the Consolidated Entity’s strategy.
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DIRECTORS’ REPORT (CONTINUED) 2013 REMUNERATION REPORT (CONTINUED)
4.3 At-risk cash remuneration (continued)
Table 1
2013 STI Plan
Link between
performance
and award (continued)
Individual performance criteria
Personal performance measures are agreed annually and will generally be role specific. Individual performance criteria consider
multiple factors including individual behaviours, the business results and/or strategic accomplishments of the business or function,
and people management. These measures are selected to reflect the Consolidated Entity’s short-term and long-term strategy. The
KPIs for each participant are reviewed and moderated, where necessary by the Human Resources and Remuneration Committee.
Risk framework and expected behaviours
Participants are expected to demonstrate behaviours that reflect values and objectives of the Consolidated Entity as approved by the
Board, including adherence with the Consolidated Entity’s overall risk framework.
The STI continues to include specific risk KPI’s designed to ensure specified quantifiable results are achieved within appropriate
risk management parameters. The risk framework includes individual risk KPI’s and group KPI’s and are subject to Board oversight.
Failure to meet the risk KPI’s will result in modification, suspension or withdrawal of STI and will impact the participant’s deferred
amount, providing a mechanism for claw-back, where appropriate.
Performance period
Performance will be assessed over the financial year. Payments under the STI will generally be made in October, following
assessment of performance over the relevant performance period.
Deferral
Forfeiture
Once any STI payment exceeds $100,000, 50% of the total amount awarded is deferred. For KMP (including the MD), the deferral is
into restricted shares (subject to shareholder approval) for a period of 2 years (50% vesting at the end of year 1 and 50% at the end
of year 2). Restricted shares are ordinary BOQ shares held by a trustee on behalf of participants and subject to disposal restrictions
and eligible for receipt of dividends. The Board determined that delivery in equity would further align the KMP with shareholders.
The restricted shares will be released to the individual at the end of the deferral period subject to continued employment and the
Board determining that no “claw-back” events have occurred. The KMP are entitled to receive dividends on the restricted shares and
have shareholder voting rights. The Board retains discretion to determine what constitutes a “claw-back” event but such events can
include breaches of risk KPI’s and instances where there has been a material misstatement in the financial statements.
The STI award, including any outstanding deferred portion, is to be forfeited where the participant (other than the MD) ceases
employment with the Consolidated Entity for reasons other than death, retirement or genuine redundancy. The Board retains
discretion over the restricted share clawbacks. The MD’s restricted shares will lapse on termination of employment other than in
instances where he is terminated after a Fundamental Change in his role or is terminated on notice. Under these circumstances,
the restricted shares will be held and vest according to their vesting schedule.
The deferred portion of a MD / KMP STI award may also be forfeited where the Board determines that risk conditions have not been
met during the deferral period. Advice may be sought from the CRO in making this determination.
4.3.1 Performance against STI awarded
The STI awarded in FY 2013 was determined on the basis of the Consolidated Entity’s performance, the individual executive’s performance and TSR over the
financial year ended 31 August 2013, and are therefore deemed to be attributable to that financial year, although payment will not occur until October 2013 and
beyond for the deferred portion of STI. In considering the Consolidated Entity’s performance for the FY2013 STI plan, the Board had regard to the following:
Statutory net profit/(loss) after tax
Cash net profit after tax
Cash diluted earnings per share
Cash profit before bad debts
Cash cost to income ratio
Share price
Dividends paid
2013
$185.8m
$250.9m
76.0c
$477.4m
44.3%
$9.60
$179.9m
2012
$(17.1m)
$30.6m
7.9c
$443.5m
45.7%
$7.55
$151.7m
2011
$158.7m
$176.6m
66.7c
$447.4m
44.5%
$7.48
$125.7m
2010
$181.9m
$197.0m
83.4c
$379.0m
45.8%
$9.83
$120.8m
2009
$141.1m
$187.4m
98.4c
$315.0m
49.9%
$11.65
$120.2m
The Board reviewed the Consolidated Entity’s performance, and the performance of the MD and each KMP against individual KPIs (gateway, financial and non-
financial) agreed for each role. The Board discussed all of these inputs with a balance between actions and shareholder returns. During the year, the Consolidated
Entity improved its cash profit before bad debt by 8%, cost to income ratio reduced by 1.4%, earnings per share increased by 862%, bad and doubtful debt reduced
by 71% and its statutory net profit after tax improved by 1187% The share price increased from $7.55 at the beginning of the year to $9.60 at the end of the
year. During the 12 months to 31 August 2013, the cash earnings return to shareholders was 9.4%.
Based on this the STI award for the MD was paid at 75% of opportunity. The KMP were paid at between 45% and 75% of STI opportunity. All STI awards are pro
rata based on length of service during the 12 month period.
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2013 Annual Report 2013 REMUNERATION REPORT (CONTINUED)
4.4 At-risk equity remuneration
The Board reviews the structure and quantum of the long-term incentives
on an annual basis to ensure their effectiveness, and recognise the potential
impact of participants on the Consolidated Entity’s future performance. The
granting of equity assists to align the interests of the Executive with those
of the shareholder.
Executives, including the MD, participate in the 2013 Awards Rights Plan
under which the participants receive rights to acquire shares at zero cost
subject to achievement of performance and service conditions. No amount
is payable by employees for the grant or exercise of these award rights. The
Awards Rights Plan was approved by shareholders on 11 December 2008
and further ratified at the AGM on 8 December 2011.
There are two types of award rights that can be granted to executives under
the plan, Performance Award Rights (“PARs”) and Deferred Award Rights
(“DARs”). Eligibility, quantum and mix of DARs and PARs varies based upon
a participant’s accountabilities, contribution, potential and seniority.
Grants of PARs to executives align their interests with those of the
Consolidated Entity and its shareholders. This includes encouraging
behaviour that supports the risk management framework and the long-term
financial soundness of the Consolidated Entity that in turn supports long-
term performance. PARs have performance hurdles which will allow the
Board to ensure that incentives are aligned with the Consolidated Entity’s
future strategies and the interests of shareholders.
Table 2 provides an overview of the 2013 PARs Plan.
DARs are awarded to a broader group of employees and are designed to
promote employee retention and productivity. The number of DARs awarded
Table 2
Performance Award Rights (PARs)
to an individual employee depends on their position and relative performance
and potential as determined under the normal performance review and
development process undertaken for all employees.
Table 3 provides an overview of the 2013 DARs Plan.
The maximum LTI award for each KMP participant is stated as a percentage
of the executive’s total fixed remuneration. For the 2013 LTI Plan the Board
worked to a maximum face value of 15% of fixed remuneration for DARs and
100% of fixed remuneration for PARs.
In FY 2013, all KMP participating in the LTI plan received PARs, subject to
the TSR hurdle outlined in Table 2, and a smaller number of DARs. The MD
received only PARs under the 2013 Awards Rights Plan.
There are no voting rights attached to PARs and DARs awards. Upon
exercise of Award Rights, participants receive BOQ ordinary shares to which
voting rights are attached.
Through its security trading policy the Consolidated Entity has guidelines
restricting Directors and Executives dealing in Consolidated Entity securities.
This policy includes margin lending and hedging of risk associated with
directors’ and executives’ ownership of Consolidated Entity securities.
All employees are prohibited from entering into hedging arrangements in
relation to their unvested employee shares, securities or options.
The 2008 PARs tested in October 2011 did not vest at all, the 2009 PARs
which were tested in October 2012 vested at 50%.
Further details of the nature and amount of the major elements of
remuneration paid to each Director and KMP are detailed in Section 8.
2013 PARs Plan
Grants of PARs are made to KMP (including the MD) and other identified key senior executives due to the pivotal role they play in
achieving the longer-term business goals of the Consolidated Entity. The Board believes that part of the rewards for their services to
the Consolidated Entity should be performance-based, at risk and should involve equity interests in the Consolidated Entity.
Participants
MD, KMP and other identified key senior managers.
Link between
performance and award
PARs vest based on the Consolidated Entity’s TSR performance measured against a Peer Group over a 3 year period.
The Peer Group consists of the S&P / ASX 200 companies, excluding selected entities in the resources, real estate investment trusts,
offshore headquartered telecommunications, energy and utilities sectors, and incorporating such other inclusions and exclusions as
the Board considers appropriate. No changes have been made to this group since implementation of the scheme in 2008 other than
to reflect companies moving in or out of the ASX 200 or being delisted.
TSR is a measure of the entire return a shareholder would derive from holding an entity’s securities over a period, taking into
account factors such as changes in the market value of the securities and dividends paid over the period. The Board has selected
performance against TSR because it reflects the returns made to shareholders relative to other comparable securities and provides
a meaningful reward for executives where they outperform peers.
Vesting schedule
One half of an employee’s PARs vest if the Consolidated Entity’s TSR performance over the 3 year holding period is in the top 50% of
the Peer Group. All of the PARs vest if the Consolidated Entity’s TSR performance is in the top 25%. For TSR performance between
those targets, a pro-rata of the PARs between one half and 100% would vest.
None of the PARs vest if the Consolidated Entity’s TSR performance is in the bottom 50% of the Peer Group.
Performance period
The performance period is 3 years.
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DIRECTORS’ REPORT (CONTINUED) 2013 REMUNERATION REPORT (CONTINUED)
4.4 At-risk equity remuneration (continued)
Table 2
Forfeiture
Performance Award Rights
If an employee ceases employment for serious misconduct involving fraud or dishonesty, their PARs (whether exercisable or not) will
lapse. If an employee resigns or is terminated for other reasons, vested PARs may at the Boards option be exercised within 90 days of
the employee ceasing employment.
PARs which are not vested may, at the Board’s discretion, vest on a pro rata basis and become exercisable if the employment ceases for
reasons including a transfer of employment to an Owner-Managed Branch (“OMB”), retirement, redundancy, death, total and permanent
disablement. Otherwise, unvested PARs will lapse on cessation of employment for all KMP other than the MD and CRO with Board
approval.
Upon termination, unvested PARs held by the MD and CRO will remain on-foot and vest according to the vesting schedule and subject
to the performance hurdles. This ensures that these key executives remain aligned to and have regard for the financial performance of
the Consolidated Entity post-employment.
Table 3
Deferred Award Rights
2013 DARs Plan
Grants of DARs are generally awarded to a broader group of employees and are designed to promote employee retention and productivity.
A small number of DARs were granted to KMP (other than the MD) as part of the LTI arrangements during FY 2013.
Participants
Broader employee group which can include the MD and KMP.
Link between
performance and
award
DARs are linked with continued employment and adherence to risk management principles with the intent on focussing employees on the
Consolidated Entity’s performance and potential. The vesting conditions for DARs include continued employment with the Consolidated
Entity and meeting risk parameters.
Vesting schedule
DARs granted during FY2013 vest proportionately over 3 years in the ratio of 20% (end Year 1), 30% (end Year 2) and 50% (end Year 3).
Forfeiture
If an employee ceases employment for serious misconduct involving fraud or dishonesty, their DARs (whether exercisable or not) will
lapse. If an employee resigns or is terminated for other reasons, vested DARs may generally be exercised within 90 days of the employee
ceasing employment.
DARs which are not vested may, at the Board’s discretion, vest on a pro rata basis and become exercisable if the employment ceases
for reasons including a transfer of employment to an OMB, retirement, redundancy, death, total and permanent disablement. Otherwise,
unvested DARs will lapse on cessation of employment.
26
2013 Annual Report 2013 REMUNERATION REPORT (CONTINUED)
4.4.1 Vesting of LTI in FY2013
PARs or DARs that were granted under the LTI in prior years vested during
the current financial year in line with the relevant award rights plans.
4.5 Historical Equity Plans
The Consolidated Entity has a legacy Senior Manager Option Plan (“SMOP”).
No grants were made under the SMOP in FY 2013, however a brief
explanation has been included in the report due to options under the SMOP
remaining on issue during part of FY2013.
Each option under the SMOP conveys the right to acquire one ordinary fully
paid share on exercise, after payment to the Consolidated Entity of an exercise
price. The ability to exercise options under the SMOP was conditional upon
the Consolidated Entity achieving specific performance hurdles relating to
diluted EPS growth of the Consolidated Entity.
On 1 November 2012, all outstanding options under the SMOP lapsed such
that there are no longer any outstanding options under the SMOP as at 31
August 2013.
5. Non-Executive Director
Remuneration Framework
NEDs fees are set based upon the need to attract and retain individuals of
appropriate calibre. Fees are reviewed annually by the Human Resources and
Remuneration Committee having regard to advice provided by independent
remuneration specialists to ensure market comparability.
The Chairman’s fees are determined independently to the fees of other
directors and are also based upon information provided by independent
remuneration specialists. The Chairman is not present at any discussions
relating to the determination of his own remuneration.
In order to maintain independence and impartiality, NEDs do not receive any
performance related remuneration.
Fee Pool
NED fees are determined within an aggregate fee pool limit, which is
periodically recommended for approval by shareholders. The maximum
currently stands at $2,200,000 (inclusive of superannuation) and was
approved by shareholders on 9 December 2010.
There was no increase in directors’ fees for the 2013 financial year and the
prior financial year as the Board wanted to see an improved performance for
shareholders before requesting an increase.
Directors’ Annual Fees
Directors’ fees are generally reviewed every three years and may be
increased only by CPI annually during the interim period. The current NEDs
fees comprise:
Directors’ Annual Fees
Chairman
$
Members/
Directors
$
Fixed component of remuneration for Directors (1)
-
135,000
Chairperson (1) (2)
355,000
-
Additional remuneration is paid to Non-Executive
Directors for committee work:
Audit Committee
Risk Committee
45,000
17,500
45,000
17,500
Corporate Governance Committee (3)
15,000
10,000
Human Resources and Remuneration
Committee
Nomination Committee (3)
Budget Committee
Investment Committee
Due Diligence Committee
25,000
10,000
-
6,000
2,250
1,500(4)
2,250
1,500(4)
2,250
1,500(4)
Information Technology Committee
20,000
10,000
(1) Committee members received one fee for serving on both the Bank and the subsidiary committees.
During the financial year the St Andrew’s committee was established and separate fees were received
for serving on the Bank and St Andrew’s committees.
(2) The Chairman receives no additional remuneration for involvement with committees.
(3) During the financial year the Corporate Governance Committee and Nomination Committee merged
into one committee - Nomination and Governance Committee.
(4) Per deliberative meeting.
Equity Participation
NEDs do not receive shares, award rights or share options.
Retirement Benefits
NEDs are no longer provided with retirement benefits apart from statutory
superannuation. The accumulated value of NED retirement benefits was frozen
effective from 31 August 2003. The balance of the accrued benefits was
increased annually by an amount equivalent to the increase in CPI. The balance
of the accrued benefits is nil at 31 August as the final benefit was paid this
financial year.
6. Remuneration disclosures
The MD and KMP receive a mix of cash, deferred equity and long term
incentives which is tested over the following three years, depending on
service and performance. To assist shareholders in understanding the
actual amount of remuneration an executive received in the financial year in
review, the Board has again included in the remuneration disclosures a table
that provides a summary of the remuneration that the MD and KMP actually
received in relation to the 2013 financial year.
6.1 Non-Statutory remuneration disclosure
The tables below sets out:
• fixed remuneration (base remuneration, fringe benefits and employer
superannuation contributions);
• variable cash remuneration (split between the portion of the 2013 STI
paid in October 2013 and excluding the portion of the STI deferred until
FY 2014 and FY 2015);
• Other benefits and termination benefits; and
• the value of previous years’ long term incentive awards that vested
during the 2013 financial year.
These are non-statutory disclosures. The statutory disclosures for the year
ended 31 August 2013 are provided in Tables 6 to 9 and differ to these non-
statutory disclosures.
27
DIRECTORS’ REPORT (CONTINUED) 2013 REMUNERATION REPORT (CONTINUED)
6. Remuneration disclosures (continued)
Table 4 Non-statutory disclosures - STI disclosure for the MD, current and former KMP in relation to the FY 2013
STI at Target
Maximum STI Potential (1)
STI Paid (2)
STI Deferred Portion (3)
$
%
%
$
%
$
Current
Stuart Grimshaw
1,125,000
Jon Sutton
Anthony Rose
Peter Deans
Brendan White
Matthew Baxby
Karyn Munsie
Julie Bale
Brian Bissaker
525,000
331,250
318,000
450,000
393,750
233,200
185,500
412,500
150%
140%
100%
100%
140%
140%
100%
100%
140%
50%
50%
50%
50%
50%
50%
50%
50%
50%
703,125
367,500
213,750
210,950
287,350
247,950
128,900
79,200
60,950
50%
50%
50%
50%
50%
50%
50%
50%
50%
703,125
367,500
213,750
210,950
287,350
247,950
128,900
79,200
60,950
Additional information – Non Statutory Remuneration Methodology
(1) The maximum STI is represented as a percentage of fixed remuneration. The minimum STI potential is zero.
(2) Represents 50% of the annual STI award payable as cash in recognition of performance for the year ended 31 August 2013.
(3) This represents 50% of the STI award that is deferred until 1 October 2014 (50%) and 1 October 2015 (50%). The deferred awards are subject to Board review at the time of payment and
are deferred into restricted shares subject to vesting conditions.
Table 5 Non-statutory disclosures - Cash Remuneration received by the MD, current and former KMP in relation to the FY 2013
Previous Years’ Awards that Vested
during 2013 (3)
Awards rights Forfeited /
Lapsed during 2013 (4)
Base plus
superannuation
$ (1)
2013 STI
Performance
$ (2)
Total Cash Payments in
relation to the 2013 year
$
Deferred Cash
Awards
$
Deferred Equity
Awards
$
LTI Awards
$
Current
Stuart Grimshaw
1,293,464
Jon Sutton
Anthony Rose
Peter Deans
Brendan White
Matthew Baxby
Karyn Munsie
Julie Bale
Brian Bissaker
Former
Renato Mazza
Chris Nilon
708,017
616,211
609,028
600,098
529,234
361,780
249,387
190,298
183,811
116,245
703,125
367,500
213,750
210,950
287,350
247,950
128,900
79,200
60,950
-
-
1,996,589
1,075,517
829,961
819,978
887,448
777,184
490,680
328,587
251,248
183,811
116,245
-
-
-
48,500
-
25,750
-
-
-
-
971,098
367,868
-
685,887
396,968
-
-
-
-
-
-
-
-
-
-
-
-
30,000
-
42,620
51,151
(776,613)
(908,995)
(1) Base Remuneration and Superannuation make up an Executive’s fixed remuneration.
(2) This is the 50% of the 2013 STI for performance during the 12 months to 31 August 2013 (payable October 2013). The remaining 50% is deferred into restricted shares, 50% released at
12 months and 50% released at 24 months subject to approval of the Board.
(3) The value of all deferred cash (to be paid in October 2013) and / or equity awards (closing share price on vesting date) that vested during 2013 financial year. This includes the value of the
award that vested, plus any interest and / or dividends accrued during the vesting period. This excludes deferred equity awards granted in previous years which have not vested in FY13.
(4) The value of any deferred cash and / or equity awards (closing share price on forfeited / lapsed date )that were forfeited / lapsed during the 2013 financial year.
28
2013 Annual Report 2013 REMUNERATION REPORT (CONTINUED)
6.2 Statutory disclosures
The following tables include details of the nature and amount of each major element of the remuneration of each Director and KMP of the Consolidated Entity,
calculated in accordance with accounting standards. The amounts shown in Table 6 to Table 9 below may differ from those shown above in Table 4 and Table 5.
Table 6 Director’s Remuneration
Details of the nature and amount of each major element of the remuneration of each Director of the Consolidated Entity are as outlined in the table below.
Salary and fees
$
STI at risk
$
Short-term
Non-Monetary
benefits (1)
$
Other cash benefits (2)
$
Total
$
Post-employment
Other
long-term
Termination benefits
Share based payments
Rights(5)
$
Shares and units
$
1,276,857
1,040,972
703,125
484,000
79,807
80,907
-
520
2,059,789
1,606,399
3,389
1,426
526,996
292,969
2,899,750
193,237
1,814,042
161,379
165,417
250,429
175,458
194,410
207,750
187,000
166,651
172,717
170,619
214,875
55,895
14,719
64,792
218,208
137,500
288,668
355,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
161,379
165,417
250,429
175,458
194,410
207,750
187,000
166,651
172,717
170,619
214,875
55,895
14,719
64,792
218,208
137,500
288,668
355,000
(3)
$
16,607
12,980
14,447
14,888
19,198
15,791
16,698
15,939
16,539
14,981
15,542
15,300
16,806
5,031
1,131
6,863
15,939
12,375
14,119
15,939
(4)
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,415
44,621
178,045
S300A (1)(e)(i)
Proportion of
remuneration
performance
related
S300A (1)(e)(vi)
Value of options
and rights as
proportion of
remuneration
Total
$
175,826
180,305
269,627
191,249
211,108
223,689
203,539
181,632
188,259
185,919
231,681
60,926
15,850
73,070
234,147
194,496
480,832
370,939
%
53%
37%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
%
18%
11%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Executive Director
Stuart Grimshaw
Managing Director
Non-Executive Directors
Steve Crane
Roger Davis
Carmel Gray
Michelle Tredenick
David Willis
Richard Haire
Neil Berkett
(appointed 30 July 2013)
Former Directors
John Reynolds
(retired 13 Dec 2012)
Bill Kelty
(retired 31 July 2012)
Neil Summerson
(retired 30 July 2013)
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2013
2012
2012
2013
2012
(1) The Bank has also paid insurance premiums in respect of Directors’ and Officers’ Liability Insurance which is not reflected in the above table as there is no appropriate basis for allocation.
(2) This includes accrued annual leave paid out on retirement.
(3) This includes superannuation benefits, salary sacrificed benefits and interest which is accrued at the CPI rate on Director retirement benefits which was frozen effective from 31 August 2003.
(4) Comprises long service leave accrued or utilised during the financial year.
(5) The fair value of the options and rights is calculated at the date of grant using an industry accepted option pricing model and allocated to each reporting period evenly over the period from grant date to vesting date.
The value disclosed is the portion of the fair value of the rights allocated to this period.
29
DIRECTORS’ REPORT (CONTINUED)
Salary and fees
$
STI at risk
$
Other cash benefits (2)
Short-term
Non-Monetary
benefits (1)
$
1,276,857
1,040,972
703,125
484,000
79,807
80,907
Executive Director
Stuart Grimshaw
Managing Director
Non-Executive Directors
Steve Crane
Roger Davis
Carmel Gray
Michelle Tredenick
David Willis
Richard Haire
Neil Berkett
(appointed 30 July 2013)
Former Directors
John Reynolds
(retired 13 Dec 2012)
Bill Kelty
(retired 31 July 2012)
Neil Summerson
(retired 30 July 2013)
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2013
2012
2012
2013
2012
161,379
165,417
250,429
175,458
194,410
207,750
187,000
166,651
172,717
170,619
214,875
55,895
14,719
64,792
218,208
137,500
288,668
355,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
520
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
2,059,789
1,606,399
161,379
165,417
250,429
175,458
194,410
207,750
187,000
166,651
172,717
170,619
214,875
55,895
14,719
64,792
218,208
137,500
288,668
355,000
Post-employment
(3)
Other
long-term
(4)
$
$
16,607
12,980
14,447
14,888
19,198
15,791
16,698
15,939
16,539
14,981
15,542
15,300
16,806
5,031
1,131
6,863
15,939
12,375
14,119
15,939
3,389
1,426
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,415
-
44,621
178,045
-
Termination benefits
Share based payments
Rights(5)
$
Shares and units
$
Total
$
526,996
292,969
2,899,750
193,237
-
1,814,042
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
175,826
180,305
269,627
191,249
211,108
223,689
203,539
181,632
188,259
185,919
231,681
60,926
15,850
73,070
234,147
194,496
480,832
370,939
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30
S300A (1)(e)(i)
Proportion of
remuneration
performance
related
S300A (1)(e)(vi)
Value of options
and rights as
proportion of
remuneration
%
53%
37%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
%
18%
11%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2013 Annual Report 2013 REMUNERATION REPORT (CONTINUED)
Table 7 Key Management Personnel Remuneration
Details of the nature and amount of each major element of the remuneration of each KMP of the Consolidated Entity are as outlined in the table below.
Short-term
STI at risk deferred (2)
Other cash benefits (3)
Executives
Jon Sutton (8)
Anthony Rose (8)
Peter Deans (8)
Brendan White (8)
Matthew Baxby (8)
Karyn Munsie
(appointed 19 November 2012)
Julie Bale
(appointed 17 December 2012)
Brian Bissaker
(appointed 30 April 2013)
Former Executives
Renato Mazza
(until 27 February 2013)
Chris Nilon
(until 20 December 2012)
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2013
2013
2013
2012
2013
2012
Salary and fees
$
STI at risk (1)
$
691,410
111,704
599,604
74,401
592,421
243,026
583,491
244,371
512,627
149,024
349,022
367,500
-
213,750
-
210,950
97,000
287,350
179,000 (7)
247,950
51,500
128,900
238,396
79,200
184,860
60,950
175,355
350,418
110,881
349,526
-
60,000
-
67,500
$
-
-
-
-
-
97,000
-
-
-
51,500
-
-
-
-
60,000
-
67,500
$
Total
$
Post-employment (4)
Termination benefits
Share based payments
Options and rights(6)
Shares and units
$
$
Other
long-term
(5)
$
1,536
158
1,350
108
1,423
356
1,415
340
1,186
207
509
361
277
5,112
-
-
11,636
$
16,607
2,461
16,607
1,830
16,607
6,695
16,607
6,151
16,607
4,337
12,758
10,991
5,438
8,456
15,823
5,364
15,821
$
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
333,169
1,304,129
219,422
1,065,547
496,062
1,502,883
829,072
1,244,025
471,058
536,388
78,577
301,402
25,436
106,442
31,104
407,970
185,530
289,289
87,543
-
132,798
171,416
117,647
87,896
-
206,050
213,680
176,367
126,947
45,199
14,496
25,740
369,184
5,155
11,972
268,652
259,066
(175,863)
317,452
-
-
148,563
(47,525)
85,342
-
-
-
-
267,014
639,916
386,172
597,325
S300A (1)(e)(i)
S300A (1)(e)(vi) Value
Proportion of
remuneration
performance
related
of options
and rights as
proportion of
remuneration
%
25%
-
-
26%
31%
39%
29%
22%
31%
22%
32%
28%
27%
-
-
42%
37%
%
19%
24%
23%
12%
10%
6%
27%
22%
23%
19%
-
4%
2%
(66%)
23%
(12%)
14%
49,808
1,108,718
435,793
673,207
2,235,861
7,471
-
-
49,808
20,881
-
-
-
-
-
-
-
-
-
-
-
119,175
813,354
74,401
853,179
457,907
870,841
423,371
760,577
252,024
477,922
317,596
245,810
175,355
470,418
110,881
484,526
(1) STI at risk reflects 50% of the amounts paid or accrued in respect of the year ended 31 August 2013. Refer to “Executive remuneration framework” for a discussion
of the Bank’s short-term incentive arrangement.
(2) STI at risk deferred reflects 50% of the amounts to be paid equally in respect of 31 August 2012 in year ended 31 August 2013 and 31 August 2014 for the
compulsory two year deferral. Refer to “Executive remuneration framework” for a discussion of the Bank’s short-term incentive arrangement.
(3) This includes accrued annual leave paid out on retirement and other cash benefits.
(4) This includes superannuation and salary sacrificed benefits.
(5) Comprises long service leave accrued or utilised during the financial year.
(6) The fair value of the options and rights is calculated at the date of grant using an industry accepted option pricing model and allocated to each reporting period evenly
over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the options and rights allocated to this reporting period.
(7) This represents 100% of the 2012 STI at risk. This is a contractual obligation only for the first year of employment, subsequent amounts will revert to normal deferral
arrangements.
(8) The prior year figures variability are dependent on the executives start date and relate to part years.
31
DIRECTORS’ REPORT (CONTINUED)
Salary and fees
STI at risk (1)
Short-term
STI at risk deferred (2)
Other cash benefits (3)
367,500
-
49,808
1,108,718
Executives
Jon Sutton (8)
Anthony Rose (8)
Peter Deans (8)
Brendan White (8)
Matthew Baxby (8)
Karyn Munsie
(appointed 19 November 2012)
Julie Bale
(appointed 17 December 2012)
Brian Bissaker
(appointed 30 April 2013)
Former Executives
Renato Mazza
(until 27 February 2013)
Chris Nilon
(until 20 December 2012)
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2013
2013
2013
2012
2013
2012
$
691,410
111,704
599,604
74,401
592,421
243,026
583,491
244,371
512,627
149,024
349,022
175,355
350,418
110,881
349,526
213,750
210,950
97,000
287,350
179,000 (7)
247,950
51,500
128,900
$
-
-
-
-
238,396
79,200
184,860
60,950
-
97,000
51,500
$
-
-
-
-
-
-
-
-
-
-
-
60,000
60,000
67,500
67,500
7,471
-
49,808
20,881
$
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
119,175
813,354
74,401
853,179
457,907
870,841
423,371
760,577
252,024
477,922
317,596
245,810
175,355
470,418
110,881
484,526
Post-employment (4)
Other
long-term
(5)
$
$
16,607
2,461
16,607
1,830
16,607
6,695
16,607
6,151
16,607
4,337
12,758
10,991
5,438
8,456
15,823
5,364
15,821
1,536
158
1,350
108
1,423
356
1,415
340
1,186
207
509
361
277
-
5,112
-
11,636
S300A (1)(e)(i)
Proportion of
remuneration
performance
related
S300A (1)(e)(vi) Value
of options
and rights as
proportion of
remuneration
%
25%
-
26%
-
31%
39%
29%
22%
31%
22%
32%
28%
27%
-
42%
-
37%
%
19%
24%
23%
12%
10%
6%
27%
22%
23%
19%
-
4%
2%
(66%)
23%
(12%)
14%
Termination benefits
Share based payments
Options and rights(6)
Shares and units
$
$
Total
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
435,793
673,207
2,235,861
78,577
301,402
25,436
106,442
31,104
407,970
185,530
289,289
87,543
-
132,798
171,416
117,647
87,896
-
206,050
213,680
176,367
126,947
45,199
333,169
1,304,129
219,422
1,065,547
496,062
1,502,883
829,072
1,244,025
471,058
536,388
14,496
25,740
369,184
5,155
11,972
268,652
259,066
(175,863)
-
317,452
-
148,563
(47,525)
85,342
-
-
-
-
267,014
639,916
386,172
597,325
32
2013 Annual Report
REMUNERATION REPORT – AUDITED (CONTINUED)
6.3 Equity held by the MD and KMP
The movement during the 2013 financial year in the number of options and rights over ordinary shares held by each Executive Director and KMP, as part of their
remuneration, are as follows:
Table 8 Movement in options and rights held by the MD and KMP during FY 2013
KMP
Current
Type
Grant Date
Stuart Grimshaw
2011 PARs
Jon Sutton
2012 DARs
2013 PARs
2012 DARs
2012 PARs
13/10/2011
18/12/2012
01/03/2013
26/02/2012
26/02/2012
Restricted shares
26/02/2012
2012 DARs
2012 PARs
Anthony Rose
2012 DARs
2012 PARs
18/12/2012
18/12/2012
29/02/2012
29/02/2012
Restricted shares
29/02/2012
Peter Deans
2012 DARs
2012 PARs
2012 PARs
2012 DARs
2012 PARs
Brendan White
2012 DARs
2012 PARs
18/12/2012
18/12/2012
10/05/2012
18/12/2012
18/12/2012
10/02/2012
10/02/2012
Restricted shares
10/02/2012
2012 DARs
2012 PARs
Matthew Baxby
2012 DARs
2012 PARs
18/12/2012
18/12/2012
01/02/2012
01/02/2012
Restricted shares
01/02/2012
2012 DARs
2012 PARs
18/12/2012
18/12/2012
Julie Bale
2013 DARs
18/12/2012
Brian Bissaker
2013 PARs
14/05/2013
Share
Price at
Grant
Date $
8.10
7.26
9.13
7.48
7.48
7.48
7.26
7.26
7.34
7.34
7.34
7.26
7.26
6.89
7.26
7.26
7.33
7.33
7.33
7.26
7.26
7.44
7.44
7.44
7.26
7.26
7.26
9.68
Movements during the 2013 Financial Year
Balance at
1 September
2012
Granted (1) Exercised Lapsed
Balance at
31 August
2013 (1)
Vested and
Exercisable
Non-
Vested
Vested
during the
year (%) (2)
Forfeited
during the
year (%)
121,619
-
-
-
64,620
166,933
-
-
-
62,687
74,627
104,478
-
-
-
31,344
-
74,627
-
-
7,009
56,075
-
-
-
-
30,030
-
-
-
-
-
-
-
-
6,258
50,067
-
6,173
48,064
30,030
75,075
30,030
-
-
69,061
-
-
75,574
67,476
40,486
-
-
-
37,787
-
40,486
-
-
6,258
50,067
36,982
73,964
29,586
-
-
-
-
-
-
-
5,257
42,056
8,010
31,748
-
-
-
-
29,586
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
121,619
64,620
166,933
31,343
74,627
29,851
7,009
56,075
30,030
75,075
-
6,258
50,067
69,061
6,173
48,064
37,787
67,476
-
6,258
50,067
36,982
73,964
-
5,257
42,056
8,010
31,748
-
-
-
-
-
-
-
-
15,015
-
-
-
-
-
-
-
-
-
-
-
-
18,491
-
-
-
-
-
-
121,619
64,620
166,933
31,343
74,627
29,851
7,009
56,075
15,015
75,075
-
-
-
50%
-
71%
-
-
50%
-
-
100%
6,258
50,067
69,061
6,173
48,064
37,787
67,476
-
-
-
-
-
50%
-
-
100%
6,258
50,067
18,491
73,964
-
-
-
-
-
100%
5,257
42,056
8,010
31,748
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) This represents the maximum number of award rights that may vest to each executive.
(2) Percentage of initial rights granted.
33
DIRECTORS’ REPORT (CONTINUED)
2013 REMUNERATION REPORT (CONTINUED)
6.3 Equity held by the MD and KMP (continued)
Table 8 Movement in options and rights held by the MD and KMP during FY 2013
Share
Price at
Grant
Date $
Balance at
1 September
2012
Movements during the 2013 Financial Year
Granted
Exercised
Lapsed
Balance at
31 August
2013
Vested and
Exercisable
Non-
Vested
Vested
during the
year (%) (1)
Forfeited
during the
year (%)
19.44
11.30
11.30
11.45
11.19
11.45
7.71
7.26
7.26
11.45
11.45
7.71
7.26
7.26
50,000
1,162
4,490
2,733
1,329
5,693
21,283
-
-
-
-
-
-
-
-
-
3,655
22,063
5,693
33,207
22,195
-
-
-
-
-
3,655
21,929
-
50,000
1,162
2,425
2,176
1,159
-
-
-
-
4,746
-
-
356
-
-
2,065
557
170
5,693
21,283
3,655
22,063
947
33,207
22,195
3,299
21,929
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
20%
54%
64%
44%
-
-
-
-
67%
-
-
10%
-
-
46%
16%
6%
100%
100%
100%
100%
13%
100%
100%
90%
100%
KMP
Type
Grant Date
Former
Chris Nilon
Options
2009 DARs
2009 PARs
2010 DARs
01/11/2007
24/12/2009
24/12/2009
29/11/2010
2010 May DARs
28/05/2010
2010 PARs
2011 PARs
29/11/2010
16/12/2011
2012 DARs
18/12/2012
2012 PARs
18/12/2012
Renato Mazza
2010 DARs
29/11/2010
2010 PARs
2011 PARs
29/11/2010
16/12/2011
2012 DARs
18/12/2012
2012 PARs
18/12/2012
(1) Percentage of initial rights granted.
34
2013 Annual Report
2013 REMUNERATION REPORT (CONTINUED)
6.3 Equity held by the MD and KMP (continued)
The table below shows the total value of any options and rights that were granted, exercised or lapsed to the MD and KMP.
Table 9 Value of rights and options held by the MD and KMP during FY 2013
KMP
Current
Stuart Grimshaw
Jon Sutton
Anthony Rose
Peter Deans
Brendan White
Matthew Baxby
Grant
Grant Date
2011 PARs
2012 DARs
2012 PARs
13/10/2011
18/12/2012
01/03/2013
2012 DARs
2012 PARs
Restricted shares
26/02/2012
26/02/2012
26/02/2012
2012 DARs
2012 PARs
2012 DARs
2012 PARs
Restricted shares
2012 DARs
2012 PARs
2012 PARs
2012 DARs
2012 PARs
2012 DARs
2012 PARs
Restricted shares
2012 DARs
2012 PARs
2012 DARs
2012 PARs
Restricted shares
2012 DARs
2012 PARs
18/12/2012
18/12/2012
29/02/2012
29/02/2012
29/02/2012
18/12/2012
18/12/2012
10/05/2012
18/12/2012
18/12/2012
10/02/2012
10/02/2012
10/02/2012
18/12/2012
18/12/2012
01/02/2012
01/02/2012
01/02/2012
18/12/2012
18/12/2012
Julie Bale
2012 DARs
18/12/2012
Brian Bissaker
2013 PARs
14/05/2013
Fair value
per right
at grant
date
$
Value at
grant date
$ (1)
Exercise Date
Exercise
price
$ (2)
Value at
Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Value at
Expiry /
Lapsing
Date (2)
$
5.36
6.55
2.73
6.60
5.18
6.70
6.20
1.74 (4)
6.60
5.18
6.66
6.20
1.74 (4)
3.70
6.20
1.74 (4)
6.60
5.18
7.41
6.20
1.74 (4)
6.60
5.18
6.76
6.20
1.74 (4)
6.20
2.39
651,878
423,261
455,727
413,734
386,568
700,000
43,456
97,571
198,198
388,888
200,000
38,800
87,117
255,526
38,273
83,631
498,788
349,526
300,000
38,800
87,117
244,081
383,134
200,000
32,593
73,177
49,662
75,878
-
-
-
01/05/2013
-
05/01/2013
07/07/2013
-
-
-
-
31/10/2012
-
-
-
-
-
01/05/2013
-
31/10/2012
-
-
-
-
31/10/2012
-
-
-
-
-
-
-
9.93
-
7.61
8.88
-
-
-
-
7.58
-
-
-
-
-
9.93
-
7.58
-
-
-
-
7.58
-
-
-
-
-
-
-
13/10/2016
18/12/2017
18/12/2017
311,246
-
227,166
397,611
-
-
-
-
227,627
-
-
-
-
-
375,225
-
306,884
-
-
-
-
224,262
-
-
-
-
05/05/2017
16/12/2017
09/01/2014
09/01/2014
18/12/2017
18/12/2017
05/05/2017
16/12/2017
21/09/2012
18/12/2017
18/12/2017
16/12/2017
18/12/2017
18/12/2017
05/05/2017
16/12/2017
31/10/2012
18/12/2017
18/12/2017
05/05/2017
16/12/2017
31/10/2012
18/12/2017
18/12/2017
18/12/2017
18/12/2018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Represents rights held at 1 September 2012 or granted during the 2013 financial year.
(2) Closing share price on exercise of rights, rights have a nil exercise price.
(3) Closing share price on exercise, expiry date and balance date multiplied by the number of rights exercised or lapsed during the year.
(4) The fair value was based on a valuation period from 18 October 2012 to grant date. The Bank’s total shareholder return over this period was below the peer group, decreasing the vesting probability and reducing the fair
value calculation.
35
DIRECTORS’ REPORT (CONTINUED)
2013 REMUNERATION REPORT (CONTINUED)
6.3 Equity held by the MD and KMP (continued)
Table 9 Value of rights and options held by the MD and KMP during FY 2013
KMP
Former
Chris Nilon
Renato Mazza
Grant
Grant Date
Options
2009 DARs
2009 PARs
2010 DARs
2010 May DARs
2010 PARs
2011 PARs
2012 DARs
2012 PARs
2010 DARs
2010 PARs
2011 PARs
2012 DARs
2012 PARs
01/11/2007
24/12/2009
24/12/2009
29/11/2010
28/05/2010
29/11/2010
16/12/2011
18/12/2012
18/12/2012
29/11/2010
29/11/2010
16/12/2011
18/12/2012
18/12/2012
Fair value
per option
or right
at grant
date
$
2.57
10.40
6.93
11.17
10.11
7.81
5.18
6.20
1.74
11.17
7.81
5.18
6.20
1.74
Value at
grant date
$ (1)
Exercise Date
Exercise
price
$
Value at
Exercise
Date (2)
$
Expiry /
Lapsing
Date
128,500
30,212
31,116
38,157
21,494
44,462
110,246
22,661
38,390
-
14/01/2013
14/11/2012
14/01/2013
14/01/2013
-
-
-
-
79,486
259,347
114,970
22,661
38,156
21/03/2013
-
-
21/03/2013
-
19.11
7.75
7.35
7.75
7.75
-
-
-
-
9.46
-
-
9.46
-
-
9,006
17,824
16,864
8,982
-
-
-
-
44,897
-
-
3,368
-
01/11/2012
11/03/2013
11/03/2013
11/03/2013
11/03/2013
11/03/2013
11/03/2013
11/03/2013
11/03/2013
18/05/2013
18/05/2013
18/05/2013
18/05/2013
18/05/2013
Value at
Expiry /
Lapsing
Date (2)
$
373,000
-
19,948
5,381
1,642
54,994
205,594
35,307
213,129
9,015
316,131
211,296
31,406
208,764
(1) Represents options and rights held at 1 September 2012 or granted during the 2013 financial year.
(2) Closing share price on exercise, expiry date and balance date, respectively, multiplied by the number of rights exercised, lapsed during the year or value at balance date.
36
2013 Annual Report
2013 REMUNERATION REPORT (CONTINUED)
7. Executive Contracts
The remuneration and terms of the MD and other KMP are formalised in their employment agreements. Each of these employment agreements provide for the
payment of fixed and performance-based remuneration, superannuation and other benefits such as statutory leave entitlements.
Table 10 KMP Notice Periods
KMP
Term of agreement
$
Fixed Annual
Remuneration
Notice period by
executive
Notice period by the
Consolidated Entity
Stuart Grimshaw
Jon Sutton
Anthony Rose
Peter Deans
Brendan White
Matthew Baxby
Karyn Munsie
Julie Bale
Brian Bissaker
Open
Open
Open
Open
Open
Open
Open
Open
Open
1,250,000
6 months
6 months
700,000
3 months
3 months
625,000
3 months
3 months
600,000
3 months
3 months
600,000
3 months
3 months
525,000
3 months
3 months
440,000
3 months
3 months
350,000
3 months
3 months
550,000
3 months
3 months
Termination payment
12 months base pay
(including notice period)
9 months base pay
(including notice period)
9 months base pay
(including notice period)
6 months base pay
(including notice period)
9 months base pay
(including notice period)
9 months base pay
(including notice period)
9 months base pay
(including notice period)
9 months base pay
(including notice period)
9 months base pay
(including notice period)
As part of the contractual sign-on arrangements, Stuart Grimshaw received an allocation of PARS based on an allocation of $1 million at the volume weighted
average of shares after announcement of the FY11 financial results. These PARS vest over three years subject to satisfaction of the relevant performance hurdle.
Details of restricted shares that were provided to KMP that joined the Consolidated Entity as part of their sign-on arrangements are included in Table 8.
During the year, Chris Nilon and Renato Mazza departed the Consolidated Entity and received payments based on their contractual and statutory entitlements.
Neither executive received a termination benefits in excess of 12 months base salary. Details of the payments made to the executives are included in Table 7.
37
DIRECTORS’ REPORT (CONTINUED) 2013 REMUNERATION REPORT (CONTINUED)
8. Senior Managers’ options and rights
Type
Grant Date
Expiry Date
Granted
Lapsed
during
the year
Exercised
during the
year
Balance at
31 August
2013
Vested (1)
Vesting Date
DARs
2008 DARs
29 June 2009
29 June 2014
269,072
5,609
6,928
2,339
6,215
17 December 2009
16 December 2010
15 December 2011
2009 DARs
24 December 2009
23 December 2014
403,294
4,210
57,626
6,690
6,696
16 December 2010
2010 DARs
28 May 2010
28 May 2015
41,809
3,080
14,946
2,320
2,320
15 December 2011
20 December 2012
2 May 2011
7 May 2012
6 May 2013
2010 DARs
29 November 2010
29 November 2015
400,892
22,105
99,383
118,525
12,281
15 December 2011
20 December 2012
19 December 2013
2011 DARs
16 December 2011
16 December 2016
466,128
71,285
96,766
266,506
13,383
20 December 2012
2012 DARs
February 2012
5 May 2017
233,723
-
83,356
150,367
33,506
19 December 2013
19 December 2014
3 May 2013
2 May 2014
2012 DARs
18 December 2012
18 December 2017
436,595
29,277
3,204
404,114
-
19 December 2013
19 December 2014
19 December 2015
2012 DARs
18 December 2012
18 December 2017
64,620
-
-
64,620
-
19 December 2013
PARs (4)
2008 PARs
29 June 2009
29 June 2014
429,292
2009 PARs
24 December 2009
23 December 2014
192,810
47,706
41,354
-
2010 PARs
29 November 2010
29 November 2015
561,909
122,155
-
149,148
2010 PARs
25 January 2011
25 January 2016
18,975
2011 PARs
13 October 2011
13 October 2016
121,619
-
-
-
-
-
121,619
2011 PARs
16 December 2011
16 December 2016
359,632
108,270
-
128,344
2012 PARs
February 2012
16 December 2017
311,057
2012 PARs
10 May 2012
16 December 2017
69,061
-
-
-
311,057
-
69,061
2012 PARs
18 December 2012
18 December 2017
564,571
74,671
-
489,900
2013 PARs
1 March 2013
18 December 2017
166,933
2013 PARs
14 May 2013
18 December 2018
37,789
-
-
-
166,933
-
37,789
19 December 2014
n/a
18 October 2012
Date of release of
financial results in
October 2013
n/a
Date of release of
financial results in
October 2014
Date of release of
financial results in
October 2014
Date of release of
financial results in
October 2015
Date of release of
financial results in
October 2015
Date of release of
financial results in
October 2015
Date of release of
financial results in
October 2015
Date of release of
financial results in
October 2016
-
-
-
-
-
-
-
-
-
-
(1) The number of rights vested during the year under the Award Rights Plan at the discretion of the Directors, as permitted under the terms of the plan.
(2) PARs vest based on the Consolidated Entity’s TSR performance measured against a Peer Group over a 3 year period.
(3) Valued using the Monte Carlo simulation approach.
(4) The ability to exercise the PARs is conditional on the Bank achieving certain market performance hurdles. Refer to “Executives Remuneration Framework” for further details.
38
Fair value
per right
at grant
date (3)
$
Vesting
Percentage
(2)
20%
30%
50%
50%
30%
20%
20%
30%
50%
20%
30%
50%
20%
30%
50%
50%
50%
20%
30%
50%
50%
50%
100%
100%
100%
100%
100%
7.59
10.40
10.11
11.17
6.60
6.60
6.20
6.55
4.59
6.93
7.81
7.81
5.36
100%
5.18
100%
5.18
100%
3.70
100%
1.74
100%
2.73
100%
2.39
2013 Annual Report
DIRECTORS’ REPORT (CONTINUED)
Indemnification of officers
The Bank’s Constitution provides that all officers of the Bank are indemnified
by the Bank against liabilities incurred by them in the capacity of officer to
the full extent permitted by the Corporations Act 2001.
Insurance of Officers
Since the end of the previous financial year the Bank has paid insurance
premiums in respect of a Directors’ and Officers’ liability insurance contract.
The contract insures each person who is or has been a Director or executive
officer (as defined in the Corporations Act 2001) of the Bank against certain
liabilities arising in the course of their duties to the Bank and its controlled
entities. The Directors have not included details of the nature of the liabilities
covered or the amount of the premium paid in respect of the insurance
contract as such disclosure is prohibited under the terms of the contract.
Directors’ interests
Directors’ interests as at the date of this report were as follows:
Director
Stuart Grimshaw
Steve Crane
Roger Davis
Carmel Gray
Michelle Tredenick
David Willis
Richard Haire
Neil Berkett (1)
Ordinary Shares
3,506
25,678
15,235
10,946
2,433
1,512
4,000
10,600
(1) Neil Berkett was appointed as a Non-Executive Directive on 30 July 2013.
Audit services – KPMG Australia
- Audit and review of the financial reports
- Other regulatory and audit services
Audit related services – KPMG Australia
- Other assurance services (1)
Non-audit services – KPMG Australia
- Taxation services
- Compliance services
- Other
- Due diligence services
Audit and Non–audit services
During the year KPMG, the Bank’s auditor, has performed certain other
services in addition to their statutory duties. The Board has considered the
non-audit services provided during the year by the auditor are in accordance
with written advice provided by resolution of the Audit Committee, and is
satisfied that the provision of those non-audit services during the year
by the auditor is compatible with, and did not compromise, the auditor’s
independence requirements of the Corporations Act 2001 for the following
reasons:
•
all non-audit services were subject to the corporate governance
procedures adopted by the Bank and have been reviewed by the Audit
Committee to ensure they do not impact the integrity and objectivity of
the auditor; and
• the non-audit services provided do not undermine the general principles
relating to auditor’s independence as set out in APES 110 Code of
Ethics for Professional Accountants, as they did not involve reviewing
or auditing the auditor’s own work, acting in a management or decision
making capacity for the Bank, acting as an advocate for the Bank or
jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Bank, KPMG and its related
practices for audit and non-audit services provided during the year are set
out below:
Consolidated
Bank
2013
$000
2012
$000
2013
$000
2012
$000
919.8
342.2
1,262.0
230.2
230.2
225.1
249.2
88.7
64.5
627.5
1,127.1
532.6
1,659.7
123.9
123.9
222.5
-
75.6
103.2
401.3
595.9
182.2
778.1
-
-
225.1
249.2
72.6
64.5
611.4
818.3
346.1
1,164.4
-
-
218.2
-
75.6
103.2
397.0
(1) Other assurance services comprise audit related services provided in relation to mortgage securitisation trusts which are consolidated under Australian Accounting Standards.
39
DIRECTORS’ REPORT (CONTINUED) Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on page 41 and forms
part of the Directors’ report for the year ended 31 August 2013.
Rounding of amounts
The Bank is a company of a kind referred to in ASIC Class Order 98/100
dated 10 July 1998 (as amended by Class Order 04/667 dated 15 July
2004) and in accordance with that Class Order, amounts in this financial
report and Directors’ report have been rounded off to the nearest million
dollars, unless otherwise stated.
Dated at Brisbane this ninth day of October 2013.
Signed in accordance with a resolution of the Directors:
Roger Davis
Chairman
Stuart Grimshaw
Managing Director
40
2013 Annual Report Lead Auditor’s Independence Declaration
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To the Directors of Bank of Queensland Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 31 August 2013 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Martin McGrath
Partner
Brisbane 9 October 2013
KPMG, an Australian partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards
Legislation.
41
INCOME STATEMENTS
Year ended 31 August 2013
Interest income
Less: Interest expense
Net interest income
Other operating income
Net banking operating income
Premiums from insurance contracts
Investment revenue
Claims and policyholder liability expense from insurance contracts
Net insurance operating income
Total operating income
Less: Expenses
Less: Impairment on loans and advances
Profit/(Loss) before income tax
Less: Income tax expense/(benefit)
Profit/(Loss) for the year
Profit / (Loss) attributable to:
Equity holders of the parent
Basic earnings per share - Ordinary shares (cents)
Diluted earnings per share - Ordinary shares (cents)
The income statements should be read in conjunction with the accompanying notes.
Consolidated
Bank
2013
$m
2,297.4
1,604.3
2012
$m
2,596.2
1,944.7
693.1
122.5
815.6
70.2
5.8
(35.7)
40.3
855.9
465.5
114.6
275.8
90.0
185.8
651.5
111.5
763.0
76.0
7.4
(42.1)
41.3
804.3
422.6
401.0
(19.3)
(2.2)
(17.1)
2013
$m
2012
$m
2,236.6
1,711.1
525.5
218.8
744.3
-
-
-
-
744.3
418.9
87.2
238.2
68.5
169.7
2,549.2
2,086.7
462.5
235.7
698.2
-
-
-
-
698.2
369.7
359.9
(31.4)
(27.6)
(3.8)
185.8
(17.1)
169.7
(3.8)
58.4
57.2
(10.2c)
(10.2c)
Note
4
4
4
4
4
5
13
6
8
8
42
2013 Annual Report STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
Year ended 31 August 2013
Profit / (Loss) for the year
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Cash flow hedges:
Net gains / (losses) taken to equity
Net (gains) / losses transferred to profit and loss
Foreign currency translation differences on foreign operations
Net (losses) / gain on hedge of net investment in foreign operation
Change in fair value of assets available for sale
Other comprehensive income / (expense) for the year, net of income tax
Total comprehensive income / (expense) for the year
Consolidated
Bank
2013
$m
185.8
2012
$m
(17.1)
2013
$m
169.7
2012
$m
(3.8)
11.9
(0.9)
1.6
(1.6)
(4.2)
6.8
192.6
(18.8)
0.2
(0.6)
0.8
6.2
(12.2)
(29.3)
(3.1)
(0.9)
-
-
(3.9)
(7.9)
161.8
8.1
0.2
-
-
8.9
17.2
13.4
Total comprehensive income / (expense) attributable to:
Equity holders of the parent
192.6
(29.3)
161.8
13.4
The statements of comprehensive income should be read in conjunction with the accompanying notes.
43
BALANCE SHEETS
Year ended 31 August 2013
Assets
Cash and liquid assets
Due from other financial institutions
Other financial assets
Derivative financial instruments
Loans and advances at amortised cost
Current tax assets
Other assets
Shares in controlled entities
Property, plant and equipment
Deferred tax assets
Intangible assets
Investments accounted for using the equity method
Total assets
Liabilities
Due to other financial institutions
Deposits
Derivative financial instruments
Accounts payable and other liabilities
Current tax liabilities
Provisions
Insurance policy liabilities
Borrowings including subordinated notes
Amounts due to controlled entities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total Equity
The balance sheets should be read in conjunction with the accompanying notes.
Consolidated
Bank
2013
$m
873.2
118.5
5,401.4
260.4
2012
$m
670.5
119.7
5,689.4
276.1
2013
$m
242.2
23.8
5,603.0
234.0
2012
$m
227.7
23.5
5,776.9
276.1
34,989.3
34,147.2
31,491.2
30,654.6
-
129.1
-
37.8
104.5
592.7
21.4
0.7
113.4
-
38.5
125.7
554.6
22.2
-
276.7
975.7
26.4
95.5
71.5
-
1.5
277.9
933.1
26.1
104.9
59.3
-
42,528.3
41,758.0
39,040.0
38,361.6
201.1
177.8
201.1
177.8
31,698.7
31,171.9
31,785.5
31,288.7
137.4
362.0
23.0
78.9
72.5
253.0
450.4
-
44.1
73.5
7,136.9
6,688.1
-
-
109.5
320.7
23.1
68.7
-
1,312.8
2,457.5
130.3
404.8
-
33.5
-
895.3
2,553.6
39,710.5
38,858.8
36,278.9
35,484.0
2,817.8
2,899.2
2,761.1
2,877.6
2,562.6
2,660.1
2,564.2
2,666.0
111.1
144.1
106.2
132.9
95.3
101.6
105.1
106.5
2,817.8
2,899.2
2,761.1
2,877.6
Note
9
10
11
26
12
14
31
15
16
17
37
18
19
26
20
35
21
44
2013 Annual Report STATEMENTS OF CASH FLOWS Year ended 31 August 2013
Consolidated
Bank
Note
2013
$m
2012
$m
2013
$m
2012
$m
2,303.3
2,567.0
2,058.8
2,317.7
For the year ended 31 August 2013
Cash flows from operating activities
Interest received
Fees and other income received
Dividends received
Interest paid
Cash paid to suppliers and employees
Operating income tax paid
(Increase) / decrease in operating assets:
Loans and advances at amortised cost
Other financial assets
21
27
31
Increase / (decrease) in operating liabilities:
Deposits
Securitisation liabilities
Net cash from operating activities
Cash flows from investing activities
Acquisition of Virgin Money (Australia) Pty Limited
Payments for property, plant and equipment
Payments for intangible assets
Cash distribution received from equity accounted investments
Capital contribution for equity accounted investments
Proceeds from sale of property, plant and equipment
Net cash from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Cost of capital issues
Proceeds from borrowings and foreign exchange instruments
Net proceeds from issue of Convertible Preference Shares (“CPS”)
21
Redemption of PEPS
Proceeds from other financing activities
Repayment of other financing activities
Repayments of borrowings
Payments for treasury shares
Dividends paid
Dividends received
Net cash from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and liquid assets at beginning of year
Cash and liquid assets at end of year
9
The statements of cashflows should be read in conjunction with the accompanying notes.
45
170.0
1.1
181.6
0.8
(1,604.4)
(2,085.5)
(393.0)
(48.3)
428.7
(966.9)
280.2
543.8
(65.2)
220.6
(5.9)
(17.0)
(31.1)
2.4
(0.5)
5.3
(46.8)
-
-
1,631.2
111.8
(19.9)
-
-
(382.9)
(153.4)
127.6
(1,279.2)
(517.2)
1,541.5
283.3
156.0
-
(10.4)
(21.7)
6.7
-
3.9
(21.5)
450.3
(10.4)
984.4
-
-
-
-
212.3
1.1
(1,701.1)
(367.3)
(45.8)
158.0
(1,037.1)
150.6
509.6
-
(218.9)
(5.9)
(8.3)
(30.7)
-
-
0.5
(44.4)
-
-
1,631.0
111.8
(19.9)
766.8
(541.2)
130.1
0.8
(2,231.4)
(338.4)
(151.7)
(272.9)
(1,115.7)
(551.8)
1,462.9
-
(477.5)
-
(9.7)
(18.2)
-
-
0.9
(27.0)
450.3
(10.4)
983.5
-
-
612.5
(278.3)
-
(111.9)
-
28.9
202.7
670.5
873.2
(3.8)
(88.8)
-
102.8
237.3
433.2
670.5
-
(111.9)
23.3
277.8
14.5
227.7
242.2
(3.8)
(88.8)
24.2
462.6
(41.9)
269.6
227.7
21
(1,582.3)
(1,228.9)
(1,582.1)
(1,226.6)
STATEMENTS OF CHANGES IN EQUITY
Year ended 31 August 2013
Consolidated
Ordinary
shares
Perpetual
Equity
Preference
shares
Employee
benefits
reserve
Equity
reserve
for credit
losses
Cashflow
hedge
reserve
Translation
reserve
Available
for sale
reserve
Retained
profits
Total
equity
Year ended 31 August 2013
$m
$m
$m
$m
$m
$m
$m
$m
$m
Balance at beginning of the year
2,464.4
195.7
33.3
70.2
(10.6)
0.6
12.7
132.9
2,899.2
Total comprehensive income for the year
Profit
-
-
-
-
-
-
-
185.8
185.8
Other comprehensive income, net of
income tax
Cash flow hedges:
Net gains taken to equity
Net gains transferred to profit and
loss
Net loss on hedge of net investment in
foreign operation
Foreign currency translation differences
on foreign operations
Change in fair value of assets available
for sale
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Exchange to CPS (1)
(4.3)
(175.8)
Redemption of Perpetual Preference
Shares (“PEPs”) (1)
-
(19.9)
Dividend reinvestment plan
62.7
Dividends to shareholders
Dividends to PEPs
Equity settled transactions
Treasury Shares (2)
Acquisition of Virgin Money (Australia)
Pty Limited (3)
Total contributions by and distributions
to owners
-
-
-
7.0
32.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1.9)
-
-
98.2
(195.7)
(1.9)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11.9
(0.9)
-
-
-
11.0
11.0
-
-
-
-
-
-
-
-
-
-
-
(1.6)
1.6
-
-
-
-
-
(4.2)
(4.2)
-
-
11.9
(0.9)
-
(1.6)
-
-
-
1.6
(4.2)
6.8
-
-
-
-
-
-
-
-
-
-
-
(4.2)
185.8
192.6
-
-
-
-
(180.1)
-
(19.9)
-
62.7
-
(168.7)
(168.7)
-
-
-
-
(5.9)
-
-
-
(5.9)
(1.9)
7.0
32.8
-
(174.6)
(274.0)
Balance at the end of the year
2,562.6
-
31.4
70.2
0.4
0.6
8.5
144.1
2,817.8
(1) On 24 December 2012, 1,801,339 PEPS shares were reinvested into CPS and the remaining 198,661 PEPS shares were redeeemed on 15 April 2013.
(2) Treasury shares represent the value of shares held by a subsidiary that the Bank is required to include in the Consolidated Entity’s financial statements. No gain or loss is recognised in profit or loss on the purchase, sale,
issue or cancellation of the Bank’s own equity instruments.
(3) On 30 April 2013, the Bank acquired 100% of Virgin Money (Australia) Pty Limited for consideration of $42.6 million. $30.6 million of new shares were issued in two tranches (Tranche 1 - 1,585,353 and Tranche 2 -
1,617,762) as part of the acquisition consideration. Refer to Note 31(b) for further details.
The statement of changes in equity should be read in conjunction with the accompanying notes.
46
2013 Annual Report STATEMENTS OF CHANGES OF EQUITY (CONTINUED)
Year ended 31 August 2013
Consolidated
Ordinary
shares
Perpetual
Equity
Preference
shares
Employee
benefits
reserve
Equity
reserve
for credit
losses
Cashflow
hedge
reserve
Translation
reserve
Available
for sale
reserve
Retained
profits
Total
equity
Year ended 31 August 2012
$m
$m
$m
$m
Balance at beginning of the year
1,957.6
195.7
33.5
67.0
Total comprehensive income for the year
Loss
Other comprehensive income, net of
income tax
Cash flow hedges:
Net losses taken to equity
Net losses transferred to profit and
loss
Net gain on hedge of net investment in
foreign operation
Foreign currency translation differences
on foreign operations
Change in fair value of assets available
for sale
Transfers
Total other comprehensive income /
(expense)
Total comprehensive income / (expense)
for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Institutional placement and entitlement
offer (1)
Retail entitlement offer (1)
Costs of capital issue
Dividend reinvestment plan
Dividends to shareholders
Dividends to PEPs
Equity settled transactions
Treasury Shares (2)
Total contributions by and distributions
to owners
-
-
-
-
-
-
-
-
-
288.5
161.8
(7.4)
63.0
-
-
-
0.9
506.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.2)
-
(0.2)
-
-
-
-
-
-
3.2
3.2
3.2
-
-
-
-
-
-
-
-
-
$m
8.0
-
(18.8)
0.2
-
-
-
-
(18.6)
(18.6)
-
-
-
-
-
-
-
-
-
$m
0.4
$m
6.5
$m
$m
304.9
2,573.6
-
-
-
0.8
(0.6)
-
-
0.2
0.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6.2
-
6.2
6.2
-
-
-
-
-
-
-
-
-
(17.1)
(17.1)
-
-
-
-
-
(3.2)
(3.2)
(18.8)
0.2
0.8
(0.6)
6.2
-
(12.2)
(20.3)
(29.3)
-
-
-
-
288.5
161.8
(7.4)
63.0
(142.1)
(142.1)
(9.6)
-
-
(9.6)
(0.2)
0.9
(151.7)
354.9
Balance at the end of the year
2,464.4
195.7
33.3
70.2
(10.6)
0.6
2.7
132.9
2,899.2
(1) In April / May, the Bank completed a capital raising by way of Institutional Placement, Institutional Entitlement and Retail Entitlement offers of fully paid ordinary shares at an issue price of $6.05 per share.
(2) Treasury shares represent the value of shares held by a subsidiary that the Bank is required to include in the Consolidated Entity’s financial statements. No gain or loss is recognised in profit or loss on the purchase, sale,
issue or cancellation of the Bank’s own equity instruments.
The statement of changes in equity should be read in conjunction with the accompanying notes.
47
Bank
Ordinary
shares
Perpetual
Equity
Preference
shares
Employee
benefits
reserve
Equity
reserve
for credit
losses
Cashflow
hedge
reserve
Available
for sale
reserve
Retained
profits
Total
equity
Year ended 31 August 2013
$m
$m
$m
$m
$m
$m
$m
$m
Balance at beginning of the year
2,470.3
195.7
33.3
57.3
1.8
12.7
106.5
2,877.6
Total comprehensive income for the year
Profit
-
-
-
-
-
-
169.7
169.7
Other comprehensive income, net of income tax
Cash flow hedges:
Net losses taken to equity
Net gains transferred to profit and loss
Change in fair value of assets available for sale
Total other comprehensive expense
Total comprehensive income / (expense) for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions to owners
Exchange to CPS (1)
Redemption of PEPs (1)
Dividend reinvestment plan
Dividends to shareholders
Dividends to PEPs
Equity settled transactions
Treasury Shares (2)
Acquisition of Virgin Money (Australia) Pty Limited (3)
-
-
-
-
-
-
-
-
-
-
(4.3)
(175.8)
-
(19.9)
62.7
-
-
-
2.7
32.8
-
-
-
-
-
-
Total contributions by and distributions to owners
93.9
(195.7)
Balance at the end of the year
2,564.2
-
-
-
(3.1)
(0.9)
(3.9)
(7.9)
(3.1)
(0.9)
-
-
-
(3.9)
(4.0)
(3.9)
-
-
-
-
(4.0)
(3.9)
169.7
161.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(180.1)
(19.9)
62.7
-
(168.7)
(168.7)
-
-
-
-
(5.9)
-
-
-
(5.9)
(1.9)
2.7
32.8
-
(174.6)
(278.3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57.3
(2.2)
8.8
101.6
2,761.1
-
-
-
-
-
-
-
-
-
-
(1.9)
-
-
(1.9)
31.4
(1) On 24 December 2012, 1,801,339 PEPS shares were reinvested into CPS and the remaining 198,661 PEPS shares were redeeemed on 15 April 2013.
(2) Treasury shares represent the value of shares held by a subsidiary that the Bank is required to include in the Consolidated Entity’s financial statements. No gain or loss is recognised in profit or loss on the purchase, sale,
issue or cancellation of the Bank’s own equity instruments.
(3) On 30 April 2013, the Bank acquired 100% of Virgin Money (Australia) Pty Limited for consideration of $42.6 million. $30.6 million of new shares were issued in two tranches (Tranche 1 - 1,585,353 and Tranche 2 -
1,617,762) as part of the acquisition consideration. Refer to Note 31(b) for further details.
The statement of changes in equity should be read in conjunction with the accompanying notes.
48
2013 Annual Report
STATEMENTS OF CHANGES OF EQUITY (CONTINUED)
Year ended 31 August 2013
Bank
Ordinary
shares
Perpetual
Equity
Preference
shares
Employee
benefits
reserve
Equity
reserve
for credit
losses
Cashflow
hedge
reserve
Available
for sale
reserve
Retained
profits
Total
equity
Year ended 31 August 2012
$m
$m
$m
$m
$m
Balance at beginning of the year
1,967.1
195.7
33.5
51.0
(6.5)
$m
3.8
$m
$m
268.3
2,512.9
Total comprehensive income for the year
Loss
Other comprehensive income, net of income tax
Cash flow hedges:
Net losses taken to equity
Net losses transferred to profit and loss
Change in fair value of assets available for sale
Transfers
Total other comprehensive income / (expense)
Total comprehensive income / (expense) for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions to owners
Institutional placement and entitlement offer (1)
Retail entitlement offer (1)
Costs of capital issue
Dividend reinvestment plan
Dividends to shareholders
Dividends to PEPs
Equity settled transactions
Treasury Shares (2)
Total contributions by and distributions to owners
-
-
-
-
-
-
-
288.5
161.8
(7.4)
63.0
-
-
-
(2.7)
503.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at the end of the year
2,470.3
195.7
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.2)
-
(0.2)
33.3
-
-
-
-
6.3
6.3
6.3
-
-
-
-
-
-
-
-
-
-
8.1
0.2
-
-
8.3
8.3
-
-
-
-
-
-
-
-
-
-
-
-
8.9
-
8.9
8.9
-
-
-
-
-
-
-
-
-
(3.8)
(3.8)
-
-
-
(6.3)
(6.3)
(10.1)
8.1
0.2
8.9
-
17.2
13.4
-
-
-
-
288.5
161.8
(7.4)
63.0
(142.1)
(142.1)
(9.6)
-
-
(9.6)
(0.2)
(2.7)
(151.7)
351.3
57.3
1.8
12.7
106.5
2,877.6
(1) In April / May, the Bank completed a capital raising by way of Institutional Placement, Institutional Entitlement and Retail Entitlement offers of fully paid ordinary shares at an issue price of $6.05 per share.
(2) Treasury shares represent the value of shares held by a subsidiary that the Bank is required to include in the Consolidated Entity’s financial statements. No gain or loss is recognised in profit or loss on the purchase, sale,
issue or cancellation of the Bank’s own equity instruments.
The statement of changes in equity should be read in conjunction with the accompanying notes.
49
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 August 2013
Note
Contents
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
Reporting entity
Basis of preparation
Significant accounting policies
Operating income
Expenses
Income tax expense / (benefit)
Dividends
Earnings per share
Cash and liquid assets
Due from other financial institutions
Other financial assets
Loans and advances at amortised cost
Provisions for impairment
Other assets
Property, plant and equipment
Deferred tax assets and liabilities
Intangible assets
Due to other financial institutions
Deposits
Provisions
Borrowings including subordinated notes
Capital and Reserves
Segment reporting
Risk management
Capital management
Financial instruments
Notes to the statement of cash flows
Auditor’s remuneration
Contingent liabilities
Commitments
Controlled entities
Related parties information
Average balances and margin analysis
Deed of cross guarantee
Insurance business
Events subsequent to balance date
Investments accounted for using the equity method
Employee benefits
Key management personnel disclosures
50
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68
69
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72
74
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77
78
80
89
91
95
95
96
96
97
98
99
100
102
106
106
107
109
2013 Annual Report NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 August 2013
1. REPORTING ENTITY
Bank of Queensland Limited (the “Bank”) is a company domiciled in
Australia. The address of the Bank’s registered office is Level 17, 259
Queen Street, Brisbane, QLD, 4000. The consolidated financial report
of the Bank for the financial year ended 31 August 2013 comprises
the Bank and its subsidiaries (together referred to as the “Consolidated
Entity”) and the Consolidated Entity’s interest in equity accounted
investments. The Bank primarily is involved in retail banking, leasing
finance and insurance products.
2. BASIS OF PREPARATION
(a) Statement of compliance
The financial report is a general purpose financial report which has been
prepared in accordance with Australian Accounting Standards (“AASBs”
– including Australian Interpretations) adopted by the Australian
Accounting Standards Board (“AASB”) and the Corporations Act 2001.
The financial statements and notes of the Consolidated Entity and Bank
also comply with International Financial Reporting Standards (“IFRSs”)
and interpretations adopted by the International Accounting Standards
Board. The Bank is a for-profit entity.
The consolidated financial report was authorised for issue by the
Directors on 9 October 2013.
(b) Basis of measurement
The financial report is prepared on the historical cost basis with the
exception of the following assets and liabilities which are stated at their
fair value:
• derivative financial instruments;
• financial instruments designated at fair value;
• financial instruments classified as available-for-sale; and
• insurance policy liabilities.
(c) Functional and presentation currency
The consolidated financial statements are presented in Australian
dollars, which is the Bank’s functional currency and the functional
currency of the majority of the Consolidated Entity.
(d) Rounding
The Consolidated Entity is of a kind referred to in ASIC Class Order
98/100 dated 10 July 1998 and in accordance with that Class Order,
amounts in this financial report and Directors’ report have been rounded
off to the nearest million dollars, unless otherwise stated.
(e) Use of estimates and judgements
The preparation of a financial report in conformity with Australian
Accounting Standards requires management to make judgements,
estimates and assumptions that affect the application of policies
and reported amounts of assets, liabilities, income and expenses.
These estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making
the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from
these estimates. These accounting policies have been consistently
applied by each entity in the Consolidated Entity.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimates are revised if the revision only affects that period,
or in the period of the revision and future periods if the revision affects
both current and future periods.
51
Information about significant areas of estimation uncertainty and
critical judgements in applying accounting policies that have the most
significant effect on the amounts recognised in the financial statements
are described in the following notes:
• Provisions for impairment – Note 13 (refer Note 3 (j));
• Intangible assets - Note 17;
• Provisions - Note 20 (refer Note 3 (m));
• Financial instruments - Note 26;
• Contingent liabilities – Note 29; and
• Insurance policy liabilities – Note 35.
3. SIGNIFICANT ACCOUNTING POLICIES
The following, are the amendments to standards and interpretations
applicable for the first time to the current year, and the impact of these on
the Bank.
• AASB 2013-2 Amendments to AASB 1038 – Regulatory Capital
aligns AASB 1038 Life Insurance Contracts as a result of changes
made by the Australia Prudential Regulation Authority (“APRA”) to
life insurance Prudential Standards, particularly LPS 110 Capital
Adequacy, applicable from 1 January 2013. The amendment aligns
terminology by changing ‘solvency’ to ‘capital’. Refer to Note 35 of
the Financial Statements.
• AASB 2011-9 Amendments to Australian Accounting Standards –
Presentation of Other Comprehensive Income requires that items
presented in other comprehensive income are grouped by whether
they might be reclassified subsequently to profit or loss and those
that will not. Refer to the Statement of Comprehensive Income in the
Financial Statements.
All other amendments to standards applicable for the 2013 year end do not
impact the Bank.
The following standards and amendments have been identified as those
which may impact the Bank and the majority were available for early adoption
at 31 August 2013 but have not been applied in these financial statements.
• AASB 9 Financial Instruments was issued and introduces changes in
the classification and measurement of financial assets and financial
liabilities. This standard becomes mandatory for the Consolidated
Entity’s 31 August 2016 financial statements. The potential effects
on adoption of the amendments are yet to be determined.
• AASB 10 Consolidated Financial Statements, when it becomes
mandatory for the Consolidated Entity’s 31 August 2014 financial
statements, will supersede AASB 127 Consolidated and Separate
Financial Statements and Interpretation 112 Consolidation – Special
Purposes Entities. It introduces a new single control model to
assess whether to consolidate an investee. The Consolidated Entity
has performed a preliminary review of the Consolidated Entity’s
structures and it is not expected to have any material impacts.
• AASB 119 Employee Benefits is amended for changes in accounting
and disclosures of defined benefit superannuation plans; definitions
of short-term and other long-term employee benefits affecting the
measurement of the obligations; and the timing for recognition of
termination benefits. The amendments become mandatory for the
Consolidated Entity’s 31 August 2014 financial statements with
specific transitional requirements. The potential effects on adoption
of the amendments are yet to be determined.
Consolidated Entity
The Consolidated Entity receives the residual income distributed by the
RMBS and REDS EHP Trusts after all payments due to investors and
associated costs of the program have been met and as a result the
Consolidated Entity is considered to retain the risks and rewards of the
RMBS Trusts and as a result do not meet the de-recognition criteria of
AASB 139 Financial Instruments: Recognition and Measurement.
The RMBS Trusts fund their purchase of the loans by issuing floating-
rate debt securities. The securities are issued by the RMBS Trusts.
These are represented as borrowings of the Consolidated Entity however
the Consolidated Entity does not stand behind the capital value or the
performance of the securities or the assets of the RMBS Trusts. The
Consolidated Entity does not guarantee the payment of interest or the
repayment of principal due on the securities. The loans subject to the
securitisation program have been pledged as security for the securities
issued by the RMBS Trusts. The Consolidated Entity is not obliged to
support any losses that may be suffered by investors and does not
intend to provide such support.
To the extent that the Consolidated Entity does not substantially transfer
all the risk and rewards associated with these assets, the level of the
Consolidated Entity’s continuing involvement in these assets continues
to be recognised.
Bank
Interest rate risk from the RMBS and REDS EHP Trusts is transferred
back to the Bank by way of interest rate and basis swaps. Accordingly,
under AASB 139 the original sale of the mortgages from the Bank to
the RMBS Trusts does not meet the de-recognition criteria set out in
AASB 139. The Bank continues to reflect the securitised loans in their
entirety and also recognises a financial liability to the RMBS Trusts. The
interest payable on the intercompany financial asset / liability represents
the return on an imputed loan between the Bank and the Trusts and is
based on the interest income under the mortgages, the fees payable by
the Trusts and the interest income or expense not separately recognised
under the interest rate and basis swaps transactions between the Bank
and the Trusts.
All transactions between the Bank and the Trusts are eliminated on
consolidation.
(iii) Transactions eliminated on consolidation
Intra-group balances, and any unrealised gains and losses or income
and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements.
Unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.
(iv) Derecognition of financial assets and liabilities
Financial assets are derecognised when the contractual rights to
receive cash flows from the assets have expired, or where the Bank
has transferred its contractual rights to receive the cash flows of the
financial assets and substantially all the risks and rewards of ownership.
Financial liabilities are derecognised when they are extinguished, i.e.
when the obligation is discharged, cancelled or expired.
• AASB 11 Joint Arrangements, when it becomes mandatory for the
Consolidated Entity’s 31 August 2014 financial statements, introduces
a principles based approach to accounting for joint arrangements. If
the parties have rights to and obligations for underlying assets and
liabilities, the joint arrangement is considered a joint operation and
the parties will account for their share of revenue, expenses, assets
and liabilities. Otherwise the joint arrangement is considered a joint
venture and the parties must use the equity method to account for
their interest. The Consolidated Entity has performed a preliminary
review of the Consolidated Entity’s structures and it is not expected
to have any material impacts.
• AASB 12 Disclosure of Interests in Other entities includes all disclosure
requirements relating to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. The amendments
become mandatory for the Consolidated Entity’s 31 August 2014
financial statements. The Consolidated Entity has performed a
preliminary review of the Consolidated Entity’s structures and it is not
expected to have any material impacts.
• AASB 13 Fair Value Measurement establishes a single source of
guidance for determining the fair value of assets and liabilities.
AASB 13 also expands the disclosure requirements for assets and
liabilities carried at fair value. The amendments become mandatory
for the Consolidated Entity’s 31 August 2014 financial statements.
Initial adoption is not expected to result in any material impact to the
Consolidated Entity.
• AASB 2012-2 Amendments to Australian Accounting Standards –
Disclosures – Offsetting Financial Assets and Financial Liabilities
requires disclosure of information that will enable users to evaluate
the effect or potential effect of netting arrangements on the entity’s
financial position. The amendments become mandatory for the
Consolidated Entity’s 31 August 2014 financial statements. This is
only an impact to disclosure and it is not expected to be material.
The accounting policies set out below have been applied consistently to
all periods presented in the consolidated financial report, and have been
applied consistently across the Consolidated Entity.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Bank. Control exists when
the Bank has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to benefit from its activities. In
assessing control, potential voting rights that presently are exercisable
or convertible are taken into account. The financial statements of
subsidiaries are included in the consolidated financial report from the
date that control commences until the date that control ceases. In the
Bank’s financial statements, investments in subsidiaries are carried
at cost.
(ii) Securitisation
The Bank conducts a loan securitisation program whereby mortgage
loans are packaged and sold to the REDS Securitisation and Warehouse
Trusts (“RMBS Trusts”).
The Bank also securitises Hire Purchase, Chattel Mortgages and Finance
Leases which are packaged and sold to REDS EHP Securitisation Trusts
(“REDS EHP Trusts”).
52
2013 Annual Report
3. SIGNIFICANT ACCOUNTING POLICIES
(i) Cash flow hedges
Where a derivative financial instrument is designated as a hedge of
the variability of the cash flows of a recognised asset or liability, or a
highly probable forecasted transaction, the effective part of any gain
or loss on the derivative financial instrument is recognised directly in
other comprehensive income and accumulated in reserves in equity. The
ineffective portion of any gain or loss is recognised immediately in profit
or loss in the Income Statement. If a hedge of a forecast transaction
subsequently results in the recognition of a financial asset or a financial
liability, then the associated gains and losses that were recognised
directly in other comprehensive income are reclassified into profit or
loss in the Income Statement in the same period or periods in which the
asset acquired or liability assumed affects the Income Statement (i.e.
when interest income or expense is recognised).
When a hedging instrument expires or is sold, terminated or exercised,
or the Consolidated Entity revokes designation of the hedge relationship
but if the hedged forecast transaction is still expected to occur, the
cumulative gain or loss at that point remains in other comprehensive
income and is recognised in accordance with the above policy when
the transaction occurs. If the hedged transaction is no longer expected
to take place, then the cumulative unrealised gain or loss is recognised
immediately in profit or loss in the Income Statement.
(ii) Net investment hedge
Hedges of net investments in foreign operations are accounted for
similarly to cash flow hedges. Any foreign currency gain or loss on
the hedging instrument relating to the effective portion of the hedge
is recognised in other comprehensive income and accumulated in
reserves in equity. To the extent the hedge is ineffective, a portion is
recognised immediately in the Income Statement within other income or
other expenses.
(iii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting.
Changes in the fair value of any derivative instrument that does not
qualify for hedge accounting are recognised immediately in the Income
Statement and are included in other income.
The Bank has not designated any hedges as fair value hedges.
Financial instruments
The Bank classifies its financial instruments into one of the following two
categories upon initial recognition:
(i) Financial assets at fair value through the profit and loss
Financial assets that are held as part of the Bank’s Trading Book (refer
Note 11) are designated at fair value through the profit and loss. The
Bank manages such financial assets and makes purchase and sale
decisions based on their fair value in accordance with the Bank’s
documented risk management or investment strategy. Upon initial
recognition attributable transaction costs are recognised in profit or loss
in the Income Statement when incurred. Financial instruments at fair
value through the profit and loss are measured at fair value, and changes
therein are recognised in profit or loss in the Income Statement.
(CONTINUED)
(b) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the reporting date are
translated into Australian dollars at the foreign exchange rate ruling at
that date. Non-monetary items in a foreign currency that are measured
at historical cost are translated using the exchange rate at the date of
the transaction. Foreign exchange differences arising on translation are
recognised in the profit and loss.
Where a foreign currency transaction is part of a hedge relationship it is
accounted for as above, subject to the Hedge Accounting rules set out
in Note 3 (c) Derivatives, financial instruments and hedging.
Foreign operations
The assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on acquisition, are translated to
Australian dollars at exchange rates at the reporting date. The income
and expenses of foreign operations are translated to Australian dollars
at exchange rates at the date of the transaction. Foreign currency
differences are recognised in other comprehensive income, and
presented in the foreign currency translation reserve in equity. When
the settlement of a monetary item receivable from or payable to a
foreign operation is neither planned nor likely in the foreseeable future,
foreign exchange gains and losses arising from such a monetary item
are considered to form part of a net investment in a foreign operation
and are recognised in other comprehensive income, and are presented
within equity in the foreign currency translation reserve. When a foreign
operation is disposed of such that control is lost, the cumulative amount
in the translation reserve related to that foreign operation is reclassified
to profit or loss as part of the gain or loss on disposal. When the Bank
disposes of only part of its interest in a subsidiary that includes a
foreign operation while retaining control, the relevant proportion of the
cumulative amount is reattributed to non-controlling interests.
(c) Derivatives, financial instruments and
hedging
Derivatives
The Consolidated Entity uses derivative financial instruments to hedge
its exposure to foreign exchange and interest rate risks arising from
operating, financing and investing activities. In accordance with its
Treasury policy, the Consolidated Entity can hold derivative financial
instruments for trading purposes. Derivatives that do not qualify for
hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at trade date fair
value and are subsequently remeasured at fair value at the reporting
date. The gain or loss on re-measurement is recognised immediately
in profit or loss in the Income Statement. However, when derivatives
qualify for hedge accounting, recognition of any resultant gain or loss
depends on the nature of the hedge relationship as discussed below.
The fair value of interest rate swaps is the estimated amount that the
Consolidated Entity would receive or pay to terminate the swap at the
reporting date, taking into account current interest rates and the current
creditworthiness of the swap counterparties. The fair value of forward
exchange contracts is their quoted market price at the reporting date,
being the present value of the quoted forward price. The fair value of
futures contracts is their quoted market price.
53
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013
(ii) Available-for-sale
Assets that are intended to be held for an indefinite period of time but
which may be sold in response to changes in interest rates, exchange
rates and liquidity needs are classified as available for sale. These
assets are initially measured at fair value plus any directly attributable
transaction costs, with any changes in fair value other than impairment
losses (refer Note 3 (j)), being recognised in other comprehensive
income and accumulated in reserves in equity until the asset is sold.
Interest income received on these assets is recorded as net interest
income and any realised gains or losses recorded in other income in the
Income Statement.
(d) Cash and liquid assets
Cash and liquid assets comprise cash at branches, cash on deposit and
balances with the Reserve Bank of Australia.
(e) Receivables due from other financial
institutions
Receivables due from other financial institutions are recognised and
measured at amortised cost and include nostro balances (an account
held with a foreign bank usually in a foreign currency) and settlement
account balances.
separate assets and are separately depreciated over their useful lives.
Costs that do not meet the criteria for subsequent capitalisation are
expensed as incurred.
Subsequent Measurement
The Bank has elected to use the cost model to measure property, plant
and equipment after recognition. The carrying value is the initial cost
less accumulated depreciation and any accumulated impairment losses.
Depreciation
Depreciation is charged to the profit or loss in the Income Statement on
a straight-line basis over the estimated useful lives of each part of an
item of property, plant and equipment. Land is not depreciated.
The estimated useful lives in the current and comparative periods are as
follows:
IT equipment
Plant, furniture and equipment
Years
3–10
3–25
Leasehold improvements
10 (or term of lease if less)
The residual value, if not insignificant, is reassessed annually.
(f) Loans and advances at amortised cost
(i) Intangible assets
Initial recognition and measurement
Intangible assets are stated at cost less any accumulated amortisation
and any impairment losses. Expenditure on internally generated goodwill,
research costs and brands is recognised in the Income Statement as an
expense as incurred.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised only when it
increases the future economic benefits embodied in the specific asset
to which it relates. All other expenditure is expensed as incurred.
Goodwill
Goodwill is the excess of the cost of acquisition over the fair value of
the Bank’s share of the identifiable net assets of the acquired subsidiary.
Any goodwill is tested annually for impairment, with any impairment
taken directly to the profit or loss in the Income Statement. Refer to
Note 3 (j).
Consideration transferred included the fair values of the assets
transferred, liabilities incurred by the Consolidated Entity to the previous
owners of the acquired entity, and equity interests issued by the
Consolidated Entity.
Amortisation
Except for goodwill, amortisation is charged to profit or loss in the
Income Statement on a straight-line basis over the estimated useful life
of the intangible asset unless the life of the intangible asset is indefinite.
Where applicable, intangible assets are amortised from the date they
are available for use. The amortisation period and method are reviewed
on an annual basis.
Loans and advances are originated by the Bank and are recognised
upon cash being advanced to the borrower. Loans and advances are
initially recognised at fair value plus incremental direct transaction costs
and subsequently measured at each reporting date at amortised cost
using the effective interest method. Refer to Note 3 (j) for impairment of
loans and advances.
(g) Leases
Finance Leases
Finance leases in which the Bank is the lessor, are recorded in
the Balance Sheet as loans and advances at amortised cost.
They are recorded on the commencement of the lease as the net
investment in the lease, being the present value of the minimum
lease payments.
The Consolidated Entity does not have finance leases as lessee.
Operating Leases
Operating leases in which the Bank is the lessee, are expensed
on a straight-line basis over the term of the lease, except where an
alternative basis is more representative of the pattern of benefits to be
derived from the leased property. When an operating lease terminates
before the lease period expires, any payment required to be made to the
lessor by way of penalty, is recognised as an expense in the period in
which termination takes place.
(h) Property, plant and equipment
Recognition and initial measurement
Items of property, plant and equipment are stated at cost or deemed cost
less accumulated depreciation and accumulated impairment losses. The
cost of self-constructed assets includes the cost of materials, direct
labour and an appropriate proportion of production overheads.
Subsequent Costs
Subsequent additional costs are only capitalised when it is probable
that future economic benefits in excess of the originally assessed
performance of the assets will flow to the Bank in future years. Where
these costs represent separate components, they are accounted for as
54
2013 Annual Report
3. SIGNIFICANT ACCOUNTING POLICIES
(ii) Collective impairment provisions
Where no evidence of impairment has been identified for loans and
advances, these loans and advances are grouped together on the
basis of similar credit characteristics for the purpose of calculating a
collective impairment loss. Collective impairment provisions are based
on historical loss experience adjusted for current observable data. The
amount required to bring the collective provision for impairment to its
required level is charged to profit or loss in the Income Statement.
Non-financial assets
Non-financial assets other than deferred tax assets are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. For goodwill, and intangible
assets with an indefinite life, the recoverable amount is estimated each
year at the same time.
The Bank conducts an annual internal review of non-financial asset
values to assess for any indicators of impairment. If any indication
of impairment exists, an estimate of the asset’s recoverable amount
is calculated.
For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash inflows
that are largely independent of the cash inflows from other assets or
groups of assets - Cash Generating Units (“CGU”). An impairment loss
is recognised in profit or loss in the Income Statement for the amount
by which the asset’s carrying amount exceeds its recoverable amount.
Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of goodwill allocated to the units, and then
to reduce the carrying amounts of the other assets in the unit on a pro
rata basis. This grouping is subject to an operating segment ceiling
test. Non-financial assets, other than goodwill, that suffered impairment
are tested for possible reversal of the impairment whenever events
or changes in circumstances indicate that the impairment may have
reversed. An impairment loss in respect of goodwill is not reversed.
Calculation of recoverable amount
The recoverable amount of a non-financial asset or CGU is the greater
of their fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific
to the asset.
(k) Financial liabilities
Financial liabilities including current accounts, deposits, subordinated
and convertible notes and term deposits are initially recognised at fair
value plus transaction costs that are directly attributable to the issue of
the financial liability and are subsequently measured at amortised cost
using the effective interest method.
Securitisation set-up costs relating to on-balance sheet assets are
included with securitisation borrowings and amortisation is recorded as
interest expense.
The Bank classifies capital instruments as financial liabilities or equity
instruments in accordance with the substance of the contractual terms
of the instrument.
(CONTINUED)
(i) Intangible assets (continued)
Amortisation (continued)
The amortisation rates used in the current and comparative periods are
as follows:
Computer software
Years
5-12
Customer related intangibles and brands
3-10
(j) Impairment
Financial assets
Financial assets other than loans and advances at amortised cost
The Consolidated Entity assesses at the end of each reporting period
whether there is objective evidence that a financial asset or group of
financial assets, not carried at fair value through profit and loss, is
impaired. A financial asset is impaired if objective evidence indicates
that a loss event has occurred after the initial recognition of the asset,
and that the loss event had a negative effect on the estimated future cash
flow of that asset that can be estimated reliably. In the case of equity
securities classified as available-for-sale, a significant or prolonged
decline in the fair value of a security below its cost is considered as an
indicator that the securities are impaired. If any such evidence exists
for available-for-sale financial assets, the cumulative loss - measured
as the difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset previously
recognised in profit or loss in the Income Statement - is reclassified
from equity and recognised in profit or loss in the Income Statement
as a reclassification adjustment. Impairment losses recognised in
profit or loss in the Income Statement on equity instruments classified
as available-for-sale are not reversed through the profit or loss in the
Income Statement.
For available for sale debt securities, if any increase in the fair value
can be related objectively to an event occurring after the impairment
loss was recognised, then the impairment loss is reversed through profit
or loss in the Income Statement.
Loans and advances and other assets at amortised cost
If there is evidence of impairment for any of the Consolidated Entity’s
financial assets carried at amortised cost, the loss is measured as the
difference between the asset’s carrying amount and the present value
of estimated future cash flows, excluding future credit losses that have
not been incurred. The cash flows are discounted at the financial asset’s
original effective interest rate. The loss is recognised in profit or loss in
the Income Statement.
The Bank uses two methods for calculating impairment of loans and
advances:
(i) Specific impairment provisions
Impairment losses on individually assessed loans and advances are
determined on a case-by-case basis. If there is objective evidence that
an individual loan or advance is impaired, then a specific provision for
impairment is raised. The amount of the specific provision is based on
the carrying amount of the loan or advance, including the security held
against the loan or advance and the present value of expected future
cash flows. Any subsequent write-offs for bad debts are then made
against the specific provision for impairment.
55
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013
(l) Employee benefits
(i) Wages, Salaries and Annual Leave
(n) Shares
Ordinary Shares
Liabilities for employee benefits for wages, salaries and annual leave
represents present obligations resulting from employees’ services
provided up to the reporting date, calculated at undiscounted amounts
based on remuneration wage and salary rates that the Bank expects to
pay as at reporting date including related on-costs.
(ii) Long Service Leave
The provision for employee benefits to long service leave represents the
present value of the estimated future cash outflows to be made resulting
from employee’s services provided to reporting date. The provision is
calculated using expected future increases in wage and salary rates
including related on-costs, and expected settlement dates based on
turnover history and is discounted using the rates attached to national
government bonds at reporting date which most closely match the terms
of maturity of the related liabilities.
(iii) Superannuation plan
The Bank contributes to a number of defined contribution superannuation
plans which comply with the Superannuation Industry (Supervision)
Act 1993. Contributions are charged to profit or loss in the Income
Statement as they are made.
(iv) Share based payments
The Bank operates the following equity-settled compensation plans:
• Senior Management Option Plan (“SMOP”) - there are no longer any
outstanding options under the SMOP as at 31 August 2013.
• Award Rights Plan.
The above plans allow Consolidated Entity employees to acquire shares
in the Bank. The fair value of options and rights granted is recognised
as an employee expense with a corresponding increase to the Employee
Benefits Reserve. The fair value is measured at grant date and spread
over the period during which the employees become unconditionally
entitled to the options and rights. The fair value of the options and
rights granted is measured using industry accepted option pricing
methodologies, taking into account the terms and conditions upon
which the options and rights are granted. The fair value of the options
and rights is expensed over the vesting period. Where options and rights
do not vest due to failure to meet a non market condition (e.g. employee
service period) the expense is reversed. Where options and rights do not
vest due to failure to meet a market condition (e.g. Total Shareholder
Return test) the expense is not reversed.
(m) Provisions
A provision is recognised in the Balance Sheet when the Consolidated
Entity has a present legal or constructive obligation as a result of a
past event, and it is probable that an outflow of economic benefits will
be required to settle the obligation. If the effect is material, provisions
are determined by discounting the expected future cash flows at a pre-
tax rate that reflects current market assessments of the time value of
money and, when appropriate, the risks specific to the liability.
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effects.
Preference Shares
Preference share capital is classified as equity if it is non-redeemable.
Dividends thereon are recognised as distributions within equity upon
declaration by the Directors.
Preference share capital is classified as a financial liability
if it is redeemable on a specific date. Dividends thereon are
recognised as interest expense in the Income Statement as
accrued.
Treasury shares
Ordinary shares of the Bank may be purchased from time to time by
a subsidiary of the Bank authorised to do so under the Bank’s Award
Rights Plan. Where these shares remain unvested to employees they
are treated as treasury shares and deducted from capital as required
by AASB 132 Financial Instruments: Presentation and Disclosure. No
profit or loss is recorded on purchase, sale, issue or cancellation of
these shares.
(o) Revenue
Interest income and expense
income and expense
Interest
interest-bearing financial
instruments are recognised in the profit or loss using the effective
interest rates of the financial assets or financial liabilities to which
they relate.
for all
The effective interest rate is the rate that exactly discounts the
estimated future cash payments or receipts through the expected life of
the financial asset or financial liability (or, where appropriate, a shorter
period, to the net carrying amount of the financial asset or financial
liability). When calculating the effective interest rate, the Bank estimates
cash flows considering all contractual terms of the financial instrument
but not future credit losses. The calculation includes all amounts paid
or received by the Bank that are an integral part of the effective interest
rate, including transaction costs and all other premiums or discounts.
Transaction costs include loan acquisition costs such as commissions
paid to Owner Managed Branches and other intermediaries.
Non-interest income
Non-yield related lending application fees received are recognised as
income when the loan is disbursed or the commitment to lend expires.
Service fees that represent the recoupment of the costs of providing
the service are recognised on an accruals basis when the service
is provided.
Non-interest income (continued)
Lending fees that are considered an integral part of the effective interest
rate are recognised within interest revenue on an effective interest
rate basis.
Fair value gains and losses from financial assets held at fair value are
recognised in the Income Statement immediately.
Dividend income
Dividends are recognised when control of a right to receive consideration
is established.
56
2013 Annual Report
3. SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(p) Income tax
Income tax comprises current and deferred tax. Income tax is recognised
in profit or loss in the Income Statement except to the extent that it
relates to business combinations, or items recognised directly in equity,
or other comprehensive income.
Current tax is the expected tax payable / receivable on the taxable
income for the year, using tax rates enacted or substantially enacted
at the reporting date, and any adjustment to tax payable / receivable in
respect of previous years.
Deferred tax is provided for using the Balance Sheet method, providing
for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
taxation purposes. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantially enacted at
the reporting date. A deferred tax asset is recognised only to the extent
that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Tax Consolidation
The Bank is the head entity in the tax consolidated group comprising all
the Australian wholly-owned subsidiaries. The implementation date for
the tax-consolidated group was 1 September 2003.
Current tax expense / income, deferred tax liabilities and deferred tax
assets arising from temporary differences of the members of the tax-
consolidated group are recognised in the separate financial statements
of the members of the tax-consolidated group using a ‘group allocation’
approach by reference to the carrying amounts in the separate financial
statements of each entity and the tax values applying under tax
consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from
unused tax losses of the subsidiaries is assumed by the head entity
in the tax consolidated group and are recognised as amounts payable
(receivable) to (from) other entities in the tax-consolidated group in
conjunction with any tax funding arrangement amounts (refer below).
Any difference between these amounts is recognised by the Bank as an
equity contribution, or distribution from the subsidiary.
The Bank recognises deferred tax assets arising from unused tax losses
of the tax-consolidated group to the extent that it is probable that future
taxable profits of the tax-consolidated group will be available against
which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from
unused tax losses as a result of revised assessments of the probability
of recoverability is recognised by the head entity only.
Contributions to fund the current tax liabilities are payable as per the
Tax Funding Arrangement and reflect the timing of the head entity’s
obligation to make payments for tax liabilities to the relevant tax
authorities.
The Bank, in conjunction with other members of the tax-consolidated
group, has also entered into a Tax Sharing Agreement (“TSA”). The
TSA provides for the determination of the allocation of income tax
liabilities between the entities should the head entity default on its tax
payment obligations. No amounts have been recognised in the financial
statements in respect of this agreement as payment of any amounts
under the TSA is considered remote.
Taxation of Financial Arrangements (“TOFA”)
TOFA began to apply to the BOQ 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 adjustment that this created is being amortised equally over
the four years from 1 September 2010.
(q) Goods and services tax
Revenues, expenses and assets are recognised net of the amount
of goods and services tax (“GST”), except where the amount of GST
incurred is not recoverable from the Australian Tax Office (“ATO”).
In these circumstances the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the ATO is
included as a current asset or liability in the Balance Sheet.
Cash flows are included in the Statements of Cash Flows on a gross
basis. The GST components of cash flows arising from investing and
financing activities which are recoverable from, or payable to, the ATO
are classified as operating cash flows.
(r) Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing the net
profit / (loss) attributable to members of the Consolidated Entity for the
reporting period, after excluding any costs of servicing equity (other than
ordinary shares), by the weighted average number of ordinary shares of
the Bank, adjusted for any bonus issues.
Diluted EPS is calculated by dividing the basic EPS earnings, adjusted by
the after tax effect of financing costs associated with dilutive potential
ordinary shares and the effect on revenues and expenses of conversion
to ordinary shares associated with dilutive potential ordinary shares, by
the weighted average number of ordinary shares and dilutive potential
ordinary shares adjusted for any bonus issue.
(s) Business combinations
Nature of tax funding and tax sharing arrangements
Acquisitions on or after 1 July 2009
The Bank, in conjunction with other members of the tax-consolidated
group, has entered into a tax funding agreement which sets out the
funding obligations of members of the tax-consolidated group in respect
of tax amounts. The tax funding agreement requires payments to /
from the head entity equal to the current tax liability (asset) assumed
by the head entity and any tax-loss deferred tax asset assumed by the
head entity, resulting in the Bank recognising an inter-entity payable
(receivable) equal in amount to the tax liability (asset) assumed.
The Consolidated Entity has adopted revised AASB 3 Business
Combinations (2008) and amended AASB 127 Consolidated and
Separate Financial Statements (2008) for business combinations
occurring in the financial year starting 1 July 2009. All business
combinations occurring on or after 1 July 2009 are accounted for by
applying the acquisition method.
For every business combination, the Group identifies the acquirer, which
is the combining entity that obtains control of the other combining
entities or businesses. Control is the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
57
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013
Monies held in the statutory fund are subject to distribution and transfer
restrictions and other requirements of the Life Insurance Act 1995.
Under AASB 1038, the financial statements must include all assets,
liabilities, revenues, expenses and equity, irrespective of whether they
are designated as relating to shareholders or policy owners. Therefore,
the Consolidated Entity’s financial statements comprise the total of all
statutory funds and the Shareholders’ Fund.
Insurance contract liability
Profits of the insurance contract business are brought to account on a
Margin on Services (“MoS”) basis in accordance with guidance provided
by LPS 1.04: Valuation of Policy Liabilities as determined by APRA.
Under MoS, profit is recognised as fees are received and services are
provided to policyholders. When fees are received but the service has not
been provided, the profit is deferred. Losses are expensed when identified.
Consistent with the principle of deferring unearned profit is the
requirement to defer expenditure associated with the deferred profit.
MoS permits costs associated with the acquisition of policies to be
charged to profit or loss in the Income Statement over the period that
the policy will generate profits. Costs may only be deferred to the extent
that a policy is expected to be profitable.
Profit arising from life insurance is based on actuarial assumptions, and
calculated as the excess of premiums and investment earnings less
claims, operating expenses and the amortisation of acquisition costs
that will be incurred over the estimated life of the policies. The profit is
systematically recognised over the estimated time period the policy will
remain in force.
Under MoS, insurance contract liabilities may be valued using an
accumulation approach where this does not result in a material
difference to the projection approach. The accumulation approach
is deemed appropriate by the Directors and the appointed actuary.
Under this approach, premiums received are deferred and earned in
accordance with the underlying incidence of risk. Costs of acquiring
insurance contracts, both direct and indirect, are deferred to the extent
that related product groups are expected to be profitable. Where a
related product group is not expected to be profitable, the insurance
contract liability is increased by the excess of the present value of future
expenses over future revenues.
Revenue Recognition
Premiums in respect of life insurance contracts are recognised as
revenue in the Income Statement from the date of attachment of risk.
Premiums with no due date are recognised as revenue on a received
basis. Premiums with a regular due date are recognised as revenue on
an accruals basis. Unpaid premiums are only recognised as revenue
during the days of grace or where secured by the surrender value of the
policy and are included in the intergroup balance in the Balance Sheet.
Investment income is recognised on an accruals basis. Realised and
unrealised gains and losses are included in the Income Statement as
investment income.
Contingent Liabilities
A contingent liability of the acquiree is assumed in a business
combination only if such a liability represents a present obligation and
arises from a past event, and its fair value can be measured reliably.
Transactions Costs
Transaction costs that the Group incurs in connection with a business
combination, such as a finders fee, legal fees, due diligence fees and
other professional and consulting fees are expensed as incurred.
(t) Equity reserve for credit losses
The Bank is required by the APRA to maintain a general provision for
credit losses. As the Bank is unable to hold a general provision under
current accounting standards, the Bank has created an equity reserve
for credit losses. The equity reserve for credit losses and the eligible
component of the collective provision for impairment are aggregated for
the purpose of satisfying the APRA requirement for a general reserve for
credit losses.
(u) Investments in joint arrangements
The Bank’s investments in joint venture entities are accounted for
under the equity method of accounting in the consolidated financial
statements. These are entities in which the Bank has joint control over
all operational decisions and activities.
Under the equity method, the investments in joint ventures are
recognised at the cost of acquisition and the carrying value is
subsequently adjusted by the Bank’s share of the joint venture entity’s
profit or loss and movement in post-acquisition reserves, after adjusting
to align the accounting policies with that of the Bank.
The Bank’s share of the joint venture entity’s net profit or loss is
calculated based on the sale of land, together with any tax expense,
and is brought to account based on the proportion of settled land
sales contracts.
(v) Life insurance business
Principles for life insurance
The life insurance operations of the Consolidated Entity are conducted
within separate funds as required by the Life Insurance Act 1995 and
is reported in aggregate with the Shareholders’ Fund in the Income
Statement, Balance Sheet and Statement of Cash Flows of the
Consolidated Entity. The life insurance operations of the Consolidated
Entity comprise the selling and administration of life insurance contracts.
Life insurance contracts involve the acceptance of significant insurance
risk. Insurance risk is defined as significant if, and only if, an insured
event could cause an insurer to pay significant additional benefits in
any scenario, excluding scenarios that lack commercial substance
(i.e. have no discernible effect on the economics of the transaction).
Any products sold that do not meet the definition of a life insurance
contract are classified as life investment contracts. Insurance contracts
include those where the insured benefit is payable on the occurrence of
a specified event such as death, injury or disability caused by accident
or illness. The insured benefit is either not linked or only partly linked to
the market value of the investments held by the Consolidated Entity, and
the financial risks are substantially borne by the Consolidated Entity.
58
2013 Annual Report
3. SIGNIFICANT ACCOUNTING POLICIES
Policy liabilities
(CONTINUED)
(v) Life insurance business (continued)
Claims expense – insurance contracts
Claims incurred all relate to the provision of services, including the
bearing of risks, and are treated as expenses.
Claims are recognised when the liability to the policyholder under the
policy contract has been established. Claims recognition is based upon:
Policy liabilities for life insurance contracts are computed using statistical
or mathematical methods, which are expected to give approximately
the same results as if an individual liability was calculated for each
contract. The computations are made by suitably qualified personnel on
the basis of recognised actuarial methods, with due regard to relevant
actuarial principles. The methodology takes into account the risks and
uncertainties of the particular classes of life insurance business written.
The key factors that affect the estimation of these liabilities and related
assets are:
• cost estimates for losses reported to the close of the financial year;
• The cost of providing benefits and administering these insurance
and
contracts;
• estimated incurred, but not reported losses, based upon past
• Mortality and morbidity experience on life insurance products,
experience.
Deferred acquisition costs - Life insurance contracts
The fixed and variable costs of acquiring new life insurance business
are deferred to the extent that such costs are deemed recoverable from
future premiums or policy charges. These costs include commission,
policy issue and underwriting costs, certain advertising costs and other
sales costs. Acquisition costs deferred are limited to the lesser of the
actual costs incurred and the allowance for the recovery of such costs
in the premium or policy charges. The actual acquisition costs incurred
are recorded in profit or loss in the Income Statement. The value and
future recovery of these costs are assessed in determining policy
liabilities. This has the effect that acquisition costs are deferred within
the policy liability balance and amortised over the period that they will
be recovered from premiums or policy charges.
Critical Accounting Judgements and Estimates:
The Consolidated Entity’s insurance subsidiary makes estimates
and assumptions that affect the reported amounts of assets and
liabilities within the next financial year. Estimates and judgements
are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed
to be reasonable under the circumstances. The areas where critical
accounting judgements and estimates are applied are noted below.
including enhancements to policyholder benefits; and
• Discontinuance experience, which affects the Bank’s ability to recover
the cost of acquiring new business over the lives of the contracts.
In addition, factors such as regulation, competition, interest rates, taxes,
securities market conditions and general economic conditions affect
the level of these liabilities. Details of specific actuarial policies and
methods are set out in Note 35.
(w) Segment reporting
The Bank determines and presents operating segments based on the
information that is provided internally to the Managing Director, who is
the Bank’s chief operating decision maker.
An operating segment is a component of the Bank that engages in
business activities from which it may earn revenues and incur expenses,
including revenues and expenses that relate to transactions with any
of the Bank’s other components. All operating segments’ operating
results are regularly reviewed by the Bank’s Managing Director to make
decisions about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is available.
Segment results that are reported to the Managing Director include
items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
59
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013
4. OPERATING INCOME
Consolidated
Bank
Interest income
Loans and advances
Securities at fair value
Total interest income
Interest expense
Retail deposits
Wholesale deposits and borrowings
Total interest expense
Net interest income
Income from operating activities
Other customer fees and charges
Share of fee revenue paid to Owner Managed Branches
Securitisation income
Net income from financial instruments and derivatives at fair value
Commission
Management fee – controlled entities
Foreign exchange income – customer based
Net profit / (loss) on sale of property, plant and equipment
Other income
Other operating income
Net Insurance operating income
Total operating income
2013
$m
2,084.3
213.1
2,297.4
897.9
706.4
1,604.3
693.1
102.1
(14.2)
-
5.4
12.1
-
7.5
3.2
6.4
2012
$m
2,345.1
251.1
2,596.2
1,025.8
918.9
1,944.7
651.5
106.1
(14.8)
-
0.3
6.2
-
7.4
1.8
4.5
122.5
111.5
122.5
40.3
855.9
111.5
41.3
804.3
2013
$m
1,765.0
471.6
2,236.6
897.9
813.2
1,711.1
525.5
101.9
(14.2)
55.7
3.7
11.4
24.9
7.5
0.1
27.8
218.8
218.8
-
744.3
2012
$m
1,998.4
550.8
2,549.2
1,025.8
1,060.9
2,086.7
462.5
105.6
(14.8)
53.8
1.0
10.0
25.4
7.3
(0.5)
47.9
235.7
235.7
-
698.2
60
2013 Annual Report 5. EXPENSES
Operating expenses
Advertising
Commissions to Owner Managed Branches
Communications and postage
Printing and stationery
Non-lending losses
Processing costs
Other operating expenses
Administrative expenses
Professional fees
Directors fees
Other
IT expenses
Data processing
Amortisation and impairment – computer software (intangible)
Depreciation – IT equipment
Occupancy expenses
Lease rental
Depreciation - plant, furniture, equipment and leasehold improvements
Other
Employee expenses
Salaries and wages
Superannuation contributions
Amounts set aside to provision for employee entitlements
Payroll tax
Equity settled transactions
Other
Other
Amortisation – acquired intangibles
Expenses
Consolidated
Bank
2013
$m
2012
$m
2013
$m
2012
$m
12.4
8.7
22.5
4.0
47.5
25.0
15.0
14.0
5.6
18.7
5.7
14.7
24.2
19.9
11.8
9.2
21.3
3.8
47.5
25.0
12.2
135.1
102.8
130.8
20.4
1.6
8.3
30.3
61.1
18.6
1.5
81.2
21.9
7.7
2.5
32.1
144.5
11.9
1.7
8.4
5.2
7.0
18.7
1.7
7.4
27.8
53.1
31.9
1.3
86.3
20.4
8.2
2.5
31.1
134.0
12.5
1.4
7.9
4.7
5.4
17.9
1.1
9.3
28.3
58.2
16.5
0.8
75.5
19.9
6.5
2.4
28.8
123.7
10.5
1.8
7.1
4.6
6.4
13.3
6.7
17.7
5.3
12.9
24.2
16.2
96.3
15.9
1.2
8.7
25.8
50.2
29.6
0.7
80.5
18.8
7.0
2.4
28.2
111.1
10.7
1.0
6.6
3.8
4.4
178.7
165.9
154.1
137.6
8.1
465.5
8.7
422.6
1.4
418.9
1.3
369.7
61
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 6. INCOME TAX EXPENSE / (BENEFIT)
Consolidated
Bank
2013
$m
2012
$m
2013
$m
2012
$m
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense / (benefit)
Attributable to:
Continuing operations
Deferred tax recognised in equity
Equity raising costs
Cash flow hedge reserve
Other
Numerical reconciliations between tax expense and pre-tax profit / (loss)
Profit / (loss) before tax – continuing operations
Profit / (loss) before tax
Income tax using the domestic corporate tax rate of 30% (2012: 30%)
Increase in income tax expense due to:
Non-deductible expenses
Decrease in income tax expense due to:
Other (1)
Under / (Over) provided in prior years
Income tax expense on pre-tax net profit / (loss)
75.3
(3.2)
72.1
17.9
17.9
90.0
90.0
-
5.1
(1.8)
3.3
275.8
275.8
82.7
8.3
(0.4)
90.6
(0.6)
90.0
67.2
3.3
70.5
(72.7)
(72.7)
(2.2)
(2.2)
(3.2)
(8.1)
2.7
(8.6)
(19.3)
(19.3)
(5.8)
4.3
(4.3)
(5.8)
3.6
(2.2)
58.0
(1.8)
56.2
12.3
12.3
39.4
(3.6)
35.8
(63.4)
(63.4)
68.5
(27.6)
68.5
(27.6)
-
(1.3)
(1.7)
(3.0)
238.2
238.2
71.5
(3.2)
3.5
3.9
4.2
(31.4)
(31.4)
(9.4)
4.8
0.3
(7.3)
69.0
(0.5)
68.5
(18.7)
(27.8)
0.2
(27.6)
(1) In the Bank, this includes the impact of dividends received from subsidiary Group members which are eliminated at a Group level, other non-assessable income and franking credits.
62
2013 Annual Report 7. DIVIDENDS
Ordinary shares
Final 2012 dividend paid 8 December 2012 (2011: 2 December 2011)
Interim 2013 dividend paid 27 May 2013 (2012: 25 May 2012)
Preference shares
Half-yearly PEPS dividend paid on 15 October 2012 (2012: 17 October 2011)
Prorated PEPS dividend paid on 24 December 2012 (2012: nil)
Half-yearly PEPS dividend paid on 15 April 2013 (2012: 16 April 2012)
Half-yearly CPS dividend paid on 15 April 2013 (2012: nil)
Bank
2013
2012
Cents per
share
Percentage
franked
$m
%
Cents per
share
Percentage
franked
$m
%
26
28
217
69
179
177
80.2
88.5
168.7
4.3
1.3
0.3
5.3
11.2
100%
100%
100%
100%
100%
100%
28
26
250
-
234
-
100%
100%
100%
-
100%
-
63.1
79.0
142.1
5.0
-
4.7
-
9.7
Since the end of the financial year, the Directors have declared
the following dividends:
Cents per share
- CPS half-yearly dividend
- Final – ordinary shares
286
30
$m
8.6
95.9
30% franking credits available to shareholders of the Bank for subsequent financial years
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
Percentage franked
%
100%
100%
2013
$m
106.2
Date of payment
15 October 2013
4 December 2013
Bank
2012
$m
124.9
(a) franking debits that will arise from the refund of the amount of the current tax assets and franking credits arising from the payment of current tax liabilities;
(b) franking debits that will arise from the payment of dividends subsequent to year-end;
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the year end; and
(d) franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
All the franked dividends paid or declared by the Bank since the end of the previous financial year were franked at the tax rate of 30%.
The balance of the Bank of Queensland Limited dividend franking account at the date of this report, after adjusting for franking credits and debits that will arise
on payment of income tax and dividends relating to the year ended 31 August 2013, is $106.2 million credit calculated at the 30% tax rate (2012: $124.9 million
credit).
It is anticipated, based on these franking account balances that the Bank will continue to pay fully franked dividends in the foreseeable future.
Dividend reinvestment plan
The Bank of Queensland Dividend Reinvestment Plan provides shareholders with the opportunity to convert all or part of their entitlement to a dividend into new
shares. Shares are issued under the Plan at a discount. On 17 April 2013, the Board resolved to change the discount to 1.5% on the arithmetic average of the
daily volume weighted average share prices of the Bank’s shares sold on the Australian Securities Exchange during the ten trading day period commencing on
the second trading day after the Record Date. All shares issued in comparative periods were at discount of 2.5%. Shares issued are fully paid and rank equally
with existing fully paid ordinary shares. The last date for election to participate in the Dividend Reinvestment Plan for 2013 final dividend is 13 November 2013.
63
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 8. EARNINGS PER SHARE
Consolidated
2013
cents
58.4
57.2
2013
$m
185.8
(2.7)
183.1
2.7
11.8
0.6
198.2
2012
cents
(10.2c)
(10.2c)
2012
$m
(17.1)
(9.6)
(26.7)
-
-
-
(26.7)
Consolidated
2013
Number
2012
Number
313,535,179
263,815,724
313,535,179
263,815,724
2,414,842
1,343,916
7,360,404
21,988,604
1,277,927
-
-
-
346,576,956
265,159,640
Basic earnings per share - Ordinary shares (cents)
Diluted earnings per share - Ordinary shares (cents)
Earnings reconciliation
Net profit / (loss)
Less other equity instrument dividends (1)
Basic earnings
Effect of PEPS (1)
Effect of distributions on CPS
Effect of convertible notes
Diluted earnings
Weighted average number of shares used as the denominator
Number for basic earnings per share
Ordinary shares
Number for diluted earnings per share
Ordinary shares
Effect of award rights
Effect of PEPS
Effect of CPS
Effect of convertible notes
(1) PEPS distribution on an accrual basis.
64
2013 Annual Report 9. CASH AND LIQUID ASSETS
Notes, coin and cash at bank
Remittances in transit
Consolidated
Bank
2013
$m
712.8
160.4
873.2
2012
$m
522.5
148.0
670.5
2013
$m
81.8
160.4
242.2
2012
$m
79.7
148.0
227.7
10. DUE FROM OTHER FINANCIAL INSTITUTIONS
Term deposits
118.5
118.5
119.7
119.7
23.8
23.8
23.5
23.5
11. OTHER FINANCIAL ASSETS
At fair value through profit and loss
Floating rate notes and bonds
Negotiable certificates of deposit
Deposits at call
Bank accepted bills
Promissory notes
Investment securities available for sale
Debt instruments
Unlisted equity instruments
931.8
2,812.3
176.0
377.6
36.9
894.3
2,650.6
289.1
445.2
345.3
931.8
2,812.3
176.0
377.6
36.9
894.3
2,650.6
289.1
445.2
345.3
4,334.6
4,624.5
4,334.6
4,624.5
1,057.0
1,055.0
1,258.6
1,142.5
9.8
9.9
9.8
9.9
1,066.8
1,064.9
1,268.4
1,152.4
Total other financial assets
5,401.4
5,689.4
5,603.0
5,776.9
65
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013
12. LOANS AND ADVANCES AT AMORTISED COST
Consolidated
Bank
2013
$m
2012
$m
2013
$m
2012
$m
Residential property loans – secured by mortgages
18,577.0
17,324.9
18,577.0
17,324.9
Securitised residential property loans – secured by mortgages
7,571.9
8,115.2
7,571.9
8,115.2
Total residential property loans – secured by mortgages
26,148.9
25,440.1
26,148.9
25,440.1
Personal loans
Overdrafts
Commercial loans
Leasing finance
180.7
387.3
5,079.4
3,909.6
224.3
473.9
4,935.9
3,930.0
180.7
387.3
224.3
473.9
5,049.3
4,886.4
-
-
Gross loans and advances at amortised cost
35,705.9
35,004.2
31,766.2
31,024.7
Less:
Unearned lease finance income
Collective provision for impairment
Specific provisions for impairment
(404.3)
(137.5)
(174.8)
(444.1)
(192.6)
(220.3)
-
(112.3)
(162.7)
-
(165.8)
(204.3)
Total loans and advances at amortised cost
34,989.3
34,147.2
31,491.2
30,654.6
Loans and advances at amortised cost include the following finance lease receivables for leases of certain property and equipment where the Bank is the lessor:
Gross investment in finance lease receivables:
Less than one year
Between one and five years
More than five years
Unearned lease finance income
Net investment in finance leases
The net investment in finance leases comprise:
Less than one year
Between one and five years
More than five years
Consolidated
Bank
2013
$m
1,572.6
2,312.1
24.9
3,909.6
(404.3)
3,505.3
1,370.0
2,112.6
22.7
2012
$m
1,520.2
2,386.4
23.4
3,930.0
(444.1)
3,485.9
1,300.7
2,163.7
21.5
3,505.3
3,485.9
2013
$m
2012
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
66
2013 Annual Report 12. LOANS AND ADVANCES AT AMORTISED
COST (CONTINUED)
Transfer of financial assets
The Bank conducts a loan securitisation program whereby mortgage loans
are transferred to the REDS Trusts.
A subsidiary of the Bank also securitises Hire Purchase, Chattel Mortgages
and Finance Leases which are transferred to REDS EHP Trusts.
The Trusts fund their purchase of the assets by issuing floating-rate
debt securities. The securities are issued by the Trusts. Neither Bank of
Queensland Limited nor any other member of the Bank of Queensland
group in any way stands behind the capital value or performance of the
securitisation programs. The Bank does however provide the securitisation
programs with arm’s length services and facilities including the management
and servicing of the leases securitised.
The Bank has no right to repurchase any of the securitised assets and no
obligation to do so, other than in certain circumstances where there is a
breach of warranty within 120 days of the sale or when certain criteria are
met under the Clean up Provision per the Trust Deed Supplement.
The transferred assets are equitably assigned to the securitisation trusts.
The investors in the securities issued by the Trusts have full recourse to the
assets transferred to the Trusts.
The Bank receives the residual income distributed by the Trusts after all
payments due to investors and associated costs of the program have been
met and as a result the Bank is considered to retain the risks and rewards
of the Trusts.
The following table sets out the transferred financial assets that did not
qualify for derecognition and associated liabilities from conducting the
securitisation program.
Transferred financial assets
Loans and advances at amortised cost
Lease receivables
Associated financial liabilities
Securitisation liabilities - external investors
Amounts due to controlled entities
For those liabilities that have recourse only to transferred assets:
Fair value of transferred assets
Fair value of associated liabilities
Consolidated
Bank
2013
$m
2012
$m
2013
$m
2012
$m
4,564.5
899.1
5,463.6
5,100.8
513.7
5,614.5
4,564.5
5,100.8
-
-
4,564.5
5,100.8
5,836.0
5,801.3
-
-
-
(4,865.8)
5,836.0
5,801.3
(4,865.8)
-
(5,259.6)
(5,259.6)
5,463.6
5,614.5
4,564.5
5,100.8
(5,836.0)
(5,801.3)
(4,865.8)
(5,259.6)
(372.4)
(186.8)
(301.3)
(158.8)
67
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 13. PROVISIONS FOR IMPAIRMENT
Consolidated
Bank
Specific provision:
Balance at the beginning of the year
Add: Expensed during the year
Less: Bad debts written off net of recoveries
Transfers from collective provision
Unwind of discount
Balance at the end of the year
Collective provision:
Balance at the beginning of the year
Add: Expensed / (released) during the year
Impairment losses written off
Transfers to specific provision
Balance at the end of the year
2013
$m
220.3
151.6
(195.1)
14.5
(16.5)
174.8
192.6
(37.0)
(3.6)
(14.5)
137.5
2012
$m
173.7
227.8
(193.2)
34.8
(22.8)
220.3
80.1
173.2
(25.9)
(34.8)
192.6
2013
$m
204.3
122.6
(162.8)
14.5
(15.9)
162.7
165.8
(35.4)
(3.6)
(14.5)
112.3
2012
$m
154.4
190.2
(152.9)
34.8
(22.2)
204.3
56.8
169.7
(25.9)
(34.8)
165.8
Total provisions for impairment
312.3
412.9
275.0
370.1
14. OTHER ASSETS
Accrued interest
Other debtors and prepayments
Consolidated
Bank
2013
$m
61.1
68.0
129.1
2012
$m
67.8
45.6
113.4
2013
$m
59.6
217.1
276.7
2012
$m
66.2
211.7
277.9
68
2013 Annual Report 15. PROPERTY, PLANT AND EQUIPMENT
2013
Consolidated
Cost
Balance at the beginning of the financial year
Additions
Disposals
Transfers between categories
Balance at the end of the financial year
Depreciation
Balance at the beginning of the financial year
Depreciation charge for the year
Disposals
Balance at the end of the financial year
Carrying amounts
Carrying amount at the beginning of the financial year
Carrying amount at the end of the financial year
Bank
Cost
Balance at the beginning of the financial year
Additions
Disposals
Transfers between categories
Balance at the end of the financial year
Depreciation
Balance at the beginning of the financial year
Depreciation charge for the year
Disposals
Balance at the end of the financial year
Carrying amounts
Carrying amount at the beginning of the financial year
Carrying amount at the end of the financial year
Total
$m
118.2
16.3
(7.3)
-
127.2
79.7
16.1
(6.4)
89.4
38.5
37.8
92.8
8.3
(2.3)
-
98.8
66.7
7.3
(1.6)
72.4
26.1
26.4
Leasehold
improvements
Plant, furniture
and equipment
IT equipment
Capital works in
progress
Assets under
Operating Lease
$m
33.0
1.6
(0.2)
-
34.4
29.5
1.5
(0.2)
30.8
3.5
3.6
30.0
1.6
(0.2)
-
31.4
28.5
0.8
(0.2)
29.1
1.5
2.3
$m
0.3
2.2
-
(0.2)
2.3
-
-
-
-
0.3
2.3
0.3
2.2
-
(0.2)
2.3
-
-
-
-
0.3
2.3
$m
17.3
8.0
(5.0)
-
20.3
9.8
6.9
(4.8)
11.9
7.5
8.4
-
-
-
-
-
-
-
-
-
-
-
$m
$m
35.5
3.4
(1.2)
0.1
37.8
20.6
5.3
(0.8)
25.1
14.9
12.7
31.4
3.4
(1.2)
0.1
33.7
18.5
4.3
(0.8)
22.0
12.9
11.7
32.1
1.1
(0.9)
0.1
32.4
19.8
2.4
(0.6)
21.6
12.3
10.8
31.1
1.1
(0.9)
0.1
31.4
19.7
2.2
(0.6)
21.3
11.4
10.1
69
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 15. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
2012
Consolidated
Cost
Balance at the beginning of the financial year
Additions
Disposals
Transfers between categories
Balance at the end of the financial year
Depreciation
Balance at the beginning of the financial year
Depreciation charge for the year
Disposals
Balance at the end of the financial year
Carrying amounts
Carrying amount at the beginning of the financial year
Carrying amount at the end of the financial year
Bank
Cost
Balance at the beginning of the financial year
Additions
Disposals
Transfers between categories
Balance at the end of the financial year
Depreciation
Balance at the beginning of the financial year
Depreciation charge for the year
Disposals
Balance at the end of the financial year
Carrying amounts
Carrying amount at the beginning of the financial year
Carrying amount at the end of the financial year
Total
$m
105.1
17.8
(4.7)
-
118.2
68.5
14.7
(3.5)
79.7
36.7
38.5
84.9
9.7
(1.8)
-
92.8
59.6
7.7
(0.6)
66.7
25.3
26.1
Leasehold
improvements
Plant, furniture
and equipment
IT equipment
Capital works in
progress
Assets under
Operating Lease
$m
31.9
1.1
(0.1)
0.1
33.0
28.3
1.3
(0.1)
29.5
3.6
3.5
29.7
0.4
(0.1)
-
30.0
27.8
0.7
-
28.5
1.9
1.5
$m
0.7
0.3
-
(0.7)
0.3
-
-
-
-
0.7
0.3
0.7
0.3
-
(0.7)
0.3
-
-
-
-
0.7
0.3
$m
12.9
7.4
(3.0)
-
17.3
7.3
5.2
(2.7)
9.8
5.7
7.5
-
-
-
-
-
-
-
-
-
-
-
$m
$m
30.7
5.5
(0.9)
0.2
35.5
15.3
5.7
(0.4)
20.6
15.4
14.9
26.6
5.6
(1.0)
0.2
31.4
14.3
4.6
(0.4)
18.5
12.3
12.9
28.9
3.5
(0.7)
0.4
32.1
17.6
2.5
(0.3)
19.8
11.3
12.3
27.9
3.4
(0.7)
0.5
31.1
17.5
2.4
(0.2)
19.7
10.4
11.4
70
2013 Annual Report 16. DEFERRED TAX ASSETS AND LIABILITIES
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
Consolidated
Accruals
Capitalised expenditure
Intangibles
Leasing
Property, plant, equipment and software
Provision for impairment
Other provisions
Receivables
Other
Equity reserves
2013
$m
5.0
-
-
-
-
104.1
10.3
-
7.0
-
2012
$m
6.4
-
-
-
-
125.2
13.7
-
8.1
0.6
2013
$m
-
(11.4)
(0.7)
(0.4)
(2.7)
-
-
(0.3)
(2.8)
(3.6)
2012
$m
-
(17.6)
(1.7)
(1.2)
(4.9)
-
-
(0.2)
(2.7)
-
Tax assets / (liabilities)
126.4
154.0
(21.9)
(28.3)
Bank
Accruals
Capitalised expenditure
Property, plant, equipment and software
Provision for impairment
Other provisions
Receivables
Other
Equity reserves
3.1
-
-
91.3
9.6
-
6.9
-
3.0
-
-
111.0
12.2
-
7.8
-
Tax assets / (liabilities)
110.9
134.0
-
(9.6)
(2.8)
-
-
(0.3)
-
(2.7)
(15.4)
-
(19.1)
(5.0)
-
-
(0.2)
-
(4.8)
(29.1)
2013
$m
5.0
(11.4)
(0.7)
(0.4)
(2.7)
104.1
10.3
(0.3)
4.2
(3.6)
104.5
3.1
(9.6)
(2.8)
91.3
9.6
(0.3)
6.9
(2.7)
95.5
2012
$m
6.4
(17.6)
(1.7)
(1.2)
(4.9)
125.2
13.7
(0.2)
5.4
0.6
125.7
3.0
(19.1)
(5.0)
111.0
12.2
(0.2)
7.8
(4.8)
104.9
71
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 17. INTANGIBLE ASSETS
Consolidated
Customer
related
intangibles
and brands
$m
Computer
software
$m
Goodwill
$m
Bank
Other
$m
Total
$m
Goodwill
$m
Customer
contracts
$m
Computer
software
$m
Other
$m
Total
$m
444.4
107.4
203.8
43.6
-
-
-
29.0
(2.0)
7.4
2.1
-
763.0
8.1
5.0
191.0
74.7
(2.0)
-
-
-
-
28.6
(0.6)
2.1
2.1
-
206.2
30.7
(0.6)
488.0
107.4
230.8
9.5
835.7
8.1
5.0
219.0
4.2
236.3
-
-
60.7
144.2
14.6
18.6
-
75.3
162.8
3.5
1.4
4.9
208.4
34.6
243.0
-
-
-
5.0
140.5
-
16.5
5.0
157.0
444.4
46.7
59.6
3.9
554.6
488.0
32.1
68.0
4.6
592.7
8.1
8.1
-
-
50.5
62.0
1.4
1.4
2.8
0.7
1.4
146.9
17.9
164.8
59.3
71.5
2013
Cost
Balance at the beginning of
the financial year
Additions
Disposals
Balance at the end of the
financial year
Amortisation and
impairment losses
Balance at the beginning of
the financial year
Amortisation for the year
Balance at the end of the
financial year
Carrying amounts
Carrying amount at the
beginning of the financial
year
Carrying amount at the end
of the financial year
72
2013 Annual Report Amortisation and
impairment losses
Balance at the beginning of
the financial year
Amortisation for the year
Impairment
Balance at the end of the
financial year
Carrying amounts
Carrying amount at the
beginning of the financial
year
Carrying amount at the end
of the financial year
17. INTANGIBLE ASSETS (CONTINUED)
Consolidated
Customer
related
intangibles
and brands
$m
Computer
software
$m
Goodwill
$m
Bank
Other
$m
Total
$m
Goodwill
$m
Customer
contracts
$m
Computer
software
$m
Other
$m
Total
$m
2012
Cost
Balance at the beginning of
the financial year
Additions
Impairment
444.4
107.4
190.3
-
-
-
-
21.6
(8.1)
Balance at the end of the
financial year
444.4
107.4
203.8
749.4
8.1
5.0
181.0
21.7
(8.1)
-
-
-
-
18.1
(8.1)
763.0
8.1
5.0
191.0
2.0
0.1
-
2.1
0.3
1.1
-
1.4
1.7
0.7
196.1
18.2
(8.1)
206.2
125.5
23.4
(2.0)
146.9
70.6
59.3
7.3
0.1
-
7.4
1.5
2.0
-
46.3
121.6
14.4
24.6
-
(2.0)
-
-
-
-
169.4
41.0
(2.0)
-
-
-
-
5.0
120.2
-
-
22.3
(2.0)
5.0
140.5
60.7
144.2
3.5
208.4
444.4
61.1
68.7
5.8
580.0
444.4
46.7
59.6
3.9
554.6
8.1
8.1
-
-
60.8
50.5
73
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 17. INTANGIBLE ASSETS (CONTINUED)
Impairment testing of the cash generating units containing goodwill
The aggregate carrying amounts of goodwill are:
BOQ Equipment Finance Limited
Orix debtor finance division
Pioneer Permanent Building Society Limited
Home Building Society Ltd
Virgin Money (Australia) Pty Ltd
Consolidated
Bank
2013
$m
12.9
8.1
24.0
399.4
43.6
488.0
2012
$m
12.9
8.1
24.0
399.4
-
444.4
2013
$m
-
8.1
-
-
-
8.1
2012
$m
-
8.1
-
-
-
8.1
Goodwill on acquisition of all of the above entities has been allocated to the Banking cash generating unit (“CGU”).
The impairment test for goodwill is performed by comparing the CGU’s carrying amount with its recoverable amount. The recoverable amount is based on the
CGU’s value in use.
Value in use was determined by discounting the future cash flows generated from the continued use of the CGU and was based on the following assumptions:
• cash flows based on the banking segment’s 3 year projections (2012: 3 years);
• a medium term growth rate of 9% (2012: 9%) for the 7 years subsequent to these projections;
• a terminal value at year 10 based on a long term growth rate of 3% (2012: 3%) and a terminal price earnings multiple of 13.6 (2012: 15.1) times earnings; and
• a pre tax discount rate of 14.8% (2012: 13.8%).
The values assigned to the key assumptions represent management’s assessments of future trends in banking and are based on both external sources and internal
sources. Management has identified two key assumptions for which there could be a reasonably possible change that could cause the carrying amount to exceed
the recoverable amount for the Banking CGU. The table below shows the amounts these two assumptions are required to move to individually in order for the
estimated recoverable amount to be equal to the carrying amount.
Pre tax discount rate
Medium term growth rate
18. DUE TO OTHER FINANCIAL INSTITUTIONS
Amounts payable – at call
2013
2012
%
19
4
%
8
8
Consolidated
Bank
2013
$m
201.1
2012
$m
177.8
2013
$m
201.1
2012
$m
177.8
74
2013 Annual Report 19. DEPOSITS
Deposits at call
Term deposits
Certificates of deposit
Total
Concentration of deposits:
Retail deposits
Wholesale deposits
Total
20. PROVISIONS
Employee benefits (1)
Directors' retiring allowance (2)
Leases
Product Review (3)
Other (4)
Total
2013
Carrying amount at beginning of year
Additional provision recognised
Amounts utilised during the year
Carrying amount at end of year
2012
Carrying amount at beginning of year
Additional provision recognised
Amounts utilised during the year
Carrying amount at end of year
Consolidated
Bank
2013
$m
10,252.1
16,857.9
4,588.7
2012
$m
8,134.9
16,753.6
6,283.4
2013
$m
10,306.3
16,890.5
4,588.7
2012
$m
8,216.6
16,788.7
6,283.4
31,698.7
31,171.9
31,785.5
31,288.7
23,968.0
22,270.0
24,022.2
22,351.6
7,730.7
8,901.9
7,763.3
8,937.1
31,698.7
31,171.9
31,785.5
31,288.7
Consolidated
Bank
2013
$m
15.4
-
0.8
44.6
18.1
78.9
2012
$m
16.1
0.2
0.8
-
27.0
44.1
2013
$m
13.1
-
0.4
44.6
10.6
68.7
2012
$m
13.3
0.2
0.4
-
19.6
33.5
Other
$m
19.6
3.7
(12.7)
10.6
Consolidated
Bank
Leases
$m
Product Review
$m
0.8
0.2
(0.2)
0.8
-
46.0
(1.4)
44.6
Other
$m
27.0
5.3
(14.2)
18.1
Consolidated
Leases
$m
Product Review
$m
0.4
0.2
(0.2)
0.4
-
46.0
(1.4)
44.6
Bank
Leases
$m
Restructuring
$m
Other
$m
Leases
$m
Restructuring
$m
Other
$m
13.0
15.8
(1.8)
27.0
0.1
0.4
(0.1)
0.4
0.8
0.3
(1.1)
-
7.2
14.2
(1.8)
19.6
0.4
0.5
(0.1)
0.8
0.8
0.3
(1.1)
-
75
(1) Employee benefits provisions consist of annual leave and long service leave entitlements for employees.
(2) The Directors’ retiring allowance was frozen as at 31 August 2003 and the final benefit was paid this financial year.
(3) Product review provision for customer refunds and review costs.
(4) Other provisions include provision for non-lending losses and in the Consolidated Entity, insurance claims reserves.
Movements in provisions
Movements in each class of provision during the year, other than employee benefits, are as follows:
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013
21. BORROWINGS INCLUDING SUBORDINATED NOTES
The Consolidated Entity recorded the following movements on borrowings including subordinated notes:
Securitisation
liabilities (1)
$m
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes (2)
$m
Convertible
Preference
Shares (3)
$m
Syndicated
Loan
$m
Total
$m
Year ended 31 August 2013
Balance at beginning of year
Proceeds from issues
Exchange to CPS
Repayments
Deferred establishment costs
Amortisation of deferred costs
Foreign exchange translation
5,792.6
3,395.8
-
33.0
63.8
-
169.6
1,535.6
-
500.1
-
-
(3,461.0)
(11.0)
(1,341.4)
(229.9)
(8.6)
5.5
99.8
-
-
10.5
96.3
-
-
66.6
430.4
-
-
-
-
119.9
180.1
-
(8.1)
0.9
-
192.8
-
-
-
-
0.8
29.5
6,688.1
5,115.1
180.1
(5,043.3)
(16.7)
7.2
206.4
Balance at end of the year
5,824.1
270.2
292.8
223.1
7,136.9
Securitisation
liabilities (1)
$m
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes (2)
$m
Syndicated
Loan
$m
Total
$m
5,525.6
1,950.4
20.6
22.0
378.4
911.6
(1,667.1)
(10.0)
(1,127.0)
(4.0)
5.1
(17.4)
5,792.6
-
-
0.4
33.0
-
-
6.6
169.6
541.2
50.8
(91.9)
-
-
-
500.1
185.2
-
-
-
-
7.6
192.8
6,651.0
2,934.8
(2,896.0)
(4.0)
5.1
(2.8)
6,688.1
Year ended 31 August 2012
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred costs
Foreign exchange translation
Balance at end of the year
(1) Securitisation liabilities are secured by a floating charge over securitised assets for amounts owing to noteholders and any other secured creditors of the securitisation vehicles.
(2) Includes Convertible Notes which were issued in three tranches of $60 million (“Tranche 1”), $45 million (“Tranche 2”) and $45 million (“Tranche 3”), and are cumulative, convertible, subordinated notes due June 2020,
and pay, subject to a solvency condition, a monthly coupon equal to the 30 day bank bill rate plus 400 basis points. The Convertible Notes are unlisted. Tranche 2 and Tranche 3 were redeemed during the 2012 financial
year and Tranche 1 in the current financial year.
(3) 3,000,000 CPS were issued on 24 December 2012. CPS are fully-paid, perpetual, convertible, unguaranteed and unsecured preference shares with preferred, discretionary, non-cumulative dividends. CPS will mandatorily
convert into ordinary shares on 15 April 2020. The Bank is entitled to convert, redeem or transfer some or all of the CPS on the optional conversion/redemption date of 15 April 2018 subject to prior written approval from
APRA. The Bank is also entitled to convert, redeem or transfer some or all of the CPS on the occurrence of a regulatory event or tax event and in addition, conversion of the CPS into ordinary shares must occur immediately
following the occurrence of a capital trigger event or a non-viability trigger event. CPS rank for payment of capital ahead of ordinary shareholders, equally with PEPS and other securities or instruments ranking equally with
CPS, but behind all other securities or instruments ranking ahead of CPS, and behind all depositors and other creditors.
76
2013 Annual Report 21. BORROWINGS INCLUDING SUBORDINATED NOTES (CONTINUED)
The Bank recorded the following movements on borrowings including subordinated notes:
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes (2)
$m
Convertible
Preference
Shares (3)
$m
Syndicated
Loan
$m
Total
$m
Year ended 31 August 2013
Balance at beginning of year
Proceeds from issues
Exchange to CPS
Repayments
Deferred establishment costs
Amortisation of deferred costs
Foreign exchange translation
Balance at end of the year
Year ended 31 August 2012
Balance at beginning of year
Proceeds from issues
Repayments
Foreign exchange translation
Balance at end of the year
22. CAPITAL AND RESERVES
(a) Ordinary shares
Movements during the year
33.0
63.8
-
169.6
1,535.6
-
499.9
-
-
(11.0)
(1,341.4)
(229.7)
-
-
10.5
96.3
-
-
66.6
430.4
-
-
-
-
119.9
180.1
-
(8.1)
0.9
-
270.2
292.8
192.8
-
-
-
-
0.8
29.5
223.1
895.3
1,719.3
180.1
(1,582.1)
(8.1)
1.7
106.6
1,312.8
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes (2)
$m
Syndicated
Loan
$m
Total
$m
20.6
22.0
(10.0)
0.4
33.0
378.4
911.6
(1,127.0)
6.6
169.6
539.6
49.9
(89.6)
-
499.9
185.2
-
-
7.6
192.8
1,123.8
983.5
(1,226.6)
14.6
895.3
Consolidated
Bank
2013
Number
2012
Number
2013
Number
2012
Number
Balance at the beginning of the year – fully paid
308,797,525
225,369,848
308,797,525
225,369,848
Dividend reinvestment plan
Institutional placement and entitlement offer (1)
Retail entitlement offer (1)
Virgin Money (Australia) Pty Limited acquisition (2)
Balance at the end of the year – fully paid
Treasury shares (included in ordinary shares above)
Balance at the beginning of the year
Net acquisitions and disposals during the year
Balance at the end of the year
7,809,654
8,991,342
7,809,654
8,991,342
-
-
47,690,067
26,746,268
-
-
47,690,067
26,746,268
3,203,115
-
3,203,115
-
319,810,294
308,797,525
319,810,294
308,797,525
867,293
(704,922)
162,371
906,311
(39,018)
867,293
304,580
(274,729)
29,851
108,000
196,580
304,580
(1) In the prior year, the Bank completed a capital raising by way of Institutional Placement, Institutional Entitlement and Retail Entitlement offers of full paid ordinary shares at an issue price of $6.05 per share.
(2) On 30 April 2013, the Bank acquired 100% of Virgin Money (Australia) Pty Limited for consideration of $42.6 million. $30.6 million of new shares were issued in two tranches (Tranche 1 - 1,585,353 and Tranche 2
1,617,762) as part of the acquisition consideration. Fair value of the ordinary shares issued was based on the listed share price of BOQ at 30 April 2013 of $10.24 per share.
Terms and conditions
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings.
In the event of winding up of the Bank, ordinary shareholders rank after preference shareholders and creditors and are fully entitled to any residual proceeds of liquidation.
77
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 22. CAPITAL AND RESERVES (CONTINUED)
(b) Perpetual Equity Preference Shares (“PEPS”)
Balance at beginning of the year – fully paid
Exchange to CPS
Redemption of PEPs
Balance at end of the year – fully paid
Terms and conditions
Consolidated
Bank
2013
Number
2012
Number
2013
Number
2012
Number
2,000,000
2,000,000
2,000,000
2,000,000
(1,801,339)
(198,661)
-
-
(1,801,339)
(198,661)
-
-
-
2,000,000
-
2,000,000
The PEPS are fully paid, redeemable, perpetual, non-cumulative preference shares. Dividends are non-cumulative and payable semi-annually at the discretion of
Directors and subject to certain conditions being met, such as sufficient distributable profit. The Bank is entitled to redeem, buy-back or cancel the preference
shares on a call date (5 years from issue date) and each subsequent dividend payment date, subject to the prior written approval from the APRA. The Bank is also
entitled to redeem the preference shares on the occurrence of a regulatory event, tax event or a control event. The preference shareholders have no right to demand
redemption of preference shares but they are entitled to receive a liquidation amount being equal to the issue price plus all dividends due but unpaid. PEPS are
subordinate to all creditors and depositors, and rank ahead of ordinary shareholders for return of capital on liquidation.
The Bank redeemed all remaining PEPS on issue on 15 April 2013 in accordance with the PEPS terms of issue. The Bank paid a pro-rata dividend on 24 December
2012. The remaining 198,661 PEPS were redeemed at the redemption price of $100 per PEPS and the final PEPS dividend paid on 15 April 2013.
(c) Nature and purpose of reserves
Employee benefits reserve
The employee equity benefits reserve is used to record the value of share based payments provided to employees, including key management personnel, as part
of their remuneration. Refer to Note 38 for further details of these plans.
Equity reserve for credit losses
Refer to significant accounting policies Note 3 (t).
Available-for-sale reserve
Changes in the fair value of investments, such as bonds and floating rate notes classified as available-for-sale financial assets, are recognised in other comprehensive
income as described in Note 3(c) and accumulated in a separate reserve within equity. Amounts are reclassified to profit or loss when the associated assets are
sold or impaired.
Cash flow hedge reserve
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised in other comprehensive income, as
described in Note 3(c). Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss.
Translation reserve
As described in Note 3(b) and (c), the translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign
operations, as well as from the movement in fair value of derivatives that hedge the Bank’s net investment in a foreign subsidiary.
23. SEGMENT REPORTING
Segment information
The Bank has determined and presented the following two segments based on information provided to the Chief Operating Decision Maker.
Banking
Retail banking, commercial, personal, small business loans, equipment and debtor finance, savings and transaction accounts and treasury.
Insurance
Life insurance and income protection insurance.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance
assessment. Segment performance is evaluated based on operating profit or loss which in certain respects is measured differently from operating profit or loss in
the consolidated financial statements. Income taxes are managed within the individual operating segments and thus disclosed this way.
78
2013 Annual Report 23. SEGMENT REPORTING (CONTINUED)
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2013 or 2012.
(a) Financial information about reportable segments
The following table presents income and profit / (loss) and certain asset and liability information regarding the Bank’s operating segments.
Income
External
Inter-segment
Total operating income
Segment profit / (loss) before income tax
Income tax expense / (benefit)
Segment profit / (loss) after income tax
Results
Interest income
Interest expense
Depreciation and amortisation
Impairment losses
Assets
Liabilities
Banking
Insurance
Segment Total
2013
$m
2012 (1)
$m
2013
$m
2012 (1)
$m
2013
$m
2012 (1)
$m
816.3
5.7
822.0
249.6
82.2
167.4
2,297.5
1,602.5
27.4
114.6
42,415.5
39,621.5
763.4
6.6
770.0
(43.6)
(7.9)
(35.7)
2,598.6
1,944.7
40.7
401.0
41,633.5
38,764.6
39.6
-
39.6
27.0
7.8
19.2
-
1.9
0.4
-
145.4
118.5
40.9
-
40.9
26.4
6.3
20.1
-
2.4
0.7
-
159.7
126.5
855.9
5.7
861.6
276.6
90.0
186.6
2,297.5
1,604.4
27.8
114.6
42,560.9
39,740.0
804.3
6.6
810.9
(17.2)
(1.6)
(15.6)
2,598.6
1,947.1
41.4
401.0
41,793.2
38,891.1
Information provided to the Chief Operating Decision Maker no longer includes the BOQ Finance segment separately from Banking and Insurance. Therefore, the
BOQ Finance segment has been removed and included within the Banking segment.
2013
$m
2012 (1)
$m
2013
$m
2012 (1)
$m
Revenue
Profit/(loss) before tax
861.6
(5.7)
-
855.9
810.9
(6.6)
-
804.3
276.6
-
(0.8)
275.8
(17.2)
-
(2.1)
(19.3)
Assets
Liabilities
42,560.9
41,793.2
39,740.0
38,891.1
(33.9)
1.3
(36.2)
1.0
(33.9)
4.4
(36.2)
3.9
42,528.3
41,758.0
39,710.5
38,858.8
(b) Reconciliations
Segment total
Elimination of inter-segment revenue
Less other consolidation eliminations
Consolidated total
Segment total
Elimination of inter-segment bank accounts
Less other consolidation eliminations
Consolidated total
(1) The prior year has been restated so that the amounts are comparable to the current year.
(c) Geographical segments
The Consolidated Entity’s business segments operate principally in Australia.
79
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 24. RISK MANAGEMENT
The Consolidated Entity adopts a “managed risk” approach to its banking and insurance activities. As such, the articulation of a risk aware culture is prevalent
throughout the Consolidated Entity’s credit, liquidity, market, operational, insurance risk and compliance policies and procedures. The Board has adopted policies
in relation to the assessment, management and monitoring of these risks and ownership of the frameworks within which these risks are managed reside with the
Chief Risk Officer.
The Chief Risk Officer contributes towards the achievement of the Consolidated Entity’s corporate objectives through the operationalisation and progressive
development of the Bank’s risk management function. In particular, improvement of the risk management function is focussed in a number of areas:
1.
2.
3.
4.
5.
the efficiency and effectiveness of the Consolidated Entity’s credit, liquidity, market, operational risk and compliance management process controls and
policies to support improved competitive advantage, support growth and enable improved cost controls;
to provide management and the Board with risk reporting that contributes to the further development of sound corporate governance standards;
to maintain regulatory compliance in line with regulators’ expectations;
to provide a sound basis from which the Bank can progress to the required compliance level under the Basel II accord; and
to contribute to the Consolidated Entity achieving risk based performance management.
Group Risk is an independent function and is responsible for providing the framework, policies and procedures for managing credit, liquidity, market, operational
risk and compliance throughout the Group. Policies are set in line with the governing strategy and risk guidelines set by the Board.
Monitoring
The Consolidated Entity’s enterprise risk management framework incorporates active management and monitoring of a range of risks including (but not limited to):
1. Market
2. Credit
3. Operational
4. Liquidity
5.
Insurance
(a) Market risk
Market risk is the risk that movements in market rates and prices will result in profits or losses to the Bank. The objective of market risk management is to manage
and control market risk.
(i)
Interest Rate Risk in the Banking Book
The operations of the Bank are subject to the risk of interest rate fluctuations as a result of mismatches in the timing of the repricing of interest rates on the Bank’s
assets and liabilities.
It is the principal objective of the Bank’s asset/liability management process to maximise levels of net interest income whilst limiting the effects of volatile and
unpredictable movements in interest rates. To achieve these objectives, the Bank uses derivative financial instruments, principally interest rate swaps, forward rate
agreements and futures.
The current policy of the Bank is to eliminate market risk in the Balance Sheet where practical and to consciously establish specific positions within conservative
limits for changes in value of the residual risk.
A 1% parallel shock in the yield curve is used to determine the potential adverse change in net interest income in the ensuing 12 month period. This is a standard
risk quantification measure used by the Bank. A number of supplementary scenarios comprising variations in size and duration of interest rate moves together with
changes in the balance sheet size and mix are also used to provide a range of net interest income outcomes.
The figures in the table below indicate the potential increase in net interest income for an ensuing 12 month period. The change is expressed as a percentage and
dollar impact of expected net interest earnings based on a 1% parallel positive shock.
Consolidated and Bank
Exposure at the end of the year
Average monthly exposure during the year
High month exposure during the year
Low month exposure during the year
2013
%
0.90
0.78
1.41
0.16
2012
%
0.61
0.91
1.88
0.06
2013
$m
6.2
5.4
9.7
1.1
2012
$m
4.9
7.3
15.3
0.5
80
2013 Annual Report 24. RISK MANAGEMENT (CONTINUED)
(a) Market risk (continued)
(ii) Foreign exchange risk
It is the Bank’s policy not to carry material foreign exchange rate exposures. At balance date there are no material foreign exchange rate exposures.
The Bank uses cross currency swaps and foreign exchange forwards to hedge its exchange rate exposures arising from borrowing off-shore in foreign currencies.
The Bank uses forward foreign exchange contracts to hedge potential exchange rate exposures created by customer-originated foreign currency transactions.
The Bank’s investment in its New Zealand subsidiary is hedged by forward foreign exchange contracts which mitigate the currency risk arising from the subsidiary’s
net assets.
(iii) Traded market risk
Market risks attributable to trading activities are primarily measured using a parametric Value-at-Risk (“VaR”) based on historical data. BOQ estimates VaR as the
potential loss in earnings from adverse market movements and is calculated over a 1-day time horizon to a 99% confidence level using 2 years of historical data.
VaR takes account of all material market variables that may cause a change in the value of the trading portfolio. Although an important tool for the measurement
of market risk, the assumptions underlying the model have some limitations:
• VaR typically understates the losses that may occur beyond the 99% confidence level;
• The reliance on historical data may prove insufficient to predict the severity of possible outcomes; and
• A 1-day holding period assumes that it is possible to hedge or dispose of positions within that period. For certain illiquid assets or in certain market situations
this might not be possible.
As VaR is a statistical measure and only attempts to cover losses to a 99% confidence level, the Bank supplements this analysis with stress testing. Stress testing
attempts to adequately assess the risks inherent in its trading activities by applying appropriate scenario analyses, whilst not addressing the likelihood of those
outcomes.
As an overlay, the individual market risks of interest rate, FX, credit and equity sensitivities are monitored and measured against limits delegated by the ALCO.
The portfolio (interest rate, FX, credit and equity) VaR for the Bank’s trading portfolio for the year was as follows:
Trading VaR
Average
Maximum
Minimum
(b) Credit risk
2013
$m
0.80
1.67
0.35
2012
$m
1.59
2.61
0.96
Credit risk arises in the business from lending activities, the provision of guarantees including letters of credit and commitments to lend, investment in bonds and
notes, financial market transactions and other associated activities. Credit risk is the potential loss arising from the possibility that customers or counterparties fail
to meet contractual payment obligations to the Bank as they fall due.
The Board of Directors have implemented a structured framework of systems and controls to monitor and manage credit risk comprising:
•
•
•
•
•
documented credit risk management principles which are disseminated to all staff involved with the lending process;
documented policies;
a process for approving risk, based on tiered delegated approval authorities, whereby the largest exposures are assessed by a committee consisting of Group
Executives and senior risk managers chaired by the Chief Risk Officer;
risk grading the Bank’s commercial exposures for facilities greater than $100,000 based on items inclusive of financial performance and stability, organisational
structure, industry segment and security support. Exposures within this segment of the portfolio are generally subject to annual review including reassessment
of the assigned risk grade;
an automated scorecard approval model for the Bank’s retail portfolio inclusive of home loans, personal loans, and lines of credit. This model is supported by
experienced Risk Assessment Managers; and
•
a series of management reports detailing industry concentrations, counterparty concentrations, loan grades and security strength ratings.
81
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013
24. RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
The Consolidated Entity uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing
and investing activities. In accordance with its treasury policy, the Consolidated Entity can hold derivative financial instruments for trading purposes. Credit risk on
derivative contracts used for these purposes is minimised as counterparties are recognised financial intermediaries with acceptable credit ratings determined by
a recognised rating agency.
Maximum exposure to credit risk
The amounts disclosed are the maximum exposure to credit risk, before taking account of any collateral held or other credit enhancements. For financial assets
recognised on the Balance Sheet, the exposure to credit risk equals their carrying amount. For customer commitments, the maximum exposure to credit risk is the
full amount of the committed facilities as at the reporting date.
The carrying amount of the Consolidated Entity’s and Bank’s financial assets represents the maximum credit exposure. The maximum exposure to credit risk at
the reporting date was:
Cash and liquid assets
Due from other financial institutions
Other financial assets (including accrued interest)
Derivative financial instruments
Financial assets other than loans and advances
Gross loans and advances at amortised cost
Total financial assets
Customer commitments (1)
Consolidated
Bank
2013
$m
873.2
118.5
5,462.5
260.4
6,714.6
35,705.9
42,420.5
1,470.3
2012
$m
670.5
119.7
5,757.2
276.1
6,823.5
35,004.2
41,827.7
1,341.8
2013
$m
242.2
23.8
5,662.6
234.0
6,162.6
31,766.2
37,928.8
921.7
2012
$m
227.7
23.5
5,843.1
276.1
6,370.4
31,024.7
37,395.1
839.6
Total potential exposure to credit risk
43,890.8
43,169.5
38,850.5
38,234.7
(1) Refer to Note 30(b) for full details of customer commitments.
Distribution of financial assets by credit quality
Neither past due or impaired
Gross loans and advances at amortised cost
Financial assets other than loans and advances
Past due but not impaired
Consolidated
Bank
2013
$m
2012
$m
2013
$m
2012
$m
33,958.4
32,993.3
6,714.6
6,823.5
30,134.1
6,162.6
29,143.3
6,370.4
Gross loans and advances at amortised cost
1,365.9
1,485.6
1,269.7
1,380.9
Impaired
Gross loans and advances at amortised cost
381.6
525.3
362.4
500.5
42,420.5
41,827.7
37,928.8
37,395.1
There is no individual exposure included in impaired assets which exceeds 5.0% of shareholders’ equity (2012: nil).
The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property, other registered securities over assets and
guarantees and mortgage insurance. To mitigate credit risk, the Bank can take possession of the security held against the loans and advances as a result of
customer default. To ensure reduced exposure to losses, the collateral held by the Bank as mortgagee in possession is realised promptly.
82
2013 Annual Report 24. RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually
assessed as impaired. An estimate of the collateral held against past due but not impaired and impaired loans and advances at amortised cost is outlined below.
It is not practicable to determine the fair value of collateral held against performing loans.
Held against past due but not impaired assets
Held against impaired assets
Credit quality
Consolidated
Bank
2013
$m
1,679.0
260.4
2012
$m
1,777.9
349.3
2013
$m
1,608.1
252.1
2012
$m
1,710.6
337.4
The credit quality of financial assets has been determined based on Standard and Poors credit ratings, APRA risk weightings and the Bank’s standard risk grading.
The table below presents an analysis of the credit quality of financial assets:
Consolidated
2013
$m
2012
$m
Gross loans and advances
Gross loans and advances
Total
loans and
advances
Financial
assets other
than loans
and advances
Retail
Commercial
Total
loans and
advances
Financial
assets other
than loans
and advances
Retail
Commercial
22,172.9
2,231.4
24,404.3
6,704.8
21,384.4
1,896.8
23,281.2
6,813.6
3,618.4
457.4
468.3
5,173.0
1,553.4
31.1
8,791.4
2,010.8
499.4
-
9.8
-
3,616.1
590.1
547.7
5,469.0
1,500.1
-
9,085.1
2,090.2
547.7
-
9.9
-
26,717.0
8,988.9
35,705.9
6,714.6
26,138.3
8,865.9
35,004.2
6,823.5
Bank
2013
$m
2012
$m
Gross loans and advances
Gross loans and advances
Total
loans and
advances
Financial
assets other
than loans
and advances
Retail
Commercial
Total
loans and
advances
Financial
assets other
than loans
and advances
Retail
Commercial
22,172.9
1,525.3
23,698.2
5,932.1
21,384.4
1,651.6
23,036.0
6,273.1
3,618.3
2,783.7
457.4
468.3
709.2
31.1
6,391.7
1,208.0
468.3
142.3
88.2
-
3,616.1
2,481.7
590.1
547.7
753.1
-
6,097.8
1,343.2
547.7
59.5
37.8
-
26,716.9
5,049.3
31,766.2
6,162.6
26,138.3
4,886.4
31,024.7
6,370.4
High Grade
Satisfactory
Weak
Unrated (1)
High Grade
Satisfactory
Weak
Unrated (1)
(1) Those items that remain unrated for gross loans and advances represent mainly loans and advances, which although not secured, are not determined to be weak. Any loans which have been rated, have been included in
the appropriate category.
83
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 24. RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
Loans and advances which were past due but not impaired
Loans which are 90 or more days past due are not classified as impaired assets where the estimated net realisable value of the security is sufficient to cover the
repayment of all principal and interest amounts due.
Less than 30 days
31 to 90 days
More than 90 days
- Retail
- Commercial
- Retail
- Commercial
- Retail
- Commercial
Consolidated
Bank
2013
$m
2012
$m
2013
$m
2012
$m
611.4
231.5
176.2
76.0
152.2
118.6
651.7
233.2
162.8
91.3
231.8
114.8
611.4
159.8
176.2
56.5
152.2
113.6
651.7
157.9
162.8
68.1
231.8
108.6
1,365.9
1,485.6
1,269.7
1,380.9
Concentration of exposure for gross loans and advances at amortised cost
Concentration of credit risk exists when a number of counterparties are engaged in similar activities, or operate in the same geographical areas or industry sectors
and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes in economic, political or other
conditions.
The Bank monitors concentrations of credit risk by geographical location for loans and advances. An analysis of these concentrations of credit risk at the reporting
date is shown below:
Geographical concentration of credit risk for loans and advances at amortised cost
(before provisions and unearned income):
2013
$m
2012
$m
2013
$m
2012
$m
Consolidated
Bank
Queensland
New South Wales
Victoria
Northern Territory
Australian Capital Territory
Western Australia
South Australia
Tasmania
International (New Zealand)
20,580.5
20,893.2
19,169.4
19,348.4
5,387.8
5,659.0
237.2
347.2
4,631.1
5,477.1
182.9
413.5
4,517.2
4,849.3
231.7
227.0
3,864.0
4,653.9
176.1
222.0
2,885.1
2,807.4
2,458.7
2,437.2
213.8
196.9
198.4
205.4
223.8
169.8
120.3
192.6
-
102.5
220.6
-
35,705.9
35,004.2
31,766.2
31,024.7
84
2013 Annual Report 24. RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk
Liquidity risk arises from the possibility that the Bank is unable to meet its financial obligations as they fall due. Liquidity risk is managed through a series of
detailed policies, including the management of cash flow mismatches, the maintenance of a stable, core retail deposits base, the diversification of the funding base
and the retention of adequate levels of high quality liquid assets.
The Consolidated Entity manages liquidity risk by maintaining adequate reserves and facilities by continuously monitoring forecast and actual cash flows, matching
maturity profiles of financial assets and liabilities and liquidity scenario analysis.
Consolidated
2013
Financial liabilities
Carrying
amount
$m
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
Policyholder
$m
Due to other financial institutions
201.1
201.1
-
-
-
Deposits
31,698.7
13,156.5
13,627.5
6,601.0
1,657.9
Derivative financial instruments (1)
3.4
Accounts payable and other
liabilities
Securitisation liabilities (2)
Borrowings including
subordinated notes
Insurance policy liabilities
362.0
5,824.1
1,312.8
72.5
-
-
-
-
-
1.4
362.0
868.4
1.2
-
1.1
-
1,087.7
3,379.9
1,227.7
313.7
474.5
672.6
-
-
-
-
-
Total
39,474.6
13,357.6
15,173.0
8,164.4
5,711.5
1,227.7
Derivative financial
instruments (hedging
relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and
letters of credit
Customer funding commitments
Consolidated
2012
Financial liabilities
-
-
(103.3)
-
-
-
485.7
(533.7)
(48.0)
772.4
(802.1)
(29.7)
620.0
(582.0)
38.0
224.0
(225.6)
(1.6)
-
-
-
235.7
1,234.6
1,470.3
-
-
-
-
-
-
-
-
-
-
-
-
Carrying
amount
$m
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
Policyholder
$m
Due to other financial institutions
177.8
177.8
-
-
-
Deposits
31,171.9
10,879.2
16,682.0
4,586.2
2,197.8
Derivative financial instruments (1)
1.2
Accounts payable and other
liabilities
Securitisation liabilities (2)
Borrowings including
subordinated notes
Insurance policy liabilities
450.4
5,792.6
895.5
73.5
-
-
-
-
-
2.0
450.4
0.3
-
(0.7)
-
1,939.4
1,601.2
2,293.8
746.8
227.9
225.9
547.7
-
-
-
-
-
Total
38,562.9
11,057.0
19,301.7
6,413.6
5,038.6
746.8
(1) Derivative financial instruments other than those designated in a cashflow hedge relationship.
(2) Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
85
-
-
-
-
-
-
-
-
Total
contractual
cash flows
$m
201.1
35,042.9
3.7
362.0
6,563.7
1,460.8
72.5
43,706.7
2,102.1
(2,143.4)
(41.3)
235.7
1,234.6
1,470.3
Total
contractual
cash flows
$m
177.8
34,345.2
1.6
450.4
6,581.2
1,001.5
73.5
42,631.2
-
-
-
-
-
-
72.5
72.5
-
-
-
-
-
-
-
-
-
-
-
-
73.5
73.5
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 24. RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk (continued)
Consolidated
2012
Derivative financial
instruments (hedging
relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and
letters of credit
Customer funding commitments
Bank
2013
Financial liabilities
Carrying
amount
$m
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
Policyholder
$m
-
-
(19.9)
-
-
-
408.3
(506.8)
(98.5)
415.1
(409.0)
6.1
1,063.7
(990.4)
73.3
27.4
(19.9)
7.5
-
-
-
130.8
1,211.0
1,341.8
-
-
-
-
-
-
-
-
-
-
-
-
Carrying
amount
$m
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
-
-
-
-
-
-
Due to other financial institutions
201.1
201.1
-
-
-
Deposits
31,785.5
13,243.3
13,627.5
6,601.0
1,657.9
Derivative financial instruments (1)
3.4
Accounts payable and other
liabilities
Borrowings including
subordinated notes
Amounts due to controlled entities
320.7
1,312.8
2,457.5
-
-
-
1.4
320.7
1.2
-
1.1
-
313.7
474.5
672.6
2,457.5
-
-
-
Total
36,081.0
15,901.9
14,263.3
7,076.7
2,331.6
-
-
-
-
-
-
-
-
-
(101.6)
-
-
-
457.3
(507.8)
(50.5)
699.8
(738.5)
(38.7)
420.3
(418.5)
1.8
18.2
(11.4)
6.8
Derivative financial
instruments (hedging
relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and
letters of credit
Customer funding commitments
-
-
-
235.7
686.0
921.7
(1) Derivative financial instruments other than those designated in a cashflow hedge relationship.
-
-
-
-
-
-
-
-
-
-
-
-
86
Total
contractual
cash flows
$m
1,914.5
(1,926.1)
(11.6)
130.8
1,211.0
1,341.8
Total
contractual
cash flows
$m
201.1
35,129.7
3.7
320.7
1,460.8
2,457.5
39,573.5
1,595.6
(1,676.2)
(80.6)
235.7
686.0
921.7
2013 Annual Report 24. RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk (continued)
Bank
2012
Financial liabilities
Carrying
amount
$m
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
Due to other financial institutions
177.8
177.8
-
-
-
Deposits
31,288.7
10,996.0
16,682.0
4,586.2
2,197.8
Derivative financial instruments (1)
1.3
Accounts payable and other
liabilities
Borrowings including
subordinated notes
404.8
895.3
-
-
-
2.1
404.8
0.3
-
(0.7)
-
227.9
225.8
547.7
Amounts due to controlled entities
2,553.6
2,553.6
-
-
-
Total
35,321.5
13,727.4
17,316.8
4,812.3
2,744.8
-
-
-
-
-
-
-
Derivative financial
instruments (hedging
relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and
letters of credit
Customer funding commitments
-
-
(142.7)
-
-
-
373.0
(482.3)
(109.3)
282.2
(303.6)
(21.4)
693.2
(707.6)
(14.4)
27.4
(19.9)
7.5
-
-
-
130.8
708.8
839.6
-
-
-
-
-
-
-
-
-
-
-
-
(1) Derivative financial instruments other than those designated in a cashflow hedge relationship.
Total
contractual
cash flows
$m
177.8
34,462.0
1.7
404.8
1,001.4
2,553.6
38,601.3
1,375.8
(1,513.4)
(137.6)
130.8
708.8
839.6
87
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 24. RISK MANAGEMENT (CONTINUED)
(d) Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk failures could
lead to reputational damage, financial loss, legal disputes and/or regulatory consequences.
Group Risk are responsible for ensuring an appropriate framework exists to define, assess and manage operational risk and that resources are available to support it.
The Bank has developed an Operational Risk Management Framework (“ORMF”) which is designed to articulate, assess and manage operational risks throughout
the Bank and its subsidiaries. The key objectives of the framework are as follows:
• risk identification, analysis and acceptance;
• execution and monitoring of risk management practices; and
• reporting and escalation of risk information on a regular and/or exception basis.
The ORMF consists of the following mandatory elements:
• Bank-wide policies which require a consistent approach and minimum standards on specific operational risk matters;
• Enterprise and Business Unit Specific Risk profiling; and
• Risk Self Assessments through the completion of controls attestation questionnaires.
These provide the basis for the business unit and Bank-wide risk profiles. The Bank-wide risk profile is reported to the Board and Risk Committee on a regular basis.
(e) Insurance risk
(i) Risk management objectives and policies for risk mitigation
Insurance risks are controlled through the use of underwriting procedures, adequate premium rates and policy charges and sufficient reinsurance arrangements,
all of which are approved through a Board approved governance structure. Controls are also maintained over claims management practices to assure the correct
and timely payment of insurance claims.
(ii) Strategy for managing insurance risk
Portfolio of risks
The Bank’s insurance subsidiary issues consumer credit insurance, term life insurance, group life insurance, accidental death insurance and motor vehicle gap
insurance contracts. The performance of the Bank’s insurance subsidiary and its continuing ability to write business depends on its ability to pre-empt and control
risks. The Bank’s insurance subsidiary has a risk management strategy which has been approved by its Board. It summarises the approach to risk and risk
management.
Risk strategy
In compliance with contractual and regulatory requirements, a strategy is in place to ensure that the risks underwritten satisfy objectives whilst not adversely
affecting the Consolidated Entity’s ability to pay benefits and claims when due. The strategy involves the identification of risks by type, impact and likelihood, the
implementation of processes and controls to mitigate the risks, and continuous monitoring and improvement of the procedures in place to minimise the chance
of an adverse compliance or operational risk event occurring. Included in this strategy is the process for underwriting and product pricing to ensure products are
appropriately priced. Capital management is also a key aspect of the Consolidated Entity’s risk management strategy. Capital requirements take account of all of
the various regulatory reporting requirements to which the Consolidated Entity is subject.
Prudential capital requirements
Prudential capital requirements established by the APRA are in place to safeguard policyholders’ interests, which are primarily the ability to meet future claim
payments to policyholders. These require the Company’s Capital Base to exceed the Prudential Capital Requirement throughout the year, not just at year end. The
level of capital requirements also take into account specific risks faced by the Bank’s insurance subsidiary.
(iii) Methods to limit or transfer insurance risk exposures
Reinsurance
The insurance subsidiary uses reinsurance arrangements to pass on or cede to reinsurers, risks that are outside of the subsidiary’s risk appetite.
88
2013 Annual Report 24. RISK MANAGEMENT (CONTINUED)
(e) Insurance (continued)
(iii) Methods to limit or transfer insurance risk exposures (continued)
Underwriting procedures
Strategic underwriting decisions are put into effect using the underwriting procedures detailed in the Bank’s insurance subsidiary’s Underwriting Policy. Such
procedures include limits to delegated authorities and signing powers.
Claims management
Strict claims management procedures ensure timely and correct payment of claims in accordance with policy conditions.
Asset and liability management techniques
Assets are allocated to different classes of business using a risk based approach. The Bank’s insurance subsidiary has a mix of short and long term business and
invests accordingly. Market risk is managed through investing in cash and deposits, bank issued commercial bills, cash management trusts and managed income
funds. No more than 35% of shareholder funds and funds backing insurance policy liabilities can be invested with any one counterparty subject to counterparty
credit ratings.
(v) Concentration of insurance risk
Insurance risks associated with human life events
The Bank’s insurance subsidiary aims to maintain a stable age profile and mix of the sexes within its portfolio of policyholders. This policy maintains a balance
between the current and future profitability of the life business, and exposure to the significant external events. Despite the inevitable growth in policyholders at
the age of retirement, the age profile and mix of sexes within the population of policyholders is sufficiently spread so that the risk concentration in relation to any
particular age group is minimal.
25. CAPITAL MANAGEMENT
The Bank and Consolidated Entity’s capital management strategy aims to ensure that the Consolidated Entity maintains adequate capital to act as a buffer against
risks associated with activities whilst maximising returns to shareholders. The Bank’s capital is measured and managed in line with Prudential Standards issued by
APRA. This regulatory capital differs from statutory capital in that certain liabilities such as preference shares are considered capital from a regulatory perspective
and certain assets including goodwill and other intangibles are considered a deduction from regulatory capital.
The Bank and Consolidated Entity have a capital management plan, consistent with their overall business plans, for managing capital levels on an ongoing basis.
This plan sets out:
(i) the strategy for maintaining adequate capital over time including the capital target, how the target level is to be met and the means available for sourcing
additional capital when required; and
(ii) the actions and procedures for monitoring compliance with minimum regulatory capital adequacy requirements, including trigger ratios to alert management
to, and avert, potential breaches of these requirements.
For capital adequacy purposes, a bank’s capital base is the sum of Tier 1 Capital and Tier 2 Capital, net of specified deductions;
• Under APRA’s previous prudential standards, Tier 1 Capital is comprised of Fundamental Tier 1 Capital and Residual Tier 1 Capital.
• Effective 1 January 2013, Tier 1 Capital will be comprised of Common Equity Tier 1 Capital and Additional Tier 1 Capital.
The capital management plan is updated at least annually and submitted to the Board for approval. Current and projected capital positions are reported to the
Board and APRA on a monthly basis.
89
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 25. CAPITAL MANAGEMENT (CONTINUED)
The Board has set Tier 1 Capital target range to be between 8.5% and 10% of risk weighted assets and the total capital range to be between 11.5% and 13% of
risk weighted assets. The total capital adequacy ratio at 31 August 2013 was 12.2% and the Net Tier 1 Capital was 10.0%.
Net Tier 1 Capital of 10.0% is represented by 8.6% of Net Common Equity Tier 1 Capital and 1.4% of Additional Tier 1 Capital.
From 1 January 2013 Basel III became effective. The key features of Basel III are:
• a new definition of regulatory capital under which common equity is the predominant form of Tier 1 Capital;
• a stricter approach to regulatory adjustments under which most deductions from capital are to be from Common Equity Tier 1 Capital; and
• an increase in the minimum amounts of capital that ADIs must hold. Common Equity Tier 1 Capital must be at least 4.5% of total risk weighted assets and the
Tier 1 Capital ratio at least 6%.
Qualifying capital
Common Equity Tier 1 Capital
Paid-up ordinary share capital
Reserves
Retained profits, including current year profits
Total Common Equity Tier 1 Capital
Regulatory adjustments
Deferred expenditure
Goodwill and intangibles
Other deductions
Total Regulatory adjustments
Net Common Equity Tier 1 Capital
Additional Tier 1 Capital
Net Tier 1 Capital
Tier 2 Capital
Tier 2 Capital
General Reserve for Credit Losses
Other
Tier 2 regulatory adjustments
Net Tier 2 Capital
Capital Base
Risk Weighted Assets
Capital Adequacy Ratio
Consolidated (1)
2013
$m
2012
$m
2,562.6
2,464.6
41.7
149.6
33.3
116.8
2,753.9
2,614.7
(124.5)
(586.8)
(182.0)
(893.3)
1,860.6
300.0
(106.8)
(541.1)
(164.4)
(812.3)
n/a
195.7
2,160.6
1,998.1
270.0
207.7
n/a
n/a
477.7
499.9
184.2
8.5
(31.5)
661.1
2,638.3
2,659.2
21,551.7
21,098.1
12.2%
12.6%
(1) Basel III came into effect from 1 January 2013. The standard amendments have resulted in changes to terminology and the calculation of capital. The above table reflects the terminology used under the new framework
from August 2013. The August 2012 comparative balances have been compared with the most appropriate line under the new framework.
90
2013 Annual Report 26. FINANCIAL INSTRUMENTS
(a) Derivative financial instruments
The Consolidated Entity and Bank used derivative financial instruments for both hedging and trading purposes in the current year. Refer to Note 24 (a) for an
explanation of the Consolidated Entity’s and Bank’s risk management framework.
The following table summarises the notional and fair value of the Consolidated Entity’s and Bank’s commitments to derivative financial instruments at reporting
date. Fair value in relation to derivative financial instruments is calculated using the quoted market price less transaction costs. Where the instrument does not
have a quoted market price, fair value is estimated using net present value techniques.
Derivatives at fair value through income
statement
Interest Rate Swaps
Foreign Exchange Forwards
Futures
Derivatives held as cash flow hedges
Interest Rate Swaps
Cross Currency Swaps
Foreign Exchange Forwards
Derivatives designated as net investment
hedges
Foreign Exchange Forwards
Derivatives at fair value through income
statement
Interest Rate Swaps
Foreign Exchange Forwards
Futures
Derivatives held as cash flow hedges
Interest Rate Swaps
Cross Currency Swaps
Foreign Exchange Forwards
Notional
Amount
$m
18,519.9
72.4
8,300.0
26,892.3
22,857.4
914.5
455.6
24,227.5
15.5
51,135.3
Notional
Amount
$m
18,519.9
87.9
8,300.0
26,907.8
22,857.4
377.3
455.6
23,690.3
50,598.1
Consolidated
2013
Fair Value
2012
Fair Value
Asset / (Liability)
Notional Amount
Asset / (Liability)
Asset
$m
Liability
$m
$m
Asset
$m
Liability
$m
18.8
1.5
5.8
26.1
143.6
57.4
33.1
234.1
0.2
260.4
(2.5)
(0.9)
-
(3.4)
(94.6)
(38.5)
(0.9)
18,100.0
68.9
6,085.7
24,254.6
0.1
0.7
3.6
4.4
29,014.0
268.3
832.1
129.8
(134.0)
29,975.9
-
12.9
(137.4)
54,243.4
Bank
0.9
2.5
271.7
-
276.1
(0.9)
(0.3)
-
(1.2)
(118.3)
(133.3)
(0.2)
(251.8)
-
(253.0)
2013
Fair Value
2012
Fair Value
Asset / (Liability)
Notional Amount
Asset / (Liability)
Asset
$m
Liability
$m
$m
Asset
$m
Liability
$m
(2.5)
(0.9)
-
(3.4)
(94.6)
(10.6)
(0.9)
(106.1)
(109.5)
18,100.0
81.8
6,085.7
24,267.5
0.1
0.7
3.6
4.4
29,014.0
268.3
307.0
129.8
29,450.8
53,718.3
0.9
2.5
271.7
276.1
(0.9)
(0.4)
-
(1.3)
(118.3)
(10.5)
(0.2)
(129.0)
(130.3)
18.8
1.7
5.8
26.3
143.6
31.0
33.1
207.7
234.0
91
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 26. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Other financial instruments
The fair value estimates for specific instruments are based on the following methodologies and assumptions:
Cash and liquid assets, due from and to other financial institutions, accounts payable and other liabilities
The fair value approximates their carrying value as they are short term in nature or are receivable or payable on demand.
Loans and advances
Loans and advances are net of specific and collective provisions for doubtful debts and unearned income. The fair values of loans and advances that reprice within
six months of year end are assumed to equate to the carrying value. The fair values of all other loans and advances are calculated using discounted cash flow
models based on the maturity of the loans and advances. The discount rates applied are based on the current interest rates at the reporting date for similar types
of loans and advances, if the loans and advances were performing at the reporting date. The differences between estimated fair values of loans and advances and
carrying value reflect changes in interest rates and creditworthiness of borrowers since loan or advance origination.
Deposits
The fair value of non-interest-bearing, call and variable rate deposits and fixed rate deposits repricing within six months is the carrying value. The fair value of other
term deposits is calculated using discounted cash flow models based on the deposit type and its related maturity.
Borrowings including subordinated notes
The fair values are calculated based on a discounted cash flow model using a yield curve appropriate to the remaining maturity of the instruments. Fair values of
financial instruments at the reporting date are as follows:
Consolidated Entity
Carrying value
Fair value
Note
2013
$m
2012
$m
2013
$m
2012
$m
Assets carried at fair value
Available for sale financial assets
Financial assets designated at fair value through
profit and loss
Derivative assets
Assets carried at amortised cost
Cash and liquid assets
Due from other financial institutions
Loans and advances at amortised cost
Liabilities carried at fair value
Derivative liabilities
Insurance policy liabilities
Liabilities carried at amortised cost
Due to other financial institutions
Deposits
Borrowings including subordinated notes
Accounts payable and other liabilities
11
11
26
9
10
12
26
37
18
19
21
1,066.8
1,064.9
1,066.8
1,064.9
4,334.6
260.4
5,661.8
873.2
118.5
34,989.3
35,981.0
(137.4)
(72.5)
(209.9)
(201.1)
(31,698.7)
(7,136.9)
(362.0)
4,624.5
276.1
5,965.5
670.5
119.7
34,147.2
34,937.4
(253.0)
(73.5)
(326.5)
(177.8)
(31,171.9)
(6,688.1)
(450.4)
4,334.6
260.4
5,661.8
873.2
118.5
35,104.7
36,096.4
(137.4)
(72.5)
(209.9)
(201.1)
(31,766.7)
(7,168.7)
(362.0)
(39,398.7)
(38,488.2)
(39,498.5)
4,624.5
276.1
5,965.5
670.5
119.7
34,290.6
35,080.8
(253.0)
(73.5)
(326.5)
(177.8)
(31,240.9)
(6,738.6)
(450.4)
(38,607.7)
92
2013 Annual Report 26. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Other financial instruments (continued)
Bank
Carrying value
Fair value
Note
2013
$m
2012
$m
2013
$m
2012
$m
Assets carried at fair value
Available for sale financial assets
Financial assets designated at fair value through
profit and loss
Derivative assets
Assets carried at amortised cost
Cash and liquid assets
Due from other financial institutions
Loans and advances at amortised cost
Liabilities carried at fair value
Derivative liabilities
Liabilities carried at amortised cost
Due to other financial institutions
Deposits
Borrowings including subordinated notes
Accounts payable and other liabilities
Amounts due to controlled entities
11
11
26
9
10
12
26
18
19
21
1,268.4
1,152.4
1,268.4
1,152.4
4,334.6
234.0
5,837.0
242.2
23.8
31,491.2
31,757.2
4,624.5
276.1
6,053.0
227.7
23.5
30,654.6
30,905.8
4,334.6
234.0
5,837.0
242.2
23.8
31,540.8
31,806.8
4,624.5
276.1
6,053.0
227.7
23.5
30,710.8
30,962.0
(109.5)
(130.3)
(109.5)
(130.3)
(201.1)
(31,785.5)
(1,312.8)
(320.7)
(2,457.5)
(36,077.6)
(177.8)
(31,288.7)
(895.3)
(404.8)
(2,553.6)
(35,320.2)
(201.1)
(31,853.5)
(1,344.6)
(320.7)
(2,457.5)
(36,177.4)
(177.8)
(31,357.7)
(945.8)
(404.8)
(2,553.6)
(35,439.7)
The estimated fair values disclosed do not include the assets and liabilities that are not financial instruments.
Interest rates used for determining fair values
The interest rates used to discount estimated cash flows, when applicable, are based on the Bank’s yield curve at the reporting date plus an adequate credit
spread, and were as follows:
Derivatives, deposits and borrowings including subordinated notes
Leases
Loans and advances at amortised cost
Fair value hierarchy
2013
2012
2.51% - 4.58%
3.56% - 3.95%
6.24% - 13.5%
6.79% - 20.3%
4.75% - 6.85%
5.55% - 7.3%
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
There were no material movements in Level 3 during the year.
93
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 26. FINANCIAL INSTRUMENTS (CONTINUED)
(b) Other financial instruments (continued)
Consolidated Entity
Instruments carried at fair value
Available for sale financial assets
Financial assets designated at fair value through profit and loss
Derivative assets
Derivative liabilities
Consolidated Entity
Instruments carried at fair value
Available for sale financial assets
Financial assets designated at fair value through profit and loss
Derivative assets
Derivative liabilities
Bank
Instruments carried at fair value
Available for sale financial assets
Financial assets designated at fair value through profit and loss
Derivative assets
Derivative liabilities
Bank
Instruments carried at fair value
Available for sale financial assets
Financial assets designated at fair value through profit and loss
Derivative assets
Derivative liabilities
2013
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
426.2
134.2
-
560.4
-
560.4
630.8
4,200.4
260.4
5,091.6
(137.4)
4,954.2
2012
Level 1
$m
Level 2
$m
Level 3
$m
454.1
-
-
454.1
-
454.1
600.9
4,624.5
276.1
5,501.5
(253.0)
5,248.5
2013
Level 1
$m
Level 2
$m
Level 3
$m
426.2
134.2
-
560.4
-
560.4
832.4
4,200.4
234.0
5,266.8
(109.5)
5,157.8
2012
Level 1
$m
Level 2
$m
Level 3
$m
688.4
4,624.5
276.1
5,589.0
(130.3)
5,458.7
454.1
-
-
454.1
-
454.1
94
9.8
-
-
9.8
-
9.8
9.9
-
-
9.9
-
9.9
9.8
-
-
9.8
-
9.8
9.9
-
-
9.9
-
9.9
1,066.8
4,334.6
260.4
5,661.8
(137.4)
5,524.4
Total
$m
1,064.9
4,624.5
276.1
5,965.5
(253.0)
5,712.5
Total
$m
1,268.4
4,334.6
234.0
5,837.0
(109.5)
5,727.5
Total
$m
1,152.4
4,624.5
276.1
6,053.0
(130.3)
5,922.7
2013 Annual Report 27. NOTES TO THE STATEMENTS OF CASH FLOWS
Reconciliation of profit / (loss) for the year to net cash provided by operating activities.
Consolidated
Bank
Profit / (loss) from ordinary activities after income tax
Add / (less) items classified as investing / financing activities or
non-cash items
Depreciation
Amortisation
Dividends received from subsidiaries
Software amortisation
Investments equity accounted
Equity settled transactions
(Profit) / loss on sale of property, plant and equipment
(Increase) / decrease in due from other financial institutions
(Increase) / decrease in other financial assets
(Increase) in loans and advances at amortised cost
(Increase) / decrease in derivatives
Increase / (decrease) in provision for impairment
(Increase) / decrease in deferred tax asset
(Increase) in other assets
Decrease in amounts due from controlled entities
Increase in due to other financial institutions
Increase in deposits
Increase / (decrease) in accounts payable and other liabilities
Increase / (decrease) in current tax liabilities
Increase in provisions
Decrease in deferred tax liabilities
Decrease in insurance policy liabilities
Increase in borrowings including subordinated notes
Net cash from operating activities
2013
$m
185.8
16.1
16.0
-
18.6
1.1
5.2
(3.2)
1.2
288.0
(741.6)
(25.4)
(100.5)
41.4
(16.7)
-
23.3
518.3
(75.2)
23.3
35.9
(18.8)
(1.0)
28.8
220.6
2012
$m
(17.1)
14.8
4.0
-
24.6
-
4.4
5.5
12.2
(529.4)
(1,030.2)
(155.4)
159.1
(67.1)
(7.9)
-
8.6
1,530.1
19.2
(80.5)
14.1
(13.2)
(5.7)
265.9
156.0
2013
$m
169.7
7.3
1.4
(23.3)
16.5
-
4.6
(0.1)
(0.3)
174.0
(741.5)
(25.3)
(95.1)
23.1
(1.8)
(212.3)
23.3
488.2
(75.3)
24.3
35.2
(11.5)
-
-
2012
$m
(3.8)
7.7
1.3
(44.2)
22.3
-
4.4
7.7
2.4
(544.2)
(1,067.6)
(185.1)
158.7
(55.3)
(54.6)
(121.3)
8.6
1,398.4
42.8
(81.7)
12.1
13.9
-
-
(218.9)
(477.5)
Cash flows from the following activities are presented on a net basis in the statements of cash flows:
• Sales and purchases of investment securities;
• Customer deposits in and withdrawals from deposit accounts; and
• Loan drawdowns and repayments.
28. AUDITOR’S REMUNERATION
Consolidated
Bank
Audit services – KPMG Australia
- Audit and review of the financial reports
- Other regulatory and audit services
Audit related services – KPMG Australia
- Other assurance services (1)
2012
$’000
1,127.1
532.6
1,659.7
123.9
123.9
2013
$’000
595.9
182.2
778.1
-
-
2012
$’000
818.3
346.1
1,164.4
-
-
2013
$’000
919.8
342.2
1,262.0
230.2
230.2
95
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 28. AUDITOR’S REMUNERATION (CONTINUED)
Non-audit services – KPMG Australia
- Taxation services
- Compliance services
- Other
- Due diligence services
Consolidated
Bank
2013
$’000
2012
$’000
2013
$’000
2012
$’000
225.1
249.2
88.7
64.5
627.5
222.5
-
75.6
103.2
401.3
225.1
249.2
72.6
64.5
611.4
218.2
-
75.6
103.2
397.0
(1) Other assurance services comprise audit related services provided in relation to mortgage securitisation trusts which are consolidated under Australian Accounting Standards.
29. CONTINGENT LIABILITIES
Guarantees
Letters of credit
Guarantees, indemnities and letters of credit
Consolidated
Bank
2013
$m
227.3
8.4
2012
$m
123.4
7.4
2013
$m
227.3
8.4
2012
$m
123.4
7.4
There are contingent liabilities arising in the normal course of business for which there are equal and opposite contingent assets and against which no loss is
anticipated. Guarantees are provided to third parties on behalf of customers. The credit risks of such facilities are similar to the credit risks of loans and advances.
Legal proceedings
On 22 December 2010, the Australian Securities and Investment Commission (“ASIC”) lodged legal proceedings against parties including the Bank, arising out of
the collapse of Storm Financial. One proceeding has been heard and the Bank is awaiting judgement. The proceedings are regulatory in nature. At this stage no
estimate of any potential liability can be made.
On 6 December 2012 a class action was commenced against the Bank, also arising out of the collapse of Storm Financial. The Bank’s intention is to defend this
action vigorously. At this stage no estimate of any potential liability can be made.
The trials involving the Bank by a number of former Owner Managers in NSW are almost complete with only closing submissions remaining. It is expected that
closing submissions will be completed by the end of October 2013. It is not known when judgement will be delivered. At this stage no estimate of any potential
liability can be made.
30. COMMITMENTS
Consolidated
Bank
2013
$m
2012
$m
2013
$m
2012
$m
(a) Lease commitments
Future rentals in respect of operating leases (principally in respect of premises) not provided for in these financial statements comprise amounts payable:
Within 1 year
Between 1 year and 5 years
Later than 5 years
(b) Customer funding commitments
Loans to customers approved but not drawn at year end
Amounts undrawn against lines of credit
39.0
65.6
0.3
104.9
1,021.5
448.8
1,470.3
41.6
70.6
2.5
114.7
1,008.7
333.1
1,341.8
37.1
61.7
0.3
99.1
564.5
357.2
921.7
40.0
65.2
2.5
107.7
588.2
251.4
839.6
In the normal course of business the Bank makes commitments to extend credit to its customers. Most commitments either expire if not taken up within a specified
time or can be cancelled by the Bank within one year. Credit risk is significantly less than the notional amount and does not crystallise until a commitment is funded.
96
2013 Annual Report 31. CONTROLLED ENTITIES
(a) Particulars in relation to controlled entities
Parent entity’s
interest
Amount of Investment
(at cost)
Controlled entities:
B.Q.L. Management Pty Ltd
B.Q.L. Nominees Pty Ltd
B.Q.L. Properties Limited
Queensland Electronic Switching Pty Ltd
BOQ Equipment Finance Limited
St Andrew’s Australia Services Pty Ltd
Series 2005-1 REDS Trust
Series 2005-2 REDS Trust
REDS Warehouse Trust No.1
REDS Warehouse Trust No.2
Series 2006-1E REDS Trust
Series 2007-1E REDS Trust
Series 2007-2 REDS Trust
Series 2008-1 REDS Trust
Series 2008-2 REDS Trust
Series 2009-1 REDS Trust
REDS Warehouse Trust No.3
Series 2010-1 REDS Trust
Series 2010-2 REDS Trust
Series 2012-1E EHP REDS Trust
Series 2012-1E REDS Trust
Series 2013-1 EHP REDS Trust
Series 2013-1 REDS Trust
Pioneer Permanent Building Society Limited
Home Building Society Ltd
Home Financial Planning Pty Ltd
Home Credit Management Ltd
Statewest Financial Services Ltd
Statewest Financial Planning Pty Ltd
BOQ Share Plans Nominee Pty Ltd
Bank of Queensland Limited Employee Share Plans Trust
St Andrew’s Life Insurance Pty Ltd
St Andrew’s Insurance (Australia) Pty Ltd
BOQ Finance (Aust) Limited
BOQ Credit Pty Limited
BOQ Funding Pty Limited
BOQ Finance (NZ) Limited
Equipment Rental Billing Services Pty Ltd
Hunter Leasing Ltd
Newcourt Financial (Australia) Pty Limited
Virgin Money (Australia) Pty Limited
Virgin Money Home Loans Pty Limited
Virgin Money Financial Services Pty Ltd
2013
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2012
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
2013
$m
-
-
5.0
-
0.1
15.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2012
$m
-
-
5.0
-
0.1
15.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60.1
600.2
60.1
600.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
230.2
230.2
-
-
22.1
-
-
-
42.6
-
-
-
-
22.1
-
-
-
-
-
-
975.7
933.1
97
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 31. CONTROLLED ENTITIES (CONTINUED)
(b) Acquisition of controlled entities
On 30 April 2013, the Bank acquired 100% of Virgin Money (Australia) Pty Limited (“VMA”) for consideration of $42.6 million. $30.6 million of new shares were
issued in two tranches (Tranche 1 - 1,585,353 and Tranche 2 - 1,617,762) as part of the acquisition consideration. Fair value of the ordinary shares issued was
based on the listed share price of BOQ at 30 April 2013 of $10.24 per share.
VMA engages in the provision of financial services (e.g: insurance, superannuation and home lending) on behalf of business partners. The Bank purchased VMA
to expand its customer reach.
In the period from 30 April 2013 to 31 August 2013 VMA contributed a loss after tax of $0.2 million.
The provisional acquisition accounting had the following effect on the consolidated entity’s assets and liabilities:
Cash
Property, plant and equipment
Other assets
Unearned income
Accounts payable and other liabilities
Provisions
Net identifiable assets and liabilities
Goodwill and other identifiable assets on acquisition
Total Consideration
Consideration paid, satisfied in cash
Equity purchase consideration
Cash acquired
Net cash outflow
Recognised values
on acquisition
$m
Pre-acquisition
carrying amounts
$m
3.9
0.1
2.5
(1.3)
(15.6)
(0.5)
(10.9)
3.9
0.1
2.5
(1.3)
(5.7)
(0.5)
(1.0)
43.6
42.6
9.8
32.8
(3.9)
5.9
At 31 August 2013, the acquisition accounting balances were provisional due to ongoing work related to various matters which will impact the acquisition
accounting entries.
The following entities were established during the financial year:
• Series 2012-1E REDS Trust was opened on 15 November 2012.
• Series 2013-1 EHP REDS Trust was opened on 17 May 2013.
• Series 2013-1 REDS Trust was opened on 26 July 2013.
(c) Disposal of controlled entities
Series 2005-1 REDS Trust was closed on 12 February 2013.
32. RELATED PARTIES INFORMATION
Controlled entities
Details of interests in controlled entities are set out in Note 31.
During the year there have been transactions between the Bank and all of its controlled entities. The Bank conducted normal banking business with its operating
controlled entities. Amounts owing to or from controlled entities do not attract interest, except in respect of BOQ Equipment Finance Limited, St Andrew’s Australia
Services Pty Ltd, BOQ Finance (Aust) Ltd and BOQ Finance (NZ) Ltd where interest is charged on normal terms and conditions.
The Bank receives management fees from B.Q.L. Management Pty Ltd and BOQ Equipment Finance Limited.
The Bank has a related party relationship with equity accounted investees, refer to Note 37.
98
2013 Annual Report 33. AVERAGE BALANCES AND MARGIN ANALYSIS
Interest earning assets
Gross loans and advances at amortised cost (1)
Investments and other securities (1)
Total interest earning assets
Non-interest earning assets
Property, plant and equipment
Other assets
Provision for impairment
Total non-interest earning assets
Total assets
Interest bearing liabilities
Retail deposits (1)
Wholesale deposits and borrowings (1)
Total interest bearing liabilities
Non-interest bearing liabilities
Total liabilities
Shareholders' funds
Total liabilities and shareholders' funds
Interest margin and interest spread
Interest earning assets
Interest bearing liabilities
Net interest spread (2)
Average
Balance
$m
35,054.1
6,027.8
41,081.9
36.8
1,367.8
(376.3)
1,028.3
42,110.2
22,890.9
15,677.4
38,568.3
705.4
39,273.7
2,836.5
42,110.2
Consolidated
2013
Interest
$m
2,084.3
213.1
2,297.4
Average
Rate
%
Average
Balance
$m
5.95
3.54
5.59
34,060.9
5,348.9
39,409.8
Consolidated
2012
Interest
$m
2,345.1
251.1
2,596.2
Average
Rate
%
6.89
4.69
6.59
31.8
1,125.4
(367.8)
789.4
40,199.2
20,923.5
15,850.0
36,773.5
741.6
37,515.1
2,684.1
40,199.2
1,025.8
918.9
1,944.7
897.9
706.4
1,604.3
3.92
4.51
4.16
41,081.9
38,568.3
2,297.4
1,604.3
5.59
4.16
1.43
1.69
39,409.8
36,773.5
2,596.2
1,944.7
39,409.8
651.5
4.90
5.80
5.29
6.59
5.29
1.30
1.65
Net interest margin - on average interest earning assets
41,081.9
693.1
(1) Calculated on average monthly balances.
(2) Interest spread is calculated after taking into account third party and OMB commissions.
99
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 34. DEED OF CROSS GUARANTEE
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, certain wholly-owned subsidiaries are relieved from the Corporations Act 2001
requirements for preparation, audit and lodgement of financial reports, and Directors’ reports.
It is a condition of the Class Order that the Bank and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Bank
guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001.
If a winding up occurs under other provisions of the Act, the Bank will only be liable in the event that after six months any creditor has not been paid in full. The
subsidiaries have also given similar guarantees in the event that the Bank is wound up.
The subsidiaries to the Deed are:
• B.Q.L. Properties Limited;
• BOQ Equipment Finance Limited;
• B.Q.L. Management Pty Ltd;
• St Andrew’s Australia Services Pty Ltd;
• B.Q.L. Nominees Pty Ltd;
• Queensland Electronic Switching Pty Ltd;
• BOQ Share Plans Nominee Pty Ltd;
• Pioneer Permanent Building Society Limited;
• Home Building Society Ltd;
• Home Credit Management Ltd;
• StateWest Financial Services Limited;
• BOQ Finance (Aust) Limited;
• BOQ Credit Pty Limited;
• BOQ Funding Pty Limited;
•
Equipment Rental Billing Services Pty Ltd;
• Hunter Leasing Ltd; and
• Newcourt Financial (Australia) Pty Limited.
A consolidated Income Statement and consolidated Balance Sheet, comprising the Bank and its controlled entities which are a party to the Deed, after eliminating
all transactions between parties to the Deed of Cross Guarantee, at 31 August 2013 is set out as follows:
SUMMARISED INCOME STATEMENT AND RETAINED PROFITS
Consolidated
2013
$m
273.3
(80.7)
192.6
138.2
(174.6)
-
156.2
192.7
192.7
2012
$m
(33.0)
4.7
(28.3)
321.1
(151.7)
(2.9)
138.2
(28.3)
(28.3)
Profit / (loss) before tax
Less: Income tax (expense) / benefit
Profit / (loss) for the year
Retained profits at beginning of year
Dividends to shareholders
Transfers to and from reserves
Retained profits at end of year
Profit / (loss) attributable to:
Equity holders of the parent
Profit / (loss) for the year
100
2013 Annual Report Consolidated
2013
$m
350.9
1.9
5,602.0
234.0
34,992.4
284.2
92.4
29.6
-
104.5
543.6
21.4
2012
$m
258.8
4.4
5,777.0
276.1
34,147.2
258.7
49.8
31.0
0.7
118.1
541.3
22.2
42,256.9
41,485.3
201.1
31,705.3
109.5
348.9
23.0
73.9
1,300.9
5,666.6
39,429.2
177.8
31,188.0
130.3
434.3
-
40.9
886.8
5,710.3
38,568.4
2,827.7
2,916.9
2,562.6
108.9
156.2
2,827.7
2,660.1
118.6
138.2
2,916.9
34. DEED OF CROSS GUARANTEE (CONTINUED)
Assets
Cash and liquid assets
Due from other financial institutions
Other financial assets
Derivative financial instruments
Loans and advances at amortised cost
Other assets
Shares in controlled entities
Property, plant and equipment
Current tax asset
Deferred tax assets
Intangible assets
Investments in accounted for using the equity method
Total assets
Liabilities
Due to other financial institutions
Deposits
Derivative financial instruments
Accounts payable and other liabilities
Current tax liabilities
Provisions
Borrowings including subordinated notes
Amounts due to controlled entities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
101
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 35. INSURANCE BUSINESS
The effective date of the actuarial report on life insurance policy liabilities and regulatory capital requirements, is 31 August 2013. The actuarial report was
prepared by Mr Wayne Kenafacke, Fellow of the Institute of Actuaries of Australia. This report indicates that Mr Kenafacke is satisfied as to the accuracy of the
data upon which policy liabilities have been determined.
The amount of policy liabilities have been determined in accordance with methods and assumptions disclosed in this financial report and the requirements of
applicable accounting standards. Specifically, policy liabilities for life insurance contracts are determined in accordance with AASB 1038 Life Insurance Contracts.
In addition, life insurance contract liabilities have been calculated in accordance with relevant actuarial guidance being LPS: 340 Valuation of Policy Liabilities.
The Prudential Standard requires policy liabilities to be calculated in a way which allows for the systematic release of planned margins as services are provided to
policyholders and premiums are received.
The methods used for the major product groups in order to achieve the systematic release of planned margins were as follows:
Product group
Consumer credit insurance
Direct Life
Real / Asia
Method (Projection or other)
Profit Carriers
Accumulation
Accumulation
Accumulation
N/A
N/A
N/A
Policy liabilities have been calculated as the provision for unearned premium reserve less a deferred acquisition cost component. Outstanding claims liabilities
and Incurred But Not Reported liabilities (“IBNR”) are included in provisions.
Premium earning pattern
For single premium products, the Unearned Premium Reserve (“UPR”) is based on a premium earning pattern that is similar to the pattern of expected future claim
payments. The future claim payments are based on an assessment of the future sum insured (e.g. outstanding loan balances for mortgage and loan protection)
and future claims frequencies. Past experience is used to set these assumptions. This earning pattern is also used to recognise commissions incurred.
For regular premium products, the UPR is based on the unearned proportion of premium for the given premium payment frequency.
Mortality and morbidity
Mortality and morbidity assumptions used in determining IBNR, pending and continuing claims provisions have been based on the experience of similar products
issued by the Company and recent experience. The disputed claims provision is based on individual claim estimates and an assumed 50% probability of disputed
claims being incurred.
Processes used to determine actuarial assumptions
Sensitivity analysis
As a result of using an accumulation approach in the determination of policy liabilities, changes of assumptions will not affect the policy liabilities in the current
period. As at 31 August 2013, no Related Product Groups were in loss recognition.
Changes in the underlying variables and assumptions will give rise to a difference in the emergence of profit margins in the future.
Changes in assumptions relating to claims provisions would affect policy liabilities in the current period.
Variable
Impact of movement in underlying variable
Mortality rates
For contracts providing death benefits, greater mortality rates would lead to higher levels of claims occurring sooner than anticipated,
increasing associated claims cost and therefore reducing profit and shareholder equity.
Morbidity rates
The cost of disability related claims depends on both the incidence of policyholders becoming disabled and the duration which they
remain so. Higher than expected incidence and duration would be likely to increase claim costs, reducing profit and shareholders equity.
102
2013 Annual Report 35. INSURANCE BUSINESS (CONTINUED)
Reconciliation of movements in insurance policy liabilities
Life Insurance contract policy liabilities
Gross life insurance contract liabilities at the beginning of the financial year
Decrease in life insurance contract policy liabilities (i)
Gross life insurance contract liabilities at the end of the financial year
Liabilities ceded under reinsurance
Opening balance at the beginning of the financial year
Increase / (decrease) in life reinsurance assets (ii)
Closing balance at the end of the financial year
Net life policy liabilities at the end of the financial year
(i) plus (ii) = change in life insurance contract liabilities reflected in the Income Statement
Components of net life insurance contract liabilities
Future policy benefits
Future charges for acquisition costs
Total net life insurance contract policy liabilities
Components of general insurance liabilities
Unearned Premium Liability
Outstanding Claims Liability
Total Insurance Policy Liabilities
2013
$m
2012
$m
62.6
(1.9)
60.7
(2.8)
0.5
(2.3)
58.4
(1.4)
81.4
(23.0)
58.4
13.3
0.8
14.1
72.5
65.5
(2.9)
62.6
(2.4)
(0.4)
(2.8)
59.8
(3.3)
77.8
(18.0)
59.8
13.1
0.6
13.7
73.5
Note: Future policy benefits include the unearned premium components of the liability. The accumulation method has been used to calculate policy liabilities and
components relating to expenses and profits are not separately calculated.
103
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 35. INSURANCE BUSINESS (CONTINUED)
Life Insurance Regulatory Capital requirements
Since Prudential Requirements changed on 1st January 2013, the regulatory capital requirement of each fund and for the subsidiary in total is the amount required
to be held in accordance with LPS 110: Capital Adequacy. These are amounts required to meet the prudential standards prescribed by the Life Insurance Act 1995
to provide protection against the impact of fluctuations and unexpected adverse circumstances on the life company.
The methodology and bases for determining the Capital Base and regulatory capital requirements are in accordance with relevant Prudential Requirements.
Capital Base
Net Assets
Add / (subtract) regulatory adjustments to Net Assets
Total capital base
Asset risk charge
Operational risk charge
Total prescribed capital amount
Assets in excess of prescribed capital amount
Capital adequacy multiple
Composition of capital Base
Common equity tier 1 capital
Add / (subtract) regulatory adjustments to common equity tier 1 capital
Total capital base
Prescribed Capital Amount
Statutory Fund No. 1
Shareholders' Fund
Additional amount to meet company minimum
Total prescribed capital amount
Assets in excess of prescribed capital amount
Capital adequacy multiple
2013
Statutory
Fund No. 1
$m
Shareholders’
Fund
$m
32.2
(11.6)
20.6
1.3
2.1
3.4
17.2
6.1
1.2
-
1.2
-
-
-
1.2
61.9
2013
$m
33.4
(11.6)
21.8
3.4
-
6.6
10.0
11.8
2.2
The prudential standards determining prudential capital requirements for life insurance companies changed during the year on 1 January 2013. The prior year’s
prudential capital requirements are outlined below, however are not directly comparable.
Prior to 1st January 2013, the regulatory capital requirement of each statutory fund was the amount required to be held in accordance with LPS 2.04: Solvency
Standard. These were amounts required to meet the prudential standards prescribed by the Life Insurance Act 1995 to provide protection against the impact
of fluctuations and unexpected adverse circumstances on the life company. The methodology and bases for determining regulatory capital requirements were in
accordance with the requirements of LPS 2.04: Solvency Standard.
104
2013 Annual Report
35. INSURANCE BUSINESS (CONTINUED)
Life Insurance Regulatory Capital requirements (continued)
Statutory Fund No. 1
Solvency requirement (1)
Total assets less assets arising from reinsurance contracts
Assets in excess of solvency requirement
2012
$m
77.5
89.2
11.7
(1) The minimum level of assets required to be held in each statutory fund as prescribed in LPS 2.04: Solvency Standard
The Shareholders’ Fund held a minimum regulatory capital requirement in accordance with Prudential Standard No. 2 (PS 2) of $10,000,000. As at 31 August
2012, the Shareholders’ Fund held an excess of $853,300 above the minimum capital requirement.
Disaggregated information life insurance (before consolidation adjustments)
Summarised Statement of Profit and Loss and Other Comprehensive Income
2013
$m
2012
$m
Revenue
Life insurance premium revenue
Investment income
Net life insurance premium revenue
Expenses
Net claims and other liability expense from insurance contracts
Other expenses
Profit / (loss) before income tax
Income tax expense
Profit / (loss) after income tax
Statement of Sources of Profit / (Loss) for Statutory Funds
Operating profit / (loss) after income tax arose from:
Components of profit / (loss) related to movement in life insurance liabilities:
Planned margins of revenues over expenses released
Difference between actual and assumed experience
Summarised Balance Sheet
Assets
Investment assets
Other assets
Liabilities
Net life insurance liabilities
Liabilities other than life insurance liabilities
Issued capital, reserves and retained profits
Directly attributable to shareholders
The life insurance business has no life investment contracts.
105
62.3
4.4
66.7
35.0
7.4
42.4
24.3
(7.3)
17.0
15.3
(0.1)
98.5
2.1
100.6
50.2
16.9
67.1
33.4
33.4
63.2
5.6
68.8
36.3
7.2
43.5
25.3
(7.6)
17.7
16.2
(0.5)
98.4
1.8
100.2
46.2
14.5
60.7
39.5
39.5
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 36. EVENTS SUBSEQUENT TO BALANCE DATE
Other than as disclosed below, no matters or circumstances have arisen since the end of the financial year and up until the date of this report which significantly
affects the operations of the Bank, the results of those operations, or the state of affairs of the Bank in subsequent years.
Dividends have been declared after 31 August 2013, refer to Note 7.
The financial effect of the above transactions have not been brought to account in the financial statements for the year ended 31 August 2013.
37. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
The Consolidated Entity’s share of profit in its equity accounted investees for the year was $1.1m (2012: nil).
The principal activity of the joint venture entities is land subdivision, development and sale. Details of interest in joint ventures are as follows:
Ocean Springs Pty Ltd (Brighton)
Dalyellup Beach Pty Ltd (Dalyellup)
Wanneroo North Pty Ltd (The Grove)
East Busselton Estate Pty Ltd (Provence)
Coastview Nominees Pty Ltd (Margaret River)
Provence 2 Pty Ltd (Provence 2)
Percentage Ownership Interest
2013
(%)
9.31
17.08
21.42
25.00
5.81
25.00
2012
(%)
9.31
17.08
21.42
25.00
5.81
25.00
The above companies are proprietary companies incorporated in Australia. There are no material capital commitments or contingent liabilities relating to the joint
ventures.
Summary financial information for equity accounted investees, not adjusted for the percentage ownership held by the consolidated entity and fair value adjustments
on acquisition, is contained in the table below:
Balance Sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Profit and Loss
Revenues
Expenses
Profit
2013
$m
90.2
97.8
188.0
60.9
5.6
66.5
2012
$m
106.5
113.4
219.9
44.0
18.9
62.9
121.5
157.0
49.0
(23.0)
26.0
65.4
(23.7)
41.7
106
2013 Annual Report 38. EMPLOYEE BENEFITS
(a) Superannuation commitments
The Consolidated Entity contributes to defined contribution superannuation plans which comply with the Superannuation Industry (Supervision) Act 1993.
Basis of contributions
Employee superannuation contributions are based on various percentages of employees’ gross salaries. The Consolidated Entity’s contributions are also based on
various percentages of employees’ gross salaries.
The Consolidated Entity is under no legal obligation to make superannuation contributions except for the minimum contributions required under the Superannuation
Guarantee Legislation.
During the year, employer contributions were made, refer to Note 5.
(b) Share based payments
The Consolidated Entity has one remaining option plan. The Senior Management Option Plan (“SMOP”), which was established in 2001.
The ability to exercise the options under the plan is conditional on the Consolidated Entity achieving certain performance hurdles. The performance hurdles are
based on diluted cash EPS growth and require the Bank’s diluted cash EPS to outperform the average diluted cash EPS growth of the Comparison Bank’s over the
relevant performance period. Performance periods are noted in the relevant vesting conditions description.
To reach the EPS performance hurdle the Consolidated Entity must achieve the following for the performance period:
Percentage range by which cash EPS growth exceeds Comparison bank’s
Percentage of options to vest
5% and up to but not exceeding 10%
10% and up to but not exceeding 15%
15% and up to but not exceeding 20%
20% or more
25%
50%
75%
100%
Other terms and conditions of options granted under the above plan is as follows, with all options settled by physical delivery of shares:
Grant date / employee entitled
Options granted to key management at 1 November 2007
- SMOP 7
Long-Term Incentives - Award Rights
Number of
instruments
Vesting conditions
Contractual life
of options
3,999,000
Performance period - 2008, 2009 and 2010.
5 years
These options lapsed in this financial year.
The Award Rights Plan was approved by shareholders on 11 December 2008. It is an equity based program under which Award Rights are granted as long-term
incentives. The two types of award rights currently granted to executives under the plan are PARs and DARs. No amount is payable by employees for the grant or
exercise of these award rights.
PARs
PARs have a vesting framework based on TSR of the Bank as measured against a Peer Group over a 2 to 3 year period. That Peer Group consists of the S&P / ASX
200 from time to time excluding selected entities in resources, real estate investment trusts, telecommunications (offshore headquartered), energy and utilities and
such other inclusions and exclusions as the Board considers appropriate. TSR is a measure of the entire return a shareholder would obtain from holding an entity’s
securities over a period, taking into account factors such as changes in the market value of the securities and dividends paid over the period.
One half of an employee’s PARs will vest if the Bank’s TSR performance over the three year period is in the top 50% of the Peer Group. All of the PARs vest if the
Bank’s TSR performance is in the top 25%. For TSR performance between those targets, a relative proportion of the PARs between 50% and 100% would vest.
Vested PARs are generally exercisable within 5 years after they are granted (approximately 2 years after vesting).
DARs
There are no market performance hurdles or vesting conditions for DARs but the holder must remain an employee of the Bank.
Vested DARs are generally exercisable within 5 years after they are granted (approximately 2 to 4 years after vesting).
Restricted Shares
The Consolidated Entity has used shares with restrictions on disposal as a non-cash, share based component of both short term and long term incentive awards.
107
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 38. EMPLOYEE BENEFITS (CONTINUED)
(b) Share based payments (continued)
The following factors and assumptions were used in determining the fair value of options or rights on grant date:
Option or right Type
Grant date
Expiry date
Executives - Options and Restricted Shares
Fair value
per option
or right
Exercise
price (1)
Price of
shares on
grant date
Expected
volatility
Risk free
interest rate
Dividend
yield
20 November 2006
20 November 2011
1 November 2007
1 November 2012
$2.13
$2.57
$16.26
$19.11
15 June 2010
1 March 2012
$10.31
SMOP 6 (2)
SMOP 7(2)
Restricted Shares (3)
Restricted Shares (3)
Restricted Shares (3)
Restricted Shares (3)
Restricted Shares (3)
Restricted Shares (3)
Executive Director - Rights
PARs
DARs (4)
Executives - Rights
PARs (5)
DARs (5)
PARs (5)
DARs (5)
DARs (5)
DARs (5)
PARs (5)
PARs (5)
PARs (5)
DARs (5)
PARs (5)
DARs (5)
PARs (5)
DARs (5)
PARs (5)
DARs (5)
PARs (5)
DARs (5)
PARs (5)
DARs (5)
PARs (5)
PARs (5)
PARs (5)
23 August 2011
1 November 2012
1 February 2012
31 October 2012
10 February 2012
31 October 2012
26 February 2012
9 January 2014
29 February 2012
21 September 2012
13 October 2011
13 October 2016
18 December 2012
18 December 2017
29 June 2009
29 June 2009
29 June 2014
29 June 2014
23 December 2009
23 December 2014
$7.21
$6.76
$7.41
$6.70
$6.66
$5.36
$6.55
$4.59
$7.59
$6.93
23 December 2009
23 December 2014
$10.40
28 May 2010
28 May 2015
$10.11
29 November 2010
29 November 2015
$11.17
29 November 2010
29 November 2015
25 January 2011
25 January 2016
16 December 2011
16 December 2016
16 December 2011 (6)
16 December 2016
1 February 2012
16 December 2017
1 February 2012 (6)
5 May 2017
10 February 2012
16 December 2017
10 February 2012 (7)
5 May 2017
26 February 2012
16 December 2017
26 February 2012 (7)
5 May 2017
29 February 2012
16 December 2017
29 February 2012 (7)
5 May 2017
10 May 2012 (7)
16 December 2017
18 December 2012
18 December 2017
18 December 2012
18 December 2017
1 March 2013
18 December 2017
14 May 2013
18 December 2018
$7.81
$7.81
$5.18
$6.60
$5.18
$6.60
$5.18
$6.60
$5.18
$6.60
$5.18
$6.60
$3.70
$6.20
$1.74
$2.73
$2.39
$14.90
$19.44
$10.31
$7.21
$6.76
$7.41
$6.70
$6.66
$8.10
$7.26
$8.89
$8.89
$11.22
$11.22
$11.19
$11.45
$11.45
$10.12
$7.71
$7.71
$7.44
$7.44
$7.33
$7.33
$7.48
$7.48
$7.34
$7.34
$6.89
$7.26
$7.26
$9.13
$9.68
15.0%
14.0%
6.0%
6.5%
4.5%
4.3%
-
-
-
-
-
-
36.6%
36.4%
35.1%
35.1%
36.3%
36.3%
36.9%
37.1%
37.1%
37.1%
36.7%
36.7%
37.1%
37.1%
37.1%
37.1%
37.1%
37.1%
37.1%
37.1%
37.1%
36.4%
36.4%
25.9%
25.8%
-
-
-
-
-
-
3.9%
2.8%
4.2%
4.2%
4.8%
4.8%
4.6%
5.1%
5.1%
5.1%
3.1%
3.1%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.8%
2.8%
2.9%
3.1%
-
-
-
-
-
-
6.1%
7.2%
7.2%
7.2%
4.6%
4.6%
4.6%
4.2%
4.2%
4.2%
7.0%
7.0%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
8.5%
7.2%
7.2%
5.7%
5.4%
-
-
-
-
-
-
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
(1)
The exercise price is calculated as the volume weighted average price of shares traded over the ten business days immediately after the date of the announcement of the Bank’s most recent annual results and requires
Board approval. The exercise price was adjusted due to the entitlements offer as required under the plan rules.
(2) Valued using the Monto Carlo simulation approach.
(3)
The restricted shares were valued based on the volume weighted average price of ordinary shares in BOQ sold on ASX during a 10 trading day period. The shares will vest on the expiry date respectively based on meeting
certain service conditions.
(4) The DARs will vest 50% in financial year 2014 and 50% in financial year 2015.
(5) Value using the trinomial pricing metholodgy.
(6) Remaining DARs will vest 50% in financial year 2014.
(7) Remaining DARs will vest 30% in financial year 2014 and 50% in financial year 2015.
(8) The DARs will vest 20% in financial year 2014, 30% in financial year 2015 and 50% in financial year 2016.
108
2013 Annual Report 38. EMPLOYEE BENEFITS (CONTINUED)
(b) Share based payments (continued)
The number and weighted average exercise price of share options is as follows:
Weighted average
exercise price
Number of
options
Weighted average
exercise price
Number of
options
Outstanding at the beginning of the year
Forfeited / expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
2013
$m
19.11
19.11
-
2013
’000
1,391
(1,391)
-
-
The options outstanding in the prior year, 31 August 2012, had a weighted average contractual life of 0.2 years.
During the year no options were exercised (2012: nil).
The number of award rights and restricted shares is as follows:
Balance at beginning of the year
Granted during the year (1)
Forfeited / expired during the year
Exercised during the year
Outstanding at the end of the year
The weighted average share price at the date of exercise was $8.29 (2012: $7.46).
(1) Included restricted shares in the 2012 financial year, the restricted shares were exercised during the 2013 financial year.
2012
$m
17.75
17.00
19.11
Number of
rights
2013
’000
2,415
1,271
(488)
(678)
2,520
2012
’000
3,892
2,501
1,391
1,391
Number of
rights
2012
’000
1,683
1,866
(714)
(420)
2,415
39. KEY MANAGEMENT PERSONNEL DISCLOSURES
Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Bank and the Consolidated Entity, including
Directors and other executives.
(a) Key management personnel compensation
Key management personnel compensation included in ‘administrative expenses’ and ‘employee expenses’ (refer Note 5) is as follows:
Short-term employee benefits
Post-employment benefits
Long term employee benefits
Termination benefits
Share based employment benefits
Consolidated and Bank
2013
$
2012
$
9,343,008
8,155,415
263,992
11,446
755,978
3,554,972
13,929,396
254,096
65,132
2,455,522
1,847,125
12,777,290
Individual Directors and executives compensation disclosures
Information regarding individual Directors and executives compensation and some equity instruments disclosures as permitted by Corporations Regulation 2M.3.03
is provided in the remuneration report section of the Directors’ report.
Apart from the details disclosed in the note, no Director has entered into a material contract with the Bank since the end of the previous financial year and there
were no material contracts involving Directors’ interest existing at year end.
109
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 39. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(b) Equity Instruments - holdings and movements
The movement during the reporting period in the number of options and rights over ordinary shares in Bank of Queensland Limited held, directly, indirectly or
beneficially, by key management personnel, including their personally related entities, is as follows:
Managing Director, SMOP and Award rights
All options issued under the SMOP and Award rights refer to options and rights over ordinary shares of Bank of Queensland Limited, which are exercisable on a
one-for-one basis.
During the reporting period, the following options and rights over ordinary shares were granted to executives under the SMOP and Award Rights:
Held at
1 September
2012
Granted as
remuneration
Exercised /
vested
Forfeited
Held at
31 August
2013
Vested
during the
year
Vested and
exercisable at
31 August
2013
-
64,620
121,619
166,933
-
-
64,620
288,552
-
-
-
-
Executive Director
Stuart Grimshaw
Executives
Anthony Rose
Peter Deans
Brendan White
Matthew Baxby
Jon Sutton
- DARs
- PARs
- DARs
- PARs
- Restricted shares
- DARs
- PARs
- DARs
- PARs
- Restricted shares
- DARs
- PARs
- Restricted shares
- DARs
- PARs
-
-
-
-
30,030
75,075
30,030
-
69,061
75,574
67,476
40,486
36,982
73,964
29,586
62,687
74,627
6,258
50,067
-
30,030
6,173
48,064
6,258
50,067
-
-
37,787
-
-
40,486
5,257
42,056
-
7,009
56,075
-
-
29,586
31,344
-
- Restricted shares
104,478
-
74,627
Julie Bale (1)
Brian Bissaker (2)
- DARs
- PARs
-
-
8,010
31,748
-
-
Former Executives
Chris Nilon
Renato Mazza
- DARs
- PARs
- Options
- DARs
- PARs
5,224
31,466
50,000
5,693
55,402
3,655
22,063
-
3,655
21,929
-
2,425
-
-
-
4,382
51,104
50,000
4,246
77,331
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
36,288
15,015
15,015
125,142
-
-
30,030
6,173
117,125
-
-
44,045
37,787
117,543
-
-
42,239
116,020
-
38,352
130,702
29,851
8,010
31,748
-
-
-
-
-
40,486
18,491
-
29,586
31,344
-
74,627
-
-
4,497
2,425
-
5,102
-
-
-
-
-
-
-
-
18,491
-
-
-
-
-
-
-
-
-
-
-
-
The vesting of PARs is conditional on the Consolidated Entity’s TSR performance measured against a Peer Group over a 2 to 3 year period.
No option or right held by key management personnel are vested but not exercisable at 31 August 2013.
(1) Julie Bale became a member of the key management personnel on 17 December 2012.
(2) Brian Bissaker became a member of the key management personnel on 30 April 2013.
110
2013 Annual Report 39. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(b) Equity Instruments - holdings and movements (continued)
Held at
1 September
2011
Granted as
remuneration
Exercised /
vested
Forfeited
Held at
31 August
2012
Vested
during the
year
Vested and
exercisable at
31 August
2012
Executive Director
Stuart Grimshaw (1)
- PARs
Executives
Anthony Rose (2)
- DARs
- PARs
- Restricted shares
Peter Deans (3)
Brendan White (4)
- PARs
- DARs
- PARs
- Restricted shares
Matthew Baxby (5)
- DARs
- PARs
Jon Sutton (6)
Renato Mazza
Chris Nilon
Former Executives
Keith Rodwell
- Restricted shares
- DARs
- PARs
- Restricted shares
- DARs
- PARs
- Options
- DARs (7)
- PARs
- DARs
- PARs
Ram Kangatharan
- Options
- Restricted shares
- DARs
- PARs
- DARs
- PARs
- DARs
- PARs
- PARs
Ewan Cameron
Darryl Newton
David Tonuri
-
-
-
-
-
-
-
-
-
-
-
-
-
-
121,619
30,030
75,075
30,030
69,061
75,574
67,476
40,486
36,982
73,964
29,586
62,687
74,627
104,478
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,423
22,195
-
-
-
-
10,079
7,116
33,207
70,000
15,303
15,883
9,488
47,438
350,000
208,000
28,736
155,457
7,116
47,438
6,072
40,323
18,975
21,283
-
5,700
-
1,898
31,925
-
-
-
-
-
30,405
-
-
108,000
28,736
1,423
-
-
1,214
25,844
21,283
-
-
-
155,457
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,000
-
7,590
79,363
350,000
-
-
5,693
77,843
4,858
66,167
40,258
121,619
30,030
75,075
30,030
69,061
75,574
67,476
40,486
36,982
73,964
29,586
62,687
74,627
104,478
5,693
55,402
50,000
5,224
31,466
-
-
-
100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,423
-
-
4,933
-
1,898
-
-
108,000
28,736
-
1,423
-
1,214
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
No option or right held by key management personnel were vested but not exercisable at 31 August 2012.
(1) Stuart Grimshaw was appointed Chief Executive Officer and Managing Director on 1 November 2011.
(2) Anthony Rose became a member of the key management personnel on 1 August 2012.
(3) Peter Deans became a member of the key management personnel on 26 March 2012.
(4) Brendan White became a member of the key management personnel on 2 April 2012.
(5) Matthew Baxby became a member of the key management personnel on 17 May 2012.
(6) Jon Sutton became a member of the key management personnel on 2 July 2012.
(7) This includes rights which have been exercised but held in trust.
111
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 39. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(b) Equity Instruments - holdings and movements (continued)
Movement in shares
The number of shares held directly, indirectly or beneficially by each key management person is as follows:
Ordinary shares
Executive Director
Stuart Grimshaw
Directors
Steve Crane
Roger Davis
Carmel Gray
Michelle Tredenick
David Willis
Richard Haire
Neil Berkett (1)
Former Director
John Reynolds (2)
Neil Summerson (3)
Executive
Anthony Rose
Brendan White
Matt Baxby
Jon Sutton
Former Executive
Chris Nilon
Held at
1 September
2012
Purchases /
(Sales)
Received on
exercise of award
rights / restricted
shares
Held at
31 August
2013
10,825
(7,319)
-
3,506
25,678
4,896
10,946
2,433
1,414
4,000
-
10,339
-
-
98
-
-
10,600
5,217
45,599
-
23,160
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(75,000)
-
(29,851)
30,030
78,273
29,586
105,971
25,678
15,235
10,946
2,433
1,512
4,000
10,600
-
-
30,030
3,273
29,586
76,120
25,530
(2,425)
2,425
-
(1) Neil Berkett appointed as a Director on 30 July 2013.
(2) John Reynolds retired as Director on 13 December 2012.
(3) Neil Summerson retired as Chairman on 28 May 2013 and as a Director on 30 July 2013.
112
2013 Annual Report 39. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(b) Equity Instruments - holdings and movements (continued)
Ordinary shares
Executive Directors
Stuart Grimshaw (1)
Directors
Neil Summerson
Steve Crane
Roger Davis
Carmel Gray
John Reynolds
Michelle Tredenick
David Willis
Richard Haire (2)
Former Director
Bill Kelty (3)
Executive
Chris Nilon
Renato Mazza
Former Executive
Ram Kangatharan
Ewan Cameron
Darryl Newton
Keith Rodwell
Held at
1 September
2011
Purchases /
(Sales)
Received on
exercise of award
rights / restricted
shares
Held at
31 August
2012
-
10,825
27,655
12,224
3,732
5,899
1,000
1,000
1,077
-
17,944
13,454
1,164
5,047
4,217
1,433
337
4,000
1,286
401
-
-
-
-
-
-
-
-
-
-
11,053
-
18,015
-
-
-
9,544
(1,423)
-
(1,423)
-
411
4,933
1,423
136,736
1,423
1,214
1,898
10,825
45,599
25,678
4,896
10,946
5,217
2,433
1,414
4,000
-
25,530
-
-
-
-
-
(1) Stuart Grimshaw was appointed as Chief Executive Officer and Managing Director on 1 November 2011.
(2) Richard Haire was appointed as a Non-Executive Director on 18 April 2012.
(3) Bill Kelty retired as Director on 31 July 2012.
113
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 39. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(c) Loans to key management personnel disclosures
Details of loans outstanding at the reporting date to key management personnel, where the individuals aggregate loan balance exceeded $100,000 at any time
in the reporting period, are as follows:
2013
Interest paid
and
payable
during
the year
$
Balance at
1 September
2012
$
Balance
at
31 August
2013
$
Highest
balance
during
the year
$
Balance at
1 September
2011
$
2012
Interest paid
and
payable
during
the year
$
Balance
at
31 August
2012
$
Highest
balance
during
the year
$
Former Director:
Bill Kelty (1)
-
-
Neil Summerson (2)
801,767
39,834
-
-
-
804,021
325,782
864,785
18,863
52,191
-
801,767
344,645
864,820
Executive Director:
Stuart Grimshaw
Executives:
Brendan White
Former Executives:
Keith Rodwell
Ram Kangatharan
Ewan Cameron
Darryl Newton
David Tonuri
Renato Mazza (3)
-
-
-
-
-
-
-
32,247
2,138,400
2,148,045
10,458
153,762
270,961
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,210,556
3,204,675
1,967,705
1,819,938
1,335,957
318,892
300,250
128,940
139,332
122,999
71,667
21,209
18,394
315,837
9,201
-
-
-
-
-
-
-
-
-
2,229,559
4,302,916
1,979,599
1,824,810
2,074,436
315,837
346,428
(1) Bill Kelty retired on 31 July 2012.
(2) Neil Summerson retired as Chairman on 28 May 2013 and as a Director on 30 July 2013.
(3) Renato Mazza resigned on 25 February 2013.
All loans with key management personnel are conducted on an arm’s length basis in the normal course of business and on terms and conditions as available to
all employees of the Bank.
Details regarding the aggregate of loans made, guaranteed or secured by any entity in the economic entity to all key management personnel and their related
parties, and the number of individuals in each group are as follows:
Balance at
1 September 2012 (1)
$
Balance at
31 August
2013
$
Interest paid
and payable
$
Number in group at
31 August
2013
#
Directors:
Executives:
894,198
315,837
2,138,400
153,762
72,081
19,659
1
1
Balance at
1 September 2011 (2)
$
Balance at
31 August
2012
$
Interest paid
and payable
$
Number in group at
31 August
2012
#
Directors:
Executives:
1,190,567
10,839,080
801,767
315,837
71,054
502,541
1
1
(1) Balance as at 1 September 2012 will not equal 31 August 2012 closing balance due to changes in key management personnel during the year.
(2) Balance as at 1 September 2011 will not equal 31 August 2011 closing balance due to changes in key management personnel during the year.
114
2013 Annual Report 39. KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
(d) Other financial instrument transactions with key management personnel and personally-
related entities
A number of key management personnel or their related parties hold positions in other entities that result in them having control or significant influence over
the financial or operating policies of those entities. Financial instrument transactions with key management personnel and personally-related entities during the
financial year arise out of the provision of banking services, the acceptance of funds on deposit, the granting of loans and other associated financial activities.
The terms and conditions of the transactions with management personnel and their related parties were no more favourable than those available, or which might
reasonably be expected to be available, on similar transactions to non-Director related entities on an arm’s length basis.
Other transactions with Directors, executives and their personally-related entities are conducted on an arm’s length basis and are deemed trivial or domestic in nature.
The following are transactions undertaken between the Consolidated Entity and key management personnel as at 31 August 2013:
Balance as at
For the period (1)
01/09/12(2)
$
31/08/13
$
Total Loan
Repayments
$
Total Loan
Redraws /
Further
Advances
$
Total Loan /
Overdraft
interest
$
Total Fees on
Loans /
Overdraft
$
Term Products (Loans / Advances)
(1,210,035)
(2,292,162)
493,850
(2,603,395)
(91,740)
(113)
Balance as at
For the period (1)
01/09/11 (3)
$
31/08/12
$
Total Loan
Repayments
$
Total Loan
Redraws /
Further
Advances
$
Total Loan /
Overdraft
interest
$
Total Fees on
Loans /
Overdraft
$
Term Products (Loans / Advances)
(12,029,647)
(1,117,604)
6,299,765
(6,221,511)
(573,594)
(2,757)
Balance as at
For the period (1)
01/09/12 (2)
$
31/08/13
$
Total Deposits
$
Total
Withdrawals
$
Total Account
Fees
$
Total Deposit
Interest
$
Term Products (Deposits)
669,014
428,104
8,180,744
(5,347,633)
(860)
21,569
Balance as at
For the period (1)
01/09/11 (3)
$
31/08/12
$
Total Deposits
$
Total
Withdrawals
$
Total Account
Fees
$
Total Deposit
Interest
$
Term Products (Deposits)
2,025,212
669,014
3,881,150
(3,777,483)
(456)
37,752
(1) Amounts are included only for the period that the Director / executive are classified as a member of the key management personnel.
(2) Balance as at 1 September 2012 will not equal 31 August 2012 closing balance due to changes in key management personnel during the year.
(3) Balance as at 1 September 2011 will not equal 31 August 2011 closing balance due to changes in key management personnel during the year.
115
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)Year ended 31 August 2013 DIRECTORS’ DECLARATION
1
In the opinion of the Directors of Bank of Queensland Limited (the “Bank”):
(a)
the consolidated financial statements and notes and the remuneration report included within the Directors’ report set out on pages 11 to 39, are in accordance
with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the Bank and Consolidated Entity as at 31 August 2013 and of their performance, for the year ended
on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Bank will be able to pay its debts as and when they become due and payable.
2
3
4
There are reasonable grounds to believe that the Bank and the Controlled Entities identified in Note 31 will be able to meet any obligations or liabilities to which
they are or may become subject to by virtue of the Deed of Cross Guarantee between the Bank and those Controlled Entities pursuant to ASIC Class Order
98/1418.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial
Officer for the financial year ended 31 August 2013.
The Directors draw attention to Note 2 (a) to the financial statements, which includes a statement of compliance with International Financial Reporting
Standards.
Signed in accordance with a resolution of the Directors:
Dated at Brisbane this ninth day of October 2013
Roger Davis
Chairman
Stuart Grimshaw
Managing Director
116
2013 Annual Report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BANK OF QUEENSLAND LIMITED
Report on the financial report
We have audited the accompanying financial report of Bank of Queensland Limited (the “Bank”), which comprises the Balance Sheets as at 31 August 2013, and
Income Statements, Statements of Comprehensive Income, Statements of Changes in Equity and Statements of Cash Flows for the year ended on that date, Notes
1 to 39 comprising a summary of significant accounting policies and other explanatory information and the Directors’ Declaration of the Bank and the Consolidated
Entity comprising the Bank 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 Bank are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report
that is free from material misstatement whether due to fraud or error. In Note 2 (a), the Directors also state, in accordance with Australian Accounting Standard
AASB 101 Presentation of Financial Statements, that the financial report of the Bank and its controlled entities 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.
These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain
reasonable assurance 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 judgement, 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 control relevant to the entity’s preparation of the financial report that gives a true and fair view 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 control. 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 performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and
Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Bank’s and the Consolidated Entity’s financial position and
of their performance.
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.
Auditor’s opinion
In our opinion:
(a) the financial report of Bank of Queensland Limited is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Bank’s and the Consolidated Entity’s financial position as at 31 August 2013 and of their performance for the year ended
on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b)
the financial report of the Bank and the Consolidated Entity also complies with International Financial Reporting Standards as disclosed in Note 2 (a).
KPMG, an Australian partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards
Legislation.
117
2013 Annual Report REPORT ON THE REMUNERATION REPORT
We have audited the Remuneration Report included on pages 21 to 38 of the Directors’ Report for the year ended 31 August 2013. The Directors of the Bank are
responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is
to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the Remuneration Report of Bank of Queensland Limited for the year ended 31 August 2013, complies with Section 300A of the Corporations Act 2001.
KPMG
Martin McGrath
Partner
Brisbane
9 October 2013
118
2013 Annual Report
SHAREHOLDING DETAILS
As at 18 September 2013, the following shareholding details applied:
1. Twenty largest ordinary shareholders
Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMS PTY LTD
JP MORGAN NOMINEES AUSTRALIA LIMITED
AMP LIFE LIMITED
CORVINA HOLDINGS LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
NEWECONOMY COM AU NOMINEES PTY LIMITED
QIC LIMITED
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
UBS NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
JBWERE (NZ) NOMINEES LTD
KARATAL HOLDINGS P/L
Total
Voting rights
No. of ordinary shares
%
41,997,329
36,136,769
26,272,009
12,006,717
6,550,276
6,160,477
6,120,234
3,554,370
3,203,115
2,172,778
2,091,356
1,966,231
1,344,347
1,342,338
1,263,981
1,120,180
1,111,575
1,036,107
935,860
830,380
13.13%
11.30%
8.21%
3.75%
2.05%
1.93%
1.91%
1.11%
1.00%
0.68%
0.65%
0.61%
0.42%
0.42%
0.40%
0.35%
0.35%
0.32%
0.29%
0.26%
157,216,429
49.14%
On a show of hands every person present who is a holder or ordinary shares or a duly appointed representative of a holder of ordinary shares has one vote, and
on a poll each member present in person or by proxy or attorney has one vote for each share that person holds.
119
As at 18 September 2013, the following shareholding details applied:
2. Twenty largest CPS shareholders
Shareholder
J P MORGAN NOMINEES AUSTRALIA LIMITED
MILTON CORPORATION LIMITED
DOMER MINING CO PTY LTD
NAVIGATOR AUSTRALIA LTD
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
NATIONAL NOMINEES LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
THE AUSTRALIAN NATIONAL UNIVERSITY
NULIS NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
WENTHOR PTY LTD THE JOHN THORSEN FAMILY
CITICORP NOMINEES PTY LIMITED
BCITF (QLD)
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
SOUTHERN METROPOLITAN CEMETERIES
F & B INVESTMENTS PTY LIMITED
EASTCOTE PTY LTD
MR JOHN HARRISON VALDER & MRS KAY ORMONDE VALDER
CANTALA PTY LTD
Total
Voting rights
No. of ordinary shares
%
67,504
50,000
32,200
32,118
31,783
25,749
24,740
24,252
20,000
17,446
16,400
15,000
11,518
10,700
10,237
10,000
10,000
10,000
10,000
9,150
2.25%
1.67%
1.07%
1.07%
1.06%
0.86%
0.82%
0.81%
0.67%
0.58%
0.55%
0.50%
0.38%
0.36%
0.34%
0.33%
0.33%
0.33%
0.33%
0.31%
438,797
14.62%
The CPS do not give the holders any voting rights at any general shareholders meetings, except in certain circumstances.
3. Distribution of equity security holders
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,000 - and over
Total
The number of ordinary shareholders holding less than a marketable parcel is 3,051.
The number of convertible preference shareholders holding less than a marketable parcel is nil.
Ordinary Shares
CPS
2013
56,120
24,722
4,164
2,134
77
2012
55,474
21,665
3,408
1,696
66
2013
6,332
355
22
15
-
2012
4,065
208
17
11
1
87,217
82,309
6,724
4,302
120
2013 Annual Report SHAREHOLDING DETAILS (CONTINUED)
4. Partly Paid Shares
There are no partly paid shares.
5. There are currently no substantial shareholders in the Bank
6. Stock exchange listing
The shares of Bank of Queensland Limited (“BoQ”) and CPS (“BOQPD”) are quoted on the Australian Securities Exchange.
7. Options
At 31 August 2013 there were no options over unissued ordinary shares.
8. On market buy-back
There is no current on market buy-back.
9. Other information
Bank of Queenland Limited is a publicly listed company limited by shares and is incorporated and domiciled in Australia.
121
SHAREHOLDER INFORMATION
Share registry
Link Market Services Limited
Level 15
324 Queen Street
Brisbane Qld 4000
Australia: 1800 779 639
International: +61 2 8280 7626
Facsimile: +61 2 9287 0303
Email: boq@linkmarketservices.com.au
linkmarketservices.com.au
Company details
Bank of Queensland Limited
Level 17, BOQ Centre
259 Queen Street
Brisbane QLD 4000
Telephone: +61 7 3212 3333
Investor Relations: +61 7 3212 3990
Facsimile: +61 7 3212 3399
boq.com.au
twitter.com/boq
facebook.com/BOQOnline
Customer service
1300 55 72 72 (within Australia)
+61 7 3336 2420 (overseas)
ABN 32 009 656 740
CAN 009 656 740
ISO 14001
Environmental
Management
System in use.
Manufactured
using elemental
chlorine free
(ECF) pulps.
Pulp is sourced
only from
responsibly
managed forests.