2015 ANNUAL REPORT
YEAR ENDED 31 AUGUST 2015
CONTENTS
CHAIRMAN AND CEO’S LETTER
DIRECTORS’ REPORT
Directors’ details
Operating and financial review
REMUNERATION REPORT
Introductory message
Remuneration report
LEAD AUDITOR’S INDEPENDENCE DECLARATION
FINANCIAL REPORT
Income statements
Statements of comprehensive income
Balance sheets
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
OTHER INFORMATION
Directors’ declaration
Independent auditor’s report to the members
Shareholding details
Shareholder information
5
6
9
44
45
69
70
71
72
73
77
78
137
138
140
143
FIND OUT MORE ABOUT HOW
WE’RE DELIVERING OUR STRATEGY AT
WWW.BOQ.COM.AU/ANNUAL_REPORTS/2015
2
ANNUAL REPORT 2015
BOQ DELIVERS
RECORD FY15 RESULTS
STATUTORY NET PROFIT AFTER TAX
CASH EARNINGS
$318M
22%
UP
NET INTEREST MARGIN
$357M
19%
UP
COST TO INCOME
1.97%
15BPS
CONSISTENT RETURNS TO SHAREHOLDERS
UP
UP
46%
210BPS
EARNINGS & DIVIDENDS (PER SHARE)
COMBINED DIVIDEND PER SHARE AND EARNINGS PER SHARE
CASH BASIC EARNINGS
PER SHARE
DIVIDEND PER SHARE
S
T
N
E
C
60
50
40
30
20
10
0
46
46
43
32
34
52
36
38
41
38
28
30
1H13
2H13
1H14
2H14
1H15
2H15
CASH BASIC EARNINGS (PER SHARE)
DIVIDENDS (PER SHARE)
97C
UP9%
SINCE FY14
74C
UP12%
SINCE FY14
RETURN ON
EQUITY
RETURN ON
TANGIBLE EQUITY
10.7% 14.4%
3
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 BOQ DELIVERS
RECORD FY15 RESULTS
RECORD CASH EARNINGS...
RECORD CASH EARNINGS...
...UNDERPINNED BY STRONG MARGIN MANAGEMENT...
...UNDERPINNED BY STRONG MARGIN MANAGEMENT...
357
318
301
261
251
186
177
159
31
-17
)
%
(
N
I
G
R
A
M
T
S
E
R
E
T
N
I
T
E
N
2.00
1.90
1.80
1.70
1.60
1.50
1.97
1.82
1.67
1.69
1.65
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
CASH EARNINGS AFTER TAX
STATUTORY NET PROFIT
...FOCUS ON COST MANAGEMENT...
...TIGHT UNDERLYING COST CONTROL...
...AND IMPROVED ASSET QUALITY
...IMPROVED ASSET QUALITY
44.5
45.7
44.3
43.9
46.0
401
201
)
S
N
O
I
L
L
I
M
$
(
E
S
N
E
P
X
E
T
N
E
M
R
I
A
P
M
I
N
A
O
L
400
300
200
100
0
115
86
74
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
)
L
I
M
$
(
350
300
250
200
150
100
50
0
-20
)
%
(
O
I
T
A
R
E
M
O
C
N
I
O
T
T
S
O
C
50
40
30
20
10
0
4
ANNUAL REPORT 2015
CHAIRMAN &
CEO’S LETTER
Dear Shareholder,
We are pleased to report that our strategy is delivering strong, sustainable growth for our business and shareholders.
Over the last 12 months, we have made significant strategic progress towards transforming our business so we can take advantage of future opportunities and
respond to any challenges. Our results for FY15 demonstrate we are on the right path.
For the fifth successive half, we achieved a record financial result. Net profit after tax was up 19% to $357 million while statutory profit after tax increased 22%
to $318 million.
Our strategy is also driving improved business performance with key metrics such as growth, margins and asset quality showing improvement. Our strong financial
performance has enabled the Board to set a final dividend of 38 cents per share, taking full year dividends to 74 cents per share. This means we have delivered
a total return to shareholders of 6.3% during the financial year, the highest return of any listed Australian bank during this period.
During the year we refreshed our strategy to focus on niche segments where customers value a more intimate banking relationship. We are delivering this strategy
through four execution pillars: ‘Customer in charge; ‘Grow the right way’; ‘There’s always a better way’; and ‘Loved like no other’. Our progress in these areas over
FY15 is detailed in this report.
Our culture and success are crucial to the success of our strategy – we strive to be a company that our employees love working for and our customers love dealing
with and we are happy to say our employee engagement scores are heading in the right direction.
Not surprisingly, this is also contributing to high levels of customer satisfaction. Independent Roy Morgan research comparing customer satisfaction and advocacy
among Australia’s top banks shows our Main Financial Institution Net Promoter Score has increased by 36.7 points over the last 2.5 years. This is by far the biggest
improvement in our sector and puts us within striking distance of the top spot*.
BOQ achieved much over the financial year and shareholders should take comfort from the fact that the Bank is extremely well placed for the future.
Our strategy sets the Bank up for success in a market which continues to see significant regulatory and technology change. At a time when there is some
uncertainty around the regulatory environment, we continue to maintain high levels of capital so we are well placed whatever global and local regulators decide
to do.
Results like these are achieved through a true team performance – from the executive team right the way through to our front line employees who help customers
every day. Thank you to everyone at BOQ for their efforts.
In January, we farewelled long-standing Director Steve Crane when he retired after six years on the Board. Steve’s expertise was invaluable and we thank him for
his service and wish him the best for the future.
We also thank shareholders for their ongoing support of our company.
Roger Davis
Chairman
Jon Sutton
Managing Director & CEO
*Roy Morgan Research, MFI customers aged 14+, 6 month averages, competitors exclude mutual banks. Net Promoter® and NPS® are registered trademarks and Net
Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
5
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
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 2015 and the independent auditor’s report thereon.
DIRECTORS’ DETAILS
The Directors of the Bank at any time during or since the end of the financial year are:
Name, qualifications and
independence status
Roger Davis
B.Econ. (Hons),
Master of Philosophy
Chairman
Non-Executive Independent
Director
Jon Sutton
Managing Director and Chief
Executive Officer
Executive Non-Independent
Director
(Officially appointed 5 January
2015)
Neil Berkett
B Com and Admin
Non-Executive Independent
Director
Bruce Carter
B Econ, MBA, FAICD, FICA
Non-Executive Independent
Director
Carmel Gray
B Bus
Non-Executive Independent
Director
6
ANNUAL REPORT 2015
Age
Experience, special responsibilities and other Directorships
63
52
59
57
66
Mr Davis was appointed Chairman on 28 May 2013 and served on the Board of BOQ since August 2008. He
has 33 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, Ardent Leisure Ltd
and Aristocrat Leisure Ltd. He was formerly Chairman of Charter Hall Office REIT and Esanda, and a Director
of ANZ (New Zealand) Limited, CitiTrust in Japan and Citicorp Securities Inc. in the USA. He has a Bachelor
of Economics (Hons) degree from the University of Sydney and a Master of Philosophy degree from Oxford.
He is a qualified CPA.
Mr Davis is Chair of the Nomination & Governance Committee, a member of the Audit and Risk Committees,
and an attendee at all other Board Committees.
Mr Sutton was appointed Managing Director and Chief Executive Officer on 5 January 2015 following four
months as Acting Chief Executive Officer. Mr Sutton originally joined BOQ in July 2012 as Chief Operating
Officer. Mr Sutton has more than 20 years’ experience in banking and prior to BOQ was the Managing
Director of Bankwest. Before that, as Executive General Manager of Commonwealth Bank Agribusiness, he
was central to the establishment of the bank’s agribusiness segment which grew strongly under his guidance
and leadership. Prior to this, Mr Sutton was General Manager of Client Risk Solutions at CBA, responsible
for marketing derivative products including interest rates, commodities and foreign exchange. He was also
Head of Resources and Agribusiness and Head of Corporate Risk Management Commodities, charged with
marketing and commodity hedging products to Australian institutions within the base metals, precious metals
and energy sectors.
Mr Berkett has served on the Board of BOQ since 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 Chairman of the Guardian Media
Group, a Non-Executive Director with the Sage Group plc, and a Trustee for the National Society for the Prevention
of Cruelty to Children.
Mr Berkett is a member of each of the Human Resources & Remuneration and Information Technology Committees.
Mr Carter has served on the BOQ Board since February 2014. Mr Carter was a founding Managing Partner
of Ferrier Hodgson South Australia, a corporate advisory and restructuring business, and has worked across
a number of industries and sectors in the public and private sectors. He has been involved with a number
of state government-appointed restructures and reviews including chairing a task force to oversee the
government’s involvement in major resource and mining infrastructure projects. Mr Carter had a central
role in a number of key government economic papers including the Economic Statement on South Australian
Prospects for Growth, the Sustainable Budget Commission, and the Prime Minister’s 2012 GST Distribution
Review. Before Ferrier Hodgson, Mr Carter was at Ernst & Young for 14 years including four years as Partner
in Adelaide. During his time at Ernst & Young he worked across the London, Hong Kong, Toronto and New
York offices. Mr Carter is the Chair of Australian Submarine Corporation and a Non-Executive Director of
SkyCity Entertainment Group Limited and Genesee & Wyoming Australia Pty Ltd.
Mr Carter is Chair of the Risk Committee and a member of the Audit Committee.
Ms Gray was appointed a Director of BOQ in April 2006. Ms Gray has had an extensive executive career
in IT and Banking. She was Group Executive Information Technology at Suncorp from 1999 until 2004
and a member of Suncorp’s Group Executive committee during that period. Previously, she held a number
of senior roles in the IT Services industry, including General Manager, Energy Information Solutions and
Chief Executive, Logica Australia. Past memberships include the Board of the Australian Information Industry
Association and the CSIRO Advisory Committee for the IT and Services Sectors. She is a past Chair of
Information Technologies Australia and Director of BridgePoint Communications. Ms Gray continues to
provide IT and business consultancy services to the SME sector.
Ms Gray is a member of each of the Information Technology and Audit Committees.
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
Name, qualifications and
independence status
Richard Haire
B.Ec, FAICD
Non-Executive Independent
Director
Margaret Seale
BA, FAICD
Non-Executive Independent
Director
Michelle Tredenick
B Sc, FAICD, F Fin
Non-Executive Independent
Director
David Willis
B Com, ACA, ICA
Non-Executive Independent
Director
Age
Experience, special responsibilities and other Directorships
56
55
54
59
Mr 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 the Executive Chairman of Webster Limited. He was also 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 the Risk, Information Technology and Investment
Committees.
Margaret (Margie) Seale has served on the BOQ Board since January 2014. Ms Seale has more than 25
years’ experience in senior executive roles in Australia and overseas in the global publishing, health and
consumer goods industries, and in the transition of traditional business models to adapt and thrive in a
digital environment. Most recently she was Managing Director of Random House Australia (with managerial
responsibility for Random House New Zealand) and President, Asia Development for Random House Inc., the
global company. Amongst other roles prior to that she held national sales and national marketing roles for
Oroton and Pan Macmillan respectively. She is a Non-Executive Director of Telstra and member of the Audit
& Risk Committee, and a Non-Executive Director of Ramsay Health Care and member of the Risk Committee.
She has also served on the boards of the Australian Publishers’ Association and the Powerhouse Museum,
and on the Council of Chief Executive Women, chairing its Scholarship Committee from 2011 to 2012. She
remains a Non-Executive Director of Random House Australia and New Zealand.
Ms Seale is a member of the Information Technology and Human Resources & Remuneration Committees.
Ms Tredenick has served on the Board of BOQ since February 2011. Michelle is an experienced company
director and corporate advisor with over 30 years’ experience in leading Australian businesses. She is currently
a Director of Vocation Limited, Canstar Pty Ltd, and is Chairman of IAG NRMA Corporate Superannuation
Trustee Board. She is a member of the Senate of the University of Queensland as well as sitting on the board
of the Ethics Centre. She also has her own consulting business advising Boards and CEOs on strategy and
technology and the successful management of large investment and transformation programs. Her Executive
career included roles on the group executive teams of a number of Australia’s largest companies including
NAB, MLC and Suncorp. Her experience spans time as CIO with all of these companies as well as Head of
Strategy and Marketing and divisional profit and loss roles in Corporate Superannuation, Insurance and Funds
Management.
Ms Tredenick is Chair of the Information Technology Committee and a member of each of the Human
Resources & Remuneration and Risk Committees.
Mr Willis has served on the Board of BOQ since February 2010. He has over 33 years’ experience in financial
services in the Asia Pacific, the UK and the US. He is a qualified Accountant in Australia and New Zealand and
has had 17 years’ experience working with Australian and foreign banks. Mr Willis is a Director of New Zealand
Post, CBH (A Grain Cooperative in Western Australia) and Interflour Holdings, a Singapore based flour milling
company. He is also a director of Converga Pty Ltd (a digital solutions company) based in Sydney. Mr Willis
founded and chairs a Sydney based Charity “The Horizons Program”.
With BOQ Mr Willis is Chair of the Human Resources & Remuneration Committee and is a member of the Risk
Committee and the Nomination & Governance Committee. He is also a Non-Executive Director of the Bank’s
insurance subsidiary, St Andrew’s.
Steve Crane
Retired as a Director on 22 January 2015.
COMPANY SECRETARY
Michelle Thomsen - Appointed 13 July 2015
LLB/ B Comm
Michelle Thomsen was appointed Company Secretary on 13 July 2015. Prior to this, Ms Thomsen was EGM Associate General Counsel at Suncorp Group Limited
and has held a number of in house and private practice roles, including General Counsel positions for two funds listed on the Australian Securities Exchange and
she was a partner at SJ Berwin LLP in London (now King & Wood Mallesons), prior to returning to Australia in 2012.
Melissa Grundy - Resigned 13 March 2015
Stacey Hester was acting Company Secretary during the interim period between the resignation of Ms Grundy and the appointment of Ms Thomsen.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
7
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
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
Board of
Directors - St
Andrews
Risk
Committee
Audit
Committee
Nomination &
Governance
Committee
Human
Resources &
Remuneration
Committee
- BOQ & St
Andrews
Investment
Committee (1)
Information
Technology
Committee
Due
Diligence
Committee
A
13
12
9
13
4
13
13
12
12
12
B
13
13
13
13
4
13
13
13
13
13
A
B
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
5
A
7
-
-
6
3
-
7
-
7
5
B
A
7
-
-
7
3
-
7
-
7
7
6
-
-
6
-
6
6
-
-
-
B
6
-
-
6
-
6
6
-
-
-
A
2
-
-
-
1
1
-
-
1
1
B
2
-
-
-
1
1
-
-
1
1
A
5
-
4
-
-
-
-
5
5
5
B
5
-
5
-
-
-
-
5
5
5
A
1
-
-
1
-
-
1
-
1
1
B
1
-
-
1
-
-
1
-
1
1
A
5
-
3
-
-
5
5
5
4
-
B
5
-
5
-
-
5
5
5
5
-
A
B
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Roger Davis (2)
Jon Sutton (3)
Neil Berkett
Bruce Carter
Steve Crane (4)
Carmel Gray
Richard Haire
Margaret Seale
Michelle Tredenick
David Willis (5)
Total number of meetings held
13
5
7
6
2
5
1
5
-
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) Roger Davis attends the meetings of a number of the Board’s sub-committee’s, however he is not considered a formal member of these.
(3) Jon Sutton also attended Board meetings before he was officially appoointed as Managing Director and CEO on 5 January 2015.
(4) Steve Crane retired as a Director on 22 January 2015 and as such the details of meetings held and attended are for the period of time in which he was a Director during the financial year.
(5) David Willis is also a member of the Audit & Risk Committee for St Andrew’s. During the year he attended all three meetings held.
2015 CORPORATE GOVERNANCE STATEMENT IS ONLINE
BOQ complies with its Constitution, the Corporations Act 2001 (Cth), the ASX Listing Rules, and the third edition of the ASX Corporate Governance
Council’s Corporate Governance Principles and Recommendations (Third Edition) (ASX Principles), which is reflected in our Corporate Governance Statement.
As an APRA-regulated entity, BOQ also complies with the governance requirements prescribed by APRA under Prudential Standard CPS 510 Governance.
Information about BOQ’s Board and management, corporate governance policies and practices and Enterprise Risk Management Framework can be found in the
2015 Corporate Governance Statement available at
http://www.boq.com.au/uploadedFiles/AboutUs/Corporate_information/BOQ-Corporate-Governance-2015.pdf.
8
ANNUAL REPORT 2015
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
OPERATING AND FINANCIAL REVIEW
1. HIGHLIGHTS & STRATEGY
1.1 DISCLOSURE CONSIDERATIONS
Changes to Financial Reporting
This reporting period reflects the first full year contribution for BOQ Specialist since acquisition in July 2014. Section 2.2 provides further details
of the contribution for the year.
Future performance
This document contains certain ‘forward looking statements’. Forward looking statements can generally be identified by the use of forward
looking words such as ‘anticipate’, ‘believe’, ‘expect’, ‘project’, ‘forecast’, ‘estimate’, ‘likely’, ‘intend’, ‘should’, ‘will’, ‘could’, ‘may’, ‘target’, ‘plan’
and other similar expressions within the meaning of securities laws of applicable jurisdictions. The forward looking statements contained in this
document involve known and unknown risks and uncertainties and other factors, many of which are beyond the control of BOQ, and may involve
significant elements of subjective judgement as to future events which may or may not be correct.
There can be no assurance that actual outcomes will not differ materially from these forward looking statements.
Rounding
In accordance with applicable financial reporting regulations and current industry practices all amounts in this report have been rounded off to
the nearest one million dollars, unless otherwise stated.
Note on Statutory Profit and Cash Earnings
Statutory Profit is prepared in accordance with the Corporations Act 2001 and the Australian Accounting Standards, which comply with
International Financial Reporting Standards (‘IFRS’). Cash Earnings is a non-Accounting Standards measure commonly used in the banking
industry to assist in presenting a clear view of the Bank’s underlying earnings. Refer to Section 4.1 for the reconciliation of Statutory Profit to
Cash Earnings.
The items excluded from Cash Earnings are consistent with the prior period. Integration/Due Diligence costs relate to the acquisition of BOQ
Specialist and are in line with guidance provided at acquisition. The increase in amortisation of customer contracts over the prior year includes
recognition of BOQ Specialist customer contracts following purchase price adjustment allocations completed in the latest half year. Hedge
ineffectiveness represents earnings volatility from hedges that are partially ineffective under the application of IAS 39 Financial Instruments and
create a timing difference in reported profit, where these hedges remain economically effective. (Refer to the Reconciliation of Statutory Profit
to Cash Earnings chart below).
Figures disclosed in this report are on a Cash Earnings basis unless stated as Statutory Profit basis. Unless otherwise stated, all financial
comparisons in this document refer to the prior half (to 28 February 2015) and the prior year (to 31 August 2014).
These non-statutory measures have not been subject to review or audit.
RECONCILIATION OF STATUTORY PROFIT TO CASH EARNINGS ($M)
14
1
3
318
20
1
357
INTEGRATION OF BOQ SPECIALIST
Statutory Net Profit
after Tax
Amortisation of
customer contracts
Amortisation of fair
value adjustments
Hedge
ineffectiveness
Integration / due
diligence
Legacy
Cash Earnings
after Tax
9
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
1.2 GROUP HIGHLIGHTS
Cash Earnings after Tax ($m)
19%
301
357
Statutory Profit after Tax ($m)
22%
261
318
131
140
161
167
190
135
126
85
154
164
2H13
1H14
2H14
1H15
2H15
2H13
1H14
2H14
1H15
2H15
Cash Net Interest Margin (‘NIM’) (%)
1.82
15BPS
1.97
1.97
0.11
1.87
0.02
1.85
1.86
1.97
1.97
1.72
1.77
Cash Cost to Income (%)
46.0
210BPS
48.1
3.0
1.1
43.9
43.9
43.8
43.9
0.1
1.4
42.4
44.0
44.0
2H13
1H14
2H14
1H15
2H15
2H13
1H14
2H14
1H15
2H15
BOQ Specialist
BOQ Specialist
Property & CRM Impairment
Cash Basic Earnings per Share (‘EPS’) (cents)
97.3
89.5
9%
DIVIDENDS PER SHARE (CENTS)
12%
74
66
40.7
43.2
46.3
45.8
51.5
30
32
34
36
38
2H13
1H14
2H14
1H15
2H15
2H13
1H14
2H14
1H15
2H15
CASH RETURN ON AVERAGE EQUITY (‘ROE’) (%)
10.4
30BPS
10.7
CASH RETURN ON AVERAGE TANGIBLE EQUITY (‘ROTE’) (%)
13.2
120BPS
14.4
10.3
10.4
10.3
11.2
13.2
13.2
13.8
15.0
9.7
12.3
2H13
1H14
2H14
1H15
2H15
2H13
1H14
2H14
1H15
2H15
10
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
CASH COST TO INCOME RATIO
46%
44.5% before one-off costs (1)
IMPAIRED ASSETS
$237 million
Reduced $56m (19%) on the prior year
1.2 GROUP HIGHLIGHTS (CONTINUED)
CASH EARNINGS
NET INTEREST MARGIN (CASH)
$357 million
increased by 19% on the prior year
$43 million first full year BOQ Specialist
contribution
8% earnings growth excluding BOQ
Specialist and one-offs (1)
LOAN IMPAIRMENT EXPENSE
$74 million
Down 4bps to 18bps of lending and 14%
reduction over the prior year
(1) Excluding one-off CRM impairment and property costs.
1.97%
Up 15 bps over the prior year. The
inclusion of BOQ Specialist and liability
mix initiatives have contributed to the
increase
COMMON EQUITY TIER 1
8.91%
Capital
increasing 28bps over the year
further
ratio
strengthened,
BOQ has delivered a record full year profit with Cash Earnings increasing 19% to $357 million and Statutory Profit after Tax increasing 22%
to $318 million. Our clear and simple strategy has delivered improved momentum as we continue to build a more streamlined and lower risk
organisation with sustainable earnings growth.
This is the first full financial year following the acquisition of BOQ Specialist which was acquired in July 2014. The contribution of BOQ Specialist
to the Group result of $43 million was 13% above the earnings guidance of $38 million provided on announcement of the acquisition. The
business has been successfully integrated and is delivering on its strategy to provide specialised banking solutions to a professional market niche.
Net Interest Margin was maintained in the second half at 1.97%, an increase of 15 basis points on the prior year, with an 11 basis point
improvement from BOQ Specialist as expected. Whilst the maintenance of the Net Interest Margin in the second half was supported by the impact
of lower liquid asset requirements, this was a solid result against a backdrop of contracting industry margins over this period. We continue to
target measured growth in a dynamic market which remains highly competitive, maintaining a prudent outlook in the changing economic and
regulatory environment.
Our Cost to Income ratio during the year was 46%, which was rebased by the first full year of BOQ Specialist and included a number of one-off
costs. These were the impairment of the pilot Customer Relationship Management (‘CRM’) System for $10 million and $6 million of premises
consolidation costs. Excluding these one-off costs, the Cost to Income ratio for the Group was 44.5%, in line with earlier market guidance.
Underlying cost growth of 4%, excluding the acquisition of BOQ Specialist and one-off costs, was delivered whilst we continued to build out our
front line capability and invest in new channels such as our developing Broker presence.
Lending growth of 7% was a significant improvement over the prior year as we gain further traction with the ‘Customer in Charge’ strategy by
widening the choice of channels through which our customers can engage with us. We continue to gain penetration through the Broker channel
which provided 15% of settlements this year compared to 5% last year. Second half growth was slower as we moved ahead of other industry
participants with our pace of implementation in meeting the Australian Prudential Regulatory Authority’s (‘APRA’) required lending serviceability
standards. Lending growth through proprietary channels was credible as branch numbers once again moved in response to changes in consumer
preferences.
Loan impairment expense reduced by 14% to $74 million in 2015 reflecting underlying improvement in credit quality across the retail and
commercial portfolios supported by declining levels of defaults in the lower interest rate environment. The 30 day housing arrears reduced to
the lowest level in recent years. We did witness an increase in impairment charge across the BOQ Finance portfolio with defaults of mining
related exposures attributable to the subdued economic environment and the impact of the industry downturn. We continue to closely monitor
our exposures and did see an improvement in the arrears trend in this portfolio in the last quarter.
As mentioned in the February 2015 results, we have successfully transitioned to the new APRA APS210 Liquidity framework. The new framework
and steps taken to improve the resilience of the Bank’s liability base, in line with broader industry changes, have been positive to the management
of our liquidity requirements. Our recent rating upgrades have allowed us to selectively increase the duration of our wholesale funding profile
whilst maintaining our retail deposit funding mix. At year end, our Common Equity Tier 1 ratio was 8.91%, an increase of 28 basis points on
the prior year.
The Board has determined to pay a final dividend of 38 cents per share fully franked, with the full year dividend of 74 cents, an increase of 12%
on the 2014 financial year.
11
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
1.3 STRATEGY
BOQ is a full service financial institution, listed on the Australian Securities Exchange (‘ASX’), regulated by the Australian Prudential Regulation
Authority as an authorised deposit-taking institution (‘ADI’) and ranked among the top 100 companies by market capitalisation on the ASX.
We have grown from being the first Permanent Building Society in Queensland in 1874 to the current day with a network of retail branches, and
other points of presence spanning every state and territory in Australia.
BOQ aspires to build a differentiated position in the Australian financial services sector by demonstrating to customers that “It is Possible to Love
a Bank.” BOQ’s corporate strategy is to focus on niche customer segments that value a more intimate banking relationship beyond what they
receive from the major banks. Importantly, BOQ’s strategic focus plays to its competitive strengths as a small challenger bank of being able
to provide customers with personalised relationship management, passionate customer service, focused products and solutions, and nimble
decision-making and problem resolution. The strategy is executed through BOQ’s four strategic pillars: (i) Customer in Charge (ii) Grow the
Right Way (iii) There’s Always a Better Way, and (iv) Loved Like No Other.
In terms of Customer in Charge, we are continuing to expand our source of originations through growth in the mortgage broker market as well
as improvements to digital, online and call centre channels. We have further expanded our mortgage broker distribution network with accredited
brokers servicing customers in New South Wales, Victoria, Western Australia, South Australia and, more recently, our home state of Queensland.
The successful integration of BOQ Specialist (formerly Investec Bank (Australia) Limited’s Professional Finance and Asset Finance & Leasing
businesses) has provided BOQ with unique access to a compelling and expanding customer base of high net worth medical, dental and
accounting professionals served through a high touch, specialist banking proposition.
In our Retail network, a new commission model has been introduced for Owner Managed Branches based upon a balanced scorecard approach.
The new scorecard balances lending, deposits, cross sales and compliance components and strongly aligns interests of Owner Managers and
the Bank. The new scorecard and commission model forms the basis of a new standardised franchise agreement which is being rolled out on
a progressive basis as existing agreements expire. There is also significant work underway to optimise branch mix and locations, particularly
across our Corporate-owned branches.
To Grow the Right Way and achieve the right balance of return for risk taken, we continue to diversify our balance sheet by pursuing higher
margin segments in Business Banking, Agribusiness and Asset Leasing. In Business Banking, a tiered approach to origination through our
distribution channels has been embedded to reflect deal complexity. Business mix changes reflecting a core focus on credit quality were evident
across the retail portfolio, with the concentration of poorer performing line of credit mortgages being substantially reduced.
There’s Always a Better Way, which is the pursuit of operational efficiency, has seen continued focus on improving processes and systems
to reduce the turnaround time on compliant retail and business lending applications. In 2016, we will implement a new digitised mortgage
origination process as well as continue to simplify our product suite. A good example of this approach is our simple low cost mortgage offering
‘Clear Path’ which has been well received by our customers, particularly in the owner occupied segment.
Loved Like No Other is about building a culture that makes BOQ a great place to work and inspires our passion to deliver exceptional customer
outcomes. The major brand refresh around ‘It’s Possible to Love a Bank’ resulted in an increase in national unprompted awareness of our brand.
We have seen a further increase in our Net Promoter Scores (1) from 16.1% in August 2014 to 30.5% in August 2015 placing us second amongst
all measured banks (up from 9.9% in August 2013) which demonstrates strong customer satisfaction and advocacy. Our internal Employee
Engagement score also saw a significant increase from 43% in July 2014 to 67% in July 2015.
Through continued focus on our four strategic pillars, we aim to deliver robust and sustainable financial performance, consistent growth in returns
to shareholders and superior service to our customers and the wider community.
(1) Roy Morgan Research, MFI customers aged 14+, 6 month averages, competitors exclude mutual banks. Net promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are
trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.
12
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2. GROUP PERFORMANCE ANALYSIS
2.1 INCOME STATEMENT & KEY METRICS (1)
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15
vs Aug 14
Aug-15
Feb-15
Aug 15
vs Feb 15
$ million
Net Interest Income
Non-Interest Income
Total Income
Operating Expenses
Underlying Profit
Loan Impairment Expense
Profit before Tax
Income Tax Expense
Cash Earnings after Tax
907
180
1,087
(500)
587
(74)
513
(156)
357
761
169
930
(408)
522
(86)
436
(135)
301
19%
7%
17%
23%
12%
(14%)
18%
16%
19%
459
96
555
(244)
311
(38)
273
(83)
190
164
448
84
532
(256)
276
(36)
240
(73)
167
154
2%
14%
4%
(5%)
13%
6%
14%
14%
14%
6%
Statutory Net Profit after Tax
318
261
22%
Key Metrics
Shareholder Returns
Share Price
Market Capitalisation
Dividends per share (fully franked)
Dividend yield
Grossed-up dividend yield (including franking)
Cash Earnings basis
Basic Earnings per Share (‘EPS’) (2)
Diluted EPS
Dividend payout ratio
Statutory basis
Basic EPS
Diluted EPS
Dividend payout ratio
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15
vs Aug 14
Aug-15
Feb-15
Aug 15
vs Feb 15
($)
($ million)
(cents)
(%)
(%)
12.67
4,698
74
5.84
8.34
(cents)
(cents)
(%)
(cents)
(cents)
(%)
97.3
92.2
76.5
86.8
82.8
85.7
12.58
4,560
66
5.25
7.49
89.5
87.0
75.0
77.4
75.9
86.9
1%
3%
12%
59bps
85bps
9%
6%
150bps
12%
9%
(120bps)
12.67
4,698
38
5.95
8.50
51.5
48.9
74.1
44.5
42.6
85.9
13.96
5,123
36
5.20
7.43
45.8
44.8
79.1
42.3
41.6
85.8
(9%)
(8%)
6%
75bps
107bps
12%
9%
(500bps)
5%
2%
10bps
(1)
(2)
Includes the first full year of results for BOQ Specialist acquired on 31 July 2014
Intangible assets amortisation identified as part of the acquisition accounting for BOQ Specialist is included in 2H15 only, prior half has not been restated.
13
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15
vs Aug 14
Aug-15
Feb-15
Aug 15
vs Feb 15
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.1 INCOME STATEMENT & KEY METRICS (CONTINUED) (1)
Key Metrics
Profitability and efficiency measures
Cash Earnings basis
Net Profit After Tax (1)
Underlying Profit (2)
Net Interest Margin
Cost to Income Ratio
Loan Impairment Expense to Gross Loans
and Advances (‘GLA’)
Return on Average Equity
Return on Average Tangible Equity (4)
Statutory basis
Net Profit After Tax (3)
Underlying Profit (2) (3)
Net Interest Margin
Cost to Income Ratio
Loan Impairment Expense to GLA
Return on Average Equity (3)
Return on Average Tangible Equity (3) (4)
Asset Quality
30 days past due (‘dpd’) Arrears
90dpd Arrears
Impaired Assets
Specific Provisions to Impaired Assets
Collective Provisions to Risk Weighted
Assets
Capital
Common Equity Tier 1 Ratio
Total Capital Adequacy Ratio
(bps)
(%)
(%)
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
($ million)
(%)
(%)
(%)
(%)
($ million)
($ million)
(%)
357
587
1.97
301
522
1.82
19%
12%
15bps
(%)
46.0
43.9
210bps
18
10.7
14.4
318
536
1.95
50.7
18
9.6
12.9
478
257
237
53.3
0.56
22
10.4
13.2
261
469
1.82
50.0
22
9.0
11.5
456
221
293
52.1
0.55
(4bps)
30bps
120bps
22%
14%
13bps
70bps
(4bps)
60bps
140bps
5%
16%
(19%)
120bps
1bps
190
311
1.97
44.0
18
11.2
15.0
164
275
1.96
50.0
18
9.7
13.0
478
257
237
53.3
0.56
167
276
1.97
48.1
18
10.3
13.8
154
261
1.94
51.4
18
9.5
12.8
533
259
259
51.9
0.57
8.82
12.03
26,057
14%
13%
-
(410bps)
-
90bps
120bps
6%
5%
2bps
(140bps)
-
20bps
20bps
(10%)
(1%)
(8%)
140bps
(1bps)
9bps
69bps
1%
Risk Weighted Assets (‘RWA’)
($ million)
26,321
25,032
5%
26,321
8.91
12.72
8.63
12.02
28bps
70bps
8.91
12.72
(1)
(2)
(3)
Includes the first full year results for BOQ Specialist acquired on 31 July 2014.
Profit before loan impairment expense and tax.
Intangible assets amortisation identified as part of the acquisition accounting for BOQ Specialist is included in 2H15 only, prior half has not been restated.
(4) Based on after tax earnings applied to average shareholders’ equity (excluding preference shares and treasury shares) less goodwill and identifiable intangible assets (customer related intangibles/ brands and
computer software).
14
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.2 BOQ SPECIALIST
(A) INCOME STATEMENT
The following analysis provides details of the BOQ Specialist contribution to the Group result for the year. It also provides a view of underlying
results excluding BOQ Specialist to allow a like for like comparison to the prior periods.
Year End Performance
Half Year Performance
Group
Aug-15
BOQ
Specialist
Aug-15
Group
excluding BOQ
Specialist
Aug-15
$ million
Net Interest Income
Non-Interest Income
Total Income
Operating Expenses
Underlying Profit
Loan Impairment Expense
Profit before Tax
Income Tax Expense
Cash Earnings after Tax
907
180
1,087
(500)
587
(74)
513
(156)
357
129
12
141
(71)
70
(8)
62
(19)
43
Aug-14
752
168
920
778
168
946
(429)
(403)
517
(66)
451
(137)
314
517
(86)
431
(133)
298
Aug 15
vs Aug
14
3%
-
3%
6%
-
(23%)
5%
3%
5%
Aug-15
Feb-15
391
89
480
387
79
466
(208)
(221)
272
(34)
238
(72)
166
245
(32)
213
(65)
148
Aug 15
vs Feb
15
1%
13%
3%
(6%)
11%
6%
12%
11%
12%
(B) BOQ SPECIALIST FINANCIAL PERFORMANCE
BOQ Specialist has made a significant contribution to the annual results of the Group in its first full financial year since acquisition. Strong loan
growth of $1.6 billion has been delivered while maintaining solid margins and sound credit quality. The strategic focus on the new on-balance
sheet residential mortgage offering has delivered $1.3 billion of this growth. Total mortgage originations including off-balance sheet third party
lending is $1.9 billion for the year, which is up 54% up on the prior year. This business initiative is performing well ahead of the expectations we
had upon acquisition, targeting half of mortgage originations to be on-balance sheet by the end of FY15.
Commercial lending growth of $0.3 billion has also been achieved representing a growth rate of 14% which is approximately double APRA
System growth. BOQ Specialist continues to target niche customer segments in the health, medical and accounting professions and continues
to benefit from the higher growth rates of these segments compared to the broader economy.
The business has delivered $43 million of earnings for the financial year, well exceeding the maintainable earnings guidance outlined at the
announcement of the acquisition of $38 million. This has provided both earnings per share and return on equity accretion to our overall Group
result, with the FY16 expected EPS accretion of 4% announced upon acquisition, has largely been delivered in the 2015 year. The significant
uplift in mortgage originations over the year contributed to a 26% increase in cash earnings this period to $24 million. The on-balance sheet
mortgage strategy is yet to deliver enhanced earnings relative to the previous third party distribution model. The full year outcome was $1 million
lower as a result, with this impact occurring in the first half and neutralising in the second half. This strategy should deliver enhanced earnings
growth for this business in future years.
15
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.2 BOQ SPECIALIST (CONTINUED)
(C) KEY METRICS EXCLUDING IMPACT OF BOQ SPECIALIST
The following analysis eliminates the impact of the BOQ Specialist acquisition and associated equity raising in the prior period on a proforma
basis.
Key Metrics
Cash Earnings basis
Net Profit After Tax
Underlying Profit
Net Interest Margin
Cost to Income Ratio
Loan Impairment Expense to Gross
Loans and Advances (‘GLA’)
Return on Average Equity
Return on Average Tangible Equity (1)
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs Feb
15
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
314
517
1.87
45.3
18
10.9
14.0
298
517
1.81
43.9
24
10.7
13.6
5%
-
6bps
140bps
(6bps)
20bps
40bps
166
272
1.87
43.3
18
11.4
14.5
148
245
1.86
47.4
18
10.3
13.4
12%
11%
1bps
(410bps)
-
110bps
110bps
(1) Based on after tax earnings applied to average shareholders’ equity (excluding preference shares and treasury shares) less goodwill and identifiable intangible assets (customer related intangibles/ brands and computer
software).
Excluding the impact of BOQ Specialist, Cash Earnings of $314 million represented a 5% increase on the prior year. Excluding the CRM impairment
this year and elevated property costs that were incurred in both years, underlying Cash Earnings growth was 8%.
2.3 NET INTEREST INCOME
• Net Interest Margin increased by 15bps to 1.97% for the year
$ million
Net Interest Income - excluding BOQ Specialist
Net Interest Income - including BOQ Specialist
Average Interest Earning Assets
Net Interest Margin
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
778
907
46,098
1.97%
752
761
41,912
1.82%
3%
19%
10%
15bps
391
459
46,272
1.97%
387
448
45,924
1.97%
1%
2%
1%
-
Net Interest Income increased by 19% on the prior year to $907 million including the full year contribution from BOQ Specialist. The increase in
Net Interest Margin of 15bps over the prior year included the contribution of the higher margin BOQ Specialist business which added 11bps of
margin as anticipated. Through active management of the liability mix we increased pre-acquisition Net Interest Margin over the prior year, which
contributed a further 4 basis points. Net Interest Margin of 1.97% in the second half was consistent with the first half. The second half result
benefited by approximately 3bps from the impact of lower liquid asset levels as a result of consolidating BOQ Specialist under the Bank’s licence
and the maturing of the Bank’s implementation of APRA’s APS 210 liquidity framework.
Average interest earning assets increased over the second half as we achieved further penetration in new distribution channels through Broker
networks and BOQ Specialist’s on-balance sheet mortgage offering (refer Section 2.8).
16
ANNUAL REPORT 2015
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.3 NET INTEREST INCOME (CONTINUED)
NET INTEREST MARGIN - FEBRUARY 2015 TO AUGUST 2015
2.26%
0.29%(1)
1.97%
0.04%
0.04%
0.03%
0.03%
2.26%
0.29% (1)
1.97%
Feb 15
Asset Pricing and Mix
Funding Costs and
Mix
Net Interest Margin
Capital and Low Cost
Deposits
Third Party Costs
Liquids
Aug 15
(1) Third party costs largely represent commissions to Owner Managers and brokers.
Normalised Net Interest Margin remained flat over the half at 1.97%. Underlying movements within the Net Interest Margin included the following:
Asset pricing: This half saw a 4bps decline in asset pricing reflecting competitive pricing on new business.
Funding Costs and Mix: Further benefits of 4bps in the half were achieved through continued success in improving the liability mix.
Capital: The 3bps reduction this half was due to the declining yield curve environment which continues to reduce the return on the liquid asset
‘replicating portfolio’ used to manage the free funding benefit of capital and low cost deposits.
Liquids: A 3bps impact is attributed to a reduction in the liquid assets portfolio following transition to the APS 210 liquidity standard, partially
offset by costs associated with maintaining the RBA committed liquidity facility, and a reduction in group liquidity requirements after consolidating
the BOQ Specialist banking operations into the Bank’s licence.
Competition in the banking market is currently going through a dynamic phase with pricing levels in certain portfolio segments moving in different
directions. Portfolio margins are in transition as the industry adjusts to changes in regulatory capital resulting from the Financial System Inquiry
and macro prudential actions targeted towards the residential investment market. There are many factors driving the outlook for margins in the
year ahead given the changing regulatory environment, with all banks positioning for global industry change under the ‘Basel IV’ framework
expected to be introduced in coming years. It appears that capital measures and regulatory risk weighted asset rules are converging, both across
jurisdictions and between advanced and standardised banks. The potential reduction in the significant capital advantage enjoyed by advanced
accredited banks should be a positive to BOQ’s competitive position and relative return performance.
2.4 NON-INTEREST INCOME
$ million
Banking Income
Insurance Income
Trading Income
Other Income
Total Non-Interest Income
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
110
33
20
17
180
97
42
16
14
169
13%
(21%)
25%
21%
7%
59
16
10
11
96
51
17
10
6
84
16%
(6%)
-
83%
14%
17
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.4 NON-INTEREST INCOME (CONTINUED)
Non-Interest Income increased this year with the additional contribution from BOQ Specialist. Excluding this impact, a reduced contribution
from the St Andrews’ Insurance business was offset by improvements in the Banking result. The second half result saw a $10 million positive
improvement over the first half. Approximately $4 million of this movement reflected some lumpy items that impacted the first half result and
were not repeated. The remaining $6 million increase occurred through improved contribution from the Group’s investment in its financial
markets offering, some seasonality around timing of collection of commercial lending fees and underlying growth in activity levels.
Trading income of $20 million for the year was a strong result and towards the upper end of the range of our expectations.
The Virgin Money (Australia) contribution is included in Other Income and contributed $2 million to the year’s result. The business continues
to demonstrate strong customer acquisition, with a 38% increase in new credit cards over the year demonstrating the power of the brand. We
are well progressed to commence offering Virgin Money branded mortgages in 2016.
The St Andrews’ result reduced this year due to higher claims experience and reduced profitability as one of the business’ key partner
distribution relationships was successfully renewed, but on current market commercial terms that are less favourable than the previous
arrangement. The result is discussed in more detail in Section 2.5 below.
2.5 INSURANCE OVERVIEW
$ million
Gross Written Premium (net of refunds)
Net Earned Premium
Underwriting Result
Other Insurance Income
Total Income
Consolidation Adjustment
Group Insurance Result
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
55
72
25
6
31
2
33
68
70
34
6
40
2
42
(19%)
3%
(26%)
-
(23%)
-
(21%)
26
36
12
3
15
1
16
29
36
13
3
16
1
17
Aug 15 vs
Feb 15
(10%)
-
(8%)
-
(6%)
-
(6%)
St Andrew’s Insurance contributed $33 million to Non-Interest Income, a $9 million reduction from the prior year.
Gross Written premiums reduced 19% due to lower volumes of single premium policies, a trend set to continue in coming periods. Sales of
regular premium policies continued to increase in line with strategy to diversify product revenue streams with increased sales of term life, funeral
and involuntary unemployment insurance. Overall this resulted in an increase in Net Earned Premiums of 3%, however this was more than offset
by an increase in commissions reflecting the changing mix of business.
Underwriting margins reduced by $9 million (26%), due to a $6 million increase in claims expenses with the remaining $3 million reflecting other
impacts of the changing mix of business. The impact of the shift in the business mix will continue to be a headwind of similar magnitude over each
of the next 2 years, until the strategy to diversify into newly established wholesale partnership arrangements begins to provide a more meaningful
contribution to earnings. Claims loss ratios on key life products have been below the long-term trend levels of 42-45% in recent years, but this
reversed in FY15, increasing from 34% in the prior year to 49%.
18
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.6 OPERATING EXPENSES
• 4% increase in underlying costs from the prior year
• The below operating expenses include the first full year of BOQ Specialist expenses following acquisition in July 2014
$ million
Employee Expenses
Occupancy Expenses
General Expenses
IT Expenses
Other Expenses
Total Operating Expenses (1)
BOQ Specialist
Total Operating Expenses
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
189
42
100
79
19
429
71
500
182
39
86
79
17
403
5
408
4%
8%
16%
-
12%
6%
n/a
23%
95
18
46
39
10
208
36
244
94
24
54
40
9
221
35
256
1%
(25%)
(15%)
(3%)
11%
(6%)
3%
(5%)
Cost to Income Ratio (including BOQ Specialist)
Cost to Income Ratio (excluding one-off costs) (2)
Number of employees (FTE) (1)
46.0%
44.5%
1,991
43.9%
43.2%
1,903
210bps
130bps
5%
44.0%
44.0%
1,991
48.1%
45.1%
1,859
(410bps)
(110bps)
7%
(1) FTE numbers and Operating Expenses exclude Virgin Money (Australia) as the net result is included in Non-Interest Income.
(2) One-off costs are CRM Impairment of $10 million in 1H15 and $6 million property transition costs incurred in both the 2H14 and 1H15 periods.
Operating expenses increased to $500 million in 2015, including the first full year of BOQ Specialist. This drove the 23% increase at the Group
level and rebased the Cost to Income ratio to 44.5% (excluding one-off costs) which was in line with previous guidance. The first half also included
non-recurring costs due to the impairment of the CRM system and costs associated with the transition of Brisbane and Sydney head offices.
To provide a view of underlying expenses the following graph breaks out the impact of BOQ Specialist’s full year contribution and the one-off
impacts of impairment and property transition costs.
4% Underlying cost increase
10
16
71
429
16
413
500
16
484
Underlying
Expenses
CRM Impairment
FY15 BOQ
(excluding BOQ
Specialist)
BOQ Specialist
FY15
403
6 (1)
397
FY14
(1) Property transition costs were experienced equally in both the FY14 and FY15 years.
One-off costs
Recurring costs
19
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.6 OPERATING EXPENSES (CONTINUED)
Operating Expenses exclude costs relating to Virgin Money (Australia) where the net result has been consolidated in Non-Interest Income for
presentation of Cash Earnings. The total expenses for Virgin Money (Australia) were $14 million for the half. A reconciliation of Cash Earnings to
Statutory Profit is set out in Section 4.1 (b).
The Group has been investing in a number of key transformational change programs to digitise the Bank and reset key outsourcing arrangements.
This investment program will create a significant uplift in the Bank’s amortisation profile with the amortisation charge expected to double over the
next two years from the $17 million charge in the current financial year (refer Section 2.7). Whilst the benefits being generated from the revised
outsourcing arrangements will help to shelter some of this impact, net underlying cost growth is likely to be elevated above inflation estimates in
2016 before the benefits of the investment program begin to be fully realised.
Following the BOQ Specialist acquisition the Group’s underlying cost to income ratio has been reset to 45%. Whilst the longer term outlook for a
reduction in the cost to income ratio towards the low 40s remains, the pace of that improvement will be dependent on the cost leverage provided
by our digitisation program currently underway. Further operating cost uplift will occur as the Virgin Money (Australia) mortgage product is brought
to market with the cost to income profile of that initiative being consistent with the profile of new business originations on the Bank’s existing
mortgage operations.
The number of staff over the full year has increased 5% (refer Graph below). Whilst staff numbers reduced in the first half as we rebalanced the
corporate branch network and implemented the evolved IT outsourcing operating model, the second half did see an increase in investment in
frontline capability with the focus on supporting the broker network, including the opening of a second customer contract centre on the Gold Coast,
transition of Owner Managed Branches to Corporate run branches, and the new mortgage servicing support for the BOQ Specialist mortgage
channel. Whilst the net number of Corporate branches increased by 4 over the year, following a contraction in the first half, there was an increase
of 7 branches in the second half.
The Group continues to enhance its investment in risk practices, with operational risk and risk culture being a particular focus in the current year.
BOQ FTE FY15 V FY14
23
24
8
68
1,903
Customer in Charge- driving frontline capability
53
18
There’s always a better way /
Grow the right way
1,991
Aug 14
BOQ Specialist
Retail Strategy
Call Centre/ Broker
Processing
Business & Agri
Operational Risk and
Risk Culture
Aug 15
IT outsourcing,
integration
synergies &
efficiency gains
2.7 CAPITALISED INVESTMENT SPEND
To drive our operational excellence strategy ‘There’s Always A Better Way’, we are currently undertaking a strategic transformation in our
operational infrastructure requiring significant reinvestment. The strategic project pipeline is aimed at improving the customer experience and
reducing turnaround times, while generating front and back office efficiency. This includes a new retail lending origination platform, business
process systems and transitioning from legacy manual processes to a digitised environment with full workflow management capability.
20
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.7 CAPITALISED INVESTMENT SPEND (CONTINUED)
We expect the amortisation profile to double over the coming years with approximately 75% of this uplift expected to occur in the 2016 year. This
heightened level of investment is evident in the increased carrying value of intangible assets over the last two years, though this should peak over
the next financial year based on current deliverables and timing of key projects.
CARRYING VALUE OF INTANGIBLE ASSETS ($M)
84
51
33
1H14
105
60
45
2H14
108
66
42
1H15
135
63
72
2H15
Assets under construction
Software Intangible asset
balance
2.8. LENDING
We achieved higher lending growth of $2.6 billion (7%) in FY15 after the low growth experienced in the prior year, with gross loans and advances
now totalling $40.9 billion. This was marginally below system growth and reflected the contribution from new channels in BOQ Specialist and the
broker networks. A key strategic pillar is ‘Grow the Right Way’ and we have continued to maintain strong credit and pricing for risk disciplines
to ensure portfolio quality is not compromised.
$ million
Housing Lending - APRA on-balance sheet
Housing Lending - APS 120 qualifying securitisation (2)
Housing Lending - BOQ Specialist
Commercial Lending
Commercial Lending - BOQ Specialist
BOQ Finance
BOQ Finance - BOQ Specialist
Consumer
Consumer - BOQ Specialist
Gross Loans and Advances
Specific and Collective Provisions
Net Loans and Advances
(1) Growth rates have been annualised
(2) Securitised loans subject to capital relief under APRA Prudential Standard APS120 Securitisation
As at
Aug-15
Feb-15
Aug-14
25,641
24,504
23,548
2,737
2,818
2,961
28,378
27,322
26,509
1,424
8,258
2,280
4,015
222
324
191
501
8,041
2,120
4,029
217
334
189
160
7,656
2,007
3,919
204
342
180
40,975
39,726
38,426
(272)
(275)
(290)
40,703
39,451
38,136
Aug 15 vs
Feb 15 (1)
Aug 15
vs Aug 14
9%
(6%)
8%
9%
(8%)
7%
365% 790%
5%
15%
(1%)
5%
(6%)
2%
6%
(2%)
6%
8%
14%
2%
9%
(5%)
6%
7%
(6%)
7%
21
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.8. LENDING (CONTINUED)
GROWTH IN GROSS LOANS & ADVANCES
GROWTH IN HOUSING ($M)
7% Growth
0.9x System
1,869
1,264
605
FY15
New BOQ Specialist on balance sheet
mortgages
BOQ
BOQ Specialist
1% Growth
0.1x System
199
FY14
HOUSING LENDING
The housing portfolio grew $1.9 billion or 7% (0.9x System) for the full year with the newly acquired BOQ Specialist book generating $1.3 billion
of growth and the Retail Bank channels contributing the remaining $600 million.
Whilst broker volumes generated the bulk of the growth in the Retail Bank and represented 15% of housing settlements in 2015, growth
momentum in this channel was lower than the first half.
In November 2014, APRA released the Prudential Practice Guide APG 223- Residential Mortgage Lending relating to enhancing industry-wide
mortgage lending and serviceability practices. We had been progressively implementing improvements in our lending standards and serviceability
practices and made further revisions following APRA’s release. In a highly competitive market at the time, it is clear that the practices of other
industry participants lagged some of the changes we had made and meant we were well below other ADIs in the assessment of the maximum
loan amounts we were willing to offer our customers.
Mortgage growth across all BOQ branded channels in the third quarter was negative. Following a benchmarking exercise undertaken by APRA,
changes in competitor lending standards emerged in April, after which customer considerations and new business pipelines returned toward
their previous levels.
The broker channel was extended into the Queensland market in 2014, where we have our strongest brand recognition. BOQ now has Business
Development Managers supporting the 2,500 accredited Brokers located in every state across the country with an anticipated 4,000 Brokers
expected by the end of FY16. The opening of our new Gold Coast customer contact centre in March provides the support for increasing volumes
in this channel.
The increased originations through the broker and BOQ Specialist channels has improved portfolio diversification with an increasing presence in
the NSW and WA markets as well as increasing the weighting of the portfolio to owner occupied and PAYG borrowers.
The proprietary channels have generated a 1% increase in settlements year on year despite the impacts of the consolidation of the branch
network, which reduced by 18 branches over the last year. This reflects a range of factors including Corporate branch lease expiries in sub-
optimal locations and Owner Manager retirements and consolidations. Approximately 20% of the branch network was impacted through closures,
repositioning and consolidation of customer portfolios. These impacted branches have experienced higher customer run-off that has been a
headwind to portfolio growth. A similar sized program is anticipated in the coming year with this wave of targeted network optimisation expected
to be completed in the next 18 months.
Growth in these channels has been further impacted by the continuing runoff of the Line of Credit portfolio ($460 million) and the acceleration
of customer repayments in line with the low interest rate environment.
BOQ continues to invest in enhancing its Digital and online presence across all brands in the BOQ group together with digitising loan processing,
which will provide a quicker ‘time to yes’, improve the customer experience and provide productivity gains to the Bank, with these benefits
expected to be most evident in the 2017 financial year. Enabling customers to choose how they deal with the Bank, whether online, in a branch,
via a broker or the contact centre is the key to putting the ‘Customer in Charge’ and ensuring BOQ is ‘Loved like no Other’.
22
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
2.8. LENDING (CONTINUED)
GROWTH IN COMMERCIAL & BOQ FINANCE ($M)
349
14 (1)
335
602
273
329
BOQ
BOQ Specialist
BOQ Finance
65
96
Commercial
BOQ Finance
Commercial
BOQ Finance
FY14
FY15
Commercial
BOQ Finance
Commercial
BOQ Finance
Growth rate
System growth
Growth vs System
6.6%
5.3%
1.2x
1.8%
(0.2%)
n/a
7.9%
9.2%
0.9x
2.4%
(0.1%)
n/a
(1) Growth from Acquisition for the month of August 2014
BOQ BUSINESS
The BOQ Business Banking team continues to execute on its strategy to differentiate by geography, industry sector and asset class whilst
deepening customer relationships through a focus on reliability and responsiveness. For the seventh consecutive year, BOQ has achieved the
number 1 position on the East & Partners Business Banking Index.
Overall, the commercial lending balances have grown 8% to $8.3 billion. The Corporate Banking, Property Finance and Private Bank teams
experienced solid growth over the year but had a slower second half. Strong competition in both pricing and credit terms was evident in areas of
the market where the business had previously achieved solid new business growth at sound risk versus return metrics. Not compromising on our
‘Grow the Right Way’ strategy, the team looked to successfully retain customer relationships and focus on other areas of the market for profitable
growth with new business pipelines improving along with growth outlook.
BOQ Specialist commercial increased 14% to $2.4 billion which continues the strong growth profile and validates the success of the integration
of the business.
During the year, a specialist lending team was established to support SME customers being originated and managed through the branch network.
This initiative, along with process improvements, credit decisioning enhancements and a renewed focus on SME banking has improved momentum.
We expect to see an uplift in performance moving into the next financial year. In addition to this, the Group’s Financial Markets capability has been
bolstered to increase the product set for targeted business banking customers and has begun to show positive revenue momentum.
The BOQ Finance portfolio grew by 2% to $4.0 billion. This was a solid result in an operating environment that has seen slowing small business
investment in plant and equipment. BOQ Finance’s strategy of expanding its third party origination sources while continuing to support the
Business and Retail Bank networks’ growth has assisted in delivering this result and positioned the business well in a challenging environment.
23
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3. BUSINESS SETTINGS
3.1 ASSET QUALITY
• Lower impairment expense (18bps/GLAs) on prior year
• Impaired asset reduction (19% on prior year) demonstrating further improvement in the credit quality of portfolio
Year End Performance
Half Year Performance
Aug-15
Aug-14 (1)
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
Loan impairment expense
Loan Impairment Expense / GLA
Impaired Assets
30dpd Arrears
90dpd Arrears
Collective Provision & General Reserve for Credit
Losses (‘GRCL’) / RWA (2)
(1) The prior year includes one month’s loan impairment expense for BOQ Specialist.
($ million)
bps
($ million)
($ million)
($ million)
bps
74
18
237
478
257
100
86
22
293
456
221
95
(14%)
(4bps)
(19%)
5%
16%
5bps
38
18
237
478
257
100
36
18
259
533
259
6%
-
(8%)
(10%)
(1%)
102
(2bps)
(2) The first half of 2015 has been restated following completion of the Acquisition accounting for BOQ Specialist.
The table above summarises the Bank’s key credit indicators with comparison against August 2014 and February 2015:
• Loan impairment expense has continued to reduce, reflective of strong credit management practices implemented across the business,
favourable commercial realisations and continued benefits from the low rate interest environment. The full year impairment expense of $74
million or 18bps/GLA is a $12 million (4bps) improvement on the prior year.
• Impaired assets declined by $56 million (19%) to $237 million following a reduction in the volume of new impaired assets and maintaining
momentum in realisations. One exposure greater than $10 million transitioned to impaired status in the second half of the year, which is the
only exposure greater than $5 million in the impaired portfolio.
• Past due performance at a total portfolio level has increased in dollar value slightly but decreased as a percentage of GLA’s (refer ‘Arrears’
Section on Page 28).
• Collective provisioning has marginally increased over the prior year to $146 million.
LOAN IMPAIRMENT EXPENSE
$ million
Expense by Product
Retail Lending
Commercial Lending
BOQ Finance
Total
Year End Performance
Half Year Performance
Aug-15
Aug-14 (1)
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
22
21
31
74
33
31
21
86
(33%)
(32%)
48%
(14%)
(4bps)
10
11
17
38
12
10
14
36
18bps
18bps
(17%)
10%
21%
6%
-
Loan Impairment Expense / GLA
18bps
22bps
(1) The prior year includes one month’s loan impairment expense for BOQ Specialist
The table above shows the continued improving trend across the Retail and Commercial portfolios with significant reductions in impairment
expense. The Retail portfolio is aided by record low interest rates, improved market conditions and faster clearance rates. The Commercial
portfolio has benefitted from several favourable writebacks following workouts of previously provisioned exposures, fewer new impaired assets
recognised and continued momentum in the time taken to realise impaired assets. BOQ Finance impairment expense has increased significantly
on the prior year, which is attributable to larger provisions and write-offs in the second half, impacted predominantly by the downturn in the
mining industry and related sectors of the economy.
24
ANNUAL REPORT 2015
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
As at
Aug-15
Feb-15 (1)
Aug-14 (1)
Aug 15 vs
Feb 15
Aug 15 vs
Aug 14
94
106
30
7
237
110
117
26
6
259
120
143
25
5
293
(15%)
(9%)
15%
17%
(8%)
(22%)
(26%)
20%
40%
(19%)
3.1 ASSET QUALITY (CONTINUED)
IMPAIRED ASSETS
$ million
Retail Lending
Commercial Lending
BOQ Finance
BOQ Specialist
Total Impaired Assets
Impaired Assets / GLA
58bps
65bps
76bps
(7bps)
(18bps)
(1) Prior periods have been restated following completion of the Acquisition accounting for BOQ Specialist.
The Bank’s impaired assets have reduced by 19% over the full year. This has been driven by a continued reduction in Commercial and Retail
impaired assets. The impact has however been offset by increased levels of impaired assets in BOQ Finance’s equipment finance portfolio,
reflecting the effect of the downturn in the mining industry and related sectors. Over the full year, Retail impaired assets fell by $26 million (22%),
Commercial portfolio reduced by $37 million (26%) and BOQ Finance increased by $5 million (20%).
The graph below outlines the continued progress in the reduction of impaired assets throughout 2015.
IMPAIRED ASSETS ($M)
82
3
16
38
25
116
2
15
48
51
293
5 (1)
25
120
143
74
6
17
27
24
96
5
13
43
35
Retail $16m (15%)
Commercial $11m (9%)
(19%)
237
7
30
94
106
259
6
26
110
117
Aug 2014
New Impaired
Realisations
Feb 2015
New Impaired
Realisations
Aug 2015
Commercial
Retail
BOQ Finance
BOQ Specialist
(1) Acquired on acquisition of BOQ Specialist as at July 2014.
25
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.1 ASSET QUALITY (CONTINUED)
COMMERCIAL IMPAIRED ASSETS
Commercial impaired assets have significantly reduced by $37 million (26%) throughout the year showing the continued decline in large new
impaired assets. The first half of the year was superior to the second half in terms of reduction, $26 million versus $11 million, due to the impact
of the only impaired asset over $5 million being recognised in the second half totalling $11 million.
RETAIL IMPAIRED ASSETS
Retail impaired assets reduced $16 million (15%) over the half continuing favourable trends over recent periods. The positive result is driven
by the improved security position across those exposures going into default, market conditions for asset realisation and historically low interest
rates.
BOQ FINANCE IMPAIRED ASSETS
BOQ Finance impaired assets have experienced an uplift over the half of $4 million (15%) along with an increase in specific provisions and
write-offs, particularly within the Equipment Finance portfolio, reflecting the current economic stress within industries relating to mining and
mining related services. This is particularly evident geographically in both WA and QLD. A rise in the 30 day arrears occurred towards the end
of the first half that continued through the third quarter. This trend reversed in the fourth quarter with 30 day arrears ending below the position
at the half year.
COLLECTIVE PROVISION/ GLA VS PEERS
The graph below shows the Bank’s level of collective provisions and GRCL to risk weighted assets against the current peer levels as published
in their most recent financial reports. It should be noted that the major banks utilise an advanced approach to the calculation of RWA’s which
increases their respective coverage ratio in comparison to BOQ and the other standardised banks.
Collective Provision and GRCL/RWA v Peers
BOQ(1)
1.02%
0.45%
1.00%
0.44%
0.85%
0.09%
0.81%
0.06%
0.88%
0.80%
0.02%
0.57%
0.56%
0.76%
0.75%
0.88%
0.78%
1.09%
0.77%
0.68%
0.60%
0.17%
0.41%
BOQ 1H15
BOQ FY15
ANZ
CBA
NAB
WBC
BEN
SUN
Collective Provision to RWA
General Reserve for Credit Losses to RWA
(1) Includes restatement following completion of Acquisition accounting for BOQ Specialist.
26
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.1 ASSET QUALITY (CONTINUED)
PROVISION COVERAGE
In line with the increased realisations and in tandem with the reduced volume of new impaired assets, BOQ has reduced its specific provisions
over the year by 14%. Specific provision coverage to impaired assets has increased to 53%. The GRCL has been increased to allow for asset
growth and the finalisation of the purchase price allocation entries relating to BOQ Specialist.
$ million
Specific Provision
Collective Provision
Total Provisions
GRCL
Specific Provisions to Impaired Assets
Total Provisions and GRCL to Impaired Assets (1)
Total Provisions and GRCL to RWA (1)
(1) GRCL gross of tax effect.
(2) Prior periods have been updated with a reclassification of BOQ Specialist provisions
SPECIFIC PROVISIONS ($M)
28
2
6
12
8
47
1
7
16
23
146
3(1)
15
52
76
As at
Aug-15
Feb-15 (2)
Aug-14 (2)
Aug 15 vs
Feb 15
Aug 15 vs
Aug 14
127
148
275
70
49%
145%
1.4%
30
4
10
8
8
126
146
272
81
53%
164%
1.5%
127
4
14
48
61
146
144
290
70
50%
133%
1.6%
(1%)
(1%)
(1%)
(14%)
2%
(6%)
16%
16%
400bps
300bps
1900bps
3100bps
10bps
(10bps)
31
3
5
12
11
126
5
19
44
58
Aug 2014
New Specifics
Realisations
Feb 2015
New Specifics
Realisations
Aug 2015
(1) Acquired on acquisition of BOQ Specialist as at July 2014
Retail
Commercial
BOQ Finance
BOQ Specialist
27
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.1 ASSET QUALITY (CONTINUED)
ARREARS
Portfolio
Balance
$m
Proportion of Portfolio
(%)
Aug-15
Aug-15
Feb-15
Aug-14 (1)
Aug 15 vs
Feb 15
Aug 15 vs
Aug 14
By Product
30 days past due: GLAs (Housing)
25,272
90 days past due: GLAs (Housing)
30 days past due: GLAs (LOC)
90 days past due: GLAs (LOC)
30 days past due: GLAs (Consumer)
90 days past due: GLAs (Consumer)
30 days past due: GLAs (Commercial)
90 days past due: GLAs (Commercial)
30 days past due: GLAs (BOQ Finance)
90 days past due: GLAs (BOQ Finance)
Total Lending
30 days past due ($ million)
90 days past due ($ million)
30 days past due: GLAs
90 days past due: GLAs
3,106
324
8,258
4,015
40,975
1.02%
0.55%
1.61%
0.74%
1.85%
0.93%
1.63%
1.06%
0.79%
0.13%
478
257
1.2%
0.6%
1.27%
0.56%
2.18%
1.01%
1.61%
0.74%
1.41%
1.04%
0.89%
0.13%
533
259
1.3%
0.7%
1.10%
0.48%
1.73%
0.88%
1.79%
0.97%
1.42%
0.93%
0.68%
0.11%
456
221
1.2%
0.6%
(25bps)
(1bps)
(57bps)
(27bps)
24bps
19bps
22bps
2bps
(10ps)
-
(10%)
(1%)
(10bps)
(10bps)
(8bps)
7bps
(12bps)
(14bps)
6bps
(4bps)
21bps
13bps
11bps
2bps
5%
16%
-
-
(1) August 2014 numbers have been updated to include BOQ Specialist which were previously excluded from the Asset Quality section
RETAIL ARREARS
As anticipated, Retail arrears have improved in both 30DPD and 90DPD over the half as post Christmas period seasonality has unwound as
expected. The reduction in arrears reflects improved credit quality, driven largely by the low interest rate environment and a strong residential
property market.
BOQ BUSINESS ARREARS
Commercial arrears have seen a deterioration over the half with 30DPD and 90DPD increasing 22bps and 2bps respectively. An increase in
BOQ Finance 30DPD arrears late in the first half continued through the third quarter of the financial year, however reduced in the fourth quarter
as the levels of defaults moderated.
28
ANNUAL REPORT 2015
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.2 FUNDING AND LIQUIDITY
• We successfully managed the transition to the new Basel III Liquidity Coverage Ratio
• Fitch joined Standard and Poors and Moody’s by lifting BOQ’s long-term credit rating from (BBB+) to (A-) in November 2014
• Proactive pricing and liquidity management initiatives further strengthened the liquidity and funding profile providing a more
diverse and stable funding composition
During 2015 customer deposits grew $0.8 billion to $26.9 billion, resulting in a deposit to loan ratio of 66%. The BOQ Specialist business was
more than fully funded by retail deposits, a significant portion being at higher cost. In line with the strategy announced at the date of acquisition,
these deposits were repriced at expiry to BOQ Group levels at materially lower spreads. Despite the lower spreads paid, the Bank was able to
raise sufficient retail funding through the channel to fund the additional asset growth achieved.
Pleasingly, strong transaction account growth of $260 million, an increase of 14%, was achieved throughout the year. The branch network was
critical to this result and benefited from strong gains in customer Net Promoter Scores, with the strongest improvement amongst the measured
industry participants (refer Section 1.3).
The Bank successfully integrated the BOQ Specialist operations during the year with the return of its banking licence occurring at the end of May.
This, together with significant work on improving the deposit mix under the evolution of the new Basel III APS 210 Liquidity Standard, allowed
the physical holding of liquid assets to be reduced by approximately $1 billion. The year end Liquidity Coverage Ratio (‘LCR’) was 125%. The
improvement in the retail deposit mix reduced reliance on more price sensitive, higher cost and less stable deposits.
$ million
Customer Deposits (2)
Wholesale Deposits
Total Deposits
Borrowings
Other Liabilities
Total Liabilities
As at
Aug-15
Feb-15
Aug-14
26,914
26,058
26,266
7,818
7,959
7,840
34,732
34,017
34,106
8,713
1,104
9,378
1,102
8,364
1,094
44,549
44,497
43,564
Aug 15 vs
Feb 15
Aug 15 vs
Aug 14 (1)
3%
(2%)
2%
(7%)
-
-
2%
-
2%
4%
1%
2%
(1) There has been a reclassification of Transferable Deposits from Wholesale Deposits for August 2014 to Borrowings to better reflect the underlying substance with contractual terms being on average greater than twelve months.
(2) The classification of customer deposits is defined as all deposits excluding those from financial institutions as defined under the Liquidity Prudential Standard APS210. Prior years have been amended.
FUNDING MIX ($b)
LONG-TERM WHOLESALE ($b)
42.5
8.0
8.2
43.5
9.3
8.1
26.3
26.1
43.4
8.6
7.9
26.9
8.0
1.9
5.5
9.3
3.2
5.5
8.6
3.0
4.8
0.6
Aug 14
Senior
Unsecured
0.6
Feb 15
Securitisation
0.8
Aug 15
Sub-Debt/
CPS (2)
Aug 14
Feb 15
Aug 15
Customer
Deposits (1)
Short-Term
Wholesale
Long-Term
Wholesale
(1) The classification of customer deposits is defined as all deposits excluding those from financial
institutions as defined under the Liquidity Prudential Standard APS210. Prior years have been
amended.
(2) Convertible Preference Shares and Wholesale Capital Notes
29
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.2 FUNDING AND LIQUIDITY (CONTINUED)
BOQ has maintained a strong customer deposit to loan ratio at 66% and has continued to build out the long-term wholesale funding profile,
creating more liquid and transparent market pricing for investors.
As at
Aug-15
Feb-15 (1)
Aug-14 (1)
Aug 15 vs
Feb 15
Aug 15 vs
Aug 14
Customer deposit funding
Wholesale deposit funding
77%
23%
77%
23%
77%
23%
Total GLA’s (net of specific provision) ($’million)
40,849
39,592
38,277
Deposit to Loan Ratio
66%
66%
69%
-
-
3%
-
-
-
7%
(3%)
(1) The classification of customer deposits is defined as all deposits excluding those from financial institutions as defined under the Liquidity Prudential Standard APS210. Prior years have been amended.
FUNDING
Over the financial year we have continued to strengthen our customer deposit base, maintained our short-term funding in line with previous
periods, and have continued to build out our long-term wholesale funding profile with additional long-term wholesale issuance of $3.1 billion.
This includes two new benchmark term senior debt issues being a $600 million 5 year issue in November 2014 and a $500 million 2.25 year
issue in February 2015. This has further extended the Bank’s domestic debt yield curve. The balance of long-term wholesale funding came
through securitisation issues, various term senior debt private placements and additional issuance into current senior term debt lines.
During the financial year the Bank issued $1.7 billion of securitisation funding with the completion of the Series 2014-1 REDS EHP Trust and
Series 2015-1 REDS Trust transactions.
The total level of long term wholesale funding has slightly decreased year on year due to securitisation run-off. Post balance date, the overall long-
term wholesale funding balance has been maintained with a $750 million REDS EHP transaction in September 2015, replacing the securitisation
run-off.
30
ANNUAL REPORT 2015
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.2 FUNDING AND LIQUIDITY (CONTINUED)
MAJOR MATURITIES ($M) (1) (2)
Following the ratings upgrades BOQ continued to build out its long-term wholesale funding curve with the issuance of two additional benchmark
maturities totalling $1.1 billion. Strengthening the senior unsecured curve has provided more transparent market pricing for investors and
promotes the core values of our funding strategy which are centred around building capacity, diversity and resilience of the wholesale funding
base.
800
600
400
200
0
200
400
230
500
500
600
600
50
50
Nov-15
Feb-16 May-16
Aug16
Nov-16
Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18
Nov-18 Feb-19 May-19
Aug-19 Nov-19 Feb-20 May-20
Senior Unsecured
BOQS Sub Debt
BOQ Sub Debt
(1) Maturities equal to or greater than $50 million shown.
(2) Redemption of Sub Debt Notes at the scheduled call date is to BOQ’s option and is subject to obtaining prior written approval from APRA.
LIQUIDITY
BOQ maintains a portfolio of high quality, diversified liquid assets to facilitate balance sheet liquidity needs and meet internal and regulatory
requirements. The Bank was granted a Reserve Bank of Australia (‘RBA’) Committed Liquidity Facility (‘CLF’) sufficient to enable the Bank to meet
its regulatory minimum of greater than 100% of the Liquidity Coverage Ratio from 1 January 2015.
As at 31 August 2015 the LCR was 125% with liquid assets contributing to the LCR of $5.5 billion. LCR has increased slightly over the past 6
months from 122% at half year to 125% at year end. 2015 saw liquidity management rebased for the new Basel III APS 210 Liquidity Standard.
Significant work was undertaken on improving the deposit mix with a focus on products and customer relationships with low liquidity run-off
factors under the new standard (refer Section 4.9). As a result, liquid asset holdings were able to be reduced, whilst enabling management within
target LCR ranges to be achieved. Liquid Assets have also reduced over the year with the retirement of the BOQ Specialist ADI licence resulting
in a material reduction in the level of liquid assets held.
In addition to the liquid assets that contribute to the LCR, as at 31 August 2015 we also held internal securitisation of $2.6 billion which is eligible
for repurchase arrangements with the RBA as a source of contingent liquidity in the event of a crisis scenario. Significant further liquidity is also
available with a material proportion of the Bank’s retail lending assets eligible to be placed as collateral into this structure in a crisis scenario.
LIQUIDITY COMPOSITION - BASEL III ($B)
8.9 (4)
2.3
4.2
2.4
9.2 (4)
3.3
3.8
2.1
8.1
2.6
3.4
2.1
Aug 14
HQLA1 (1)
Feb 15
Liquid Assets (2)
Aug 15
Internal RMBS (3)
(1) High Quality Liquid Assets (HQLA1) includes government and semi-government securities, cash held with RBA and notes & coins
(2) Liquid Assets include all unencumbered RBA repurchase eligible liquid assets able to be pledged as collateral to the RBA under the CLF
(3) Internal RMBS are able to be pledged as collateral to the RBA CLF
(4) Prior period figures have been restated to follow LCR categorisation
31
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.3 CAPITAL MANAGEMENT
CAPITAL ADEQUACY
$ million
Common Equity Tier 1 (‘CET1’)
Additional Tier 1 Capital
Total Tier 2
Total Capital Base
Total RWA
Common Equity Tier 1 Ratio
Total Capital Adequacy Ratio
As at
Aug-15
Feb-15
Aug-14
Aug 15 vs
Feb 15
Aug 15 vs
Aug 14
2,346
2,298
2,161
450
551
300
536
300
548
3,347
3,134
3,009
26,321
26,057
25,032
2%
50%
3%
7%
1%
9%
50%
1%
11%
5%
8.91%
8.82%
8.63%
12.72%
12.03%
12.02%
9bps
69bps
28bps
70bps
We have further strengthened the Group’s capital ratios during the year with the Common Equity Tier 1 ratio increasing 28bps to 8.91%. The
second half saw an increase in Common Equity Tier 1 as underlying cash earnings were sufficient to support 7% annualised loan growth and
a 2 cent increase in the final dividend, generating 18bps of surplus capital.
Additional Tier 1 Capital was increased following the issuance in May 2015 of $150 million in Wholesale Capital Notes.
COMMON EQUITY TIER 1 CAPITAL
We delivered underlying capital generation of 36 basis points over the year. The increase in capitalised software, as we invest in the Bank’s
digitisation program, reduced CET1 by 18 basis points. This rate of capital strain is expected to reduce as the amortisation tail increases and
the project portfolio matures. The BOQ Specialist integration and transaction costs consumed 8 basis points of capital, with that program now
materially completed. The impact of net movements in reserves contributed 11 basis points of CET1, with a strong first half partially reversing in
the second half. The AFS Reserve, representing the mark to market movements in liquid asset holdings not taken to profit and loss, was the most
significant contributor to this movement. The reduction in deferred tax assets, largely associated with reduced provisions for impaired assets,
product remediation and legacy items, caused a 7 basis point impact over the year.
There was a timing difference between the first and second half result where concessional risk weighted asset treatment for BOQ Specialist
mortgages was only established in the second half. Prior to this change, these assets were recorded as 100% risk weighted.
32
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
3.3 CAPITAL MANAGEMENT (CONTINUED)
FY15 V FY14
Underlying Capital Generation
0.46%
1.47%
0.65%
Organic Growth of 36bps
0.18%
0.08%
0.11%
8.63%
0.07%
8.91%
FY14
Cash Earnings (1)
RWA Growth
Dividend net of
DRP
Capitalised
Software
BOQ Specialist
integration
costs
Reserves (2)
Other (3)
FY15
(1) Cash earnings adjusted for one-off non-recurring items.
(2) Reserves includes the impact of movements in the Equity Reserve for Credit Loss and the AFS Reserve.
(3) Other items are largely positive due to a reduction in the net DTA as a result of lower specific provisions as well as reducing remediation/ legacy provisions.
2H15 V 1H15
Underlying Capital Generation
0.23%
0.73%
0.32%
Organic Growth of 18bps
0.10%
0.05%
0.14%
0.10%
0.02%
8.82%
8.91%
Feb15
Cash Earnings (1)
RWA Growth (2)
Dividend net of
DRP
Capitalised
Software
BOQ Specialist
integration
costs
RWA timing
impact
Reserves (3)
Other
Aug15
(1) Cash earnings adjusted for one-off non-recurring items.
(2) Underlying RWA growth excludes the one-off impacts of APS210 transition benefit as well as the benefit of lower risk weights on BOQ Specialist housing loans upon transition, correcting an opposite timing difference in
the first half result.
(3) Reserves includes the impact of the movement in the Equity Reserve for Credit Loss and the AFS Reserve.
3.4 TAX EXPENSE
Tax expense arising on Cash Earnings for the year amounted to $156 million. This represents an effective tax rate of 30.4%, which is above the
corporate tax rate of 30% primarily due to non-deductibility of interest payable on convertible preference shares issued in 2013 and Wholesale
Capital Notes issued in 2015.
33
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.1 RECONCILIATION OF STATUTORY PROFIT TO CASH EARNINGS
The Cash Earnings provided is used by Management to present a clear view of our underlying operating results. This excludes a number of
items that introduce volatility and/or one-off distortions of the current year performance, and allows for a more effective comparison of BOQ’s
performance across reporting periods.
The main costs incurred this year relate to the BOQ Specialist integration and transaction costs, which are in line with market guidance and the
finalisation of the a purchase price allocation entries for the acquisition of BOQ Specialist. Amortisation of customer contracts and fair value
adjustments increased as a result. The prior year reflects the provision for the settlement of the Storm Financial proceedings.
(A) RECONCILIATION OF CASH EARNINGS TO STATUTORY NET PROFIT AFTER TAX
$ million
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
Cash Earnings after Tax
357
301
19%
Amortisation of customer contracts (acquisition) (1)
Amortisation of Fair Value adjustments (acquisition) (1)
Hedge ineffectiveness
Government Guarantee break fee
Integration / transaction costs
Legacy items
Statutory Net Profit after Tax
(14)
(1)
(3)
-
(20)
(1)
318
(6)
-
(2)
(1)
(8)
(23)
261
133%
100%
50%
(100%)
150%
(96%)
22%
(1) The second half of 2015 includes 12 months amortisation of intangibles recognised following the completion of the Acquisition accounting for BOQ Specialist.
190
(9)
(1)
(4)
-
(12)
-
164
167
14%
(5)
-
1
-
(8)
(1)
154
80%
100%
(500%)
-
50%
(100%)
6%
(B) NON-CASH EARNINGS RECONCILING ITEMS
$ million
Net Interest Income
Non-Interest Income
Total Income
Operating Expenses
Underlying Profit
Loan Impairment
Expense
Profit before Tax
Income Tax Expense
Profit after Tax
Cash
Earnings
Aug-15
907
180
1,087
(500)
587
(74)
513
(156)
357
VMA
-
14
14
(14)
-
-
-
-
-
Amortisation
of customer
contracts
(acquisition)
Amortisation
of fair value
adjustments
Hedge
ineffectiveness
Integration/
transaction
costs
Legacy
items
Statutory
Net Profit
Aug-15
-
-
-
(15)
(15)
-
(15)
1
(14)
-
-
-
(1)
(1)
-
(1)
-
(1)
-
(5)
(5)
-
(5)
-
(5)
2
(3)
(7)
-
(7)
(21)
(28)
-
(28)
8
(20)
-
(1)
(1)
(1)
(2)
-
(2)
1
(1)
900
188
1,088
(552)
536
(74)
462
(144)
318
34
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.2 OPERATING CASH EXPENSES (EXCLUDING BOQ SPECIALIST)
Employee expenses
Salaries
Superannuation contributions
Payroll tax
Employee Share Programs
Other
Occupancy expenses
Lease expense
Depreciation of Fixed Assets
Other
General expenses
Marketing
Commissions to Owner Managed Branches
Communications and postage
Printing and stationery
Impairment
Processing costs
Other operating expenses
IT expenses
Data processing
Amortisation of Intangible Assets
Depreciation of Fixed Assets
Other expenses
Professional fees
Directors’ fees
Other
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
150
144
15
10
8
6
13
10
8
7
189
182
30
9
3
42
14
7
19
4
10
24
22
100
62
16
1
79
12
2
5
19
28
8
3
39
12
6
20
5
-
26
15
86
63
14
2
79
10
2
5
17
4%
15%
-
-
(14%)
4%
7%
13%
-
8%
17%
17%
(5%)
(20%)
n/a
(8%)
47%
16%
(2%)
14%
(50%)
-
20%
-
-
12%
76
7
5
4
3
95
12
5
1
18
8
4
10
2
-
11
11
46
31
8
-
39
7
1
2
10
74
8
5
4
3
94
18
4
2
24
6
3
9
2
10
13
11
54
31
8
1
40
5
1
3
9
3%
(13%)
-
-
-
1%
(33%)
25%
(50%)
(25%)
33%
33%
11%
-
n/a
(15%)
-
(15%)
-
-
(100%)
(3%)
40%
-
(33%)
11%
Total Operating Expenses
429
403
6%
208
221
6%
35
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.2 OPERATING CASH EXPENSES (EXCLUDING BOQ SPECIALIST) (CONTINUED)
Employee Expenses
Growth in employee costs over the year has been driven by staff supporting the broker channel and the transition of Owner Managed Branches
to corporate run.
Occupancy Expenses
Property lease costs have rebased at a lower value in the second half as the transition costs of the Brisbane and Sydney head office relocations
ceased.
General Expenses
The increase from the prior year reflected impairment of the pilot CRM system for $10 million. Other operating expenses were also lower in the
prior year due to receipts of indirect tax credits relating to prior years.
It Expenses
IT expenses were flat for the full year with early stage benefits realised from the recently renegotiated IT outsourcing agreement.
Other Expenses
Slight increase in professional fees in the half as a result of CEO and executives recruitment fees.
4.3 PROPERTY PLANT & EQUIPMENT (CONSOLIDATED)
Cost
Balance as at 1 September 2014
Additions
Disposals
Transfers between categories
Balance as at 31 August 2015
Amortisation and impairment losses
Balance as at 1 September 2014
Depreciation for the year
Disposals
Balance as at 31 August 2015
Carrying amount as at 31 August 2014
Carrying amount as at 31 August 2015
Leasehold
improvements
$m
Plant furniture
and equipment
$m
IT
equipment
$m (1)
Capital
works in
progress
$m
Assets
under
Operating
Lease
$m
44
20
(2)
7
69
25
7
(2)
30
19
39
32
1
(4)
3
32
22
2
(2)
22
10
10
34
2
(4)
-
32
31
1
(3)
29
3
3
10
1
-
(10)
1
-
-
-
-
10
1
26
9
(10)
-
25
17
10
(10)
17
9
8
Total
$m
146
33
(20)
-
159
95
20
(17)
98
51
61
(1) Opening balances have been restated to reflect the impact of the finalisation of the Acquisition accounting for BOQ Specialist
36
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.4 CASH EPS CALCULATIONS
Year End Performance
Half Year Performance
Aug-15
Aug-14
Aug 15 vs
Aug 14
Aug-15
Feb-15
Aug 15 vs
Feb 15
Basic EPS
Diluted EPS
(cents)
(cents)
Reconciliation of Cash Earnings for EPS
Cash Earnings available for ordinary shareholders ($ million)
Add: CPS Dividend
Add: Wholesale Capital Notes (1)
Cash Diluted Earnings available for ordinary
shareholders
($ million)
($ million)
($ million)
Weighted Average Number of Shares
(‘WANOS’)
Basic WANOS
Add: Effect of award rights
Add: Effect of CPS
Add: Effect of Wholesale Capital Notes (1)
Diluted WANOS for Cash Earnings EPS
(million)
(million)
(million)
(million)
(million)
(1) On 26 May 2015, the Bank issued 150,000 Wholesale Capital Notes at a price of $10,000 per note
97.3
92.2
357
16
2
375
367
3
24
12
406
89.5
87.0
301
16
-
317
337
3
25
-
365
9%
6%
51.5
48.9
45.8
44.8
13%
9%
19%
190
167
14%
-
-
8
2
8
-
-
-
18%
200
175
14%
9%
2%
(6%)
-
11%
369
3
24
12
409
365
3
23
-
1%
-
4%
-
391
(2%)
4.5 ISSUED CAPITAL
ORDINARY SHARES
Movements during the year
Balance at the beginning of the year – fully paid
Issue of ordinary shares - October 2014 at $12.29 (1)
Dividend reinvestment plan - November 2014 at $12.06
Dividend reinvestment plan - May 2015 at $13.06
Balance at the end of the year – fully paid
Consolidated
2015
Number
2015
$m
362,516,835
3,052
900,000
3,565,212
3,786,729
11
43
49
370,768,776
3,155
(1) On 24 October 2014, 900,000 ordinary shares were issued to the trustee of the BOQ Employee Shares Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights Plan and issue of shares
under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
37
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.6 AVERAGE BALANCE SHEET AND MARGIN ANALYSIS
Interest earning assets
Gross loans & advances at amortised cost
Investments & other securities
Total interest earning assets
Non-interest earnings assets
Property, plant & equipment
Other assets
Provision for impairment
Total non-interest earning assets
Total Assets
Interest bearing liabilities
Retail deposits
Wholesale deposits & Borrowings
Total Interest bearing liabilities
Non - interest bearing liabilities
Total Liabilities
Shareholder's funds
Total liabilities & shareholders funds
Interest margin & interest spread
Interest earning assets
Interest bearing liabilities
Net interest spread
August 2015
(Full Year)
August 2014
(Full Year)
Average
Balance
$m
Interest
$m
Average
Rate
%
Average
Balance
$m
Interest
$m
Average
Rate
%
2,037
190
2,227
5.13
2.98
4.83
726
594
1,320
2.73
3.58
3.06
39,713
6,385
46,098
61
1,599
(280)
1,380
47,478
26,595
16,593
43,188
885
44,073
3,405
47,478
35,655
6,257
41,912
43
1,366
(294)
1,115
43,027
24,169
15,151
39,320
689
40,009
3,018
43,027
1,917
195
2,112
5.38
3.12
5.04
772
579
3.19
3.82
1,351
3.44
46,098
43,188
2,227
1,320
4.83
3.06
1.77
0.20
1.97
41,912
39,320
2,112
1,351
41,912
761
5.04
3.44
1.60
0.22
1.82
Benefit of net interest-free assets, liabilities and equity
Net interest margin - on average interest
earning assets
46,098
907
38
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.6 AVERAGE BALANCE SHEET AND MARGIN ANALYSIS (CONTINUED)
Interest earning assets
Gross loans & advances at amortised cost
Investments & other securities
Total interest earning assets
Non-interest earnings assets
Property, plant & equipment
Other assets
Provision for impairment
Total non-interest earning assets
Total Assets
Interest bearing liabilities
Retail deposits
Wholesale deposits & Borrowings
Total Interest bearing liabilities
Non - interest bearing liabilities
Total Liabilities
Shareholder's funds
Total liabilities & shareholders funds
Interest margin & interest spread
Interest earning assets
Interest bearing liabilities
Net interest spread
46,272
43,359
1,086
627
Benefit of net interest-free assets, liabilities and equity
Net interest margin - on average interest
earning assets
46,272
459
August 2015
(Six month period)
February 2015
(Six month period)
Average
Balance
$m
Interest
$m
Average
Rate
%
Average
Balance
$m
Interest
$m
Average
Rate
%
1,003
83
1,086
4.93
2.78
4.66
343
284
627
2.53
3.41
2.87
40,343
5,929
46,272
64
1,618
(274)
1,408
47,680
26,847
16,512
43,359
884
44,243
3,437
47,680
39,083
6,841
45,924
58
1,580
(286)
1,352
47,276
26,343
16,674
43,017
886
43,903
3,373
47,276
1,034
107
1,141
5.34
3.15
5.01
383
310
693
2.93
3.75
3.25
4.66
2.87
1.79
0.18
1.97
45,924
43,017
1,141
693
5.01
3.25
1.76
0.21
45,924
448
1.97
39
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.7 DISTRIBUTION FOOTPRINT
We have continued to develop our ‘Customer in Charge’ strategy to allow our customers to engage with us through the channel of their choice.
This includes the traditional face to face in our Owner Managed or Corporate branches, their preferred broker, online via digital, mobile or social
media and on the telephone to our award winning Perth based customer service centre or our newly opened Gold Coast customer service centre.
Branch numbers reduced by 18 over the year which included a number of consolidations across the Owner Managed network. The increase in the
Corporate Network included new ‘icon’ branches in Charlestown, Sydney and the head office Newstead branch located in Brisbane. We continue
to see improving branch productivity and an increase in average footings per branch.
The network has been focussed on driving productivity initiatives including the Fit 4 Biz program which promotes the Bank’s sales and service
culture. These initiatives have resulted in an increase in applications and settlement volumes across the network this financial year and looks to
ensure that BOQ is ‘Loved like no Other’.
Broker channel expansion accelerated in 2015 with the total accredited more than doubling to 2,506. The majority of these are based outside
of Queensland (83%, further diversifying the portfolio. The second half saw sizeable inroads into the Queensland Broker market to leverage our
strong brand appeal in our home state and this grew to 420 brokers by year end. The number of Broker aggregators was also widened with the
inclusion of Finsure, Loan Market and Beagle Finance.
NT
23
2
SA
1
2
37
118
1
254
WA
16
74
10
212
568
82
corporate branches
588
boq branded ATM’s
144
owner managed branches
2455
redi atm’s
8
transaction centres
2506
brokers
40
QLD
45
8
85
420
310
463
NSW & ACT
13
25
736
127
856
VIC
7
625
71
20
562
TAS
2
3
16
71
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.7 DISTRIBUTION FOOTPRINT (CONTINUED)
QLD
NSW / ACT
VIC
WA
NT
TAS
SA
Total
As at Aug-15
Corporate Branches
Owner managed branches
Transaction Centres
As at Aug-14
Corporate Branches
Owner managed branches
Transaction Centres
45
85
8
138
13
25
-
38
7
20
-
27
16
10
-
26
-
2
-
2
-
2
-
2
QLD
NSW / ACT
VIC
WA
NT
TAS
SA
41
98
8
147
14
25
-
39
6
27
-
33
16
12
-
28
-
2
-
2
-
2
-
2
CORPORATE, OWNER MANAGED BRANCHES (‘OMB’) & TRANSACTION CENTRES
252
14
11
3
5
1
1
-
-
1
1
-
-
1
82
144
8
234
Total
78
166
8
252
234
144
82
8
166
78
8
Aug-14
OMB Closures/
Mergers
Corporate
OMBs to Corporate
Corporate to OMBs
Corporate Closures
New Corporate branch
Aug-15
OMBs
Transaction Centres
4.8 CREDIT RATING
The Bank monitors rating agency developments closely. Entities in the Group are rated by Standard and Poor’s, Moody’s Investor Service
(‘Moody’s’) and Fitch Ratings.
Our current long-term debt ratings are shown below.
Rating Agency
Standard & Poor’s
Fitch
Moody’s
Short Term
Long Term
A2
F2
P2
A-
A-
A3
Outlook
Stable
Stable
Stable
41
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
4.9 LIQUIDITY COVERAGE RATIO
As at 1 January 2015, following the introduction of APS 210, APRA requires ADIs to maintain a minimum 100% Liquidity Coverage Ratio (‘LCR’).
This is calculated as the ratio of high quality liquid assets to a 30 day net cash outflow projected under a prescribed stress scenario. A revision
to prudential standard APS330 Public Disclosures introduced requirements for an ADI to provide disclosure information in respect of the LCR for
reporting periods after 1 July 2015. Publication of data related to reporting periods prior to this date is not required.
Liquid Assets have reduced during the quarter with the retirement of the BOQ Specialist ADI licence resulting in a material reduction in the volume
of liquid assets required to be held.
There are three broad categories of eligible liquid assets.
1. HQLA 1: cash, Australian government and semi-government securities
Assets eligible under the Committed Liquidity Facility (‘CLF’) provided by the Reserve Bank of Australia (‘RBA’):
2. Negotiable certificates of deposit, bank bills, bank term securities and asset-backed securities that are eligible for repurchase arrangements
with the RBA
3.
Internal RMBS, being mortgages that have been securitised but retained by the Bank, that also qualify for repurchase with the RBA
The objective of the Bank’s funding profile is to create a stable, diverse and resilient funding structure that mitigates the chance of a liquidity stress
event across various funding market conditions. The Bank utilises a range of funding tools including customer deposits, securitisation, short term
and long term wholesale debt instruments. Bank lending is predominantly funded from stable funding sources with short term wholesale funding
primarily used to fund highly liquid assets and trading securities.
Quantitative disclosures are calculated as simple averages of daily observations over the previous quarter. The reported period covers 92 days of
data which includes 64 business day observations. The following table outlines the key components and resulting LCR. BOQ maintains a portfolio
of high quality, diversified liquid assets to facilitate balance sheet liquidity needs and meet internal and regulatory requirements. The LCR has
increased slightly over the past 3 months from 122% to 125% at the period end with an average across the quarter of 131%. Net cash outflows
have been reduced over the last year as Basel III liquidity management initiatives were successfully implemented, resulting in lower levels of liquid
assets required for a similar LCR.
The key liquidity management initiatives that have been undertaken include:
•
•
•
•
The introduction of a 31 day right to break deposit product reducing the sensitivity of the Bank to a short term liquidity stress event;
Lengthening the weighted average term of deposit products through targeted pricing;
Continuing to build out the Bank’s senior unsecured funding curve through regular issuances of consistent size across multiple tenors. This
has enhanced depth of market liquidity and price discovery as well as a reduction on the reliance of short-term wholesale funding;
Targeting “stable” and “less stable” deposit sources with lower LCR cash outflow impacts through strengthening relationships with customers;
and,
• Managing the Bank’s maturity profile of both assets and liabilities to reduce the volatility of the LCR through time.
The main sources of LCR volatility relate to the short-term maturity profile which continues to be actively managed. BOQ does not have significant
derivative exposures or currency exposures that could adversely affect the Bank’s cash flows.
The Common Disclosure and Regulatory Capital reconciliation documents appear in the Regulatory Disclosure section of the Bank’s website at
the following address: http://www.boq.com.au/regulatroy_disclosures.htm
42
ANNUAL REPORT 2015 4.9 LIQUIDITY COVERAGE RATIO (CONTINUED)
Liquid Assets, of which
High-quality liquid assets (‘HQLA’)
Alternative liquid assets (‘ALA’)
Total Liquid Assets
Cash Outflows
Customer deposits and deposits from small branch customers, of which
stable deposits
less stable deposits
Unsecured wholesale funding, of which
non-operational deposits
unsecured debt
Secured wholesale funding
Additional requirements, of which
outflows related to derivatives exposures and other collateral requirements
credit and liquidity facilities
Other contractual funding obligations
Other contingent funding obligations
Total Cash Outflows
Cash Inflows
Inflows from fully performing exposures
Other cash inflows
Total Cash Inflows
Total Net Cash Outflows
Total Liquid Assets
Total Net Cash Outflows
Liquidity Coverage Ratio (%)
DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
Total Unweighted Value
Total Weighted Value
(Q415 average)
(Q415 average)
$m
$m
n/a
n/a
12,185
5,697
6,488
3,848
3,006
842
n/a
385
299
86
347
7,486
24,251
684
474
1,158
23,093
n/a
n/a
n/a
2,066
2,991
5,057
1,258
285
973
2,479
1,637
842
63
303
299
4
45
548
4,696
363
474
837
3,859
5,057
3,859
131%
43
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
Dear Shareholder
Please find attached the 2015 Remuneration Report.
Following your feedback we have again sought to make the information provided more readable and easier to understand. We have also listened to your feedback
concerning the short term incentive (STI) plan and provided more information concerning the measures which are set at the beginning and scored at the end
of the financial year.
Our core Remuneration principals have remained in place for the 2015 financial year:
• We do not make cash payments for Executives on commencement with BOQ;
•
•
•
•
The Board holds the right to defer and/or clawback unvested short term and long term incentives (LTI);
The Bank’s LTI is awarded on the basis of the current share price (face value) and not a risk adjusted value (fair value);
Fixed and total remuneration for each key management personnel (KMP) is benchmarked to the market each remuneration round;
Total remuneration for KMP is structured at approximately one third fixed pay, one third STI and one third LTI;
• Key performance measures are required and agreed for all Executives, covering both financial and non-financial targets; and
•
The Board has discretion on all remuneration outcomes.
The only change of any significance during the 2015 financial year was the removal of cash net profit after tax (NPAT) as a gateway measure to the STI Plan and
its replacement with cash earnings per share (EPS). This change was signalled last year and reflects shareholder feedback which favoured an EPS measure as
it is believed to be closer to the creation of shareholder value than NPAT.
Last year we also signalled an addition to the vesting measure used for the LTI Plan. Previously there had been a single measure based on total shareholder return
(TSR) relative to a basket of other listed companies. Again, following your feedback we will add a second vesting measure of cash EPS for the 2015 Performance
Award Rights (PARs) allocations, with a weighting of 20%.
In January 2015 we appointed Jon Sutton as Managing Director & Chief Executive Officer (MD) of the Bank. Jon had been acting in the role whilst we undertook
an extensive search for a new MD. We were fortunate to attract a number of quality candidates and ultimately determined Jon’s appointment was in the best
interests of shareholders. We are delighted to have been able to select the best candidate internally, confirming our succession planning process.
Jon’s remuneration has been disclosed publicly and follows the principals outlined above. The Human Resources and Remuneration Committee (HR &
Remuneration Committee) took external advice before concluding the negotiations and his package is less than that of the previous MD.
As part of the 2015 remuneration process all employees, including KMP and Responsible Persons (RPs), were assessed against their key performance indicators
(KPIs) agreed at the beginning of the financial year. For the majority of employees, except KMP, remuneration recommendations relating to fixed pay, STI and
LTI were proposed by management and moderated by the BOQ Senior Executive team. With regard to KMP, the MD assessed each Executive’s performance
and made recommendations; and for the MD, the Board Chair undertook the performance review and made recommendations concerning his remuneration.
The HR & Remuneration Committee considered the overall Bank wide fixed pay increase, the Bank wide STI pools and the specific recommendations for the
MD, KMP and RPs.
In undertaking this role, the HR & Remuneration Committee considered the year’s performance overall including the makeup of the result, the distribution of
performance ratings and remuneration outcomes and the TSR created. We took external advice concerning market comparatives for each KMP and RP role. We
also ensured that any deficiencies in risk behavior were reflected in the outcomes.
In recommending MD, KMP and RPs outcomes to the BOQ Board for approval, the HR & Remuneration Committee made a number of changes and were
influenced by several factors, including a desire for more work on internal systems and processes, primarily technology related, financial services sector leading
TSR, a 19% improvement in cash earnings, and higher staff engagement and customer satisfaction.
Overall fixed pay increases for the 2015 year were limited to 2.5% and STI awards on average fell 10%. Total LTI which is awarded on the basis of retention and
potential decreased by 4.7%.
Your Board has accepted the HR & Remuneration Committees recommendations as serving the best interests of shareholders in the short and medium term.
Yours sincerely
DAVID WILLIS
CHAIRMAN OF THE HUMAN RESOURCES & REMUNERATION COMMITTEE
44
ANNUAL REPORT 2015 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
2015 REMUNERATION REPORT - AUDITED
This Remuneration Report is prepared for consideration by shareholders at the 2015 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 2014 to 31 August 2015 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
6. Remuneration disclosures
7.
8.
Transactions with Directors and Senior Executives
Executive contracts
1. KEY MANAGEMENT PERSONNEL (KMP)
Page
45
46
46
46
52
54
65
66
KMP include those Directors and Executives who 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 2015 were as follows:
(i) Directors
Current
Roger Davis
Jon Sutton
Neil Berkett
Bruce Carter
Carmel Gray
Richard Haire
Chairman (Non-executive)
Managing Director and Chief Executive Officer (Appointed 5 January 2015)
Director (Non-executive)
Director (Non-executive)
Director (Non-executive)
Director (Non-executive)
Margaret Seale
Director (Non-executive)
Michelle Tredenick
Director (Non-executive)
David Willis
Director (Non-executive)
Former
Steve Crane
Director (Non-executive) (Resigned 22 January 2015)
(ii) Senior Executives (KMP)
Current
Matthew Baxby
Group Executive, Retail Banking
Peter Deans
Karyn Munsie
Anthony Rose
Chief Risk Officer
Group Executive, Corporate Affairs, Investor Relations & Government Relations
Chief Financial Officer
Michelle Thomsen
General Counsel and Company Secretary (Appointed 13 July 2015)
Donna-Maree Vinci
Group Executive Enterprise Solutions (Appointed 27 July 2015)
Brendan White
Group Executive Business Banking
Former
Julie Bale
Chief Information Officer (Until 15 May 2015)
Brian Bissaker
Chief Executive Officer, Virgin Money Australia (Until 13 March 2015)
45
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
2. REMUNERATION GOVERNANCE
The HR & Remuneration Committee makes recommendations to the Board on remuneration policies, Directors’ and executives’ remuneration and broader HR
matters. This Committee considers remuneration and HR issues regularly and obtains advice from external independent remuneration specialists to assist in its
deliberations.
Under the Consolidated Entity’s HR & Remuneration Committee Charter, the Committee undertakes to do the following:
• Conduct regular (at least biennial) reviews of the Consolidated Entity’s Remuneration Policy to ensure compliance with the Consolidated Entity’s objectives
and risk management framework;
• Review and provide recommendations to the Board on remuneration, recruitment, retention and termination policies for Senior Executives;
• Review and provide annual recommendations to the Board on the individual remuneration arrangements for Senior Executives (i.e. Managing Director and
Chief Executive Officer and his direct reports) and all other Responsible Persons (as defined by the Australian Prudential Regulation Authority Prudential
Standard CPS 520);
• Review and provide annual recommendations to the Board on the remuneration principles for employees in Group Risk, Finance and Legal functions, on a
group basis;
• Review and provide recommendations to the Board on the remuneration for all remaining groups of employees not otherwise specified; and
• Consider and recommend Non-Executive Director (NED) remuneration, including ensuring that the structure of NED remuneration is clearly distinguished
from that of Senior Executives.
The HR & Remuneration Committee generally meets around six times per year and, in the 2015 financial year, five 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 HR & 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 HR
& Remuneration Committee.
During the year, the Board paid an amount of $65,373 to Egan & Associates in respect of remuneration advice covering a number of remuneration-related issues,
including benchmarking and determination of pay for the Senior Executives. Egan & Associates provided no advice directly to Management in the 2015 year. The Board
is satisfied that remuneration advice provided by external advisers during the year was free from undue influence by members of the Senior Executive to whom the
advice related.
3. REMUNERATION POLICY
The Consolidated Entity’s executive reward policy is designed to balance five objectives:
•
Incentivise executives to pursue the short and long-term goals of the Consolidated Entity within an appropriate risk control framework;
• Demonstrate a clear relationship between executive performance and remuneration;
• Align the interest of management with those of the shareholders;
• Provide sufficient rewards to ensure the Consolidated Entity attracts and retains suitably qualified and experienced executives; and
•
Ensure that an element of these rewards is deferred to assist in appropriate risk-based decision-making and behaviour.
The HR & Remuneration Committee monitors and reshapes remuneration programs to support these underlying objectives, responds to proposed and enacted
legislation and regulatory initiatives, and adjusts to changes in the business cycle.
4. EXECUTIVE REMUNERATION FRAMEWORK
The remuneration structure in place for the Senior Executives and Responsible Persons (RPs) 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 (at-risk) pay in the form of cash and
equity-based incentives.
4.1 Current remuneration framework
Total remuneration for the Senior Executives consists of the following three components:
•
Fixed remuneration;
• Short term incentives - at-risk remuneration consisting of cash and deferred equity; and
•
Long term incentives - at-risk equity remuneration, where the equity is offered on the basis of face value, not fair value.
46
ANNUAL REPORT 2015 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
4.2 Fixed remuneration
All employees are offered a competitive fixed component of their reward to reflect the core performance requirements and expectations of their roles.
Senior Executives and RPs fixed remuneration is approved by the Board and reviewed at least annually. It is referenced to market data provided by remuneration
consultants, to ensure that it has regard to remuneration within the financial services sector. The fixed remuneration for Senior Executives is set out in Table 11
of this report.
4.3 Short term incentive - At-risk remuneration
The STI links individual performance with that of the Consolidated Entity. It is designed to ensure that the participants have a performance-focused work
environment, whilst exercising an appropriate level of risk.
In 2015, Senior Executives and RPs participated in the STI Plan under which the participants receive payments dependent upon the achievement of specified,
quantifiable results and within appropriate risk management parameters.
Senior Executive KPIs and the STI Plan design features are reviewed annually by the HR & Remuneration Committee prior to the commencement of the plan. As
in previous years, once any STI payment exceeds $100,000, 50% of the total amount awarded is deferred. For Senior Executives, the deferral is into restricted
shares for a period of two years. Restricted shares provide an additional incentive to act in the shareholders’ longer-term interests over the two year deferral
period. The decision to release deferred STI will be at the discretion of the Board, which consults with the Chief Risk Officer (CRO) in making this decision.
Table 1
Overview
BOQ Senior Executive STI Plan (For KMP)
The Senior Executive 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.
Participants
Senior Executives, being those individuals who have the ability to directly influence achievement of the Board’s objectives.
STI opportunity
The STI opportunity for each participant is stated as a percentage of total fixed remuneration (TFR). For the Senior Executive STI
Plan, the STI opportunity ranges are as follows:
Managing Director & Chief Executive Officer
Group Executive (GE) Business Banking, GE Retail Banking
Chief Financial Officer, Chief Risk Officer, GE Corporate Affairs, Investor
Relations & Government Relations, GE Enterprise Solutions, and
General Counsel and Company Secretary
0 - 150% of TFR
0 - 140% of TFR
0 - 100% of TFR
Link between
performance
and award
For 2015, reflecting feedback from investors, the gateway hurdle was changed from NPAT to EPS. As a gateway hurdle, achievement
of a threshold of 90% of target EPS is required for payments under the STI Plan to occur. If performance does not meet the gateway
EPS threshold, payment of any STI is at the discretion of the Board. In exercising this discretion the Board will have regard for a
range of factors as outlined in Section 4.5.
The performance measures are:
•
•
•
•
The Consolidated Entity’s performance against target cash EPS;
The Consolidated Entity’s performance against target cash NPAT;
The Consolidated Entity’s cash cost to income ratio (CTI ratio);
Individual performance criteria; and
• Adherence with the Consolidated Entity’s risk framework and expected behaviours.
Measure
EPS
Weighting
20%
Rationale for use
of this measure
How does this
measure operate?
As a measure where,
‘exceptional’ performance
can deliver to the maximum
of this measure’s weighting.
In response to feedback
from investors. Also, the
EPS measure is a direct and
transparent measure of the
financial performance of the
Consolidated Entity as it is
believed to be more closely
related to share price than
NPAT.
47
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
Link between
performance
and award (continued)
Measure
NPAT
Weighting
20%
CTI ratio
10%
Individual performance criteria
including BOQ strategic
initiatives
50%
Rationale for use
of this measure
How does this
measure operate?
The NPAT measure is
included as a direct and
transparent measure of the
financial performance of the
Consolidated Entity.
The CTI ratio is included
as a measure within the
STI Plan to assist in driving
efficiency and aligning
participants with the financial
growth of the Consolidated
Entity. This measure directly
aligns with the operational
excellence component of
the Consolidated Entity’s
strategy.
These measures are selected
to reflect the Consolidated
Entity’s short-term and long-
term objectives.
As the level of NPAT
increases, the quantum of
STI payable in respect of the
NPAT component increases,
up to the maximum potential
of this measure’s weighting.
Participants receive a
percentage of the STI
payment if the Consolidated
Entity achieves its budgeted
CTI ratio, increasing on a
sliding scale as the ratio
improves and decreasing as
performance deteriorates.
Personal performance
measures are agreed
annually and are 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, together
with adherence to risk
criteria.
Performance
measurement framework
The measurement framework for each of the four measures noted above has four levels of performance, i.e. threshold, target,
superior and exceptional (as detailed below).
Threshold
Target
Superior
Exceptional
This is a point below the
target (i.e budget - which still
represents an improvement
on the prior year) and is
considered a satisfactory
performance for the year.
Target is defined by the
business budget which is
approved by the Board and
must reflect the full set of
financial and non-financial
strategic measures.
Superior is when, on top of
the approved Target, ‘stretch’
goals are delivered. Stretch
goals are also approved by
the Board.
When the individual and
Consolidated Entity’s
performance is deemed
exceptional across the board,
the maximum of the STI
range may apply.
Performance period
Change of control
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.
In the event of a change of control, all STIs will either remain on foot or be paid out on a pro rata basis or in full (depending on
the circumstances). The restriction on deferred STI (restricted shares) will either remain on foot or be lifted depending on the
circumstances of the change in control. Any such decision will be at the Board’s discretion.
Dividends
Senior Executives who hold restricted shares as part of deferred STI receive dividends when they become payable.
48
ANNUAL REPORT 2015
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
Deferral
As noted earlier, any STI payment exceeding $100,000 has 50% of the total amount awarded deferred as restricted shares
(ordinary BOQ shares held by a trustee on behalf of participants and subject to disposal restrictions).
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 “forfeiture” events have occurred. The Board retains discretion to determine what constitutes a
“clawback” event but such events can include breaches of risk KPIs, departure to a direct competitor and instances where there
has been a material misstatement in the financial statements.
Forfeiture
The STI award and / or any deferred component will only be awarded to Senior Executives who are employed by the Consolidated
Entity at the relevant STI payment date and who have not given notice of resignation prior to this date. Once awarded, restricted
shares remain subject to disposal restrictions and will be forfeited where the participant:
1. Resigns in order to take up employment with a defined competitor;
2. Takes up employment with a direct competitor within three months of ceasing employment;
3. Ceases employment by reason of summary dismissal or for reasons associated with a breach of their Agreement or other
employment terms or any policy of the Company or a related Company; and
4. Is deemed by the Board to have committed an act of fraud, material misstatement, financial mismanagement, gross misconduct
or a serious breach of their duties and obligations in relation to the Company’s affairs.
The deferred portion of a Senior Executives’ 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 Board reviewed the Consolidated Entity’s performance (Table 2) and the performance of each Senior Executive against the measures outlined for 2015 STI
Plan, in order to determine the appropriate payment under the STI Plan.
The key financial and non-financial objectives for the Senior Executives in the 2015 financial year, with commentary on key highlights, are provided below in
Table 3.
Table 2 - Consolidated Entity performance (last 5 years)
Statutory net profit/(loss) after tax
Cash net profit after tax (1)
Cash diluted earnings per share (1)
Cash cost to income ratio (1)
Share price
Dividends paid
(1) Non-statutory measures are not subject to audit.
2015
$318m
$357m
92.2c
46.0%
$12.67
$272m
2014
2013
2012
2011
$261m
$301m
87.0c
43.9%
$12.58
$216m
$186m
$251m
75.1c
44.3%
$9.60
$180m
$(17m)
$31m
7.9c
45.7%
$7.55
$152m
$159m
$177m
66.7c
44.5%
$7.48
$126m
Table 3 - 2015 STI performance commentary for Senior Executives
Measure
EPS
NPAT
CTI ratio
Weighting
Commentary/Results
20%
20%
10%
For the period ending August 31, 2015, the EPS figure increased 6% to 92.2
cents which was deemed to be within the Eligible target performance range.
For the period ending August 31, 2015, the NPAT figure increased by
19% to $357 million which was determined to be within the Eligible target
performance range.
For the period ending August 31, 2015, the CTI ratio increased by 2.1% to
46% which was assessed within the Eligible target performance range.
49
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
Table 3 - 2015 STI performance commentary for Senior Executives (continued)
Measure
Weighting
Commentary/Results
Individual Performance Objectives including BOQ
strategic initiatives
50%
The BOQ strategy has four pillars, Loved Like No Other, Grow the Right Way,
There’s always a Better Way and Customer in Charge - we’re seeing the
impact of this through improved growth, employee engagement, customer
satisfaction and increased risk awareness and compliance. Some examples
of Target goals for individual Senior Executives include:
• Customer in Charge
• Growth in Retail and Business Banking - relative to system
• Promote channel diversity through growth in new channels
• Enhanced divisional product growth
• Grow the Right Way
•
•
Improvement in branch audits
Improvement in bad & doubtful debts
•
• Effective balance between margin and growth
• Manage liquidity and effective transition to APS210 - Liquidity
There’s Always a Better Way
•
• Reduction in external reporting times
• Delivery of the product remediation program
Loved Like No Other
•
•
• Reduction in number of lost time injuries
Improvement in employee engagement scores
Improvement in customer net promoter scores
Overall, the individual performances of Senior Executives was judged to be in the range of Target to Superior. Based on this level of organisational and individual
performance reported for the 2015 financial year, the Board approved Senior Executive payments at between 47% and 73% of their STI opportunity. Refer to
Table 5 for disclosure of individual STI payments.
4.4 Long-term incentive remuneration
The Board considers the granting of equity remuneration to Senior Executives to be an important component in aligning their interests to those of shareholders.
This includes encouraging behaviour that supports the risk management framework and the long-term financial soundness of the Consolidated Entity.
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.
Senior Executives participated in the 2015 Award Rights Plan under which the participants receive rights to acquire shares at no 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 Award Rights Plan was approved
by shareholders on 11 December 2008 and further ratified at the AGM’s of 2011 and 2014.
There are two types of award rights that can be granted under the plan - Performance Award Rights (PARs) and Deferred Award Rights (DARs). Eligibility,
quantum and mix of PARs and DARs varies based upon a participant’s accountabilities, contribution, potential and seniority. As per the Board’s 2014 decision,
DARs are no longer awarded to Senior Executives.
Grants of PARs are made to Senior Executives and other identified key senior managers due to the important role they play in achieving the longer-term business
goals of the Consolidated Entity. 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.
DARs are awarded to a broader group of employees below Senior Executives to promote employee retention and productivity. The number of DARs awarded
to an individual employee depends on their position, performance and potential, as determined under the normal performance review cycle undertaken for all
employees. The range for the number of DARs allocated per employee is governed by the Board.
PARs are awarded to Senior Management (including KMP) to promote alignment with long term performance. The number of PARs awarded to a Senior Executive
depends on their position, performance and potential, as determined under the normal performance review cycle undertaken for all employees. The Board govern
the LTI award range for Senior Executives.
The allocations for KMP are a maximum of 100% of fixed remuneration, based on a face value grant (not ‘fair’ or discounted value).
There are no voting or dividend rights attached to unvested PARs and DARs. Upon exercise of Award Rights, participants receive BOQ ordinary shares to which
voting and dividend rights are attached. As noted earlier, in the event of a change of control, all LTI awards will either remain on foot or vest on a pro rata basis
or in full (depending on the circumstances). Table 4 provides an overview of the PARs and DARs Plans for 2015.
Of those allocated, the 2009 PARs tested in October 2012 vested at 54%, the 2010 PARs tested in October 2013 vested at 52%, while the 2011 PARs, tested
in October 2014 vested at 100%.
50
ANNUAL REPORT 2015 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
4.4.1 Vesting of LTI in FY2015
PARs and DARs that were granted under the LTI Plan in prior years vested during the current financial year, in line with the relevant Award Rights plans. Details
are shown in Section 6.
Table 4
Participants
Link between
performance and award
Performance Award Rights (PARs)
Deferred Award Rights (DARs)
Senior Executives and other identified key senior managers.
From 2014 onwards, Senior Executives no longer receive DARs.
In prior years, only TSR was used as a performance measure.
Under the updated LTI Plan rules, in 2015 80% of PARs vest
based on the Consolidated Entity’s TSR performance measured
against a Peer Group over a three year period. The confirmation
of the comparator groups and the vesting calculation is
undertaken independently.
DARs are linked with continued employment and adherence
to risk management principles with the intent of 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.
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 chose
relative TSR performance as a measure because it reflects
the returns made to shareholders relative to other comparable
securities and provides a meaningful reward for Executives
where the Company outperforms peers.
The Peer Group consists of the S&P / ASX 200 companies,
excluding:
• all entities in the resources sector;
• all real estate investment trusts;
• all entities in the energy and utilities sectors; and
• telecommunications companies whose headquarters are
offshore.
Additionally, the Board may add or exclude such other
companies as it considers appropriate. No such exclusions or
inclusions have been made to this group since implementation
of the scheme in 2008, other than to reflect companies moving
in to, or out of, the ASX 200 or being delisted.
The remaining 20% of PARs vest based on the Consolidated
Entity’s EPS performance, measured against a Financial
Services Peer Group over a three year period.
In prior years 50% of PARs vested at the peer group median and
50% at the top 25th percentile. From 2015, the vesting criteria
remains the same for the TSR measured PARs (80% of total
as per above). That is, all eighty percent of the TSR-measured
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 forty percent and eighty percent
would vest.
Ten percent of the EPS measured PARs, vest if the Consolidated
Entity’s EPS performance over the three year holding period is
in the top 40% of the Financial Services Peer Group (the four
major banks and Bendigo & Adelaide Bank). All twenty percent
of the EPS-measured PARs vest if the Consolidated Entity’s EPS
performance is in the top 10% against the Peer Group. For EPS
performance between those targets, a pro-rata of the PARs
between ten percent and twenty percent would vest. None of
the PARs vest if the Consolidated Entity’s TSR performance is
in the bottom 50% or EPS performance is in the bottom 60% of
the respective Peer Groups.
Vesting schedule
DARs granted to other senior managers during FY 2015 vest
proportionately over three years in the ratio of 20% (at the end
of Year 1), 30% (at the end of Year 2) and 50% (at the end of
Year 3). This is subject to continued employment at BOQ.
Performance period
The performance period is three years.
Not applicable.
51
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
4.4.1 Vesting of LTI in FY2015 (continued)
Table 4
Performance Award Rights (PARs)
Deferred Award Rights (DARs)
Forfeiture - all
participants
excluding Senior
Executives
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 Board’s discretion, be exercised
within 90 days of the employee ceasing employment.
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.
PARs which have 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
or total and permanent disablement.
DARs which have 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 or total and permanent
disablement. Otherwise, unvested DARs will lapse on cessation
of employment.
Forfeiture - Senior
Executive
In line with changes proposed in 2014, the Board has amended
the forfeiture arrangements for Senior Executives. Previously,
the Board had discretion over the accelerated vesting of these
equities. Under the new arrangements, instead of accelerated
vesting on departure, some or all unvested PARs may remain on
foot at the Board’s discretion for their full vesting period and only
vest in accordance with the plan rules and performance hurdles.
4.5 Application of discretion in the management of Senior Executive Remuneration
Whilst the performance of Senior Executives is assessed against a range of performance measures, the Board and the HR & Remuneration Committee recognise
that there remain a range of factors which should be taken into account when considering overall remuneration outcomes. The HR & Remuneration Committee
may make discretionary adjustments to the outcomes for Senior Executives that may impact their remuneration negatively or positively. Through this process,
remuneration outcomes have been adjusted both positively and negatively in the last three years.
Criteria used by the HR & Remuneration Committee to apply discretionary adjustments include:
•
factors either not known or relevant at the beginning of a financial year, which can impact performance positively or negatively during the course of the
financial year;
•
the degree of ‘stretch’ implicit in the measures and targets and the context in which the targets were set;
• whether the operating environment during the financial year was materially different than forecast;
•
•
•
comparison with the performance of the Group relative to its competitors;
the emergence of any major positive or negative risk or reputational issues;
the quality of the financial result as shown by its composition and consistency;
• whether leadership behaviours and BOQ’s CANDO values have been consistently demonstrated throughout the year; and
•
any other matters that the Board and the HR & Remuneration Committee deemed to be relevant and which are not outlined above.
At the end of the year the HR & Remuneration Committee reviews performance against objectives and applies any adjustments it considers appropriate. The HR
& Remuneration Committee then recommends STI outcomes for each Senior Executive to the Board for approval, thereby ensuring the Board retains oversight
of final awards.
5. NON-EXECUTIVE DIRECTOR REMUNERATION
Remuneration Framework
Non-Executive Directors’ (NEDs) fees are set based upon the need to attract and retain individuals of appropriate calibre. Fees are reviewed annually by the HR &
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.
52
ANNUAL REPORT 2015 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
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
$2,600,000 (inclusive of superannuation) and was approved by shareholders on 27 November 2013. The increase in the fee pool was made principally to allow
the Board flexibility in dealing with changes to the size and composition of the Board as a means of ensuring that an appropriate mix of skills and experience is
maintained and to be market competitive when making those changes. During the course of the 2015 year one Director resigned from the Board, bringing the
Board membership to nine.
The NED fees were last increased during the 2014 financial year (the first increase since 2010), in line with recommendations made by the independent
remuneration specialist. The fees for the 2015 financial year are set out in the table below.
Directors’ Annual Fees
The current NEDs’ fees comprise:
Directors’ Annual Fees
Fixed component of remuneration for Directors (1)
Chairman (1) (2)
Additional remuneration is paid to Non-Executive
Directors for committee work:
St Andrews Board of Directors (2)
Audit Committee
Risk Committee
Nomination & Governance Committee
Human Resources and Remuneration Committee
Investment Committee (3)
Due Diligence Committee (4)
Information Technology Committee
01/09/14 - 31/08/15
Chairman / Committee Chair
$
01/09/14 - 31/08/15
Directors / Committee Members
$
-
400,000
-
45,000
45,000
15,000
35,000
2,250
2,250
35,000
150,000
45,000
22,500
22,500
10,000
17,500
2,250
2,250
17,500
(1) Committee members received one fee for serving on Bank and subsidiary committees with a seperate fee received for St Andrew’s committees.
(2) David willis is also a member of the St Andrew’s Board of Directors.
(3) The Chairman receives no additional remuneration for involvement with Committees.
(4) Per deliberative meeting.
Remuneration Framework
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 balance of the accrued benefits is nil as at 31 August 2015
(2014: Nil).
53
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
6. REMUNERATION DISCLOSURES
Senior Executives receive a mix of cash, deferred equity and long term incentives that are tested over the following two and three years, depending on service
and performance. To assist shareholders in understanding the actual amount of remuneration an executive received in the 2015 financial year, the Board has
again included a number of non-statutory disclosure tables.
The statutory disclosures for the 2015 financial year are provided in Tables 7 to 10 and may differ to the non-statutory disclosures.
6.1 Non-Statutory disclosures
Tables 5 and 6 set out:
•
•
•
•
variable cash remuneration (split between the portion of the 2015 STI paid in October 2015 and the portion of the STI deferred until FY 2016 and FY 2017);
fixed remuneration (base remuneration, fringe benefits and employer superannuation contributions);
other benefits and termination benefits; and
the value of previous years’ long term incentive awards and short term deferrals that vested during the 2015 financial year.
Table 5 - STI received by current and former Senior Executives
Maximum STI
Potential (1)
%
STI Paid (2)
$
STI Deferred (3) Total STI Paid (4)
Current
Jon Sutton
Matthew Baxby
Peter Deans
Karyn Munsie
Anthony Rose
Michelle Thomsen
Donna-Maree Vinci
Brendan White
Former
Julie Bale
Brian Bissaker
150%
140%
100%
100%
100%
100%
100%
140%
100%
140%
$
600,000
235,000
235,000
160,000
235,000
600,000
235,000
235,000
160,000
235,000
92,500 (5)
92,500 (5)
-
-
305,000
305,000
-
-
-
-
%
96%
83%
70%
73%
72%
47%
-
95%
-
-
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) This is 50% of the 2015 STI for performance during the 12 months to 31 August 2015 (payable October 2015).
(3) This represents 50% of the 2015 STI award that is deferred until 1 October 2016 (50%) and 1 October 2017 (50%). The deferred awards are subject to Board review at the time of payment and are deferred into restricted
shares subject to vesting conditions.
(4) Total STI paid as a percentage of fixed remuneration.
(5) This is a contractual obligation for the first year of employment.
54
ANNUAL REPORT 2015 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
6. REMUNERATION DISCLOSURES (CONTINUED)
Table 6 - Cash remuneration received by current and former Senior Executives
Base plus
superannuation
$ (1)
2015 STI
Performance
$ (2)
Current
Jon Sutton
Matthew Baxby
Peter Deans
Karyn Munsie
Anthony Rose
Michelle Thomsen
Donna-Maree Vinci
Brendan White
Former
Julie Bale
Brian Bissaker
1,176,689
569,733
682,894
456,878
663,499
48,292
47,369
667,364
301,782
291,756
600,000
235,000
235,000
160,000
235,000
92,500 (4)
-
305,000
Previous Years’
Awards that
Vested during
2015 (3)
Deferred Equity
Awards
$
231,912
155,930
142,372
78,507
144,690
-
-
181,119
Total Cash
Payments in
relation to the
2015 year
$
1,776,689
804,733
917,894
616,878
898,499
140,792
47,369
972,364
-
-
301,782
291,756
76,922
39,202
(1) Base Remuneration and Superannuation make up an Executive’s fixed remuneration.
(2) This is 50% of the 2015 STI for performance during the 12 months to 31 August 2015 (payable October 2015). 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 2015) and / or equity awards (closing share price on vesting date) that vested during 2015 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 FY15.
(4) This is a contractual obligation only for the first year of employment.
55
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
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 Senior Executive of the Consolidated
Entity, calculated in accordance with accounting standards. The amounts shown in Table 7 to Table 10 below may differ from those shown above in Table 5 and
Table 6.
Table 7 - 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.
Executive Director
Jon Sutton - Managing
Director & Chief Executive
Officer
2015
2014
Non-Executive Directors - Current
Salary and fees
$
STI at risk
$
1,157,897
691,556
600,000
400,000
Roger Davis
Neil Berkett
Bruce Carter
Carmel Gray
Richard Haire
Margaret Seale
Michelle Tredenick
David Willis
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Non-Executive Directors - Former
Steve Crane
2015
2014
400,000
362,500
178,333
177,875
208,125
95,083
194,167
192,500
235,000
219,583
185,000
99,353
230,833
189,583
260,000
213,333
76,667
209,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Short-term
Non-monetary
benefits (1)
$
Other short term
benefits
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
49,808
49,808
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
1,807,705
1,141,364
400,000
362,500
178,333
177,875
208,125
95,083
194,167
192,500
235,000
219,583
185,000
99,353
230,833
189,583
260,000
213,333
76,667
209,750
(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 superannuation benefits and interest which is accrued at the CPI rate on Director retirement benefits which was frozen effective from 31 August 2003.
(3) Comprises long service leave accrued or utilised during the financial year.
(4) The fair value of the 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.
(5) Represents restricted shares awarded through deferred STI payments.
56
Post-employment
long-term
Termination
benefits
Share based payments
Total
related
remuneration
Proportion of
Value of options
remuneration
and rights as
performance
proportion of
Rights (4)
Shares and units (5)
$
$
$
$
%
%
466,094
477,917
2,782,243
393,782
366,915
1,923,048
51%
48%
17%
20%
Other
(3)
$
11,735
3,126
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2)
$
18,792
17,861
18,871
17,717
14,250
12,781
19,772
8,876
18,871
17,943
18,871
17,943
17,575
9,267
21,929
17,630
18,871
17,943
7,826
17,943
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
418,871
380,217
192,583
190,656
227,897
103,959
213,038
210,443
253,871
237,526
202,575
108,620
252,762
207,213
278,871
231,276
84,493
227,693
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
ANNUAL REPORT 2015
Salary and fees
STI at risk
$
$
1,157,897
691,556
600,000
400,000
Short-term
Non-monetary
benefits (1)
$
Other short term
benefits
$
49,808
49,808
Executive Director
Jon Sutton - Managing
2015
Director & Chief Executive
Officer
Non-Executive Directors - Current
Roger Davis
Neil Berkett
Bruce Carter
Carmel Gray
Richard Haire
Margaret Seale
Michelle Tredenick
David Willis
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Non-Executive Directors - Former
Steve Crane
400,000
362,500
178,333
177,875
208,125
95,083
194,167
192,500
235,000
219,583
185,000
99,353
230,833
189,583
260,000
213,333
76,667
209,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
1,807,705
1,141,364
400,000
362,500
178,333
177,875
208,125
95,083
194,167
192,500
235,000
219,583
185,000
99,353
230,833
189,583
260,000
213,333
76,667
209,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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 superannuation benefits and interest which is accrued at the CPI rate on Director retirement benefits which was frozen effective from 31 August 2003.
(4) The fair value of the 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.
(3) Comprises long service leave accrued or utilised during the financial year.
The value disclosed is the portion of the fair value of the rights allocated to this period.
(5) Represents restricted shares awarded through deferred STI payments.
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
Post-employment
(2)
Other
long-term
(3)
Termination
benefits
Share based payments
Total
Proportion of
remuneration
performance
related
Value of options
and rights as
proportion of
remuneration
$
$
$
Rights (4)
$
Shares and units (5)
$
$
%
%
18,792
17,861
18,871
17,717
14,250
12,781
19,772
8,876
18,871
17,943
18,871
17,943
17,575
9,267
21,929
17,630
18,871
17,943
7,826
17,943
11,735
3,126
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
466,094
477,917
2,782,243
393,782
366,915
1,923,048
51%
48%
17%
20%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
418,871
380,217
192,583
190,656
227,897
103,959
213,038
210,443
253,871
237,526
202,575
108,620
252,762
207,213
278,871
231,276
84,493
227,693
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
Post-employment
long-term
Termination
benefits
Share based payments
Total
related
remuneration
Proportion of
Value of options
remuneration
and rights as
performance
proportion of
Rights (5)
Shares and units (5)
$
$
$
$
%
%
Other
(3)
$
3,840
2,393
4,548
3,241
1,816
1,266
4,168
2,755
81
85
4,421
2,831
-
-
1,404
(2)
$
18,792
17,861
18,792
17,861
18,792
17,861
18,792
17,861
2,145
2,670
18,792
17,861
13,746
17,861
10,507
17,861
-
-
-
-
-
-
-
-
-
-
-
-
367,023
298,028
370,913
237,092
191,718
94,421
424,638
330,779
-
-
391,589
345,428
253,825
1,429,421
217,896
237,242
192,063
158,853
129,015
240,833
196,354
38,542
-
316,642
261,396
1,319,447
1,580,405
1,370,865
969,265
832,523
1,568,139
1,385,539
179,415
47,454
1,685,016
1,546,634
350,392
(74,529)
1,176
-
91,891
412,500
-
(50,998)
121,662
73,183
80,277
118,061
110,917
650,828
667,691
771,319
997,854
50%
48%
46%
44%
50%
47%
47%
45%
-
-
51%
50%
12%
38%
14%
41%
26%
23%
23%
17%
20%
11%
27%
24%
-
-
23%
22%
(11%)
14%
(7%)
12%
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
Table 8 - Senior Executive remuneration
Details of the nature and amount of each major element of the remuneration of each Senior Executive of the Consolidated Entity are as outlined in the table below.
Short-term
Salary and fees
$
STI at risk (1)
$
Other short term
benefits
$
Total
$
550,941
508,269
664,102
620,800
438,086
424,960
644,707
580,290
46,147
44,699
648,572
579,118
288,036
376,486
281,249
566,010
235,000
275,000
235,000
250,000
160,000
165,000
235,000
257,500
92,500 (6)
-
305,000
340,000
-
100,000
-
180,000
-
-
49,808
49,808
-
-
-
-
-
-
-
-
-
-
-
-
785,941
783,269
948,910
920,608
598,086
589,960
879,707
837,790
138,647
44,699
953,572
919,118
288,036
476,486
281,249
746,010
Executives - Current
Matthew Baxby
Peter Deans
Karyn Munsie
Anthony Rose
Michelle Thomsen
Donna-Maree Vinci
Brendan White
Executives - Former
Julie Bale
Brian Bissaker
2015
2014
2015
2014
2015
2014
2015
2014
2015
2015
2015
2014
2015
2014
2015
2014
(1) STI at risk reflects 50% of the amounts paid or accrued in respect of the year ended 31 August 2015. Refer to Section 4.3 “Executive remuneration framework” for a discussion of the Bank’s short-term incentive arrangements.
(2) This includes superannuation and salary sacrificed benefits.
(3) Comprises long service leave accrued or utilised during the financial year.
(4) The fair value of the 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.
(5) Represents restricted shares awarded through deferred STI payments.
(6) This is a contractual obligation only for the first year of employment.
58
ANNUAL REPORT 2015
Short-term
Salary and fees
STI at risk (1)
$
$
Other short term
benefits
$
Total
$
550,941
508,269
664,102
620,800
438,086
424,960
644,707
580,290
46,147
44,699
648,572
579,118
288,036
376,486
281,249
566,010
235,000
275,000
235,000
250,000
160,000
165,000
235,000
257,500
92,500 (6)
305,000
340,000
100,000
180,000
-
-
-
49,808
49,808
-
-
-
-
-
-
-
-
-
-
-
-
-
-
785,941
783,269
948,910
920,608
598,086
589,960
879,707
837,790
138,647
44,699
953,572
919,118
288,036
476,486
281,249
746,010
Executives - Current
Matthew Baxby
Peter Deans
Karyn Munsie
Anthony Rose
Michelle Thomsen
Donna-Maree Vinci
Brendan White
Executives - Former
Julie Bale
Brian Bissaker
2015
2014
2015
2014
2015
2014
2015
2014
2015
2015
2015
2014
2015
2014
2015
2014
(1) STI at risk reflects 50% of the amounts paid or accrued in respect of the year ended 31 August 2015. Refer to Section 4.3 “Executive remuneration framework” for a discussion of the Bank’s short-term incentive arrangements.
(4) The fair value of the 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
(2) This includes superannuation and salary sacrificed benefits.
(3) Comprises long service leave accrued or utilised during the financial year.
portion of the fair value of the options and rights allocated to this reporting period.
(5) Represents restricted shares awarded through deferred STI payments.
(6) This is a contractual obligation only for the first year of employment.
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
Post-employment
(2)
Other
long-term
(3)
Termination
benefits
Share based payments
Total
Proportion of
remuneration
performance
related
Value of options
and rights as
proportion of
remuneration
$
$
$
Rights (5)
$
Shares and units (5)
$
$
%
%
18,792
17,861
18,792
17,861
18,792
17,861
18,792
17,861
2,145
2,670
18,792
17,861
13,746
17,861
10,507
17,861
3,840
2,393
4,548
3,241
1,816
1,266
4,168
2,755
81
85
4,421
2,831
-
-
-
-
-
-
-
-
-
-
-
-
367,023
298,028
370,913
237,092
191,718
94,421
424,638
330,779
-
-
391,589
345,428
253,825
1,429,421
217,896
237,242
192,063
158,853
129,015
240,833
196,354
38,542
-
316,642
261,396
1,319,447
1,580,405
1,370,865
969,265
832,523
1,568,139
1,385,539
179,415
47,454
1,685,016
1,546,634
-
350,392
(74,529)
1,176
-
91,891
-
412,500
1,404
-
(50,998)
121,662
73,183
80,277
118,061
110,917
650,828
667,691
771,319
997,854
50%
48%
46%
44%
50%
47%
47%
45%
-
-
51%
50%
12%
38%
14%
41%
26%
23%
23%
17%
20%
11%
27%
24%
-
-
23%
22%
(11%)
14%
(7%)
12%
59
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
6.3 Equity held by Senior Executives
The movement during the 2015 financial year in the number of rights over ordinary shares held by each Senior Executive as part of their remuneration, are as
follows:
Table 9 - Movement in rights held by Senior Executives during FY 2015
Senior Executive
Type
Grant Date
Share Price at
Grant
Date $
Balance at
1 September
2014
Granted (1)
Exercised
Lapsed
Balance at 31
August 2015
(1) (2)
Vested during
the year
(%) (3)
Forfeited
during the
year (%)
Movements during the 2015 Financial Year
Current
Jon Sutton
Matthew Baxby
Peter Deans
Karyn Munsie
Anthony Rose
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted Shares
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted Shares
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
26/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
01/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
10/05/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
29/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
7.48
7.26
7.26
11.43
11.43
11.43
11.70
11.70
7.44
7.26
7.26
11.43
11.43
11.43
11.70
11.70
6.89
7.26
7.26
11.43
11.43
11.43
11.70
11.70
11.43
11.43
11.43
11.70
11.70
7.34
7.26
7.26
11.43
11.43
11.43
11.70
11.70
74,627
5,608
56,075
60,189
9,028
31,599
-
-
73,964
4,206
42,056
45,142
5,079
21,320
-
-
69,061
6,173
48,064
51,591
5,804
18,138
-
-
37,833
5,675
11,083
-
-
75,075
5,007
50,067
53,740
6,046
18,379
-
-
-
-
-
-
-
-
58,084
33,191
-
-
-
-
-
-
43,563
22,819
-
-
-
-
-
-
53,935
20,744
-
-
-
36,510
13,691
-
-
-
-
-
-
51,860
21,366
-
2,103
-
-
1,805
15,800
-
-
-
1,577
-
-
1,015
10,660
-
-
-
3,086
-
-
1,160
9,069
-
-
-
1,135
5,542
-
-
-
1,878
-
-
1,209
9,190
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
74,627
3,505
56,075
60,189
7,223
15,799
58,084
33,191
73,964
2,629
42,056
45,142
4,064
10,660
43,563
22,819
69,061
3,087
48,064
51,691
4,644
9,069
53,935
20,744
37,833
4,540
5,541
36,510
13,691
75,075
3,129
50,067
53,740
4,837
9,189
51,860
21,366
-
30%
-
-
20%
50%
-
-
-
30%
-
-
20%
50%
-
-
-
30%
-
-
20%
50%
-
-
-
20%
50%
-
-
-
30%
-
-
20%
50%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) This represents the maximum number of award rights that may vest to each Executive.
(2) No amounts at 31 August 2015 are vested and exercisable.
(3) Percentage of initial rights granted.
60
ANNUAL REPORT 2015
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
6.3 Equity held by Senior Executives (continued)
Table 9 - Movement in rights held by Senior Executives during FY 2015 (continued)
Senior Executive
Type
Grant Date
Share Price at
Grant
Date $
Balance at
1 September
2014
Granted (1)
Exercised
Lapsed
Balance at 31
August 2015
(1) (2)
Vested during
the year
(%) (3)
Forfeited
during the
year (%)
Movements during the 2015 Financial Year
Current
Brendan White
Former
Julie Bale
Brian Bissaker
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted Shares
2013 May DARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
2013 May PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
10/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
14/05/2013
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
7.33
7.26
7.26
11.43
11.43
11.43
11.70
11.70
7.26
11.43
11.43
11.43
11.70
11.70
9.68
11.43
11.43
11.43
11.70
11.70
67,476
6,258
50,067
51,591
5,804
24,708
-
-
6,408
30,095
3,386
6,810
-
-
31,748
47,291
3,547
5,241
-
-
-
-
-
-
-
-
49,786
28,212
-
-
-
-
29,042
8,298
-
-
-
-
33,191
14,936
-
3,129
-
-
1,160
12,354
-
-
2,403
-
677
3,405
-
-
-
-
709
2,621
-
-
-
-
-
-
-
-
-
-
4,005
30,095
2,709
-
29,042
-
7,511
47,291
2,838
-
33,191
-
67,476
3,129
50,067
51,591
4,644
12,354
49,786
28,212
-
-
-
3,405
-
8,298
24,237
-
-
2,620
-
14,936
-
30%
-
-
20%
50%
-
-
30%
-
20%
50%
-
-
-
-
20%
50%
-
-
-
-
-
-
-
-
-
-
50%
100%
80%
-
100%
-
24%
100%
80%
-
100%
-
(1) This represents the maximum number of award rights that may vest to each Executive.
(2) No amounts at 31 August 2015 are vested and exercisable.
(3) Percentage of initial rights granted.
61
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
6.3 Equity held by Senior Executives (continued)
The table below shows the total value of any rights that were granted, exercised or lapsed to Senior Executives.
Table 10 - Value of rights held by Senior Executives during FY 2015
Senior Executive
Grant
Grant Date
Current
Fair value
per right
at grant
date
$
Value at
grant date
$ (1)
Exercise Date
Share price at
exercise date
$ (2)
Value at
Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Value at
Expiry /
Lapsing
Date
$
Jon Sutton
2012 DARs
26/02/2012
6.60
413,734
2012 PARs
Restricted shares
26/02/2012
26/02/2012
5.18
6.70
386,568
700,000
2012 DARs
18/12/2012
6.20
43,456
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
1.74 (4)
7.63
10.38
11.43
6.13
11.70
97,571
459,242
93,711
361,177
356,055
388,335
Matthew Baxby
2012 DARs
01/02/2012
6.60
244,081
Peter Deans
2012 PARs
2012 DARs
01/02/2012
18/12/2012
5.18
6.20
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted Shares
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
10/05/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
1.74 (4)
7.63
10.38
11.43
6.13
11.70
3.70
6.20
1.74 (4)
7.63
10.38
11.43
6.13
11.70
383,134
32,593
73,177
344,433
52,720
243,688
267,041
266,982
255,526
38,273
83,631
393,639
60,246
207,317
330,622
242,705
01/05/2013
07/05/2014
-
05/01/2013
07/07/2013
05/01/2014
05/02/2014
02/01/2015
-
-
02/01/2015
16/12/2014
-
-
30/10/2013
09/07/2014
-
09/07/2014
30/12/2014
-
-
30/12/2014
16/12/2014
-
-
-
30/10/2014
28/01/2015
-
-
28/01/2015
16/12/2014
-
-
9.93
11.95
-
7.61
8.88
12.23
10.84
12.20
-
-
12.20
11.70
-
-
11.96
12.15
-
12.15
12.20
-
-
12.20
11.70
-
-
-
12.66
12.37
-
-
12.37
11.70
-
-
311,246
374,549
-
227,166
397,611
365,078
15,187
25,657
-
-
22,021
184,860
-
-
221,152
224,666
-
12,770
19,239
-
-
12,383
124,722
-
-
-
15,622
22,909
-
-
14,349
106,107
-
-
05/05/2017
05/05/2017
16/12/2017
09/01/2014
09/01/2014
09/01/2014
18/12/2017
18/12/2017
18/12/2017
16/12/2018
16/12/2018
16/12/2015
16/12/2019
16/12/2024
05/05/2017
05/05/2017
16/12/2017
18/12/2017
18/12/2017
18/12/2017
16/12/2018
16/12/2018
16/12/2015
16/12/2019
16/12/2024
16/12/2017
18/12/2017
18/12/2017
18/12/2017
16/12/2018
16/12/2018
16/12/2015
16/12/2019
16/12/2024
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Represents rights held at 1 September 2014 or granted during the 2015 financial year.
(2) Closing share price on exercise date of rights that have a nil exercise price.
(3) Closing share price on exercise date multiplied by the number of rights exercised during the year.
(4) The fair value as 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.
62
ANNUAL REPORT 2015
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
6.3 Equity held by Senior Executives (continued)
Table 10 - Value of rights held by Senior Executives during FY 2015 (continued)
Senior Executive
Grant
Grant Date
Fair value
per right
at grant
date
$
Value at
grant date
$ (1)
Exercise Date
Share price at
exercise
date
$ (2)
Value at
Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Value at
Expiry /
Lapsing
Date
$
Current
Karyn Munsie
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
16/12/2013
16/12/2103
16/12/2013
16/12/2014
16/12/2014
7.63
10.38
11.43
6.13
11.70
288,666
58,907
126,679
223,806
160,185
Anthony Rose
2012 DARs
29/02/2012
6.60
198,198
2012 PARs
2012 DARs
29/02/2012
18/12/2012
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
5.18
6.20
1.74 (4)
7.63
10.38
11.43
6.13
11.70
388,888
38,800
87,117
410,036
62,757
210,072
317,902
249,982
Brendan White
2012 DARs
10/02/2012
6.60
498,788
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
10/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
5.18
6.20
1.74 (4)
7.63
10.38
11.43
6.13
11.70
349,526
38,800
87,117
393,639
60,246
282,412
305,188
330,080
Former
Julie Bale
2012 DARs
18/12/2012
6.20
49,662
Brian Bissaker
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
2013 May PARs
2013 PARs
2013 DARs
Restricted shares
2014 PARs
Restricted shares
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
14/05/2013
16/12/2013
16/12/2013
16/12/2013
16/12/2014
16/12/2014
7.63
10.38
11.43
6.13
11.70
2.39
7.63
10.38
11.43
6.13
11.70
229,625
35,147
77,838
178,027
97,087
75,878
360,830
36,818
59,905
203,461
174,751
-
22/12/2014
16/12/2014
-
-
30/10/2013
25/07/2014
-
15/01/2014
08/01/2015
-
16/12/2014
08/01/2015
-
-
-
01/05/2013
03/06/2014
-
23/12/2014
-
-
23/12/2014
16/12/2014
-
-
17/01/2014
22/12/2014
-
22/12/2014
16/12/2014
-
-
-
-
29/12/2014
16/12/2014
-
-
-
12.16
11.70
-
-
11.96
12.57
-
11.89
11.94
-
11.70
11.94
-
-
-
9.93
12.00
-
12.08
-
-
12.08
11.70
-
-
12.28
12.16
-
12.16
11.70
-
-
-
-
12.33
11.70
-
-
-
13,802
68,841
-
-
179,579
188,739
-
14,874
22,423
-
107,523
14,435
-
-
-
375,225
453,444
-
37,798
-
-
14,013
144,542
-
-
19,673
29,220
-
8,232
39,839
-
-
-
-
8,742
30,666
-
-
16/12/2018
16/12/2018
16/12/2015
16/12/2019
16/12/2024
05/05/2017
05/05/2017
16/12/2017
18/12/2017
18/12/2017
18/12/2017
16/12/2018
16/12/2018
16/12/2015
16/12/2019
16/12/2024
05/05/2017
05/05/2017
16/12/2017
18/12/2017
18/12/2017
16/12/2018
16/12/2018
16/12/2015
16/12/2019
16/12/2024
15/05/2015
15/05/2015
15/05/2015
15/05/2015
16/12/2015
15/05/2015
16/12/2024
13/03/2015
13/03/2015
13/03/2015
16/12/2015
13/03/2015
16/12/2024
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52,946
-
397,856
35,813
-
383,935
-
106,130
668,222
40,101
-
468,989
-
(1) Represents rights held at 1 September 2014 or granted during the 2015 financial year.
(2) Closing share price on exercise date of rights that have a nil exercise price.
(3) Closing share price on exercise date multiplied by the number of rights exercised during the year.
(4) The fair value as 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.
63
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
6.4. Equity Instruments - holdings and movements
Movement in shares
The number of shares held directly, indirectly or beneficially by each Director or Senior Executive is as follows:
Held at
1 September
2014
Purchases /
(Sales)
Received on
exercise of award
rights / restricted
shares
Held at
31 August
2015
72,372
(19,708)
19,708
72,372
17,281
23,265
6,854
12,209
4,347
9,543
10,635
1,770
346
655
6,553
-
-
-
-
100
-
-
-
-
-
-
-
-
17,627
23,920
13,407
12,209
4,347
9,543
10,635
1,870
28,642
(28,642)
-
-
38,033
(30,091)
2,093
1,279
35,279
3,330
-
-
-
(6,677)
(31,281)
(16,643)
(6,485)
(709)
13,252
13,315
6,677
12,277
16,643
6,485
3,330
21,194
15,408
1,279
16,275
3,330
-
2,621
Ordinary shares
Executive Director
Jon Sutton
Directors - Current
Roger Davis
Neil Berkett
Bruce Carter
Carmel Gray
Richard Haire
Margaret Seale
Michelle Tredenick
David Willis
Directors - Former
Steve Crane
Executives - Current
Matt Baxby
Peter Deans
Karyn Munsie
Anthony Rose
Brendan White
Executives - Former
Julie Bale
Brian Bissaker
64
ANNUAL REPORT 2015 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
7. TRANSACTIONS WITH DIRECTORS AND SENIOR EXECUTIVES
Loan transactions
Loans to Directors and Senior Executives are provided in the ordinary course of business. Normal terms and conditions are applied to all loans and any discounts
are the same as those available to all employees of the Consolidated Entity. There have been no write downs or amounts recorded as provisions during the
financial year 2015.
Details of loans outstanding at the reporting date to Senior Executives, where the individual’s aggregate loan balance exceeded $100,000 at any time in the
reporting period, are as follows:
Executives
Matthew Baxby
Michelle Thomsen
Brendan White
2015
Balance at
1 September 2014
$
Interest paid and
payable during the
year
$
Balance at
31 August
2015
$
Highest balance
during the year
$
1,198,641
-
271,367
40,866
1,837
21,238
1,030,868
1,315,988
892,500
604,862
892,500
604,862
Details regarding the aggregate of loans made, guaranteed or secured by any entity in the economic entity to all Senior Executives and their related parties, and
the number of individuals in each group are as follows:
Directors
Executives
Balance at
1 September 2014
$
Balance at
31 August
2015
$
Interest paid
and payable
$
Number in group at
31 August 2015
#
-
-
1,479,341
2,535,397
-
63,941
-
4
Other transactions
Transactions between the Consolidated Entity and Directors and Senior Executives other than loans and shares during the financial year related to personal
banking, investment and deposit transactions. All transactions were on normal commercial terms and conditions and are trivial or domestic in nature.
On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes at a price of $10,000 per note. Details of those notes issued to BOQ Directors are set out
below:
Roger Davis
David Willis
Total
Balance at
31 August 2015
$
Interest receivable
$
Highest balance
during the year
$
200,000
70,000
270,000
2,452
858
3,310
202,452
70,858
273,310
Transactions between the Consolidated Entity and other related parties of Directors and Senior Executives relate to loans on normal commercial terms and
conditions. Details of loans outstanding at the reporting date to other related parties of Directors and Senior Executives are as follows:
Richard Haire Related Party
Jon Sutton Related Party
Total
2015
Balance at
1 September
2014
$
Interest paid and
payable during the
year
$
Balance at 31
August
2015
$
Highest balance
during the year
$
191,000
-
191,000
9,148
3,023
12,171
191,000
147,448
338,448
191,777
150,000
341,777
65
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 REMUNERATION REPORT
YEAR ENDED 31 AUGUST 2015
8. EXECUTIVE CONTRACTS
The remuneration and terms of Senior Executives 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 11 - Senior Executives Notice Periods
KMP
Jon Sutton
Julie Bale
Matthew Baxby
Brian Bissaker
Peter Deans
Karyn Munsie
Anthony Rose
Michelle Thomsen
Donna-Maree Vinci
Brendan White
Term of agreement
Fixed annual
remuneration
$
Notice period by
executive
Notice period by the
Consolidated Entity
Open
Open
Open
Open
Open
Open
Open
Open
Open
Open
1,250,000
3 months
3 months
400,000
3 months
3 months
565,000
3 months
3 months
550,000
3 months
3 months
675,000
3 months
3 months
440,000
3 months
3 months
650,000
3 months
3 months
395,000
3 months
3 months
570,000
3 months
3 months
640,000
3 months
3 months
Termination payment
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)
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)
66
ANNUAL REPORT 2015 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
Indemnification of officers
Audit and Non-audit services
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:
17,627
72,372
23,920
13,407
12,209
4,347
9,543
10,635
1,770
Roger Davis
Jon Sutton
Neil Berkett
Bruce Carter
Carmel Gray
Richard Haire
Margaret Seale
Michelle Tredenick
David Willis
Audit services – KPMG Australia
- Audit and review of the financial reports
- Other regulatory and audit services
Audit-related services – KPMG Australia
- Other assurance services
- Regulatory assurance services
Non-audit services – KPMG Australia
- Taxation services
- Due diligence services
- Other
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
2015
$000
2014
$000
2015
$000
2014
$000
1,118
364
1,482
445
167
612
372
-
37
409
1,011
401
1,412
225
-
225
188
234
-
422
441
167
608
445
167
612
372
-
37
409
681
203
884
169
-
169
143
234
-
377
67
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 DIRECTORS’ REPORT
YEAR ENDED 31 AUGUST 2015
Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on page 69 and forms part of the Directors’ report for the year ended 31 August 2015.
Director and Management changes
Jon Sutton was officially appointed as Managing Director and Chief Executive Officer (CEO) on 5 January 2015 after being appointed to the role of acting CEO
in August 2014.
During the year, Michelle Thomsen (General Counsel and Company Secretary) and Donna-Maree Vinci (Group Executive Enterprise Solutions) were appointed
to the Executive Team.
Steve Crane resigned from his position as a Non-Executive Director on 22 January 2015. Brian Bissaker and Melissa Grundy ceased employment respectively
from the positions of Chief Executive Officer of Virgin Money (Australia) and Company Secretary on 13 March 2015, and Julie Bale ceased employment as Chief
Information Officer on the 15 May 2015.
Management attestation
The Board has been provided with a written statement from the Group’s Chief Executive Officer and Chief Financial Officer, confirming the accompanying
financial statements and notes are in accordance with the Corporations Act 2001 and they present a true and fair view in all material respects of the Group’s
financial position and performance as at and for the year ending 31 August 2015.
The Directors’ declaration can be found on page 137 of the financial statements.
Environmental regulation
The Group’s operations are not subject to any significant environmental regulations under either Commonwealth or State legislation. The Board confirms that the
Group is not aware of any breach of environmental requirements.
Subsequent events
Dividends have been determined after 31 August 2015. The financial effect of the above transaction has not been brought to account in the financial statements
for the year ended 31 August 2015. Further details with respect to the dividend amount per share, payment date and dividend re-investment plan can be obtained
from Section 2.4 Dividends.
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.
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. This represents a change from the 31 August 2014 reporting period whereby amounts were rounded to the nearest hundred thousand dollars. This
change is in accordance with Class Order 98/100 and has not had a material impact on the financial report.
Signed in accordance with a resolution of the Directors:
Roger Davis
Chairman
7 October 2015
Jon Sutton
Managing Director
7 October 2015
68
ANNUAL REPORT 2015 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 2015 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
Sydney
7 October 2015
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.
69
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 INCOME STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
Interest income
Less: Interest expense
Net interest income
Other operating income
Net banking operating income
Premiums from insurance contracts
Investment revenue
Less: Claims and policyholder liability expense from insurance contracts
Net insurance operating income
Total operating income before impairment and operating expenses
Less: Expenses
Less: Impairment on loans and advances
Profit before income tax
Less: Income tax expense
Profit for the year
Profit 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
2015
$m
2,227
1,327
900
155
1,055
72
4
43
33
1,088
552
74
462
144
318
2014
$m
2,112
1,351
761
136
897
71
5
34
42
939
470
86
383
122
261
2015
$m
2,072
1,430
642
252
894
-
-
-
-
894
442
43
409
117
292
2014
$m
2,026
1,437
589
234
823
-
-
-
-
823
422
63
338
100
238
318
261
292
238
86.8
82.8
77.4
75.9
Section
2.1
2.1
2.1
2.1
2.1
2.1
2.2
3.4
2.3
2.6
2.6
70
ANNUAL REPORT 2015 STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 AUGUST 2015
Profit for the year
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Cash flow hedges:
Net losses taken to equity
Net gains / (losses) transferred to profit and loss
Foreign currency translation differences on foreign operations
Net losses on hedge of net investment in foreign operation
Change in fair value of assets available for sale
Other comprehensive (expense) / income for the year, net of income tax
Total comprehensive income for the year
Consolidated
Bank
2015
$m
318
2014
$m
261
2015
$m
292
2014
$m
238
(73)
(27)
(72)
2
-
-
35
(36)
282
(1)
1
(1)
29
1
262
2
-
-
35
(35)
257
(26)
(1)
-
-
28
1
239
Total comprehensive income attributable to:
Equity holders of the parent
282
262
257
239
The statements of comprehensive income should be read in conjunction with the accompanying notes.
71
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 BALANCE SHEETS
AS AT 31 AUGUST 2015
Assets
Cash and liquid assets
Due from other financial institutions - Term deposits
Financial assets available-for-sale
Financial assets held for trading
Derivative financial assets
Loans and advances at amortised cost
Other assets
Shares in controlled entities
Property, plant and equipment
Deferred tax assets
Intangible assets
Investments in joint arrangements
Total assets
Liabilities
Due to other financial institutions - Accounts payable at call
Deposits
Derivative financial liabilities
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
(1) The prior year balances have been restated. Refer to Section 1.4.
The balance sheets should be read in conjunction with the accompanying notes.
72
Consolidated
Bank
Section
2015
$m
2014 (1)
$m
2015
$m
2014
$m
3.1
3.3
3.3
3.8
3.4
6.5
2.3
4.1
6.7
3.2
3.8
4.2
5.1
3.5
1,103
91
2,827
1,940
225
1,034
93
3,864
2,473
160
553
19
2,996
1,940
162
397
15
3,349
2,473
132
40,703
38,136
36,830
32,035
113
-
61
89
848
18
131
-
51
114
828
21
240
1,543
52
74
133
-
242
1,527
41
101
102
-
48,018
46,905
44,542
40,414
259
207
259
207
34,732
34,106
35,378
32,357
297
390
55
62
41
249
399
72
104
63
8,713
8,364
-
-
44,549
43,564
283
345
55
50
-
3,896
907
41,173
207
337
71
88
-
2,660
1,224
37,151
3,469
3,341
3,369
3,263
3,122
90
257
3,469
3,021
114
206
3,128
75
166
3,024
98
141
3,341
3,369
3,263
ANNUAL REPORT 2015 STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2015
Consolidated
Ordinary
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 2015
$m
$m
$m
$m
$m
$m
$m
$m
Balance at beginning of the year
3,021
33
70
(27)
Total comprehensive income for the year
Profit
-
-
-
-
Other comprehensive income, net of income tax
Cash flow hedges:
Net losses taken to equity
Net gains / (losses) transferred to profit and
loss
Net losses 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 to equity reserve for credit losses
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
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Treasury Shares (2)
Total contributions by and distributions
to owners
-
-
-
-
-
-
-
-
11
93
-
-
(3)
101
-
-
-
-
-
-
-
-
-
-
-
1
-
1
-
(73)
-
-
-
-
11
10
-
-
-
-
11
(63)
11
(63)
-
-
-
-
-
-
-
-
-
-
-
-
Balance at the end of the year
3,122
34
81
(90)
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
37
206
3,341
-
318
318
-
(8)
-
-
35
-
27
27
-
-
-
-
-
-
-
(73)
-
-
-
-
(11)
(11)
307
2
-
-
35
-
(36)
282
-
-
11
93
(256)
(256)
-
-
1
(3)
(256)
(154)
64
257
3,469
(1) On 24 October 2014, the Bank issued 900,000 ordinary shares at $12.29 to the trustee of the BOQ Employee Share Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights Plan and
issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
(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 statements of changes in equity should be read in conjunction with the accompanying notes.
73
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2015
Consolidated
Ordinary
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 2014
$m
$m
$m
$m
$m
$m
$m
$m
Balance at beginning of the year
2,563
31
70
1
Total comprehensive income for the year
Profit
-
-
-
-
Other comprehensive income, net of income tax
Cash flow hedges:
Net losses taken to equity
Net gains transferred to profit and loss
Net losses 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 / (expense)
Total comprehensive income / (expense)
for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Treasury Shares (1)
Instutitional entitlement offer (2)
Retail entitlement offer (2)
Costs of capital issue (2)
Total contributions by and distributions
to owners
-
-
-
-
-
-
-
66
-
-
(2)
183
218
(7)
458
-
-
-
-
-
-
-
-
-
2
-
-
-
-
2
-
-
-
-
-
-
(27)
(1)
-
-
-
(28)
-
(28)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at the end of the year
3,021
33
70
(27)
1
-
-
-
(1)
1
-
-
-
-
-
-
-
-
-
-
-
1
8
-
-
-
-
-
29
29
29
-
-
-
-
-
-
-
-
144
2,818
261
261
-
-
-
-
-
-
(27)
(1)
(1)
1
29
1
261
262
-
66
(199)
(199)
-
-
-
-
-
2
(2)
183
218
(7)
(199)
261
37
206
3,341
(1) 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.
(2) As part of the acquisition of BOQ Specialist Bank Limited formerly Investec Bank (Australia) Limited during the 2014 year, the Bank issued $394 million (net of transaction costs) worth of new shares in two tranches. The
institutional and retail tranches were for $183 million and $218 million respectively.
The statements of changes in equity should be read in conjunction with the accompanying notes.
74
ANNUAL REPORT 2015 STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2015
Ordinary
shares
Employee
benefits
reserve
Equity
reserve
for credit
losses
$m
3,024
$m
33
$m
57
Cashflow
hedge
reserve
Available-
for-sale
reserve
Retained
profits
Total
equity
$m
(29)
-
(72)
10
-
-
(62)
(62)
-
-
-
-
-
$m
37
$m
$m
141
3,263
-
-
(8)
35
-
27
27
-
-
-
-
-
292
292
-
-
-
(11)
(11)
281
(72)
2
35
-
(35)
257
-
-
11
93
(256)
(256)
-
1
(256)
(151)
-
-
-
-
-
-
-
-
-
-
1
1
-
-
-
-
11
11
11
-
-
-
-
-
-
-
-
-
-
-
-
11
93
-
-
104
3,128
Bank
Year ended 31 August 2015
Balance at beginning of the year
Total comprehensive income for the year
Profit
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
Transfers to equity reserve for credit losses
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
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Total contributions by and distributions to owners
Balance at the end of the year
34
68
(91)
64
166
3,369
(1) On 24 October 2014, the Bank issued 900,000 ordinary shares at $12.29 to the trustee of the BOQ Employee Share Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights Plan and
issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
The statements of changes in equity should be read in conjunction with the accompanying notes.
75
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2015
Bank
Year ended 31 August 2014
Balance at beginning of the year
Total comprehensive income for the year
Ordinary
shares
Employee
benefits
reserve
Equity
reserve
for credit
losses
Cashflow
hedge
reserve
Available-
for-sale
reserve
Retained
profits
Total
equity
$m
2,564
$m
31
$m
57
$m
(2)
$m
$m
$m
9
102
2,761
Profit
-
-
-
-
-
238
238
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 income / (expense)
Total comprehensive income / (expense) for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions to owners
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Instutitional entitlement offer (1)
Retail entitlement offer (1)
Costs of capital issue (1)
Total contributions by and distributions to owners
-
-
-
-
-
66
-
-
183
218
(7)
460
-
-
-
-
-
-
-
2
-
-
-
2
-
-
-
-
-
-
-
-
-
-
-
-
(26)
(1)
-
(27)
(27)
-
-
-
-
-
-
-
-
-
28
28
28
-
-
-
-
-
-
-
-
-
-
-
(26)
(1)
28
1
238
239
-
66
(199)
(199)
-
-
-
-
(199)
2
183
218
(7)
263
Balance at the end of the year
3,024
33
57
(29)
37
141
3,263
(1) As part of the acquisition of BOQ Specialist Bank Limited formerly Investec Bank (Australia) Limited during the 2014 financial year, the Bank issued $394 million (net of transaction costs) worth of new shares in two
tranches. The institutional and retail tranches were for $183 million and $218 million respectively.
The statements of changes in equity should be read in conjunction with the accompanying notes.
76
ANNUAL REPORT 2015
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 AUGUST 2015
Consolidated
Bank
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
Increase / (decrease) in operating liabilities:
Deposits
Securitisation liabilities
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Acquisition of BOQ Specialist Bank Limited
Cash acquired upon acquisition of BOQ Specialist Bank Limited
Payments for property, plant and equipment
Payments for intangible assets
Cash distribution received from equity accounted investments
Capital injection in BOQ Specialist Bank Limited
Proceeds from sale of property, plant and equipment
Net cash outflow 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
Proceeds from foreign exchange instruments
Repayment of other financing activities
Proceeds from issue of capital notes
Repayments of borrowings
Payments for treasury shares
Dividends paid
Dividends received
Net cash inflow/(outflow) from financing activities
Net increase in cash and cash equivalents
Cash and liquid assets at beginning of year
Cash and liquid assets at end of year
The statements of cash flows should be read in conjunction with the accompanying notes.
Section
3.5
3.1
3.5
3.1
2015
$m
2,228
128
2
(1,325)
(516)
(133)
384
(2,621)
1,593
691
(757)
(710)
-
-
(36)
(59)
3
-
6
2014
$m
2,113
183
1
(1,341)
(388)
(80)
488
(724)
(244)
1,921
(984)
457
(210)
52
(31)
(52)
4
-
4
(86)
(233)
11
-
1,473
30
-
148
(623)
(11)
(163)
-
865
69
1,034
1,103
401
(10)
694
26
-
-
(1,033)
(8)
(133)
-
(63)
161
873
1,034
2015
$m
1,928
203
2
(1,425)
(416)
(131)
161
(4,571)
892
3,085
-
(433)
-
-
(26)
(55)
-
(15)
1
(95)
11
-
1,522
30
(398)
148
(483)
(11)
(163)
28
684
156
397
553
2014
$m
1,861
218
1
(1,437)
(351)
(77)
215
(1,213)
(55)
2,290
-
1,237
(210)
-
(22)
(48)
-
(330)
-
(610)
401
(10)
694
26
(430)
(1,033)
(8)
(134)
22
(472)
155
242
397
77
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
Section 1
Basis of preparation
Page
1.1
1.2
1.3
1.4
Reporting entity
Basis of accounting
Use of estimates and judgements
Restatement of acquisition accounting adjustments
Section 2
Financial performance
2.1
2.2
2.3
2.4
2.5
2.6
Operating income
Expenses
Income tax expense and deferred tax
Dividends
Operating segments
Earnings per share
Section 3
Capital and balance sheet management
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Cash and liquid assets
Deposits
Financial assets
Loans and advances at amortised cost
Borrowings including subordinated notes
Risk management
Financial instruments
Derivative financial instruments
Capital management
3.10
Capital and reserves
Section 4
Other assets and liabilities
4.1
4.2
Intangible assets
Provisions
Section 5
Insurance Business
5.1
Insurance business
Section 6
Other notes
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
Employee benefits
Commitments
Contingent liabilities
Related parties information
Controlled entities
Deed of cross guarantee
Investments in joint arrangements
Auditor’s remuneration
Events subsequent to balance date
6.10
Significant accounting policies & new accounting standards
78
79
79
79
80
81
82
83
86
87
88
89
90
90
91
93
95
104
108
111
112
113
115
116
122
123
124
124
126
129
131
132
132
133
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
SECTION 1. BASIS OF PREPARATION
1.1. Reporting entity
Bank of Queensland Limited (the “Bank”) is a company domiciled in Australia. The address of the Bank’s registered office is Level 6, 100 Skyring Terrace,
Newstead, QLD, 4006 (+ 61 7 3212 3333). The consolidated financial report of the Bank for the financial year ended 31 August 2015 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 is a for profit
entity primarily involved in providing retail banking, leasing finance, and insurance products, to its customers.
1.2. Basis of accounting
(a) Statement of compliance
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian
Accounting Standards Board (“AASB”) and the Corporations Act 2001. The consolidated financial statements and notes thereto also comply with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial report was authorised
for issue by the Directors on 7 October 2015.
(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
assets and liabilities acquired through business combinations.
(c) Functional and presentation currency
The consolidated financial statements are presented in Australian dollars, which is the Bank’s functional currency.
(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.
1.3. 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.
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 below:
•
•
•
•
•
•
Provisions for impairment - Section 3.4;
Financial instruments - Section 3.7;
Intangible assets - Section 4.1;
Provisions - Section 4.2;
Insurance policy liabilities - Section 5.1; and
Contingent liabilities - Section 6.3.
79
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
SECTION 1. BASIS OF PREPARATION (CONTINUED)
1.4. Restatement of acquisition accounting adjustments
The prior period consolidated balance sheet was stated using provisional entries for the acquisition of BOQ Specialist Bank Limited (now BOQ Specialist (Aust)
Limited) in accordance with AASB 3 Business Combinations. These provisional entries have now been finalised resulting in the restatement of the 31 August
2014 consolidated balance sheet (refer to Section 6.5(c)). A summary of these restatements are provided below:
Consolidated
Increase /
(Decrease)
$m
2014 Reported
$m
2014 Restated
$m
54
112
23
100
2
702
827
(153)
(137)
(290)
(3)
2
23
5
-
(27)
1
7
(7)
-
51
114
46
105
2
675
828
(146)
(144)
(290)
Property, plant and equipment
Deferred tax assets
Intangible assets
- Customer related intangibles and brands
- Computer software
- Other
- Goodwill
Total intangible assets
Provisions for impairment
- Specific
- Collective
Total Provisions for impairment
80
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
SECTION 2. FINANCIAL PERFORMANCE
2.1. Operating income
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
Interest income and expense
Consolidated
Bank
2015
$m
2014
$m
2015
$m
2014
$m
2,038
189
2,227
729
598
1,327
900
111
(12)
-
15
28
-
9
1
3
155
33
1,088
1,917
195
2,112
772
579
1,351
761
101
(13)
-
11
24
-
9
(3)
7
136
42
939
1,634
438
2,072
678
752
1,430
642
101
(12)
78
14
13
22
11
(5)
30
252
-
894
1,603
423
2,026
766
671
1,437
589
99
(13)
72
11
13
24
9
(5)
24
234
-
823
Interest income and expense for all 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.
Other operating income
Other operating income and expense (e.g. lending fees) that are considered an integral part of the effective interest rate on a financial asset or liability are
included in the measurement of the effective interest rate. Non-yield related application and activation lending fee revenue is recognised 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.
Dividends are recognised when control of a right to receive consideration is established.
81
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
2.2. Expenses
Operating expenses
Advertising
Commissions to Owner Managed Branches
Communications and postage
Printing and stationery
Non-lending losses
Processing costs
Other (1)
Administrative expenses
Professional fees
Directors fees
Other
IT expenses
Data processing
Amortisation – 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
(1) The current year balance includes the impairment expense for the pilot Customer Relationship Management system.
82
Consolidated
Bank
2015
$m
2014
$m
2015
$m
2014
$m
23
7
21
5
-
24
42
17
7
20
5
34
25
17
14
6
19
4
-
24
37
13
7
19
4
34
25
14
122
125
104
116
17
2
5
24
67
17
1
85
38
9
3
50
16
2
6
24
65
15
1
81
29
8
3
40
13
2
8
23
60
15
1
76
30
9
3
42
203
150
154
20
3
13
10
8
257
14
552
14
4
10
9
7
194
6
470
14
3
10
8
6
195
2
442
13
2
10
25
61
13
1
75
26
7
3
36
130
12
3
9
8
7
169
1
422
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
2.3. Income tax expense and deferred tax
Income tax expense
The major components of income tax expense for the years ended 31 August 2015 and 2014 along with a reconciliation between pre-tax profit and tax expense
are detailed below:
Consolidated
Bank
2015
$m
2014
$m
2015
$m
2014
$m
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense
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
Profit before tax – continuing operations
Profit before tax
Income tax using the domestic corporate tax rate of 30% (2014: 30%)
Increase in income tax expense due to:
Non-deductible expenses
Decrease in income tax expense due to:
Other (1)
Over provided in prior years
Income tax expense on pre-tax net profit
130
(17)
113
31
31
144
144
-
(17)
12
(5)
462
462
139
9
(3)
145
(1)
144
140
(8)
132
(10)
(10)
122
122
(3)
(9)
11
(1)
383
383
115
9
(1)
123
(1)
122
111
(14)
97
20
20
117
117
-
(17)
12
(5)
409
409
123
6
(11)
118
(1)
117
(1) In the Bank, this includes the impact of dividends received from subsidiary Group members which are eliminated at a Group level and franking credits.
112
(6)
106
(6)
(6)
100
100
(3)
(10)
12
(1)
338
338
101
6
(6)
101
(1)
100
83
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
2.3. Income tax expense and deferred tax (continued)
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2015
$m
2014 (1)
$m
2015
$m
2014
$m
2015
$m
2014 (1)
$m
Consolidated
Accruals
Capitalised expenditure
Provision for impairment
Other provisions
Equity reserves
Other
6
-
82
23
-
6
5
-
95
25
-
7
Tax assets / (liabilities)
117
132
Bank
Accruals
Capitalised expenditure
Provision for impairment
Other provisions
Equity reserves
Other
Tax assets / (liabilities)
3
-
66
22
-
5
96
2
-
81
20
-
8
111
-
(6)
-
-
-
(22)
(28)
-
(3)
-
-
-
(19)
(22)
-
(3)
-
-
(6)
(9)
(18)
-
(1)
-
-
(5)
(4)
(10)
6
(6)
82
23
-
(16)
89
3
(3)
66
22
-
(14)
74
5
(3)
95
25
(6)
(2)
114
2
(1)
81
20
(5)
4
101
(1) The prior year balances have been restated. Refer to Section 1.4.
Unrecognised deferred tax assets
Deferred tax assets have not been brought to account for the following items as realisation of the benefit is not regarded as probable:
Gross income tax losses (2)
Gross capital gains tax losses
(1) Tax losses were not disclosed in the prior year on the basis that the analysis confirming the quantum of these losses was not finalised.
(2) Income tax losses are subject to utilisation over an expected 10-15 year period.
Accounting for income tax
2015
$m
30
92
2014 (1)
$m
32
92
Income tax expense 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 items recognised directly in equity, or other comprehensive income.
Current tax is the expected tax payable / receivable on the taxable income / loss for the year and any adjustment to the tax payable / receivable in respect of
previous years. It is measured using tax rates enacted or substantially enacted at the reporting date.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.
Deferred tax assets are recognised for unused tax losses and deductible temporary differences to the extent that it is probable that future taxable profits will be
available against which they 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.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantially
enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Consolidated Entity
expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
84
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
2.3. Income tax expense and deferred tax (continued)
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.
Any subsequent period amendments to deferred tax assets arising from unused tax losses as a result of a revised assessment of the probability of recoverability
is recognised by the head entity only.
Nature of tax funding and tax sharing arrangements
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.
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 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 was fully amortised in the 31 August 2014 financial year.
85
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
2.4. Dividends
Ordinary shares
Final 2014 dividend paid 27 November 2014 (2013: 4 December 2013)
Interim 2015 dividend paid 12 May 2015 (2014: 23 May 2014)
Convertible preference shares
Final CPS dividend paid on 15 October 2014 (2013: 15 October 2013)
Half-yearly CPS dividend paid on 15 April 2015 (2014: 15 April 2014)
Bank
2015
2014
Cents per share
$m
Cents per share
$m
34
36
275
273
124
132
256
8
8
16
30
32
286
269
96
103
199
9
8
17
All dividends paid on ordinary and preference shares have been fully franked at 100%.
Since the end of the financial year, the Directors have determined the following dividends:
Cents per share
$m
- Final CPS dividend
- Final – ordinary shares
258
38
8
141
The final dividend payment will be fully franked and paid on 24 November 2015 to owners of ordinary shares at the close of business on 2 November 2015 (record
date). Shares will be quoted ex-dividend on 29 October 2015.
30% franking credits available to shareholders of the Bank for subsequent financial years
Bank
2015
$m
121
2014
$m
132
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 2015, is $121 million credit calculated at the 30% tax rate (2014: $132 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
As resolved by the Board, the Bank of Queensland Dividend Reinvestment Plan (“DRP”) provides shareholders with the opportunity to convert all or part of their
entitlement to a dividend into new shares at a discount of 1.5%. The discount applied is 1.5% of the arithmetic average, rounded to four decimal places, of the
daily volume weighted average price of:
•
all shares sold in the ordinary course of trading on the Australian Securities Exchange (“ASX”) automated trading system; and
• where shares are sold on trading platforms of Australian licensed financial markets operated by persons other than ASX, all shares sold in the ordinary
course of trading on such of those trading platforms determined by the Board from time to time,
during the 10 trading day period commencing on the second trading day after the record date in respect of the relevant dividend. Shares issued or transferred
under the Plan will be fully-paid. If, after this calculation there is a residual balance, that balance will be carried forward (without interest) and added to the next
dividend for the purpose of calculating the number of shares secured under the DRP at that time.
The last date for election to participate in the DRP for the 2015 final dividend is 4 November 2015.
86
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
2.5. Operating segments
Segment information
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. 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, debtor finance, treasury, savings and transaction accounts.
Insurance Customer credit insurance, life insurance, accidental death insurance, funeral insurance and motor vehicle gap 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.
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 2015 or 2014.
The Consolidated Entity’s business segments operate principally in Australia.
The following table presents income and profit and certain asset and liability information regarding the Bank’s operating segments.
Income
External
Inter-segment
Total operating income
Segment profit before income tax
Income tax expense
Segment profit after income tax
Results
Interest income
Interest expense
Depreciation and amortisation
Impairment losses on loans and advances
Assets
Liabilities
Banking
Insurance
Segment Total
2015
$m
2014
$m
2015
$m
2014
$m
2015
$m
2014
$m
1,055
4
1,059
439
137
302
2,227
1,327
27
74
47,954
44,522
897
5
902
352
113
239
2,112
1,351
24
86
46,834
43,529
33
(2)
31
23
7
16
-
-
-
-
112
70
42
(2)
40
31
9
22
-
-
-
-
126
86
1,088
2
1,090
462
144
318
2,227
1,327
27
74
48,066
44,592
939
3
942
383
122
261
2,112
1,351
24
86
46,960
43,615
87
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
2.5. Operating segments (continued)
The following table sets out the reconciliation between the operating segments and the consolidated entity:
Segment total
Elimination of inter-segment revenue
Consolidated total
Segment total
Elimination of inter-segment bank accounts
Adjustment for other consolidation eliminations
Consolidated total
2.6. Earnings per share
2015
$m
2014
$m
2015
$m
2014
$m
Revenue
Profit before tax
1,090
(2)
1,088
942
(3)
939
462
-
462
383
-
383
Assets
Liabilities
48,066
46,960
44,592
43,615
(47)
(1)
(55)
-
(47)
4
(55)
4
48,018
46,905
44,549
43,564
Basic Earnings Per Share (“EPS”) is calculated by dividing the relevant earnings by the average weighted number of shares on issue. Diluted EPS takes into
account the dilutive effect of all outstanding share rights vesting as ordinary shares.
Consolidated
2015
$m
2014
$m
318
318
16
2
336
261
261
16
-
277
2015
Number
2014
Number
366,666,774
336,579,927
366,666,774
336,579,927
3,293,389
2,930,399
23,978,515
25,448,063
12,304,413
-
406,243,091
364,958,389
86.8
82.8
77.4
75.9
Earnings reconciliation
Net profit
Basic earnings
Effect of distributions on CPS
Effect of capital 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 CPS
Effect of capital notes
Basic earnings per share - Ordinary shares (cents)
Diluted earnings per share - Ordinary shares (cents)
88
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
SECTION 3. CAPITAL AND BALANCE SHEET MANAGEMENT
3.1. Cash and liquid assets
Components of cash and liquid assets
Cash and liquid assets comprise cash at branches, cash on deposit and balances with the Reserve Bank of Australia. Cash flows from the following activities
are presented on a net basis in the statements of cash flows:
• Sales and purchases of trading securities;
• Customer deposits in and withdrawals from deposit accounts; and
•
Loan drawdowns and repayments.
Notes, coins and cash at bank
Remittances in transit
Total
Consolidated
Bank
2015
$m
2014
$m
2015
$m
2014
$m
917
186
1,103
905
129
1,034
367
186
553
268
129
397
Notes to the statements of cash flows
Reconciliation of profit for the year to net cash provided by operating activities.
Profit from ordinary activities after income tax
318
261
Add / (less) items classified as investing / financing activities or
non-cash items
Depreciation
Amortisation
Dividends received from subsidiaries
Software amortisation and impairment
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 financial assets
Increase in loans and advances at amortised cost
(Increase) / decrease in derivatives
Decrease in provision for impairment
(Increase) / decrease in deferred tax asset
Decrease in other assets
(Increase) / 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 / (decrease) in provisions
Increase / (decrease) in deferred tax liabilities
Decrease in insurance policy liabilities
Decrease in borrowings including subordinated notes
Net cash inflow/(outflow) from operating activities
20
14
-
27
-
10
(1)
2
1,592
(2,549)
(20)
(18)
(10)
17
-
52
640
(2)
(17)
(42)
42
(22)
(763)
(710)
17
11
-
15
(3)
9
2
26
(269)
(619)
45
(22)
13
11
-
6
1,914
(18)
48
25
(18)
(10)
(987)
457
292
10
2
(28)
25
-
8
5
(4)
907
(4,784)
(14)
(11)
(1)
4
112
52
3,033
15
(16)
(38)
(2)
-
-
238
8
1
(22)
13
-
8
5
9
(97)
(500)
40
(44)
(2)
32
(772)
6
2,283
(13)
28
20
(4)
-
-
(433)
1,237
89
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.2. Deposits
Deposits at call
Term deposits
Certificates of deposit (1)
Total
Concentration of deposits:
Customer deposits
Wholesale deposits (1)
Total
Consolidated
Bank
2015
$m
11,814
17,838
5,080
34,732
26,914
7,818
34,732
2014
$m
10,886
19,631
3,589
34,106
26,266
7,840
34,106
2015
$m
12,415
17,883
5,080
35,378
27,514
7,864
35,378
2014
$m
10,937
17,835
3,585
32,357
24,462
7,895
32,357
(1) The Bank has reclassified its Transferable Deposits (“TD’s”) from Wholesale deposits for 31 August 2015 and has also reflected this in the 31 August 2014 comparative figures. The TD’s have been reclassified to
Borrowings to better reflect the underlying substance of the balances with contractual terms being on average greater than twelve months.
3.3. Financial assets
Available-for-sale
Debt instruments
Unlisted equity instruments
Held for trading
Floating rate notes and bonds
Negotiable certificates of deposit
Promissory notes
Consolidated
Bank
2015
$m
2,818
9
2,827
595
1,345
-
1,940
2014
$m
3,855
9
3,864
949
1,449
75
2,473
2015
$m
2,987
9
2,996
595
1,345
-
1,940
2014
$m
3,340
9
3,349
949
1,449
75
2,473
Total financial assets
4,767
6,337
4,936
5,822
90
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.4. Loans and advances at amortised cost
Loans and advances at amortised cost
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 the table below for impairment of loans and advances.
Residential property loans – secured by mortgages
Securitised residential property loans – secured by mortgages
Total residential property loans – secured by mortgages
Personal loans
Overdrafts
Commercial loans
Credit cards
Leasing finance
Gross loans and advances at amortised cost
Less:
Unearned lease finance income
Specific provision for impairment
Collective provision for impairment
Consolidated
Bank
2015
$m
21,029
7,349
28,378
260
277
7,786
64
4,626
41,391
(416)
(126)
(146)
2014
$m
19,285
7,224
26,509
288
330
7,174
54
4,527
2015
$m
21,029
7,349
28,378
260
277
7,790
64
322
2014
$m
19,125
7,223
26,348
162
330
5,426
-
-
38,882
37,091
32,266
(456)
(146)
(144)
(41)
(106)
(114)
-
(128)
(103)
Total loans and advances at amortised cost (1)
40,703
38,136
36,830
32,035
Provision for impairment
Specific provision:
Balance at the beginning of the year
Add: Expensed during the year
Acquired 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
Acquired during the year
Transfer from BOQ Specialist (Aust) Limited (1)
Transfers to specific provision
Balance at the end of the year
Total provisions for impairment
Consolidated
Bank
2015
$m
2014
$m
2015
$m
2014
$m
146
72
-
(84)
-
(8)
126
144
2
-
-
-
146
272
175
93
1
(115)
2
(10)
146
137
(7)
16
-
(2)
144
290
128
38
-
(52)
-
(8)
106
103
5
-
6
-
114
220
163
70
-
(98)
3
(10)
128
112
(7)
-
-
(2)
103
231
(1) On 1 June 2015 BOQ Specialist (Aust) Limited (formerly known as the Professional Finance and Asset Finance & Leasing businesses of Investec Bank (Australia) Limited) surrendered its Authorised Deposit-taking
Institutions license following its acquisition on 31 July 2014. Subsequently all loans and advances and provisions for impairment for BOQ Specialist Pty Ltd were transferred to the Bank.
91
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.4. Loans and advances at amortised cost (continued)
Transfer of financial assets
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”) and the Nyala and Impala Securitisation Trusts. Refer to Section 6.10 (a)(ii) for further information.
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
Net Position
Consolidated
Bank
2015 (1)
$m
3,639
750
4,389
4,819
-
4,819
4,415
(4,819)
(404)
2014
$m
4,752
613
5,365
5,516
-
5,516
5,379
(5,516)
(137)
2015 (1)
$m
3,739
-
3,739
-
4,120
4,120
3,754
(4,120)
(366)
2014
$m
4,250
-
4,250
-
4,368
4,368
4,259
(4,368)
(109)
(1) On 1 June 2015 BOQ Specialist (Aust) Limited (formerly known as the Professional Finance and Asset Finance & Leasing businesses of Investec Bank (Australia) Limited) surrendered its Authorised Deposit-taking
Institutions license following its acquisition on 31 July 2014. At this time the securitisation trusts and the associated assets and liabilities transferred to being under control of the Bank, as such these have been included
within the transfer of financial assets note for the 2015 financial year.
Lease receivables
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
2015
$m
2014
$m
2015 (1)
$m
2014
$m
1,714
2,814
98
4,626
(416)
4,210
1,532
2,593
85
4,210
1,679
2,759
89
4,527
(456)
4,071
1,479
2,539
53
4,071
15
254
53
322
(41)
281
15
223
43
281
-
-
-
-
-
-
-
-
-
-
(1) On 1 June 2015 BOQ Specialist (Aust) Limited (formerly known as the Professional Finance and Asset Finance & Leasing businesses of Investec Bank (Australia) Limited) surrendered its Authorised Deposit-taking
Institutions license following its acquisition on 31 July 2014. Subsequently all finance lease receivables for BOQ Specialist Pty Ltd were transferred to the Bank.
92
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.5. 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
$m
Transferable
Certificates
of Deposit (2)
$m
Convertible
Preference
Shares (3)
$m
Capital
Notes (4)
$m
Syndicated
Loan
$m
Total
$m
Year ended 31 August
2015
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
5,510
2,284
(3,041)
(5)
5
59
64
29
(18)
-
-
6
4,812
81
319
88
(355)
-
-
42
94
347
-
(22)
-
-
-
1,830
1,356
(228)
-
-
-
294
-
-
-
1
-
-
150
-
(2)
-
-
325
2,958
295
148
-
-
-
-
-
-
-
Securitisation
liabilities (1)
$m
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes
$m
Transferable
Certificates of
Deposit
$m
Convertible
Preference
Shares (3)
$m
Syndicated
Loan
$m
Year ended 31 August 2014
Balance at beginning of year
5,824
Acquired during the year (5)
Proceeds from issues
667
760
96
-
65
Repayments
(1,744)
(94)
Deferred establishment costs
Amortisation of deferred costs
Foreign exchange translation
(2)
7
(2)
Balance at end of the year
5,510
-
-
(3)
64
430
-
628
(718)
-
-
(21)
319
271
76
-
-
-
-
-
1,059
293
223
118
741
(88)
-
-
-
-
-
-
-
1
-
-
-
(221)
(2,865)
-
1
(3)
-
(2)
9
(29)
8,364
347
1,830
294
(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) The Bank has reclassified its Transferable Deposits (“TD’s”) from Wholesale deposits for 31 August 2015 and has also reflected this in the 31 August 2014 comparative figures. The TD’s have been reclassified to Borrowings
to better reflect the underlying substance of the balances with contractual terms being on average greater than twelve months.
(3) 3,000,000 Convertible Preference Shares (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 the prior written approval from the Australian Prudential Regulation Authority (“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 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.
(4) On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes (“WCN”) at a price of $10,000 per note. WCN are non-cumulative and fully paid and are issued by the Bank on a perpetual, subordinated and unsecured
basis. They are not guaranteed or secured. In a winding up of the Bank, if capital notes have not been converted or written-off on account of a non-viability trigger event or capital trigger event, WCN will rank for payment
of capital ahead of ordinary shareholders, equally with other securities or instruments ranking equally with WCN, but behind all other securities or instruments ranking ahead of WCN, and behind all senior creditors. The
WCN may covert to ordinary shares of the Bank in certain circumstances, which include the occurrence of a non-viability event or a capital trigger event.
(5) Borrowings acquired during the 2014 year relate to the acquisition of BOQ Specialist Bank Limited formerly Investec Bank (Australia) Limited.
93
8,364
3,907
(3,664)
(7)
6
107
8,713
Total
$m
8,196
861
2,194
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.5. 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 (1)
$m
Transferable
Certificates of
Deposit (2)
$m
Convertible
Preference
Shares (3)
$m
Capital
Notes (4)
$m
Syndicated
Loan
$m
Total
$m
Year ended 31 August
2015
Balance at beginning of year
Proceeds from issues
Transfers from BOQ Specialist
64
29
-
319
88
-
Repayments
(18)
(355)
Deferred establishment costs
Amortisation of deferred
costs
Foreign exchange translation
Balance at end of the year
-
-
6
81
-
-
42
94
271
-
49
-
-
-
-
1,712
1,356
-
(110)
-
-
-
294
-
-
-
-
1
-
-
150
-
-
(2)
-
-
320
2,958
295
148
-
-
-
-
-
-
-
-
2,660
1,623
49
(483)
(2)
1
48
3,896
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes (1)
$m
Transferable
Certificates of
Deposit
$m
Convertible
Preference
Shares (3)
$m
Syndicated
Loan
$m
Total
$m
96
65
(94)
-
(3)
64
430
628
(718)
-
(21)
319
271
-
-
-
-
1,059
741
(88)
-
-
293
-
-
1
-
271
1,712
294
223
-
(221)
1
(3)
-
2,372
1,434
(1,121)
2
(27)
2,660
Year ended 31 August 2014
Balance at beginning of year
Proceeds from issues
Repayments
Amortisation of deferred costs
Foreign exchange translation
Balance at end of the year
(1) Convertible Notes were issued in 2014 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 with the final Tranche being Tranche 1, redeemed during the prior financial year.
(2) The Bank has reclassified its Transferable Deposits (“TD’s”) from Wholesale deposits for 31 August 2015 and has also reflected this in the 31 August 2014 comparative figures. The TD’s have been reclassified to Borrowings
to better reflect the underlying substance of the balances with contractual terms being on average greater than twelve months.
(3) 3,000,000 Convertible Preference Shares (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 the prior written approval from the Australian Prudential Regulation Authority (“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 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.
(4) On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes (“WCN”) at a price of $10,000 per note. WCN are non-cumulative and fully paid and are issued by the Bank on a perpetual, subordinated and unsecured
basis. They are not guaranteed or secured. In a winding up of the Bank, if capital notes have not been converted or written-off on account of a non-viability trigger event or capital trigger event, WCN will rank for payment
of capital ahead of ordinary shareholders, equally with other securities or instruments ranking equally with WCN, but behind all other securities or instruments ranking ahead of WCN, and behind all senior creditors. The
WCN may covert to ordinary shares of the Bank in certain circumstances, which include the occurrence of a non-viability event or a capital trigger event.
94
ANNUAL REPORT 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. 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. Liquidity
4.
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 management
The operations of the Consolidated Entity 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 Consolidated Entity’s assets and liabilities.
The figures in the table below indicate the potential increase in net interest income for an ensuing 12 month period of a 1% parallel shock increase to the yield
curve. A 1% decrease in the yield curve has an equal but opposite impact.
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
(ii) Foreign exchange risk
2015
%
0.68
(0.03)
1.73
(1.17)
2014
%
1.16
1.19
2.16
(0.03)
2015
$m
2014
$m
6
-
16
(11)
9
9
16
-
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.
95
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. Risk management (continued)
(iii) Traded market risk
Market risks attributable to trading activities are primarily measured using a parametric Value-at-Risk (“VaR”) model based on historical data. The Bank
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 future 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, foreign exchange, credit and equity sensitivities are monitored and measured against limits delegated
by the Asset-Liability Committee (“ALCO”) and approved by the Board Risk Committee.
The portfolio (interest rate, foreign exchange, credit and equity) VaR for the Bank’s trading portfolio for the year was as follows:
Trading VaR
Average
Maximum
Minimum
(b) Credit risk
2015
$m
0.71
1.61
0.23
2014
$m
0.65
1.33
0.28
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.
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.
96
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. Risk management (continued)
(b) Credit risk (continued)
(i) Maximum exposure to credit risk (continued)
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)
Total potential exposure to credit risk
(1) Refer to Note Section 6.2 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
2015
$m
1,103
91
4,826
225
6,245
41,391
47,636
1,498
49,134
2014
$m
1,034
93
6,399
160
7,686
38,882
46,568
1,898
48,466
2015
$m
553
19
4,993
162
5,727
37,091
42,818
624
43,442
Consolidated
Bank
2015
$m
40,056
6,245
2014
$m
37,459
7,686
2015
$m
35,899
5,727
2014
$m
397
15
5,882
132
6,426
32,266
38,692
1,024
39,716
2014
$m
31,004
6,426
Gross loans and advances at amortised cost
1,098
1,130
987
999
Impaired
Gross loans and advances at amortised cost
237
47,636
293
46,568
205
42,818
263
38,692
There is no individual exposure included in impaired assets which exceeds 5% of shareholders’ equity (2014: 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.
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 practical to determine the fair value of collateral held against performing loans.
Held against past due but not impaired assets
Held against impaired assets
Consolidated
Bank
2015
$m
1,482
159
2014
$m
1,593
202
2015
$m
1,415
142
2014
$m
1,486
186
97
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. Risk management (continued)
(b) Credit risk (continued)
(ii) Credit quality
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
2015
$m
2014
$m
Gross loans and advances
Gross loans and advances
Retail
Commercial
23,736
4,461
404
314
3,346
7,771
1,316
43
Total
loans and
advances
27,082
12,232
1,720
357
Financial
assets other
than loans
and advances
6,236
-
9
-
Retail
Commercial
22,771
3,540
412
404
2,980
7,368
1,367
40
Total
loans and
advances
25,751
10,908
1,779
444
Financial
assets other
than loans
and advances
7,677
-
9
-
28,915
12,476
41,391
6,245
27,127
11,755
38,882
7,686
Bank
2015
$m
2014
$m
Gross loans and advances
Gross loans and advances
Total
loans and
advances
Financial
assets other
than loans
and advances
Retail
Commercial
Retail
Commercial
23,736
4,461
404
314
2,634
4,911
588
43
26,370
9,372
992
357
5,549
108
70
-
22,611
3,413
412
404
1,540
3,255
591
40
Total
loans and
advances
24,151
6,668
1,003
444
Financial
assets other
than loans
and advances
6,294
81
51
-
28,915
8,176
37,091
5,727
26,840
5,426
32,266
6,426
High Grade
Satisfactory
Weak
Unrated (1)
High Grade
Satisfactory
Weak
Unrated (1)
(1) Loans and advances which have been classified as unrated are not secured, however these are not deemed to be weak. All other loans and advances have been included in the appropriate category.
98
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. Risk management (continued)
(b) Credit risk (continued)
(iii) 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
2015
$m
2014
$m
2015
$m
2014
$m
385
235
148
73
163
94
445
229
174
60
146
76
1,098
1,130
385
156
148
47
163
88
987
445
130
174
34
146
70
999
(iv) 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):
Queensland
New South Wales
Victoria
Northern Territory
Australian Capital Territory
Western Australia
South Australia
Tasmania
International (New Zealand)
Consolidated
Bank
2015
$m
20,954
8,253
6,608
306
315
4,040
481
192
242
2014
$m
20,912
6,904
6,185
260
314
3,519
370
183
235
2015
$m
19,524
7,091
5,683
301
280
3,671
355
186
-
2014
$m
18,900
4,949
4,854
255
241
2,778
111
178
-
41,391
38,882
37,091
32,266
99
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. 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
2015
Financial liabilities
Due to other financial institutions
Deposits
Derivative financial instruments (1)
Accounts payable and other
liabilities
Securitisation liabilities (2)
Borrowings including
subordinated notes
Insurance policy liabilities
Total
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
2014
Financial liabilities
Due to other financial institutions
Deposits
Derivative financial instruments (1)
Accounts payable and other
liabilities
Securitisation liabilities (2)
Borrowings including
subordinated notes
Insurance policy liabilities
Total
Carrying
amount
$m
259
34,732
21
390
4,812
3,901
41
44,156
-
-
86
-
-
-
Carrying
amount
$m
207
34,106
5
399
5,510
2,854
63
43,144
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
Policyholder
$m
259
11,984
-
12,406
-
-
-
-
-
9
390
311
40
-
-
9,794
7
-
1,343
1,083
-
12,243
13,156
12,227
-
-
-
287
1,211
1,498
447
(438)
9
-
-
-
559
(534)
25
-
-
-
-
990
10
-
2,667
3,112
-
6,779
757
(666)
91
-
-
-
-
12
2
-
931
-
-
945
339
(313)
26
-
-
-
-
-
-
-
-
-
41
41
-
-
-
-
-
-
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
Policyholder
$m
207
11,297
-
13,958
-
-
-
-
-
2
399
933
85
-
-
8,210
2
-
-
1,215
2
-
1,693
2,549
508
-
2,426
-
6,192
-
17
-
-
871
-
-
888
-
-
-
-
-
-
63
63
11,504
15,377
10,413
Total
contractual
cash flows
$m
259
35,186
28
390
5,252
4,235
41
45,390
2,102
(1,951)
151
287
1,211
1,498
Total
contractual
cash flows
$m
207
34,697
6
399
6,046
3,019
63
44,437
(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.
100
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. Risk management (continued)
(c) Liquidity risk (continued)
Carrying
amount
$m
-
-
113
-
-
-
Consolidated
2014
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
2015
Financial liabilities
At Call
$m
3 mths or less
$m
3 to 12 mths
$m
1 to 5 years
$m
Over 5 years
$m
Policyholder
$m
-
-
-
420
(408)
12
774
(737)
37
827
(725)
102
396
(321)
75
-
-
-
-
-
-
-
-
-
-
-
-
252
1,646
1,898
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
Total
contractual
cash flows
$m
2,417
(2,191)
226
252
1,646
1,898
Total
contractual
cash flows
$m
-
-
-
-
-
-
Due to other financial institutions
259
259
-
-
Deposits
35,378
12,626
12,406
9,794
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings including subordinated notes
Amounts due to controlled entities
21
345
3,896
907
-
-
-
907
9
345
40
-
7
-
1,083
-
Total
40,806
13,792
12,800
10,884
Derivative financial instruments
(hedging relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters of credit
Customer funding commitments
-
-
135
-
-
-
-
-
-
287
337
624
437
(431)
6
-
-
-
447
(433)
14
-
-
-
(1) Derivative financial instruments other than those designated in a cashflow hedge relationship.
-
990
10
-
3,112
-
4,112
660
(577)
83
-
-
-
-
12
2
-
-
-
259
35,828
28
345
4,235
907
14
41,602
162
(75)
87
-
-
-
1,706
(1,516)
190
287
337
624
101
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. Risk management (continued)
(c) Liquidity risk (continued)
Bank
2014
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
Total
contractual
cash flows
$m
Due to other financial institutions
207
207
-
-
Deposits
32,357
11,330
12,914
7,544
-
988
2
-
2,366
-
2
337
84
-
2
-
485
-
13,337
8,031
3,356
310
(315)
(5)
-
-
-
709
(678)
31
-
-
-
697
(618)
79
-
-
-
-
-
-
-
-
-
-
208
(117)
91
-
-
-
207
32,776
6
337
2,935
1,224
37,485
1,924
(1,728)
196
227
797
1,024
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings including subordinated notes
Amounts due to controlled entities
Total
Derivative financial instruments (hedging
relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters of credit
Customer funding commitments
5
337
2,660
1,224
36,790
-
-
100
-
-
-
-
-
-
1,224
12,761
-
-
-
227
797
1,024
(1) Derivative financial instruments other than those designated in a cashflow hedge relationship.
102
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.6. Risk management (continued)
(d) 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 subsidiaries issue consumer credit insurance, term life insurance, funeral insurance, accidental death insurance and motor vehicle gap
insurance contracts. The performance of the Bank’s insurance subsidiaries and its continuing ability to write business depends on its ability to pre-empt and
control risks. The Bank’s insurance subsidiaries have a risk management strategy which has been approved by their respective Boards. 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 subsidiaries.
(iii) Methods to limit or transfer insurance risk exposures
Reinsurance
The insurance subsidiaries use reinsurance arrangements to pass on or cede to reinsurers, risks that are outside of the subsidiary’s risk appetite.
Underwriting procedures
Strategic underwriting decisions are put into effect using the underwriting procedures detailed in the Bank’s insurance subsidiaries 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 subsidiaries have a mix of short and long term business
and invests accordingly. Market risk is managed through investing in cash and deposits and bank issued commercial bills. 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.
(e) Concentration of insurance risk
(i) Insurance risks associated with human life events
The Bank’s insurance subsidiaries aim 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.
103
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.7. Financial instruments
(a) Financial instrument classifications
In addition to Loans and Advances and financial liabilities at amortised cost the Bank classifies its financial instruments into one of the following four categories
upon initial recognition:
(i) Financial assets held for trading
Financial assets that are held as part of the Bank’s Trading Book (refer Section 3.3) 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.
(ii) Available-for-sale financial assets
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 section 3.4), 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.
(iii) 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.
(iv) Derivative financial instruments
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. Refer to Section 3.8 for further information on Derivative Financial Instruments.
(b) Fair value of financial instruments
The financial assets and liabilities listed below are recognised and measured at fair value and therefore their carrying value equates to their fair value:
• Available-for-sale financial assets;
•
Financial assets and liabilities designated at fair value through the profit and loss; and
• Derivatives.
The fair value estimates for instruments carried at amortised cost 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.
104
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.7. Financial instruments (continued)
(c) Comparison of fair value to carrying amounts
The table below discloses the fair value of financial instruments where their carrying value is not a reasonable approximation of their fair value:
Assets carried at amortised cost
Loans and advances at amortised cost
3.4
Section
Liabilities carried at amortised cost
Deposits
Borrowings including subordinated notes
3.2
3.5
Assets carried at amortised cost
Loans and advances at amortised cost
3.4
Liabilities carried at amortised cost
Deposits
Borrowings including subordinated notes
3.2
3.5
Consolidated Entity
Carrying value
Fair value
2015
$m
40,703
40,703
(34,732)
(8,713)
(43,445)
2014
$m
38,136
38,136
(34,106)
(8,364)
(42,470)
2015
$m
40,829
40,829
(34,769)
(8,715)
(43,484)
Bank
Carrying value
Fair value
2015
$m
36,830
36,830
(35,378)
(3,896)
(39,274)
2014
$m
32,035
32,035
(32,357)
(2,660)
(35,017)
2015
$m
36,893
36,893
(35,415)
(3,897)
(39,312)
2014
$m
38,197
38,197
(34,120)
(8,369)
(42,489)
2014
$m
32,068
32,068
(32,252)
(2,783)
(35,035)
The estimated fair values disclosed do not include the assets and liabilities that are not financial instruments.
105
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.7. Financial instruments (continued)
(d) Fair value hierarchy
The Consolidated Entity measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the
measurements:
•
•
•
Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments.
Level 2: inputs other than quoted prices included within level 1 that are observable either directly or indirectly.
Level 3: inputs that are unobservable i.e. there is no observable market data.
The table below analyses financial instruments carried at fair value, by valuation method. The fair value hierarchy classification of instruments in Section 3.7 (c)
is Loans and advances level 3, Deposits and Borrowings including subordinated notes level 2.
There were no material movements in Level 3 during the year.
Consolidated Entity
Instruments carried at fair value
Available-for-sale financial assets
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
Consolidated Entity
Instruments carried at fair value
Available-for-sale financial assets
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
Bank
Instruments carried at fair value
Available-for-sale financial assets
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
106
2015
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
1,149
-
-
1,149
-
1,149
1,669
1,940
225
3,834
(297)
3,537
2014
Level 1
$m
Level 2
$m
Level 3
$m
1,893
-
-
1,893
-
1,893
1,962
2,473
160
4,595
(249)
4,346
2015
Level 1
$m
Level 2
$m
Level 3
$m
1,149
-
-
1,149
-
1,149
1,838
1,940
162
3,940
(283)
3,657
9
-
-
9
-
9
9
-
-
9
-
9
9
-
-
9
-
9
2,827
1,940
225
4,992
(297)
4,695
Total
$m
3,864
2,473
160
6,497
(249)
6,248
Total
$m
2,996
1,940
162
5,098
(283)
4,815
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.7. Financial instruments (continued)
(d) Fair value hierarchy (continued)
Bank
Instruments carried at fair value
Available-for-sale financial assets
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
2014
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
1,255
-
-
1,255
-
1,255
2,085
2,473
132
4,690
(207)
4,483
9
-
-
9
-
9
3,349
2,473
132
5,954
(207)
5,747
(e) Master netting or similar arrangements
There have been no financial assets or financial liabilities offset in the balance sheets. The Consolidated Entity has netting arrangements in place with counter
parties on Derivative Financial Instruments and the effects of these netting arrangements if they were to be applied in the balance sheets has been disclosed
at Section 3.8(b).
(f) Impairment of financial instruments policy
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 of 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.
(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.
(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.
107
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.8. Derivative Financial Instruments
(a) Accounting for derivatives
The Consolidated Entity and Bank used derivative financial instruments for both hedging and trading purposes in the current year. Refer to Section 3.6(a) for
an explanation of the Consolidated Entity’s and Bank’s risk management framework.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.
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.
Fair value hedges
Where an effective hedge relationship is established, fair value gains or losses on the hedging instrument are recognised in profit or loss. The hedged item
attributable to the hedged risk is carried at fair value with the gain or loss recognised in profit or loss. When a hedge relationship no longer meets the criteria for
hedge accounting, the hedged item is accounted for under the effective interest method from that point and any accumulated adjustment to the carrying value
of the hedged item from when it was effective is released to profit or loss over the period to when the hedged item will mature.
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.
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.
(b) Master netting or similar arrangements
The Consolidated Entity enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. Amounts
owed by each counterparty are aggregated into a single net amount that is payable by one party to another. The Consolidated Entity receives and gives collateral
in the form of cash in respect of derivatives and such collateral is subject to standard industry terms. The Consolidated Entity has not offset these amounts in the
Balance Sheets as their ISDA agreements do not meet the criteria to do so. The Consolidated Entity has no current legally enforceable right to offset recognised
amounts, because the right to offset is enforceable only on the occurrence of future events. The Consolidated Entity normally settles on a net basis or realises
the derivative assets and liabilities simultaneously.
The following table sets out the effect of netting arrangements on derivative financial assets and derivative financial liabilities if they were to be applied.
2015
Gross amounts as
presented in the
Balance Sheets
Net amounts of
recognised assets
and liabilities if offset
Cash collateral
Net amounts if
offsetting applied in
the balance sheets
225
(297)
(102)
102
(10)
162
113
(33)
Consolidated
Derivative financial assets
Derivative financial liabilities
108
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.8. Derivative Financial Instruments (continued)
(b) Master netting or similar arrangements (continued)
Consolidated
Derivative financial assets
Derivative financial liabilities
Bank
Derivative financial assets
Derivative financial liabilities
Bank
Derivative financial assets
Derivative financial liabilities
(c) Fair value of derivatives
2014
Gross amounts as
presented in the Balance
Sheets
Net amounts of
recognised assets and
liabilities if offset
Cash collateral
Net amounts if
offsetting applied in the
balance sheets
160
(249)
(84)
84
2015
-
51
76
(114)
Gross amounts as
presented in the
Balance Sheets
Net amounts of
recognised assets
and liabilities if offset
Cash collateral
Net amounts if
offsetting applied in
the balance sheets
162
(283)
(102)
102
(10)
162
50
(19)
2014
Gross amounts as
presented in the Balance
Sheets
Net amounts of
recognised assets and
liabilities if offset
Cash collateral
Net amounts if
offsetting applied in the
balance sheets
132
(207)
(85)
83
-
51
47
(73)
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 estimated using net present value techniques. The table below sets out the fair values of the
derivative financial instruments at 31 August 2015.
Consolidated
2014
Fair Value
Asset / (Liability)
Asset
$m
Liability
$m
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
2015
Notional
Amount
Fair Value
Asset / (Liability)
$m
16,023
249
15,331
31,603
35,243
421
344
36,008
Asset
$m
Liability
$m
22
7
6
35
111
70
9
190
(15)
(6)
-
(21)
(125)
(15)
-
(140)
Notional
Amount
$m
21,491
261
12,720
34,472
29,513
578
387
24
1
5
30
99
30
1
30,478
130
(11)
(2)
-
(13)
(174)
(44)
(18)
(236)
109
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.8. Derivative Financial Instruments (continued)
(c) Fair value of derivatives (continued)
Derivatives designated as fair value
hedges
Interest Rate Swaps
Derivatives designated as net investment
hedges
Foreign Exchange Forwards
Consolidated
2015
Notional
Amount
Fair Value
Asset / (Liability)
$m
Asset
$m
Liability
$m
Notional
Amount
$m
2014
Fair Value
Asset / (Liability)
Asset
$m
Liability
$m
835
29
-
-
(136)
-
-
17
-
-
-
-
68,475
225
(297)
64,967
160
(249)
Bank
2015
2014
Notional Amount
Fair Value
Asset / (Liability)
Notional Amount
Fair Value
Asset / (Liability)
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 fair value
hedges
$m
16,023
278
15,331
31,632
34,877
153
344
35,374
Asset
$m
Liability
$m
$m
Asset
$m
Liability
$m
22
7
6
35
110
8
9
127
(15)
(6)
-
(21)
(119)
(7)
-
20,916
423
12,720
34,059
29,513
159
387
(126)
30,059
24
2
5
31
99
-
2
101
(4)
(1)
-
(5)
(174)
(10)
(18)
(202)
Interest Rate Swaps
835
-
(136)
-
-
-
67,841
162
(283)
64,118
132
(207)
110
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.9. Capital management
The Bank and Consolidated Entity’s capital management strategy aims to ensure adequate capital levels are maintained to protect deposit holders and to
maximise shareholder return. The Bank’s capital is measured and managed in line with Prudential Standards issued by APRA. The capital management plan is
updated annually and submitted to the Board for approval. The approval process is designed to ensure the plan is consistent with the overall business plan and
for managing capital levels on an ongoing basis.
The Board has set the Common Equity Tier 1 capital target range to be between 8.0% and 9.0% of risk weighted assets and the total capital range to be between
11.5% and 12.5% of risk weighted assets. As at August 2015:
•
•
Common Equity Tier 1 capital was 8.9%; and
Total capital adequacy ratio was 12.7%.
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
Goodwill and intangibles
Deferred expenditure
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
Net Tier 2 Capital
Capital Base
Risk Weighted Assets
Capital Adequacy Ratio
Prepared in accordance with APS 110.
Consolidated
2015
$m
3,122
36
254
3,412
(848)
(142)
(76)
(1,066)
2,346
450
2,796
324
227
551
3,347
26,321
12.7%
2014
$m
3,021
58
207
3,286
(825)
(122)
(178)
(1,125)
2,161
300
2,461
340
208
548
3,009
25,032
12.0%
111
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
3.10. Capital and reserves
(a) Ordinary shares
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share rights are recognised as a deduction
from equity, net of any tax effects.
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.
Consolidated
Bank
2015
Number
2014
Number
2015
Number
2014
Number
Movements during the year
Balance at the beginning of the year – fully paid
362,516,835
319,810,294
362,516,835
319,810,294
Dividend reinvestment plan
BOQ Specialist Bank Limited (1)
Issues of ordinary shares (2)
7,351,941
5,437,296
7,351,941
5,437,296
-
37,269,245
-
37,269,245
900,000
-
900,000
-
Balance at the end of the year – fully paid
370,768,776
362,516,835
370,768,776
362,516,835
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
297,579
191,936
489,515
162,371
135,208
297,579
-
-
-
29,851
(29,851)
-
(1) In the prior year, the Bank acquired 100% of BOQ Specialist Bank Limited formerly Investec Bank (Australia) Limited. $210 million of the consideration was financed through the issue of new shares by way of Institutional
Entitlement and Retail Entitlement offers.
(2) On 24 October 2014, the Bank issued 900,000 ordinary shares at $12.29 to the trustee of the BOQ Employee Share Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights Plan and
issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
Terms and conditions
Holders of ordinary shares are entitled to receive dividends as determined 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.
(b) 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 Section 6.1 for further details of these plans.
Equity reserve for credit losses
Refer to significant accounting policies Section 6.10 (g).
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 Section 3.7 (a)(ii) 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 Section 3.8 (a). Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss.
112
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
SECTION 4. OTHER ASSETS AND LIABILITIES
4.1. Intangible assets
Consolidated
Customer
related
intangibles
and brands
$m
Computer
software
$m
Bank
Other
$m
Total
$m
Goodwill
$m
Customer
contracts
$m
Computer
software
$m
Other
$m
Total
$m
Cost
Balance as at
1 September 2013
Additions (1)
Disposals
Balance as at 31 August
2014
Balance as at 1 September
2014
Additions
Disposals
Balance as at
31 August 2015
Amortisation and
impairment losses
Balance as at 1 September
2013
Amortisation for the year
Disposals
Balance as at
31 August 2014
Balance as at
1 September 2014
Amortisation for the year
Disposals
Impairment
Balance as at
31 August 2015
Carrying amounts
Carrying amount as at
1 September 2013
Carrying amount as at
31 August 2014
Carrying amount as at
31 August 2015
Goodwill
$m
488
187
-
675
107
23
-
130
675
130
-
-
-
-
675
130
-
-
-
-
-
-
-
-
-
488
675
675
74
10
-
84
84
11
-
-
95
33
46
35
231
56
(5)
282
282
59
(31)
310
163
15
(1)
177
177
17
(29)
10
175
68
105
135
9
1
-
835
267
(5)
10
1,097
10
3
-
13
6
2
-
8
8
2
-
-
10
3
2
3
1,097
62
(31)
1,128
243
27
(1)
269
269
30
(29)
10
280
592
828
848
8
-
-
8
8
-
-
8
-
-
-
-
-
-
-
-
-
8
8
8
5
-
-
5
5
-
-
5
5
-
-
5
5
-
-
-
5
-
-
-
219
47
(4)
262
262
55
(29)
288
157
13
(1)
169
169
15
(29)
10
165
62
93
123
4
1
-
5
5
3
-
8
3
1
-
4
4
2
-
-
6
1
1
2
236
48
(4)
280
280
58
(29)
309
165
14
(1)
178
178
17
(29)
10
176
71
102
133
(1) Prior year balances have been restated. Refer to Section 1.4.
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.
113
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
4.1. Intangible assets (continued)
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. 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 and 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. The amortisation rates used in the current and comparative periods are as follows:
Computer software
Customer related intangibles and brands
Impairment
Years
3-15
3-12
As part of the Bank’s periodic assessment of the carrying value of intangible assets, impairment indicators were identified with respect to specific internally
generated software development projects. These projects focused on customer relationship management with the impairment indicators identified being the
failure of the projects to meet operational and regulatory requirements. As a result, detailed reviews were conducted and the recoverable amounts ascertained
were lower than the carrying amount.
The recoverable amount of nil was determined at an individual asset level and based on value in use. The Bank has subsequently raised an impairment of $10
million, which has been recognised in the profit and loss in the current reporting period.
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.
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. The aggregate carrying amounts of goodwill are:
BOQ Equipment Finance Limited
Orix debtor finance division
Pioneer Permanent Pty Ltd
BOQ Home Limited
Virgin Money (Australia) Pty Limited
BOQ Specialist (Aust) Limited (formerly BOQ Specialist Bank Limited) (1)
(1) Prior year balances have been restated. Refer to Section 1.4.
Impairment testing of the cash generating units containing goodwill
Consolidated
Bank
2015
$m
2014 (1)
$m
2015
$m
2014
$m
13
8
24
400
43
187
675
13
8
24
400
43
187
675
-
8
-
-
-
-
8
-
8
-
-
-
-
8
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. The excess of the recoverable
amount over the carrying amount was $1,231 million (2014: $641 million).
Value in use was determined by discounting the future cash flows generated from the continued use of the CGU. The values assigned to the key assumptions
represent management’s assessments of future trends in retail banking and are based on both external and internal sources. Below are the key assumptions
used in determining value in use:
• Cash flows were initially based on the banking segment’s 5 year projections (2014: 3 years);
• Subsequent cash flows were extrapolated beyond the 5 year projections at a medium term growth rate of 5% (2014: 9%);
• An exit value has been calculated at the end of year 10 based on a terminal earnings multiple of 12.0 (2014: 11.7) and a long term growth rate of 3%
(2014: 3%); and
• A pre-tax discount rate of 14.3% (2014: 15.8%) was used.
114
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
4.2. 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. The carrying amounts of the provisions recognised are:
Employee benefits (1)
Leases
Product Review (2)
Provision for non-lending loss (3)
Other (4)
Total
Consolidated
Bank
2015
$m
2014
$m
2015
$m
2014
$m
23
3
3
25
8
62
22
5
36
34
7
104
20
2
3
25
-
50
15
3
36
34
-
88
(1) Employee benefits provisions consist of annual leave and long service leave entitlements for employees.
(2) Product review provision for customer refunds and review costs.
(3) Included within the Non-lending losses provision is $21.4m (2014: $31.5m) in respect of the Storm Financial settlement. On 22 September 2014, the Bank announced an agreement to settle the outstanding Storm
Financial proceedings which had been brought against the Bank by the Australia Securities and Investment Commission (ASIC) and a class action on behalf of borrowers advised by Storm Financial. On 16 December 2014
the Federal Court approved the deed of settlement between the Bank and the lead applicants. This settlement concluded the legal proceedings of both the outstanding Storm Financial proceedings against the Bank. The
Bank has commenced the payment of settlement amounts during the financial year.
(4) Other provisions relate to insurance claims reserves.
Movements in provisions
Movements in each class of provision during the year, other than employee benefits, are as follows:
2015
Carrying amount at beginning of year
Additional provision recognised
Amounts utilised during the year
Transfers from BOQ Specialist Limited
Carrying amount at end of year
Consolidated
Bank
Leases
$m
Product
Review
$m
Non-lending
loss
Other
$m
Leases
$m
Product
Review
$m
Non-lending
loss
Other
$m
5
3
(5)
-
3
36
-
(33)
-
3
34
4
(13)
-
25
7
2
(1)
-
8
3
2
(3)
-
2
36
-
(33)
-
3
33
4
(13)
1
25
-
1
(1)
-
-
115
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
SECTION 5. INSURANCE BUSINESS
5.1. Insurance business
(a) Basis of preparation
The effective date of the actuarial report on life insurance policy liabilities and regulatory capital requirements is 31 August 2015. 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 and general insurance contracts are determined in accordance with
AASB 1038 Life Insurance Contracts and AASB 1023 General Insurance Contracts respectively, and LPS: 340 Valuation of Policy Liabilities. These require 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.
Accumulation methods have been used to estimate the policy liabilities, as the provision for unearned premium reserve less a deferred acquisition cost
component. Outstanding claims liabilities and Incurred But Not Reported (IBNR) liabilities 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.
(b) 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 2015, 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
Morbidity 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’s equity.
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 shareholder
equity.
116
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
5.1. Insurance business (continued)
(c) Reconciliation of movements
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
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
2015
$m
2014
$m
52
(20)
32
(2)
1
(1)
31
(19)
55
(24)
31
8
2
10
41
61
(9)
52
(2)
-
(2)
50
(9)
76
(26)
50
12
1
13
63
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.
117
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
5.1. Insurance business (continued)
(d) Life Insurance Regulatory Capital requirements (continued)
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.
2015
2014
Statutory Fund
No. 1
$m
Shareholders’
Fund
$m
Statutory Fund
No. 1
$m
Shareholders’
Fund
$m
2015
$m
29
(9)
20
1
2
3
17
7
29
(9)
20
3
7
10
10
2
2014
$m
1
-
1
-
-
-
1
88
30
(9)
21
3
7
10
11
2
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
28
(9)
19
1
2
3
16
6
1
-
1
-
-
-
1
60
Composition of capital Base
Common equity tier 1 capital
Subtract regulatory adjustments to common equity tier 1 capital
Total capital base
Prescribed Capital Amount
Statutory Fund No. 1
Additional amount to meet company minimum
Total prescribed capital amount
Assets in excess of prescribed capital amount
Capital adequacy multiple
118
ANNUAL REPORT 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
5.1. Insurance business (continued)
(d) Life Insurance Regulatory Capital requirements (continued)
Disaggregated information life insurance (before consolidation adjustments)
Summarised Statement of Profit and Loss and Other Comprehensive Income
2015
$m
2014
$m
Revenue
Life insurance premium revenue
Investment income
Net life insurance revenue
Expenses
Net claims and other liability expense from insurance contracts
Other expenses
Profit before income tax
Income tax expense
Profit after income tax
Statement of Sources of Profit for Statutory Funds
Operating profit after income tax arose from:
Components of profit related to movement in life insurance liabilities:
Planned margins of revenues over expenses released
Difference between actual and assumed experience
Investment earnings on assets in excess of life insurance policy liabilities and provision
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.
41
3
44
18
5
23
21
(6)
15
15
(1)
1
82
3
85
28
28
56
29
29
56
4
60
27
5
32
28
(9)
19
17
1
1
99
2
101
47
24
71
30
30
119
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
5.1. Insurance business (continued)
(e) Accounting policy
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.
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 340:
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 cash 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.
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:
•
•
cost estimates for losses reported to the close of the financial year; and
estimated incurred, but not reported losses, based upon past 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.
120
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
5.1. Insurance business (continued)
(e) Accounting policy (continued)
Critical Accounting Judgements and Estimates:
The Consolidated Entity’s insurance subsidiaries make 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.
Policy liabilities
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:
•
•
•
The cost of providing benefits and administering these insurance contracts;
Mortality and morbidity experience on life insurance products, 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.
121
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
SECTION 6. OTHER NOTES
6.1. Employee benefits
(a) Superannuation commitments
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.
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 Section 2.2.
(b) Share based payments
The Consolidated Entity currently operates an Award Rights Plan for equity-settled compensation. The plan allows Consolidated Entity employees to acquire shares
in the Bank. The fair value of 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 rights. The fair value of the rights granted
is measured using industry accepted pricing methodologies, taking into account the terms and conditions upon which the rights are granted. The fair value of the
rights is expensed over the vesting period. Where rights do not vest due to failure to meet a non market condition (e.g. employee service period) the expense is
reversed. Where rights do not vest due to failure to meet a market condition (e.g. Total Shareholder Return test) the expense is not reversed.
(i) Description of share based payments
Long-Term Incentives - Award Rights
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.
(ii) Award rights on issue
The number of award rights and restricted shares on issue is as follows:
Deferred Award Rights
Performance Award Rights
Restricted Shares
2015
’000
941
621
(122)
(354)
1,086
2014
’000
1,029
408
(39)
(457)
941
2015
’000
2,198
809
(223)
(271)
2,513
2014
’000
1,462
904
(90)
(78)
2,198
2015
’000
2014
’000
197
163
-
(98)
262
29
198
-
(30)
197
Balance at beginning of the year
Granted during the year
Forfeited / expired during the year
Exercised during the year
Outstanding at the end of the year
122
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.1. Employee benefits (continued)
(b) Share based payments (continued)
(iii) Measurement of fair values
The fair value of the PARs and DARs has been measured using the trinomial pricing methodology.
Restricted shares have been valued based on the volume weighted average price of ordinary shares in BOQ sold on the ASX during a 10 day trading period. The
shares vest on the respective expiry dates and meeting certain service conditions.
The weighted average of the inputs used in the measurements at grant date of the long-term incentive award rights were as follows:
Fair value at grant date
Share price at grant date
Expected volatility
Risk free interest rate
Dividend yield
6.2. Commitments
(a) Lease commitments
Deferred award rights
Performance award rights
Restricted shares
2015
$9.28
$10.57
30.4%
2.7%
6.3%
2014
$7.64
$8.82
36.5%
2.9%
7.1%
2015
$5.28
$10.11
28.1%
2.8%
5.8%
2014
$5.00
$9.08
31.7%
2.9%
6.2%
2015
$11.65
$11.65
23.8%
2.7%
5.0%
2014
$11.43
$11.43
25.2%
2.8%
5.0%
Consolidated
Bank
2015
$m
2014
$m
2015
$m
2014
$m
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
Guarantees, indemnities and letters of credit
Customer funding commitments
39
81
90
210
287
1,211
1,498
40
91
99
230
252
1,646
1,898
39
81
90
210
287
337
624
35
87
99
221
227
797
1,024
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.
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.
123
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.3. Contingent liabilities
While no proceedings have been brought against the Bank, there is the potential that proceedings may be brought against the Bank arising from the affairs of
the Sherwin group of companies, including Wickham Securities Limited (in Liquidation), Sherwin Financial Planners Pty Ltd (in Liquidation), DIY Superannuation
Services Pty Ltd (in Liquidation) and certain of their related entities, with respect to the operation of some of the Bank’s Money Market Deposit Accounts. It is
currently not practicable for the Bank to provide an estimate of any liability in relation to any proceedings as no proceedings have been brought against the Bank.
6.4. Related parties information
(a) Controlled entities
Details of interests in material controlled entities are set out in Section 6.5.
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, BOQ Finance (NZ) Ltd, Dell Financial Services Pty Ltd, and Virgin Money (Australia) Pty Limited 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 joint ventures, refer to Section 6.7.
(b) Key management personnel compensation
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.
Key management personnel compensation included in ‘administrative expenses’ and ‘employee expenses’ (refer to Section 2.2) is as follows:
Short-term employee benefits
Post-employment benefits
Long term employee benefits
Termination benefits
Share based employment benefits
Consolidated and Bank
2015
$
2014
$
8,694,677
9,599,506
298,656
30,694
762,892
4,001,545
13,788,464
298,792
25,703
-
5,192,081
15,116,082
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 Remuneration Report, 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.
124
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.4. Related parties information (continued)
(c) 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 key 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.
The following are transactions undertaken between the Consolidated Entity and key management personnel as at 31 August 2015:
Balance as at
For the period (1)
1 September
2014 (2)
$
31 August 15
$
Total Loan
Repayments
$
Total Loan
Redraws /
Further
Advances
$
Total Loan /
Overdraft
interest
$
Total Fees on
Loans /
Overdraft
$
Term Products (Loans / Advances)
(1,479,341)
(2,535,149)
1,177,622
1,278,465
62,105
360
Balance as at
For the period (1)
1 September
2013
$
31 August 14
$
Total Loan
Repayments
$
Total Loan
Redraws /
Further
Advances
$
Total Loan /
Overdraft
interest
$
Total Fees on
Loans /
Overdraft
$
Term Products (Loans / Advances)
(2,292,172)
(3,619,345)
791,954
(1,965,439)
(153,368)
(320)
(1) Amounts are included only for the period that the Director / Executive is classified as a member of the key management personnel.
(2) Balance as at 1 September 2014 will not equal 31 August 2014 closing balance due to changes in key management personnel during the year.
Other transactions
Transactions between the Consolidated Entity and key management personnel (other than loans/advances and shares) during the financial year related to
personal banking, investment and deposit transactions. These transactions are considered trivial or domestic in nature, were on normal commercial terms and
conditions and in the ordinary course of business.
On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes at a price of $10,000 per note. Details of those notes issued to BOQ Directors are set out
below:
Roger Davis
David Willis
Total
Balance at
31 August 2015
$
Interest receivable
$
Highest balance
during the year
$
200,000
70,000
270,000
2,452
858
3,310
202,452
70,858
273,310
Transactions between the Consolidated Entity and other related parties of key management personnel relate to loans on normal commercial terms and conditions.
Details of loans outstanding at the reporting date to other related parties of Directors and Senior Executives are as follows:
2015
Interest paid
and
payable
during
the year
$
Balance at
1 September
2014
$
Balance
at
31 August
2015
$
Highest
balance
during
the year
$
Balance at
1 September
2013
$
2014
Interest paid
and
payable
during
the year
$
Balance
at
31 August
2014
$
Highest
balance
during
the year
$
Richard Haire Related Party
191,000
Jon Sutton Related Party
-
9,149
3,023
191,000
147,448
191,777
150,000
191,000
9,148
191,000
191,777
-
-
-
-
125
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.5. Controlled Entities
(a) Particulars in relation to material controlled entities
The Group’s principal subsidiaries at 31 August 2015 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that
are held directly by the Group. The Bank owns 100% of all subsidiaries with nil ownership interest held by non-controlling interests. The country of incorporation
or registration is also their principal place of business.
Place of
business/country
of incorporation
Parent entity’s
interest
Amount of investment
(at cost)
Principal activities
2015
%
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%
2014
%
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%
Controlled entities:
B.Q.L. Management Pty. Ltd.
B.Q.L. Nominees Pty. Ltd.
B.Q.L. Properties Pty Ltd (1)
Queensland Electronic Switching Pty Ltd
BOQ Equipment Finance Limited
St Andrew’s Australia Services Pty Ltd
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 Pty Ltd (2)
BOQ Home Pty Ltd (3)
Home Financial Planning Pty Ltd
Home Credit Management Pty Ltd (4)
Statewest Financial Services Pty Ltd (5)
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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Newcourt Financial (Australia) Pty Limited
Australia
(1) Entity was formerly known as B.Q.L Properties Limited.
(2) Entity was formerly known as Pioneer Permanent Limited.
(3) Entity was formerly known as BOQ Home Limited.
(4) Entity was formerly known as Home Credit Management Limited.
(5) Entity was formerly known as Statewest Financial Services Limited.
126
-
5
-
-
15
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2015
$m
2014
$m
-
5
-
-
Trust management
Dormant
Dormant
Dormant
15
Asset Finance & Leasing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Insurance
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Dormant
Investment holding entity
Dormant
Investment holding entity
Dormant
Dormant
Trust management
Trust management
Life Insurance
General Insurance
60
600
60
600
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
230
230
Asset Finance & Leasing
-
-
22
-
-
-
22
-
Asset Finance & Leasing
Asset Finance & Leasing
Asset Finance & Leasing
Dormant
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.5. Controlled Entities (continued)
(a) Particulars in relation to material controlled entities (continued)
Controlled entities:
Dell Financial Services Pty Ltd (1)
Hunter Leasing Pty Ltd (2)
Virgin Money (Australia) Pty Limited
Virgin Money Home Loans Pty Limited
Virgin Money Financial Services Pty Ltd
BOQ Specialist (Aust) Limited (3)
BOQ Specialist Pty Ltd
BOQ Asset Finance and Leasing Pty Ltd
Impala Trust No. 1
Nyala Funding Trust CMBS 2013-1
Nyala Funding Trust No.1
Series 2014-1 EHP REDS Trust
Series 2015-1 REDS Trust
Place of business/
country of
incorporation
Parent entity’s
interest
Amount of investment
(at cost)
Principal activities
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2015
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
2014
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
-
2015
$m
2014
$m
-
-
43
-
-
-
-
43
-
-
567
552
1
-
-
-
-
-
-
-
-
-
-
-
-
-
1,543
1,527
Asset Finance & Leasing
Dormant
Financial services
Dormant
Financial services
Professional Finance and
Asset Finance & Leasing
Professional Finance
Asset Finance & Leasing
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
(1) Entity was formerly known as Equipment Rental Billing Services Pty Ltd.
(2) Entity was formerly known as Hunter Leasing Limited.
(3) Following the surrender of its Authorised Deposit-taking Institution license on 1 June 2014, this entity was renamed from BOQ Specialist Bank Limited to BOQ Specialist (Aust) Limited.
(b) Significant restrictions
In accordance with Prudential Standard APS 222 Associations with related entities, the Bank and its subsidiaries that form part of the Extended Licensed Entities
are restricted from having unlimited exposures to related entities, including general guarantees. These related entities are as follows:
•
•
•
Virgin Money (Australia) Pty Limited;
Virgin Money Home Loans Pty Limited;
Virgin Money Financial Services Pty Ltd;
• St Andrew’s Australia Services Pty Ltd;
• St Andrew’s Life Insurance Pty Ltd;
• St Andrew’s Insurance (Australia) Pty Ltd;
• BOQ Specialist (Aust) Limited (Formerly BOQ Specialist Bank Limited);
• BOQ Specialist Pty Ltd; and
• BOQ Asset Finance and Leasing Pty Ltd.
(c) Acquisition of controlled entities
(i) Accounting for business combinations
Acquisitions on or after 1 July 2009
The Consolidated Entity has adopted revised AASB 3 Business Combinations (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. The Consolidated Entity has also
adopted AASB 10 Consolidated Financial Statements (2013) which has superseded AASB 127 Consolidated and Separate Financial Statements (as amended
in 2008). For every business combination, the Group identifies the acquirer, which is the combining entity that obtains control of the other combining entities
or businesses. The Group controls an entity if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the investee.
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.
127
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.5. Controlled Entities (continued)
(c) Acquisition of controlled entities (continued)
(ii) Entities acquired during the prior year
On 31 July 2014, the Bank acquired 100% of BOQ Specialist Bank Limited formerly known as the Professional Finance and Asset Finance & Leasing businesses of
Investec Bank (Australia) Limited (Investec) for consideration of $210 million. The purchase was funded through a $400 million fully-underwritten, renounceable
entitlement offer, as well as excess capital.
BOQ Specialist (Aust) Limited (formerly BOQ Specialist Bank Limited) focuses on providing banking, advisory and investment products and services to a wide
range of private, corporate and institutional clients. The Bank purchased BOQ Specialist (Aust) Limited for further diversification of the business and for the
access to a niche market in Professional Finance.
The net assets recognised in the 31 August 2014 Group financial statements were based on a provisional assessment of their fair value, while the Group finalised
various matters impacting the acquisition accounting entries.
Finalisation of provisional accounting resulted in the restatement of comparatives, which have been detailed at Section 1.4.
Assets
Cash and liquid assets
Other financial assets
Loans and advances at amortised cost
Other assets
Property, plant & equipment
Intangible assets
Deferred tax assets
Total assets
Liabilities
Deposits
Derivative financial instruments
Accounts payable and other liabilities
Borrowings including subordinated notes
Deferred tax liabilities
Total liabilities
Net identifiable assets and liabilities
Goodwill and other identifiable assets on acquisition
Total Consideration
Consideration paid, satisfied in cash
Cash acquired
Net cash outflow
Recognised values
on acquisition
$m
Pre-acquisition
carrying amounts
$m
52
545
2,504
13
-
29
11
52
544
2,508
13
3
-
1
3,154
3,121
(2,328)
(2,326)
(8)
(43)
(744)
-
(3,121)
-
(8)
(43)
(744)
(8)
(3,131)
23
187
210
210
(52)
158
BOQ Specialist (Aust) Limited (formerly BOQ Specialist Bank Limited) contributed $3.1 million to profit after tax of the Consolidated Entity for the financial year
ended 2014.
The following entities were established during the financial year:
• Series 2014-1 EHP Reds Trust was opened on 18 September 2014; and
• Series 2015-1 Reds Trust was opened on 19 March 2015.
(d) Disposal of controlled entities
The following entities were closed during the financial year:
• REDS Warehouse Trust No.2 was closed on 4 December 2014;
• Series 2012-1E EHP REDS Trust was closed on 13 April 2015;
• REDS Warehouse Trust No.1 was closed on 23 April 2015; and
• Nyala Funding Trust No. 1 was closed on 15 June 2015.
128
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.6. Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 19 August 2005, 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.
During the year management undertook a review of those subsidiaries to the Deed, to ensure they were consistent with those included within the Extended
License Entity. The result of this review was the removal of the following entities by way of a revocation deed on 1 March 2015:
• B.Q.L. Nominees Pty. Ltd.;
• B.Q.L. Properties Pty Ltd (Formerly known as B.Q.L Properties Limited);
• B.Q.L. Management Pty. Ltd.;
• BOQ Home Pty Ltd (Formerly known as BOQ Home Limited);
• BOQ Share Plans Nominee Pty Ltd;
• Dell Financial Services Pty Ltd (Formerly known as Equipment Rental Billing Services Pty Ltd);
• Home Credit Management Pty Ltd (Formerly known as Home Credit Management Limited);
• Hunter Leasing Pty Ltd (Formerly known as Hunter Leasing Limited);
• Newcourt Financial (Australia) Pty Limited;
• Pioneer Permanent Pty Ltd (Formerly known as Pioneer Permanent Limited);
• Queensland Electronic Switching Pty Ltd;
• StateWest Financial Services Pty Ltd (Formerly known as Statewest Financial Services Limited); and
• St Andrew’s Australia Services Pty Ltd.
Subsequent to the removal of the subsidiaries listed above, the remaining subsidiaries to the Deed are as follows:
• BOQ Credit Pty Limited;
• BOQ Equipment Finance Limited;
• BOQ Finance (Aust) Limited; and
• BOQ Funding Pty Limited.
A summarised 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 2015 is set out as follows:
Summarised income statement and retained profits
Profit before tax
Less: Income tax expense
Profit for the year
Retained profits at beginning of year
Removal of entities revoked from Deed (1)
Dividends to shareholders
Transfers to equity reserve for credit losses
Retained profits at end of year
Profit attributable to:
Equity holders of the parent
Profit for the year
(1) Represents the retained profits balances as at 1 March 2015 of those entities revoked from the Deed.
Consolidated
2015
$m
2014
$m
433
(126)
307
203
(83)
(256)
(11)
160
307
307
368
(110)
258
144
-
(199)
-
203
258
258
129
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.6. Deed of cross guarantee (continued)
Balance Sheet
Assets
Cash and liquid assets
Due from other financial institutions
Financial assets available-for-sale
Financial assets held for trading
Derivative assets
Loans and advances at amortised cost
Other assets
Shares in controlled entities
Property, plant and equipment
Deferred tax assets
Intangible assets
Investments in joint arrangements
Total assets
Liabilities
Due to other financial institutions - Accounts payable at call
Deposits
Derivative liabilities
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
130
Consolidated
2015
$m
561
19
1,940
2,996
162
2014
$m
431
-
2,473
3,349
132
40,491
35,591
237
608
52
90
422
9
253
646
41
112
564
21
47,587
43,613
258
34,791
290
374
56
51
4,282
4,435
44,537
233
33,648
207
373
71
95
942
4,712
40,281
3,050
3,332
2,810
80
160
3,050
3,018
111
203
3,332
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.7. Investments in joint arrangements
The Consolidated Entity holds interests in a number of collectively and individually immaterial joint ventures that are accounted for using the equity method. The
principal activity of the joint venture entities is land subdivision, development and sale.
(a) Accounting for joint arrangements
The Consolidated Entity’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 Consolidated Entity 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
Consolidated Entity’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 Consolidated Entity’s.
The Consolidated Entity’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.
(b) Joint venture details
Set out below are the joint ventures of the Consolidated Entity as at 31 August 2015 which, in the opinion of the directors, are immaterial to the Consolidated
Entity. Australia is the place of business and also the country of incorporation for all joint ventures. The proportion of ownership interest is the same as the
proportion of voting rights held.
Ocean Springs Pty Ltd (Brighton)
Dalyellup Beach Pty Ltd (Dalyellup)
East Busselton Estate Pty Ltd (Provence)
Coastview Nominees Pty Ltd (Margaret River)
Provence 2 Pty Ltd (Provence 2)
Total equity accounted investments
Ownership Interest
Carrying amount
2015
(%)
9.31
17.08
25.00
5.81
25.00
2014
(%)
9.31
17.08
25.00
5.81
25.00
2015
$m
2014
$m
9
9
-
-
-
18
12
9
-
-
-
21
Summary financial information for equity accounted joint ventures, not adjusted for the percentage of ownership held by the consolidated entity and fair value
adjustments on acquisition, is contained below:
Profit from continuing operations
Post-tax profit from discontinued operations
Other comprehensive income
Total comprehensive income
2015
$m
2014
$m
26
-
-
26
40
-
-
40
131
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.8. Auditor’s remuneration
Audit services – KPMG Australia
- Audit and review of the financial reports
- Other regulatory and audit services
Audit related services – KPMG Australia
- Other assurance services
- Regulatory assurance services
Non-audit services – KPMG Australia
- Taxation services
- Due diligence services
- Other
Consolidated
Bank
2015
$000
2014
$000
2015
$000
2014
$000
1,118
364
1,482
445
167
612
372
-
37
409
1,011
401
1,412
225
-
225
188
234
-
422
441
167
608
445
167
612
372
-
37
409
681
203
884
169
-
169
143
234
-
377
6.9. Events subsequent to balance date
The Directors are not aware of any matters or circumstance that have arisen in the interval between the end of the financial year and the date of this report, or
any item, event or transaction which significantly affects, or may significantly affect the operations of the consolidated entity in future financial years.
132
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.10. Significant accounting policies & new accounting standards
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”) and the Nyala and Impala 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”).
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.
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.
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.
133
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.10. Significant accounting policies & new accounting standards (continued)
(b) Foreign currency
(i) 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 Section 3.8,
Derivative financial instruments.
(ii) Foreign operations
The consolidated entity has no foreign operations, all overseas activities are carried out through non-incorporated branches.
(c) New accounting standards
The following, are the amendments to standards and interpretations applicable for the first time to the current year:
•
AASB 2012-3 Amendments to Australian Accounting Standards: Offsetting financial assets and financial liabilities - This amendment adds
application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of
AASB 132. The Bank has reviewed the amendment and the clarifications within and determined that no disclosure changes are required.
• AASB 2013-3 Amendments to AASB 136: Recoverable amount disclosures for non-financial assets - This amendment includes additional disclosure
requirements with respect to impaired assets measured based on their fair value less costs of disposal. The Group has recognised an impairment loss during
the period in relation to internally generated software, refer to Section 4.1 for further details.
• AASB 2013-4 Amendments to Australian Accounting Standards: Novation of derivatives and continuation of hedge accounting - This amendment
permits the continuation of hedge accounting in specified circumstances where a derivative, which has been designated as a hedging instrument, is novated
from one counterparty to a central counterparty as a consequence of laws or regulations. There have been no derivatives novated by the Bank during the
period and as such the introduction of this amendment has not impacted the Bank.
• AASB 2013-7 Amendments to AASB 1038: Arising from AASB 10 in relation to consolidation and interests of policyholders - This amendment
removes the specific requirements in relation to consolidation from AASB 1038, which leaves AASB 10 as the sole source for consolidation requirements
applicable to life insurer entities. The Bank has reviewed the impact of this amendment on its consolidation requirements for St Andrew’s and determined
there have been no changes.
All other amendments to standards applicable for the 2015 year end do not impact the Consolidated Entity.
The following standards and amendments have been identified as those which may impact the Consolidated Entity and the majority were available for early
adoption at 31 August 2015 but have not been applied in these financial statements.
• AASB 1031 Materiality - The revised AASB 1031 is an interim standard that cross-references to other standards and the Framework (issued December
2013) that contain guidance on materiality. AASB 1031 will be withdrawn when references to AASB 1031 in all standards and interpretations have been
removed. These amendments are effective from 1 July 2014. This new standard did not have a material impact on the Consolidated Entity.
•
•
AASB 9 Financial Instruments - This standard introduces changes in the classification and measurement of financial assets and financial liabilities,
including a new expected credit loss model for impairment. The standard also introduces new requirements for hedge accounting that align hedge accounting
more closely with risk management. This standard becomes mandatory for the Consolidated Entity’s 31 August 2018 financial statements. The potential
effects on adoption of the amendments are yet to be determined.
AASB 15 Revenue from contracts with customers - The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The model features a contract based five-step analysis of transactions to determine whether, how much and when revenue is recognised. The
potential effects of this standard is yet to be determined.
(d) Impairment of 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.
134
ANNUAL REPORT 2015 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.10. Significant accounting policies & new accounting standards (continued)
(d) Impairment of non-financial assets (continued)
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.
(i) 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.
(e) Leases
(i) 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.
(ii) 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.
(f) 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.
(g) Equity reserve for credit losses
The Bank is required by 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.
(h) Employee benefits
(i) Wages, salaries and annual leave
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 discounted 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
employees’ 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. The Bank has assessed the impact of using a high quality corporate bond rate when discounting its
long service leave obligations, which resulted in a materially consistent balance to the carrying amount in the balance sheets.
135
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2015
6.10. Significant accounting policies & new accounting standards (continued)
(i) Property, plant & equipment
(i) 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.
(ii) 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 separate assets and are separately
depreciated over their useful lives. Costs that do not meet the criteria for subsequent capitalisation are expensed as incurred.
(iii) 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.
(iv) 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 are as follows:
IT Equipment
Plant, furniture and equipment
Leasehold improvements (1)
(1) Or term of lease if less.
The residual value if not significant, is reassessed annually.
Years
3-10
3-20
12
136
ANNUAL REPORT 2015 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 44 to 136, 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 2015 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 Section 6.5 (a) 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 2015.
The Directors draw attention to Section 1.2 (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:
Roger Davis
Chairman
7 October 2015
Jon Sutton
Managing Director and CEO
7 October 2015
137
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
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 2015 and
the Income Statements, Statements of Comprehensive Income, Statements of Changes in Equity and Statements of Cash Flows for the year ended on that date,
Sections 1 to 6 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 Section 1.2 (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 the Consolidated Entity 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 controls 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 2015 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 Section 1.2 (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.
138
ANNUAL REPORT 2015
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF BANK OF QUEENSLAND LIMITED
REPORT ON THE REMUNERATION REPORT
We have audited the Remuneration Report included on pages 44 to 66 of the directors’ report for the year ended 31 August 2015. 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 auditing standards.
AUDITOR’S OPINION
In our opinion, the remuneration report of Bank of Queensland Limited for the year ended 31 August 2015, complies with Section 300A of the Corporations Act
2001.
KPMG
Martin McGrath
Partner
Sydney
7 October 2015
139
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 SHAREHOLDING DETAILS
As at Monday 28 September 2015, the following shareholding details applied:
1. TWENTY LARGEST ORDINARY SHAREHOLDERS
Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMS PTY LTD
CITICORP NOMINEES PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
AMP LIFE LIMITED
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
JBWERE (NZ) NOMINEES LTD
AVANTEOS INVESTMENTS LIMITED
KARATAL HOLDINGS PTY LTD
BKI INVESTMENT COMPANY LIMITED
CARLTON HOTEL LIMITED
NATIONAL NOMINEES LIMITED
THE MANLY HOTELS PTY LIMITED
UBS NOMINEES PTY LTD
PRUDENTIAL NOMINEES PTY LTD
Total
Voting rights
No. of ordinary shares
%
71,534,800
19.29%
35,751,649
30,735,052
22,116,915
7,306,078
6,294,904
2,395,088
2,304,137
1,978,282
1,797,600
1,344,347
1,157,171
909,865
843,011
810,000
767,873
714,580
655,540
647,956
560,400
9.64%
8.29%
5.97%
1.97%
1.70%
0.65%
0.62%
0.53%
0.48%
0.36%
0.31%
0.25%
0.23%
0.22%
0.21%
0.19%
0.18%
0.17%
0.15%
190,625,248
51.41%
On a show of hands every person present who is a holder of 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.
140
ANNUAL REPORT 2015 SHAREHOLDING DETAILS
No. of ordinary shares
%
72,940
55,155
50,000
44,483
40,445
35,526
32,200
32,130
21,000
17,167
16,700
15,000
13,000
10,000
10,000
10,000
10,000
10,000
9,500
9,482
2.43%
1.84%
1.67%
1.48%
1.35%
1.18%
1.07%
1.07%
0.70%
0.57%
0.56%
0.50%
0.43%
0.33%
0.33%
0.33%
0.33%
0.33%
0.32%
0.32%
514,728
18.32%
As at Monday 28 September 2015, the following shareholding details applied:
2. TWENTY LARGEST CPS SHAREHOLDERS
Shareholder
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MILTON CORPORATION LIMITED
NATIONAL NOMINEES LIMITED
NAVIGATOR AUSTRALIA LTD
NULIS NOMINEES (AUSTRALIA) LIMITED
DOMER MINING CO PTY LTD
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
LAWRENCES MOTORS PTY LTD
THE TRUST COMPANY SUPERANNUATION LIMITED
BNP PARIBAS NOMS PTY LTD
WENTHOR PTY LTD
MR JOHN HARRISON VALDER & MRS KAY ORMONDE VALDER
EASTCOTE PTY LTD
THE AUSTRALIAN NATIONAL UNIVERSITY
SOUTHERN METROPOLITAN CEMETERIES
F & B INVESTMENTS PTY LIMITED
BCITF (QLD)
JILLIBY PTY LTD
JILRIFT NO 2 PTY LTD
Total
Voting rights
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 3,321.
The number of convertible preference shareholders holding less than a marketable parcel is nil.
Ordinary Shares
CPS
2015
57,787
27,587
5,051
2,500
71
2014
56,165
26,067
4,847
2,463
71
2015
6,099
340
23
13
-
2014
6,214
355
19
11
1
92,996
89,613
6,475
6,600
141
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 SHAREHOLDING DETAILS
4. PARTLY PAID SHARES
There are no partly paid shares.
5. THE NAMES OF SUBSTANTIAL SHAREHOLDERS IN THE BANK AND THE NUMBER OF SHARES IN WHICH EACH HAS AN INTEREST
AS DISCLOSED IN SUBSTANTIAL SHAREHOLDER NOTICES GIVEN TO THE BANK ARE:
Substantial shareholders
AXA Group
6. STOCK EXCHANGE LISTING
No. of ordinary shares in which interest is held
(at date of notification)
18,560,287
Date of notification
9 September 2015
The shares of Bank of Queensland Limited (“BOQ”) and CPS (“BOQPD”) are quoted on the Australian Securities Exchange.
7. OPTIONS
At 31 August 2015 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 Queensland Limited is a publicly listed company limited by shares and is incorporated and domiciled in Australia.
142
ANNUAL REPORT 2015 SHAREHOLDER INFORMATION
KEY SHAREHOLDER DATES
Dividend dates for ordinary shares only
2015
Final ex-dividend date
Final dividend record date
Final dividend payment date
Annual General Meeting
2016
29 October 2015
2 November 2015
24 November 2015
26 November 2015
Financial half year end
29 February 2016
Interim results and dividend announcement
Interim ex-dividend date
Interim dividend record date
Interim dividend payment date
Financial full year end
Full year results and dividend announcement
Final ex-dividend date
Final dividend record date
Final dividend payment date
Annual General Meeting
7 April 2016
28 April 2016
29 April 2016
19 May 2016
31 August 2016
6 October 2016
27 October 2016
28 October 2016
22 November 2016
30 November 2016
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 6
100 Skyring Terrace
Newstead Qld 4006
Telephone: +61 7 3212 3333
Investor Relations: +61 7 3212 3990
Facsimile: +61 7 3212 3399
boq.com.au
twitter.com/boq
facebook.com.au/BOQOnline
CUSTOMER SERVICE
1300 55 72 72 (within Australia)
+61 7 3336 2420 (overseas)
ABN 32 009 656 740
CAN 009 656 740
143
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616 5 YEAR FINANCIAL SUMMARY
$ millions (unless otherwise stated)
Financial performance
Net interest income
Non interest income
Total income
Operating expenses
Underlying profit before tax (1)
Loan impairment expense
Cash earnings before tax
Cash earnings after tax attributable to ordinary shareholders (2)
Statutory net profit (loss) after tax
Financial position (3)
Gross loans and advances (4)
Total assets
Customer deposits
Total liabilities
Total equity
Shareholder performance
Market capitalisation at balance date
Share price at balance date ($)
Basic cash earnings per share (5)
Diluted cash earnings per share (5)
Fully franked ordinary dividend per share
Dividend payout ratio to ordinary shareholders
Cash earnings ratios (6)
Net interest margin (7)
Cost-to-income ratio
Return on average ordinary equity
Capital adequacy
Common equity tier 1 ratio (8)
Total capital adequacy ratio
2015
$m
2014
$m
2013
$m
2012
$m
2011
$m
907
180
1,087
(500)
587
(74)
513
357
318
40,975
48,018
26,914
44,549
3,469
4,698
12.67
97.3c
92.2c
74c
77%
1.97%
46.0%
10.7%
761
169
930
(408)
522
(86)
436
301
261
38,426
46,905
26,266
43,564
3,341
4,560
12.58
89.5c
87c
66c
87%
1.82%
43.9%
10.4%
695
163
858
(380)
478
(115)
363
248
186
35,302
42,528
23,968
39,711
2,817
3,070
9.60
78.1c
75.1c
58c
99%
1.69%
44.3%
9.4%
656
161
817
(373)
444
(401)
43
21
(17)
34,560
41,758
22,270
38,859
2,899
2,331
7.55
7.9c
7.9c
52c
n/a
1.67%
45.7%
1.3%
628
178
806
(359)
447
(200)
247
167
159
33,530
39,901
20,318
37,327
2,574
1,686
7.48
71.3c
66.7c
54c
77%
1.65%
44.5%
8.0%
8.91%
12.72%
8.63%
12.02%
8.63%
12.24%
8.58%
12.56%
8.37%
11.40%
(1) Underlying profit before tax is profit before impairment on loans and advances, significant items and tax.
(2) Cash earnings after tax exclude significant items (tax effected).
(3) Includes BOQ Specialist (Aust) Limited.
(4) Before specific and collective provisions.
(5) Basic and diluted earnings per share for FY12 and FY13 have been adjusted for the effect of the rights issue that occurred during the current financial year.
(6) Excludes impact of significant items.
(7) Excluding amortisation of fair value adjustments (acquisitions).
(8) This was the tier 1 capital ratio pre-2012.
144
ANNUAL REPORT 2015
ISO 14001
Environmental
Management
System in use.
Manufactured
using elemental
chlorine free
(ECF) pulps.
Pulp is sourced
only from
responsibly
managed forests.
2
0
1
5
A
N
N
U
A
L
R
E
P
O
R
T
FIND OUT MORE ABOUT HOW
WE’RE DELIVERING OUR STRATEGY AT
WWW.BOQ.COM.AU/ANNUAL_REPORTS/2015