Bank of Queensland Limited
ABN 32 009 656 740
100 Skyring Terrace, Newstead 4006
GPO Box 898, Brisbane 4001
Telephone (07) 3212 3333
Facsimile (07) 3212 3409
www.boq.com.au
ASX RELEASE
11 November 2016
AMENDMENTS TO 2016 ANNUAL REPORT
Bank of Queensland Limited (BOQ) has today lodged an updated 2016 Annual Report with the
Australian Securities Exchange.
A summary of the amendments made to the Annual Report lodged with the ASX on 6 October 2016
are set out below:
Directors’ Details for Mr Roger Davis, Mr Richard Haire, Ms Karen Penrose & Ms Michelle
Tredenick on pages 8 & 9 have been amended to include details of all directorships of other
listed companies held by these directors at any time in the 3 years immediately before the end of
the financial year.
Page 9 has been amended to include Directors’ Details for Mr Warwick Negus. Mr Negus was
appointed to the BOQ Board on 22 September 2016.
In addition, BOQ notes the following matters of clarification:
The reference to “non-functional” on page 52 should read “non-financial”.
The last sentence under “Fee Pool” in Section 6. Non-Executive Director Remuneration on page
55 reads “The Board engaged Egan & Associates to provide a view of the current fee levels and
based on this advice, will seek shareholder approval at the AGM for a 5% increase to Board and
Committee fees for the 2017 year”. BOQ wishes to clarify that, as per the Notice of Meeting
dated 27 October 2016 for the 2016 Annual General Meeting (AGM), the specific approval being
sought at the 2016 AGM is for an increase in the aggregate maximum amount of non-executive
directors’ fees from $2,600,000 per annum (inclusive of superannuation guarantee charge
(SGC) contributions) to $2,800,000 per annum (inclusive of SGC contributions).
BOQ
ANNUAL REPORT
2016
YEAR ENDED 31 AUGUST 2016
CONTENTS
CHAIRMAN AND MANAGING DIRECTOR & CEO’S LETTER
DIRECTORS’ REPORT
Directors’ details
Operating and financial review
REMUNERATION REPORT
Introductory message
Remuneration report
LEAD AUDITOR’S INDEPENDENCE DECLARATION
FINANCIAL REPORT
Income statements
Statements of comprehensive income
Balance sheets
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
OTHER INFORMATION
Directors’ declaration
Independent auditor’s report to the members
Shareholding details
Shareholder information
5 Year Financial Summary
Glossary
5
7
8
11
44
45
67
70
71
72
73
77
78
135
136
138
141
142
143
FIND OUT MORE ABOUT HOW
WE’RE DELIVERING OUR STRATEGY AT
BOQ.COM.AU/ANNUAL_REPORTS/2016
2 ANNUAL REPORT 2016
BOQ FY16 RESULTS
A GOOD RESULT IN A CHANGING
OPERATING ENVIRONMENT
PROFIT RESULTS
($) MILLIONS
301
261
248
186
357
318
360
338
3
3
3
3
1
1
1
1
0
0
0
0
2
2
2
2
4
1
0
2
5
1
0
2
6
1
0
2
CASH EARNINGS
$360M
UP 1% SINCE FY15
STATUTORY NET PROFIT
$338M
UP 6% SINCE FY15
EARNINGS & DIVIDENDS
(CENTS PER SHARE)
LOAN IMPAIRMENT EXPENSE
($) MILLIONS
2014
2015
2016
BASIC CASH EARNINGS PER SHARE
$96C
DOWN 2% SINCE FY15
DIVIDENDS PER SHARE
$76C
UP 3% SINCE FY15
90
97
96
66
74
76
$67M
DOWN 9%
SINCE FY15
86
4
1
0
2
74
5
1
0
2
67
6
1
0
2
115
3
1
0
2
CASH COST TO
INCOME RATIO
NET INTEREST MARGIN
1.94 %
3BPS
RETURN ON EQUITY
10.3%
40BPS
4 6 . 8 %
80BPS
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
3
DELIVERING
OUR STRATEGY
CUSTOMER IN CHARGE
VIRGIN MONEY AUSTRALIA
REWARD ME
HOME LOAN LAUNCHED
THERE’S ALWAYS A BETTER WAY
3 0 %
O F M O R TG A G E
A P PL I C A T I O N S C O V E R E D
B Y O U R N E W D I G I TA L
L E N D I N G S Y S T E M
GROW THE RIGHT WAY
LOVED LIKE NO OTHER
$500M
16%
GROWTH ( )
IN LENDING TO
NICHE BUSINESS
SEGMENTS IN FY16
LAUNCHED OUR 144 CULTURE
UNITING OUR FOCUS ON
1 MISSION
4 STRATEGIC PILLARS
4 VALUES
4 ANNUAL REPORT 2016
4 ANNUAL REPORT 2016
SEE WHAT OUR CHAIRMAN & CEO HAVE TO SAY AT
BOQ.COM.AU/ANNUAL_REPORTS/2016
CHAIRMAN AND
MANAGING DIRECTOR & CEO’S LETTER
Dear Shareholder,
BOQ has delivered an increased profit for a fourth successive
year. This is a particularly good result in a challenging market,
with net profit after tax increasing to $360 million and
statutory profit after tax growing to $338 million. Given these
results, the Board has declared a final dividend of 38 cents
per share, taking the full year dividend to a record 76 cents
per share.
nearly a decade of service on the Board. We also farewelled
director Neil Berkett whose extensive experience across
the finance, digital media and telecommunications sectors
provided the Board with important insight following the
acquisition of Virgin Money Australia. We thank Carmel and
Neil for their invaluable service and wish them all the best
for the future.
2016 has been a difficult year for the banking sector.
Global economic uncertainty has driven market volatility,
and domestically the economy continues to shift from its
traditional reliance on mining investment. The low interest rate
environment and competition for both lending and deposit growth
has created margin pressure on both the asset and liability sides
of the balance sheet. Additionally, uncertainty remains around the
next phase of banking industry regulation.
These market conditions reinforce the need for BOQ to continue
to deliver its strategy. 2016 was a positive year for the bank
as we broadened our distribution channels, focussed on niche
customer segments, improved our process capabilities and
continued to create a culture that is a source of competitive
advantage.
Most importantly, we’ve continued to implement our strategy
without compromising credit quality and we’ve stayed ahead
of the regulatory curve with conservative lending policies and
capital ratios.
We believe we’ve achieved the right balance between growth,
asset quality and profitability to build a portfolio that performs
throughout the business cycle. We would like to thank the
collective efforts of everyone across the BOQ Group that has
made this result possible.
2016 has also seen some major governance changes at
Board level. During the year we farewelled long-standing
director Carmel Gray who has provided wise counsel over
We were also delighted to welcome some new faces to the
Board. Karen Penrose joined in November, John Lorimer
in January and more recently Warwick Negus, joined in
September. Karen has 30 years’ business experience
in the finance and corporate sectors, offering specialist
knowledge in finance and capital markets, risk management
and compliance. John has more than 20 years in financial
services and brings significant expertise in retail financial
services, governance, regulation and risk management.
Warwick’s extensive financial services industries background
adds more than 20 years’ experience in investment banking
and domestic and international funds management.
We believe, these additions give the Board the right skills
and experience to meet the needs of a rapidly changing
market, and so we warmly welcome Karen, John and
Warwick to the Board.
Finally, we’d also like to thank all of our shareholders for your
strong ongoing support during 2016. This has enabled us to build
a strong and profitable business that is delivering record earnings
whilst maintaining a high quality loan portfolio and is positioning
BOQ well for the future.
Roger Davis
Chairman
Jon Sutton
Managing Director & CEO
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
5
2016
DIRECTORS’ REPORT
The Directors present their report together with the financial report of Bank of Queensland Limited (‘the Bank’) and of the Consolidated Entity, being the Bank and
its controlled entities for the year ended 31 August 2016 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
Experience, special responsibilities and other Directorships
Roger Davis
B.Econ. (Hons),
Master of Philosophy
Chairman
Non-Executive
Independent Director
Mr Davis was appointed Chairman on 28 May 2013 and has been a Director since August 2008. He is a Rhodes Scholar
and has a Bachelor of Economics (Hons) degree from the University of Sydney and a Master of Philosophy degree from
Oxford. Mr Davis has over 32 years’ experience in banking and investment banking in Australia, the US and Japan. He
is currently a consulting Director at Rothschild Australia Limited. He was previously a Managing Director at Citigroup
where he worked for over 20 years and more recently was a Group Managing Director at ANZ Bank. He is currently a
Director of Argo Investments Limited, Ardent Leisure Management Ltd and Ardent Leisure Ltd and Aristocrat Leisure
Ltd. He was formerly Chair of Charter Hall Office REIT (prior to its takeover) and Esanda, and a non-executive director
of The Trust Company Limited (prior to its takeover). He is the Chairman of the unlisted entity, AIG Australia Limited.
Mr Davis is Chair of the Nomination & Governance, a member of each of the Audit and Risk Committees, and an
attendee at all other Board Committees.
Jon Sutton
Managing Director and Chief Executive
Officer
Executive Director
Mr Sutton was appointed Managing Director and Chief Executive Officer in January 2015 following four months as the
Acting Chief Executive Officer. Mr Sutton originally joined BOQ in July 2012 as our 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, Mr Sutton 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 Carter was appointed a Director of the Bank on 27 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. Mr Carter has worked with all the major financial institutions in
Australia. 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 Aventus Capital Limited, and a Non-Executive Director
of SkyCity Entertainment Group Limited and Genesee & Wyoming Australia Pty Ltd.
Mr Carter is the Chair of the Risk Committee and a member of the Audit Committee.
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. Mr
Haire is the Chair of Cotton Research and Development Corporation and he also serves as a Non-Executive Director
of the Reef Casino Trust, and was formerly a Director of Open Country Dairy (NZ) and New Zealand Farming Systems
Uruguay. Mr Haire was appointed Executive Chairman of Webster Limited in June 2015 and resigned from that position
on 29 February 2016.
Mr Haire is Chair of the Audit Committee, and a member of each of the Risk and Information Technology Committees.
Mr Lorimer was appointed as a Director of the Bank on 29 January 2016. Mr Lorimer has spent more than 20 years in
financial services and held Executive roles in Australia, Asia and Europe. Mr Lorimer’s most recent Executive roles were
in the United Kingdom where he was Group Head of Finance and then Group Head of Regulatory Risk and Compliance
for Standard Chartered Bank. He also held a number of management positions in the retail bank of Citigroup and served
as the Chairman of CAF Bank Limited (a subsidiary of Charities Aid Foundation based in the United Kingdom).
He is a Non-Executive Director of Bupa Ltd (Australia/NZ), Max Bupa (India) Ltd, Bupa Asia (HK) Ltd and Aberdeen
New Dawn Investment Trust plc. Mr Lorimer was formerly a Non-Executive Director of the Bupa Group board and
International Personal Finance plc.
Mr Lorimer is a member of each of the Risk and Information Technology Committees.
Bruce Carter
B Econ, MBA, FAICD, FICA
Non-Executive
Independent Director
Richard Haire
B.Ec, FAICD
Non-Executive
Independent Director
John Lorimer
B Com
Non-Executive
Independent Director
8 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 Name, qualifications and independence
status
Experience, special responsibilities and other Directorships
Warwick Negus
B Bus, M Com, SF Fin
Non-Executive
Independent Director
Karen Penrose
B Comm, CPA, GAICD
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, AICD
Non-Executive Independent Director
Mr Negus was appointed a Director of the Bank on 22 September 2016. Mr Negus has over 30 years of finance
industry experience in Asia, Europe and Australia. His most recent executive roles include Chief Executive Officer of 452
Capital, Chief Executive Officer of Colonial First State Global Asset Management and Goldman Sachs Managing Director
in Australia, London and Singapore. He was also a Vice President of Bankers Trust Australia and was formerly a director
of the UNSW Foundation. Warwick is a Non-Executive Director of Washington H Soul Pattinson and Co, Tantallon Capital
Advisers Pte Ltd, Terrace Tower Group and FINSIA. He is a member of the Council of University of NSW, Chairman of
UNSW Global Limited and a member of the Council of Cranbrook School. He is a member of the Sydney Advisory Board
of the Salvation Army.
Ms Penrose was appointed a Director of the Bank on 26 November 2015. Ms Penrose has over 30 years’ business
experience across the finance, property and resources industries, including 20 years in banking with Commonwealth
Bank of Australia and HSBC Bank Australia. Ms Penrose is also a Non-Executive Director of Vicinity Centres Limited,
Spark Infrastructure Group, AWE Limited, Future General Global Investment Company Limited (pro bono role) and
UrbanGrowth NSW. She was formerly a Non-Executive director of Novion Limited and Silver Chef Limited.
Ms Penrose is a member of each of the Audit and Human Resources & Remuneration Committees.
Margaret (Margie) Seale was appointed a Director of the Bank on 21 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. She remained on the Board
of Penguin Random House as a Non-Executive Director and then as Chair until September 2016. Amongst other roles
prior to those at Random House, she held national sales and national marketing roles with Oroton and Pan Macmillan
respectively. She is a Non-Executive Director of Telstra Corporation Limited, Ramsay Health Care Limited, and Scentre
Group Limited. She has also served on the boards of the Australian Publishers’ Association, The Powerhouse Museum
and Chief Executive Women.
Ms Seale is a member of each 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 Non-Executive
Director of Canstar Pty Ltd, Urbis Pty Ltd, Cricket Australia 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 was formerly a non-executive
director of Vocation Limited and associated entities (in Liquidation).
Ms Tredenick is Chair of the Information Technology Committee, and is a member of each of the Human Resources &
Remuneration, Risk and Nomination & Governance Committees.
Mr Willis was appointed a Director of the Bank in February 2010. Mr Willis has over 33 years’ experience in financial
services in the Asia Pacific, the UK and the USA. He is a qualified Accountant in Australia and New Zealand and has
had 25 years’ experience working with Australian and foreign banks. Mr Willis is a Director of CBH (A Grain Cooperative
in Western Australia) and Interflour Holdings, SE Asian flour milling company. Mr Willis chairs a Sydney based Charity
“The Horizons Program”.
Mr Willis is Chair of the Human Resources & Remuneration Committee, and is a member of the Risk and the Nomination
& Governance Committees. He is also a Non-Executive Director of the Bank’s insurance subsidiary, St Andrew’s.
Carmel Gray retired as a Director on 26 November 2015 and Neil Berkett retired as a Director on 31 May 2016.
COMPANY SECRETARY
Michelle Thomsen
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
9
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 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
Information
Technology
Committee
A
11
11
7
11
1
11
6
8
10
10
10
B
11
11
8
11
1
11
7
9
11
11
11
A
-
5
-
-
-
-
-
-
-
-
5
B
-
6
-
-
-
-
-
-
-
-
6
A
8
7
-
8
-
8
3
-
-
8
8
B
8
8
-
8
-
8
5
-
-
8
8
A
7
7
-
7
3
7
-
4
-
-
-
B
7
7
-
7
3
7
-
4
-
-
-
A
3
1
-
1
-
-
-
-
-
2
3
B
3
3
-
1
-
-
-
-
-
3
3
A
6
6
4
-
-
-
-
2
6
5
6
B
6
6
4
-
-
-
-
2
6
6
6
A
6
5
3
-
2
6
1
-
6
6
-
B
6
6
4
-
2
6
2
-
6
6
-
11
6
8
7
3
6
6
Roger Davis (1)
Jon Sutton
Neil Berkett (2)
Bruce Carter
Carmel Gray (3)
Richard Haire
John Lorimer (4)
Karen Penrose (5)
Margaret Seale
Michelle Tredenick
David Willis (6)
Total number
of meetings held
A - Number of meetings attended
B - Number of meetings held during the time the Director was a member of the Board / Committee during the year
(1)
(2)
(3)
(4)
(5)
(6)
Roger Davis is a formal member of the Audit Committee and the Risk Committee and the Chair of the Nomination & Governance Committee. Mr Davis attends all other meetings of the Board’s sub-committees, however he
is not considered a formal member of these. Mr Sutton attends meetings of a number of the Board’s sub-committees, however he is not considered a formal member of these.
Neil Berkett retired as a Director on 31 May 2016 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.
Carmel Gray retired as a Director on 26 November 2015 and as such the details of meetings held and attended are for the period of time in which she was a Director during the financial year.
John Lorimer was appointed as a Director on 29 January 2016 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.
Karen Penrose was appointed as a Director on 26 November 2015 and as such the details of meetings held and attended are for the period of time in which she was a Director during the financial year.
David Willis is also a member of the Audit & Risk Committee for St Andrew’s.
2016 CORPORATE GOVERNANCE STATEMENT IS ONLINE
BOQ complies with its constitution, the Corporations Act 2001 (Cth), the ASX Listing Rules, and 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
2016 Corporate Governance Statement available at:
http://www.boq.com.au/aboutus_corporate_governance.htm
APS 330 CAPITAL INSTRUMENTS DISCLOSURE
The APS 330 Common Disclosure Template and Regulatory Capital Reconciliation (included in the relevant Pillar 3 Disclosures document) and the Capital Instruments
Disclosures are available at the Regulatory Disclosures section of the Bank’s website at the following address:
http://www.boq.com.au/regulatory_disclosures.htm.
10 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 CONTENTS - OPERATING AND FINANCIAL REVIEW
Page
1
1.1
1.2
1.3
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3
3.1
3.2
3.3
3.4
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Highlights & Strategy
Disclosure Considerations
Group Highlights
Strategy
Group Performance Analysis
Income Statement & Key Metrics
Net Interest Income
Non-Interest Income
Insurance Overview
Operating Expenses
Capitalised Investment Spend
Lending
Business Settings
Asset Quality
Funding and Liquidity
Capital Management
Tax Expense
Appendices
Reconciliation of Statutory Profit to Cash Earnings
Operating Cash Expenses
Property, Plant & Equipment (Consolidated)
Cash Earnings Per Share Calculations
Issued Capital
Average Balance Sheet and Margin Analysis
Distribution Footprint
Credit Rating
Liquidity Coverage Ratio
12
12
13
15
16
16
18
19
19
20
22
22
25
25
30
32
33
34
34
35
36
37
37
38
40
41
42
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
11
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 OPERATING AND FINANCIAL REVIEW
1. HIGHLIGHTS & STRATEGY
1.1 DISCLOSURE CONSIDERATIONS
FUTURE PERFORMANCE
This document contains certain ‘forward looking statements’ about BOQ’s business and operations, market conditions, results of operations, and
financial condition, capital adequacy and risk management practices which reflect BOQ’s views held as at the date of this document.
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.
Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many
of which are beyond the control of BOQ and which may cause actual results to differ materially from those expressed or implied in such statements.
Readers are cautioned not to place undue reliance on any forward-looking statements. Actual results or performance may vary from those expressed
in, or implied by, any forward-looking statements.
ROUNDING
In accordance with applicable financial reporting regulations and current industry practices amounts in this report have been rounded off to the
nearest one million dollars, unless otherwise stated. Any discrepancies between total and sums of components in tables contained in this report are
due to rounding.
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 of the Operating and Financial Review Appendices for the reconciliation
of Statutory Profit to Cash Earnings.
The items excluded from Cash Earnings are consistent with the prior year. Integration/Due Diligence costs relate to the acquisition of BOQ Specialist
and are in line with guidance provided at acquisition. Hedge ineffectiveness represents earnings volatility from hedges that are not fully effective
under the application of AASB 39 Financial Instruments: Recognition and Measurement and create a timing difference in reported profit. 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 29 February 2016) and the prior year (to 31 August 2015).
These non-statutory measures have not been subject to review or audit.
RECONCILIATION OF STATUTORY PROFIT TO CASH EARNINGS ($M)
15
1
338
4
2
360
Statutory Net Profit
after Tax
Amortisation of
customer contracts
Amortisation of fair
value adjustments
Hedge ineffectiveness
Integration /
transaction costs
Cash Earnings
after Tax
12 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 1.2 GROUP HIGHLIGHTS
Cash Earnings after Tax ($m)
357
UP 1%
360
Statutory Profit after Tax ($m)
UP 6%
338
318
161
167
190
179
181
154
164
126
171
167
2H14
1H15
2H15
1H16
2H16
2H14
1H15
2H15
1H16
2H16
Cash Basic Earnings per Share (‘EPS’) (cents)
Dividends per share (cents)
97.3
DOWN 2%
95.6
74
UP 3%
76
46.3
45.7
51.5
47.8
47.8
34
36
38
38
38
2H14
1H15
2H15
1H16
2H16
2H14
1H15
2H15
1H16
2H16
Cash Net Interest Margin (‘NIM’) (%)
Cash Cost to Income (%)
1.97
DOWN 3BPS
1.94
46.0
UP 80BPS
46.8
1.87
1.97
1.97
1.97
1.90
43.9
45.1
44.0
45.1
48.1
3.0
46.4
1.3
47.3
1.4
45.9
2H14
1H15
2H15
1H16
2H16
2H14
1H15
2H15
1H16
2H16
Restructuring
Property & CRM Impairment
Cash Return on Average Equity (‘ROE’) (%)
Cash Return on Average Tangible Equity (‘ROTE’) (%)
10.7
DOWN 40BPS
10.3
14.4
DOWN 60BPS
13.8
10.4
10.3
11.2
10.5
10.2
13.2
13.8
15.0
14.0
13.6
2H14
1H15
2H15
1H16
2H16
2H14
1H15
2H15
1H16
2H16
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
13
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 1.2 GROUP HIGHLIGHTS (CONTINUED)
CASH EARNINGS AFTER TAX
$360 million
Increased by 1% on the prior year in a challenging
market
STATUTORY PROFIT
$338 million
Increased by 6% on the prior year
DIVIDENDS
$0.76 UP 3%
Dividend yield of 7.2%
CASH NET INTEREST MARGIN
1.94%
Down 3bps over the prior year driven by
challenging market dynamics, including a lower
yield curve and higher funding costs
CASH COST TO INCOME RATIO
46.8%
4% uplift in underlying expense profile and elevated
focus on productivity and efficiency programs
DELIVERING TRANSFORMATION
Key strategic initiatives delivered such as Virgin
Money(1) Mortgages, and Retail Lending Program
Evolving to a modern adaptive operating model by
reshaping the organisational structure
LOAN IMPAIRMENT EXPENSE
$67 million
Down 2bps to 16bps of lending and 9% reduction
over the prior year reflecting the improved
portfolio quality
(1) Virgin Money (Australia)
IMPAIRED ASSETS
$232 million
Improved asset quality evidenced by a reduction of
$5 million (2%) from the prior year
COMMON EQUITY TIER 1
9.00%
Increase of 20bps in the second half through
organic capital generation
BOQ has delivered a 1% uplift in Cash Earnings to $360 million for the 2016 financial year and increased Statutory Net Profit after Tax 6% to $338
million in competitive environment. This result has been achieved whilst reshaping the organisational structure and delivering a number of key
strategic initiatives including the launch of Virgin Money (Australia) (‘Virgin Money’) mortgages, phase 1 of the Retail Lending Origination Platform
and the Commercial Lending Origination Environment (‘CLOE’).
Over recent years, BOQ’s strategic progress, supported by increased reinvestment in the business, has delivered solid financial performance and
improved credit quality, positioning the Group well to deliver a sustainable future earnings profile. A revised risk appetite and more diverse business
model allows BOQ to respond more effectively to the current challenges of a low interest rate environment and market volatility. The second half saw
heightened margin challenges across the sector. In response, BOQ accelerated its investment program to streamline its operating model. The balance
sheet and earnings trajectory remain sound and BOQ is well positioned for impending changes in the regulatory agenda as the playing field between
advanced and standardised banks appears to be levelling.
Net Interest Margin contracted 3bps over the year to 1.94%, with the second half margin declining to 1.90%. The highly competitive rates in lending
and deposits across the industry have translated into reduced new business margins and increased levels of retention repricing of existing customers.
Further, the confluence of market dynamics in wholesale funding and hedging costs, and the low yield environment, accelerated the margin decline
in the second half.
Further improvement in asset quality was evident across the portfolio. Loan impairment expense reduced by 9% to $67 million in 2016, or a reduction
of 2bps to 16bps of gross loans and advances. The second half result of 14bps of gross loans and advances was pleasing. BOQ achieved positive
improvements in credit quality metrics across the portfolio compared to the prior year and continues to maintain sector leading provisioning coverage.
Operating expenses increased 4% from the prior year to $520 million. This included a $10 million uplift in amortisation expense as a number of
strategic initiatives have been delivered, together with costs associated with the newly launched Virgin Money mortgage offering ($3 million). The
benefit of the $15 million investment in organisational operating model changes announced to the ASX in February will be fully realised in line with
stated targets, with further opportunities identified. Employee numbers reduced 2% over the year, with the majority of this reduction occurring in
the second half.
Lending growth of 5% or $2.2 billion was achieved in the 2016 financial year, though this growth was moderated in the second half with the strategic
shift to preserve margin and target deposit acquisition through retail channels. Lending growth was entirely funded by the 8% growth in customer
deposits, which resulted in a 2% uplift to the deposit to loan ratio to 68%.
During the year BOQ continued to strengthen its balance sheet with strong capital generation enabling an increase in the Common Equity Tier 1 ratio
(‘CET1’) to 9.0%, which positions it well for evolving regulatory capital requirements.
The Board has determined a final dividend of 38 cents per share fully franked, with the total dividends of 76 cents for the year, an increase of 3%
on the 2015 financial year.
14 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
1.3 STRATEGY
BOQ is a full service financial institution, listed on the Australian Securities Exchange (‘ASX’), regulated by the Australian Prudential Regulation
Authority (‘APRA’) as an authorised deposit taking institution (‘ADI’) and ranked among the top 100 companies by market capitalisation on the ASX.
BOQ has 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’s Possible to Love a
Bank’. BOQ’s corporate strategy is to focus on specialised customer segments that value a more intimate customer relationship, beyond what they
receive from the major banks. Importantly, BOQ’s strategic focus plays to its competitive strengths as a challenger bank in being able to provide
customers with personalised relationship management, passionate customer service, focused products and solutions, nimble decision making and
problem resolution.
BOQ’s strategy is based around four strategic pillars of (i) Customer in Charge (ii) Grow the Right Way (iii) There’s Always a Better Way, and
(iv) Loved Like No Other.
‘Customer in Charge’ is about continuing to expand BOQ’s sources of originations through growth in new channels including Broker, BOQ Specialist
and Virgin Money as well as improvements to digital, online and call centre channels. This makes it easier for customers to deal with the Bank in the
way they prefer, further accelerating improvements to geographic diversification outside of Queensland.
To ‘Grow the Right Way’ and achieve the right balance between risk and return, BOQ continues to diversify its balance sheet by pursuing niche
segments in BOQ Specialist, SME Business Banking and BOQ Finance. In Business Banking, the Bank expanded its presence in the target industries of
Medical & Dental, Retirement Living, Hospitality & Tourism, Agribusiness and Franchising with a continued focus on credit quality across the portfolio.
The Group’s revised risk appetite is evident from the improving metrics in the lending portfolio, which continues to benefit from diversification by
geography and customer mix, including high quality BOQ Specialist mortgages and commercial exposures, and the rebalancing of the line of credit
mortgage portfolio to industry levels.
‘There’s Always a Better Way’ is the pursuit of operational efficiency. The current operating environment has elevated the importance and focus
on productivity and efficiency with a number of programs underway. Implementation of BOQ’s new digitised mortgage origination platform continues
with 30% of mortgage applications benefiting from the new streamlined process and faster time to ‘yes’ for customers. The next release of the
platform is on schedule for the end of the calendar year and will see the majority of mortgage applications processed digitally, resulting in increased
lender productivity, improved customer experience and reduced operational risk. The Commercial Lending Origination Environment (‘CLOE’) that
was delivered at the end of the 2016 financial year will deliver similar improvements in the SME / Commercial portfolio. A number of efficiency and
digitisation initiatives are underway across the Group to enhance productivity, eliminate duplication and streamline BOQ’s operating model.
‘Loved like no Other’ is about building a culture that makes BOQ a great place to work and inspiring passion to deliver exceptional customer
outcomes. A number of initiatives are underway across the BOQ Group to implement an innovative and customer centric culture that proves ‘It’s
Possible to Love a Bank’, including the ‘144’ culture initiative – which links the Group’s vision to be Australia’s most loved bank with its 4 Strategic
Pillars and 4 Values – Passion, Impact, Collaboration and Integrity.
Through continued focus on these four strategic pillars, supported by embedding the cultural values, BOQ aims to deliver robust and sustainable
financial performance, consistent growth in returns to deliver earnings per share outperformance for shareholders and superior service to its
customers and the wider community.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
15
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2. GROUP PERFORMANCE ANALYSIS
2.1 INCOME STATEMENT & KEY METRICS
$ 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
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16
vs Aug-15
Aug-16
Feb-16
Aug-16
vs Feb-16
937
173
1,110
(520)
590
(67)
523
(163)
360
907
180
1,087
(500)
587
(74)
513
(156)
357
3%
(4%)
2%
4%
1%
(9%)
2%
4%
1%
6%
470
88
558
(264)
294
(31)
263
(82)
181
167
467
85
552
(256)
296
(36)
260
(81)
179
171
1%
4%
1%
3%
(1%)
(14%)
1%
1%
1%
(2%)
Statutory Net Profit after Tax
338
318
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’)
Diluted EPS (1)
Dividend payout ratio
Statutory basis
Basic EPS
Diluted EPS (1)
Dividend payout ratio
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16
vs Aug-15
Aug-16
Feb-16
Aug-16
vs Feb-16
($)
($ million)
(cents)
(%)
(%)
10.55
4,020
76
7.20
10.29
(cents)
(cents)
(%)
(cents)
(cents)
(%)
95.6
90.7
79.9
89.8
85.5
85.1
12.67
4,698
74
5.84
8.34
97.3
94.3
76.5
86.8
84.7
85.7
(17%)
(14%)
3%
136bps
195bps
(2%)
(4%)
340bps
3%
1%
(60bps)
10.55
4,020
38
7.16
10.55
3,969
38
7.24
10.24
10.35
47.8
45.4
80.0
44.2
42.1
86.7
47.8
45.6
79.9
45.7
43.7
83.6
-
1%
-
(8bps)
(11bps)
-
-
10bps
(3%)
(4%)
310bps
(1)
August 2015 has been restated to reflect the correct pro-rata treatment of the Wholesale Capital notes issued on 26 May 2015.
16 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
2.1 INCOME STATEMENT & KEY METRICS (CONTINUED)
Key Metrics
Profitability and efficiency measures
Cash Earnings basis
Net Profit After Tax
Underlying Profit (1)
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 (2)
Statutory basis
Net Profit After Tax
Underlying Profit (1)
Net Interest Margin
Cost to Income Ratio
Loan Impairment Expense to GLA
Return on Average Equity
Return on Average Tangible Equity (2)
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
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
($ million)
(%)
(%)
(%)
(%)
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16
vs Aug-15
Aug-16
Feb-16
Aug-16
vs Feb-16
360
590
1.94
46.8
16
10.3
13.8
338
563
1.93
49.6
16
9.7
13.0
461
234
232
50.1
0.50
357
587
1.97
46.0
18
10.7
14.4
318
536
1.95
50.7
18
9.6
12.9
478
257
237
53.3
0.56
1%
1%
(3bps)
80bps
(2bps)
(40bps)
(60bps)
6%
5%
(2bps)
(110bps)
(2bps)
10bps
10bps
(4%)
(9%)
(2%)
(320bps)
(6bps)
181
294
1.90
47.3
14
10.2
13.6
167
276
1.90
50.0
14
9.5
12.6
461
234
232
50.1
0.50
9.00
12.29
8.91
12.72
9bps
(43bps)
9.00
12.29
179
296
1.97
46.4
17
10.5
14.0
171
287
1.97
48.8
17
10.0
13.4
562
255
240
48.8
0.54
8.80
12.45
27,467
1%
(1%)
(7bps)
90bps
(3bps)
(30bps)
(40bps)
(2%)
(4%)
(7bps)
120bps
(3bps)
(50bps)
(80bps)
(18%)
(8%)
(3%)
130bps
(4bps)
20bps
(16bps)
2%
Risk Weighted Assets (‘RWA’)
($ million)
28,054
26,321
7%
28,054
(1)
(2)
Profit before loan impairment expense and tax.
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).
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
17
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2.2 NET INTEREST INCOME
$ million
Net Interest Income
Average Interest Earning Assets
Net Interest Margin
Year End Performance
Half Year Performance
Aug-16
Aug-15
937
48,421
1.94%
907
46,098
1.97%
Aug-16 vs
Aug-15
Aug-16
Feb-16
3%
5%
(3bps)
470
49,353
1.90%
467
47,506
1.97%
Aug-16 vs
Feb-16
1%
4%
(7bps)
Net Interest Income grew by 3% over the year to $937 million reflecting the 5% growth in average interest earning assets largely from first half
growth through new channels and reduced by lower net interest margin in the second half. Net Interest Income increased to $470 million for the
half, representing a 1% uplift on the first half, but was flat adjusting for the higher day count in the second half.
Net Interest Margin compression in this half reflects the heightened competition in lending and deposit markets, global wholesale market volatility
and unprecedented low interest rates. The last quarter saw intense competition for retail term deposits with an increase in spreads following the
Reserve Bank of Australia (‘RBA’) rate reductions in May and August.
NET INTEREST MARGIN - FEBRUARY 2016 TO AUGUST 2016
2.27%
0.30% (1)
1.97%
0.04%
0.07%
0.04%
Feb 16
Asset Pricing and Mix
Funding Costs and Mix
Capital and Low
Cost Deposits
Net Interest Margin
Third Party Costs
(1)
Third party costs largely represent commissions to Owner Managers and brokers.
2.20%
0.30% (1)
1.90%
Aug 16
Underlying movements within the Net Interest Margin (‘NIM’) included the following:
Asset Pricing and Mix: Repricing actions during the year positively impacted NIM by 9 basis points. Front to back book repricing impacts and
retention repricing activity had a 3 basis point contractionary impact on NIM in the half, similar to the impact in the prior half. A reduction in renewal
income in the equipment finance portfolio over the half reduced NIM by a further basis point, however this resulted in higher equipment sales income
generated on this portfolio that is reported in other income. A further basis point of NIM degradation was caused by a combination of product mix
and the impact of a higher proportion of lower yielding government bonds in BOQ’s Liquids portfolio to satisfy APRA’s APS 210 Liquidity Standard
requirements.
Funding Costs and Mix: The competition for funding intensified over the second half at the same time as the yield curve contracted, with a 4 basis
point impact to NIM. Half of this impact was evident in retail liabilities as increased competition meant absolute term deposit rates did not fall in line
with movements in the yield curve. The majority of this impact emerged in the last quarter. A further 2 basis points of impact occurred in wholesale
funding costs. As global market volatility increased, funding costs widened in the domestic wholesale and middle markets. This was coupled with a
push by participants to increase duration across all funding segments, in preparation for the impending introduction of the Net Stable Funding Ratio
regulatory requirements in January 2018. Hedging costs increased by 3 basis points over the half as flagged at the first half results release. This
headwind has largely ceased, assuming no change to current market conditions.
Capital and Low Cost Deposits: The low yield curve continues to impact returns on BOQ’s replicating portfolio, covering the investment profile of
BOQ’s capital and low cost deposits totalling $4.8 billion at year end and causing a 4 basis point reduction in the half.
18 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2.3 NON-INTEREST INCOME
$ million
Banking Income
Insurance Income
Other Income
Trading Income
Total Non-Interest Income
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16 vs
Aug-15
Aug-16
Feb-16
Aug-16 vs
Feb-16
99
26
30
18
173
110
33
17
20
180
(10%)
(21%)
76%
(10%)
(4%)
50
11
17
10
88
49
15
13
8
85
2%
(27%)
31%
25%
4%
Non-Interest Income of $173 million is down 4% on the prior year. The fall in Banking Income reflects continuing customer preferences for no fee
products. Changes to the structure of interchange fees reduced transaction income by $3 million over the year. BOQ Specialist’s strategic focus on
the new on balance sheet mortgage offering has reduced third party brokerage received by $3 million compared to the prior year.
Other income increased $13 million during the year with a significant portion of this increase attributed to BOQ Finance equipment sales which
witnessed increased realisations of $6 million in the portfolio. The prior year included $4 million of one-off unfavourable items which were not
repeated. The Virgin Money contribution from third party product distribution is included in Other Income. The business achieved good growth over
the year with Virgin Money Credit Card receivables growing by 3% in a flat market.
Trading contribution reduced from the prior year as BOQ finalised the transition to the new APRA APS210 Liquidity Standard. However, heightened
market volatility in the second half provided opportunities to deliver a strong trading income result in the second half.
The St Andrews’ Insurance contribution is discussed in detail in Section 2.4 below.
2.4 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-16
Aug-15
Aug-16 vs
Aug-15
Aug-16
Feb-16
Aug-16 vs
Feb-16
62
70
21
4
25
1
26
55
72
25
6
31
2
33
13%
(3%)
(16%)
(33%)
(19%)
(50%)
(21%)
32
35
9
2
11
-
11
30
35
12
2
14
1
15
7%
-
(25%)
-
(21%)
(100%)
(27%)
St Andrew’s Insurance contributed $26 million to Non-Interest Income, a $7 million reduction from the prior year as the business transitions to a new
product mix and refreshed corporate alliances.
Gross written premiums increased 13%, with the proportion of customers paying regular premiums over the life of the policy continuing to increase
and fewer customers paying single premiums to cover the life of the policy at policy commencement. This is consistent with the business strategy to
diversify revenue streams and the extension of the business into providing wholesale lines to business partners. Net Earned Premiums reduced 3%,
due to the reduction in single premium policies and an increase in reinsurance premiums, reflecting the changing mix of business.
Underwriting Result reduced by $4 million to $21 million, due to the reduction in Net Earned Premiums and an increase in commissions and
administration fees paid on wholesale lines, reflecting the changing mix of business. Claims experience improved over the prior year and was in
line with expectations, however, favourable claims experience in the first half was offset by the higher claims in the second half. The net impact of
the shift in the business mix has largely now occurred and the contribution from the newly established wholesale partnerships is expected to largely
offset the residual impact of the refreshed corporate alliances.
Other insurance income reduced due to lower returns on the investment portfolio with a lower interest rate environment.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
19
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2.5 OPERATING EXPENSES
$ million
Employee Expenses
Occupancy Expenses
General Expenses
IT Expenses
Other Expenses
Operating Model
Total Operating Expenses (1)
Cost to Income Ratio
Cost to Income Ratio (excluding one-off costs) (2)
Number of employees (FTE) (1)
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16 vs
Aug-15
253
43
98
92
19
15
520
46.8%
45.5%
1,959
241
47
110
82
20
-
500
46.0%
44.5%
1,991
5%
(9%)
(11%)
12%
(5%)
-
4%
80bps
100bps
(2%)
Aug-16
Feb-16
127
126
21
48
50
10
8
264
47.3%
45.9%
1,959
22
50
42
9
7
256
46.4%
45.1%
1,990
Aug-16 vs
Feb-16
1%
(5%)
(4%)
19%
11%
14%
3%
90bps
80bps
(2%)
(1)
(2)
FTE numbers and Operating Expenses exclude Virgin Money (Australia) as the net result is included in Non-Interest Income.
One-off costs are related to restructuring ($15 million) in FY16 and Customer Relationship Management (‘CRM’) Impairment ($10 million) and property transition costs ($6 million) incurred in 1H15.
Operating expenses exclude costs relating to Virgin Money commission based third party product activities where the net result has been consolidated
in Non-Interest Income for presentation of Cash Earnings. The total expenses for this element of Virgin Money operations were $15 million for the year
which is largely consistent with the prior period. Costs associated with the Virgin Money mortgage offering are in addition to this and treated in line
with other Group mortgage lending activities. A reconciliation of Cash Earnings to Statutory Profit is set out in Section 4.1 (b).
Operating expenses have increased 4% on the prior year to $520 million. This includes the cost of the operating model restructuring program of $15
million, with a similar level of one-off expenses in the prior year. The result also includes the uplift in intangible IT asset amortisation ($10 million), as
the digitisation program and key strategic initiatives have been delivered. Increased operating costs for the Virgin Money proprietary product mortgage
offering have also been incurred totalling $3 million.
500
10
6
484
FY 15
4% Underlying
Cost Growth
520
15
3
502
FY 16
Underlying Expenses
Property
CRM Impairment
Restructuring
Virgin Money
mortgage offering
20 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2.5 OPERATING EXPENSES (CONTINUED)
In the first half BOQ announced a program to reshape its operating model and organisational structure through a number of productivity initiatives.
The full year investment in the program of $15 million (pre-tax) is in line with the announcement made by the Group in February 2016 and will deliver
the planned 100% payback through cost savings within twelve months. Productivity initiatives progressed during the year include digitising cheque
processing, deposit analytics and establishing electronic statement capability. Further initiatives have been identified that include the creation of a
centralised Lending Hub which will deliver a customer centric and cost effective end to end process for lending services across the broader BOQ
Group. Mortgage lending will commence first, with other products to follow progressively. Other initiatives are also being pursed to better leverage
shared service centres of excellence across the Group.
Underlying operating expenses, excluding the impact of one-off items, increased by 4% over the year. A number of key strategic initiatives were
delivered during 2016 (refer Section 2.6 Capitalised Investment Spend). This has resulted in increased amortisation expense in 2016 of $10 million
compared to the prior year as reflected in the graph below and is reported within the IT Expenses category. Excluding this impact, operating expenses
have increased 2% on the prior year as the rollout of the channel diversification strategy continues.
Whilst specific efficiency gains have been achieved, BOQ continues to review the optimal operating model to further extract benefits of digitisation
across the Group and target investment to deliver further process improvements.
Amortisation Profile ($m)
59% increase
27
17
8
1H15
9
2H15
BOQ FTE FY16 VS FY15
12
15
1H16
2H16
Employee numbers have decreased 2% over the year as a result of the organisational operating model reshaping. Investment has been made to
support the launch of the Virgin Money mortgage product and to support the channel diversification strategy.
70
1,991
16
13
10
19
1,959
Aug-15
Operating
model changes
Retail Banking
Virgin Money
mortgage
product
Product capability
Loan validation
and operational
risk
Aug-16
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
21
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2.6 CAPITALISED INVESTMENT SPEND
The Group’s transformation, aligned to its four strategic pillars, has continued during the year with further delivery of a number of key initiatives.
Following the release of the Group’s new Retail Lending Origination Platform in the first half, the most significant delivery in the second half was
the launch of the new Virgin Money home loan product which will enable BOQ to capture a different customer demographic within the highly
competitive retail lending market. The Group’s Commercial Lending Origination Environment (‘CLOE’) was also delivered at the end of the financial
year, significantly automating a previously manual, paper based process. This system will generate productivity benefits, but importantly will enhance
customer experience and provide early data capture to enable better pipeline management of the SME and Commercial segments.
Further investment has continued as BOQ aims to improve customer experience and reduce turnaround times, whilst transitioning from legacy manual
processes to a more digitised environment. This includes subsequent releases of the Retail Lending Origination Platform to extend its reach to the
majority of applications (currently 30% of all mortgage applications), with the next release on schedule for delivery by the end of the 2016 calendar
year. A new investment is underway to transform the Leasing platform for BOQ Finance from more than 20 separate systems into a single market-
leading system that will improve the customer experience while reducing legacy costs and risks. The program will be delivered progressively over the
2017 financial year. BOQ is investing in capabilities that support its strategy of focusing on niche areas in the market where specialisation can deliver
higher return on equity. A digital application programming interface (API) gateway, in the process of being implemented, will make it easier for BOQ
and its partners to quickly and efficiently develop new mobile capabilities for customers.
This continued level of heightened investment is evident in the increased carrying value of intangible assets over the past two years as shown in the
graph below. Assets under construction continue to reduce as the Group delivered on its major investments during the year. The rate of growth in the
carrying value of IT Intangible Assets is expected to slow over coming periods as the annual amortisation charge converges towards the current level
of initiative spend.
CARRYING VALUE OF IT INTANGIBLE ASSETS ($M)
Assets under construction
Software Intangible asset balance
108
66
42
135
63
72
156
35
121
166
30
136
1H16
2H16
1H15
2H15
2.7 LENDING
Total lending has increased 5% over the year, at 0.8x System, with gross loans and advances totalling $43.2 billion. Loan growth moderated significantly
in the second half in light of heightened competition in key markets, the prudential cap on investment housing and the strategic shift to preserve margin
over asset growth with an emphasis on deposit gathering. The strategy of targeting niche customer segments is delivering results with BOQ Specialist,
BOQ Finance and niche segments in BOQ Commercial demonstrating solid growth momentum. The Group’s maturing broker presence combined with
the new Virgin Money mortgage offering, and a more productive branch network, supported by the digitisation investment being progressively rolled out,
should continue to deliver success from the multi-channel strategy.
Prudent credit and pricing for risk disciplines, along with robust origination validation requirements, are evident in improved portfolio credit quality metrics.
(refer Section 3.1 Asset Quality)
As at
$ million
Housing Lending
Housing Lending - APS 120 qualifying securitisation (2)
Commercial Lending
BOQ Finance
Consumer
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 APS 120 Securitisation.
22 ANNUAL REPORT 2016
Aug-16
Feb-16
Aug-15
Aug-16 vs
Feb-16 (1)
Aug-16 vs
Aug-15
27,733
2,155
27,709
2,339
25,641
2,737
29,888
30,048
28,378
8,818
4,142
304
8,502
4,057
317
8,258
4,015
324
43,152
42,924
40,975
(256)
(265)
(272)
42,896
42,659
40,703
-
(16%)
(1%)
7%
4%
(8%)
1%
(7%)
1%
8%
(21%)
5%
7%
3%
(6%)
5%
(6%)
5%
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2.7 LENDING (CONTINUED)
GROWTH IN GROSS LOANS & ADVANCES
GROWTH IN HOUSING ($M)
7% Growth
0.9x System (1)
1,869
5% Growth
0.8x System (1)
1,264
605
FY15
1,510
1,547
(37)
FY16
BOQ
BOQ Specialist
(1)
Source: APRA Monthly Banking Statistics.
HOUSING LENDING
The housing portfolio grew 5% over the year. Above system growth in the first half was offset by a slight contraction in the second half as the
business focused on margin preservation and deposit gathering. Competition intensified through the second half and given the changing economic
environment, including higher funding and hedging costs and lower interest rates, BOQ decided not to match the most aggressive rates on offer in the
market. BOQ continued to focus on building service and fulfilment capability by improving its time to yes through the progressive rollout of the new
mortgage origination platform, with the majority of home loans to be covered by this system following the next stage of implementation at the end of
the year. The launch of a new BOQ branded Economy home loan in August is also gaining good traction with customers.
BOQ Specialist continued strong momentum in its on balance sheet mortgage offering to its niche, professional client base. Full year growth of $1.5
billion was achieved, with momentum in the second half reducing in line with the reduction in new business pricing levels. This portfolio provides
significant mortgage portfolio diversification both demographically and geographically outside of Queensland. It also provides future cross sell
opportunities as BOQ Specialist supports the needs of these customers in commercial lending over their life cycle.
The broker channel continued to expand throughout the year, growing the accredited broker base and aiding BOQ’s geographic footprint with 84% of
growth in this channel outside of Queensland. Growth through the broker channel moderated in the second half, with greater price sensitivity to new
business acquisition pricing compared to other channels. Despite the slower volumes through the second half, the broker network still contributed
23% of total retail housing settlements during the year, albeit with settlement volumes reducing to 19% of total retail housing settlements in the
second half.
The launch of the Virgin Money mortgage product in May provides another channel for BOQ to engage with a new customer demographic. The Virgin
brand attracts a different customer, more affluent and likely to be metro-based with a strong propensity to engage through digital channels. Virgin
Money has engaged with complementary broker groups PLAN and FAST with over 800 brokers now accredited. Virgin Money is about to launch with
two additional large broker groups in the coming months.
BOQ continued to optimise the branch network with a reduction in the branch footprint of 23 locations across the year to 211 branches, mainly
reflecting consolidations and retirements. Whilst some branches have seen higher levels of run-off which has constrained growth, this has accelerated
the journey to a more efficient network with higher average footings per branch (an increase of 8% in 2016) and stronger risk and compliance
foundations. BOQ has seen strong engagement from the Owner Managers transitioning to the new franchise agreement, now covering 48% of all
Owner Managers. The new franchise agreement better aligns the network with the strategic objectives of the Bank and has delivered significant
performance improvements in terms of settlements and increased customer fulfilment across the product suite. A further 8 ICON branches were
delivered during the year bringing the total to 13, including the first Owner Managed ICON branch.
The Digital and Direct channel continues to support the omni-channel customer experience by being a key avenue for digital lead generation which
results in conversion through the branch network. BOQ continues to drive its digital capability with a focus on delivering technology that will enhance
the customer experience including the digitised mortgage origination platform, an upgrade of the mobile banking app (both BOQ and Virgin Money),
a refresh of the ATM network and the e-statements initiative.
Across the BOQ branded and Virgin Money broker aggregator relationships, the Group has access to approximately 75% of the Australia Broker
market.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
23
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2.7 LENDING (CONTINUED)
GROWTH IN COMMERCIAL & BOQ FINANCE ($M)
602
273
329
560
301
259
BOQ
BOQ Specialist
BOQ Finance
96
127
Commercial
BOQ Finance
Commercial
BOQ Finance
FY15
FY16
Commercial
BOQ Finance
Commercial
BOQ Finance
Growth rate
System growth (1)
Growth vs System
7.9%
9.2%
0.9x
2.4%
(0.1%)
n/a
6.8%
8.0%
0.8x
3.2%
2.7%
1.2x
(1)
Based on APRA and AELA system growth statistics.
BOQ BUSINESS
BOQ Commercial loans grew by 7% for the year to $8.8 billion with growth 30% stronger in the second half than the prior half. The updated strategy
concentrating on five defined niche target industries in Medical & Dental, Retirement Living, Hospitality & Tourism, Agribusiness and Franchising
continues to gain momentum. BOQ’s continued focus on credit quality and appropriate pricing for risk, coupled with its relationship banking focus,
has yielded improved referrals and new business flow. Market pricing for new customer acquisition improved over the half with an increase in the
pipeline of new opportunities that meet target risk versus reward levels. BOQ’s diversification by geography is continuing to rebalance its commercial
exposures nationally, reducing the previous reliance on the Queensland market.
The BOQ Specialist commercial loan book has maintained strong growth of 13% in a higher margin customer segment in a stronger growth sector
of the Australian economy. Despite increasing competitor activity in this higher margin niche, BOQ Specialist maintains a competitive advantage in
delivering bespoke solutions to their core medical clients and by building deeper, more meaningful relationships in the broader medical community.
BOQ Specialist has increased its customer numbers by 11% over the year to more than 32,000. The success of customer acquisition through the
mortgage offering positions BOQ Specialist well for long term sustained growth in commercial lending as the life cycle of these new customers
transitions to requiring commercial lending over time.
The SME strategy continues to evolve with further investment in the delivery of product and technical capability through BOQ’s Retail branches,
business centres and corporate bankers. The successful delivery of the Commercial Lending Origination Environment (‘CLOE’) has digitised the
commercial lending process. BOQ Business has also increased penetration of SME customers originated and managed through the branch network.
BOQ has been selective in its risk appetite for residential apartment developments reflecting the Group’s dynamic approach to maintaining an
appropriately conservative risk appetite.
BOQ Finance grew by 3% to $4.1 billion in a challenging business environment with subdued plant and equipment reinvestment. The repositioning of
BOQ Finance as the asset financier of choice and “Proudly Backing Your Business” philosophy has been embraced by a range of business partners
including branches, business bankers, brokers, manufacturers, distributors, fleet lessors and specialist finance companies. BOQ has commenced the
implementation of a new Leasing platform to simplify and automate processes through the asset funding cycle which should provide a key lever in the
continued growth of BOQ Finance. The program is scheduled to be implemented over the course of financial year 2017.
24 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 3. BUSINESS SETTINGS
3.1 ASSET QUALITY
Further improvement in asset quality was evident across the portfolio. Loan impairment expense reduced by 9% to $67 million in 2016, or 16bps of gross
loans and advances. BOQ achieved improvements in arrears and impairments across all portfolios compared to the prior year and continues to maintain
sector leading provisioning coverage. Nearly two thirds of the housing portfolio has now been originated under the revised risk appetite framework
established in the 2013 financial year.
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16 vs
Aug-15
Aug-16
Feb-16
Aug-16 vs
Feb-16
Loan Impairment Expense
Loan Impairment Expense / GLA
Impaired Assets
30dpd Arrears
90dpd Arrears
Collective Provision & General Reserve for Credit
Losses (‘GRCL’) / RWA
($ million)
bps
($ million)
($ million)
($ million)
bps
67
16
232
461
234
91
74
18
237
478
257
100
(9%)
(2bps)
(2%)
(4%)
(9%)
31
14
232
461
234
36
17
240
562
255
(14%)
(3bps)
(3%)
(18%)
(8%)
(9bps)
91
96
(5bps)
The table above summarises BOQ’s key credit indicators with comparison against August 2015 and February 2016:
• Loan impairment expense has continued to reduce, reflective of continued strong credit management practices implemented across the
business in prior years. This has driven a significant improvement in the Commercial portfolio metrics over the half and maintained low loss
experience through the housing portfolio which continues to benefit from the record low interest rate environment. The full year impairment expense
of $67 million or 16bps/GLA is a 2bps improvement on the prior year, with the second half charge reducing to 14bps/GLA.
• Impaired assets declined by $5 million (2%) to $232 million for the year with the mix across the portfolio remaining largely in line with the prior
year. No exposures greater than $5 million were recognised in the second half, though the impaired asset portfolio still contains three exposures
greater than $5 million.
• Past due performance has improved at a total portfolio level. The dollar value of arrears has dropped in comparison with the prior year, while
GLAs have grown (refer ‘Arrears’ Section). The housing portfolio continues to show strong payment performance in line with the low interest rate
environment. Commercial arrears are at their lowest levels since 2012 with a significant decrease witnessed in both 30dpd (27%) and 90dpd
(33%) during the second half.
• Collective provisioning and GRCL coverage against risk weighted assets has decreased by 5bps over the half, though BOQ remains prudently
provisioned.
LOAN IMPAIRMENT EXPENSE
$ million
Retail Lending
Commercial Lending
BOQ Finance
Total Loan Impairment Expense
Loan Impairment Expense / GLA
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16 vs
Aug-15
Aug-16
Feb-16
Aug-16 vs
Feb-16
16
22
29
67
22
21
31
74
(27%)
5%
(6%)
(9%)
8
8
15
31
8
14
14
36
16bps
18bps
(2bps)
14bps
17bps
-
(43%)
7%
(14%)
(3bps)
The above table shows the continuing improvement in the Retail portfolio as the main driver for reduction in the impairment expense with the Retail
portfolio continuing to be aided by record low interest rates, improved market conditions and faster clearance rates. The Commercial portfolio has
increased slightly against the prior year. However, performance in the second half saw strong improvement on the first half, benefiting from fewer
new impaired assets, successful resolution of a number of troublesome watchlist accounts that emerged in the first half and improving arrears. BOQ
Finance impairment expense has improved slightly against the prior year and is operating in line with long term expectations for this portfolio. Strong
credit performance in the vast majority of the portfolio was offset by elevated loss experiences in the exposures relating to the mining and associated
sectors of the economy.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
25
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
3.1 ASSET QUALITY (CONTINUED)
IMPAIRED ASSETS
$ million
Retail Lending
Commercial Lending
BOQ Finance
Total Impaired Assets
Impaired Assets / GLA
As at
Aug-16
Feb-16
Aug-15
Aug-16 vs
Feb-16
Aug-16 vs
Aug-15
91
108
33
232
93
117
30
240
94
111
32
237
(2%)
(8%)
10%
(3%)
(3%)
(3%)
3%
(2%)
54bps
56bps
58bps
(2bps)
(4bps)
Impaired assets have decreased by $5 million (2%) to $232 million resulting in an improvement of the impaired asset to GLA ratio by 4bps over the
year to 54bps. The asset mix is largely in line with the prior year, with reductions in both Retail and Commercial impaired balances. BOQ Finance
increased over the half and full year due to a small number of exposures that transitioned into the portfolio associated with broader commercial
lending facilities which have longer workout timeframes than the traditional nature of leasing impairments. The graph below outlines the movements
in impaired assets since August 2015.
IMPAIRED ASSETS ($M)
86
17
28
41
83
19
29
35
237
32
94
111
80
23
28
29
88
20
30
38
Retail $2m (2%)
240
30
93
117
Commercial $9m (8%)
(2%)
232
33
91
108
Aug 15
New Impaired
Realisations
Feb 16
New Impaired
Realisations
Aug 16
Commercial
Retail
BOQ Finance
26 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
3.1 ASSET QUALITY (CONTINUED)
RETAIL IMPAIRED ASSETS
Retail impaired assets reduced $3 million (3%) over the year. The housing portfolio continues to show strong performance through improved
default metrics. There has been a lowering of the specific provision coverage ratio as the security position of the exposures entering default status
has been stronger than earlier in the cycle.
COMMERCIAL IMPAIRED ASSETS
Commercial impaired assets decreased by $3 million (3%) during the year after a slight increase in the first half. There were no new impaired exposures
greater than $5 million recognised over the half, and the portfolio contains three exposures greater than $5 million which relate to different sectors of
the economy.
BOQ FINANCE IMPAIRED ASSETS
BOQ Finance impaired assets increased by $1 million (3%) over the full year. An increase in arrears in the first half translated into an increase in
impaired assets in the third quarter of the financial year. This trend reversed in the fourth quarter as arrears metrics ended below the position at half
year and were largely in line with the prior year position.
COLLECTIVE PROVISION AND GRCL/RWA VS PEERS
The graph below shows BOQ’s level of collective provisions and GRCL to RWA against the current peer levels as published in their most recent
financial reports. BOQ’s coverage has dropped 4bps over the half as collective provisions decreased by $8 million (5%). BOQ remains prudently
provisioned and continue to be at the upper end of industry coverage ratio’s.
Collective Provision and GRCL/RWA vs Peers (1)
BOQ
0.91%
0.41%
0.96%
0.42%
0.54%
0.50%
0.88%
0.05%
0.83%
0.83%
0.09%
0.85%
0.14%
0.83%
0.08%
0.73%
0.72%
0.74%
0.71%
0.75%
0.39%
0.34%
0.57%
0.15%
Feb16
FY16
NAB
ANZ
CBA
WBC)
SUN
BEN
Collective Provision to RWA
General Reserve for Credit Losses to RWA
(1)
Major banks on advanced approach accredited by APRA risk weightings are lower causing coverage to appear higher on a relative basis to the standardised banks.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
27
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 3.1 ASSET QUALITY (CONTINUED)
PROVISION COVERAGE
Total provisions decreased by $16 million during the year. Specific provision coverage still remains at 50% as the impaired balance has also
decreased for the year. Collective provisions decreased over the year aided by some good success in early intervention in working with some larger
troublesome watchlist exposures that emerged in the first half to effective workout, without incurring loss.
$ 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.
SPECIFIC PROVISIONS ($M)
31
10
7
14
40
10
13
17
126
21
45
60
As at
Aug-16
Feb-16
Aug-15
Aug-16 vs
Feb-16
Aug-16 vs
Aug-15
116
140
256
81
50%
160%
1.3%
117
148
265
81
49%
159%
1.4%
31
11
8
12
117
21
39
57
126
146
272
81
53%
164%
1.5%
(1%)
(5%)
(3%)
(8%)
(4%)
(6%)
-
-
100bps
(300bps)
100bps
(400bps)
(10bps)
(20bps)
32
12
11
9
116
20
36
60
Aug 15
New Specifics
Realisations
Feb 16
New Specifics
Realisations
Aug 16
Retail
Commercial
BOQ Finance
28 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
3.1 ASSET QUALITY (CONTINUED)
ARREARS
Portfolio
Balance
$m
Key Metrics
Aug-16
Aug-16
Feb-16
Aug-15
Total Lending - Portfolio balance ($ million)
43,152
42,924
40,975
Aug-16 vs
Feb-16
Aug-16 vs
Aug-15
1%
(18%)
(8%)
5%
(4%)
(9%)
461
234
562
255
478
257
Proportion of Portfolio
1.07%
0.54%
1.31%
0.59%
1.17%
0.63%
(24bps)
(10bps)
(5bps)
(9bps)
27,248
2,640
304
8,818
4,142
0.98%
0.47%
1.93%
1.02%
1.97%
1.32%
1.23%
0.81%
0.75%
0.13%
1.10%
0.40%
2.70%
1.18%
1.89%
0.95%
1.68%
1.20%
0.89%
0.17%
1.02%
0.55%
1.61%
0.74%
1.85%
0.93%
1.63%
1.06%
0.79%
0.13%
(12bps)
7bps
(77bps)
(16bps)
8bps
37bps
(45bps)
(39bps)
(14bps)
(4bps)
(4bps)
(8bps)
32bps
28bps
12bps
39bps
(40bps)
(25bps)
(4bps)
-
30 days past due ($ million)
90 days past due ($ million)
30 days past due: GLAs
90 days past due: GLAs
By Product
30 days past due: GLAs (Housing)
90 days past due: GLAs (Housing)
30 days past due: GLAs (Line of Credit)
90 days past due: GLAs (Line of Credit)
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)
RETAIL ARREARS
Housing arrears improved by 12bps for the half in 30dpd following the usual seasonal uptick in February, though deteriorated slightly in 90dpd
with an increase of 7bps from a very strong half year position. While 90dpd increased over the half, it is still 8bps lower than the prior year as
the mortgage portfolio continues to benefit from lower interest rate environment.
Line of Credit arrears decreased over the half as anticipated, with the first half impacted by seasonality and unwound as expected. The portfolio
balance continued to decrease as it was largely originated prior to 2012. The portfolio was progressively repriced during the year to better reflect
its underlying riskier profile.
BOQ BUSINESS ARREARS
Commercial arrears improved substantially over the full year in both 30dpd and 90dpd. The benefits of the new risk appetite and credit practices
established in 2012 are evident. Improved asset prices and low interest rates assisted in rectifying troubled accounts and BOQ’s improved risk
management capability has been successful in driving early identification and intervention in stressed exposures.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
29
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
3.2 FUNDING AND LIQUIDITY
The funding strategy and risk appetite reflects the Group’s business strategy, current economic environment, and allowance for potential scenarios
that could impact the funding position. Over the year, BOQ increased customer deposits adding $2.2 billion, an increase of 8% that fully funded
lending growth for 2016. This increased BOQ’s Deposit to Loan Ratio by 2% to 68% as at August 2016.
The increase in long term wholesale funding of $500 million over the year was created predominantly through senior unsecured debt issuance,
highlighting the Group’s ability to build additional capacity in both domestic and offshore markets following credit rating upgrades in prior years.
The combination of growth in customer deposits and long term wholesale funding strengthened the core stable funding profile of the Bank.
$ million
Customer Deposits (2)
Wholesale Deposits
Total Deposits
Borrowings
Other Liabilities
Total Liabilities
As at
Aug-16
Feb-16
Aug-15
29,122
28,260
26,914
7,598
7,820
7,818
36,720
36,080
34,732
9,398
1,148
9,204
1,032
8,713
1,104
47,266
46,316
44,549
Aug-16 vs
Feb-16 (1)
Aug-16 vs
Aug-15
6%
(6%)
4%
4%
23%
4%
8%
(3%)
6%
8%
4%
6%
(1)
(2)
Growth rates have been annualised.
The classification of customer deposits is defined as all deposits excluding those from financial institutions as defined under APS210 Liquidity Standard
FUNDING MIX ($b)
LONG TERM WHOLESALE ($b)
43.4
8.6
7.9
26.9
45.4
9.1
8.0
46.1
9.1
7.9
28.3
29.1
8.6
3.0
4.8
9.1
3.8
4.5
9.1
4.3
4.1
0.8
Aug 15
Senior
Unsecured
0.8
Feb 16
Securitisation
0.7
Aug 16
Sub-Debt/
CPS (2)
Aug 15
Feb 16
Aug 16
(2) Convertible Preference Shares and Wholesale Capital Notes.
(1) The classification of customer deposits is defined as all deposits excluding those from financial
institutions as defined under APS210.
Customer
Deposits (1)
Short Term
Wholesale
Long Term
Wholesale
30 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 3.2 FUNDING AND LIQUIDITY (CONTINUED)
BOQ’s liquidity strategy and risk appetite is designed to ensure it has the ability to meet payment obligations as and when they fall due. To manage
liquidity risk BOQ maintains a portfolio of unencumbered high quality liquid assets, including a buffer to withstand a range of stress events, including
those involving the loss or impairment of both unsecured and secured funding sources.
As at 31 August 2016 the Liquidity Coverage Ratio (‘LCR’) was 122% and the average for the quarter was 129%, with an appropriate buffer held
against prudential limits. In addition, based upon the information available, the Group’s Net Stable Funding Ratio is above the regulatory minimum.
BOQ is well positioned to have a prudent buffer in place by 1 January 2018 once the regulatory standard is finalised over the coming year.
BOQ continues to take all reasonable steps to reduce its reliance on the Committed Liquidity Facility (‘CLF’) and strengthen the Net Stable Funding
Ratio by continuing to grow stable sources of funding, namely customer deposits and long term wholesale funding.
BOQ continues to diversify and increase its allocation to Tier One High Quality Liquid Assets (‘HQLA1’) consisting of deposits with central banks,
Australian Commonwealth Government and Semi-Government securities which now represents 70% of Net Cash Ouflows.
As at
Aug-16
Feb-16
Aug-15
Aug-16 vs
Feb-16
Aug-16 vs
Aug-15
Customer deposit funding
Wholesale deposit funding
79%
21%
78%
22%
77%
23%
Total GLA’s (net of specific provision) ($ million)
Deposit to Loan Ratio
43,036
42,807
40,849
68%
66%
66%
1%
(1%)
1%
2%
2%
(2%)
5%
2%
FUNDING
BOQ has increased the long term wholesale funding portfolio over the year against a backdrop of challenging economic and market conditions.
In addition to the two benchmark senior unsecured transactions executed in the first half, BOQ continued to extend its funding curve with the execution
of a new five year senior unsecured transaction in May. BOQ also took advantage of the private placement market raising additional funding both
domestically and via BOQ’s Euro Medium Term Note programme. BOQ will continue exploring other funding markets that will further increase its
funding capability and diversity.
MAJOR MATURITIES ($M) (1) (2)
Over the past year, BOQ continued to evolve its long term wholesale funding profile into a mature state with numerous pricing points on the senior
unsecured curve to promote more transparent pricing for investors. BOQ built further capacity into its wholesale funding profile, ensuring maturities
are balanced to limit refinancing risk and assist with liability and liquidity management.
Term issuance over the year included a $750 million securitisation transaction, $150 million subordinated debt issue and $1.9 billion worth of senior
unsecured issues (including domestic and offshore private placements).
800
600
400
200
0
50
500
500
50
400
600
300
NEW LONG TERM WHOLESALE FUNDING
550
600
150
150
600
Oct-16
Feb-17
Jun-17
Aug17
Dec-17
Feb-18 May-18 Aug-18
Nov-18 Feb-19 May-19 Aug-19
Nov-19 Feb-20 May-20
Aug-20 Nov-20 Feb-21
Aug-21
(1)
Senior unsecured maturities greater than $100 million shown, excludes private placements.
(2)
Redemption of Subordinated Debt Notes and Additional Tier 1 instruments at the scheduled call date is to BOQ’s option and is subject to obtaining prior written approval from APRA.
Senior Unsecured
Subordinated Debt
Additional Tier 1
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
31
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
3.2 FUNDING AND LIQUIDITY (CONTINUED)
BOQ maintains a portfolio of repo eligible, diversified, marketable High Quality Liquid Assets to facilitate balance sheet liquidity and meet internal and
external requirements. The credit quality of the liquid asset portfolio continued to improve through an increase in HQLA1 holdings over the year to $3.1
billion. BOQ was granted a $2.6 billion RBA Committed Liquidity Facility for the 2016 calendar year, sufficient to enable BOQ to meet its minimum
regulatory requirement of greater than 100% LCR.
LIQUIDITY COMPOSITION - BASEL III ($B)
8.1
2.6
3.4
2.1
8.2
2.6
2.8
2.8
8.4
2.7
2.6
3.1
Aug 15
HQLA1 (1)
Feb 16
Liquid Assets (2)
Aug 16
Internal RMBS (3)
(1)
(2)
(3)
HQLA1 includes government and semi-government securities, cash held with RBA and notes & coins.
Liquid Assets include all unencumbered RBA repurchase eligible liquid assets able to be pledged as collateral to the RBA under the CLF.
Internal RMBS are able to be pledged as collateral to the RBA CLF.
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-16
Feb-16
Aug-15
Aug-16 vs
Feb-16
Aug-16 vs
Aug-15
2,524
2,416
2,346
450
474
450
554
450
551
3,448
3,420
3,347
28,054
27,467
26,321
5%
-
8%
-
(14%)
(14%)
1%
2%
3%
7%
9.00%
8.80%
8.91%
12.29%
12.45%
12.72%
20bps
(16bps)
9bps
(43bps)
The Group further strengthened its capital ratios during the year with the Common Equity Tier 1 (‘CET1’) ratio increasing 9bps to 9.00%. The second
half saw a 20bps increase in CET1 reflecting underlying cash earnings and a strong dividend reinvestment participation rate which more than
compensated for the moderated loan growth in the second half. The half also saw a favourable movement in the available for sale reserve which
offset the impact of an increase in capitalised software reflecting the heightened reinvestment being undertaken.
32 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 3.3 CAPITAL MANAGEMENT (CONTINUED)
COMMON EQUITY TIER 1 FY16 V FY15
Underlying Capital Generation of
22bps
0.48%
1.35%
0.65%
0.09%
0.11%
0.06%
0.01%
8.91%
9.00%
FY15
Cash Earnings (1)
RWA Growth
Dividend net of
DRP
Securitisation
Capitalised
Software
AFS Reserves
Other (2)
FY16
(1)
(2)
Cash earnings adjusted for one-off non-recurring items which represents the impact of the restructuring costs of $15 million before tax.
Other items include the positive impact of reduced deferred tax balances and dividends received from entities outside the capital group, net against non-recurring items and deferred acquisition costs.
COMMON EQUITY TIER 1 2H16 V 1H16
Underlying Capital Generation of
19bps
0.17%
0.68%
0.32%
8.80%
0.02%
0.03%
0.09%
0.03%
9.00%
1H16
Cash Earnings (1)
RWA Growth
Dividend net of
DRP
Securitisation
Capitalised
Software
AFS Reserves
Other (2)
FY16
(1)
(2)
Cash earnings adjusted for one-off non-recurring items which represents the impact of the restructuring costs of $8 million before tax.
Other items includes capitalised deferred acquisition costs and non-recurring items offset by positive impact of a reduced deferred tax asset.
3.4 TAX EXPENSE
Tax expense arising on Cash Earnings for the year amounted to $163 million. This represents an effective tax rate of 31.2%, 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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
33
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4. APPENDICES
4.1 RECONCILIATION OF STATUTORY PROFIT TO CASH EARNINGS
The Cash Earnings provided is used by Management to present a clear view of BOQ’s 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 excluded this year relate to the amortisation of customer contracts. The BOQ Specialist integration was finalised during the year and
has been completed within previously advised guidance.
(A) RECONCILIATION OF CASH EARNINGS TO STATUTORY NET PROFIT AFTER TAX
$ million
Cash Earnings after Tax
Amortisation of customer contracts (acquisition)
Amortisation of Fair Value adjustments (acquisition)
Hedge ineffectiveness
Integration / transaction costs
Legacy items
Statutory Net Profit after Tax
(B) NON-CASH EARNINGS RECONCILING ITEMS
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16 vs
Aug-15
Aug-16
Feb-16
Aug-16 vs
Feb-16
360
(15)
(1)
(4)
(2)
-
338
357
(14)
(1)
(3)
(20)
(1)
318
1%
7%
-
33%
(90%)
(100%)
6%
181
179
1%
(7)
-
(6)
(1)
-
(8)
(1)
2
(1)
-
(13%)
(100%)
n/a
-
-
167
171
(2%)
$ 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-16
Virgin
Money
Amortisation
of customer
contracts
(acquisition)
Amortisation
of fair value
adjustments
Hedge
ineffectiveness
Integration/
transaction
costs
Legacy
items
Statutory
Net Profit
Aug-16
937
173
1,110
(520)
590
(67)
523
(163)
360
-
15
15
(15)
-
-
-
-
-
-
-
-
(17)
(17)
-
(17)
2
(15)
-
-
-
(1)
(1)
-
(1)
-
(1)
-
(6)
(6)
-
(6)
-
(6)
2
(4)
(1)
-
(1)
(2)
(3)
-
(3)
1
(2)
-
(1)
(1)
1
-
-
-
-
-
936
181
1,117
(554)
563
(67)
496
(158)
338
34 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.2 OPERATING CASH EXPENSES
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
Restructuring expenses (1)
Year End Performance
Half Year Performance
Aug-16
Aug-15
Aug-16 vs
Aug-15
Aug-16
Feb-16
Aug-16 vs
Feb-16
200
20
13
11
9
253
31
9
3
43
17
7
21
4
1
20
28
98
64
27
1
92
12
2
5
19
15
195
20
12
7
7
241
34
9
4
47
19
7
20
5
9
24
26
110
64
17
1
82
12
2
6
20
-
3%
-
8%
57%
29%
5%
(9%)
-
(25%)
(9%)
(11%)
-
5%
(20%)
(89%)
(17%)
7%
(11%)
-
59%
-
12%
-
-
(17%)
(5%)
-
4%
100
10
6
6
5
100
10
7
5
4
127
126
15
4
2
21
10
4
11
2
1
8
12
48
34
15
1
50
6
1
3
10
8
16
5
1
22
7
3
10
2
-
12
16
50
30
12
-
42
6
1
2
9
7
-
-
(14%)
20%
25%
1%
(6%)
(20%)
100%
(5%)
43%
33%
10%
-
-
(33%)
(25%)
(4%)
13%
25%
-
19%
-
-
50%
11%
14%
264
256
3%
Total Operating Expenses
520
500
(1)
The 2016 restructuring expenses mainly consist of employee costs.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
35
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.2 OPERATING CASH EXPENSES (CONTINUED)
Employee Expenses
Employee share program costs increased over the year. This included allocation of long term award incentives to BOQ Specialist staff that were
previously covered by transitional retention arrangements following acquisition in July 2014. Customer acquisition through new channels has
impacted salary costs with an increase in sales and support staff required.
Occupancy Expenses
The prior year included $6 million of costs associated with the transition of Brisbane and Sydney head offices.
General Expenses
The decrease from the prior year reflected the impairment of the pilot CRM system ($10 million) in 2015.
IT Expenses
The delivery of a number of key initiatives during the year resulted in an uplift in the amortisation profile of $10 million. BOQ has continued to invest
in areas that improve the overall customer experience, productivity and efficiency.
4.3 PROPERTY, PLANT & EQUIPMENT (CONSOLIDATED)
Cost
Balance as at 1 September 2015
Additions
Disposals
Transfers between categories
Balance as at 31 August 2016
Amortisation and loss on disposal / impairment
Balance as at 1 September 2015
Depreciation for the year
Disposals
Balance as at 31 August 2016
Carrying amount as at 31 August 2015
Carrying amount as at 31 August 2016
Leasehold
improvements
$m
Plant furniture
and equipment
$m
IT
equipment
$m
Capital
works in
progress
$m
Assets
under
Operating
Lease
$m
69
6
(4)
-
71
30
7
(4)
33
39
38
32
1
(1)
1
33
22
2
(1)
23
10
10
32
-
(1)
-
31
29
1
(1)
29
3
2
1
1
-
(1)
1
-
-
-
-
1
1
25
10
(11)
-
24
17
8
(10)
15
8
9
Total
$m
159
18
(17)
-
160
98
18
(16)
100
61
60
36 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.4 CASH EPS CALCULATIONS
Year End Performance
Half Year Performance
Aug-16
Aug-15 (2)
Aug-16 vs
Aug-15
Aug-16
Feb-16
Aug-16 vs
Feb-16
Basic EPS
Diluted EPS
(cents)
(cents)
Reconciliation of Cash Earnings for EPS
Cash Earnings available for ordinary shareholders
($ 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)
95.6
90.7
360
16
7
383
376
1
30
15
422
97.3
94.3
(2%)
(4%)
47.8
45.4
47.8
45.6
-
-
357
16
2
375
367
3
24
3
397
1%
-
250%
181
179
8
3
8
4
1%
-
(25%)
2%
192
191
1%
2%
(67%)
25%
400%
378
1
30
15
6%
424
373
2
27
14
416
1%
(50%)
11%
7%
2%
(1)
(2)
On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes at a price of $10,000 per note.
August 2015 has been restated to reflect the correct pro-rata treatment of the Wholesale capital notes, issued 26 May 2015.
4.5 ISSUED CAPITAL
ORDINARY SHARES
Movements during the year
Balance at the beginning of the year – fully paid
Issue of ordinary shares - 26 October 2015 (1)
Issue of ordinary shares - 9 February 2016 (1)
Dividend reinvestment plan - 24 November 2015 (2)
Dividend reinvestment plan - 19 May 2016 (2)
Balance at the end of the year – fully paid
Consolidated
2016
Number
2016
$m
370,768,776
3,155
1,130,000
374,000
3,893,309
4,829,617
15
5
51
53
380,995,702
3,279
(1)
On 26 October 2015, 1,130,000 ordinary shares were issued and on 9 February 2016, 374,000 ordinary shares were issued to the trustee of the Bank of Queensland Limited Employee Share Plan Trust. This was 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)
36% was taken up by shareholders on 24 November 2015 and 38% on 19 May 2016 as part of the Dividend Reinvestment Plan.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
37
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 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 earning 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
Shareholders’ funds
Total liabilities & shareholders’ funds
Interest margin & interest spread
Interest earning assets
Interest bearing liabilities
Net interest spread
August 2016
(Full Year)
August 2015
(Full Year)
Average
Balance
$m
Interest
$m
Average
Rate
%
Average
Balance
$m
Interest
$m
Average
Rate
%
2,001
155
2,156
4.70
2.65
4.45
661
558
1,219
2.34
3.26
2.68
42,571
5,850
48,421
61
1,558
(268)
1,351
49,772
28,255
17,124
45,379
869
46,248
3,524
49,772
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
2,037
190
2,227
5.13
2.98
4.83
726
594
1,320
2.73
3.58
3.06
48,421
45,379
2,156
1,219
4.45
2.68
1.77
0.17
1.94
46,098
43,188
2,227
1,320
46,098
907
4.83
3.06
1.77
0.20
1.97
Benefit of net interest-free assets, liabilities and equity
Net interest margin - on average interest
earning assets
48,421
937
38 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.6 AVERAGE BALANCE SHEET AND MARGIN ANALYSIS (CONTINUED)
August 2016
February 2016
(Six month period)
(Six month period)
Average
Balance
$m
Interest
$m
Average
Rate
%
Average
Balance
$m
Interest
$m
Average
Rate
%
1,011
78
1,089
4.64
2.59
4.39
339
280
619
2.35
3.17
2.66
43,354
5,999
49,353
60
1,551
(264)
1,347
50,700
28,690
17,569
46,259
885
47,144
3,556
50,700
41,837
5,669
47,506
61
1,553
(270)
1,344
48,850
27,821
16,690
44,511
847
45,358
3,492
48,850
990
77
1,067
4.76
2.71
4.52
323
277
600
2.33
3.34
2.71
Interest earning assets
Gross loans & advances at amortised cost
Investments & other securities
Total interest earning assets
Non-interest earning 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
Shareholders’ funds
Total liabilities & shareholders’ funds
Interest margin & interest spread
Interest earning assets
Interest bearing liabilities
Net interest spread
Benefit of net interest-free assets, liabilities and equity
Net interest margin - on average interest
earning assets
49,353
470
49,353
46,259
1,089
619
4.39
2.66
1.73
0.17
1.90
47,506
44,511
1,067
600
4.52
2.71
1.81
0.16
47,506
467
1.97
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
39
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.7 DISTRIBUTION FOOTPRINT
BOQ has continued to develop its ‘Customer in Charge’ strategy to allow customers to engage through their channel of choice. This includes a
preferred broker (aligned to BOQ or Virgin Money) or directly with BOQ through BOQ’s Owner Managed and Corporate branches, online via digital,
social media or mobile banking or on the telephone to BOQ’s award winning Perth and Gold Coast Customer Contact Centres.
Branch numbers reduced by 23 during the 2016 financial year as BOQ looked to optimise its points of presence. Nearly half of BOQ’s Owner
Managers have transitioned to the new franchise proposition which better aligns the network with the strategic objectives of the Bank and has
delivered significant performance improvements in terms of settlements and fulfilment of broader customer needs. A further 8 ICON branches were
delivered during the year including the first Owner Managed ICON branch at Kippa-Ring in Brisbane.
The broker strategy expansion accelerated over 2016 with the total BOQ accredited brokers now exceeding 3,500. The launch of Virgin Money
mortgages this half has resulted in a further 800 brokers being accredited with the scheduled onboarding of two major aggregators in October.
Across the BOQ branded and Virgin Money broker aggregator relationships, the Group now has access to approximately 75% of the Australia Broker
market. The majority of accredited brokers are situated outside of Queensland which will further accelerate the geographic diversification of the
portfolio.
NT
27
2
SA
1
2
39
11
144
42
1
252
WA
663
14
9
71
209
135
AS AT 31 AUGUST 2016
77
CORPORATE BRANCHES
548
BOQ BRANDED ATM’S
126
OWNER MANAGED BRANCHES
2432
REDI ATM’s
3537
BROKERS
8
TRANSACTION CENTRES
666
VIRGIN MONEY BROKERS
40 ANNUAL REPORT 2016
QLD
75
43
8
77
629
290
451
NSW & ACT
11
23
1107
199
121
851
VIC
8
947
60
190
13
561
TAS
2
3
20
69
14
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.7 DISTRIBUTION FOOTPRINT (CONTINUED)
As at Aug-16
Corporate Branches
Owner Managed Branches
Transaction Centres
As at Aug-15
Corporate Branches
Owner Managed Branches
Transaction Centres
QLD
NSW / ACT
VIC
43
77
8
128
11
23
-
34
8
13
-
21
WA
14
9
-
23
45
85
8
138
13
25
-
38
7
20
-
27
16
10
-
26
CORPORATE, OWNER MANAGED BRANCHES (‘OMB’) & TRANSACTION CENTRES
234
11
12
9
NT
TAS
SA
Total
1
-
-
1
1
-
-
1
77
126
8
211
Total
82
144
8
234
-
2
-
2
-
2
-
2
-
2
-
2
-
2
-
2
2
QLD
NSW / ACT
VIC
WA
NT
TAS
SA
144
82
8
Aug-15
OMB Closures /
Mergers
Corporate Closures
OMBs converted to
Corporate Branches
Corporate Branches
converted to OMB
OMBs
Corporate
Transaction Centres
211
126
77
8
Aug-16
4.8 CREDIT RATING
The progress made over recent years in strengthening the balance sheet and embedding a revised risk appetite has been recognised with the major
credit agencies of Standard & Poor’s, Moody’s and Fitch having reaffirmed BOQ’s credit ratings during the course of the year.
BOQ’s 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
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
41
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.9 LIQUIDITY COVERAGE RATIO
APRA requires ADIs to maintain a minimum 100% LCR. The LCR requires sufficient High Quality Liquid Assets to meet net cash outflows over a 30
day period, under a regulator defined liquidity stress scenario. BOQ manages its LCR on a daily basis with a buffer above the regulatory minimum in
line with the BOQ prescribed risk appetite and management ranges. BOQ’s average LCR remained consistent over the August quarter at 129% (31
May 2016 quarter: 129%). The following table presents detailed information in respect of the average LCR composition for the two quarters.
BOQ maintains a portfolio of high quality, diversified liquid assets to facilitate balance sheet liquidity needs and meet internal and regulatory
requirements. Liquid assets comprise HQLA (cash, Australian Semi-Government and Commonwealth Government securities) and alternate liquid
assets covered by the CLF from the Reserve Bank of Australia. Assets eligible for the CLF include senior unsecured bank debt, covered bonds and
residential mortgage backed securities (‘RMBS’) that are repo eligible with the Reserve Bank of Australia.
BOQ has a stable, diversified and resilient deposit and funding base that mitigates the chance of a liquidity stress event across various funding market
conditions. BOQ utilises a range of funding tools including customer deposits, securitisation, short term and long term wholesale debt instruments.
BOQ has increased customer funding over the period as part of its overall funding strategy. Bank lending is predominantly funded from stable funding
sources with short term wholesale funding primarily used to manage timing mismatches and fund liquid assets.
The liquid assets composition has changed over the combined quarters with the allocation to HQLA increasing, now making up 72% of net cash
outflows (29 February 2016: 64%). Across the combined quarters net cash outflows have increased in line with balance sheet growth.
BOQ does not have significant derivative exposures or currency exposures that could adversely affect its LCR.
42 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 4.9 LIQUIDITY COVERAGE RATIO (CONTINUED)
Liquid Assets, of which
High quality liquid assets
Alternative liquid assets
Total Liquid Assets
Cash Outflows
Average Quarterly Performance
August Quarter
May Quarter
Total
Unweighted
Value
$m
Total
Weighted
Value
$m
Total
Unweighted
Value
$m
Total
Weighted
Value
$m
n/a
n/a
2,982
2,385
5,367
n/a
n/a
3,014
2,375
5,389
Customer deposits and deposits from small branch customers, of which
13,497
1,239
13,444
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 (%)
6,863
6,634
4,322
3,279
1,043
n/a
394
330
64
324
9,105
27,642
723
395
1,118
26,524
n/a
n/a
n/a
343
896
2,721
1,678
1,043
56
333
330
3
16
609
4,974
413
395
808
4,166
5,367
4,166
129%
6,419
7,025
4,211
3,116
1,095
n/a
423
319
104
369
8,528
26,975
750
515
1,265
25,710
n/a
n/a
n/a
1,325
321
1,004
2,756
1,661
1,095
65
324
319
5
53
598
5,121
433
515
948
4,173
5,389
4,173
129%
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
43
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016 Dear Shareholder,
Please find attached our 2016 Remuneration Report.
This letter provides an overview and summary of our policy, practice and its
application to remuneration in 2016.
During the year the Board Chair and I again met with a number of shareholders
and their advisors. Feedback from these meetings has been central to the
refinements made to the report, providing improved disclosure and explanation
of the key components of our remuneration.
Our remuneration philosophy remains underpinned by a desire to attract and
retain quality executives and directors, to align with the short and medium
term rewards for our shareholders, and to incentivise appropriate long term
risk behaviours.
The outcomes of this 2016 review of Group Executives including the MD
resulted in an increase in fixed pay of 3.7% (2015: 0%). For STI, the agreed
awards represent a reduction of 15% to awards made in 2015 (In 2015 the
comparative amount reduced by 10% as compared to 2014). LTI has been
agreed at the same percentage of fixed pay as 2015 albeit the awards have
increased with increases in 2015 fixed pay
Overall, your Board has considered remuneration in light of a satisfactory year
in a changing environment for banks. It is pleased with progress in a number
of areas which are internal to the bank including systems, processes, business
integration and risk awareness. The Board has accepted the Committees’
remuneration recommendations as serving the best interests of shareholders in
the short and medium term.
The core principles upon which remuneration is based have remained
unchanged in the 2016 financial year:
Yours sincerely
David Willis
Chair BOQ Human Resources & Remuneration Committee
CONTENTS
1. Summary of Key Management Personnel non-statutory remuneration
Page
outcomes 2016
2. Key Management Personnel & Governance
3. Remuneration framework
4. Remuneration outcomes
5. Executive contracts
6. Non-Executive Director remuneration
7. Statutory tables
45
46
48
51
54
55
55
• Remuneration structure is appropriately balanced between fixed and at risk
variable reward. For guidance, the mix is weighted approximately one third
fixed pay, one third short term incentive and one third long term incentive;
• We do not make cash payments to executives on commencement of
employment with BOQ;
• Key performance measures covering both financial and non financial
targets are agreed for all executives at the commencement of the financial
year;
• Remuneration outcomes are matched to independently sourced market
data;
• Short Term Incentive (‘STI’) is capped and over a certain amount a portion
is deferred over two years;
•
Long Term Incentive (‘LTI’) is capped and for senior executives is awarded
by way of Performance Award Rights (‘PARs’) at face value. These vest
subject to Total Shareholder Return (‘TSR’) and Earnings Per Share (‘EPS’)
growth hurdles;
•
For senior executives departing BOQ unvested or deferred equity and cash
remain on foot for the full vesting period;
•
The Board has discretion on all remuneration outcomes.
In 2016, with the assistance of external advisors the Remuneration Committee
undertook a review of the senior executive STI scheme. The Board subsequently
approved the new scheme for the 2017 financial year. Changes further clarify
the KPIs and the scoring of these, provide greater flexibility to the scoring
range, and establish a guide to the Board overlay. The outcome is greater clarity
for executives and more transparent scoring for the Board.
As part of its overall review of remuneration in 2016 the Committee agreed a
capped pool for fixed pay increases at 2% (2015: 2.5%) and a bank wide STI
pool of $17.5 million (2015: $20.1 million).
In relation to senior executives and the Managing Director and Chief Executive
Office (‘MD’) the Committee received verbal and written submissions from the
MD for the banks Group Executives and from the Board Chair for the MD.
The 2016 increases in fixed remuneration were considered in the context of
market comparators, inflation, job scope changes and the history of each
individual’s fixed pay increases over the past 3 years. In assessing the STI
recommendations the Committee had regard for the outcomes produced by
the application of KPI scores to the 2016 scheme formula. It also considered
a number of other factors relevant to the outcomes for shareholders but which
were not contemplated in the KPIs set at the beginning of the 2016 financial
period. These factors included actual as opposed to targeted results, short and
medium term value created for shareholders, improved technology outcomes,
successful business integration, improved product and pricing disciplines, and
importantly enhanced risk systems and awareness. LTI has been considered by
the committee on the basis of retention and potential.
44 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016 SECTION 1. SUMMARY OF KEY MANAGEMENT PERSONNEL (‘KMP’) NON-STATUTORY REMUNERATION OUTCOMES 2016
This Remuneration Report is prepared for consideration by shareholders at the 2016 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 2015 to 31 August 2016 and has been prepared in accordance
with Section 300A of the Corporations Act 2001 and its regulations.
The table below provides shareholders with a view of non-statutory remuneration paid to and earned by KMP, pro-rated for service during the period up to 31 August
2016. It includes fixed and short term variable remuneration and LTI grants that vested during the period. Information will differ from that provided in the statutory tables.
Table 1 KMP Non-statutory Remuneration
Base
plus
Superannuation (1)
$
Maximum STI
Potential (2)
%
STI as % of
Maximum
STI Potential
(3)
%
STI
Paid as
Cash (4)
$
STI
Deferred (5)
$
2016
Total STI
Value
$
Total Cash
Payments in
relation to the
2016 year (6)
$
Deferred
Equity
Awards
Vested in the
Period (7)
$
LTI Awards
Vested in
2016 (8)
$
Current KMP
Jon Sutton
Matthew Baxby
Peter Deans
Belinda Jefferys (9)
Vimpi Juneja (9)
Anthony Rose
Michelle Thomsen
Donna-Maree Vinci
Brendan White
Former KMP
Karyn Munsie
1,293,678
596,245
649,138
315,805
383,638
647,509
393,487
563,448
637,548
150%
140%
100%
100%
100%
100%
100%
100%
140%
51%
56%
56%
47%
53%
58%
43%
60%
53%
500,000
235,000
187,500
72,500
100,000
187,500
85,000
170,000
237,500
500,000
235,000
187,500
72,500
100,000
187,500
85,000
170,000
237,500
1,000,000
1,793,678
515,350
1,628,547
470,000
375,000
145,000
200,000
375,000
170,000
340,000
475,000
831,245
349,998
1,445,609
836,638
324,179
1,459,378
388,305
483,638
-
-
-
-
835,009
331,460
1,559,269
478,487
733,448
-
-
-
-
875,048
418,171
1,464,586
115,856
100%
-
-
-
-
115,856
164,858
-
Additional Information – Non-Statutory Remuneration Methodology
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Base remuneration and superannuation make up an Executive’s fixed remuneration.
The maximum STI is represented as a percentage of fixed remuneration. The minimum STI potential is zero.
Total STI paid as a percentage of maximum STI potential.
This is 50% of the 2016 STI for performance during the 12 months to 31 August 2016 (payable October 2016).
This represents 50% of the 2016 STI award that is deferred until 1 October 2017 (50%) and 1 October 2018 (50%). The deferred awards are subject to Board review at the time of payment and are deferred into restricted
shares subject to vesting conditions.
This is the total $ value of cash STI, base and superannuation relating to 2016.
The value of all deferred cash and /or equity awards (closing share price on vesting date) that vested during 2016 financial year. This excludes deferred equity awards granted in previous years which have not vested in
financial year 2016.
(8)
This relates to Performance Award Rights that vested during the financial year (closing share price on vesting date).
(9)
Amounts are pro-rated for Executives appointed during the period.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
45
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016
SECTION 2. KEY MANAGEMENT PERSONNEL & GOVERNANCE
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 Group Executives and Directors for the financial year 2016 are shown in the table below. This includes newly appointed Directors and Group Executives
and those that exited during the operating period.
Directors (Executive and Non-Executive)
Group Executives (Key Management Personnel)
Current
Roger Davis
Jon Sutton
Chairman (Non-Executive)
Matthew Baxby
Group Executive Retail Banking
Managing Director and Chief Executive Officer (‘MD’)
Peter Deans
Chief Risk Officer (‘CRO’)
Bruce Carter
Director (Non-Executive)
Belinda Jefferys
Richard Haire
Director (Non-Executive)
Vimpi Juneja
Group Executive People and Culture
(Appointed 27 January 2016)
Group Executive Product and Strategy
(Appointed 9 November 2015)
John Lorimer
Karen Penrose
Director (Non-Executive)
(Appointed 29 January 2016)
Director (Non-Executive)
(Appointed 26 November 2015)
Anthony Rose
Chief Financial Officer (‘CFO’)
Michelle Thomsen
General Counsel and Company Secretary
Margaret Seale
Director (Non-Executive)
Donna-Maree Vinci
Group Executive Chief Operations, Digital &
Information Officer
Michelle Tredenick
Director (Non-Executive)
Brendan White
Group Executive BOQ Business
David Willis
Former
Neil Berkett
Director (Non-Executive)
Director (Non-Executive)
(Resigned 31 May 2016)
Carmel Gray
Director (Non-Executive)
(Resigned 26 November 2015)
Karyn Munsie
Group Executive Corporate Affairs,
Investor Relations & Government
Relations (Resigned 29 October 2015)
Remuneration is governed by principles, policy and oversight of the Human Resources & Remuneration Committee (‘HRRC’) in accordance with its Charter. The
HRRC and Board may exercise discretion in accordance with parameters described below.
2.1 REMUNERATION PRINCIPLES
The remuneration principles applied are as follows:
•
•
Total reward is linked to performance and aligns to shareholder interests;
Fixed and total remuneration for each KMP is benchmarked to the market each year to ensure it remains competitive;
• Key performance measures are determined for all Executives, covering both financial and non-financial targets;
•
•
•
The Bank’s Long Term Incentive is awarded on the basis of a face value volume-weighted average share price and not using at-risk adjusted fair value;
Total remuneration for KMP is targeted to achieve a balanced mix between fixed, short term and long term variable at risk remuneration;
Variable remuneration is subject to deferral and/or clawback of unvested short term and long term incentives;
• We do not make cash payments on commencement of employment as Executives; and
•
The Board has discretion on all remuneration outcomes.
2.2 COMMITTEE CHARTER
Under the Consolidated Entity’s HRRC 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 Group Executives;
• Review and provide annual
for Group Executives
(i.e. Managing Director and Chief Executive Officer and his or her direct reports) and all other Responsible Persons (as defined by the Australian Prudential
Regulation Authority Prudential Standard CPS520 );
remuneration arrangements
recommendations
the Board on
individual
the
to
• Review and provide annual recommendations to the Board on the remuneration principles for employees in Finance and Legal and Risk;
46 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016 2. KEY MANAGEMENT PERSONNEL & GOVERNANCE (CONTINUED)
2.2 COMMITTEE CHARTER (CONTINUED)
• 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 to ensure that the structure of NED remuneration is clearly distinguished from
that of Group Executives.
Where necessary, the Board seeks advice from independent experts and advisors, including Remuneration Consultants. Remuneration Consultants are engaged
by the HRRC which ensures, upon engagement, that the appropriate level of independence exists from the Consolidated Entity’s Management. Reports provided by
independent consultants are submitted directly to the Chairman of the HRRC. Where the consultant’s engagement requires a recommendation, the recommendation
is provided to, and discussed directly with the Chairman of the HRRC in accordance with the requirements as set out under the Corporations Act 2001.
During the period the Committee engaged AON Hewitt to undertake a review of the STI Plan for 2017. Fees incurred with Aon Hewitt were $74,503.
Egan & Associates and Ernst & Young were engaged to provide external remuneration benchmarking information covering all remuneration elements of the KMP.
Fees incurred with Egan & Associates were $51,282 and Ernst & Young were $116,613.
The Board is satsified that remuneration advice provided by these external advisers during the year was free from undue influence by members of the Group Executive
to whom the advice related.
2.3 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 HRRC monitors and reshapes remuneration programs to support these underlying objectives, responds to proposed and enacted legislation and regulatory
initiatives and, where appropriate, adjusts remuneration to reflect changes in the business cycle.
2.4 APPLICATION OF DISCRETION IN THE MANAGEMENT OF GROUP EXECUTIVE REMUNERATION
While the performance of Group Executives is assessed against a range of KPI measures, the Board and the HRRC recognise that there are a number of other
factors which may be taken into account when considering the overall remuneration outcomes for each year. The HRRC may make discretionary adjustments to the
remuneration outcomes for Group Executives that may impact their remuneration negatively or positively. Through this process, remuneration outcomes have been
adjusted both positively and negatively in the past three years.
Criteria used by the HRRC 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 environment and market context in which the targets were set;
• Whether the operating environment during the financial year was materially different than forecast and external analysts’ consensus estimates;
• Consideration of short and medium term Total Shareholder Return (‘TSR’);
• 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 values have been consistently demonstrated throughout the year; and
• Any other matters that the Board and the HRRC deem to be relevant and which are not outlined above.
The HRRC reviews performance against objectives annually and applies any adjustments it considers appropriate. The HRRC then recommends remuneration
outcomes for each Group Executive to the Board for approval.
SECTION 3. REMUNERATION FRAMEWORK
The remuneration structure in place for the Group Executives and Responsible Persons 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.
The components of the Executive remuneration structure are set out within this section. They are consistent with the reward strategy and reinforce the link between
performance and reward, and alignment with shareholder interests. Changes to the current STI Plan will be implemented for 2017 are summarised in this section
and a side by side analysis is provided to assist with understanding the changes.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
47
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016
SECTION 3. REMUNERATION FRAMEWORK (CONTINUED)
3.1 CURRENT REMUNERATION FRAMEWORK 2016
Table 2 provides a summary of the components of remunertaion for KMP. It describes the at risk reward components applied in the financial year 2016 and includes
reference to the relevant performance measure, at risk weighting of variable components and links between strategic pillars and performance. General conditions
applied across all remuneration elements are detailed below in the descriptive table.
Table 2 - Remuneration Framework
Component
Performance Measure
At Risk Reward
Performance to Reward Link
Remuneration set at competitive levels, to attract,
retain and engage key talent.
Fixed remuneration level determined by role and
responsibility, benchmarked internal and external
relativities and contribution, competencies and
capability of the position holder.
At Target % of FR:
Reward performance at Group level.
MD: 90%
Line Roles: 75%
Functional Roles: 53%
At Maximum % of FR:
MD: 150%
Line Roles: 140%
Functional Roles:
100%
The financial performance measures are chosen
to drive financial performance and result in
dividend and share price growth over time which
aligns with shareholder interests.
Recognises and rewards achievement of Group
and Divisional goals in the areas of earnings
and efficient capital application. Division and
functional area goals including specific financial
and non-financial targets aligned to delivery of
business strategy.
Drives leadership performance and behaviours
consistent with achieving the Group’s long term
objectives in areas including workplace health
and safety, diversity, succession and
talent
management.
All KMP
Grants at target up to
100% of FR but may
be above this, subject
to Board discretion.
Ensures a strong link to the creation of long term
shareholder value. Metrics were chosen as vesting
hurdles as they provide a test of performance
against market peers’ relative performance over
three year vesting period.
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 uses
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.
Fixed Remuneration
(‘FR’)
Key Result Areas and behaviours expected for the role
are defined in the position description.
Salary & other benefits
including superannuation.
+
Short Term Incentives
(STI)
Annual at risk
remuneration consisting
of cash and deferred
equity.
Deferral of 50% of
the STI to equity once
threshold of $100,000
STI earned.
STI is earned based on performance against Group
Financial and Individual Measures.
STI Plan is subject to gateway tests:
•
Earnings Per Share (‘EPS’): 90% of budgeted
basic EPS; and
• Behavioural and risk metrics.
Group Financial Measures Weighting:
•
EPS : 15% - 20%
• Cash Net Profit (‘NPAT’): 15% - 20%
Two year vesting period.
• Cost to Income Ratio (‘CTI’): 10%
Distribution of weighting
across financial
performance metrics is
determined by role.
+
Long Term Incentive
(LTI)
Annual grant of equity
delivered as performance
award rights (‘PARs’) on
a face value basis.
Aggregated Individual Performance Measures: 50%
- 60%.
Combination of financial and non-financial metrics that
are relevant to each Division and Functional area.
A shared diversity metric is included in each scorecard.
Metrics:
Relative TSR - 80% weighted
Comparator Group is companies in the ASX 200
updated and reviewed for each grant year, excluding:
•
•
•
all entities in the resources sector;
all real estate investment trusts;
all entities in the energy and utilities sector: and
Vesting period of three
years.
•
telecommunications companies whose
headquarters are offshore.
Vesting scale applied to this Tranche;
Subject to performance
testing and clawback.
• Minimum Hurdle 50th percentile performance =
vesting of 50% of award.
• Maximum vesting at 75th percentile performance
= vesting of 100% of award.
EPS performance - 20% weighted
•
EPS performance assessed on a relative basis
against comparator group comprised of majors
and regional banks.
Vesting scale applied to this Tranche;
• Minimum Hurdle 60th percentile performance =
vesting of 50% of award.
• Maximum vesting at 90th percentile performance
= vesting of 100% of award.
= Target
Market competitive remuneration, with appropriately weighted at risk variable components aligned to shareholder interests.
48 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016 SECTION 3. REMUNERATION FRAMEWORK (CONTINUED)
BOQ Group Executive - Other Conditions Applying to STI and LTI
STI 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. Generally target level performance aligns to the budget. Performance below threshold does not trigger STI for that
metric.
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.
1. STI Performance Period
Performance will be assessed over the financial year. Payments under the STI Plan will generally be made in October, following
assessment of performance over the relevant performance period and based on audited results.
2. STI Deferral
For any STI payment to KMP exceeding $100,000, 50% of the total amount awarded is 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.
3. Dividends
Group Executives who hold restricted shares as part of deferred STI accrue dividends.
4. Forfeiture and
Clawback applied to
STI and LTI
The Board retains discretion to determine what constitutes a clawback event and such events can include breaches of risk KPIs and
required behaviours, departure to a direct competitor and instances where there has been a material misstatement in the financial
statements. The STI award and / or any deferred component or equity grant under LTI will only be awarded to Group 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 or LTI equity grants 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;
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;
5. The deferred portion of a Group Executive’s 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 Chief Risk Officer in making this determination;
6. Where an exiting Group Executive satisfies ‘good leaver’ conditions, unvested awards of deferred STI and LTI may remain on foot
subject to forfeiture and clawback, future performance testing and vesting at the anniversary date.
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.
5. Change of Control
3.2 REMUNERATION MIX ILLUSTRATION
The distribution of remuneration elements for Group Executives is designed to provide a balanced weighting between fixed, short term and long term variable at
risk remuneration. The remuneration mix for the MD and the Group Executives differs. The targeted remuneration mix below is a representative illustration. The
distribution between components is assessed by the Board annually against the targeted remuneration mix. The current remuneration mix is deemed appropriately
weighted.
CEO & Managing Director
Group Executive Line
Group Executive Function
%
%
%
20%
0%
%
%
%
%
%
%
%
%
%
40%
60%
80%
100%
Fixed Remuneration
Target STI (Cash)
Target STI (Deferred)
LTI (Opportunity)
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
49
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016
50 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016SECTION 3. REMUNERATION FRAMEWORK (CONTINUED)3.3 CHANGES TO REMUNERATION FRAMEWORK 2017Following a review of the Group Executive STI Plan commissioned by the HRRC, changes have been approved to the STI Plan for the financial year 2017. The table below provides a summary of the changes relative to the current Plan. The Plan design changes reflect contemporary market practice and improve the performance and reward link and alignment to shareholder interests.Table 3- Changes to Remuneration FrameworkPlan ComponentCurrent KMP STI Plan Financial Year 2016Revised KMP STI Plan Financial Year 2017Eligible Participants• Only KMP participate. • Remains the same.Plan Mechanics• Additive model based on Group result plus individual result. • Each component assessed separately and added to determine final STI amount.• Multiplicative model based on Group result multiplied by Individual result to determine STI outcome. • Change to multiplicative model allows for greater sensitivity of outcomes across the performance range and moderates the need for discretionary adjustment of final STI award.• Performance against Group results assessed and then individual assessed result acts as an accelerator/moderator to determine final STI amount.• Below Threshold outcome in either Group or Individual final performance rating results in zero STI payment.STI Plan Gateway• Achieve 90% of budgeted basic EPS and satisfy behavioural risk gateway to trigger plan operation.• Gateways remain the same.STI % Opportunity• Expressed as a percentage of fixed remuneration.• Differentiated opportunity for MD, Line & Functional roles.• Earning opportunity expressed over a four point rating scale. • Tested market relativity and STI % opportunity was determined to be competitive and consistent with market – no change to Target or maximum STI percentages.• Aligned to probability modelling with a minor change to STI opportunity at Superior performance level.• STI opportunity now expressed over a five point rating scale.Performance Range – Determining Outputs• Budget provides the reference point at target to develop Group performance outputs for metrics over the four point scale.• Performance outputs defined across the five point performance ranges.• Outputs for Group metrics at each performance level are informed by market context, BOQ budget and overlayed with external analysts consensus forecasts and historical performance.Performance Metrics• Three Group performance metrics of Cash NPAT, Earnings per Share (‘EPS’) and Cash Cost to Income (‘CTI’) ratio.• Individual metrics set in consultation with MD and reflect area of focus aligned to business strategy.• Individual metrics include a diversity target.• Group metrics have been expanded to five, equally weighted and shared to foster focus on collegiate achievement at Group Executive level.• Financial metrics include Cash NPAT, Return on Equity (‘ROE’), CTI ratio and two credit risk measures under a Risk metric.• Non-financial Group metrics included for Customer Satisfaction, measured by a blended Net Promoter Score (‘NPS’).• Individual metrics focus on Line or Functional area outputs and include a shared culture metric that includes assessment of engagement, diversity, safety and alignment to BOQ values.Board Discretion• Board has discretion over the Plan and its outcomes.• Remains the same. SECTION 4. REMUNERATION OUTCOMES
Linking company performance to remuneration outcomes is a key reward principle of BOQ. The following narrative and tables illustrate how the remuneration outcomes for
the financial year 2016, including those that are cash and equity based, operate in alignment with performance of the Company and alignment with shareholder interests.
4.1 FIXED REMUNERATION CHANGES FINANCIAL Y EAR 2016
Increases to fixed remuneration for individual KMP for the financial year 2016 are referenced in Table 4. Consultants Ernst & Young and Egan & Associates were
commissioned to undertake a benchmarking review of Executive remuneration.
Fixed remuneration for select KMP was increased to reflect the following: change in size and scope of role; relativity to market benchmarks; and consideration of
increases over the past few years.
Table 4- Fixed Remuneration Changes Financial Year 2016
Position Title
Current- KMP
Current Fixed
Remuneration
Percentage
Change in Fixed
Remuneration
Revised Fixed
Remuneration
Jon Sutton
Managing Director and Chief Executive Officer
1,300,000
Matthew Baxby
Group Executive Retail Banking
Peter Deans (1)
Chief Risk Officer
Belinda Jefferys (2)
Group Executive People and Culture
Vimpi Juneja
Group Executive Product and Strategy
Anthony Rose
Chief Financial Officer
Michelle Thomsen
General Counsel and Company Secretary
Donna-Maree Vinci
Group Executive Chief Operations, Digital & Information Officer
Brendan White
Former- KMP
Karyn Munsie
Group Executive BOQ Business
Group Executive Corporate Affairs, Investor Relations & Government
Relations
600,000
675,000
525,000
470,000
650,000
395,000
570,000
640,000
440,000
-
9%
-
-
7%
9%
2%
2%
8%
-
1,300,000
655,000
675,000
525,000
505,000
710,000
403,000
580,000
690,000
-
(1)
(2)
Peter Deans Chief Risk Officer has been awarded an additional 10 days annual leave with a value of $25,962 which represents 4% of the current fixed remuneration.
Belinda Jefferys Group Executive People and Culture has been awarded an additional 10 days annual leave with a value of $20,192 which represents 4% of the current fixed remuneration.
4.2 LINKING PERFORMANCE & REWARD OUTCOMES
The Board reviewed the Consolidated Entity’s performance and the performance of each Group Executive against the Group and individual performance measures
identified for 2016 STI Plan. While the key metric of Cash Cost to Income ratio did not meet target performance levels and Cash NPAT and EPS were just below
target, overall performance of the Group was improved over the previous period in a difficult operating environment. Significant individual contributions ensured that
key elements of the business strategy were delivered or exceeded.
The key financial and non-financial objectives for the Group Executives in the financial year 2016, with commentary on key highlights, are provided below. Table 5
provides a view of key business metrics over the past five years.
Table 5- Consolidated Entity Performance
5 Year Company Performance
Statutory net profit/(loss) after tax
Cash net profit after tax (‘NPAT’) (1)
Cash Basic earnings per share (‘EPS’) (1)
Cash cost to income ratio (‘CTI’) (1)
Share price at balance sheet date
Value of Dividends paid
(1)
Non-statutory measures are not subject to audit.
2016
2015
2014
2013
2012
$338m
$360m
95.6c
46.8%
$10.55
$300m
$318m
$357m
97.3c
46.0%
$12.67
$272m
$261m
$301m
89.5c
43.9%
$12.58
$216m
$186m
$251m
78.1c
44.3%
$9.60
$180m
$(17m)
$31m
7.9c
45.7%
$7.55
$152m
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
51
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016
SECTION 4. REMUNERATION OUTCOMES (CONTINUED)
4.3 LINKING PERFORMANCE & REWARD
Table 6 is a summary of the Group financial and non-financial measures that were assessed in determining STI amounts for Group Executives for the financial year
2016. It describes the link to BOQ strategic pillars, the measure and weightings that were used as inputs and an assessment of performances achieved to determine
the financial year 2016 STI amounts earned by KMP.
Table 6- Linking Performance and Reward (1)
Strategic Pillar
Measure
Grow the Right Way
Cash Basic EPS
STI Plan Weighting
MD
20%
Group
Executive
FY16 Key
Achievements
15%
Above Threshold
Triggered
KPI Outcomes Described
EPS result of 95.6c which is just below target and
at the low end of consensus. This is affected by
restructure provision taken above the line.
Grow the Right Way
Cash NPAT
20%
15%
Above Threshold –
Close to Target
Full year Cash NPAT at $360m, is below Target and
above FY15 result of $357m.
Cash CTI
10%
10%
Below Threshold
Triggered
There’s Always a
Better Way
Customer in Charge
Loved Like No Other
Individual Measures
including:
50%
60%
• Net Promoter Score
•
Financial and
nonfunctional metrics
• Diversity
• Safety Performance
• Risk
Did Not Trigger
Achieved between
Target and Superior
levels of performance
across all individual
Key Performance
Indicators.
Triggered
CTI ratio at 46.8%. Excluding one-off items the
CTI result is 45.5% which is slightly below target
performance.
Net promoter score achieved above target.
Diversity targets exceeded for full year at Group
level.
Other financial metrics such as loan impairment
expense and funding ratio were achieved above
target.
Safety performance achieved at an exceptional
level above Target.
Individual measures related to implementation of
improvement programs all achieved above target
expectations with a time/cost bias.
(1)
Non-statutory measures are not subject to audit.
Overall, the individual performances of Group Executives were judged to be in the range of Target to Superior. Based on this level of organisational and individual
performance reported for the 2016 financial year, the Board approved Group Executive STI payments at between 43% and 60% of their maximum STI opportunity.
Table 7 is a summary of the STI outcomes for disclosure of individual STI payments for the financial year 2016 and the percentage relative to STI maximums.
4.4 STI OUTCOMES FINANCIAL Y EAR 2015 - FINANCIAL Y EAR 2016
STI payments were based on achievement of Group financial performance metrics in the financial year 2016 and individual contribution. To reinforce the
performance and reward link, STI awards for KMP for financial year 2016 are below those determined for financial year 2015. Data for both years is provided
for comparative purposes. Note that new KMP in the 2016 financial year did not receive an STI award in financial year 2015.
52 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016 51%
56%
56%
47%
53%
58%
43%
60%
53%
SECTION 4. REMUNERATION OUTCOMES (CONTINUED)
Table 7- STI Outcomes
Fixed
Remuneration
Position Title
FY16
Current -KMP
STI Awarded FY15
STI Award FY16
STI Award
Total
$ Value
STI as % of
Maximum
STI Potential
STI Award
Total
$ Value
STI as % of
Maximum
STI Potential
Jon Sutton
Managing Director and Chief Executive Officer
1,300,000
1,200,000
Matthew Baxby
Group Executive Retail Banking
Peter Deans
Chief Risk Officer
Belinda Jefferys (1)
Group Executive People and Culture
Vimpi Juneja (1)
Group Executive Product and Strategy
Anthony Rose
Chief Financial Officer
Michelle Thomsen (2)
General Counsel and Company Secretary
Donna-Maree Vinci
Group Executive Chief Operations, Digital &
Information Officer
600,000
675,000
525,000
470,000
650,000
395,000
570,000
470,000
470,000
-
-
470,000
185,000
64%
59%
70%
-
-
72%
47%
1,000,000
470,000
375,000
145,000
200,000
375,000
170,000
-
-
340,000
Brendan White
Group Executive BOQ Business
640,000
610,000
68%
475,000
Former -KMP
Karyn Munsie
Group Executive Corporate Affairs, Investor
Relations & Government Relations
440,000
320,000
73%
-
-
(1)
STI as a percentage of maximum STI potential has been pro-rated for executives appointed during the period.
(2)
FY15 STI award is a contractual obligation for the first year of employment.
4.5. LONG TERM INCENTIVE
VESTING OF LTI IN FINANCIAL Y EAR 2016
A description of the LTI Plan and PARs including grants, vesting arrangements and performance testing conditions is summarised in Table 2 on page 48. PARs that
were granted under the LTI Plan in prior years vested during the current financial year, in line with the relevant Plan Rules. Details are set out in the table below.
The 2012 LTI grant had only one performance hurdle of relative TSR. At the date of performance testing and at the vesting date, qualifying KMP were not subject
to performance review due to any adverse risk behaviours. The statutory tables in Section 7 set out the LTI awards that vested to qualifying KMP during the period
LTI OUTCOMES FINANCIAL Y EAR 2015 - FINANCIAL Y EAR 2016
Grant Date
Performance Period
Vesting Hurdle
Performance Outcome
18/12/12
3 years
TSR ranking of at least 50th
percentile.
BOQ TSR achieved ranking above the 75th
percentile triggering maximum vesting.
Vesting % of
awards
100%
LTI GRANTS FINANCIAL Y EAR 2016
In accordance with remuneration policy and practice the following grants are proposed for the current year. The table below summarises LTI grants, dates and
performance period. Note that the intended MD grant is subject to shareholder approval at the AGM. The number of PARs granted is determined by applying a five
day volume weighted average price (‘VWAP’) to determine the face value of the PARs at grant date. The VWAP period commences on the day following announcement
of the full year results.
Grant Date
18/10/16
Performance Period
Tranche %
Hurdle
3 years
TSR 80%
3 years
EPS 20%
BOQ relative TSR ranking at or above 50th percentile triggers 50% vesting
of the award tranche up to BOQ relative TSR ranking at or above the 75th
percentile triggering 100% vesting of the award tranche.
BOQ relative EPS ranking at or above the 60th percentile triggers 50% vesting
of the award tranche up to BOQ relative EPS ranking at or above the 90th
percentile triggering 100% vesting of the award tranche.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
53
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016 SECTION 5. EXECUTIVE CONTRACTS
The remuneration and terms of Group 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 8 - Group Executives’ Notice Periods
KMP
Jon Sutton
Position Title
Managing Director and Chief Executive
Officer
Term of
Agreement
Fixed Annual
Remuneration
$
Notice
Period
by Executive
Notice
Period by the
Consolidated
Entity
Open
1,300,000
9 months
9 months
Matthew Baxby
Group Executive Retail Banking
Open
600,000
3 months
3 months
Peter Deans
Chief Risk Officer
Open
675,000
3 months
3 months
Belinda Jefferys
Group Executive People and Culture
Open
525,000
3 months
3 months
Vimpi Juneja
Group Executive Product and Strategy
Open
470,000
3 months
3 months
Anthony Rose
Chief Financial Officer
Open
650,000
3 months
3 months
Michelle Thomsen
General Counsel and Company
Secretary
Open
395,000
3 months
3 months
Donna-Maree Vinci Group Executive Chief Operations, Digital
& Information Officer
Open
570,000
3 months
3 months
Brendan White
Group Executive BOQ Business
Open
640,000
3 months
3 months
Former KMP:
Karyn Munsie
Group Executive Corporate Affairs,
Investor Relations & Government
Relations
Open
440,000
3 months
3 months
Termination Payment
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).
9 months base pay
(including notice
period).
9 months base pay
(including notice
period).
54 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016 SECTION 6. NON-EXECUTIVE DIRECTOR REMUNERATION
REMUNERATION FRAMEWORK
Non-Executive Directors’ (‘NEDs’) fees are set to attract and retain individuals of appropriate calibre to the BOQ Board and Committees. Fees are reviewed annually
by the HRRC having regard to advice provided by independent remuneration consultants.
The Chairman’s fees are determined independently of the fees of other Directors and are also based upon information provided by independent remuneration
consultants. The Chairman is not present at any discussions relating to the determination of his own remuneration.
In order to maintain independence and impartiality, Non-Executive Directors do not receive any performance-related remuneration.
FEE POOL
NED fees are determined within an aggregate fee pool limit. The pool currently stands at $2,600,000 (inclusive of superannuation) and was approved by shareholders
on 27 November 2013. An increase in the fee pool is proposed and will be subject to shareholder approval at the 2016 AGM. This increase is proposed principally
to allow the Board flexibility in dealing with changes to its size and composition, ensuring the best mix of experience and skills whilst providing competitively based
reward. During the course of the 2016 year, two Directors resigned from the Board and two were appointed to the Board, bringing the Board membership to nine.
Fees paid to directors were last increased during the 2014 financial year (the first increase since 2010), in line with recommendations made by an independent
remuneration specialist. These fees for the 2016 financial year are set out in the table below. The Board engaged Egan & Associates to provide a view of the current
fee levels and based on this advice, will seek shareholder approval at the AGM for a 5% increase to Board and Committee fees for the 2017 year
DIRECTORS’ ANNUAL FEES
The current NEDs’ fees comprise:
Table 9 - Directors’ annual fees
Directors’ Annual Fees
Fixed component of remuneration for Directors (1)
Chairman (2)
Additional remuneration is paid to Non-Executive Directors for Committee work:
St Andrews’ Board of Directors (3)
Audit Committee
Risk Committee
Nomination & Governance Committee
Human Resources & Remuneration Committee
Investment Committee (4)
Due Diligence Committee (4)
Information Technology Committee
01/09/15 - 31/08/16
Chairman/Committee Chair
$
01/09/15 - 31/08/16
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
1,500
1,500
17,500
(1)
(2)
(3)
(4)
Directors receive one fee for serving on Bank and subsidiary entity Committees. A separate fee is received for serving on the St Andrews Board.
The Chairman receives no additional remuneration for involvement with Committees.
David Willis is also a member of the St Andrew’s Board of Directors.
Per meeting.
NED REMUNERATION FRAMEWORK
NEDs do not receive shares, award rights or share options.
NEDs are not provided with retirement benefits apart from statutory superannuation.
SECTION 7. STATUTORY TABLES
7.1 STATUTORY DISCLOSURES
The following tables include details of the nature and amount, as required by the Corporations Act 2001, of each major element of the remuneration of each Director
and Group Executive of the Consolidated Entity, calculated in accordance with accounting standards.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
55
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016 %
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T
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
57
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016
7.2 EQUITY HELD BY GROUP EXECUTIVES
The movement during the 2016 financial year in the number of rights over ordinary shares held by each Group Executive as part of their remuneration, are as follows:
TABLE 12 - MOVEMENT IN RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL Y EAR 2016
Group Executive
Type
Grant Date
Movements during the 2016 Financial Year
Share Price
at Grant
Date
$
Balance at
1 Sep 2015 Granted (1)
Exercised
Lapsed
Balance at
31 August
2016 (1) (2)
Vested during
the Year (3)
(%)
Forfeited
during the
Year
(%)
7.48
7.26
7.26
11.43
11.43
11.43
11.70
11.70
13.02
13.02
7.44
7.26
7.26
11.43
11.43
11.43
11.70
11.70
13.02
13.02
6.89
7.26
7.26
11.43
11.43
11.43
11.70
11.70
13.02
13.02
10.55
10.55
13.02
13.02
74,627
3,505
56,075
60,189
7,223
15,799
58,084
33,191
-
-
-
-
-
-
45,637
74,627
3,505
56,075
-
2,708
15,799
-
-
16,595
-
-
97,774
46,932
73,964
2,629
42,056
45,142
4,064
10,660
43,563
22,819
-
-
-
-
-
-
-
-
-
-
44,194
18,382
69,061
3,087
48,064
51,591
4,644
9,069
53,935
20,744
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52,798
18,382
45,681
10,963
2,460
23,466
-
-
73,964
2,629
42,056
-
1,523
10,660
-
11,409
-
-
69,061
3,087
48,064
-
1,741
9,069
-
10,372
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60,189
4,515
-
103,721
16,596
97,774
46,932
-
-
-
45,142
2,541
-
43,563
11,410
44,194
18,382
-
-
-
51,591
2,903
,
53,935
10,372
52,798
18,382
45,681
10,963
2,460
23,466
100%
50%
100%
-
30%
50%
-
50%
-
-
100%
50%
100%
-
30%
50%
-
50%
-
-
100%
50%
100%
-
30%
50%
-
50%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Current
Jon Sutton
Matthew Baxby
Peter Deans
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
26/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
Restricted shares
16/12/2013
2014 PARs
16/12/2014
Restricted Shares
16/12/2014
2015 PARs
15/12/2015
Restricted Shares
15/12/2015
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
01/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
Restricted shares
16/12/2013
2014 PARs
16/12/2014
Restricted Shares
16/12/2014
2015 PARs
15/12/2015
Restricted Shares
15/12/2015
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
10/05/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
Restricted shares
16/12/2013
2014 PARs
16/12/2014
Restricted Shares
16/12/2014
2015 PARs
15/12/2015
Restricted Shares
15/12/2015
Belinda Jefferys
2016 PARs
29/02/2016
Vimpi Juneja
Restricted Shares
29/02/2016
2015 DARs
2015 PARs
15/12/2015
15/12/2015
(1)
(2)
(3)
This represents the maximum number of award rights that may vest to each Executive.
Balance amounts as at 31 August 2016 are unvested and not yet exercisable.
Percentage of initial rights granted.
58 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016
7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
TABLE 12 - MOVEMENT IN RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL Y EAR 2016
Group Executive
Type
Grant Date
Movements during the 2016 Financial Year
Share Price
at Grant
Date
$
Balance at
1 Sep 2015 Granted (1)
Exercised
Lapsed
Balance at
31 August
2016 (1) (2)
Vested during
the Year (3)
(%)
Forfeited
during the
Year
(%)
Current
Anthony Rose
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
29/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
Restricted shares
16/12/2013
2014 PARs
16/12/2014
Restricted shares
16/12/2014
2015 PARs
15/12/2015
Restricted shares
15/12/2015
Michelle Thomsen
2015 PARs
15/12/2015
Restricted shares
15/12/2015
Donna-Maree Vinci
2015 PARs
15/12/2015
Restricted shares
15/12/2015
Brendan White
Former
Karyn Munsie
2016 PARs
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
29/02/2016
10/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
Restricted shares
16/12/2013
2014 PARs
16/12/2014
Restricted shares
16/12/2014
2015 PARs
15/12/2015
Restricted shares
15/12/2015
2013 PARs
2013 DARs
16/12/2013
16/12/2013
Restricted shares
16/12/2013
2014 PARs
16/12/2014
Restricted shares
16/12/2014
(1)
(2)
(3)
This represents the maximum number of award rights that may vest to each Executive.
Balance amounts as at 31 August 2016 are unvested and not yet exercisable.
Percentage of initial rights granted.
7.34
7.26
7.26
11.43
11.43
11.43
11.70
11.70
13.02
13.02
13.02
13.02
13.02
13.02
10.55
7.33
7.26
7.26
11.43
11.43
11.43
11.70
11.70
13.02
13.02
11.43
11.43
11.43
11.70
11.70
75,075
3,129
50,067
53,740
4,837
9,189
51,860
21,366
-
-
-
-
-
-
-
-
75,075
3,129
50,067
-
1,813
9,189
-
10,683
-
-
-
-
-
-
-
50,843
18,382
30,897
7,235
44,585
12,593
52,076
67,476
3,129
50,067
51,591
4,644
12,354
49,786
28,212
-
-
-
-
-
-
-
-
-
-
50,061
23,857
37,833
4,540
5,541
36,510
13,691
-
-
-
-
-
-
-
-
-
-
-
-
67,476
3,129
50,067
-
1,741
12,354
-
14,106
-
-
-
-
5,541
-
6,845
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,540
-
-
-
-
-
-
53,740
3,024
-
51,860
10,683
50,843
18,382
30,897
7,235
44,585
12,593
52,076
-
-
-
51,591
2,903
-
49,786
14,106
50,061
23,857
37,833
-
-
36,510
6,846
100%
50%
100%
30%
50%
-
50%
-
-
-
-
-
-
-
100%
50%
100%
-
30%
50%
-
50%
-
-
-
-
50%
-
50%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
-
-
-
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
59
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016
7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
The table below shows the total value of any rights that were granted, exercised or lapsed to Group Executives.
TABLE 13 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL Y EAR 2016
Group
Executive
Current
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
$
Jon Sutton
2012 DARs
26/02/2012
6.60
413,734
01/05/2013
2012 PARs
26/02/2012
Restricted shares
26/02/2012
5.18
6.70
386,568
27/10/2015
700,000
05/01/2013
07/05/2014
07/07/2013
05/01/2014
2012 DARs
18/12/2012
6.20
43,456
05/02/2014
02/01/2015
18/12/2015
2012 PARs
2013 PARs
2013 DARs
18/12/2012
1.74 (4)
97,571
27/10/2015
16/12/2013
16/12/2013
7.63
10.38
459,242
-
93,711
02/01/2015
Restricted shares
16/12/2013
11.43
361,177
16/12/2014
18/12/2015
2014 PARs
16/12/2014
Restricted shares
16/12/2014
2015 PARs
15/12/2015
Restricted shares
15/12/2015
Matthew Baxby 2012 DARs
01/02/2012
2012 PARs
2012 DARs
01/02/2012
18/12/2012
6.13
11.70
7.67
13.02
6.60
5.18
6.20
16/12/2015
635,810
-
749,927
611,055
-
-
244,081
30/10/2013
09/07/2014
383,134
27/10/2015
32,593
09/07/2014
30/12/2014
31/12/2015
388,335
16/12/2015
13.31
220,879
16/12/2024
9.93
11.95
12.98
7.61
8.88
12.23
10.84
12.20
13.55
13.76
-
12.20
13.55
11.70
13.31
-
311,246
05/05/2017
374,549
05/05/2017
968,658
16/12/2017
227,166
09/01/2014
397,611
09/01/2014
365,078
09/01/2014
15.187
25,657
47,493
18/12/2017
18/12/2017
18/12/2017
771,592
18/12/2017
-
16/12/2018
22,021
36,693
16/12/2018
16/12/2018
184,860
16/12/2015
210,285
16/12/2015
-
16/12/2019
-
-
11.96
12.15
13.76
12.15
12.20
13.94
13.76
-
12.20
13.94
11.70
13.31
-
-
-
16/12/2020
16/12/2025
221,152
05/05/2017
224,666
05/05/2017
1,017,745
16/12/2017
12,770
19,239
36,648
18/12/2017
18/12/2017
18/12/2017
578,691
18/12/2017
-
16/12/2018
12,383
21,231
16/12/2018
16/12/2018
124,722
16/12/2015
141,885
16/12/2015
-
16/12/2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2012 PARs
2013 PARs
2013 DARs
18/12/2012
1.74 (4)
73,177
27/10/2015
16/12/2013
16/12/2013
7.63
10.38
344,433
-
52,720
30/12/2014
Restricted shares
16/12/2013
11.43
243,688
16/12/2014
31/12/2015
16/12/2015
267,041
-
2014 PARs
16/12/2014
Restricted shares
16/12/2014
2015 PARs
15/12/2015
Restricted shares
15/12/2015
6.13
11.70
7.67
13.02
266,982
16/12/2015
13.31
151,854
16/12/2024
338,968
239,334
-
-
-
-
-
-
16/12/2020
16/12/2025
(1)
(2)
(3)
(4)
Represents rights held at 1 September 2015 or granted during the 2016 financial year.
Closing share price on exercise date of rights that have a nil exercise price.
Closing share price on exercise date multiplied by the number of rights exercised during the year.
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.
60 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016
7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
TABLE 13- VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING FY 2016
Fair Value
per Right
at Grant
Date
$
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
$
Group
Executive
Current
Peter Deans
2012 PARs
10/05/2012
2012 DARs
18/12/2012
3.70
6.20
255,526
27/10/2015
38,273
30/10/2014
2012 PARs
18/12/2012
2013 PARs
16/12/2013
2013 DARs
16/12/2013
1.74 (4)
7.63
10.38
28/01/2015
18/12/2015
83,631
27/10/2015
393,639
-
60,246
28/01/2015
18/12/2015
Restricted shares 16/12/2013
11.43
207,317
16/12/2014
13.76
12.66
12.37
13.55
13.76
-
12.37
13.55
11.70
13.31
-
950,279
16/12/2017
15,622
22,909
41,829
18/12/2017
18/12/2017
18/12/2017
661,361
16/12/2017
-
16/12/2018
14,349
23,591
16/12/2018
16/12/2018
106,107
16/12/2015
120,708
16/12/2015
-
16/12/2019
16/12/2015
330,622
-
242,705
16/12/2015
13.31
138,051
16/12/2024
404,961
239,334
350,373
142,738
28,807
179,984
-
-
-
-
-
-
198,198
30/10/2013
25/07/2014
388,888
27/10/2015
38,800
15/01/2014
08/01/2015
26/02/2016
87,117
28/10/2015
410,036
16/12/2014
62,757
08/01/2015
26/02/2016
210,072
16/12/2015
317,902
-
-
-
-
-
-
-
11.96
12.57
13.76
11.89
11.94
10.55
13.51
11.70
11.94
10.55
13.31
-
-
-
-
-
-
-
16/12/2020
16/12/2025
16/12/2020
16/12/2025
16/12/2020
16/12/2025
179,579
05/05/2017
188,739
05/05/2017
1,033,032
16/12/2017
14,874
22,423
33,011
18/12/2017
18/12/2017
18/12/2017
676,405
16/12/2017
107,523
16/12/2018
14,435
19,127
16/12/2018
16/12/2018
122,306
16/12/2015
-
16/12/2019
249,982
16/12/2015
13.31
142,191
16/12/2024
389,966
239,334
236,980
94,200
-
-
-
-
-
-
-
-
-
-
-
-
16/12/2020
16/12/2025
16/12/2020
16/12/2025
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2014 PARs
16/12/2014
Restricted shares 16/12/2014
2015 PARs
15/12/2015
Restricted shares 15/12/2015
Belinda Jefferys
2016 PARs
29/02/2016
Restricted shares 29/02/2016
Vimpi Juneja
2015 DARs
15/12/2015
2015 PARs
15/12/2015
Anthony Rose
2012 DARs
29/02/2012
2012 PARs
29/02/2012
2012 DARs
18/12/2012
2012 PARs
18/12/2012
2013 PARs
16/12/2013
2013 DARs
16/12/2013
Restricted shares 16/12/2013
2014 PARs
16/12/2014
Restricted shares 16/12/2014
2015 PARs
15/12/2015
Restricted shares 15/12/2015
Michelle Thomsen 2015 PARs
15/12/2015
Restricted shares 15/12/2015
6.13
11.70
7.67
13.02
7.67
13.02
11.71
7.67
6.60
5.18
6.20
1.74 (4)
7.63
10.38
11.43
6.13
11.70
7.67
13.02
7.67
13.02
(1)
(2)
(3)
(4)
Represents rights held at 1 September 2015 or granted during the 2016 financial year.
Closing share price on exercise date of rights that have a nil exercise price.
Closing share price on exercise date multiplied by the number of rights exercised during the year.
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
61
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016
7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
TABLE 13 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING FY 2016 (CONTINUED)
Group
Executive
Current
Fair Value
per Right
at Grant
Date
$
Grant Date
Donna-Maree Vinci 2015 PARs
15/12/2015
Restricted shares 15/12/2015
2016 PARs
29/02/2016
Brendan White
2012 DARs
10/02/2012
2012 PARs
10/02/2012
2012 DARs
18/12/2012
7.67
13.02
7.67
6.60
5.18
6.20
Value at
Grant Date
$ (1)
341,967
163,961
399,423
-
-
-
498,788
01/05/2013
03/06/2014
349,526
27/10/2015
38,800
23/12/2014
18/12/2015
2012 PARs
18/12/2012
1.74 (4)
87,117
27/10/2015
2013 PARs
16/12/2013
2013 DARs
16/12/2013
7.63
10.38
393,639
-
60,246
23/12/2014
Restricted shares 16/12/2013
11.43
282,412
16/12/2014
18/12/2015
Share Price at
Exercise Date
$ (2)
Value at
Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Exercise Date
Value at
Expiry /
Lapsing
Date
$
-
-
-
9.93
12.00
13.76
12.08
13.55
13.76
-
12.08
13.55
11.70
13.31
-
-
-
-
16/12/2020
16/12/2025
16/12/2020
375,225
05/05/2017
453,444
05/05/2017
928,470
16/12/2017
37,798
42,398
18/12/2017
18/12/2017
688,922
18/12/2017
-
16/12/2018
14,013
23,591
16/12/2018
16/12/2018
144,542
16/12/2015
164,432
16/12/2015
-
16/12/2019
2014 PARs
16/12/2014
Restricted shares 16/12/2014
2015 PARs
15/12/2015
Restricted shares 15/12/2015
Former
Karyn Munsie
2013 PARs
16/12/2013
2013 DARs
16/12/2013
Restricted shares 16/12/2013
2014 PARs
16/12/2014
Restricted shares 16/12/2014
6.13
11.70
7.67
13.02
7.63
10.38
11.43
6.13
11.70
16/12/2015
305,188
-
330,080
16/12/2015
13.31
187,751
16/12/2024
383,968
310,618
288,666
-
-
-
58,907
22/12/2014
126,679
16/12/2014
16/12/2015
223,806
-
-
-
-
12.16
11.70
13.31
-
-
-
-
13,802
64,841
73,751
-
16/12/2020
16/12/2025
16/12/2018
16/12/2015
16/12/2015
16/12/2019
160,185
16/12/2015
13.31
91,107
16/12/2024
29/10/2015
58,929
(1)
(2)
(3)
(4)
Represents rights held at 1 September 2015 or granted during the 2016 financial year.
Closing share price on exercise date of rights that have a nil exercise price.
Closing share price on exercise date multiplied by the number of rights exercised during the year.
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 2016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016
7.3 EQUITY INSTRUMENTS - HOLDINGS AND MOVEMENTS
Movement in shares
The number of shares held directly, indirectly or beneficially by each Director or Group Executive is as follows:
Ordinary shares (1)
Executive Director
Jon Sutton
Directors - Current
Roger Davis
Bruce Carter
Richard Haire
Karen Penrose (2)
Margaret Seale
Michelle Tredenick
David Willis
Directors - Former
Carmel Gray
Neil Berkett
Executives - Current
Matthew Baxby
Peter Deans
Anthony Rose
Brendan White
Executive - Former
Karyn Munsie
Held at
1 September
2015
Purchases /
(Sales)
Received on
Exercise of Award
Rights / Restricted
Shares
Held at
31 August
2016
72,372
(130,702)
169,309
110,979
17,627
13,407
4,347
2,500
9,543
10,635
1,870
12,209
23,920
21,194
15,408
16,275
3,330
416
2,930
3,000
6,000
1,500
-
120
-
-
-
-
-
-
-
-
-
-
-
(116,020)
(136,566)
(161,289)
(148,873)
142,241
141,394
149,956
148,873
18,043
16,337
7,347
8,500
11,043
10,635
1,990
-
-
47,415
20,236
4,942
3,330
1,279
-
-
-
(1)
(2)
Directors and Group Executives with nil shareholding balances as at 31 August 2016 have been excluded from the table above.
Opening balance relates to shares acquired prior to appointment as Director of BOQ.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
63
REMUNERATION REPORT FOR THE YEAR ENDED 31 AUGUST 2016 7.4 TRANSACTIONS WITH DIRECTORS AND GROUP EXECUTIVES
Loan transactions
Loans to Directors and Group 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 2016.
Details of loans outstanding at the reporting date to Group 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
Balance at
1 September
2015
$
Interest paid and
payable during
the year
$
Balance at
31 August
2016
$
Highest balance
during the year
$
1,030,868
892,500
604,862
36,737
32,244
17,351
1,052,990
352,876
251,009
1,343,630
1,252,478
602,428
Details regarding the aggregate of loans made, guaranteed or secured by any entity in the economic entity to all Group Executives and their related parties, and the
number of individuals in each group are as follows:
Executives
Other transactions
Balance at
1 September
2015
$
Balance at
31 August
2016
$
Interest paid
and payable
$
Number in group
at
31 August 2016
#
2,535,397
1,690,202
87,386
4
Transactions between the Consolidated Entity and Directors and Group 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 2016
$
Interest
receivable
$
Highest balance
during the year
$
200,000
70,000
270,000
2,405
842
3,247
209,226
73,229
282,455
Transactions between the Consolidated Entity and other related parties of Directors and Group 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 Group Executives are as follows:
Richard Haire Related Party
Jon Sutton Related Party
Total
Balance at
1 September
2015
$
Interest paid and
payable during
the year
$
Balance at
31 August
2016
$
191,000
147,448
338,448
8,369
24,477
32,846
191,000
762,899
953,899
Highest balance
during the year
$
191,876
811,819
1,003,695
Warwick Negus was appointed as a Director of the Bank on 22 September 2016. As at the date of his appointment, other related parties of Mr Negus had
outstanding loan balances with the Consolidated Entity of $2,781,500.
64 ANNUAL REPORT 2016
REMUNERATION REPORTFOR THE YEAR ENDED 31 AUGUST 2016 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:
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.
Roger Davis
Jon Sutton
Bruce Carter
Richard Haire
Karen Penrose
Margaret Seale
Michelle Tredenick
David Willis
18,043
110,979
16,337
7,347
8,500
11,043
10,635
1,990
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:
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
- Other
Consolidated
Bank
2016
$000
2015
$000
2016
$000
2015
$000
1,215
277
1,492
716
144
860
120
70
190
1,118
364
1,482
445
167
612
372
37
409
860
160
1,020
619
144
763
120
70
190
441
167
608
445
167
612
372
37
409
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
65
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
LEAD AUDITOR’S INDEPENDENCE DECLARATION
ENVIRONMENTAL REGULATION
The lead auditor’s independence declaration is set out on page 67 and forms
part of the Directors’ report for the year ended 31 August 2016.
DIRECTOR AND MANAGEMENT CHANGES
On 26 November 2015, Karen Penrose was appointed as a Non-Executive
Director. Carmel Gray retired from her position as a Non-Executive Director on
26 November 2015. John Lorimer was appointed as a Non-Executive Director on
29 January 2016. Warwick Negus was appointed as a Non-Executive Director
on 22 September 2016.
During the year, Vimpi Juneja (Group Executive Product and Strategy) and
Belinda Jefferys (Group Executive People and Culture) were appointed to the
Executive Team and Karyn Munsie ceased employment as Group Executive
Corporate Affairs, Investor Relations and Government Relations.
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
2016.
The Directors’ declaration can be found on page 135 of the financial statements.
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 2016. The financial effect
of the above transaction has not been brought to account in the financial
statements for the year ended 31 August 2016. 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 Corporations Instrument
2016/191 dated 24 March 2016 and in accordance with that Instrument,
amounts in this financial report and Directors’ report have been rounded off to
the nearest million dollars, unless otherwise stated.
Signed in accordance with a resolution of the Directors:
Roger Davis
Chairman
5 October 2016
Jon Sutton
Managing Director
5 October 2016
66 ANNUAL REPORT 2016
DIRECTORS’ REPORTFOR THE YEAR ENDED 31 AUGUST 2016
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 2016 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
5 October 2016
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
67
2016
FINANCIAL
STATEMENTS
INCOME STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2016
Consolidated
Bank
Section
2016
$m
2015
$m
1,117
1,088
1,072
2016
$m
2,147
1,370
777
295
1,072
-
-
-
-
510
37
525
146
379
2015
$m
2,072
1,430
642
252
894
-
-
-
-
894
442
43
409
117
292
379
292
2,157
1,221
936
155
1,091
70
3
47
26
2,227
1,327
900
155
1,055
72
4
43
33
554
67
496
158
338
338
89.8
85.5
552
74
462
144
318
318
86.8
84.7
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) (1)
(1)
The comparative figure has been restated, refer to Section 2.6.
The income statements should be read in conjunction with the accompanying notes.
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 2016
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 AUGUST 2016
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 losses transferred to profit and loss
Foreign currency translation differences on foreign operations
Change in fair value of assets available for sale
Net gains transferred to profit and loss available for sale
Other comprehensive expense, net of income tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of the parent
The statements of comprehensive income should be read in conjunction with the accompanying notes.
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015
$m
338
318
379
292
(75)
12
(1)
24
(10)
(50)
288
(73)
10
-
35
(8)
(36)
282
(76)
12
-
24
(10)
(50)
329
(72)
10
-
35
(8)
(35)
257
288
282
329
257
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
71
Consolidated
Bank
Section
2016
$m
2015
$m
2016
$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
Restated (1)
2015
$m
553
19
2,996
1,940
162
703
10
3,930
1,591
180
38,881
36,834
229
872
51
81
802
-
24
240
862
52
74
780
-
-
1,228
68
3,739
1,591
180
42,896
127
-
60
80
869
15
-
1,103
91
2,827
1,940
225
40,703
113
-
61
89
848
18
-
50,853
48,018
47,354
44,512
209
36,720
498
355
14
47
25
9,398
-
47,266
259
34,732
297
390
55
62
41
8,713
-
44,549
209
37,523
490
311
14
35
-
5,281
-
43,863
259
35,378
283
345
55
50
-
3,900
911
41,181
3,587
3,469
3,491
3,331
3,243
33
311
3,587
3,122
90
257
3,469
3,250
18
223
3,491
3,128
75
128
3,331
BALANCE SHEETS
AS AT 31 AUGUST 2016
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
Amounts due from controlled entities
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 comparative figures for the Bank have been restated, refer to Section 6.11.
The balance sheets should be read in conjunction with the accompanying notes.
72 ANNUAL REPORT 2016
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2016
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve for
credit
losses
$m
Cashflow
hedge
reserve
$m
Translation
reserve
$m
Available-
for-sale
reserve
$m
Retained
profits
$m
Total
equity
$m
Consolidated
Year ended 31 August 2016
Balance at beginning of the year
3,122
34
81
(90)
Total comprehensive income for the year
Profit
-
-
-
-
-
(1)
Other comprehensive income, net of income tax
Cash flow hedges:
Net losses taken to equity
Net gains/(losses) transferred to profit and loss
Foreign currency translation differences on
foreign operations
Change in fair value of assets available-for-sale
Net gains transferred to profit and loss 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
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Transfer to cash settled transactions
Treasury shares (2)
Total contributions by and distributions
to owners
Balance at the end of the year
-
-
-
-
-
-
-
20
104
-
-
(2)
(1)
121
3,243
-
-
-
-
-
-
-
-
-
-
(9)
2
-
(7)
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(75)
12
-
-
(63)
(63)
-
-
-
-
-
-
-
81
(153)
1
-
-
-
-
-
(1)
(1)
-
-
-
-
-
-
-
-
64
-
-
-
-
24
(10)
14
14
-
-
-
-
-
-
-
78
257
3,469
338
338
-
-
-
-
-
-
338
-
-
(284)
-
-
-
(284)
311
(75)
12
(1)
24
(10)
(50)
288
20
104
(284)
(9)
-
(1)
(170)
3,587
(1)
(2)
On 26 October 2015, 1,130,000 ordinary shares were issued at $13.79 and on 9 February 2016, 374,000 ordinary shares were issued at $12.63 to the trustee of the Bank of Queensland Limited 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.
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
73
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2016
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve for
credit
losses
$m
Cashflow
hedge
reserve
$m
Translation
reserve
$m
Available-
for-sale
reserve
$m
Retained
profits
$m
Total
equity
$m
Consolidated
Year ended 31 August 2015
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
Change in fair value of assets
available-for-sale
Net gains transferred to profit and loss
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
Balance at the end of the year
-
-
-
-
-
-
-
11
93
-
-
(3)
101
3,122
-
-
-
-
-
-
-
-
-
-
1
-
1
-
-
-
-
11
11
11
-
-
-
-
-
-
(73)
10
-
-
-
(63)
(63)
-
-
-
-
-
-
34
81
(90)
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
37
-
-
-
35
(8)
-
27
27
-
-
-
-
-
-
64
206
3,341
318
318
-
-
-
-
(11)
(11)
307
(73)
10
35
(8)
-
(36)
282
-
-
11
93
(256)
(256)
-
-
(256)
257
1
(3)
(154)
3,469
(1)
(2)
On 24 October 2014, 900,000 ordinary shares were issued at $12.29 to the trustee of the Bank of Queensland Limited 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.
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.
74 ANNUAL REPORT 2016
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2016
Bank
Year ended 31 August 2016
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/(losses) transferred to profit and loss
Change in fair value of assets available-for-sale
Net gains transferred to profit and loss 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
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Transfer to cash settled transactions
Total contributions by and distributions to owners
Balance at the end of the year
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve for
credit
losses
$m
Cashflow
hedge
reserve
$m
Available-
for-sale
reserve
$m
Retained
profits
$m
Total
equity
$m
3,128
34
68
(91)
64
128
3,331
-
-
-
-
-
-
-
20
104
-
-
(2)
122
3,250
-
-
-
-
-
-
-
-
-
-
(9)
2
(7)
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(76)
12
-
-
(64)
(64)
-
-
-
-
-
-
-
-
-
24
(10)
14
14
-
-
-
-
-
-
68
(155)
78
379
379
-
-
-
-
-
379
-
-
(284)
-
-
(284)
223
(76)
12
24
(10)
(50)
329
20
104
(284)
(9)
-
(169)
3,491
(1)
On 26 October 2015, 1,130,000 ordinary shares were issued at $13.79 and on 9 February 2016, 374,000 ordinary shares were issued at $12.63 to the trustee of the Bank of Queensland Limited 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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
75
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2016
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
Net gains transferred to profit and loss 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
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
-
-
-
-
-
-
-
-
11
93
-
-
104
3,128
Ordinary
shares
$m
3,024
Employee
benefits
reserve
$m
33
Equity
reserve for
credit
losses
Cashflow
hedge
reserve
Available-
for-sale
reserve
$m
57
-
-
-
-
11
-
11
11
-
-
-
-
-
$m
(29)
-
(72)
10
-
-
-
(62)
(62)
-
-
-
-
-
$m
37
-
-
-
35
-
(8)
27
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
1
34
68
(91)
64
Retained
profits (2)
$m
103
Total
equity
$m
3,225
292
292
-
-
-
(11)
-
(11)
281
-
-
(256)
-
(256)
128
(72)
10
35
-
(8)
(35)
257
11
93
(256)
1
(151)
3,331
(1)
On 24 October 2014, 900,000 ordinary shares were issued at $12.29 to the trustee of the Bank of Queensland Limited 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)
The comparative figures have been restated, refer to Section 6.11.
The statements of changes in equity should be read in conjunction with the accompanying notes.
76 ANNUAL REPORT 2016
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 AUGUST 2016
Consolidated
Bank
Section
2016
$m
2015
$m
2016
$m
2015
$m
3.5
3.1
2,156
130
1
(1,263)
(502)
(174)
348
(2,259)
(395)
1,925
(692)
(1,073)
(16)
(67)
3
-
12
(68)
20
2,392
57
-
-
3.5
(1,003)
(20)
(180)
-
1,266
125
1,103
1,228
2,228
128
2
(1,325)
(516)
(133)
384
(2,621)
1,593
691
(757)
(710)
(36)
(59)
3
-
6
(86)
11
1,473
30
-
148
(623)
(11)
(163)
-
865
69
1,034
1,103
2,024
172
1
(1,403)
(482)
(172)
140
(2,147)
(416)
2,088
-
(335)
(8)
(72)
-
(10)
-
(90)
20
2,392
-
(703)
-
(1,003)
(20)
(180)
69
575
150
553
703
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
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 outflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Cash distribution received from equity accounted investments
Capital injection into controlled entities
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
Proceeds from borrowings
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 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
3.1
The statements of cash flows should be read in conjunction with the accompanying notes.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
77
Section 1
Basis of preparation
1.1
1.2
1.3
Reporting entity
Basis of accounting
Use of estimates and judgements
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
6.10
6.11
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
Significant accounting policies & new accounting standards
Changes to comparatives
78 ANNUAL REPORT 2016
Page
79
79
79
79
80
80
81
82
85
86
87
88
88
89
89
90
93
95
103
107
110
111
112
112
114
115
115
120
120
121
122
122
124
126
128
129
129
130
133
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 SECTION 1. BASIS OF PREPARATION
1.1 REPORTING ENTITY
1.3. USE OF ESTIMATES AND JUDGEMENTS
to make
The preparation of a financial report in conformity with Australian Accounting
Standards requires management
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 throughout 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; and
Contingent liabilities - Section 6.3.
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.
for
the Bank
the Bank and
the financial year
The consolidated financial report of
ended 31 August 2016 comprises
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 5 October 2016.
(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 Corporations Instrument
2016/191 dated 24 March 2016 and in accordance with that Instrument,
amounts in this financial report and Directors’ report have been rounded off to
the nearest million dollars, unless otherwise stated.
(e) Comparatives
Certain amounts in the comparative information have been restated to conform
with current period financial statement presentations. Refer to Sections 2.6, 6.6
and 6.11 for further details.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
79
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015
$m
2,002
155
2,157
662
559
1,221
936
98
(10)
-
13
26
-
9
11
8
2,038
189
2,227
729
598
1,327
900
111
(12)
-
15
28
-
9
1
3
1,729
418
2,147
656
714
1,370
777
122
(10)
50
12
12
27
9
(1)
74
1,634
438
2,072
678
752
1,430
642
101
(12)
78
14
13
22
11
(5)
30
252
-
894
Total income from operating activities
155
155
295
Net insurance operating income
Total operating income
Interest income and expense
26
1,117
33
1,088
-
1,072
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.
80 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 2.2 EXPENSES
Operating expenses
Advertising
Commissions to Owner Managed Branches
Communications and postage
Printing and stationery
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, wages and superannuation contributions
Amounts set aside to provision for employee entitlements
Payroll tax
Equity settled transactions
Other
Other
Amortisation – acquired intangibles
Total expenses
(1)
The prior year balance includes the impairment expense for the pilot Customer Relationship Management System.
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015
$m
23
7
21
4
20
24
99
12
2
5
19
67
28
1
96
34
9
3
46
241
3
14
12
8
278
16
554
23
7
21
5
24
42
122
17
2
5
24
67
17
1
85
38
9
3
50
223
3
13
10
8
257
14
552
17
6
20
4
20
21
88
9
2
8
19
62
27
1
90
32
9
2
43
220
2
13
10
9
254
16
510
14
6
19
4
24
37
104
13
2
8
23
60
15
1
76
30
9
3
42
168
3
10
8
6
195
2
442
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
81
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 2.3 INCOME TAX EXPENSE AND DEFERRED TAX
Income tax expense
The major components of income tax expense for the years ended 31 August 2016 and 2015 along with a reconciliation between pre-tax profit and tax expense are
detailed below:
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015
$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
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% (2015: 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
138
(4)
134
24
24
158
158
(23)
6
(17)
496
496
149
10
(1)
158
-
158
130
(17)
113
31
31
144
144
(17)
12
(5)
462
462
139
9
(3)
145
(1)
144
127
(2)
125
21
21
146
146
(23)
6
(17)
525
525
158
9
(21)
146
-
146
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 the dilutionary impact to pro-forma tax expense relating to franking credits on external
dividends received on investments.
82 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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:
Consolidated
Accruals
Capitalised expenditure
Provision for impairment
Other provisions
Equity reserves
Other
4
-
77
19
17
3
6
-
82
23
-
6
Total tax assets / (liabilities)
120
117
Bank
Accruals
Capitalised expenditure
Provision for impairment
Other provisions
Equity reserves
Other
Total tax assets / (liabilities)
Unrecognised deferred tax assets
1
-
62
18
17
3
101
3
-
66
22
-
5
96
Assets
Liabilities
Net
2016
$m
2015
$m
2016
$m
2015
$m
2016
$m
2015
$m
-
(7)
-
-
-
(33)
(40)
-
(4)
-
-
-
(16)
(20)
-
(6)
-
-
-
(22)
(28)
-
(3)
-
-
-
(19)
(22)
4
(7)
77
19
17
(30)
80
1
(4)
62
18
17
(13)
81
6
(6)
82
23
-
(16)
89
3
(3)
66
22
-
(14)
74
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 (1)
Gross capital gains tax losses
(1)
Income tax losses are subject to utilisation over an expected 10-15 year period.
2016
$m
29
92
2015
$m
30
92
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
83
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 2.3 INCOME TAX EXPENSE AND DEFERRED TAX (CONTINUED)
Accounting for income tax
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.
into a Tax Sharing Agreement
The Bank, in conjunction with other members of the tax-consolidated
(‘TSA’).
group, has also entered
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.
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.
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.
84 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 2.4 DIVIDENDS
Ordinary shares
Final 2015 dividend paid 24 November 2015 (2014: 27 November 2014)
Interim 2016 dividend paid 19 May 2016 (2015: 12 May 2015)
Convertible preference shares
Final CPS dividend paid on 15 October 2015 (2014: 15 October 2014)
Half-yearly CPS dividend paid on 15 April 2016 (2015: 15 April 2015)
Bank
2016
2015
Cents per
share
$m
Cents per share
$m
38
38
258
257
141
143
284
8
8
16
34
36
275
273
124
132
256
8
8
16
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:
Final CPS dividend
Final – ordinary shares
Cents per share
$m
268
38
8
145
The final dividend payment will be fully franked and paid on 22 November 2016 to owners of ordinary shares at the close of business on 28 October 2016 (record
date). Shares will be quoted ex-dividend on 27 October 2016.
30% franking credits available to shareholders of the Bank for subsequent financial years
Bank
2016
$m
118
2015
$m
121
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 2016, is $118 million credit calculated at the 30% tax rate (2015: $121 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 reinvest all or part of their
entitlement to a dividend into new shares at a discount of 1.5%.
The discount rate 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 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.
The calculation of the daily volume weighted average price shall not include certain transactions, as outlined in the DRP Terms and Conditions.
Shares issued or transferred under the Plan will be fully-paid and rank equally in all respects with existing shares. 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 2016 final dividend is 31 October 2016.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
85
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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 and CEO, 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 and CEO 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 and CEO 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 2016 or 2015.
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
Total
2016
$m
2015
$m
2016
$m
2015
$m
2016
$m
2015
$m
1,091
2
1,093
479
153
326
2,157
1,221
38
67
50,807
47,262
1,055
4
1,059
439
137
302
2,227
1,327
27
74
47,954
44,522
26
(1)
25
17
5
12
-
-
-
-
92
47
33
(2)
31
23
7
16
-
-
-
-
112
70
1,117
1
1,118
496
158
338
2,157
1,221
38
67
50,899
47,309
1,088
2
1,090
462
144
318
2,227
1,327
27
74
48,066
44,592
86 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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
2016
$m
2015
$m
2016
$m
2015
$m
Revenue
Profit before tax
1,118
(1)
1,117
1,090
(2)
1,088
496
-
496
462
-
462
Assets
Liabilities
50,899
48,066
47,309
44,592
(46)
-
(47)
(1)
(46)
3
(47)
4
50,853
48,018
47,266
44,549
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.
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)
Consolidated
2016
$m
2015
$m
338
338
16
7
361
318
318
16
2
336
2016
Number
2015 (1)
Number
376,043,290
366,717,875
376,043,290
366,717,875
1,270,402
3,293,389
29,553,372
23,978,515
14,661,251
3,269,940
421,528,315
397,259,719
89.8
85.5
86.8
84.7
(1)
The comparative weighted average number of shares used as the denominator in the calculation of diluted EPS for the year ended 31 August 2015 has been restated. The reported line item ‘Effect of capital notes’ has been
adjusted to pro rata for the period which Wholesale Capital Notes were on issue during the comparative period (26 May 2015 to the balance sheet date). ‘Effect of capital notes’ was previously reported as 12,304,413. The
restatement increases the comparative diluted EPS from 82.8 cents to 84.7 cents.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
87
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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.
Consolidated
Bank
Notes, coins and cash at bank
Remittances in transit
Total
2016
$m
957
271
1,228
2015
$m
917
186
1,103
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
338
318
Add / (less) items classified as investing / financing activities or non-cash items
Depreciation
Amortisation
Dividends received from subsidiaries
Software amortisation and impairment
Equity settled transactions
Investments equity accounted
(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 in derivatives
Decrease in provision for impairment
(Increase) / decrease in deferred tax asset
(Increase) / 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
Decrease in provisions
Increase / (decrease) in deferred tax liabilities
Decrease in insurance policy liabilities
Decrease in borrowings including subordinated notes
Net cash outflow from operating activities
88 ANNUAL REPORT 2016
10
16
-
29
12
3
(5)
23
20
14
-
27
10
-
(1)
2
(418)
(2,177)
1,592
(2,549)
(46)
(16)
28
(12)
-
(50)
1,989
(32)
(42)
(15)
(2)
(16)
(690)
(1,073)
(20)
(18)
(10)
17
-
52
640
(2)
(17)
(42)
42
(22)
(763)
(710)
2016
$m
2015
$m
432
271
703
379
10
16
(70)
28
10
-
2
9
(440)
(2,038)
(40)
(14)
14
6
(222)
(50)
2,146
(21)
(41)
(15)
(4)
-
-
367
186
553
292
10
2
(28)
25
8
-
5
(4)
907
(4,784)
(14)
(11)
(1)
4
112
52
3,033
15
(16)
(38)
(2)
-
-
(335)
(433)
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 3.2 DEPOSITS
Deposits at call
Term deposits
Certificates of deposit
Total deposits
Concentration of deposits:
Customer deposits
Wholesale deposits
Total deposits
3.3 FINANCIAL ASSETS
Available-for-sale
Debt instruments
Unlisted equity instruments
Total available-for-sale
Held for trading
Floating rate notes and bonds
Negotiable certificates of deposit
Total held for trading
Consolidated
Bank
2016
$m
12,797
18,589
5,334
36,720
29,122
7,598
36,720
2015
$m
11,814
17,838
5,080
34,732
26,914
7,818
34,732
2016
$m
13,557
18,632
5,334
37,523
29,881
7,642
37,523
Consolidated
Bank
2016
$m
3,730
9
3,739
688
903
1,591
2015
$m
2,818
9
2,827
595
1,345
1,940
2016
$m
3,921
9
3,930
688
903
1,591
2015
$m
12,415
17,883
5,080
35,378
27,514
7,864
35,378
2015
$m
2,987
9
2,996
595
1,345
1,940
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
89
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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
29,888
28,378
29,888
28,378
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015 (1)
$m
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
233
255
8,355
71
4,745
43,547
(395)
(116)
(140)
260
277
7,786
64
4,626
41,391
(416)
(126)
(146)
Total loans and advances at amortised cost
42,896
40,703
(1)
The comparative figures for the Bank have been restated, refer to Section 6.11.
Loans and advances and other assets at amortised cost
233
255
8,356
71
323
260
277
7,793
64
323
39,126
37,095
(38)
(96)
(111)
38,881
(41)
(106)
(114)
36,834
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.
90 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 3.4 LOANS AND ADVANCES AT AMORTISED COST (CONTINUED)
Provision for impairment
Specific provision:
Balance at the beginning of the year
Add: Expensed during the year
Less: Bad debts written off net of recoveries
Transfers from collective provision
Unwind of discount
Balance at the end of the year
Collective provision:
Balance at the beginning of the year
Add: Expensed / (Released) during the year
Transfer from BOQ Specialist (Aust) Limited (1)
Transfers to specific provision
Balance at the end of the year
Total provisions for impairment
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015
$m
126
73
(79)
2
(6)
116
146
(4)
-
(2)
140
256
146
72
(84)
-
(8)
126
144
2
-
-
146
272
106
43
(46)
(1)
(6)
96
114
(4)
-
1
111
207
128
38
(52)
-
(8)
106
103
5
6
-
114
220
(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.
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
2016
$m
2015
$m
2016
$m
2015 (1) (2)
$m
1,744
2,879
122
4,745
(395)
4,350
1,575
2,669
106
4,350
1,714
2,814
98
4,626
(416)
4,210
1,532
2,593
85
4,210
17
256
50
323
(38)
285
16
228
41
285
16
254
53
323
(41)
282
16
223
43
282
(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.
(2)
The comparative figures for the Bank have been restated, refer to Section 6.11.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
91
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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 the 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(3)
Fair value of transferred assets
Fair value of associated liabilities
Net Position
Consolidated
Bank
2016
$m
2015 (1)
$m
2016
$m
2015 (1) (2)
$m
2,859
858
3,717
4,122
-
4,122
3,746
(4,122)
(376)
3,639
750
4,389
4,819
-
4,819
4,415
(4,819)
(404)
3,005
-
3,005
-
3,350
3,350
3,021
(3,350)
(329)
3,740
-
3,740
-
4,120
4,120
3,755
(4,120)
(365)
(1)
(2)
(3)
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. These have been included within the transfer of
financial assets note for the 2015 financial year.
The comparative figures for the Bank have been restated, refer to Section 6.11.
The fair values of transferred assets and liabilities that reprice within 6 months are assumed to equate to the amortised cost. All other fair values are calculated using a discounted cashflow model.
92 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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
$m
Convertible
Preference
Shares (2)
$m
Capital
Notes (3)
$m
Year ended 31 August 2016
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred costs
Foreign exchange translation
4,812
1,123
(1,815)
(3)
5
(5)
Balance at end of the year
4,117
81
80
-
-
-
(1)
160
94
473
(216)
-
-
(10)
341
325
149
(220)
-
(2)
-
252
Total
$m
8,713
3,515
(2,818)
(3)
7
(16)
2,958
1,690
(567)
-
2
-
295
148
-
-
-
1
-
-
-
-
1
-
4,083
296
149
9,398
Securitisation
liabilities (1)
$m
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes
$m
Transferable
Certificates of
Deposit
$m
Convertible
Preference
Shares (2)
$m
Capital
Notes (3)
$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
5,510
2,284
(3,041)
(5)
5
59
Balance at end of the year
4,812
64
29
(18)
-
-
6
81
319
88
(355)
-
-
42
94
347
-
(22)
-
-
-
1,830
1,356
(228)
-
-
-
294
-
-
-
1
-
325
2,958
295
-
150
-
(2)
-
-
148
Total
$m
8,364
3,907
(3,664)
(7)
6
107
8,713
(1)
(2
(3)
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.
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.
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
93
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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
$m
Convertible
Preference
Shares(2)
$m
Capital
Notes (3)
$m
81
80
-
-
(1)
160
94
473
(216)
-
(10)
341
324
149
(220)
(1)
-
252
2,958
1,690
(567)
2
-
295
148
-
-
1
-
-
-
1
-
4,083
296
149
Total
$m
3,900
2,392
(1,003)
3
(11)
5,281
EMTN
Program
$m
ECP
Program
$m
Borrowings
including
subordinated
notes (1) (4)
$m
Transferable
Certificates of
Deposit
$m
Convertible
Preference
Shares(2)
$m
Capital
Notes (3)
$m
Total (4)
$m
64
29
-
(18)
-
-
6
81
319
88
-
(355)
-
-
42
94
271
-
53
-
-
-
-
1,712
1,356
-
(110)
-
-
-
294
-
-
-
-
1
-
-
150
-
-
(2)
-
-
2,660
1,623
53
(483)
(2)
1
48
324
2,958
295
148
3,900
Year ended 31 August 2016
Balance at beginning of year
Proceeds from issues
Repayments
Amortisation of deferred costs
Foreign exchange translation
Balance at end of the year
Year ended 31 August 2015
Balance at beginning of year
Proceeds from issues
Transfers from BOQ Specialist
Repayments
Deferred establishment costs
Amortisation of deferred costs
Foreign exchange translation
Balance at end of the year
(1)
(2)
(3)
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.
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.
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.
(4)
The comparative figures for the Bank have been restated, refer to Section 6.11.
94 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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. The continued improvement of the Bank’s risk management function focuses on a number of key areas, with
particular emphasis on:
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 needed 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 and to minimise its impact on the Consolidated Entity.
(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
2016
%
0.80
0.36
1.32
(1.28)
2015
%
0.68
(0.03)
1.73
(1.17)
2016
$m
2015
$m
7
3
12
(12)
6
-
16
(11)
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
95
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 3.6 RISK MANAGEMENT (CONTINUED)
(a) Market risk (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
2016
$m
2015
$m
0.53
1.79
0.20
0.71
1.61
0.23
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.
(i) 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 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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)
(2)
Refer to Section 6.2 for full details of customer commitments.
The comparative figures for the Bank have been restated, refer to Section 6.11.
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
Gross loans and advances at amortised cost
Impaired
Gross loans and advances at amortised cost
Total financial assets
Consolidated
Bank
2016
$m
1,228
68
5,389
180
6,865
43,547
50,412
1,476
51,888
2015
$m
1,103
91
4,826
225
6,245
41,391
47,636
1,498
49,134
2016
$m
703
10
5,579
180
6,472
39,126
45,598
888
46,486
2015 (2)
$m
553
19
4,993
162
5,727
37,095
42,822
624
43,446
Consolidated
Bank
2016
$m
42,267
6,865
2015
$m
40,056
6,245
2016
$m
2015 (1)
$m
37,992
6,472
35,903
5,727
1,048
1,098
935
987
232
50,412
237
47,636
199
45,598
205
42,822
(1)
The comparative figures for the Bank have been restated, refer to Section 6.11.
There is no individual exposure included in impaired assets which exceeds 5% of shareholders’ equity (2015: 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
2016
$m
1,522
156
2015
$m
1,482
159
2016
$m
1,442
139
2015
$m
1,415
142
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
97
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 3.6 RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
(ii) Credit quality
The credit quality of financial assets has been determined based on Standard & Poor’s 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
2016
$m
2015
$m
Gross loans & advances
Gross loans & advances
Retail
24,611
4,987
506
88
Commercial
3,919
7,998
1,235
203
Total
loans &
advances
28,530
12,985
1,741
291
Financial
assets other
than loans
& advances
6,856
-
9
-
Retail
23,736
4,461
404
314
Commercial
3,346
7,771
1,316
43
Total
loans &
advances
27,082
12,232
1,720
357
Financial
assets other
than loans
& advances
6,236
-
9
-
30,192
13,355
43,547
6,865
28,915
12,476
41,391
6,245
2016
$m
2015
$m
Gross loans & advances
Gross loans & advances
BANK
Retail
Commercial
24,611
4,987
506
88
3,050
5,141
540
203
Total
loans &
advances
27,661
10,128
1,046
291
Financial
assets other
than loans
& advances
6,272
122
78
-
Retail
23,736
4,461
404
314
Commercial
2,634
4,911
588
43
Total
loans &
advances
26,370
9,372
992
357
Financial
assets other
than loans
& advances
5,549
108
70
-
30,192
8,934
39,126
6,472
28,915
8,176
37,091
5,727
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 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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
2016
$m
2015
$m
2016
$m
2015
$m
359
228
163
64
156
78
385
235
148
73
163
94
1,048
1,098
359
146
163
38
156
73
935
385
156
148
47
163
88
987
(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)
(1)
The comparative figures for the Bank have been restated, refer to Section 6.11.
Consolidated
Bank
2016
$m
20,992
9,531
6,950
318
319
4,359
613
203
262
2015
$m
20,954
8,253
6,608
306
315
4,040
481
192
242
2016
$m
19,429
8,331
6,012
312
294
4,079
481
188
-
2015 (1)
$m
19,524
7,091
5,683
301
280
3,675
355
186
-
43,547
41,391
39,126
37,095
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
99
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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
2016
Financial liabilities
Carrying
amount
$m
At Call
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Policyholder
$m
Total
contractual
cash flows
$m
Due to other financial institutions
209
209
-
Deposits
36,720
14,926
11,463
19
355
4,117
5,281
25
-
-
-
-
-
6
355
336
856
-
46,726
15,135
13,016
12,089
-
-
334
-
-
-
-
-
-
1,082
(1,100)
(18)
293
1,183
1,476
-
-
-
436
(405)
31
-
-
-
-
9,847
4
-
-
842
4
-
1,283
2,223
955
-
3,119
-
6,188
771
(593)
178
-
-
-
-
48
1
-
558
796
-
1,403
229
(105)
124
-
-
-
-
-
-
-
-
-
25
25
-
-
-
-
-
-
Carrying
amount
$m
At Call
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Policyholder
$m
Derivative financial instruments (1)
Accounts payable and other liabilities
Securitisation liabilities (2)
Borrowings including
subordinated notes
Insurance policy liabilities
Total financial liabilities
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
2015
Financial liabilities
Due to other financial institutions
259
259
-
-
Deposits
34,732
11,984
12,406
9,794
Derivative financial instruments (1)
Accounts payable and other liabilities
Securitisation liabilities (2)
Borrowings including subordinated
notes
Insurance policy liabilities
21
390
4,812
3,901
41
-
-
-
-
-
9
390
311
40
-
-
990
10
-
-
12
2
-
7
-
1,343
2,667
931
1,083
3,112
-
-
-
-
Total financial liabilities
44,156
12,243
13,156
12,227
6,779
945
(1)
(2)
Derivative financial instruments other than those designated in a cashflow hedge relationship.
Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
100 ANNUAL REPORT 2016
-
-
-
-
-
-
41
41
209
37,126
15
355
4,400
5,726
25
47,856
2,518
(2,203)
315
293
1,183
1,476
Total
contractual
cash flows
$m
259
35,186
28
390
5,252
4,235
41
45,391
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 3.6 RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk (continued)
Consolidated
2015
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
2016
Financial liabilities
Carrying
amount
$m
At Call
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Policyholder
$m
-
-
86
-
-
-
-
-
-
287
1,211
1,498
447
(438)
9
-
-
-
559
(534)
25
-
-
-
757
(666)
91
-
-
-
339
(313)
26
-
-
-
-
-
-
-
-
-
Carrying amount
$m
At Call
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Due to other financial institutions
209
209
-
Deposits
37,523
15,729
11,463
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings including subordinated notes
Total financial liabilities
Derivative financial instruments
(hedging relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters of credit
Customer funding commitments
19
311
5,281
43,343
-
-
325
-
-
-
(1)
Derivative financial instruments other than those designated in a cashflow hedge relationship.
-
9,847
4
-
955
-
-
-
6
311
856
15,938
12,636
10,806
-
-
-
293
595
888
1,077
(1,095)
(18)
-
-
-
371
(349)
22
-
-
-
-
842
4
-
3,119
3,965
769
(592)
177
-
-
-
-
48
1
-
796
845
229
(105)
124
-
-
-
Total
contractual
cash flows
$m
2,102
(1,951)
151
287
1,211
1,498
Total
contractual
cash flows
$m
209
37,929
15
311
5,726
44,190
2,446
(2,141)
305
293
595
888
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
101
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 3.6 RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk (continued)
Bank
2015
Financial liabilities
Due to other financial institutions
Deposits
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings including subordinated notes
Amounts due to controlled entities
Total financial liabilities
Derivative financial instruments (hedging
relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters of credit
Customer funding commitments
Carrying
amount (2)
$m
At Call (2)
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years (2)
$m
Over 5
years
$m
Total
contractual
cash flows (2)
$m
259
12,626
-
12,406
259
35,378
21
345
3,900
911
40,814
-
-
135
-
-
-
-
-
-
911
13,796
-
-
-
287
337
624
-
9,794
7
-
1,083
-
9
345
40
-
12,800
10,884
437
(431)
6
-
-
-
447
(433)
14
-
-
-
-
990
10
-
3,116
-
4,116
660
(577)
83
-
-
-
-
12
2
-
-
-
14
162
(75)
87
-
-
-
259
35,828
28
345
4,239
911
41,610
1,706
(1,516)
190
287
337
624
(1)
(2)
Derivative financial instruments other than those designated in a cashflow hedge relationship.
The comparative figures for the Bank have been restated, refer to Section 6.11.
(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.
102 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 3.6 RISK MANAGEMENT (CONTINUED)
(d) Insurance risk (continued)
(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
(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
through the profit and loss; and
and
liabilities
• Derivatives.
designated
at
fair
value
fair value estimates
The
are based on the following methodologies and assumptions:
for
instruments carried at amortised cost
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.
(i)
Insurance risks associated with human life events
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.
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. 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.
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
103
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 3.7 FINANCIAL INSTRUMENTS
(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:
Consolidated Entity
Carrying value
Fair value
Section
2016
$m
2015
$m
2016
$m
2015
$m
Assets carried at amortised cost
Loans and advances at amortised cost
Liabilities carried at amortised cost
Deposits
Borrowings including subordinated notes
3.4
3.2
3.5
42,896
42,896
(36,720)
(9,398)
(46,118)
40,703
40,703
(34,732)
(8,713)
(43,445)
43,069
43,069
(36,760)
(9,400)
(46,160)
40,829
40,829
(34,769)
(8,715)
(43,484)
Carrying value
Fair value
Bank
Section
2016
$m
2015 (1)
$m
2016
$m
2015 (1)
$m
Assets carried at amortised cost
Loans and advances at amortised cost
Liabilities carried at amortised cost
Deposits
Borrowings including subordinated notes
3.4
3.2
3.5
38,881
38,881
(37,523)
(5,281)
(42,804)
36,834
36,834
(35,378)
(3,900)
(39,278)
38,983
38,983
(37,563)
(5,284)
(42,847)
36,893
36,893
(35,415)
(3,901)
(39,312)
(1)
The comparative figures for the Bank have been restated, refer to Section 6.11.
The estimated fair values disclosed do not include the assets and liabilities that are not financial instruments.
104 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 3.7 FINANCIAL INSTRUMENTS (CONTINUED)
(d) Fair value hierarchy
The Consolidated Entity measures fair values using the following fair value hierarchy and valuation techniques, which reflect the significance of the inputs used in
making the measurements:
•
•
Level 1: This category includes assets and liabilities for which the valuation is determined from inputs that are quoted market prices (unadjusted) in active
markets for identical instruments.
Level 2: This category includes assets and liabilities for which the valuation is determined from inputs other than quoted prices included within level 1, that are
observable either directly or indirectly, such as the use of discounted cash flow analysis, option pricing models and other market accepted valuation models.
•
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
2016
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
1,863
-
-
1,863
-
1,863
1,867
1,591
180
3,638
(498)
3,140
2015
Level 1
$m
Level 2
$m
Level 3
$m
1,149
-
-
1,149
-
1,149
1,669
1,940
225
3,834
(297)
3,537
2016
Level 1
$m
Level 2
$m
Level 3
$m
1,863
-
-
1,863
-
1,863
2,058
1,591
180
3,829
(490)
3,339
9
-
-
9
-
9
9
-
-
9
-
9
9
-
-
9
-
9
3,739
1,591
180
5,510
(498)
5,012
Total
$m
2,827
1,940
225
4,992
(297)
4,695
Total
$m
3,930
1,591
180
5,701
(490)
5,211
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
105
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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
2015
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
1,149
-
-
1,149
-
1,149
1,838
1,940
162
3,940
(283)
3,657
9
-
-
9
-
9
2,996
1,940
162
5,098
(283)
4,815
(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 counterparties
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(c).
(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.
106 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 3.8 DERIVATIVE FINANCIAL INSTRUMENTS
(a) Fair value of derivatives
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 2016.
Consolidated
2016
2015
Notional
Amount
$m
Fair Value
Asset
$m
Liability
$m
Notional
Amount
$m
Fair Value
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
Derivatives designated as fair
value hedges
Interest Rate Swaps
Derivatives designated as net investment
hedges
Foreign Exchange Forwards
19,899
113
6,726
26,738
36,859
279
829
37,967
700
21
25
1
9
35
136
4
5
145
-
-
(17)
(2)
-
(19)
(293)
(20)
(8)
(321)
(157)
(1)
16,023
249
15,331
31,603
35,243
421
344
36,008
835
29
22
7
6
35
111
70
9
190
-
-
(15)
(6)
-
(21)
(125)
(15)
-
(140)
(136)
-
65,426
180
(498)
68,475
225
(297)
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
107
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016
3.8 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
(a) Fair value of derivatives (continued)
2016
2015
Bank
Notional
Amount
$m
Fair Value
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
Derivatives designated as fair value
hedges
Interest Rate Swaps
(b) Accounting for derivatives
19,899
133
6,726
26,758
36,667
211
829
37,707
700
65,165
25
1
9
35
136
4
5
145
-
180
Notional
Amount
$m
16,023
278
15,331
31,632
34,877
153
344
35,374
(17)
(3)
-
(20)
(293)
(12)
(8)
(313)
(157)
835
(490)
67,841
Fair Value
Asset
$m
Liability
$m
22
7
6
35
110
8
9
127
-
162
(15)
(6)
-
(21)
(119)
(7)
-
(126)
(136)
(283)
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.
108 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016
3.8 DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
(b) Accounting for derivatives (continued)
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.
(c) 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.
Consolidated
Derivative financial assets
Derivative financial liabilities
Consolidated
Derivative financial assets
Derivative financial liabilities
Bank
Derivative financial assets
Derivative financial liabilities
Bank
Derivative financial assets
Derivative financial liabilities
2016
Net amounts
of recognised
assets and
liabilities available
for offset
$m
Gross amounts as
presented in the
Balance Sheets
$m
180
(498)
(120)
120
2015
Net amounts
of recognised
assets and
liabilities available
for offset
$m
Gross amounts as
presented in the
Balance Sheets
$m
225
(297)
(102)
102
Gross amounts as
presented in the
Balance Sheets
$m
180
(490)
2016
Net amounts
of recognised
assets and
liabilities available
for offset
$m
(120)
120
2015
Gross amounts as
presented in the
Balance Sheets
$m
Net amounts
of recognised
assets and
liabilities available
for offset
$m
162
(283)
(102)
102
Cash
collateral
$m
-
349
Cash
collateral
$m
(10)
162
Cash
collateral
$m
-
349
Cash
collateral
$m
(10)
162
Net amounts
if offsetting
applied in the
Balance Sheets
$m
60
(29)
Net amounts
if offsetting
applied in the
Balance Sheets
$m
113
(33)
Net amounts
if offsetting
applied in the
Balance Sheets
$m
60
(21)
Net amounts
if offsetting
applied in the
Balance Sheets
$m
50
(19)
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
109
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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 2016:
Consolidated
2016
$m
2015
$m
3,243
(18)
311
3,536
(869)
(158)
15
(1,012)
2,524
450
2,974
253
221
474
3,448
28,054
12.3%
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%
•
•
Common Equity Tier 1 capital was 9.0%; and
Total capital adequacy ratio was 12.3%.
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 Capital Adequacy.
110 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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
2016
Number
2015
Number
2016
Number
2015
Number
Movements during the year
Balance at the beginning of the year – fully paid
370,768,776
362,516,835
370,768,776
362,516,835
Dividend reinvestment plan
Issues of ordinary shares (1) (2)
Balance at the end of the year – fully paid
Treasury shares (included in ordinary shares above)
Balance at the beginning of the year
Net acquisitions and disposals during the year
Balance at the end of the year
8,722,926
1,504,000
7,351,941
900,000
8,722,926
1,504,000
7,351,941
900,000
380,995,702
370,768,776
380,995,702
370,768,776
489,515
47,822
537,337
297,579
191,936
489,515
-
-
-
-
-
-
(1)
(2)
On 26 October 2015, 1,130,000 ordinary shares were issued at $13.79 and on 9 February 2016, 374,000 ordinary shares were issued at $12.63 to the trustee of the Bank of Queensland Limited 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.
On 24 October 2014, the Bank issued 900,000 ordinary shares at $12.29 to the trustee of the Bank of Queensland 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, wholesale capital notes 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
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.
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 (b). Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or loss.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
111
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 SECTION 4. OTHER ASSETS AND LIABILITIES
4.1
INTANGIBLE ASSETS
Consolidated
Customer
related
intangibles
and brands
$m
Computer
software
$m
Goodwill
$m
Bank
Other
$m
Total
$m
Goodwill (2)
$m
Customer
contracts (2)
$m
Computer
software (2)
$m
Other
$m
Total (2)
$m
10
3
-
13
13
6
-
19
8
2
-
-
10
10
6
-
-
16
2
3
3
1,097
62
(31)
1,128
432
187
-
619
1,128
619
66
(5)
-
-
1,189
619
269
30
(29)
10
280
280
44
(5)
1
320
828
848
869
-
-
-
-
-
-
-
-
-
-
432
619
619
72
17
-
89
89
-
-
89
57
-
-
-
57
57
10
-
-
67
15
32
22
262
59
(29)
292
292
60
-
352
169
15
(29)
10
165
165
27
-
1
193
93
127
159
5
3
-
8
8
6
-
771
266
(29)
1008
1008
66
-
14
1,074
4
2
-
-
6
6
6
-
-
230
17
(29)
10
228
228
43
-
1
12
272
1
2
2
541
780
802
Cost
Balance as at
1 September 2014
Additions
Disposals
Balance as at
31 August 2015
Balance as at
1 September 2015
Additions
Disposals
Balance as at
31 August 2016
675
130
-
-
-
-
675
130
675
130
-
-
-
-
675
130
Amortisation and impairment losses
Balance as at
1 September 2014
Amortisation for the year
Disposals
Impairment (1)
Balance as at
31 August 2015
Balance as at
1 September 2015
Amortisation for the year
Disposals
Impairment
Balance as at
31 August 2016
Carrying amounts
Carrying amount as at
1 September 2014
Carrying amount as at
31 August 2015
Carrying amount as
at 31 August 2016
-
-
-
-
-
-
-
-
-
-
675
675
675
84
11
-
-
95
95
10
-
-
105
46
35
25
282
59
(31)
310
310
60
(5)
365
177
17
(29)
10
175
175
28
(5)
1
199
105
135
166
(1)
(2)
Impairment of customer relationship management system
The comparative figures for the Bank have been restated, refer to Section 6.11.
112 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 4.1
INTANGIBLE ASSETS (CONTINUED)
Initial recognition and measurement
Intangible assets are stated at cost less any accumulated amortisation and any impairment losses. Expenditure on internally generated goodwill, research costs and
brands is recognised in the Income Statement as an expense as incurred.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All
other expenditure is expensed as incurred.
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, no material impairment indicators were identified.
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
Total
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015 (1)
$m
13
8
24
400
43
187
675
13
8
24
400
43
187
675
-
8
24
400
-
187
619
-
8
24
400
-
187
619
(1)
The comparative figures for the Bank have been restated, refer to Section 6.11.
Impairment testing of the cash generating units containing goodwill
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 $903 million (2015: $1,231 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 3 year projections (2015: 5 years);
• Subsequent cash flows were extrapolated beyond the 3 year projections at a medium term growth rate of 5% (2015: 5%);
• An exit value has been calculated at the end of year 10 based on an implied terminal value earnings multiple of 11.5 (2015: 12.0) and a long term growth rate
of 3% (2015: 3%); and
• A post-tax discount rate of 10.0% (2015: 10.0%) and a pre-tax discount rate of 14.3% (2015: 14.3%) was used.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
113
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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 (2)
Product Review (3)
Provision for non-lending loss (4)
Other (5)
Total provisions
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015
$m
24
3
-
8
12
47
23
3
3
25
8
62
21
1
-
8
5
35
20
2
3
25
-
50
(1)
(2)
(3)
(4)
(5)
Employee benefits provisions consist of 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) and long service leave entitlements for employees (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). $20 million of this balance is classified as current.
Lease provisions are classified as current.
Prior year included product reviews for customer refunds and review costs.
Included within the Non-lending losses provision is $6 million (2015: $21 million) in respect of the Storm Financial settlement. The remaining balance is classified as current.
Other provisions relate to insurance claims reserves and restructuring costs which are classified as current.
Movements in provisions
Movements in each class of provision during the year, other than employee benefits, are as follows:
2016
Carrying amount at beginning of year
Additional provision recognised
Amounts utilised during the year
Carrying amount at end of year
Consolidated
Bank
Leases
$m
Product
Review
$m
Non-
lending loss
$m
Other
$m
Leases
$m
Product
Review
$m
Non-
lending loss
$m
Other
$m
3
-
-
3
3
-
(3)
-
25
1
(18)
8
8
8
(4)
12
2
-
(1)
1
3
-
(3)
-
25
1
(18)
8
-
9
(4)
5
114 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016
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 2016. The actuarial report was prepared
by Mr Stephen Jones, Fellow of the Institute of Actuaries of Australia. This report indicates that Mr Jones 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 2016, 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
Mortality rates
Morbidity rates
Impact of movement in underlying variable
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
115
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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
2016
$m
2015
$m
32
(15)
17
(1)
-
(1)
16
(15)
41
(25)
16
7
2
9
25
52
(20)
32
(2)
1
(1)
31
(19)
55
(24)
31
8
2
10
41
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.
116 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 5.1
INSURANCE BUSINESS (CONTINUED)
(d) Life Insurance Regulatory Capital requirements
The regulatory capital requirement of each
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 amount required
the subsidiary
to be held
fund and
total
for
in
is
The methodology and bases for determining the Capital Base and regulatory capital requirements are in accordance with relevant Prudential Requirements.
Capital Base
Net Assets
Add / (subtract) regulatory adjustments to Net Assets
Total capital base
Asset risk charge
Operational risk charge
Total prescribed capital amount
Assets in excess of prescribed capital amount
Capital adequacy multiple
Composition of Capital Base
Common equity tier 1 capital
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
2016
2015
Statutory Fund
No. 1
$m
Shareholders’
Fund
$m
Statutory Fund
No. 1
$m
Shareholders’
Fund
$m
29
(13)
16
1
2
3
13
6
1
-
1
-
-
-
1
57
28
(9)
19
1
2
3
16
6
1
-
1
-
-
-
1
60
2016
$m
2015
$m
30
(13)
17
3
7
10
7
2
29
(9)
20
3
7
10
10
2
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
117
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016
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
2016
$m
2015
$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
46
2
48
25
7
32
16
(5)
11
11
(1)
1
64
3
67
15
22
37
30
30
41
3
44
18
5
23
21
(6)
15
15
(1)
1
82
3
85
28
28
56
29
29
The life insurance business has no life investment contracts.
(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).
118 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 5.1
INSURANCE BUSINESS (CONTINUED)
(e) Accounting policy (continued)
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 Life Insurance Contracts, 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
past experience.
incurred,
but
not
reported
losses,
based
upon
Deferred acquisition costs - Life insurance contracts
The fixed and variable costs of acquiring new life insurance business are
deferred to the extent that such costs are deemed recoverable from future
premiums or policy charges. These costs include commission, policy issue and
underwriting costs, certain advertising costs and other sales costs. Acquisition
costs deferred are limited to the lesser of the actual costs incurred and the
allowance for the recovery of such costs in the premium or policy charges.
The actual acquisition costs incurred are recorded in profit or loss in the
Income Statement. The value and future recovery of these costs are assessed
in determining policy liabilities. This has the effect that acquisition costs are
deferred within the policy liability balance and amortised over the period that
they will be recovered from premiums or policy charges.
Critical accounting judgements and estimates
The Consolidated Entity’s
insurance 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
insurance contracts;
of
providing
benefits
and
administering
these
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
119
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 For issues granted from December 2015, the vesting framework will also
contain an EPS component, with 80% of the employee’s PARs to vest based on
the Bank’s TSR performance measured against a Peer Group over a three year
period. The remaining 20% of PARs vest based on the Bank’s EPS performance,
measured against a Financial Services Peer Group over a three year period.
Vested PARs are generally exercisable within 3 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. DARs vest proportionately over
three years in the ratio of 20% at the end of year one, 30% at the end of year
two and 50% at the end of year three. DARs may be exercised by the employee
once they have vested
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.
SECTION 6. OTHER NOTES
6.1 EMPLOY EE 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.
Total contributions for the year have been disclosed in 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
The vesting framework for PARs will depend upon when the issue has been
granted. For PARs granted prior to December 2015 the vesting framework will
be based on the TSR of the Bank 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.
120 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 6.1 EMPLOY EE BENEFITS (CONTINUED)
(b) Share based payments (continued)
(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
2016
’000
1,086
553
(184)
(421)
1,034
2015
’000
941
621
(122)
(354)
1,086
2016
’000
2,513
954
(538)
(868)
2,061
2015
’000
2,198
809
(223)
(271)
2,513
2016
’000
2015
’000
262
157
-
(180)
239
197
163
-
(98)
262
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
(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
2016
2015
2016
2015
2016
2015
$10.96
$12.17
25.3%
2.5%
5.8%
$9.28
$10.57
30.4%
2.7%
6.3%
$7.04
$12.09
22.6%
2.5%
5.2%
$5.28
$10.11
28.1%
2.8%
5.8%
$12.35
$12.45
21.3%
2.4%
5.3%
$11.65
$11.65
23.8%
2.7%
5.0%
Consolidated
Bank
2016
$m
2015
$m
2016
$m
2015
$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
28
85
73
186
293
1,183
1,476
39
81
90
210
287
1,211
1,498
28
85
73
186
293
595
888
39
81
90
210
287
337
624
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
121
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 6.3 CONTINGENT LIABILITIES
As previously disclosed in the Bank’s half-year results, the Bank was served with class action proceedings commenced in the New South Wales Registry of the
Federal Court on 11 March 2016. The proceedings were commenced by Petersen Superannuation Fund Pty Ltd (the Applicant) on behalf of an open class against
Bank of Queensland Limited and DDH Graham Limited and relate to 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. The Bank intends to defend the proceeding and has filed a defence and cross-claims. It is
currently not practicable for the Bank to provide an estimate of any potential liability in relation to the proceedings.
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
(NZ) Ltd, Dell Financial Services Pty Ltd,
Finance Limited, St Andrew’s Australia Services Pty Ltd, BOQ Finance
and Virgin Money (Australia) Pty Limited where interest is charged on normal terms and conditions.
(Aust) Ltd, BOQ Finance
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
2016
$
2015
$
9,501,005
8,694,677
318,687
54,137
-
298,656
30,694
762,892
4,302,538
4,001,545
14,167,367
13,788,464
Individual Directors and Executives compensation disclosures
Information regarding individual Directors and Executives compensation and some equity instruments disclosures as permitted by Regulation 2M.3.03 of the
Corporations Regulation 2011 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.
122 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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 up to the 31 August 2016:
Balance as at
For the period (1)
1 September
2015
$
31 August
2016
$
Total Loan
Drawdowns /
(Repayments)
$
Total Loan /
Overdraft
interest
$
Total Fees on
Loans /
Overdraft
$
Term Products (Loans / Advances)
(2,535,149)
(1,690,202)
(428,207)
87,386
560
Balance as at
For the period (1)
1 September
2014
$
31 August
2015
$
Total Loan
Redraws /
Further
Advances
$
Total Loan /
Overdraft
interest
$
Total Fees on
Loans /
Overdraft
$
Term Products (Loans / Advances)
(1,479,341)
(2,535,149)
1,278,465
62,105
360
(1)
Amounts are included only for the period that the Director / Executive is classified as a member of the key management personnel.
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. No amounts have been written down or recorded as impaired during the year (2015: nil).
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 2016
$
Interest
receivable
$
Highest balance
during the year
$
200,000
70,000
270,000
2,405
842
3,247
209,226
73,229
282,455
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 Group Executives are as follows:
2016
2015
Balance at
1 September
2015
$
Interest paid
& payable
during
the year
$
Richard Haire Related Party
Jon Sutton Related Party
191,000
147,448
8,369
24,477
Balance at
31 August
2016
$
191,000
762,899
Highest
balance
during
the year
$
191,876
811,819
Balance at
1 September
2014
$
191,000
-
Interest paid
& payable
during
the year
$
9,148
3,023
Balance at
31 August
2015
$
191,000
147,448
Highest
balance
during
the year
$
191,777
150,000
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
123
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 6.5 CONTROLLED ENTITIES
(a) Particulars in relation to material controlled entities
The Group’s principal subsidiaries at 31 August 2016 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
Controlled entities:
B.Q.L. Management Pty. Ltd.
B.Q.L. Nominees Pty. Ltd.
B.Q.L. Properties Pty Ltd
Queensland Electronic Switching Pty Ltd
BOQ Equipment Finance Limited
St Andrew’s Australia Services Pty Ltd
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 REDS Trust
Series 2013-1 EHP REDS Trust
Series 2013-1 REDS Trust
Pioneer Permanent Pty Ltd (1)
BOQ Home Pty Ltd (1)
Home Financial Planning Pty Ltd
Home Credit Management Pty Ltd
Statewest Financial Services Pty Ltd
Statewest Financial Planning Pty Ltd
BOQ Share Plans Nominee Pty Ltd
Bank of Queensland Limited Employee Share
Plans Trust
St Andrew’s Life Insurance Pty Ltd
St Andrew’s Insurance (Australia) Pty Ltd
BOQ Finance (Aust) Limited
BOQ Credit Pty Limited
BOQ Funding Pty Limited
BOQ Finance (NZ) Limited
Newcourt Financial (Australia) Pty 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
New Zealand
Australia
(1)
The comparative figures for the Bank have been restated, refer to Section 6.11.
2016
%
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%
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%
Amount of investment
(at cost)
2016
$m
2015 (1)
$m
-
5
-
-
15
-
-
-
-
-
-
-
-
-
-
-
-
-
31
157
-
-
-
-
-
-
-
-
230
-
-
22
-
-
5
-
-
15
-
-
-
-
-
-
-
-
-
-
-
-
-
31
157
-
-
-
-
-
-
-
-
230
-
-
22
-
Principal activities
Trust management
Dormant
Dormant
Dormant
Asset Finance & Leasing
Insurance
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
Asset Finance & Leasing
Asset Finance & Leasing
Asset Finance & Leasing
Asset Finance & Leasing
Dormant
124 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 6.5 CONTROLLED ENTITIES (CONTINUED)
(a) Particulars in relation to material controlled entities (continued)
Controlled entities:
Dell Financial Services Pty Ltd
Hunter Leasing Pty Ltd
Virgin Money (Australia) Pty Limited
Virgin Money Home Loans Pty Limited
Virgin Money Financial Services Pty Ltd
BOQ Specialist (Aust) Limited (1) (2)
BOQ Specialist Pty Ltd
BOQ Asset Finance and Leasing Pty Ltd
Impala Trust No. 1
Nyala Funding Trust CMBS 2013-1
Series 2014-1 EHP REDS Trust
Series 2015-1 REDS Trust
Series 2015-1 EHP REDS Trust
Place of
business/
country of
incorporation
Parent entity’s
interest
2016
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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%
-
Amount of investment
(at cost)
2016
$m
2015 (1)
$m
-
-
53
-
-
358
1
-
-
-
-
-
-
872
-
-
43
-
-
358
1
-
-
-
-
-
-
862
Principal activities
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)
(2)
The comparative figures for the Bank have been restated, refer to Section 6.11.
Following the surrender of its Authorised Deposit-taking Institution license on 1 June 2015, 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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
125
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 6.5 CONTROLLED ENTITIES (CONTINUED)
(c) Acquisition of controlled entities (continued)
(ii) Entities acquired during the prior year
The following entities were established during the financial year:
• Series 2015-1 EHP REDS Trust was opened on 24 September 2015.
(d) Disposal of controlled entities
The following entities were closed during the financial year:
• Series 2006-1E REDS Trust was closed on 17 February 2016.
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
The subsidiaries to the Deed are:
• 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 2016 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 (1)
Removal of entities revoked from Deed (2)
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
Consolidated
2016
$m
2015
$m
463
(146)
317
155
-
(274)
-
198
317
317
428
(126)
302
203
(83)
(256)
(11)
155
302
302
(1) Prior year comparatives have been restated to exclude balances related to entities that were formerly part of the BOQ Specialist Group (including securitisation trusts Impala and Nyala). These companies are not a party to
the Deed of Cross Guarantee. The table on the next page reflects the restatement relating to Note 6.6 only and has no impact on the Bank or Consolidated balance sheet.
(2) Represents the retained profits balances as at 1 March 2015 of those entities revoked from the Deed in the prior year
126 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016
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
Consolidated
2016
$m
2015 (1)
$m
633
10
1,591
3,739
372
530
19
1,940
2,996
162
42,717
40,491
237
409
48
92
657
9
237
608
52
90
422
9
50,514
47,556
209
36,784
487
328
14
36
5,281
4,207
47,346
258
34,791
290
374
56
51
3,890
4,796
44,506
3,168
3,050
2,940
30
198
3,168
2,810
85
155
3,050
(1)
Prior year comparatives have been restated to exclude balances related to entities that were formerly part of the BOQ Specialist Group (including securitisation trusts Impala and Nyala). These companies are not a party to
the Deed of Cross Guarantee. The table below reflects the restatement relating to Note 6.6 only and has no impact on the Bank or Consolidated balance sheet.
Assets
Cash and liquid assets
Liabilities
Borrowings including subordinated notes
Amounts due to controlled entities
Equity
Reserves
Retained profits
Reported
2015
$m
Increase/
(Decrease)
$m
Restated
2015
$m
561
(31)
530
4,282
4,435
80
160
(392)
361
5
(5)
3,890
4,796
85
155
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
127
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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 2016 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
2016
(%)
2015
(%)
2016
$m
2015
$m
9.31
17.08
25.00
5.81
25.00
9.31
17.08
25.00
5.81
25.00
6
8
1
-
-
15
9
9
-
-
-
18
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
2016
$m
2015
$m
12
-
-
12
26
-
-
26
128 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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
- Other
6.9 EVENTS SUBSEQUENT TO BALANCE DATE
Consolidated
Bank
2016
$000
2015
$000
2016
$000
2015
$000
1,215
277
1,492
716
144
860
120
70
190
1,118
364
1,482
445
167
612
372
37
409
860
160
1,020
619
144
763
120
70
190
441
167
608
445
167
612
372
37
409
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.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
129
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 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.
transactions between
All
on consolidation.
the Bank and
the Trusts are eliminated
(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
the contractual
Financial assets are derecognised when
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
they are extinguished,
i.e. when the obligation is discharged, cancelled or expired.
liabilities are derecognised when
rights
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 (“AASB 139”).
the
fund
loans by
their purchase of
issuing
The RMBS Trusts
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.
130 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 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 2013-9 Amendments to Australian Accounting Standards - Conceptual
Framework, Materiality and Financial Instruments - This standard contains
three main parts and makes amendments to a number of Standards
and Interpretations. The key amendments arising from this standard are
the updating of references to the Framework for the Preparation and
Presentation of Financial Statements, the deleting of references to AASB
1031 and the incorporation of Chapter 6 Hedge Accounting into AASB 9
Financial Instruments. The Bank has reviewed this standard and determined
there to be no material impact on the Consolidated Entity.
• AASB 2014-1 Part A - This standard sets out amendments to a number of
standards and addresses the following items:
• AASB 2 Share Based Payments - Clarifies the definition of ‘vesting
conditions’ and ‘market condition’ and introduces the definition of
‘performance condition’ and ‘service condition’.
• AASB 3 Business Combinations - Clarifies
the classification
requirements for contingent consideration in a business combination
by removing all references to AASB 137.
• AASB 8 Operating Segments - Requires entities to disclose factors
used to identify the entity’s reportable segments when operating
segments have been aggregated. An entity is also required to provide
a reconciliation of total reportable segment assets to the entity’s total
assets.
• AASB 116 Property, Plant & Equipment & AASB 138 Intangibles -
Clarifies that the determination of accumulated depreciation does
not depend on the selection of the valuation technique and that it
is calculated as the difference between the gross and net carrying
amounts.
The Bank has reviewed the impact of the above and determined there to be no
material impact on the Consolidated Entity.
All other amendments to standards applicable for the 2016 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 2016 but have not been applied in these financial
statements.
• AASB 9 Financial Instruments - This standard introduces changes in
the classification and measurement of financial assets and liabilities,
including a new expected loss model for impairment and simplifications to
hedge accounting. This standard becomes mandatory for the Group’s 31
August 2019 financial statements and a program for implementation has
commenced. The potential financial impact has not yet been determined.
• AASB 2014-4 Clarification of Acceptable Methods of Depreciation and
Amortisation (Amendments to AASB 116 and AASB 138) - Establishes
the principle for the basis of depreciation and amortisation as being the
expected pattern of consumption of the future economic benefits of an
asset. The potential effects of this standard is 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.
• AASB 16 Leases - This standard makes changes to the accounting for
leases by Lessees. Lessees are required to recognise assets and liabilities
for all leases with a term of more than 12 months, unless the underlying
asset is of low value. A lessee measures right-of-use assets similarly to
other non-financial assets and lease liabilities similarly to other financial
liabilities. Assets and liabilities arising from a lease are initially measured
on a present value basis. The measurement includes non-cancellable
lease payments (including inflation-linked payments), and also includes
payments to be made in optional periods if the lessee is reasonably certain
to exercise an option to extend the lease, or not to exercise an option to
terminate the lease. AASB 16 substantially carries forward the lessor
accounting requirements in AASB 117. Accordingly, a lessor continues to
classify its leases as operating leases or finance leases, and to account for
those two types of leases differently. The potential effects of this standard
is yet to be determined.
entity.
• AASB 124 Related Party Disclosures - Defines a management
the
entity providing KMP services as a
exemption
reporting
from
paragraph
17 of AASB 124 Related Party Disclosures for KMP services provided
by a management entity. Payments made to a management entity in
respect of KMP services should be separately disclosed.
related party of
an
added
in
requirements
amendments
disclosure
detailed
The
the
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
131
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016 6.10 SIGNIFICANT ACCOUNTING POLICIES & NEW ACCOUNTING STANDARDS (CONTINUED)
(d) Impairment of non-financial assets
(f) Goods and services tax
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.
is subject
to an operating segment ceiling
This grouping
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.
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 current 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) 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.
(ii) Operating leases
The estimated useful lives are as follows:
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.
IT Equipment
Plant, furniture and equipment
Leasehold improvements (1)
(1)
Or term of lease if less.
Years
3-10
3-20
12
The residual value if significant, is reassessed annually.
132 ANNUAL REPORT 2016
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016 6.11 CHANGES TO COMPARATVIES
Certain amounts reported as comparative information have been restated for the Bank as a result of a review of the accounting for investments in subsidiaries in the
Bank entity following transfer of businesses under the Financial Sector (Business Transfer and Group Restructure) Act 1999. This process was undertaken as part
of the Authorised Deposit-taking Institution (‘ADI’) hand back following the acquisitions of BOQ Specialist (Aust) Limited, BOQ Home Pty Ltd and Pioneer Permanent
Pty Ltd.
During the year, the classification of the Bank’s Balance Sheet has changed to reflect the transfer of certain assets and liabilities from the Consolidated Entity to
the Bank relating to the ADI licence handback. This was offset by a reduction in the carrying value of shares in controlled entities. The Consolidated Entity was not
impacted by the internal transfer and there was no loss of value in the Consolidated Entity. The key changes for the Bank include:
• A reduction of $681 million in the carrying value of shares in controlled entities.
•
Transfer of $647 million of intangibles from the Consolidated Entity to the Bank comprising $611 million of Goodwill, $32 million of customer contracts net of
amortisation and $4 million of computer software net of amortisation.
• Amortisation of the customer contracts and computer software of $38 million in retained profits in the Bank.
The following changes impacted the Bank’s Statements of Changes in Equity. There was no impact to the Consolidated Entity:
Ordinary
shares
$m
3,024
-
-
-
-
-
-
-
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
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Total contributions by and distributions to
owners
Balance at the end of the year
11
93
-
-
104
3,128
Employee
benefits
reserve
Equity
reserve
for credit
losses
Cash-
flow
hedge
reserve
$m
33
-
-
-
-
-
-
-
-
-
-
1
1
$m
57
-
-
-
-
11
11
11
-
-
-
-
-
$m
(29)
-
(72)
10
-
-
(62)
(62)
-
-
-
-
-
Available-
for-sale
reserve
Reported
Retained
profits
Increase/
(Decrease)
Restated
Retained
profits
$m
37
$m
141
$m
(38)
$m
103
Total
equity
$m
3,225
-
292
-
-
-
-
-
-
-
-
-
-
-
-
(38)
292
292
-
-
-
(11)
(11)
281
-
-
(256)
-
(256)
128
(72)
2
35
-
(35)
257
11
93
(256)
1
(151)
3,331
-
(8)
35
-
27
27
-
-
-
-
-
-
-
-
(11)
(11)
281
-
-
(256)
-
(256)
166
34
68
(91)
64
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
133
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2016
6.11 CHANGES TO COMPARATVIES (CONTINUED)
The following changes impacted the Bank Balance Sheet. There was no impact to the Consolidated Entity:
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
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
Borrowings including subordinated notes
Amounts due to controlled entities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total Equity
134 ANNUAL REPORT 2016
Reported
Bank
2015
$m
Increase/
(Decrease)
$m
Restated
Bank
2015
$m
553
19
2,996
1,940
162
36,830
240
1,543
52
74
133
44,542
259
35,378
283
345
55
50
3,896
907
41,173
-
-
-
-
-
4
-
(681)
-
-
647
(30)
-
-
-
-
-
-
4
4
8
553
19
2,996
1,940
162
36,834
240
862
52
74
780
44,512
259
35,378
283
345
55
50
3,900
911
41,181
3,369
(38)
3,331
3,128
75
166
3,369
-
-
(38)
(38)
3,128
75
128
3,331
NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 AUGUST 2016
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 134,
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 2016 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 2016.
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
5 October 2016
Jon Sutton
Managing Director and CEO
5 October 2016
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
135
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 2016 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.
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.
136 ANNUAL REPORT 2016
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF BANK OF QUEENSLAND LIMITED
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 2016 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).
REPORT ON THE REMUNERATION REPORT
We have audited the Remuneration Report included on pages 45 to 64 of the directors’ report for the year ended 31 August 2016. 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 2016, complies with Section 300A of the Corporations Act 2001.
KPMG
Martin McGrath
Partner
Sydney
5 October 2016
Robert Warren
Partner
Sydney
5 October 2016
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
137
SHAREHOLDING DETAILS
As at Tuesday 27 September 2016, 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
JBWERE (NZ) NOMINEES LTD
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
UBS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD
AMP LIFE LIMITED
BKI INVESTMENT COMPANY LIMITED
CARLTON HOTEL LIMITED
KARATAL HOLDINGS PTY LTD
THE MANLY HOTELS PTY LIMITED
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
THE TRUST COMPANY SUPERANNUATION LIMITED
Total
Voting rights
No. of ordinary shares
64,243,627
37,242,050
29,043,536
27,776,642
7,306,078
4,862,056
3,452,902
3,248,901
1,423,870
1,344,347
1,113,526
984,998
921,328
863,195
810,000
767,873
692,344
655,540
630,781
620,600
%
16.86
9.78
7.62
7.29
1.92
1.28
0.91
0.85
0.38
0.35
0.29
0.26
0.24
0.23
0.21
0.20
0.18
0.17
0.17
0.16
188,004,194
49.35
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.
138 ANNUAL REPORT 2016
As at Tuesday 27 September 2016, the following shareholding details applied:
2. TWENTY LARGEST CPS SHAREHOLDERS
Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
BNP PARIBAS NOMS PTY LTD
MILTON CORPORATION LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
NAVIGATOR AUSTRALIA LTD
DOMER MINING CO PTY LTD
THE TRUST COMPANY SUPERANNUATION LIMITED
HAVENFLASH PTY LTD
MR GERHARD JANSSEN & MRS GABRIELE MALUGA
MR JOHN HARRISON VALDER & MRS KAY ORMONDE VALDER
SOUTHERN METROPOLITAN CEMETERIES
EASTCOTE PTY LTD
BCITF (QLD)
F & B INVESTMENTS PTY LIMITED
JILRIFT NO 2 PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
JILLIBY PTY LTD
BAPTIST INVESTMENTS AND FINANCE LTD
WINCHELADA PTY LIMITED
Total
Voting rights
SHAREHOLDING DETAILS
No. of ordinary shares
120,132
85,071
58,357
50,000
35,310
33,669
32,200
31,695
21,000
13,181
10,000
10,000
10,000
10,000
10,000
9,482
9,098
9,000
8,546
8,140
%
4.00%
2.84%
1.95%
1.67%
1.18%
1.12%
1.07%
1.06%
0.70%
0.44%
0.33%
0.33%
0.33%
0.33%
0.33%
0.32%
0.30%
0.30%
0.28%
0.27%
574,881
19.15%
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
Ordinary Shares
CPS
2016
2015
2016
2015
58,885
29,088
5,336
2,713
70
57,787
27,587
5,051
2,500
71
5,850
342
27
9
1
6,099
340
23
13
-
96,092
92,996
6,229
6,475
The number of ordinary shareholders holding less than a marketable parcel is 3,428.
The number of convertible preference shareholders holding less than a marketable parcel is nil.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
139
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
BlackRock Group
No. of ordinary shares in which
interest is held (at date of notification)
19,145,139
Date of notification
26 July 2016
6. SECURITIES EXCHANGE LISTING
The shares of Bank of Queensland Limited (‘BOQ’) and CPS (‘BOQPD’) are quoted on the Australian Securities Exchange.
7. OPTIONS
At 31 August 2016 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.
140 ANNUAL REPORT 2016
SHAREHOLDER INFORMATION
KEY SHAREHOLDER DATES
Dividend dates for ordinary shares only
2016
Final ex-dividend date
Final dividend record date
Final dividend payment date
Annual General Meeting
2017
Financial half year end
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
27 October 2016
28 October 2016
22 November 2016
30 November 2016
28 February 2017
30 March 2017
20 April 2017
21 April 2017
17 May 2017
31 August 2017
12 October 2017
2 November 2017
3 November 2017
23 November 2017
30 November 2017
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
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
141
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 (cents) (5)
Diluted cash earnings per share (cents) (5)
Fully franked ordinary dividend per share (cents)
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 (%)
Total capital adequacy ratio (%)
2016
$m
2015
$m
2014
$m
2013
$m
2012
$m
937
173
1,110
(520)
590
(67)
523
360
338
43,152
50,853
29,122
47,266
3,587
4,020
10.55
95.6
90.7
76
80%
1.94%
46.8%
10.3%
907
180
1,087
(500)
587
(74)
513
357
318
40,975
48,018
26,914
44,549
3,469
4,698
12.67
97.3
92.2
74
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
89.5
87
66
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
78.1
75.1
58
99%
1.69%
44.3%
9.4%
9.00%
12.29%
8.91%
12.72%
8.63%
12.02%
8.63%
12.24%
656
161
817
(373)
444
(401)
43
21
(17)
34,560
41,758
22,270
38,859
2,899
2,331
7.55
7.9
7.9
52
n/a
1.67%
45.7%
1.3%
8.58%
12.56%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Underlying profit before tax is profit before impairment on loans and advances, significant items and tax.
Cash earnings after tax exclude significant items (tax effected).
Includes BOQ Specialist (Aust) Limited.
Before specific and collective provisions.
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.
Excludes impact of significant items.
Excluding amortisation of fair value adjustments (acquisitions).
142 ANNUAL REPORT 2016
GLOSSARY
Term
Description
Alternative Liquid Asset (‘ALA’)
Qualifying Collateral for the Committed Liquid Facility comprising of all assets eligible for repurchase
transactions with the RBA under normal market conditions and any other assets nominated by the RBA.
APRA Prudential Standard (‘APS’)
Prudential Standards issued by APRA applicable to ADIs.
Australian Accounting Standards (‘AASB’)
A series of technical pronouncements that set out the measurement and recognition requirements when
accounting for particular types of transactions and events, along with the preparation and presentation
requirements of an entity’s financial statements.
Australian Equipment Lessors Association (‘AELA’)
AELA is the national association for the equipment leasing and financing industry.
Australian Prudential Regulation Authority (‘APRA’)
Australian Securities Exchange (‘ASX’)
Authorised Deposit-Taking Institution (‘ADI’)
Available for Sale (‘AFS’)
APRA is the prudential regulator of banks, insurance companies and superannuation funds, credit
unions, building societies and friendly societies.
Australian Securities Exchange or ASX Limited ABN 98 008 624 691 and the market operated by ASX
Limited.
A corporations which is authorised under the Banking Act 1959 and includes banks, building societies
and credit unions.
Available for sale is an accounting term used to classify financial assets. AFS assets represent securities
and other financial investments that are neither held for trading, nor held to maturity. Under IFRS, AFS
assets are defined as being all financial assets that do not fall into one of the other IFRS financial asset
classifications.
Average Interest Earning Assets
Average balance over the period for a bank’s assets that accrue interest income.
Bank of Queensland Limited (‘the Bank’) (‘BOQ’)
BASEL III
Basis points (‘bps’)
Cash Earnings
Committed Liquidity Facility (‘CLF’)
The Bank is a for profit entity primarily involved in providing retail banking, leasing finance, and insurance
products, to its customers.
A global regulatory framework to improve the regulation, supervision and risk management within the
banking system developed by the Basel Committee on Banking Supervision.
One per cent of one per cent (0.01%)
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
The Reserve Bank provides a CLF as part of Australia’s implementation of the Basel III liquidity reforms.
The facility, which is required because of the limited amount of government debt in Australia, is designed
to ensure that participating ADIs have enough access to liquidity to respond to an acute stress scenario,
as specified under the relevant APS.
Common Equity Tier 1 (‘CET1’)
Capital that is recognised as the highest quality component of capital under APRA Prudential Standards.
Common Equity Tier 1 ratio (‘CET1 ratio)
CET1 capital divided by total risk-weighted assets calculated in accordance with relevant APS.
Consolidated Entity (‘the Group’)
The Bank and its’ subsidiaries.
Convertible Preference Shares (‘CPS’)
CPS are fully paid, non-cumulative, perpetual, convertible, unguaranteed and unsecured preference
shares with preferred, discretionary dividends, issued by companies.
Cost to Income ratio
Days past due (‘dpd’)
Dividend Payout ratio
Dividend reinvestment plan (‘DRP’)
Dividend Yield
Earnings per Share (‘EPS’)
Operating expenses divided by net operating income.
A loan or lease payment that has not been made by a customer by the due date.
Dividends paid on ordinary shares divided by earnings per share.
Provides shareholders with the opportunity to convert all or part of their entitlement to a dividend into
new shares at a current plan discount of 1.5%.
Dividend shown as a percentage of the share price.
Measures of earnings attributed to each equivalent ordinary share over a twelve month period. Calculated
by dividing the company's earnings by the weighted average number of shares on issue in accordance
with AASB 133 Earnings per share.
Equipment Hire Purchase (‘EHP’)
EHP trust under the REDS securitisation program, issuing ABS to the term market.
Effective tax rate
Full Time Equivalent (‘FTE’)
Income tax expense divided by profit before tax.
A calculation based on number of hours worked by full and part time employees as part of their normal
duties.
Bank of Queensland Limited and its Controlled Entities ABN 32 009 656 740 AFSL No. 244616
143
GLOSSARY
Term
Description
General Reserve for Credit Losses (‘GRCL’)
Gross Loans and Advances (‘GLA’)
High Quality Liquid Asset (‘HQLA1’)
Impaired Assets
An estimate of the reasonable and prudent expected credit losses over the remaining life of the
portfolio and on non-defaulted assets, not covered by provisions for impairment.
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.
Comprises of the Bank’s notes and coins and marketable securities representing claims on or
guaranteed by the Australian Government or Semi-Government authorities.
Exposures that have deteriorated to the point where full collection of principal and interest is in
doubt.
Interest bearing liabilities
The bank’s liabilities that accrue interest expense.
International Accounting Standard (‘IAS’)
International Financial Reporting Standards (‘IFRS’)
Issued Capital
Line of Credit (‘LOC’)
Liquid assets
Liquidity Coverage Ratio (‘LCR’)
Net Interest Margin (‘NIM’)
Net Tangible Assets (‘NTA’)
Non-interest earning assets
Owner Managed Branch (‘OMB’)
A set of accounting standards developed by the International Accounting Standards Board stating
how particular types of transactions and other events should be reflected in financial statements.
These standards are currently being phased out and replaced by IFRS (see below)
International Financial Reporting Standards and interpretations issued by the International
Accounting Standards Board.
Value of securities allotted in a company to its shareholders.
A flexible facility that allows a customer to draw down on their approved available credit at any
time, as long as the customer does not exceed the approved credit limit.
All unencumbered RBA repurchase eligible liquid assets including HQLA1 and assets able to be
pledged as collateral to the RBA under the CLF.
The ratio of high quality liquid assets that can be converted into cash easily and immediately in
private markets, to total net cash flows required to meet the Group’s liquidity needs for a 30 day
calendar liquidity stress scenario as determined in accordance with APRA’s prudential standards.
Net interest income divided by average interest-earning assets.
Net tangible assets are calculated as the total assets of a company minus any intangible assets
such as goodwill, less all liabilities and the par value of preferred stock.
The bank’s assets that do not accrue interest income.
A branch which is run locally by a franchisee and delivers personal service to their customers.
Real Estate Debt Securities (‘REDS’)
An acronym to describe the BOQ securitisation programs.
Residential Mortgage Backed Securities (‘RMBS’)
A reference to a financial debt security that is secured by a pool of mortgages on residential
property. Mortgages with varying credit ratings are grouped together and sold in tranches to
investors by issuers as a source of funding.
Return on Average Equity (‘ROE’)
Net Profit attributable to the owners of the company divided by average ordinary equity.
Return on Average Tangible Equity (‘ROTE’)
Risk Weighted Assets (‘RWA’)
Share Capital
Total Capital Adequacy Ratio
Treasury shares
Virgin Money (Australia) (‘VMA’)
Net profit attributable to the owners of the company divided by average ordinary equity less
goodwill and identifiable intangible assets.
A quantitative measure of various risks including credit, operational, market and securitisation as
defined by APRA’s prudential standards.
Company’s issued and paid-up capital.
Total capital divided by total risk-weighted assets calculated in accordance with relevant APS.
Shares that the Bank has issued but are held by a trust included within the Bank’s consolidated
results. Treasury shares are not considered shares outstanding and are not included in ‘per
share’ calculations.
Virgin Money (Australia) Pty Ltd and its subsidiaries. The VMA entities are subsidiaries of the
Group that engages in the provision of financial services (e.g. insurance, superannuation and
home lending) on behalf of business partners, including BOQ.
Weighted Average Number of Shares (‘WANOS’)
Calculated in accordance with AASB 133 Earnings per Share.
Wholesale Capital Notes (‘WCN’)
WCNs are similar to CPS as the notes may convert into common shares in certain circumstances
as described in the offer documentation of the notes.
144 ANNUAL REPORT 2016
{Inside Back Cover}
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WE’RE DELIVERING OUR STRATEGY AT
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