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BénéteauANNUAL FINANCIAL REPORT 2015
Bendigo and Adelaide Bank Group
Table of contents
Directors’ Report
Directors’ Information
Meetings of Directors
Operating and Financial Review
Group performance highlights
Divisional performance
Risk management framework, business uncertainties
and significant business risks
Remuneration Report
Financial Statements
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10
15
19
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49
1
2015 ANNUAL FINANCIAL REPORT Directors’ Report
The Directors of Bendigo and Adelaide Bank Limited present their report together with the financial
report of Bendigo and Adelaide Bank Limited (the “Bank”) and the Consolidated Entity
(the “Group”) for the year ended 30 June 2015.
Directors’ Information
The names and details of the Directors in office during the financial year and as at the date of this report are as follows.
Robert Johanson, Chair, Independent
BA, LLM (Melb), MBA (Harvard), 64 years
Term of office: Robert has been a Director of the Bank for 27 years. He was appointed Chairman in 2006.
Skills, experience and expertise: Robert has experience in banking and financial services and expertise in corporate
strategy, capital management, risk management and mergers and acquisitions. He has over 30 years’ experience in providing
corporate advice on capital market transactions to a wide range of public and private companies.
Board committees: Governance & HR, Risk (from January 2015) and Technology & Change
Group and joint venture directorships: Rural Bank Ltd and Homesafe Solutions Pty Ltd (Chair)
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Deputy Chancellor, University of Melbourne
Chairman, Australia India Institute and Chairman of The Conversation
Director, Robert Salzer Foundation Ltd, Grant Samuel Group Pty Ltd.
Mike Hirst, Managing Director, not independent
BCom (Melb), SFin, 57 years
Term of office: Mike was appointed as Managing Director and Chief Executive Officer of the Bank in 2009.
Skills, experience and expertise: Mike joined the Group when he was appointed as a Director of Sandhurst Trustees Limited
(a wealth management subsidiary of the Bank) in 2001 and he became an employee of the Bank later in 2001. Mike has
extensive experience in banking, treasury, funds management and financial markets, including previous senior executive and
management positions with Colonial Ltd, Chase AMP Bank Ltd and Westpac Banking Corporation.
Board committees: Mike has a standing invitation to attend meetings of all Board committees. He is not a member of these
Board committees.
Group and joint venture directorships: Rural Bank Ltd
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Member, Business Council of Australia
Deputy Chairman, Australian Bankers’ Association Council
Member, Centre for Workplace Leadership Advisory Board, Skilling the Bay and GROW21 Advisory Boards.
Jim Hazel, Independent
BEc, SFFin, FAICD, 64 years
Term of office: Jim joined the Board in March 2010.
Skills, experience and expertise: Jim is a professional public company Director who has had an extensive career in banking
and finance, including in the regional banking industry. Jim was Chief General Manager at Adelaide Bank (his employment
ended in 1999).
Board committees: Risk (Chair), Credit, Technology & Change (from January 2015), and Governance & HR
(ceased January 2015)
Group and joint venture directorships: Rural Bank Ltd
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Chairman, Ingenia Communities Group Ltd (ASX listed, period: June 2012 to present)
Director, Centrex Metals Ltd (ASX listed, period: 2010 to present), Impedimed Ltd (ASX listed, period: 2007 to present),
Adelaide Football Club Limited, Motor Accident Commission, Coopers Brewery Ltd and
Council Member of the University of South Australia.
2
Jacqueline Hey, Independent
BCom (Melb), Graduate Certificate in Management (Southern Cross University), GAICD, 49 years
Term of office: Jacquie joined the Board in July 2011.
Skills, experience and expertise: Jacquie has experience in information technology, telecommunications and marketing,
including as CEO/Managing Director of Ericsson in the UK and in Australia. Jacquie worked with Ericsson for more than 20
years in finance, marketing and sales and in leadership roles in Australia, Sweden, the UK and the Middle East.
Board committees: Audit, Risk (ceased January 2015), Governance & HR (from January 2015) and Technology &
Change (Chair)
Group and joint venture directorships: n/a
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Director, Qantas Airways Limited (ASX listed, period: August 2013 to present), Australian Foundation Investment Company
Limited (ASX listed, period: July 2013 to present), Special Broadcasting Service (SBS), Cricket Australia, Melbourne Business
School and Honorary Consul of Sweden for Victoria.
Robert Hubbard, Independent
BA(Hons) Accy, FCA, MAICD, 56 years
Term of Office: Rob joined the Board in April 2013.
Skills, experience and expertise: Rob is an accountant and auditor based in Brisbane. He retired as a Partner of
PricewaterhouseCoopers in March 2013 after 22 years practising in the areas of corporate advice and audit, where he was
the auditor of some of Australia’s largest listed companies. Rob also provided accounting and due diligence services for
acquisitions, divestments, capital raisings and public takeovers. Rob is now a professional Non-executive Director.
Board committees: Audit (Chair), Risk
Group and joint venture directorships: n/a
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Director, Orocobre Ltd (ASX and TSX listed, period: November 2012 to present), Central Petroleum Ltd (ASX listed, period:
December 2013 to present), Primary Health Care Ltd (ASX listed, period: December 2014 to present).
Chairman of Opera Queensland, Director of JK Tech Pty Ltd, MS Research Australia and Council member of the
University of the Sunshine Coast.
David Matthews, Independent
Dip BIT, GAICD, 57 years
Term of office: David joined the Board in March 2010.
Skills, experience and expertise: David has experience in small business and agribusiness. David has involvement in a
number of agricultural industry bodies including as a Director and Vice Chairman of Pulse Australia and as a former Director of
Australian Field Crops Association. David has a strong connection to regional communities and is an advocate and supporter
of the Community Bank® model. He chaired the first Community Bank® company in Rupanyup and Minyip when it was first
established in 1998.
Board committees: Credit, Audit
Group and joint venture directorships: Rural Bank Ltd
Former Co-Chair and current member of the Community Bank® Strategic Advisory Board.
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Director, Pulse Australia, Rupanyup/Minyip Finance Group Ltd.
Deb Radford, Independent
B.Ec, Graduate Diploma Finance & Investment, 59 years
Note: Standing for re-election at the 2015 AGM
Term of office: Deb joined the Board in February 2006.
Skills, experience and expertise: Deb has over 20 years’ experience in the banking industry with both international and
local banks. Deb also worked in the Victorian State Treasury, and ran her own consulting business between 2001 and 2007
advising the government on commercial transactions.
Board committees: Credit (Chair), Technology & Change, Governance & HR
Group and joint venture directorships: n/a
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Director, SMS Management & Technology Ltd (ASX listed, period: September 2013 to present)
Council Member of La Trobe University.
3
2015 ANNUAL FINANCIAL REPORT Tony Robinson, Independent
B Com (Melb), ASA, MBA (Melb), 57 years
Note: Standing for re-election at the 2015 AGM
Term of office: Tony joined the Board in April 2006.
Skills, experience and expertise: Tony has many years’ experience in financial services, particularly wealth management and
insurance. Tony’s previous roles include Managing Director of Centrepoint Alliance Limited, Chief Executive Officer of IOOF
Holdings Ltd, Managing Director of OAMPS Limited, joint Managing Director of Falkiners Stockbroking, Managing Director of
WealthPoint, and senior executive positions at Link Telecommunications and Mayne Nickless.
Board committees: Risk, Governance & HR (Chair) and Audit (from January 2015)
Group and joint venture directorships: Sandhurst Trustees Limited
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Executive Director, Oncard International Limited (ASX listed, period: June 2014 to present)
Director, Treasury Group Limited (ASX listed, period: August 2015 to present) and Investors Mutual Limited
Former Director, Centrepoint Alliance Limited (ASX listed, period: 2009 to 2013).
Former Director
Jenny Dawson, Independent
B Bus (Acc), FCA, MAICD, 50 years
Term of office: Jenny joined the Board in 1999 and retired from the Board in October 2014.
Skills, experience and expertise: Jenny has experience in financial reporting and audit, IT internal control reviews, internal
audit and risk management. Jenny worked with Arthur Andersen for ten years in the audit and IT controls division, and also
worked for the Bank (her employment ended in 1999).
Board committees: Audit (Chair), Credit
Group and joint venture directorships: Sandhurst Trustees Ltd (Chair), Community Sector Banking Pty Ltd,
Community Sector Enterprises Pty Ltd
Other director and memberships (including directorships of other listed companies for the previous 3 years):
Member, Victorian Regional Policy Advisory Committee
Chair, Regional Development Australia Committee for the Loddon Mallee Region
Independent Chair, Audit Committee - Goulburn-Murray Water.
Principal activities
The principal activities of the Group during the financial year
were the provision of a broad range of banking and other
financial services including consumer, residential, business
and commercial lending, deposit-taking, payments services,
wealth management, funds management and superannuation,
treasury and foreign exchange services. The Group conducts
its activities predominantly in Australia. There was no
significant change in the nature of the activities during
the year.
Operating results
The consolidated profit after providing for income tax of the
Group amounted to $423.9 million, an increase of 13.9% on
the 2014 result of $372.3 million.
The Group maintained its approach to disciplined margin
management and balance sheet growth which was evident in
the profit result and overall credit performance.
The Group’s operating income grew by $106.3 million (7.4%)
which includes a $59.4 million increase in net interest income
and a $46.9 million increase in non-interest income, $13.1
million of which came from Homesafe. The increase in net
interest income was mainly due to a 7.2% increase in average
interest earning assets. This was offset to a degree by a 4
basis point decrease in net interest margin for the year.
The underlying cash earnings were $432.4 million, a 13.1%
increase on the previous financial year. Cash earnings per
share were 95.1 cents, a 3.9% increase on the previous year.
Operating expenses increased by $66.9 million (8.1%).
The main increases related to staff costs ($29.1 million),
occupancy costs ($9.7 million), information and technology
costs ($3.4 million) and other administrative expenses
($6.7 million).
4
The increases were largely driven by contractual wage
and salary adjustments, the acquisition of Rural Finance,
the rental for the new Adelaide premises and increases
in software maintenance and information technology
leasing costs.
The bad and doubtful debt expense decreased by $13.6
million (16.6%) to $68.3 million for the financial year.
Balance sheet growth was stable with total assets increasing
by $965.9 million (1.5%) and total liabilities increasing by
$990.7 million (1.6%).
Gross loans and other receivables increased by $2.6 billion
(4.9%) primarily driven by growth in residential lending of $1.4
billion (4.0%) and growth in commercial and business lending
of $1.4 billion (11.6%). This growth was offset by declines in
the consumer and margin lending portfolios.
The provisions for credit impairment increased by $27.2
million (9.2%), mainly driven by an increase in the collective
provision for the Great Southern loan portfolio and General
Reserve for Credit Losses.
Growth in customer deposits of $1.2 billion (2.2%) comprised
growth in retail deposits of $1.4 billion (3.1%) and a decrease
of $233.8 million in wholesale deposits.
During the year the Group also took a number of significant
steps to strengthen its capital base and funding capacity. This
included two successful preference share issues which raised
a total of approximately $574 million of new Tier 1 hybrid
capital under the Australian Prudential Regulation Authority
(APRA) Basel III capital adequacy framework.
Information on dividends paid and declared is presented on
the following page. Further details on the Group’s operating
results are contained in the Operating and Financial Review
section of this report.
Dividends
The Directors announced on 10 August 2015 a fully franked
final dividend of 33 cents per fully paid ordinary share. The
final dividend is payable 30 September 2015. The proposed
payment is expected to amount to $148.3 million.
The following fully franked dividends were paid by the Bank
during the year on fully paid ordinary shares:
}} A final dividend for the 2014 financial year of 33 cents
per share, paid on 30 September 2014 (amount paid:
$146.5 million); and
}} An interim dividend for the 2015 financial year of 33
cents per share, paid on 31 March 2015 (amount paid:
$147.6 million).
Further details on the dividends provided for or paid
during the 2015 financial year on the Bank’s ordinary and
preference shares are provided at Note 7 Dividends of the
Financial Statements.
Review of operations
An analysis of the Group’s operations for the financial year
and the results of those operations, including the financial
position, business priorities and prospects, is presented in
the Operating and Financial Review section of this report.
State of affairs
In the opinion of the Directors there have been no significant
changes in the state of affairs of the Group during the
financial year. Information on events and matters that
affected the Group’s state of affairs is presented in the
Operating and Financial Review section of this report.
After balance date events
The Bank declared a final dividend of 33 cents per ordinary
share on 10 August 2015.
The Directors are not aware of any other matter or
circumstance which arose since the end of the financial year
to the date of this report that has significantly affected or may
significantly affect the operations of the Group, the results
of those operations, or the state of affairs of the Group in
subsequent financial years.
Future developments
Disclosure of information relating to major developments in
the operations of the Group and the expected results of those
operations in future financial years, which, in the opinion of
the Directors, will not unreasonably prejudice the interests of
the Group, is included in the Operating and Financial Review
section of this report.
Rounding of amounts
Pursuant to Australian Securities & Investments Commission
Class Order 98/100 (as amended) and pursuant to section
341 (1) of the Corporations Act 2001, the amounts in this
report, unless otherwise indicated, have been rounded to
the nearest million dollars. The Bank is an entity to which the
Class Order applies.
5
2015 ANNUAL FINANCIAL REPORT Meetings of Directors
Information on Board and committee meeting attendance for the year is presented in the following table:
Committees
Director
Board
Audit
Credit
Risk
Governance
& HR
Technology &
Change
Robert Johanson
Jenny Dawson 1
Jim Hazel
Jacquie Hey
Mike Hirst
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
A
16
6
16
16
16
16
16
16
16
B
15
6
15
16
16
16
16
16
16
A
3
8
8
8
2
B
3
8
8
8
2
A
1
4
4
4
B
1
4
4
4
A
3
6
3
6
6
B
3
6
3
6
6
A
5
3
2
5
5
B
4
3
2
5
5
A
5
2
5
B
5
2
5
5
5
A = Number eligible to attend
B = Number attended ¹ Ms Dawson retired from the Board in October 2014.
Also, during the year there were seven additional meetings relating to the Basel II Advanced Accreditation project.
Directors’ Interests in Equity
The relevant interest of each Director in shares in the Bank and in units of registered schemes made available by a related body
corporate at the date of this report is as follows:
Director
Robert
Johanson
Mike Hirst 1
Jim Hazel
Jacquie Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
Ordinary shares No.
Preference
Shares No.
Performance
Rights No.
Sandhurst IML
Industrial Share
Fund (Units) 2
Bendigo Growth
Wholesale / Index
Fund (Units) 2
217,405
740,970
17,922
9,450
5,192
22,114
1,900
23,192
-
-
-
250
-
-
3,190
-
-
85,949
135,250
152,438
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
¹Ordinary shares includes 50,000 shares issued under the Bendigo Employee Share Ownership Plan and deferred shares issued under the Salary Sacrifice, Deferred Share and
Performance Share Plan.
2Relevant interests in managed investment schemes made available by Sandhurst Trustees Ltd, a subsidiary of the Bank.
Except for the interests disclosed in the above table, there are no contracts to which the Director is a party, or under which
they are entitled to a benefit, or which confer a right to call for or deliver shares in, debentures of, or interests in, any registered
managed investment scheme made available by the Group.
The Directors have disclosed interests in organisations not related to the Group and accordingly are regarded as having an interest
in any contract or proposed contract that may be made between the Bank and any of the specified external organisations.
6
Share Options and Rights
Indemnification of Officers
Details of rights issued over ordinary shares and shares
allocated as a result of the exercise of rights granted during
the financial year and to the date of this report are detailed in
the 2015 Remuneration Report.
Performance rights (“rights”) to ordinary shares in the Bank
are issued by the Bank under the salary sacrifice, deferred
share and performance share plan (“Plan”). Each right
represents an entitlement to one fully paid ordinary share
in the Bank.
During or since the end of the financial year the Bank granted
311,222 rights (2014: 148,090). This includes 258,298
rights granted to key management personnel.
There have been no grants of rights to Non-executive Directors.
As at the date of this report there are 641,867 rights that are
exercisable or may become exercisable at a future date under
the Plan. The last date for the exercise of the rights ranges
between 30 June 2016 and 30 June 2018.
During or since the end of the financial year 5,278 rights
vested (2014: 228,955) and no new fully paid ordinary shares
have been issued by the Bank during or since the end of the
financial year as a result of rights being exercised.
For the period 1 July 2015 to the date of this report, no rights
have lapsed.
There were no options over unissued ordinary shares at the
start of the financial year and no options to acquire ordinary
shares in the Bank were issued during or since the end of the
financial year.
Corporate Governance
An overview of the Bank’s corporate governance structures
and practices is presented in the 2015 Corporate
Governance Statement.
The Bank has adopted the 3rd edition of the ASX Corporate
Governance Council’s Principles and Recommendations and
elected to publish the Corporate Governance Statement on
the Bank’s website at www.bendigoadelaide.com.au/public/
corporate_governance/index.asp
Environmental Regulation
The Group endeavours to conduct its operations in a manner
that minimises its impact on the environment. Information
on the Group’s environmental performance and activities
to manage the Group’s environmental impact are provided
in the 2015 Annual Review which is available from the
Group’s website.
The Group’s operations are not subject to any significant
environmental regulations under either Commonwealth or
State legislation. However, the Board believes that the Group
has adequate systems in place for the management of its
environmental requirements and is not aware of any breach of
those environmental requirements.
The Group is not subject to the Federal Government’s
National Greenhouse and Energy Reporting (NGER) Scheme
which requires controlling corporations to report annually on
greenhouse gas emissions, energy production and energy
consumption, if they exceed certain threshold levels. Whilst
not required to report under the Scheme, the Group does
measure and monitor all greenhouse gas emissions relevant
to the NGER Act and voluntarily reports on these emissions.
The Bank’s Constitution (Rule 105) provides that the Bank
is to indemnify, to the extent permitted by law, each officer
of the Bank against liabilities (including costs, charges,
losses, damages, expenses, penalties and liabilities of any
kind including, in particular, legal costs incurred in defending
any proceedings or appearing before any court, tribunal,
government authority or other body) incurred by an officer in
or arising out of the conduct of the business of the Bank or
arising out of the discharge of the officer’s duties.
As provided under the Bank’s Constitution, the Bank has
entered into deeds providing for indemnity, insurance and
access to documents for each of its current Directors and
former Directors. The Bank has also entered into deeds
providing for indemnity and insurance for each Executive
Committee member and the Company Secretary as well
as deeds providing for indemnity, insurance and access to
documents for each Director who held office of a subsidiary
company during the year.
The deeds require the Bank to indemnify, to the extent
permitted by law, the officers for all liabilities (including costs,
charges, losses, damages, expenses, penalties and liabilities
of any kind) incurred in their capacity as an officer of the
relevant company.
Indemnification of Auditor
To the extent permitted by law and professional regulations,
the Bank has agreed to indemnify its auditors, Ernst & Young,
as part of the terms of its audit engagement agreement
against all claims by third parties and resulting liabilities,
losses, damages, costs and expenses (including reasonable
external legal costs) arising from the audit engagement
including any negligent, wrongful or wilful act or omission by
the Bank. The indemnity does not apply to any loss resulting
from Ernst & Young’s negligent, wrongful or wilful acts or
omissions. No payment has been made to indemnify Ernst &
Young during or since the financial year end.
Insurance of Directors and Officers
During or since the financial year end, the Bank has paid
premiums to insure certain officers of the Bank and its related
bodies corporate. The officers of the Bank covered by the
insurance policy include the Directors, the Company Secretary
and Directors or Company Secretaries of controlled entities
who are not also Directors or Company Secretaries of the
Bank. The insurance does not provide cover for the external
auditor of the Bank or related bodies corporate of the Bank.
Disclosure of the nature of the liability and the amount of
the premium is prohibited by the confidentiality clause of the
contract of insurance.
Company Secretary
William Conlan, LL.B (Melb), GradDip Applied Finance
and Investment
Mr Conlan was appointed as Company Secretary of the Bank
in 2011, having worked with the Bank for almost 10 years in
strategy, capital management and compliance. Mr Conlan is a
practising lawyer and, prior to commencing employment with
the Bank, worked as a lawyer in Melbourne.
Declaration by Chief Executive Officer and Chief
Financial Officer
The Managing Director and Chief Financial Officer have
provided the required declarations to the Board in accordance
with section 295A of the Corporations Act 2001 and
recommendation 4.2 of the ASX Corporate Governance
Principles and Recommendations in relation to the financial
records and financial statements.
7
2015 ANNUAL FINANCIAL REPORT b. Audit related fees (Non-regulatory)
In its capacity as the Group’s external auditor, Ernst &
Young is periodically engaged to provide assurance and
related services not required by statute or regulation but are
reasonably related to the performance of the audit or review
of the Group’s financial statements which are traditionally
performed by the external auditor. The amounts shown are
GST exclusive.
Service Category
Fees $
Entity
Bendigo and
Adelaide
Bank Limited
Bendigo and
Adelaide
Bank Limited
Securitisation
Trusts
Basel II advanced
accreditation program
367,200
Convertible Preference
Shares
163,200
Securitisation Trusts
164,433
Sub-total: Audit
related fees
(Non-regulatory)
694,833
c. Non-audit related fees
Service Category
Fees $
Entity
Bendigo and
Adelaide
Bank Limited
Tax advice
Sub-total: Non-audit
related fees
2,000
2,000
Total: Non-audit
services
1,010,538
The Audit Committee has reviewed the nature and scope
of the above non-audit services provided by the external
auditor. In doing so, the Audit Committee has confirmed
that the provision of those services is consistent with the
audit independence policy and compatible with the general
standard of independence for auditors imposed by the
Corporations Act 2001. This confirmation was provided to,
and accepted by, the full Board.
This assessment was made on the basis that the non-audit
services performed did not represent the performance
of management functions or the making of management
decisions, nor were the dollar amounts of the non-
audit fees considered sufficient to impair the external
auditor’s independence.
The Managing Director and Chief Financial Officer also
provided declarations to the Board, consistent with the
declarations under section 295A of the Corporations Act
2001 and recommendation 4.2 of the ASX Corporate
Governance Principles and Recommendations, in relation
to the financial statements for the half year ended
31 December 2014.
To support the declaration a formal due diligence and
verification process, including attestations from senior
management, is conducted. This assurance is provided each
six months in conjunction with the Bank’s half year and full
year financial reporting obligations. The statements are made
on the basis that they provide a reasonable but not absolute
level of assurance and do not imply a guarantee against
adverse circumstances that may arise in future periods.
Auditor Independence and Non-audit Services
The Audit Committee has conducted an assessment of the
independence of the external auditor for the year ended
30 June 2015.
The assessment was conducted on the basis of the Bank’s
audit independence policy and the requirements of the
Corporations Act 2001. The assessment included a review
of non-audit services provided by the auditor and an
assessment of the independence declaration issued by the
external auditor for the year ended 30 June 2015. A copy of
the auditor’s independence declaration is presented on the
following page.
Non-Audit Services
Non-audit services are those services paid or payable to the
Group’s external auditor, Ernst & Young (Australia), which do
not relate to Group statutory audit engagements.
In its capacity as the Group’s external auditor, Ernst & Young
is periodically engaged to provide assurance services to the
Group in accordance with Australian Auditing Standards.
All assignments are subject to engagement letters in
accordance with Australian Auditing Standards. They include
audit services required for regulatory and prudential purposes
and the amounts shown are GST exclusive.
Details of all non-audit services for the year ended
30 June 2015:
a. Audit related fees (Regulatory)
Service Category
Fees $
Entity
AFSL audits, APS
310 and APS 910
audits
Comfort Letter –
Euro Medium Term
Note Program
AFSL audit, APS
310 and APS 910
audits
Sub-total: Audit
related fees
(Regulatory)
210,655
30,702
72,348
313,705
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Rural Bank
Limited
8
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors
of Bendigo and Adelaide Bank Limited
In relation to our audit of the financial report of Bendigo and Adelaide Bank Limited for the financial year ended 30 June 2015,
to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the
Corporations Act 2001 or any applicable code of professional conduct.
Ernst & Young
J W MacDonald
Partner
Melbourne
1 September 2015
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
9
2015 ANNUAL FINANCIAL REPORT Operating and Financial Review
Overview
The Group operates predominantly in Australia and is a
community focused retail bank that commenced operations in
1858. Our major headquarters are in Bendigo, Adelaide and
Melbourne. We have in the order of 7,200 staff and operate
a national network of more than 520 branches (Company-
owned, Community Bank® and Alliance Bank) and 105
customer service agencies. Our customers also have access
to a network of more than 1,700 ATMs.
Our Business Model
We provide our broad range of banking and financial products
and services primarily to retail customers and small to
medium sized businesses through four specific customer-
facing divisions comprising Retail Banking, Third Party
Banking, Wealth and Rural Banking.
Our major business activity is raising funds through customer
deposits and wholesale funding markets and lending those
funds to our customers. We also earn revenue through our
wealth management business.
This drives net interest income (i.e. interest received from
residential, commercial, consumer and business lending less
interest paid on deposits and other funding sources) from our
Retail, Third Party and Rural Banking businesses. We also
receive fee income for the provision of banking and other
financial services.
Retail Banking
Retail Banking, operating under the ‘Bendigo Bank’ and
‘Delphi Bank’ brands, provides a full suite of traditional retail
banking, wealth and risk management services to retail
customers via our national branch network, including the
Community Bank® network, call centres, agencies and on-line
banking services.
Community Bank® is a franchise model with a locally owned
public company owning the rights to operate a Bendigo
Bank branch. The Bank supplies all banking and back
office services while the community company operates the
retail outlet.
The Bank shares the revenue with the Community Bank®
branch network, enabling communities to earn revenue
from their own banking and channel this revenue back into
community enterprise and development.
Third Party Banking
Third Party Banking, operating under the ‘Adelaide Bank’ and
‘Alliance Bank’ brands distributes residential mortgages,
commercial and consumer finance through intermediaries,
including mortgage managers and brokers. It also includes
Homesafe and our portfolio funding business which provides
wholesale funding to third party financiers in the commercial
and consumer finance sector.
10
Rural Banking
Rural Banking comprises Rural Bank and Rural Finance. Rural
Bank is a wholly-owned subsidiary with a separate banking
licence. Rural Bank and Rural Finance provide specialised
banking products and services to primary producers and
agribusiness participants. The products and services are
available at regional locations nationally including Bendigo
Bank branches, Rural Finance offices across Victoria, Elders
Rural Services branches and a metropolitan investment
centre based in Adelaide.
Wealth
Bendigo Wealth is our wealth management division that
provides margin lending, superannuation, managed
investment schemes, traditional trustee and financial
planning products and services through our subsidiary
companies Sandhurst Trustees, Leveraged Equities and
Bendigo Financial Planning.
Our vision, strategy, purpose and values
Our vision is to be Australia’s most customer connected bank
and our strategy is focused on the success of our customers,
people, partners and communities. We do this by:
a. Taking a 100 year view of the business - by making
decisions to generate long term value;
b. Listening and responding - listening to what it is our
customers and partners want to achieve helps us to tailor
products and services to meet their needs;
c. Respecting every customer’s choice, needs and
objectives – we look to put our customers in control of
how they want to deal with us;
d. Partnering for shared success - we believe our success
comes from our focus on the success of others; and
e. Having a clear purpose that is supported by our values
- we have described our Purpose (which appears on the
front cover) which defines why we are here, what we
believe in as an organisation and why we do and say the
things we do.
Our Purpose underpins our strategy and day to day operations.
Supporting our vision, strategy and purpose are our corporate
values. The values form part of our Code of Conduct and guide
our behaviour and interactions with customers, suppliers,
shareholders and communities. Information on our Purpose
and Values is available from our website.
Key highlights and developments
The 2015 financial year was a challenging year with high
levels of competition, subdued consumer and business
confidence coupled with a low interest rate and low growth
environment.
The Bank announced an after tax statutory profit of $423.9
million for the year ending 30 June 2015 which represents
an increase of 13.9% on the previous year. The underlying
cash earnings were $432.4 million, a 13.1% increase on the
previous financial year. Cash earnings per share were 95.1
cents, a 3.9% increase on the previous year.
A final fully franked dividend of 33 cents per share was
declared, which lifted the full-year dividend by 2 cents
to 66 cents per share. Further information regarding our
financial performance is presented in the Group Performance
Highlights section of this report.
In October 2014, the Bank was recognised with inclusion in
the 2014 BRW Innovative Company list. The Bank’s subsidiary
Community Telco Australia (CTA) was cited for its unique redy
mobile payment system that enables users to donate loyalty
credits to community causes.
We maintained our disciplined approach to margin and cost
management and our balance sheet growth. Whilst demand
for housing lending has been solid, our customers have taken
advantage of the low interest rate environment by repaying
their loans ahead of schedule which has impacted the overall
growth in our loan portfolios.
Unequal capital rules that favoured the major banks also
held back our ability to grow our loan portfolios, particularly
residential mortgages. In July 2015, however, APRA
introduced new capital rules which are aimed at addressing
the unequal capital treatment for residential mortgages,
which is a good outcome for customers seeking greater choice
in banking service providers.
Net interest margin contracted slightly, by four basis points,
reflecting the impact of the cash rate reductions throughout
the year, combined with the highly competitive, low interest
rate environment.
We have strengthened our balance sheet with a strong Basel
III compliant liquidity position and capital raising activities.
Our Basel III Common Equity Tier 1 ratio increased by 15
basis points to 8.17% for the year and our total capital ratio
increased 118 basis points to 12.57%.
We are committed to investing for the future by expanding the
organisation’s overall capacity, delivering innovative solutions
as well as improving the skills and knowledge of our staff.
The operating environment is evolving at a rapid pace. During
the year, we introduced new business and partner models,
most notably Rural Finance and the Alliance Bank model.
We continue to invest in information technology and digital
systems to better connect with our customers and to respond
to their changing behaviours and requirements. In particular,
we have invested in systems and models to meet the
requirements of advanced accreditation. We also announced
a number of market-leading technologies during the year.
These include a new mobile banking platform, some new
customer payments platforms as well as improvements to
our risk management and data management systems which
have come online and which will help us to connect in a more
targeted and relevant way with our customers. Much of this
development is being undertaken through partnering models
with technology companies rather than through developing
the new technologies ourselves.
Enhancing our unique and valued
customer proposition
The Group’s unique value proposition is well recognised by our
customers. We maintained our leading position, ahead of the
major banks, in customer satisfaction and advocacy.
This year we were ranked the number one ASX listed bank for
retail and business customer satisfaction and our Bendigo
SmartStart Super® has been awarded a 5-star rating for
outstanding value for two consecutive years.
In July 2014, the Bank was named one of Australia’s Most
Trusted Brands in the annual Reader’s Digest awards. The
Bank was highly commended in the finance category, following
up its wins of 2010 and 2011. The recognition reflects on
the quality of our staff and their focus on producing the best
outcomes for customers.
The Bank was also named Australia’s most recommended
by its customers who participated in the latest Roy Morgan
research. Almost two-thirds of the Bank’s customers
(63.2%) said they would recommend the Bank to friends and
colleagues. The results indicate the Bank’s customers are
‘High Advocates’ which means they rated Bendigo Bank an 8,
9 or 10 out of 10.
The redy mobile payments system also notched up an
international award for mobile innovation. It was named the
“most innovative and creative way to benefit its customers” by
leading enterprise mobility management provider AirWatch.
In February 2015, the Bank was named Business Bank of the
Year at the Roy Morgan Research’s Customer Satisfaction
Awards for the fourth year in a row. This accolade follows the
Bank taking out the inaugural award in 2011, being named
top Business Bank for 2012, 2013 and now 2014. The award
is a reflection of our investment in our people, services and
digital innovations, including our brand new real-time banking
advice app, ‘miBanker’.
In April 2015, the Bank took top spot among Australia’s
financial institutions on the Corporate Reputation Index. The
Bank ranked seventh overall out of 60 companies, ahead
of our financial services competitors. The index measured
reputation across seven dimensions; products and services,
innovation, leadership, performance, governance, citizenship
and workplace.
Investing in our staff and culture
Staff wellbeing, safety, development and training is a
key focus for the Bank as our staff are our most valuable
resource. The investment in our staff is substantial and we
are committed to supporting our staff with opportunities and
tools to develop and improve their skills.
We believe this support contributes greatly to our staff
engagement levels which are above the Australian high-
performance benchmark. There are significant advantages for
an organisation that has engaged staff and the organisation
will use these strengths to the best advantage.
This year we commenced a three year investment to partner
with the South Australian Health and Medical Research
Institute’s Wellbeing and Resilience Centre to develop a
national resilience program for our staff, their families and
communities. The resilience and wellbeing program will help
staff build their capacity to withstand, recover and grow in the
face of increasing personal and professional challenges.
Enhancing our risk and compliance capability
We increased our investment in our risk management
capability as part of the Basel II advanced accreditation
program. This has included the development and
implementation of new risk management models and
systems, changes to business systems and platforms, policy
improvements and staff training.
The development of these systems and models is now largely
complete and our focus has moved to fully implementing
and realising the benefits of this investment. This is a
major investment that has significantly increased our risk
management capability, and is improving how we can best
meet our customers’ needs.
Investing in innovation, systems and
new technology
During the year we released more leading-edge customer
focused technologies that make it easier for customers to do
business with us and which directly respond to the needs of
our customers. Improvements to our online banking platform
have been well received by customers, and our newly-
launched relationship tool for business banking customers,
miBanker, has been nationally recognised for its innovation.
In September 2014, we launched a new mobile banking app
which gives customers a unique take on anywhere - anytime
banking. New fast-track functions include a four-digit PIN
11
2015 ANNUAL FINANCIAL REPORT and the ability to make payments from the home screen,
reducing logon times and making banking simple. An “activity”
feed provides a clear list of all transactions, including credit
transactions yet to hit the account, and secure messages,
which can now be sent and received via a customer’s
smart phone.
In February 2015, we announced that business customers will
have access to an Australian first in banking, a 24/7 business
banking advice service that can be operated from the palm of
their hands. The free miBanker app is a mobile relationship
management tool designed to help the Bank’s business
customers grow and better manage their business. Some of
the unique features of miBanker include:
}} Daily updates from Australian and overseas stock markets;
}} Latest business news throughout the day;
}} Weekly economic updates from Bendigo Bank with
information that matters to their business;
}} Regular video tips on business strategies and marketing
tools to help their business become more efficient and
profitable;
}} Invitations to events and seminars that are relevant to their
business; and
}} Access to their relationship manager and real time
feedback on issues they say are important.
We have delivered the first phase of ‘Opening Accounts
Online’. Customers can now open accounts on their desktop,
tablet and mobile devices. Our new ‘Easy Saver’ account was
included in the online service in November 2014 with credit
cards available from August 2015.
We will continue to focus on developing the strategies,
platforms, tools and capabilities that will enable us to turn
our customers’ feedback, actions and behaviour into insights,
information and new and innovative solutions.
Balance sheet strength
In October 2014, we completed a second issue of convertible
preference shares which raised a total of approximately $292
million of new additional Tier 1 hybrid capital under APRA’s
Basel III capital adequacy framework. The proceeds were
used to support balance sheet growth, to maintain strong
capital levels and to fund the redemption of the Step-Up
Preference Shares.
In December 2014, we announced the issue of $600 million
of residential mortgage-backed securities under the Torrens
Series securitisation program.
In June 2015, we successfully completed the latest issue of
$500 million residential mortgage-backed securities under
the Torrens securitisation program.
The transactions received strong support from investors and
provided us with funding and capital benefits.
In June 2015, we also completed a further issue of convertible
preference shares which raised a total of approximately
$282 million of new additional Tier 1 hybrid capital under
APRA’s Basel III capital adequacy framework. The proceeds
were again used to support balance sheet growth, maintain
strong capital levels and to fund the redemption of Bendigo
Preference Shares.
Other
In October 2014, the Bank announced it would become a
shareholder in one of Australia’s largest payments providers,
Cuscal, as part of Cuscal’s proposed acquisition of Strategic
Payments Services Pty Ltd (SPS).
12
As part of the transaction the two former owners of SPS,
Bendigo and Adelaide Bank and Mastercard, each acquired a
ten percent stake in the new-look Cuscal. The merger affirmed
Cuscal’s standing as the only independent Authorised
Deposit-Taking Institution (ADI) licensed wholesale payments
company delivering banking capabilities and payments
solutions across the entire spectrum of payments services.
In November 2014, the Bank announced the launch of a new
banking model involving an alliance between a number of
former credit unions (Alliance Partners) and the Bank. Under
the model, the loans and deposits of the participating Alliance
Partners were transferred to the Bank, while reserves remain
100% member-owned, and the Alliance members continue to
be serviced by their local branch staff. The business transfer
was successfully implemented on 2 March 2015 and resulted
in $550 million of loans and $620 million in deposits being
transferred to the Bank.
Alliance Partner members have access to new products
and technology from the Bank, while the Alliance Partners
retain pricing and loan approval discretions (within
parameters approved by the Bank). The Bank also became
the ADI, saving significant costs for its partners as the Bank
assumes responsibility for compliance, systems and balance
sheet management.
In December 2014, the Bank welcomed the decision of the
Supreme Court of Victoria to approve the settlement reached
with borrowers who invested in certain agricultural managed
investment schemes run by Great Southern. The Supreme
Court’s approval of the Deed of Settlement brought the
class actions involving the Bank to a close and in doing so
described the case against the Bank as “fanciful”.
Students starting their first year of undergraduate study in
2015 were eligible to apply for financial support under our
university scholarship program to help ease the rising costs
of university education. This support amounted to
$1.4 million.
Scholarships are awarded based on academic achievement,
community involvement and financial need. With the help of
its subsidiaries and partners, the Community Bank® network,
Rural Bank, Rural Finance, the University of Melbourne
and La Trobe University, more than 90 students accepted
a scholarship to support their first year of study and 90
returning students received a Bank scholarship for a
second year.
Strategic goals and outlook
We anticipate that the operating environment for the coming
year will again be very challenging given continued volatility
in global economies and markets, subdued consumer and
business sentiment and high level of market competition.
We expect that system growth and demand for credit will
be below the levels experienced for the 2015 year and that
customers will continue to deleverage by making additional
principal repayments given the low interest rate environment
and potential further tightening of credit standards driven by
the regulatory authorities.
Low credit demand will again make growth in interest revenue
challenging. Our loan approvals for the year were relatively
solid and we believe we are well positioned for growth given
our distinctive offering and unique market positioning, our
investment in systems, customer service improvement, digital
technologies and distribution network and our long history of
trusted service.
An important focus will be to further understand the
needs and aspirations of customers by developing our
customer information and management platforms and by
connecting with customers through social media forums and
emerging technologies.
The level of uncertainty in wholesale funding markets should
see competition for retail deposits remain high. This demand,
combined with continued low absolute interest rates, is again
expected to place pressure on interest margins, including
our own.
We commenced the new financial year with a strong funding
profile and capital position. Our retail deposit funding, in the
order of 79% of our overall funding mix, places us in a sound
position and we will access wholesale funding markets where
it is economically sensible.
Looking forward
We believe we have a strong value proposition particularly
given our balance sheet strength and the introduction of a
more level playing field.
We will continue our investment phase focusing on our
Basel II advanced accreditation program, consolidation
opportunities and information technology. We will maintain
our disciplined approach to margin management and look
to realise the benefits from our risk management and
information system investments.
Opportunities
More specifically we will:
Our core focus on understanding the needs and objectives of
our customers is unchanged. Customer behaviour and insight
drives most of what we do and our Customer Voice division
will coordinate our response to changing customer behaviour
and expectations.
Increasing the level of business activity and engagement with
customers will also be a major focus. This opportunity goes
directly to our point of difference.
Our community and partner-based activities increase
awareness of the benefits of our banking model and deepen
our relationships with customers.
Making it easier for customers to do business with us will
continue to be a key priority for the business. Through our
Customer Service Improvement division we will continue
to identify system and process changes to help address
frustrations experienced by customers and make it simpler
and easier for customers to bank with us.
We have introduced a new collaboration forum called
‘miVoice’ which we use to engage directly with customers on
new ideas.
We are undertaking more surveys and analysis of our
customer activity and behaviour to understand their financial
needs, their motivation for dealing with us and the values that
they are trying to support so that we can better reflect what
our customers are trying to achieve.
We have the usual feedback channels in respect to
complaints, compliments and suggestions, although we are
applying a more rigorous data analysis approach to
understanding this feedback and the real underlying issues
to ensure we are improving our customer experience.
Other opportunities include:
Systems and efficiency gains
We are working to upgrade our core lending platforms with the
first of these relating to our Third Party Mortgage business.
This will eventually deliver a single consolidated consumer
lending system right across the Bank with significant
efficiencies and savings, and just as importantly, a more
seamless and improved customer experience.
In addition, a new Business Process Management tool
has been purchased to streamline and automate business
processes and workflows.
Our Enterprise Architecture group is making inroads into
developing future state roadmaps for our technology
platforms. By reducing the complexity within our business
systems and technology platforms we will become more agile
and responsive to change.
Consolidation opportunities
The organisation has a good record of successfully acquiring
businesses that add shareholder value. Over recent years we
have completed a number of strategic transactions including
the acquisition of Bank of Cyprus Australia (now called Delphi
Bank), Community Telco Australia, Rural Bank, Rural Finance
and the introduction of the Alliance Bank model. We will
continue to assess opportunities that are presented during
the coming year.
}} Further develop our understanding of the needs,
aspirations and behaviours of customers by tapping into
their ‘Customer Voice’ and translating this into increased
business from a more engaged and connected customer
base.
}} Aim to achieve stronger growth in residential, business
and agribusiness lending whilst maintaining our disciplined
approach to balance sheet growth.
}} Identify and invest in system and process improvements
that improve our operational efficiency and the customer
experience.
}} Continue to realise the opportunities and benefits from our
‘convergence strategy’ that involves the amalgamation of
banking, telecommunications and payment services.
}} Further develop our wealth proposition with a specific
emphasis on lifting our presence in the growing
superannuation market.
Prudential requirements and developments
The Australian Prudential Regulation Authority (APRA) is
the prudential regulator of the Australian financial services
industry. APRA’s Prudential Standards aim to ensure that ADIs
(including the Bank) remain adequately capitalised to support
the risks associated with their activities and to generally
protect Australian depositors.
APRA’s risk-based capital adequacy guidelines are generally
consistent with the International Regulatory Framework
for Banks, also known as Basel III, issued by the Basel
Committee on Banking Supervision (BCBS), except where
APRA has exercised certain discretions.
APRA applies a tiered approach to measuring the Bank’s
capital adequacy by assessing its financial strength at
two levels:
a. Level 1 includes Bendigo and Adelaide Bank Limited and
certain controlled entities that meet the APRA definition of
extended licensed entities; and
b. Level 2 consists of the consolidated Group, excluding
non-controlled subsidiaries and subsidiaries involved in
insurance, funds management, non-financial operations
and securitisation special purpose vehicles.
The Bank remains on the Standardised approach for credit
and operational risk under Basel II and, as outlined below,
has implemented a major project to become accredited under
APRA’s advanced capital measurement model.
We publish the information required under APRA’s Prudential
Standard APS 330 on our website at:
www.bendigoadelaide.com.au/public/shareholders/
announcements/aps_330.asp
Basel II advanced accreditation project
The project to become accredited under APRA’s advanced
capital measurement model (Basel II) is one of the most
significant projects undertaken by the Bank.
13
2015 ANNUAL FINANCIAL REPORT Restrictions on the distribution of earnings, including payment
of dividends, discretionary bonuses and Additional Tier 1
Capital distributions apply when capital ratios fall within the
CCB. At APRA’s discretion, a further countercyclical buffer of
between 0% and 2.5% may be applied which would require
banks to hold additional capital where APRA determines
excess credit growth is associated with a build-up of
system-wide risk. The countercyclical buffer in Australia is
currently 0%.
The Basel Committee on Banking Supervision (BCBS)
has introduced a simple, non-risk based leverage ratio
requirement which will act as a supplementary measure
to risk-based capital requirements. The leverage ratio is
expected to be determined by the ratio of Tier 1 Capital to the
sum of certain on and off-balance sheet exposures. APRA has
proposed to introduce this measure broadly in line with the
BCBS requirements.
In January 2014, APRA issued its updated standard on
liquidity management to implement the Basel III liquidity
reforms, Prudential Standard APS 210 Liquidity. The standard
governs the regulatory requirements of prudent liquidity
risk management and contains a number of qualitative
requirements that came into effect on 1 January 2014 with
the exception of a new liquidity coverage ratio (LCR) that
became effective on 1 January 2015.
Under the LCR requirements the Bank must hold sufficient
high-quality liquid assets as defined under the liquidity
Prudential Standard. As there is insufficient volume of eligible
government securities in the domestic market to enable
banks to meet the LCR requirements, the Reserve Bank made
available to Australian banks a Committed Liquidity Facility
(CLF) that will support compliance with the LCR requirements.
The Bank is designated as a LCR scenario bank and as with
all such regulated banks in Australia, has successfully made
application to APRA for use of this CLF for 2015, to ensure
compliance with the LCR requirement.
Bendigo and Adelaide Bank will apply annually to APRA for use
of the CLF and the amount applied for is likely to vary from
year to year.
Financial System Inquiry
In 2013, the Australian Federal Government appointed
Mr David Murray AO as head of an inquiry into Australia’s
financial system (“FSI” and “Inquiry”) and the Government
announced the terms of reference for the Inquiry saying that
“The Inquiry is charged with examining how the financial
system could be positioned to best meet Australia’s evolving
needs and support Australia’s economic growth”.
On 7 December 2014, the final report of the FSI was released
which contained a number of recommendations on a wide
range of issues including recommendations relating to
increasing the capital levels for the major banks. In particular,
raising internal ratings-based (IRB) mortgage risk weights for
housing loans to address competition issues.
The FSI also proposed a range of other measures relating to
superannuation, regulation and consumer protection. The
FSI also identified a number of taxation issues that should be
considered as part of the Tax White Paper process.
The Bank welcomed the FSI and believes the Inquiry
recognises the environment has changed for many reasons
and has taken a balanced approach in identifying the key
issues, including the uneven playing field tilted in favour of
larger banks accredited to adopt the Advanced Approach to
capital and we look forward to working towards an appropriate
resolution of these issues.
Under the current prudential framework there are two
methodologies for measuring capital requirements. The first
methodology, currently adopted by the Bank and a number of
other banks, is referred to as the Standardised Approach.
Under this approach, capital requirements are calculated
based on certain fixed formulae and risk assessments
determined by APRA. The advantage of this approach is that
it is a relatively straightforward way of assessing capital
requirements but it is a far less risk-sensitive approach to
capital management.
The second methodology, referred to as the Advanced
Approach, allows banks to calculate their own capital
requirements, subject to certain strict conditions and
requirements set by APRA. This approach aims to encourage
banks to invest heavily in sophisticated and contemporary
risk management techniques to enable a more accurate
measurement of risk at a far more detailed level when
compared to the Standardised Approach.
Broadly, under the Advanced Approach, capital requirements
are based on a bank’s internal assessment of its risks. This
requires various risk models to be built and implemented
across the business supported by system, process and
policy disciplines.
The project to move to the Advanced Approach is about
improving the way we do business, by improving the way
we identify and manage risk and service our customers.
Importantly this is an initiative that we, as an organisation,
have elected to pursue. The key benefits of achieving the
advanced accreditation status include:
}} Further improving our banking systems and processes and
consequently the customers’ experience;
}} Further improving our business and risk management
processes and practices and building on our strong risk
culture;
}} Strengthening our market profile amongst shareholders,
ratings agencies and regulators; and
}} Operating a more capital efficient business which will
benefit our customers, communities and shareholders.
The project is progressing well. We have made solid progress
on developing and implementing the required models as well
as enhancing our systems, processes and policies which are
either complete or nearing completion.
We have implemented a range of new risk adjusted
performance measurement and capital allocation
methodologies and we are consulting with APRA in relation to
our application.
Basel III
The aim of the Basel III proposal is to strengthen global
capital and liquidity frameworks and to improve the banking
sector’s ability to absorb shocks arising from financial and
economic stress.
On 1 January 2013, APRA’s Basel III prudential capital
standards came into effect requiring Australian banks to
maintain minimum ratios of capital to risk weighted assets of
at least 4.5% Common Equity Tier 1 Capital, 6% Tier 1 Capital
and 8% Total Capital. APRA may also require ADIs to maintain
minimum prudential capital ratios above the prescribed
minimum ratios which may not be disclosed.
From 1 January 2016, APRA will require Australian banks to
hold capital buffers above minimum capital requirements. The
capital buffers include a capital conservation buffer (CCB) of
2.5%, and a higher loss absorbency (HLA) requirement of 1%
for Domestic Systemically Important Banks. The Bank is not
designated as a Domestic Systemically Important Bank.
14
The Federal Government announced that several of the
Inquiry’s recommendations, including those on bank capital
and the payments system, are for APRA and the RBA to
consider as independent regulators.
In July 2015, APRA announced, as an interim measure, an
increase in the amount of capital required for Australian
residential mortgage exposures by advanced accredited ADIs.
This change will mean, for ADIs accredited to use the IRB
approach, the average risk weight on Australian residential
mortgage exposures will increase from approximately 16% to
at least 25%.
The higher risk weights come into effect on 1 July 2016.
Credit ratings
The Bank’s credit ratings at the date of this report are:
Short
Term
Long
Term
Outlook
Review
Date
Standard &
Poor’s
Fitch Ratings
Moody’s
A-2
F2
P-1
A-
A-
Stable
29.7.15
Stable
20.11.14
A2
Stable
6.3.14
Group performance highlights
We achieved an after tax statutory profit of $423.9 million for
the year ended 30 June 2015, a 13.9% increase on the prior
corresponding period.
The statutory earnings per ordinary share was 92.5 cents
(FY2014: 87.7 cents), an increase of 5.5%, and the statutory
return on average ordinary equity was 8.84% (FY2014: 8.59%).
The underlying cash earnings were $432.4 million, a 13.1%
increase on the previous financial year. Cash earnings per
share were 95.1 cents, a 3.9% increase from the previous year.
The result reflects our approach of disciplined margin
management and balance sheet growth. There was
improvement in a range of profitability and efficiency
measures including net profit, cash earnings, dividend,
earnings per share and cost to income ratio.
Having to operate on an uneven playing field impacted our
mortgage growth and this was compounded by higher loan
repayments by customers. The recent APRA announcements
regarding changes to risk weights on mortgages is a positive
step toward levelling the playing field and a good outcome for
our customers.
Business performance
Net interest income increased by 5.3% to $1,177.6 million
(FY2014: $1,118.2 million).
Our net interest margin contracted slightly by 4 basis points
to 2.20% for the year and our non-interest income before
specific items was $365.9 million (FY2014: $323.1 million),
an increase of 13.2%.
The operating expenses before specific items increased by
6.6% to $878.0 million (FY2014: $823.7 million) and the cost
to income ratio was 55.2% compared to 55.6% for 2014.
Our expenses were impacted by the inclusion of operating
costs for Rural Finance, ordinary annual salary and wage
increases and our investment in a range of customer
technologies and new product and service offerings.
Credit quality
The bad and doubtful debts expense was $68.3 million
(FY2014: $81.9 million), a decrease of 16.6%.
This result reflects an improvement in the underlying
credit quality of our loan portfolios and the low interest
rate environment.
The Rural Finance acquisition resulted in $8.6 million
increase in the General Reserve for Credit Losses and a $3.2
million increase in collective provision. The full-year expense
also includes an additional $15.9 million collective provision
overlay for the Great Southern portfolio.
The 90+ day arrears rates for our residential, business,
consumer and agribusiness portfolios all performed better
than at the same time last year.
Capital
We maintain a conservative and prudent capital base that
adequately supports the risks associated with our normal
business activities.
Our capital management strategy also plans and manages
for changes in business conditions, including economic
cycles, regulatory and legislative change and to support any
acquisition opportunities. Our capital base is structured to
ensure that minimum capital standards are always met and
management is afforded the greatest flexibility in pursuing its
business objectives.
Our capital position continues to strengthen. Our total capital
ratio is above 12.5% following the two Tier 1 capital issues
undertaken during the year and the Common Equity Tier 1
ratio increased to 8.17%.
Liquidity and funding
Domestic retail deposits remain central to our funding
strategy and this complements the overall strategy. Wholesale
markets are also utilised to achieve our funding objectives.
Our principal source of funding is, and is expected to continue
to be, our retail deposit base. The internal target for retail
funding remains at 75% to 80% of total funding. These
deposits are traditional term and savings deposits sourced
predominantly through the retail network and provide a stable
source of funding.
The balance of required funding is sourced from wholesale
debt capital markets. The retail/wholesale funding split
is set with the aim of maintaining a strong market profile
consistent with an “A” credit rating band. The wholesale
funding strategy supports the core retail deposit funding
strategy by maintaining access to wholesale debt capital
markets that provide diversification and the benefits of longer
term borrowings.
We aim to maintain a stable and prudent maturity profile by
regular benchmark issuance in markets that are sustainable
and cost effective. The majority of wholesale funding
is sourced from the domestic AUD market. However we
recognise that at times additional diversity can be achieved
by geography and currency. Securitisation also forms an
important part of our funding strategy and we will continue
to monitor this market and participate where pricing is
appropriate.
An average liquidity coverage ratio in excess of 120% has
been maintained since 1 January 2015.
Dividends
The Board announced a final dividend of 33 cents per share.
This takes the full-year dividend to 66 cents per share which
represents an increase of 3.1% on the prior year.
15
2015 ANNUAL FINANCIAL REPORT Outlook
We expect the extended period of absolute low interest rates
to continue for the foreseeable future.
We have a conservative funding base and balance sheet
structure and we have highly engaged staff. These
factors place us in a solid position to benefit from market
opportunities that arise as well as any improvement in market
sentiment and general operating environment.
Our customer base continues to improve its personal
balance sheet position as reflected by our borrowers making
repayments ahead of schedule. The low interest rate
environment coupled with rising house prices and equity
market growth has translated into an overall improvement
in household wealth. We are confident that our unique,
customer-focused banking model will continue to be relevant
and underpin continued growth and improved performance.
Financial highlights
Financial performance metrics
Profit after tax attributable to Owners of the Company
Profit after tax and before specific items
Cash earnings
We have maintained a strong value proposition over a long
period of time and our balance sheet strength provides us
with good growth capacity. This should enable us to grow at a
rate that is generally better than system, provided we can be
competitive in respect to product pricing.
Customer needs and behaviours are driving a lot of change
throughout the industry. Most of our investment in meeting
changes in customer requirements over the last few years has
focused on customer-driven system investments.
Our success comes from the success of our customers and
communities and we will continue to align our investments
with these strategic aims, and not simply to grow for
growth’s sake.
Jun-15 Total
Jun-14 Total
FY2014 to FY2015
$m
423.9
420.6
432.4
$m
372.3
372.8
382.3
Net interest income (before specific items)
1,184.1
1,118.2
Non-interest income (before specific items)
Bad and doubtful debts
Expenses (before specific items)
Financial performance ratios
Cost to income ratio
Net interest margin before profit share arrangements
Net interest margin after profit share arrangements
365.9
68.3
878.0
55.2%
2.20%
1.89%
323.1
81.9
823.7
55.6%
2.24%
1.92%
$m
51.6
47.8
50.1
65.9
42.8
%
13.9
12.8
13.1
5.9
13.2
(13.6)
(16.6)
54.3
6.6
% change
(0.7)
(1.8)
(1.6)
Financial position metrics
Jun-15 Total
Jun-14 Total
FY2014 to FY2015
Ordinary equity
Retail deposits
Funds under management
Loans under management
New loan approvals
> Residential
> Non-residential
Total provisions and reserves for doubtful debts
Financial position ratios
$m
$m
4,858.5
4,693.1
46,222.7
44,843.0
4,165.8
3,390.5
56,540.6
53,980.7
$m
165.4
1,379.7
775.3
2,559.9
15,210.5
16,357.4
(1,146.9)
9,813.0
5,397.5
322.7
10,522.3
5,835.1
295.5
(709.3)
(437.6)
27.2
Return on average ordinary equity (after tax)
Return on average ordinary equity (cash basis)
8.84%
9.09%
8.59%
8.96%
Return on average tangible equity (cash basis)
13.28%
13.34%
Key shareholder ratios
Earnings per ordinary share (statutory basis)
Earnings per ordinary share (cash basis)
Dividend per share - fully franked
16
¢
92.5
95.1
66.0
¢
87.7
91.5
64.0
%
3.5
3.1
22.9
4.7
(7.0)
(6.7)
(7.5)
9.2
% change
2.9
1.5
(0.5)
% change
5.5
3.9
3.1
Financial performance and business review
The 2015 financial year performance reflected the continuing
improvement in our operating businesses. We maintained
our focus on growth at profitable prices and achieved a
reasonable level of balance sheet growth supported by the
acquisition of Rural Finance and the new Alliance Bank model.
The cash earnings result for the year was $432.4 million,
representing a 13.1% improvement on the previous financial
year ($382.3 million). The cash earnings per ordinary share
was 95.1 cents, an increase of 3.9% on the previous financial
year (91.5 cents). The components of the cash earnings
performance are set out below:
Cash earnings FY14 - FY15 ($m)
13.1
(29.1)
31.8
(25.3)
13.6
(19.9)
432.4
65.9
382.3
The margin performance resulted from our disciplined
approach to product pricing and growth. An easing in
deposit competition and a shift from term to at-call deposits
enabled us to improve the margin on the liability side of our
balance sheet.
We carefully managed the pricing of our term deposit book
and experienced a change in the deposit mix with an increase
in deposits flowing into lower cost at-call deposits rather than
term deposits.
This benefit was offset by the competitive lending
environment, a trend towards fixed rate lending and the
impact of RBA cash rate cuts during the year.
We experienced strong pricing competition on the lending side
of our balance sheet as well as a customer propensity to move
to fixed rate mortgages which tend to have a lower margin
when compared to variable rate mortgages.
The second half also included an additional $3 million
expense relating the committed liquidity facility.
Up 13.1%
Analysis of operating expenses
Operating expenses ($m)
12.1
878.0
FY14
Net
Interest
income
Other
Income
Homesafe Staff
costs
Other
expenses
Credit
Tax
FY15
9.7
3.4
29.1
Our net interest margin remained relatively steady having
recorded a 4 basis points decrease. Our net interest
income increased by $65.9 million (5.9%) compared to the
previous year.
Non-interest income increased to $365.9 million. This
represents a 13.2% increase on the prior year’s performance
of $323.1 million. The improvement was mainly due to an
increase of $13.1 million in the contribution from Homesafe,
reflecting stronger residential real estate prices in Sydney and
Melbourne. The increase also included an improvement in
asset product fees and other income.
Cost containment and efficiency continued to be a major
focus over the reporting period, enabling us to all but
achieve our long term cost-to-income target of 55%. The
most significant increases related to occupancy, staff and
information technology costs.
Our provisions for credit losses increased, however overall
arrears and charges for bad and doubtful debts were lower
when compared to the previous reporting period. Our overall
credit quality continues to be very healthy.
Analysis of net interest margin
Net interest margin movement (%)
2.24
(0.25)
0.15
0.05
0.01
0.32
1.92
2.20
0.31
1.89
e
r
a
h
s
e
c
n
a
i
l
l
A
&
k
n
a
B
y
t
i
n
u
m
m
o
C
FY14
Asset
pricing
Asset
mix
Liabilty
pricing
Liabilty
mix
FY15
823.7
Up 6.6%
FY14
Staff
costs
Rent
IT
Other
FY15
The increase in salaries and staff related expense was mainly
due to ordinary annual salary and wage increases plus staff
increases and our continued investment in strategic projects.
The increase in staff numbers was mainly attributable to the
Rural Finance acquisition and additional staff deployed in the
Information Technology and Change divisions to support the
development of new products and services.
The increase in information technology costs was mainly due
to increased software maintenance costs and information
technology leasing costs.
The occupancy cost increase was largely due to the inclusion
of twelve months of rental on the Adelaide headquarters and
annual rental increases on other premises.
In a period where revenue growth has been challenging, a key
positive has been the way the business has carefully managed
the cost base and continued to drive savings and efficiencies.
Analysis of loan impairment expense
The bad and doubtful debt expense for the year totalled $68.3
million. This represents a $13.6 million (16.6%) decrease
compared to the previous year. The decrease reflects the
overall soundness of the loan portfolios with net impaired
assets decreasing to $209.5 million compared to $298.2
million as at the end of the prior year.
17
2015 ANNUAL FINANCIAL REPORT
Overview of loan portfolios
Loan composition
6.8%
3.2%
The arrears position for the major portfolios is very strong
which is consistent with the continued period of low
interest rates.
24.9%
Deposit Portfolio
Retail deposit balances ($bn)
42.2
42.7
44.8
45.4
46.2
65.1%
29.7
29.2
30.2
29.2
28.6
Residental
Commercial
Consumer
Margin lending
The loan portfolio grew over the year by 4.9%, compared
to system growth of 7.5%. The majority of the growth was
reflected in our residential and commercial portfolios. This
included the impact of the Rural Finance acquisition and
loans originated through the new Alliance Bank model.
Residential loan approvals for the year remained solid at
$9.8 billion. However, this represented a 6.7% decrease on
the previous year. Non-residential loan approvals for the year
totaled $5.4 billion, representing a 7.5% decrease on the
previous year.
Market competition for both fixed and variable rate lending
has been a key challenge for the business during the year. We
aim to provide competitive loan pricing however occasions do
arise where we purposefully decide not to match competing
rates. This challenge has impacted our growth rate for
the year.
Our overall net growth performance continues to be offset by
higher rates of principal repayments with a 20% increase in
excess loan repayments being recorded year-on-year.
Our retail customers continue to strengthen their own
personal balance sheets with excess repayments for the year
totalling $2.3 billion which is a significant increase on the two
previous financial years.
The loan portfolio remains well secured. In total, 98.4% of
the portfolio is secured, with 97.8% secured by mortgages
and listed securities. The average loan to valuation ratio for
the residential mortgage portfolio is 58.8% and 65% of the
portfolio is represented by owner-occupied loans.
Provisions for doubtful debts ($m)
263.2
102.9
31.8
128.5
Jun-12
276.9
104.1
34.5
138.3
Jun-13
General
Specific
Collective
295.5
114.4
42.8
138.3
Jun-14
322.7
116.8
59.0
146.9
Jun-15
The total provision and reserve for bad and doubtful debts at
year end was $322.7 million. This represents an increase of
$27.2 million (9.2%) compared to the previous year.
The increase is mainly driven by a $15.9 million collective
provision overlay for the Great Southern loan portfolio and
increases in the general reserve for credit losses ($8.6
million) and collective provision ($3.2 million) relating to the
Rural Finance acquisition.
18
12.5
13.5
14.6
16.2
17.6
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Deposit
Retail term deposits
Total deposits grew by 1.4% during the year, compared to
system growth of 6.7%. This relatively low deposit growth
reflects the pre-funding of the Rural Finance business in the
prior year. Our deposit ratios in respect to funding mix and
total liabilities continue to be very strong.
The growth in liabilities also reflects the shift in pricing
competition from deposits and towards loans. In recent
reporting periods, when there was extremely strong
competition for deposits, our deposit growth was generally
below system. During this period we tended to outperform
system growth in relation to loan growth. This year, the pricing
focus has moved to the lending market and we were able to
grow our deposit base at profitable prices.
We remained active in the wholesale funding markets over the
year. However, deposits as a percentage of the total funding
remains within our target range of 75% to 80%.
We expect to actively participate in wholesale markets,
including the residential mortgage-backed securities market,
but the funding mix is expected to remain in, or around, our
target range.
Funding and liquidity
Historical funding mix
8%
24%
68%
10%
12%
13%
9%
13%
8%
78%
78%
79%
Jun-09
Jun-13
Jun-14
Jun-15
Retail
Securitisation
Wholesale
We maintain a flexible funding structure. Our wholesale and
retail funding mix has remained stable over a number of
years. But we saw a shift from term deposits to at-call at very
low interest rates.
We completed two residential mortgage-backed securities
issues ($600 million and $500 million) during the year under
the Torrens securitisation program.
We successfully transitioned to the new Basel III Liquidity
Coverage Ratio regime at 1 January 2015 and maintained
an average Liquidity Coverage Ratio of more than 120% from
that date.
Capital adequacy
Total capital (%)
10.41%
2.02%
0.66%
7.73%
10.71%
1.46%
1.43%
11.39%
2.17%
1.20%
12.57%
1.97%
2.43%
Third Party Banking
Third Party Banking ($m)
141.9
(25.1)
12.3
0.5
(21.5)
14.3
122.4
7.82%
8.02%
8.17%
Down 13.7%
Jun-12
Jun-13
Pro forma Jul-14
Jun-15
Common Equity Tier 1
Additional Tier 1
Tier 2
The Bank seeks to maintain a conservative and prudent
capital base that adequately supports the risks arising from
the normal operation of the business. This includes providing
for effective and efficient capital buffers to protect depositors
and investors, and allowing the business to grow.
The capital management strategy also plans and manages
for changes in business conditions, through normal business
cycles, regulatory and legislative change and through mergers
and acquisitions. The capital management strategy is
designed to ensure that minimum capital standards are met,
and that management is afforded the greatest flexibility in
pursuing its business objectives.
During the year we successfully completed two issues of
new convertible preference shares which raised $574 million
of new additional Tier 1 hybrid capital. This helps place us
in a strong capital position going into FY2016 and we have
capacity for additional capital efficiency through the issuance
of further Tier 1 hybrid capital and Tier 2 subordinated debt.
FY14
Net
interest
income
other
income
Operating
expenses
Credit
expenses
Tax
FY15
The contribution from the Third Party Banking segment
decreased from $141.9 million to $122.4 million.
Third Party Banking is the segment that has been most
challenged by the highly competitive mortgage lending
environment during the year.
The segment contribution for the year includes a $25.1 million
reduction in net interest income. However, approximately half
of the decrease was attributable to the new internal Funds
Transfer Pricing methodology.
The movement in other income is largely driven by the
increase in the Homesafe contribution and the credit expense
increase mainly reflects the collective provision overlay and
additional specific provisions for the Great Southern loan
portfolio. Aside from this portfolio, the underlying credit
performance of the Third Party mortgage portfolio has
been strong.
Homesafe continues to steadily improve its contribution in
line with very strong residential property price increases in
Sydney and Melbourne. The other contributor to the improved
performance has been the ongoing maturity of the portfolio.
Our Common Equity Tier 1 capital ratio as at 30 June
2015 was 8.17%, an increase of 15 basis points on the
previous year.
Wealth
Wealth ($m)
Divisional performance
Retail Banking
Retail Banking ($m)
30.8
(5.2)
8.4
(16.2)
4.2
24.5
2.5
41.3
4.3
(20.3)
18.2
(5.6)
214.0
Down 20.5%
176.1
Up 21.5%
FY14
Net
interest
income
other
income
Operating
expenses
Credit
expenses
Tax
FY15
The contribution from our largest business segment, Retail
Banking, increased from $176.1 million to $214.0 million.
The division has maintained its leading consumer and
business satisfaction ratings and a strong focus on customer
strategy execution.
The key driver for the increase was the improvement in net
interest income. This reflects the benefits of the easing in
term deposit pricing and an increase in deposit flows to lower
cost at-call accounts.
The performance was also positively impacted by the new
internal Funds Transfer Pricing methodology and a significant
decrease in the bad and doubtful debt expense for the year.
FY14
Net
interest
income
other
income
Operating
expenses
Credit
expenses
Tax
FY15
The contribution from the Wealth business segment
decreased from $30.8 million to $24.5 million.
We are starting to see the benefits from our Wealth
investments over recent years with funds under management
and administration now recording strong growth.
The division grew its total funds under management by 22%
and acquired an 11% interest in Future Super (the first fossil
fuel-free superannuation fund) in September 2014. The
margin lending portfolio remained relatively stable for the year
and the new SmartStart Super® continues to perform well,
recording growth of 70% for the year.
The decrease in net interest income was mainly due to
the reduction in the contribution from the margin lending
business and wealth deposits.
Non-interest income increased as the Wealth business builds
on the investment made in past years to develop a broader
product range for our customer base, and we expect this trend
to continue into the future.
19
2015 ANNUAL FINANCIAL REPORT Rural Banking
Rural ($m)
54.9
2.4
(18.2)
14.4
(14.2)
67.9
28.6
FY14
Up 137.4%
Net
interest
income
other
income
Operating
expenses
Credit
expenses
Tax
FY15
The contribution from the Rural Banking segment increased
from $28.6 million to $67.9 million.
The key factor impacting this year’s performance was the
Rural Finance acquisition resulting in a significant increase to
net interest income and operating expenses. The underlying
business performed well and returned to a more normalised
credit performance with several of the previously reported
exposures in the Queensland market having been worked
through, reducing the volume of non-performing loans and
associated credit losses.
The Rural Finance contribution was slightly ahead of
expectation, driven primarily by the integration of the
business progressing faster than expected, allowing us to
generate additional efficiencies and savings. The revenue
performance was in line with expectations and the sound
credit performance has continued. A focus on customer
engagement also enabled a strong retention of customers
through the integration of this business.
Risk management framework, business uncertainties and
significant business risks
The Board is responsible for the risk management strategy
which includes approving changes to the risk appetite and risk
management framework and monitoring the operation and
effectiveness of the risk management framework.
The Board Risk Committee and Board Credit Committee
assist the Board by providing objective oversight of the
risk profile and its alignment with the risk appetite and risk
management framework.
Further information on our risk governance and risk
management framework is presented in the 2015 Corporate
Governance Statement available from the Bank’s website and
Note 30 Risk management of the 2015 Annual Report.
Risk dependencies and uncertainties
Our business is subject to a number of dependencies and
uncertainties that could adversely impact the achievement
of business strategies and earnings performance. The
timing and extent of these uncertainties is difficult to predict
and managing their impact is, to some extent, outside
of our control. A summary of the key dependencies and
uncertainties is presented below.
Dependence on prevailing macro-economic conditions
Our business is highly dependent on the general state of
domestic and global economies and financial markets. Our
performance can be significantly impacted by economic and
political events, both domestic and international, as well as by
natural disasters.
This includes the level of economic activity and demand for
financial services by our customers. In particular, lending is
dependent on customer and investor confidence, the overall
state of the economy including employment levels, the
residential lending market and the prevailing interest
rate environment.
20
Environmental factors
The Group and its customers operate businesses and hold
assets in a diverse range of domestic geographical locations.
A significant environmental change or external event
(including fire, storm, drought, flood, earthquake or pandemic)
in any of these locations has the potential to disrupt business
activities, impact on our operations, damage property and
otherwise affect the value of assets held in the affected
locations and our ability to recover amounts owing to us.
We also have an exposure to the rural sector. The
performance of this sector is impacted by national weather
patterns and commodity price movements which in-turn may
impact our overall earnings performance.
Market Competition
The markets in which we operate continue to be highly
competitive and may become even more so.
Factors that contribute to competition risk include industry
regulation, mergers and acquisitions, changes in customers’
needs and preferences, entry of new participants, the
development of new distribution and service methods as well
as regulatory change.
Increasing competition could potentially lead to reduced
business volumes, a compression in our net interest margins
as well as increased advertising and related expenses to
attract and retain customers.
A weakening in the Australian real estate market
Residential, commercial and rural property lending, together
with property finance, constitute important businesses to
us. A significant slowdown in Australian property markets,
including a decrease in Australian property valuations, could
decrease the amount of new lending the Bank is able to
write and/or increase the value of the credit losses that the
Bank may experience from existing loans and impact on the
valuation of the Homesafe portfolio.
Changes in monetary policy
The Reserve Bank of Australia (RBA) sets official interest rates
so as to affect the demand for money and credit in Australia.
The cash rate influences other interest rates in the economy
which then affects the level of economic activity.
Movements in the cash rate impact our cost of funds for
lending and investing and the return earned on these loans
and investments, which directly impacts our net
interest margin.
Changes in monetary policy can also affect the behaviour
of borrowers and depositors. In the case of borrowers,
potentially increasing the risk that they may fail to repay
loans, and in the case of depositors, potentially increasing the
risk that they may seek returns in other asset classes. The
changes can also impact the value of financial instruments
held such as debt securities.
Regulatory Change
As a financial institution, we are subject to a range of laws,
regulations, policies and industry codes. In particular, our
banking and wealth management activities are subject to
extensive regulation, mainly relating to liquidity, capital,
solvency, provisioning and licensing conditions.
The Australian Government and its agencies, including
APRA, the RBA and other financial industry regulatory bodies
including ASIC, are the main authorities that have supervisory
oversight of the Bank. Changes to laws, regulations, codes of
practice or policies could affect the Bank in substantial and
unpredictable ways. Potential changes include increasing
required levels of liquidity and capital, limiting the types
of financial services and products the Bank can offer or
increasing the ability of non-banks to offer competing
financial services or products. These potential changes may
also require substantial investment in staff, systems and
procedures to comply with the regulatory changes.
Credit Ratings
Our credit ratings have a significant impact on both our access
to, and the cost of, capital and wholesale funding. Credit
ratings may be withdrawn, made subject to qualifications,
revised, or suspended by the relevant credit rating agency
at any time. Also, the methodologies by which they are
determined may be revised.
A downgrade or potential downgrade to our rating may reduce
access to capital and wholesale debt markets, potentially
leading to an increase in funding costs, as well as affecting
the willingness of counterparties to transact with the Bank.
Capital Base
The capital base is critical to the management of our
businesses and our ability to access funding. We are required
to maintain adequate capital and reserves to comply with
prudential requirements. In addition, we need to maintain
appropriate capital levels to support our business priorities
and to protect against unexpected losses. There can be
no certainty that future additional capital required will be
available or will be able to be raised on reasonable terms.
Material business risks
The material business risks that the Group actively manages
are credit risk, market risk, liquidity risk and operational risk.
Credit Risk
Credit risk is the risk of loss of principal and/or interest
resulting from a borrower failing to meet a scheduled
repayment or otherwise failing to repay a loan. The majority of
our credit risk exposure arises from general lending activities
and the funding, trading and risk management activities of
Group Treasury.
Business or economic conditions, whether generally or in
specific industry sectors or geographic regions, could cause
customers or counterparties to experience an adverse
financial situation, thereby exposing us to the increased risk
of customers failing to repay their loans or counterparties
failing to meet their obligations in accordance with agreed
terms and conditions.
Credit risk is primarily monitored by the Board Credit
Committee and the Management Credit Committee. The
Bank’s credit risk framework and supporting policies are
managed by our independent credit risk unit. Further
information on our approach to managing credit risk is
presented at Note 30 Risk Management of the 2015 Annual
Financial Report.
Market Risk
Market risk is the risk of loss arising from changes and
fluctuations in the general level of market prices or interest
rates (Traded Market Risk). It also includes Non-Traded
Market Risk (Interest Rate Risk in the Banking Book) which
is the risk of a loss in earnings or in the economic value on
banking book items as a consequence of movements in
interest rates.
Changes in financial markets, including changes in
interest rates, foreign currency exchange rates and
returns from equity, property and other investments, will
affect our financial performance due to the nature of our
business activities.
Market risk is monitored through the Board Risk Committee
and the Asset and Liability Management Committee (ALMAC)
and is managed by Group Treasury.
Further information on our approach to managing market risk
is presented at Note 30 Risk Management of the 2015 Annual
Financial Report.
Liquidity Risk
Liquidity risk is the inability to access funds, both anticipated
and unforeseen, which may lead to the Group being unable
to meet its obligations in an orderly manner as they arise or
forgoing investment opportunities.
Reduced liquidity could lead to an increase in the cost of our
borrowings and possibly constrain the volume of new lending,
which could adversely affect our profitability. A significant
deterioration in investor confidence could materially impact
our cost of borrowings and our ongoing operations.
Group Treasury is responsible for implementing liquidity
risk management strategies in accordance with approved
risk appetite and policies. Compliance with the liquidity
strategies and policies is monitored by the ALMAC and Board
Risk Committee.
Further information on our approach to managing liquidity risk
is presented at Note 30 Risk Management of the 2015 Annual
Financial Report.
Operational Risk
Operational risk is defined as the risk of impact on objectives
or risk of loss resulting from inadequate or failed internal
processes, activities and systems or from external events.
Operational risk can directly impact our reputation and result
in financial losses which could adversely affect our financial
performance and/or financial condition.
Operational risk (other than financial reporting risk) is
primarily monitored by the Operational Risk Committee
and Board Risk Committee. The Audit Committee has
responsibility for the oversight of financial reporting risk.
Further information on our approach to managing operational
risk is contained in the 2015 Corporate Governance
Statement available from the Bank’s website.
The following is an overview of specific operational risk
themes directly associated with our activities.
Compliance Risk
The Group’s operations in Australia are highly regulated as are
other jurisdictions in which we trade or raise funds.
Failure to comply with the laws, regulations, codes, principles
and industry standards applicable to our operations could
result in sanctions being imposed by regulatory authorities,
the exercise of discretionary powers that the regulatory
authority holds or compensatory action by affected persons,
which may in turn directly or indirectly impact our reputation,
business and financial performance and prospects.
We have established a framework of systems, policies
and procedures to monitor regulatory change and manage
compliance risk. The regulatory compliance function,
within our operational risk unit, monitors changes to, and
compliance with, regulatory requirements applicable to our
business operations. This includes codes of conduct and
approved policies and procedures.
Fraud Risk
We are exposed to the risk of fraud, both internal and
external. Financial crime is an inherent risk within financial
services, given the ability for employees and external parties
to obtain advantage for themselves or others.
An inherent risk also exists due to systems and internal
controls failing to prevent or detect all instances of fraud,
particularly if fraud is committed by persons in collusion or
people in positions of trust, who intentionally over-ride control
systems in order to misappropriate funds.
We have established a control framework of systems,
policies and procedures to monitor and manage fraud risk
and continue to invest in new techniques and capabilities to
detect and prevent fraud.
21
2015 ANNUAL FINANCIAL REPORT All actual or alleged fraud is investigated under the authority
of our financial crimes unit to:
a. Identify and take action against the perpetrator/s of fraud;
b. Minimise the impact of any losses and where possible
recover funds;
c. Identify and rectify deficiencies in processes and controls
as well as analyse trends that enable us to minimise
losses; and
d. Utilise the information obtained to assist in
analysis and training.
Risk of disruption of information technology systems or
failure to successfully implement new technology systems
Our business is highly dependent on information systems and
technology and there is a risk that these, or related services
the business uses or is dependent upon, might fail.
Most of our daily operations are computer-based and
information technology systems are essential to the day-to-
day provision of banking services.
The exposure to systems risks includes the complete or
partial failure of information technology systems or data
centre infrastructure, the inadequacy of internal and third-
party information technology systems due to, among other
things, failure to keep pace with industry developments
and the capacity of the existing systems to effectively
accommodate growth and integrate existing and future
acquisitions and alliances.
To manage these risks, we have robust business continuity
and information technology governance structures in place.
In addition, we constantly need to update and implement
new information technology systems, in part to assist us to
satisfy regulatory demands, ensure data security, improve our
computer-based banking services and to integrate the various
segments of our business.
There is a risk we may not implement these projects
effectively or execute them efficiently, which could lead to
increased project costs, delays in the ability to comply with
regulatory requirements, failure in our information security
controls or a decrease in our ability to service customers.
We have implemented a risk control framework to manage
this risk. The framework includes our enterprise change
process, business impact analysis and prioritisation
processes, technology infrastructure monitoring, application
software maintenance and business system portfolio
management structures.
Data and Information Security Risk
Information security means protecting our information
(and that of our customers) and information systems
from unauthorised access, use, disclosure, disruption,
modification, perusal, inspection, recording or destruction.
We have a team of information security specialists who
are responsible for the development and implementation
of information security systems, policies and procedures.
We are conscious that threats to information security are
continuously evolving due to the increasing use of the
internet and other devices to communicate data and conduct
financial transactions.
The risk of security breaches, external attacks and
unauthorised access to our systems has increased with the
growing sophistication of fraud and other criminal activities.
We have established a range of measures to detect and
respond to cyber-attacks and we closely monitor and
conduct regular reviews to ensure new or potential threats
are identified, evolving risks are mitigated, policies and
procedures are updated and good practice is maintained.
22
Vendor failure or non-performance risk
We source a number of key services from external suppliers
and service providers. The failure of a key service provider, or
the inability of a key service provider to meet their contractual
obligations, including key service standards, could disrupt our
operations and ability to comply with regulatory requirements.
This risk is managed by the relevant business divisions who
are responsible for the service provider relationship. The
business divisions are supported by our corporate sourcing
function to ensure the contracted services comply, where
applicable, with prudential requirements and the Group’s
sourcing framework and policies.
Inability to manage demand for, and impacts of, business
change initiatives
We continue to undertake an increasing number of significant
change projects. The projects are driven by various factors
including regulatory reforms, business demand, strategic
projects and rapid advancements in information technology.
The size and complexity of the projects require substantial
resource allocations and time commitment from management.
The projects may also involve significant amounts of
information technology, system, process and policy change as
well as impacting day-to-day operational activities.
This may divert management and staff attention from
business as usual responsibilities and could adversely affect
our day-to-day operations including the delivery of banking
services and compliance with operational and regulatory
requirements.
This risk is managed through a framework of change
management structures, policies and systems including
the enterprise change process which is overseen by the
Executive Committee.
Community Bank®
We have Community Bank® branches operating in all States
and Territories. The branches are operated by companies
that have entered into franchise and management
agreements with the Bank to manage and operate a
Community Bank® branch.
Franchisee staff are trained by the Bank and, in some cases,
are seconded from the Bank. Whilst we carefully assess the
suitability of potential franchisees there can be no guarantee
of the success of a Community Bank® branch.
A material portion of this network is still relatively immature
and there are risks that may develop over time. For example, it
is possible that branches may not be able to sustain the level
of revenue or profitability that they currently achieve (or that it
is forecasted that they will achieve).
We have established a number of support and oversight
structures for this network including:
Our Community Engagement team provides support to
the State Offices and Community Bank® Boards through
a range of activities including community company
network communications, co-ordinating the State and
National Conference program, franchise renewals and
Director education.
The Community Bank® branches are integrated into the
company-owned retail network once they commence trading.
As a result the branches are included in the day–to-day
operational support and administration structures of the
Retail Banking division which include monitoring compliance
with internal policies and procedures, staffing requirements
and reporting.
The Community Bank® Strategic Advisory Board, comprising
representatives from the Bank and representatives elected
by the Community Bank® network, is the forum established
to initiate, lead and respond to strategic issues and
opportunities that enhance the sustainability, resilience and
prospects of the Community Bank® model.
Litigation risk
From time to time, the Group may be subject to material
litigation, regulatory actions, legal or arbitration proceedings
and other contingent liabilities which, if they crystallise, may
adversely affect the Group’s results.
There is a risk that these contingent liabilities may be
larger than anticipated or that additional litigation or other
contingent liabilities may arise.
Other Risks
Other risks applicable to the Group’s activities that are
monitored and managed by the Board and Executive
Committee include:
Reputation Risk
Reputation risk is defined as the risk of potential loss to the
Group due to damage to the Group’s reputation. Reputation
risk may arise as a result of an external event or our own
actions, and adversely affect perceptions about us held by
the public (including customers), shareholders, investors,
regulators or rating agencies.
The impact of a risk event on our reputation may exceed
any direct cost of the risk event itself and may adversely
impact our earnings, capital adequacy or market value.
Accordingly, damage to our reputation may have wide-ranging
impacts, including adverse effects on our profitability,
capacity and cost of sourcing funding, and availability of new
business opportunities.
Strategic Risk
There is a risk that adverse business decisions, ineffective
or inappropriate business plans or a failure to respond to
changes in the operating environment will impact our ability to
deliver our strategy and business objectives.
Also, the Bank regularly examines new initiatives and market
opportunities, including acquisitions and disposals, with a
view to determining whether the opportunities will enhance
shareholder value.
The risks associated with these strategic and business
decisions could, for a variety of reasons, have a material
adverse effect on our current and future financial
position or performance.
Contagion Risk
We have a number of subsidiaries that are trading entities.
These subsidiaries are also holders of Australian Financial
Services Licences and/or Australian Credit Licences regulated
by the Australian Securities and Investment Commission.
There are two subsidiaries that are also subject to prudential
regulatory requirements of the Australian Prudential
Regulation Authority.
Subsidiary dealings and exposures principally arise from
the provision of administrative, corporate, distribution
and general banking services by the Bank. The majority
of subsidiary resourcing and infrastructure is provided
by the Bank’s centralised back office functions. Other
dealings arise from the provision of funding, guarantees and
equity contributions.
The Bank has established a framework of policies and
supporting systems, limits and controls to mitigate the risks
associated with dealings and exposures between the Bank
and its subsidiary companies.
This includes systems and controls relating to intra-group
exposures, badging and branding arrangements as well as the
distribution of financial products issued by these subsidiaries.
Dealings between the Bank and its related entities that are
not conducted on an arms-length basis must be approved by
the Board.
The Board monitors the activities and performance of
these subsidiaries.
23
2015 ANNUAL FINANCIAL REPORT Remuneration Report
This Remuneration Report is for the Bank and the Group for the financial year ended 30 June 2015. The Report has been prepared
in accordance with section 300A of the Corporations Act 2001 and the Corporations Regulations 2001 and has been audited.
The Remuneration Report explains the Group’s approach to the remuneration of key management personnel (KMP).
Key Management Personnel
The KMP comprise the Non-executive Directors, the Managing Director and other members of the Executive Committee. The table
below lists the Bank’s KMPs3.
Name
Position
Term as KMP
Non-executive Directors
Robert Johanson
Chairman
Jenny Dawson 1
Jim Hazel
Jacqueline Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
Executives
Mike Hirst
Marnie Baker
Dennis Bice
Director
Director
Director
Director
Director
Director
Director
Managing Director & Chief Executive Officer
Executive: Customer Voice
Executive: Retail Banking
John Billington
Executive: Bendigo Wealth
Richard Fennell
Executive: Finance, Treasury & Change
Robert Musgrove
Executive: Community Engagement
Tim Piper
Executive: Risk
Stella Thredgold
Executive: Corporate Resources
Alexandra Tullio 2
Executive: Head of State Distribution (Retail)
Andrew Watts
Executive: Customer Service Improvement
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
¹Ms Dawson retired from the Board on 27 October 2014.
2Ms Tullio was the Executive - Geared Solutions until being appointed to the role of Head of State Distribution (Retail) effective from 4 May 2015.
³The KMPs are the persons with authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly.
24
Contents
Section 1:
Section 2:
Section 3:
Section 4:
Section 5:
Section 6:
Remuneration overview
Executive remuneration
Company performance and remuneration outcomes
Non-executive Director remuneration
Remuneration governance
KMP remuneration, equity and loan tables
Section 1: Remuneration overview
1.1 Remuneration framework and components
The remuneration framework is designed to support the Group’s strategy including our long term outlook for the business,
partnering for sustainable long term outcomes and realisation of major investments designed to generate future shareholder
value. The framework is described in our Remuneration Policy. A review of the Remuneration Policy was completed during the year
and some minor changes to the policy were made. The remuneration framework is based on the following key principles:
}} Remuneration should facilitate the delivery of superior long term results for the business and shareholders and promote sound
risk management principles.
}} Remuneration should support the corporate values and desired culture.
}} Remuneration should promote behaviour that meets customers’ reasonable expectations and protects their interests.
}} Remuneration should support the attraction, retention, motivation and alignment of the talent we need to achieve our
business goals.
}} Remuneration should reinforce leadership, accountability, teamwork and innovation.
}} Remuneration should be aligned to the contribution and performance of the businesses, teams and individuals.
The link between these principles and our approach to executive remuneration is represented by the following diagram:
Base Remuneration
Short Term Incentive (STI)
Long Term Incentive (LTI)
TOTAL TARGET REWARD
Fixed Base Cash
Deferred Base Equity
Cash & Equity
Equity
• Base salary plus
• Annual grants of deferred shares.
• Cash, or a combination of cash
• Annual grant of performance rights
salary sacrifice and
superannuation
contributions.
• Set by reference
to the role and
responsibilities,
market and internal
relativities and
Group performance
outlook.
• Recognises
an individual’s
performance, skills,
competencies and
value.
Fixed (not linked to
Performance)
Attract, retain and
motivate senior
management
• Deferred shares (fully paid
and deferred equity.
(“rights”).
ordinary shares) issued at no
cost and beneficially owned from
grant date.
• STI target for each executive is
set by the Board at the start of
each year.
• Subject to two-year continued
• Awards subject to achievement
employment condition.
• Subject to performance and risk
adjustment.
• Shares held on trust for two
years by Plan Trustee.
• An additional one-year dealing
restriction applies to the
Managing Director.
• No additional dealing restriction
for other executives beyond the
two-year employment condition
period.
of Group financial and
business goals, individual
performance as well as risk
and compliance conditions.
• If award exceeds $50,000,
one third of the award is
deferred into equity (deferred
shares) issued on substantially
the same terms as deferred
base remuneration.
• Each right represents an entitlement
to one ordinary share.
• Maximum number of ordinary shares
that can be acquired is equal to the
number of rights granted.
• Rights are granted at no cost and have
no exercise price.
• Vesting is subject to achievement
of cash EPS and relative TSR
performance measures.
• There is no retesting.
• An additional one-year dealing
restriction applies to the Managing
Director.
Variable
Promote sound risk
management, values,
desired culture and
behaviours
Aligned with individual
and team contribution and
performance
Reinforce leadership,
accountability,
teamwork and
innovation
Drive longer term
performance and
shareholder value
25
2015 ANNUAL FINANCIAL REPORT 1.2 Remuneration approach and mix
The Board has adopted a relatively conservative approach to
setting executive remuneration, with the total target reward
for all executives tending towards the median of market levels.
The mix of the executives’ remuneration is weighted more
towards base remuneration than incentive based pay. In
particular, the weighting of the STI component of each
executive’s remuneration is well below the weightings
generally adopted by the banking sector and other Australian
listed companies.
The Board has also sought to ensure that executives’
total target reward includes a significant portion of equity-
based remuneration and is therefore directly linked to the
Bank’s share price performance over a sustained period.
The executives’ base remuneration and STI both include a
deferred equity component and the LTI is also paid in equity
and subject to a multiple year performance period comprising
both Earnings per Share (EPS) and Total Shareholder
Return (TSR) measures. The remuneration mix also reflects
differences in executive responsibilities, such as potential
risk and compliance conflicts, and the executive’s ability to
influence business outcomes.
The Board considers that this approach creates the right
balance between the achievement of the Group’s near term
financial targets and growth in shareholder value over the
medium and longer term.
The remuneration mix for the Managing Director is more highly
weighted toward base remuneration with more than half of the
total target remuneration payable in equity that is deferred
over two or three years and at-risk until either the vesting date
or completion of the applicable restriction period. This mix is
designed to reflect his overall responsibility for leading the
organisation as well as fostering a longer term outlook.
The remuneration mix for the Executive Risk is more highly
weighted to base remuneration and includes a lower STI
component compared to other executives. This mix recognises
the Executive’s risk and compliance responsibilities.
The remuneration mix for other executives varies depending
on the nature of the Executive’s role with 60% to 70% of total
target reward paid in cash and the remaining percentage paid
in equity deferred over two to four years and remaining at risk
until vested.
Executive remuneration arrangements are reviewed annually,
first by the Governance & HR Committee, and then the Board,
to ensure the mix and level of remuneration continues to
be fair and appropriate. The Board also ensures that the
incentive components of executive remuneration (i.e. STI and
LTI) are linked to performance measures that support the
Group’s strategy and business priorities.
The annual review incorporates survey and market data,
market trends, individual performance and the Group’s
financial outlook for the coming year.
There were no changes to the remuneration framework during
the year and changes to individual levels of remuneration
were mainly due to changes in an individual’s responsibilities
or to re-align an individual’s remuneration with market or
internal relativities.
26
The below graph sets out the targeted remuneration mix for
executives based on annual total target reward.
Base remuneration
STI
LTI
Managing Director
25%
10%
65%
CFO and Executive Customer Voice
Other Executives
Executive Risk
20%
20%
15%
20%
60%
65%
20%
10%
70%
The below graph sets out percentages of executive
remuneration awarded in cash and equity based on annual
total target reward.
Section 2: Executive remuneration
2.1 Base Remuneration
Cash remuneration
Equity remuneration
Managing Director
55%
45%
CFO and Executive Customer Voice
Other Executives
Executive Risk
60%
40%
70%
30%
65%
35%
Executive base remuneration comprises both a fixed base and
deferred base component.
Fixed base
Fixed base remuneration comprises cash salary, salary
sacrifice and employer superannuation contributions.
Deferred base
Deferred base remuneration involves annual grants of
deferred shares under the terms of the Employee Salary
Sacrifice, Deferred Share and Performance Share Plan.
The deferred shares are fully paid ordinary shares granted at
no cost. They have no exercise price and are held by the plan
trustee on trust for two years for the executive. The grants are
subject to a two-year continued service condition and a risk
adjustment at the discretion of the Board.
The number of deferred shares granted to the executives is
determined by dividing the remuneration value of the deferred
base component by the volume weighted average closing
price of the Bank’s shares for the last five trading days of the
financial year prior to year of the grant.
Executives are entitled to vote and to receive any dividend,
bonus issue, return of capital or other distribution made in
respect of deferred shares during the deferral period. They
are not entitled to deal in the deferred shares until they vest
and the Board may treat shares as forfeited before vesting.
Deferred shares that do not vest at the end of the deferral
period will be forfeited.
If an executive ends their employment with the Bank or were
to act fraudulently, dishonestly or, in the Board’s opinion,
in breach of his or her legal duties before the conditions
have been met, the deferred shares will be forfeited on
the executive’s last day of employment, unless exceptional
circumstances apply and the Board decides to vest some or
all of the deferred shares.
If an executive’s employment ends because of death,
disability, redundancy, or any other reason approved by
the Board, the deferred shares will continue to be held
as if the executive’s employment has not ended, and the
service condition will be treated as waived, unless the Board
decides otherwise. If the Board does decide otherwise, it
may determine that some or all of the deferred shares are
forfeited, which would occur on the last day of employment.
If there is a takeover or change of control of the Bank, the
Board has discretion to decide that the dealing restriction will
end at a date decided by the Board.
Deferred base pay was introduced by the Board at the start
of the 2013 financial year. For the Managing Director, the
percentage of deferred base to total base remuneration is
40%. For other executives the percentage of deferred base to
total base remuneration ranges between 10% and 20%.
27
2015 ANNUAL FINANCIAL REPORT Setting base remuneration
In setting executive base remuneration the Board considers
the nature and complexity of the role including the particular
responsibilities and the individual’s sustained contribution to
the Group’s performance. The Board also considers the skills
and experience needed to successfully fulfil the role in the
context of the external market including comparable roles in
the banking sector and other companies of a similar size
and complexity.
The Managing Director received a 3.8% increase in fixed
base remuneration for the year. Other executives also
received increases in fixed base remuneration for the year to
recognise changes in responsibilities or to align with market
or internal relativities.
Awards of deferred base remuneration are at the discretion
of the Board. The Managing Director’s deferred base pay was
approved by shareholders in 2013 and remained unchanged
during 2015. A number of other executives received increases
to their deferred base remuneration for the year.
Further details of the base pay deferred share grants are
presented at Section 6.
Table of Base Pay Deferred Share grants at 30 June 2015
Grant Date
Grant Year
Participants
Deferral Period
Vesting Date
17.12.2013
FY2014
Other executives (excluding
Managing Director)
01.07.2013 – 30.06.2015
30.06.2015
01.07.2014
FY2015 & FY2016
Managing Director
01.07.2014 – 30.06.2016
30.06.2016 1
10.12.2014
FY2015
Other executives (excluding
Managing Director)
01.07.2014 – 30.06.2016
30.06.2016
1 An additional one-year dealing restriction applies to the Managing Director’s grant.
The conditions typically require the achievement of a
minimum level of financial performance before a bonus pool
will be established, above which the pool will increase in line
with the level of outperformance over the minimum level.
For the 2015 financial year the bonus pool allocation was
again based on the cash earnings performance and
consisted of:
a. A threshold hurdle requiring the achievement of cash
earnings equal to the previous financial year (adjusted for
the impact of the Rural Finance acquisition);
b. A targeted cash earnings result for the financial year; and
c. A maximum potential bonus pool allocation based on
110% of the targeted cash earnings result.
The bonus pool accrues at a predetermined percentage of
cash earnings above the threshold hurdle. For performance
above the targeted cash earnings hurdle, the bonus pool
also accrues, but at a higher rate. The bonus pool stops
accruing for financial performance in excess of 110% of the
targeted cash earnings result. In setting the predetermined
percentages the Board gives careful consideration as to how
to best apportion the earnings between shareholders
and staff.
The Board also sets financial and risk measures that it uses
to adjust, at its sole discretion, the bonus pool determined by
the formula described above. These measures are designed
to ensure the bonus pool achieves an appropriate balance
between shareholder returns, employee reward and the
financial soundness of the Group.
2.2 Short term incentive (STI) plan
Executive remuneration includes an annual incentive
component. The incentive is designed to reward the
achievement of annual financial and business goals, the
executive’s contribution to the financial performance and
longer term growth and is subject to risk management and
compliance conditions.
The target STI award for each executive is set by the Board
at the start of each financial year, taking into account market
data and the executive’s role and responsibilities. The
objective is to provide an appropriate reward to staff for the
achievement of annual financial performance targets. The
STI is set at a moderate level to avoid encouraging short-
term, risk-taking behaviour at the expense of longer term,
sustainable growth. Three executives received increases in
their target STI award. There was no change to the Managing
Director’s target STI award. The actual STI awards are subject
to the amount of bonus pool established by the Board for the
payment of STIs and staff bonuses. Where the bonus pool
is less than the maximum potential pool, the STI award for
each executive will be proportionately adjusted downwards
to reduce the STI opportunity for each executive. This is
explained on the following page.
The objectives that attach to the Managing Director’s STI
are set each year by the Board on recommendation from the
Governance & HR Committee. The objectives for the 2015
financial year comprised of financial and non-financial targets,
as detailed on the following page.
The Managing Director sets the individual objectives that
attach to the STI for other executives. The objectives are
based on the executive’s particular role and expected
contributions to the achievement of annual financial goals
and business objectives. Further details of the executives’ STI
objectives are also detailed below.
Group bonus pool
STI awards (and general staff bonuses) are only paid if the
Board establishes a group bonus pool. The conditions for the
establishment of a group bonus pool are determined by the
Board at the start of each year.
28
Following is a summary of the bonus pool measures and outcomes for the financial year:
Bonus Pool Calculation
Performance Outcomes
Achieve prior year cash earnings
(threshold hurdle)
• The Group’s cash earnings result for the year (adjusted for the impact of the Rural Finance
acquisition) exceeded the previous year’s result of $382.3 million.
Group cash earnings
performance
• The Group’s cash earnings result of $432.4 million represented an increase of 13.1% compared to
the previous financial year. The Group did not achieve its targeted cash earnings performance for the
year.
Bonus Pool Adjustment
Risk and Performance Outcomes
Cash earnings per share
• The Group recorded a cash earnings per share result for the year of 95.1 cents per share. This
represented an improvement of 3.9% on the previous financial year but was slightly below the
targeted cash earnings per share performance.
Return on Equity (cash basis)
• The return on equity ratio for the year was 9.09%. This was in line with the targeted performance.
Return on Tangible Equity
• The return on tangible equity ratio for the year was 13.28%. This exceeded the
targeted performance.
Core Tier 1 Equity
• The Core Tier 1 ratio at year end was 8.2%. This exceeded the targeted performance.
Cost to Income Ratio
• The cost to income ratio for the year was 55.2%. This was better than the targeted performance.
Liquidity Ratio
• The liquidity coverage ratio at year end was 122.2%. The liquidity ratio was also maintained in
accordance with approved internal and regulatory limits during the year. This met the targeted
performance.
90+ day Loan Arrears (excluding
Great Southern)
Risk Weighted Assets /
Total Assets
• The 90+ day loan arrears ratio as at year end was 1.21%. This was better than the
targeted performance.
• The risk weighted asset to total asset ratio at year end was 52.6%. This was better than the
targeted performance.
The Board assessed the achievement of the bonus pool
measures for the year and established a bonus pool. The
Board determined that there would be no adjustment to
the bonus pool for risk and performance outcomes and the
bonus pool established represented approximately 33% of the
maximum capped amount (FY2014: 57%).
From there, each executive’s performance is assessed
against their specific performance measures and objectives
set for the year. The outcome of the assessment is then used
to determine any further adjustment (upward or downward)
to the adjusted STI amount (i.e. $50,000) to determine the
actual STI payment for the year.
Any further adjustment would be solely at the discretion of
the Board to allow for any risk or compliance issues that
were not contemplated at the time the goals were set, such
as unforeseen regulatory changes, market developments or
changes in strategic priorities or new business developments.
STI performance assessments and payments
The payment of STI awards to executives is at the discretion of
the Board and takes into account the Group’s capacity to pay
incentive awards to all staff. The target maximum STI awards
set for each executive at the start of the year are adjusted to
reflect the size of the bonus pool allocation.
Where the bonus pool is less than the maximum potential
pool, the STI award for each executive will be proportionately
adjusted downwards to reduce the STI opportunity for each
executive. For example, if an executive has an approved target
maximum STI award of $100,000 and the actual bonus pool
allocation represents 50% of the maximum potential bonus
pool, the STI award is adjusted to $50,000.
29
2015 ANNUAL FINANCIAL REPORT Managing Director’s STI arrangement
The Board maintained the Managing Director’s maximum STI award at $400,000. This was set taking into account the
remuneration objectives discussed earlier and the Managing Director’s target remuneration mix.
The following objectives were chosen at the start of the 2015 financial year for the Managing Director’s STI assessment.
Measure
Description
a. The level of risk associated with the Group’s performance was within the Group’s risk appetite; and
1. Risk and
Compliance
b. An effective risk culture is promoted. This will be demonstrated through enhanced risk management practices,
awareness, understanding and outcomes as well as proactive Board discussions and monitoring of risk across
the Group.
Significant progress being made towards achieving the following medium term targets:
a. Shareholder Targets: focusing on improved and sustainable shareholder value;
2. Medium term
targets
b. Customer Targets: focusing on customer satisfaction, advocacy rankings and growth in the customer base and
products per customer ratio;
c. Financial Targets: focusing on improving economic performance including balance sheet and earnings growth;
d. Partner Targets: focusing on the performance of the partner network including community and partner
satisfaction rankings; and
e. People Targets: focusing on employee engagement, diversity and organisational effectiveness.
3. Strategic
projects
a. The progress made during the year towards achieving Basel II advanced accreditation by the target date; and
b. The successful integration of the Rural Finance business and the ongoing growth and development of the
agribusiness division.
4. Public
representation
The Group continues to be represented effectively to government (state and federal) and in industry and
public forums.
c. Individual contribution to team performance taking
into account the achievement of overall division or
business unit targets and business and risk objectives,
assessment of extent to which a “one-team” culture has
been promoted, assessment of continuous improvement
in processes and procedures;
d. Individual performance, including alignment with
corporate values and meeting performance objectives,
based on an assessment of leadership, management of
business unit resourcing and compliance with corporate
values and code of conduct; and
e. Contribution to meeting risk and compliance
requirements at a Group, team and individual level.
The risk and compliance conditions also represent a
gateway to whether a payment is made and the size of the
payment. Notwithstanding financial performance and the
individual’s contribution and performance, if the individual,
team or Group does not meet or only partially meets risk
and compliance requirements, no award or a reduced award
will be made. The risk and compliance requirements include
compliance with risk management and operational policies
and procedures.
Taking all of the above into account, the Managing
Director then considers whether any further adjustment
to an executive’s STI award is necessary and makes a
recommendation to the Governance & HR Committee. The
assessment is completed after the end of the financial year.
The Board retains absolute authority over STI awards,
including any risk and compliance adjustments, for
all executives.
After making any required proportionate adjustment for the
size of the bonus pool, the Governance & HR Committee then
assesses the Managing Director’s performance based on the
above performance measures and objectives and applies any
upward or downward adjustment considered appropriate to
determine the Managing Director’s actual STI award for the
year. The Governance & HR Committee then recommends the
Managing Director’s STI award to the Board for approval.
This method of assessment was chosen to enable unforeseen
developments during the year to be factored into the
assessment of the Managing Director’s STI award and to
ensure any necessary risk and compliance adjustments occur
at the Board’s discretion. The assessment is completed after
the end of each financial year.
Other Executive STI arrangements
Following the end of the financial year, the Managing Director
assesses the performance of the other executives based on
the financial and non-financial goals set at the start of the
year. The Board considers that the Managing Director is best
placed to make an informed assessment of each executive’s
performance and overall contribution.
The financial and non-financial goals for other executives will
typically include:
a. Group financial and strategic performance including
achievement of targeted statutory and cash
earnings performance;
b. Business unit (team) financial and strategic performance
taking into account the achievement of division or
business unit growth and financial performance targets,
implementation of specific business initiatives and
projects in line with project targets and timeframes,
independent industry focused customer satisfaction
and advocacy rankings and customer and community
engagement initiatives;
30
STI Deferral
If the actual STI award exceeds $50,000 one third of the
award is deferred into equity as grants of deferred shares. The
deferred shares are issued under the terms of the Employee
Salary Sacrifice, Deferred Share and Performance Share Plan.
The deferral period is for two years commencing from the end
of the financial year for which the STI was granted.
Table of STI Deferred Share grants at 30 June 2015
The recipient is entitled to vote and receive dividends on the
deferred shares. The executive cannot deal in the shares
during the restriction period.
Forfeiture of the STI deferred component occurs if an
executive’s employment with the Group ends, if an executive
acts fraudulently or dishonestly and in other cases decided at
the discretion of the Board (for example, due to an adjustment
for risk). Deferred shares that do not vest at the end of the
deferral period will be forfeited.
Grant Date
STI Award Year
Participants
Deferral Period
Vesting Date
18.10.2013
FY2013
All executives
01.07.2013 – 30.06.2015
30.06.2015
07.10.2014
FY2014
All executives
01.07.2014 – 30.06.2016
30.06.2016
It is anticipated that the grant relating to the deferral of STI awards for the 2015 financial year will be made in October 2015.
Further details of the STI deferred share grants are presented at Section 6.
2.3 Long term incentive (LTI) plan
LTI is equity based remuneration that is subject to long-term
performance and service conditions. At the Board’s discretion,
executives may be invited to participate in LTI plans involving
grants of performance rights under the terms of the Employee
Salary Sacrifice, Deferred Share and Performance Share Plan.
The number of performance rights granted is determined by
dividing the remuneration value of the LTI component by the
volume weighted average closing price of the Bank’s shares
for the last five trading days of the financial year prior to the
year of the grant.
The performance right grants include cash EPS and TSR
performance conditions. An EPS hurdle was chosen because
EPS is a fundamental indicator of financial performance
and capital efficiency. As the performance rights are issued
annually, the LTI component for executives is conditional upon
achieving an improvement in EPS performance year-on-year.
The TSR hurdle measures the Bank’s shareholder return
performance relative to the TSR performance of other ASX
100 companies (excluding property trusts and resources
stocks) using the ASX 100 Accumulation Index. This group
was chosen because it is broadly used by Australian
listed companies and there are insufficient companies of
comparable size in the banking or financial services sector to
enable benchmarking against an industry-specific group. The
TSR is independently calculated by an external provider.
The number of performance rights that vest and convert
into ordinary shares in the Bank at the end of the applicable
performance period is determined as follows:
a. EPS hurdle: The grant is reduced by 50% if the Bank’s
cash earnings per share for the applicable financial year
is less than the cash earnings per share for the previous
financial year.
b. TSR hurdle: The TSR performance period is three years.
Vesting of the performance rights (as adjusted for
the EPS performance outcome) will be conditional on
achieving the following TSR performance against the peer
group:
Company’s relative TSR
ranking
Percentage of performance
rights that vest
TSR below 50th percentile
TSR between 50th percentile
and 75th percentile
Nil
65%
TSR above 75th percentile
100%
A hurdle approach to vesting above the 50th percentile has
been adopted, rather than a straight line vesting approach, to
take into account certain shortcomings with the TSR measure.
TSR performance represents a relative outcome that can
be impacted by factors outside the control of management
including the choice of peer group and the performance of the
peer group, which may include companies in industries with
different business cycles to banks.
Other factors that impact TSR which are not performance
related include movements in price-earnings ratios of peer
group companies due to developments such as changes to
sector or industry sentiment and outlook or market views
on potential corporate activities. The performance rights
are subject to the executive’s continued employment for the
performance period and notification from the Board whether,
and to what extent, the performance conditions have been
met including any risk adjustment made by the Board.
Before vesting, the performance rights do not carry any
dividend or voting rights or the right to participate in the issue
of new shares, such as a bonus share issue. If performance
rights vest, the Board instructs the Plan Trustee to subscribe
for or acquire the required number of ordinary shares. For
the Managing Director, the shares will be held by the Plan
Trustee on the Managing Director’s behalf until the end of the
restriction period. Any dividend accruing on the shares during
the restriction period will be paid to the Managing Director by
the Plan Trustee.
Performance rights do not vest until the participant has been
advised by the Board the extent to which the performance
rights have vested. The Board will test the performance
condition as soon as practical after year end. Any
performance rights that do not vest will lapse at 5.00pm on
the date the Board makes its decision on what performance
rights vest or lapse. There is no retesting of unvested
performance rights.
An additional one-year dealing restriction applies to ordinary
shares allocated to the Managing Director for vested
performance rights. However, a similar dealing restriction
does not apply to other executives. Also, none of the current
LTI grants were eligible to vest during or since the end of the
financial year.
If an executive ends their employment with the Bank or were
to act fraudulently, dishonestly or, in the Board’s opinion, in
breach of his or her legal duties before the conditions have
been met, the unvested performance rights will be forfeited
on the executive’s last day of employment, unless there are
exceptional circumstances and the Board decides otherwise
to vest some or all of the performance rights.
31
2015 ANNUAL FINANCIAL REPORT
If an executive’s employment ends because of death,
disability, redundancy, or any other reason approved by the
Board, the unvested performance rights will continue to be
held as if the executive’s employment has not ended, and the
service condition will be treated as waived, unless the Board
decides otherwise. If the Board does decide otherwise, it
may determine that some or all of the performance rights are
forfeited, which would occur on the last day of employment. If
there is a takeover or change of control of the Bank, the Board
has discretion to decide that the dealing restriction will end at
a date decided by the Board.
Managing Director’s grants
At the 2013 annual general meeting, the Bank’s shareholders
approved a grant of 152,438 performance rights in two
parcels which relate to the two year contract extension
announced on 26 March 2013. Each parcel is subject to
a twelve month performance period for cash EPS testing
and a three year performance period for TSR testing as
summarised below:
Number of
Performance
Rights
1 st Performance
Period (EPS
Measure)
2nd Performance
Period (TSR
Measure)
Service Condition
Dealing Restriction
Tranche 1
76,219
30.06.2014 –
30.06.2015
01.07.2013 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2016 -30.06.2017
Tranche 2
76,219
30.06.2015 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2013 –
30.06.2016
01.07.2016 -30.06.2017
Other executive grants
The Board implemented a new performance right plan for other executives in 2013. There have now been three grants under
the plan and each grant was made as a single tranche with a four year performance period, consisting of an initial twelve month
performance period for EPS testing followed by a three year performance period for TSR testing. A number of other executives
received increases to their LTI opportunity for the year.
Table of current performance right grants
Grant Date
Grant
Year
Participants
Performance Period
Vesting /
Exercise Date
Lapse Date
31.08.2012
FY2013
Other Executives
1.07.2012 – 30.06.2016
30.06.2016
30.06.2016
17.12.2013
FY2014
Other Executives
1.07.2013 – 30.06.2017
30.06.2017
30.06.2017
01.07.2014
FY2015
Managing Director - Tranche 1
1.07.2013 – 30.06.2016
30.06.2016
30.06.2016
01.07.2014
FY2015
Managing Director - Tranche 2
1.07.2013 – 30.06.2016
30.06.2016
30.06.2016
10.12.2014
FY2015
Other Executives
1.07.2014 – 30.06.2018
30.06.2018
30.06.2018
This includes adjusting performance-based components
of remuneration downwards, to zero if appropriate. On an
annual basis the Governance & HR Committee reviews the
appropriateness of releasing deferred equity components
taking into account the Group’s performance outlook and any
other matter that might impact the financial soundness of
the Group.
Further details of the performance right grants are
presented at Section 6.
2.4 Risk adjustment
The Board may adjust the number of deferred shares
and performance rights that vest to take into account
any unforseen or unexpected circumstances and risk
developments. The Board has absolute discretion to adjust
variable remuneration (deferred base pay, deferred STI and
LTI) to reflect the following:
a. The outcomes of business activities;
b. The risks related to the business activities taking into
account, where relevant, the cost of the associated
capital; and
c. The time necessary for the outcome of those business
activities to be reliably measured.
32
2.5 Other Remuneration Policies
Hedging
An executive or their closely related parties may not enter into
a transaction designed to remove the at-risk element of equity
based pay before it has vested, or while it is subject to a
trading restriction. These restrictions are in the Staff Trading
Policy and Remuneration Policy.
The Bank treats compliance with these policies as important.
At the end of each financial year each executive is required to
confirm that they have complied with these restrictions. If an
executive breaches either of these restrictions the executive
forfeits all variable remuneration in the form of equity that is
subject to the prohibition at the time of the breach.
Margin loan facility restriction
The Staff Trading Policy also prohibits KMPs from
using the Bank’s securities as collateral in any margin
loan arrangements.
Vested deferred shares and performance rights
Under the terms of the Employee Salary Sacrifice, Deferred
Share and Performance Share Plan the Board has discretion
to satisfy deferred share grants (Deferred Base Remuneration
and Deferred STI) and vested performance right grants by
either issuing new shares or acquiring shares on-market.
Section 3: Company performance and
remuneration outcomes
3.1 Overview of company performance
The following is an overview of the Group’s key performance
indicators on a year-on-year basis for the past five years. The
remuneration outcomes for the year were in line with the
performance across these measures and also recognise the
progress made in respect to longer term strategic priorities.
This has been a challenging year for several parts of the
business, with strong market competition, lower consumer
and business confidence and a low interest rate environment
combining to impact our result. The Group performed
soundly overall and recorded continued improvement in
most key financial performance measures including a 13.1%
improvement in cash earnings, a 5.5% improvement in
earnings per share and a total shareholder return of 5.9%.
The result follows strong improvement in shareholder returns
for the two previous years and was again underpinned by the
net interest margin performance, continued efficiency gains
and prudent cost management. The Group also maintained
its focus on key strategic objectives and implementing new
business initiatives.
Company performance measure
Financial year ending
Basic earnings per share (cents)
Cash earnings per share (cents)
NPAT ($m)
Cash earnings ($m)
Dividends paid and payable (cents per share)
June 2015
June 2014
June 2013
June 2012
June 2011
92.5
95.1
423.9
432.4
66.0
87.7
91.5
84.9
85.4
48.6
84.2
91.5
92.3
372.3
352.3
195.0
342.1
382.3
348.0
323.0
336.2
64.0
61.0
60.0
60.0
Share price at start of financial year
$12.20
$10.07
$7.41
$8.86
$8.18
Share price at end of financial year
$12.26
$12.20
$10.07
$7.41
$8.86
Total shareholder return
5.9%
28%
44%
(9.6%)
16%
33
2015 ANNUAL FINANCIAL REPORT
3.2 Remuneration outcomes
Short-term incentive outcomes
The measures used to determine the Group bonus pool
allocation and individual STI awards are broadly annual
cash earnings performance and business and risk
management objectives.
The Board determined that the criteria for establishing a
performance bonus pool for the 2015 financial year had
been met and a bonus pool was established for the year.
The performance assessments for individual executives
were completed for the year in accordance with the process
described earlier and STI awards have been made in line with
those assessments.
The following graph shows the cash earnings over the past
year and four previous years, with the average STI payment
(as a percentage of the target STI awards) paid to executives,
which demonstrates the relationship between the Group’s
financial performance and STI payments to executives over
the past five years.
)
s
t
n
e
c
(
S
P
E
h
s
a
C
96
94
92
90
88
86
84
82
80
78
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
2011
2012
2013
2014
2015
d
i
a
p
s
e
v
i
t
u
c
e
x
e
r
o
i
n
e
s
o
t
I
T
S
m
u
m
i
x
a
m
f
o
e
g
a
t
n
e
c
r
e
P
The Board assessed the achievement of the Managing
Director’s goals and taking into account the size of the bonus
pool established by the Board awarded an STI payment of
$132,646 for the year. The Board assessed that the Managing
Director had achieved his performance goals and decided not
to make any further adjustment to the STI award. Accordingly,
the actual STI payment represents 33% of the target STI
opportunity which corresponds with the proportion of the
maximum bonus pool established for STI and
bonus payments.
The Managing Director assessed the achievement of the
financial, business and risk management objectives, as
well as individual performance for the other executives and
determined the proposed STI awards for other executive
members. The proposed awards were considered by the
Governance and HR Committee and approved by the Board.
There was a general decrease in the percentage of STI awards
paid to other executives when compared to the previous year.
There was no adjustment to the individual STI awards for
the risk or compliance conditions. On average the actual STI
payments represent 33% of the target STI awards which is
also consistent with the bonus pool allocation for the year.
Long term incentive outcomes
The two measures used to determine the vesting of
performance rights are the Group’s EPS performance and
total shareholder return. The below table summarises the
current LTI performance right grants and performance testing
outcomes applicable to the grants:
Cash EPS (cents)
Average STI paid (as a % of maximum STI)
Grant
Grant Date
EPS Test
Date
TSR Test
Date
EPS Test
Met
Previously
Vested %
Previously
Lapsed %
Vested
for 2015
%
Lapsed
for 2015
%
Remaining %
2013 LTI
Other Senior
Executives
2014 LTI
Other Senior
Executives
2015 LTI
Managing
Director
2015 LTI
Managing
Director
2015 LTI
Other Senior
Executives
31.08.12
30.06.13
30.06.16
17.12.13
30.06.14
30.06.17
01.07.14
30.06.15
30.06.16
01.07.14
30.06.16
30.06.16
Still to be
tested
10.12.14
30.06.15
30.06.18
0%
0%
0%
0%
0%
0%
0%
0%
100%
0%
0%
0%
100%
0%
0%
0%
100%
0%
0%
0%
100%
0%
0%
0%
100%
In relation to the Managing Director’s LTI grant, the EPS
test for the parcel tested on 30 June 2015 was met and
accordingly 100% of the performance rights have been carried
forward for testing over the three year TSR performance
period. None of the performance rights have vested or lapsed.
The graph on the following page compares the Group’s TSR
against the ASX 100 Accumulation Index for the past five
years. The ASX 100 is the comparator group against which the
Group’s TSR performance is measured for the current long
term incentive plan.
In relation to LTI grants for other executives, the EPS test for
the parcel tested on 30 June 2015 was met and accordingly
100% of the performance rights have been carried forward for
testing over the three year TSR performance period. None of
the performance rights have vested or lapsed.
34
TSR BEN vs ASX 100 Accumulation Index
Advisory Boards. There was no change to the subsidiary fee
payments for the year.
240
220
200
180
160
140
120
100
80
60
40
20
0
BEN
ASX 100 AI
Jul
10
Jan
11
Jul
11
Jan
12
Jul
12
Jan
13
Jul
13
Jan
14
Jul
14
Jan
15
Jul
15
Total return basis index 1 July 2010 = 100 (source: Bloomberg)
Deferred share grants
The current grants of deferred shares comprise the FY2014
base pay deferred share grant, the FY2015 base pay deferred
share grant, the FY2013 and FY2014 STI deferred share
grants and the Managing Director’s base pay deferred share
grant. The grants are subject to continued employment and
risk adjustment conditions.
The FY2014 deferred base pay grant and the deferred
component of the FY2013 STI were tested and having regard
to the financial soundness of the organisation it was decided
by the Board to vest the deferred shares.
The FY2015 base pay deferred grant and Managing Director’s
base pay deferred grant have not vested as the grants will be
tested in future financial periods. The deferred component of
the FY2014 and FY2015 STI awards have not vested as they
will also be tested in future financial periods.
Section 4: Non-executive Director remuneration
The remuneration of Non-executive Directors is based on the
following principles and arrangements. There is no direct link
between Non-executive Director fees and the annual results
of the Group. Non-executive Directors do not receive bonuses
or incentive payments, nor receive any equity based pay.
Shareholders approved an aggregate fee pool for Non-
executive Directors of $2,500,000 at the 2011 Annual
General Meeting. This fee pool covers payments (including
superannuation) for the main Board and payments to the
Bank’s Non-executive Directors appointed to subsidiary
boards and the Community Bank® Strategic Advisory
Board. The Governance & HR Committee (the “Committee”)
recommends to the Board the remuneration policy and
remuneration for Non-executive Directors. The base fee
is reviewed annually by the Committee and the following
considerations are taken into account in setting the base fee:
a. The scope of responsibilities of Non-executive Directors
and time commitments. This includes consideration
of significant changes to the Group’s operations
and industry developments which impact Director
responsibilities, at both the Board and committee level.
b. Fees paid by peer companies and companies of similar
market capitalisation and complexity, including survey
data and peer analysis to understand the level of
Director fees paid in the market, particularly in the
banking and finance sector.
Non-executive Directors receive a fixed annual fee plus
superannuation contributions at 9.50% (FY2014: 9.25%) of
the base fee. In relation to superannuation contributions,
Non-executive Directors can elect to receive amounts above
the maximum contributions limit as cash or additional
superannuation contributions. The Chairman receives a higher
base fee in recognition of the additional time commitment
and responsibilities. No additional fees are paid for serving
on Board Committees. Additional fees were paid to Non-
executive Directors who are also members of the Rural
Bank or Sandhurst Trustees or Community Bank® Strategic
The base fee effective from 29 July 2014 was:
a. $190,748 for Directors (inclusive of company
superannuation contributions)
b. $476,869 for the Chairman (two and a half
times the base fee and inclusive of company
superannuation contributions).
The Board increased the base fee by 3.0% in line with general
market movements in Director fees. The increase commenced
from 29 July 2014. The Board also decided to implement
a fixed fee model inclusive of company superannuation
contributions. The change was made to accommodate
amendments to superannuation legislation.
The Directors contribute $5,000 each to the Bank’s
scholarship program. The program was established to
assist disadvantaged students meet tertiary education
accommodation and direct study costs. The contributions are
deducted from base fee payments.
Section 5: Remuneration governance
The Committee provides assistance to the Board in relation
to the Group’s remuneration arrangements. The Board makes
all final decisions in relation to those arrangements. The
current members of the Committee are all independent Non-
executive Directors:
a. Tony Robinson (Chairman)
b. Jacquie Hey
c. Robert Johanson
d. Deb Radford
The Committee has responsibility for providing input into
the Group’s risk management framework in relation to
remuneration risk, in particular, recommending to the
Board the remuneration arrangements for the Executives. A
summary of the Committee’s remuneration responsibilities is
presented below and the Committee Charter is available from
the Corporate Governance section of the Bank’s website at
www.bendigoadelaide.com.au.
The Committee’s remuneration responsibilities include
conducting regular reviews of, and making recommendations
to the Board on, the remuneration strategy and policy
taking into account the Group’s objectives, risk profile,
shareholder interests, regulatory requirements and market
developments. The Committee is also responsible for making
recommendations to the Board on:
a. The remuneration arrangements for executives, including
the terms on which performance-based remuneration
will be provided;
b. The performance-based remuneration outcomes for the
executives; and
c. The annual bonus pool.
The Committee makes recommendations to the Board on
the exercise of the Board’s discretion to adjust incentive and
performance-based remuneration to reflect the outcomes of
business activities and the risks relating to those activities.
The Committee is also responsible for recommending to the
Board the remuneration matters specified by the Australian
Prudential Regulation Authority under Prudential Standard
CPS 510 Governance relating to other designated responsible
persons, risk and financial control personnel and material
risk takers.
The Committee may consult a professional adviser or
expert, at the cost of the Bank, if the Committee considers
it necessary to carry out its duties and responsibilities.
No remuneration recommendations were obtained from
external consultants in relation to any of the KMP during the
reporting period.
35
2015 ANNUAL FINANCIAL REPORT Section 6: KMP remuneration, equity and loan tables
Table 1: Non-executive Director remuneration
The following payments were made to Non-executive Directors in the 2015 and 2014 financial years.
Non-executive Director
Fees 1
Non-monetary benefits 2
Superannuation
contributions 3
Short-term benefits
Post-employment benefits
Total
R Johanson (Chairman) 4
2015
2014
J Dawson 5
2015
2014
J Hazel 6
2015
2014
J Hey
2015
2014
R Hubbard
2015
2014
D Matthews 7
2015
2014
D Radford
2015
2014
T Robinson 8
2015
2014
Aggregate totals
2015
2014
$529,325
$514,976
$85,000
$253,649
$253,998
$248,836
$173,811
$168,649
$173,811
$168,649
$248,620
$191,264
$173,811
$168,649
$198,400
$145,855
$1,836,776
$1,860,527
$4,550
$4,550
-
-
-
-
-
-
-
-
$4,757
-
-
-
$4,384
$22,794
$13,691
$27,344
$18,784
$17,775
$7,395
$23,463
$24,130
$23,017
$16,512
$15,600
$16,512
$15,600
$18,600
$17,692
$16,512
$15,600
$552,659
$537,301
$92,395
$277,112
$278,128
$271,853
$190,323
$184,249
$190,323
$184,249
$271,977
$208,956
$190,323
$184,249
$17,304
$15,600
$135,749
$144,347
$220,088
$184,249
$1,986,216
$2,032,218
1Fee amounts include the $5,000 Director contribution to the Board scholarship program for FY2014 and FY2015.
2Represents fee sacrifice component of the base Director fee amount paid as superannuation.
3Company superannuation contributions.
4Fees paid to Mr Johanson include the fee paid by Rural Bank Limited of $76,854 inclusive of company superannuation (FY2014: $76,854 including company
superannuation at 9.25%).
5Ms Dawson retired from the Board on 27 October 2014. The fees paid to Ms Dawson include, on a pro-rata basis, an additional fee of $93,075 inclusive of
company superannuation at 9.5% as Chairman of Sandhurst Trustees Ltd (FY2014: $93,075 including company superannuation at 9.25%).
6Fees paid to Mr Hazel include the fee paid by Rural Bank Limited of $87,804 inclusive of company superannuation (FY2014: $87,804 inclusive of company
superannuation at 9.25%).
7The fees paid to Mr Matthews include $15,330 inclusive of company superannuation as a member of the Community Bank® Strategic Advisory Board
(CBSAB). They also include, on a pro-rata basis, a fee of $76,854 inclusive of company superannuation as a Director of Rural Bank Limited which
commenced from 20 August 2014. The fees paid to Mr Matthews for FY2014 include $24,707 for his role as Co-Chairman of the CBSAB which ceased in
January 2014.
8The fees paid to Mr Robinson include, on a pro-rata basis, a fee of $89,790 inclusive of company superannuation as a Director of Sandhurst Trustees Ltd
which commenced on 10 March 2015.
36
Table 2: Non-executive Director equity holdings
The details of shareholdings in the Bank held (directly or nominally) by Non-executive Directors (including their close family
members or any entity they, or their close family members, control, jointly control or significantly influence) are set out below.
Name
Number at start of year
Net Change 1
Number at end of year 2
Ordinary
shares
Preference
shares
Ordinary
shares
Preference
shares
Ordinary
shares
Preference
shares
Non-executive Directors
R Johanson
236,723
J Dawson 3
J Hazel
J Hey
R Hubbard
D Matthews
29,718
17,024
4,227
5,192
16,594
500
100
-
250
-
-
20,530
(500)
257,253
(29,718)
(100)
-
898
2,223
-
620
-
-
-
-
17,922
6,450
5,192
17,214
-
-
-
250
-
-
D Radford
1,900
1,390
-
1,800
1,900
3,190
T Robinson
10,692
-
7,500
-
18,192
-
¹No equity instruments were granted as compensation to Non-executive Directors during the reporting period.
2None of the shares are held nominally.
³Ms Dawson retired from the Board on 27 October 2014.
37
2015 ANNUAL FINANCIAL REPORT Table 3: Executive remuneration
The statutory executive remuneration disclosures for the 2015 and 2014 financial years are set out in the table below.
The following remuneration disclosures have been prepared in accordance with the Corporations Act 2001 and Australian
Accounting Standards.
Short-term employee benefits
Share-based payments 6
Executive
Cash salary1
Cash
bonuses
(STI)2
Non-
monetary
benefits3
Super-
annuation
benefits4
Other long-
term
benefits5
Performance
rights7
Deferred
shares8
Performance
related
Total
M Hirst
2015
2014 9
M Baker
2015
2014
D Bice
2015
2014
J Billington
2015
2014
R Fennell
2015
2014
R Jenkins 10
$1,307,115
$88,431
$73,869
$18,784
$31,362
$358,737 $1,003,283 $2,881,581
$1,286,057
$152,000
$31,308
$17,775
($11,548)
$1,287,847
$29,329
$2,792,768
$550,811
$44,215
$10,132
$18,784
$20,705
$70,294
$171,767
$886,708
$506,441
$87,500
$9,731
$17,091
$10,094
$42,149
$121,184
$794,190
$395,326
$30,000
$26,393
$18,784
$14,352
$33,729
$90,733
$609,317
$404,514
$57,000
$5,100
$17,775
$25,588
$22,471
$64,755
$597,203
$399,068
$48,000
$399,446
$56,667
-
-
$18,784
$17,775
-
-
$39,002
$93,494
$598,348
$27,745
$76,644
$578,277
$556,409
$55,269
$4,500
$18,784
$26,838
$73,086
$178,019
$912,905
$510,278 $112,500
$4,841
$17,775
$91,887
$44,942
$121,184
$903,407
18%
53%
17%
18%
15%
15%
17%
15%
19%
19%
2014
$62,245
$6,712
$3,204
$2,386
($3,125)
$3,034
$16,000
$90,456
13%
R Musgrove 10
2015
2014
T Piper
2015
2014
S Thredgold
2015
2014
$279,248
$44,000
$37,960
$32,588
$10,541
$19,635
$68,234
$492,206
$255,963
$32,899
$20,778
$26,402
$1,743
$7,252
$23,600
$368,637
$520,878
$30,000
$15,770
$18,784
$30,663
$56,222
$143,610
$815,927
$490,229
$50,000
$7,111
$17,775
$13,532
$33,706
$103,015
$715,368
$322,430
$49,742
$5,000
$18,784
$5,226
$33,729
$80,483
$515,394
$316,025
$57,000
$5,340
$17,775
$8,581
$22,471
$59,757
$486,949
38
15%
11%
13%
13%
20%
18%
Table 3: Executive remuneration (continued)
Short-term employee benefits
Share-based payments 6
Executive
Cash salary1
Cash
bonuses
(STI)2
Non-
monetary
benefits3
Super-
annuation
benefits4
Other long-
term
benefits5
Performance
rights7
Deferred
shares8
Performance
related
Total
A Tullio 10
2015
2014
A Watts
2015
2014
Totals
2015
2014
$301,761
$33,334
$5,896
$18,784
$294,790
$37,584
$1,327
$17,580
-
-
$19,635
$80,275
$459,685
$8,285
$38,868
$398,434
$405,956
$36,667
$5,447
$18,784
($420)
$39,379
$78,568
$584,381
$379,552
$57,000
$11,830
$17,775
($18,289)
$28,122
$75,590
$551,580
16%
15%
17%
17%
$5,039,002 $459,658
$184,967
$201,644
$139,267
$743,448 $1,988,466 $8,756,452
$4,905,540 $706,862
$100,570
$187,884
$118,463
$1,528,024
$729,926 $8,277,269
¹Cash salary amounts include the net movement in the executive’s annual leave accrual for the year.
2These amounts represent STI cash awards to executives for the financial year. The cash component is expected to be paid in September 2015. Refer also to
footnote 8 below for discussion on the deferral of STI components.
³“Non-monetary” relates to sacrifice components of executive salary such as superannuation contributions and motor vehicle costs.
4Represents company superannuation contributions made on behalf of executives. Company superannuation contributions form part of the executive’s fixed
base remuneration and are paid up to the statutory maximum contributions base.
5The amounts disclosed relate to movements in long service leave entitlement accruals.
6In accordance with the requirements of Australian Accounting Standards, remuneration includes a proportion of the fair value of equity compensation
granted or outstanding during the year. The fair value of equity instruments is calculated as at the grant date and is progressively allocated over the vesting
period. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should
the equity instruments vest. The fair value of performance rights as at the grant date has been calculated under AASB 2 Share-based Payments applying
a Black-Scholes-Merton valuation method incorporating a Monte Carlo simulation option pricing model to estimate the probability of achieving the total
shareholder return hurdle and the number of performance rights that vest. The assumptions underpinning these valuations are set out in Table 6.
7The amounts included in the performance rights column comprise the amortised value of annual performance right grants to executives (excluding the
Managing Director) amortised over a four year period and the amortised value of the single performance right grant to the Managing Director made on 1
July 2014 amortised over a three year period. As the performance right grants for other executives commenced in the 2013 financial year, the comparative
figures only include the amortised value for two performance right grants and the current year’s value includes the amortised value for three performance
right grants. As there is only one current performance right grant to the Managing Director the amortised value for the current and comparative year are the
same noting that the comparative value also includes an amount of $935,969 being the annual amortised value of the performance right grant made in
2009 that involved a five year performance period that concluded on 30 June 2014.
8The amounts included in the deferred share column comprise:
The fair value of deferred STI components amortised over a two-year deferral period. The deferred STI component for the 2013 financial year is amortised
over the 2014 and 2015 financial years and the deferred STI component for the 2014 financial year is amortised over 2015 and 2016 financial years. There
were no STI awards for the 2012 financial year. Accordingly, the comparative amount only includes the amortised value for one deferred STI grant and the
current year amount includes the amortised value for two deferred STI grants.
The fair value of the deferred share base pay grants amortised over a two-year deferral period. The deferred base pay grant made during the 2013 financial
year is amortised over the 2013 and 2014 financial years, the deferred base pay grant made during the 2014 financial year is amortised over the 2014 and
2015 financial years and the deferred base pay grant made during the 2015 financial year is amortised over the 2015 and 2016 financial years.
9The comparative cash salary for Mr Hirst has been reduced by $54,285 for a salary underpayment relating to FY2013 that was paid in FY2014.
10Mr Jenkins ceased as a KMP on 19 August 2013, Mr Musgrove commenced as a KMP on 19 August 2013 and Ms Tullio commenced as a KMP on 5 July
2013. The remuneration details for these KMP are presented on a pro-rata basis for the 2014 financial year.
39
2015 ANNUAL FINANCIAL REPORT Table 4: Executive STI payments
The following short-term incentives were awarded to executives for FY2015. The short-term incentives forfeited are also set out in
the table below.
Executive
Target STI award 2
STI payment
Paid as cash
Deferred into
shares 1
STI payment as % of
Target STI Award
% of Target STI
Award forfeited
M Hirst
M Baker
D Bice
J Billington
R Fennell
T Piper
R Musgrove
S Thredgold
A Tullio
A Watts
$400,000
$88,431
$ 44,215
$200,000
$44,215
$ 22,108
$150,000
$160,000
$250,000
$100,000
$100,000
$150,000
$100,000
$180,000
$30,000
$48,000
$55,269
$30,000
$44,000
$49,742
$33,334
$36,667
-
-
$ 27,634
-
-
-
$16,666
$18,333
33%
33%
20%
30%
33%
30%
44%
33%
50%
31%
67%
67%
80%
70%
67%
70%
56%
67%
50%
69%
1One-third of STI awards that exceed the $50,000 threshold set by the Board are subject to deferral for two years into shares in the Bank. The allocation of
deferred shares relating to STI deferral for FY2015 is expected to be completed in October 2015.
2The STI award is subject to the achievement of financial and non-financial measures. Accordingly, the minimum potential STI award is nil.
40
Table 5: Executive employment agreements
The remuneration and other terms of employment for executives are contained in formal employment contracts. The material
terms of the executive contracts at the date of this report are set out below.
Issue
Description
Applies to
What is the duration of
the contracts?
What notice must be
provided by a Senior
Executive to end
the contract without
cause?
What notice must be
provided by the Bank
to end the contract
without cause? 1
What payments must
be made by the Bank
for ending the contract
without cause? 1
What are notice and
payment requirements
if the Bank ends the
contract for cause?
Are there any
post-employment
restraints?
Fixed term to 2016, subject to the termination provisions summarised
below, and then on-going until notice is given by either party.
Managing Director
On-going until notice is given by either party.
Other Executives
Up to 12 months’ notice. No notice period required if material change in
duties or responsibilities.
All Executives
12 months’ notice or payment in lieu.
All Executives
Payment of gross salary in lieu of period of notice (including payment of
accrued/unused leave entitlements calculated to end of relevant notice
period).
All Executives
Termination for cause does not require a notice period. Payment of
pro-rata gross salary and benefits (including payment of accrued/unused
leave entitlements) is required to date of termination.
All Executives
12 month non-competition and non-solicitation (employees, customers
and suppliers) restriction.
Managing Director
12 month non-solicitation (employees, customers and suppliers)
restriction.
Other Executives
1In certain circumstances, such as a substantial diminution of responsibility, the Bank may be deemed to have ended the employment of an executive and
will be liable to pay a termination benefit as outlined at the row titled “What payments must be made by the Bank for ending the contract without cause”.
41
2015 ANNUAL FINANCIAL REPORT Table 6: All equity plans – equity valuation inputs
The following tables summarise the valuation inputs for current equity instruments issued by the Bank.
a. Deferred Shares
Terms & Conditions for each Grant
Equity Instrument
Grant date
Issue price /
Fair value 1
Share price at
grant date
Restriction
period end / test
date
Expiry date
Deferred Shares Base Pay
17.12.2013
$10.86
$10.98
30.06.2015
30.06.2015
Deferred Shares Base Pay
10.12.2014
$12.89
$12.62
30.06.2016
30.06.2016
Deferred Shares Base Pay 2
01.07.2014
$12.28
$12.30
30.06.2016
30.06.2016
Deferred Shares STI
18.10.2013
$10.38
$10.47
30.06.2015
30.06.2015
Deferred Shares STI
07.10.2014
$11.74
$11.81
30.06.2016
30.06.2016
1The fair value of deferred share grants (for STI deferral and deferred base pay) is calculated using the volume weighted average closing price of the Bank’s
shares for the five days prior to and period ending on the grant date.
2A further 12 month dealing restriction applies to the Managing Director’s grant.
b. Performance rights
Grant date
Fair
value 1
Share
price $
Exercise
price
Risk-free
interest
rate
Dividend
yield
Expected
volatility
Expected
life
Performance
period end /
expiry date 2
Terms & Conditions for each Grant
31.08.2012
$3.30
$7.58
17.12.2013
$4.45
$10.98
01.07.2014
$7.06
$12.30
10.12.2014
$5.53
$12.62
-
-
-
-
2.49%
6.5%
25%
4 years
30.06.2016
2.91%
7.5%
22%
4 years
30.06.2017
2.57%
6.5%
22%
3 years
30.06.2016
2.31%
6.0%
18%
4 years
30.06.2018
Equity
Instrument
Performance
Rights
Performance
Rights
Performance
Rights 3
Performance
Rights
1The fair value is calculated as at grant date in accordance with AASB 2 Share-based Payments using an independent valuation.
2The Board will test the performance condition as soon as practical after year end. Any performance rights that do not vest will lapse at 5.00pm on the date
the Board makes its decision on what performance rights vest or lapse.
3The terms and conditions relate to the grant to the Managing Director which has a three year performance period. As the performance rights will lapse at the
end of the performance period if the performance measures are not met, the expected life of the grant is three years. A further 12 month dealing restriction
applies to the Managing Director’s grant.
42
Table 7: All equity plans - number of instruments
The table below sets out the number and value of equity instruments granted by the Bank during FY2015. It also includes details
of instruments granted in prior years that vested or were forfeited or lapsed during the year.
Prior years’
awards
vested 3
Units
Prior
years’
awards
vested 4, 7
$
Forfeited
/ Lapsed
2, 5, 6
Units
Forfeited
/ Lapsed
5, 6
$
Executive
Equity Instrument
Grant Date
Granted
Units 1
Granted 2
$
M Hirst
Performance Rights
01.07.2014
152,438
$1,076,212
Deferred Shares Base Pay
01.07.2014
152,438
$1,871,939
Deferred Shares STI
07.10.2014
6,471
$75,970
-
-
-
-
-
-
Deferred Shares STI
18.10.2013
-
-
5,651
$58,657
M Baker
Performance Rights
10.12.2014
20,358
$112,580
Deferred Shares Base Pay
10.12.2014
12,214
$157,438
-
-
-
-
Deferred Shares Base Pay
17.12.2013
-
-
10,040
$109,034
Deferred Shares STI
07.10.2014
3,725
$43,732
-
-
Deferred Shares STI
18.10.2013
D Bice
Performance Rights
10.12.2014
Deferred Shares Base Pay
10.12.2014
Deferred Shares Base Pay
17.12.2013
-
8,143
5,700
-
-
3,211
$33,330
$45,031
$73,473
-
-
-
-
-
5,020
$54,517
Deferred Shares STI
07.10.2014
2,426
$28,481
-
-
Deferred Shares STI
18.10.2013
J Billington
Performance Rights
10.12.2014
Deferred Shares Base Pay
10.12.2014
Deferred Shares Base Pay
17.12.2013
-
8,143
6,107
-
-
2,408
$24,995
$45,031
$78,719
-
-
-
-
-
7,362
$79,951
Deferred Shares STI
07.10.2014
2,412
$28,317
Deferred Shares STI
18.10.2013
-
-
R Fennell
Performance Rights
10.12.2014
20,358
$112,580
Deferred Shares Base Pay
10.12.2014
12,214
$157,438
-
-
-
-
-
-
-
-
Deferred Shares Base Pay
17.12.2013
-
-
10,040
$109,034
Deferred Shares STI
07.10.2014
4,790
$56,235
-
-
Deferred Shares STI
18.10.2013
R Musgrove
Performance Rights
10.12.2014
Deferred Shares Base Pay
10.12.2014
Deferred Shares Base Pay
17.12.2013
-
8,143
4,885
-
-
3,211
$33,330
$45,031
$62,968
-
-
-
-
-
5,020
$54,517
Deferred Shares STI
07.10.2014
1,617
$18,984
Deferred Shares STI
18.10.2013
-
-
T Piper
Performance Rights
10.12.2014
16,286
$90,062
Deferred Shares Base Pay
10.12.2014
10,179
$131,207
-
-
-
-
-
-
-
-
Deferred Shares Base Pay
17.12.2013
-
-
10,040
$109,034
Deferred Shares STI
07.10.2014
2,128
$24,983
-
-
Deferred Shares STI
18.10.2013
S Thredgold
Performance Rights
10.12.2014
Deferred Shares Base Pay
10.12.2014
Deferred Shares Base Pay
17.12.2013
-
8,143
4,885
-
-
2,119
$21,995
$45,031
$62,968
-
-
-
-
-
5,020
$54,517
Deferred Shares STI
07.10.2014
2,426
$28,481
-
-
Deferred Shares STI
18.10.2013
-
-
1,445
$14,999
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43
2015 ANNUAL FINANCIAL REPORT Table 7: All equity plans - number of instruments (continued)
Prior years’
awards
vested 3
Units
Prior
years’
awards
vested 4, 7
$
Forfeited
/ Lapsed
2, 5, 6
Units
Executive
Equity Instrument
Grant Date
A Tullio
Performance Rights
10.12.2014
Deferred Shares Base Pay
10.12.2014
Deferred Shares Base Pay
17.12.2013
Granted
Units 1
8,143
4,885
-
Granted 2
$
$45,031
$62,968
-
-
-
-
-
5,020
$54,517
Deferred Shares STI
07.10.2014
1,617
$18,984
-
-
Deferred Shares STI
18.10.2013
A Watts
Performance Rights
10.12.2014
Deferred Shares Base Pay
10.12.2014
Deferred Shares Base Pay
17.12.2013
-
8,143
4,071
-
-
2,320
$24,082
$45,031
$52,475
-
-
-
-
-
5,020
$54,517
Deferred Shares STI
07.10.2014
2,426
$28,481
-
-
Deferred Shares STI
18.10.2013
-
-
2,087
$21,663
Forfeited
/ Lapsed
5, 6
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1The grants to executives in FY2015 constituted 100% of the grants available for the year and were made on the terms described at Section 2. The number
of base pay deferred shares and performance rights allocated to executives is calculated by dividing the remuneration value by the volume weighted average
closing price of the Bank’s shares for the last five trading days of the financial year prior to year of the grant. The number of STI deferred shares allocated
to executives is calculated by dividing the deferred STI remuneration value by the volume weighted average closing price of the Bank’s shares for the five
trading days ending on the grant date.
2The value of the performance right grants and deferred share grants is the fair value (refer Table 6). The minimum total value of the grants, if the applicable
performance and service conditions are not met, is nil and an estimate of the maximum possible total value in future financial years is the fair value shown
above.
3The percentage of performance rights that vested, or were forfeited, during the year was nil as the TSR measure for performance rights will be tested over
future periods. The percentage of base pay deferred share grants and STI deferred share grants made in FY2014 that vested during the year was 100%. The
percentage of the deferred share base pay grant and deferred STI grant made in FY2015 that vested during the year was nil as the grants will be tested over
future periods.
4The value of vested deferred shares is measured using the fair values applicable to the grant of deferred shares that vested. The applicable fair values are
presented at Table 6. As each deferred share represents one ordinary share in the Bank, the number of ordinary shares that will be allocated is the same as
the number of vested deferred shares.
5The value of each instrument on the date it lapses or is forfeited is calculated using the fair value of the instrument. Performance rights and deferred shares
lapse where the applicable performance and service conditions are not satisfied. As the performance rights only vest on satisfaction of performance and
service conditions which are to be tested in future financial periods, none of the executives forfeited performance rights during the 2015 financial year. The
2014 deferred base pay grant and deferred component of the 2013 STI were tested and all deferred shares vested. The remaining deferred share grants will
be tested in future financial periods.
6The performance rights vest subject to performance and continued service over the applicable performance period. The exercise price for the performance
rights and deferred shares is nil. If performance rights do not vest at the end of the performance period, they lapse.
7The Bank acquired the following securities on-market for the purpose of, and to satisfy the entitlements of holders of rights to acquire securities granted
under, the Bank’s Employee Salary Sacrifice, Deferred Share and Performance Share Plan:
a. Total number of ordinary shares purchased during the financial year: 225,519 ordinary shares; and
b. Average price per ordinary share at which the securities were purchased: $12.54 per security.
44
Table 8: Movements in other equity holdings
All equity transactions with executives have been entered into under terms and conditions no more favourable than those the
Group would have adopted if dealing at arm’s length other than shares issued under the Employee Share Ownership Plan. Issues
of shares under the Employee Share Plan are made under conditions disclosed in the 2015 Annual Financial Report at Note 37
Share-based payment plans.
Performance rights and deferred shares are granted as equity compensation under the Employee Salary Sacrifice, Deferred
Share and Performance Share Plan (“Plan”) to executives as long term incentive, deferred base and deferred STI remuneration
components. The movements in executive (including their related parties) equity holdings for FY2015 are below. No performance
rights held by Executives were vested but not exercisable at year end.
Number
granted
during the
year as
remuneration
Number
at start of
year
Number
Received on
exercise or
exercised
/ released
during the
year
Number
Lapsed /
expired
during the
year
Executive
Equity
Instrument 1
Net
change
other
Number
at end of
year 2
Vested and
exercisable
at year end
M Hirst
Deferred shares
5,651
158,909
(5,651)
Ordinary shares
853,309
Preference
shares
Performance
rights
-
-
-
-
152,438
-
-
-
M Baker
Deferred shares
13,251
15,939
(13,251)
Ordinary shares
234,091
550
44,967
20,358
D Bice
Deferred shares
7,428
8,126
(7,428)
Ordinary shares
92,030
23,739
8,143
J Billington
Deferred shares
7,362
8,519
(7,362)
Ordinary shares
53,831
30,131
8,143
R Fennell
Deferred shares
13,251
17,004
(13,251)
Ordinary shares
114,857
47,477
20,358
R Musgrove
Deferred shares
5,020
6,502
(5,020)
Ordinary shares
22,056
Preference
shares
-
-
-
-
-
Preference
shares
Performance
rights
Preference
shares
Performance
rights
Preference
shares
Performance
rights
Preference
shares
Performance
rights
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
158,909
(271,248)
582,061
-
-
-
-
152,438
15,939
22,718
256,809
50
600
-
-
65,325
8,126
(14,162)
77,868
-
-
-
-
31,882
8,519
(7,638)
46,193
-
-
-
-
38,274
17,004
(42,823)
72,034
-
-
-
-
67,835
6,502
820
22,876
-
-
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2015 ANNUAL FINANCIAL REPORT Number
granted
during the
year as
remuneration
Number
at start of
year
Number
Received on
exercise or
exercised
/ released
during the
year
Number
Lapsed /
expired
during the
year
Net
change
other
Number
at end of
year 2
Vested and
exercisable
at year end
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,673
12,307
(25,332)
51,010
-
-
-
-
51,894
7,311
(11,835)
29,440
-
-
-
-
31,882
6,502
7,340
7,411
-
-
-
-
15,673
6,497
7,107
85,019
-
-
-
38,731
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Table 8: Movements in other equity holdings (continued)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Executive
Equity
Instrument 1
Performance
rights
7,530
8,143
-
T Piper
Deferred shares
12,159
12,307
(12,159)
Ordinary shares
76,342
35,608
16,286
S Thredgold
Deferred shares
6,465
7,311
(6,465)
Ordinary shares
41,275
Preference
shares
Performance
rights
Preference
shares
Performance
rights
23,739
8,143
A Tullio
Deferred shares
7,340
6,502
(7,340)
Ordinary shares
Preference
shares
Performance
rights
71
-
-
-
7,530
8,143
-
-
-
A Watts
Deferred shares
7,107
6,497
(7,107)
Ordinary shares
77,912
Preference
shares
Performance
rights
30,588
8,143
1 Ordinary share amounts include ordinary shares issued under the Employee Share Ownership Plan.
2 None of the equity holdings are held nominally.
46
Table 9: Loans to Non-executive Directors and Executives
Details of aggregate of loans to KMP and their related parties are as follows:
Balance at
beginning of
year 1
$’000
Interest
charged
$’000
1,636
67
4,034
206
Non-executive Directors
2015
Executives
2015
Total Directors and Executives
2015
5,670
273
Interest not
charged
Write-off
Balance at
end of year
Number at
year end
$’000
$’000
$’000
-
-
-
-
-
-
853
5
4,036
10
4,889
15
Details of KMP (including their related parties) with an aggregate of loans above $100,000 in the reporting period are as follows:
2015
Non-executive Directors
R Johanson
D Matthews
Executives
M Hirst
D Bice
J Billington
R Fennell
R Musgrove
T Piper
S Thredgold
A Tullio
Balance at
beginning of
year
Interest
charged
Interest
not
charged
Write-off
Balance
at end of
year
Highest
owing in
period 2
$’000
$’000
$’000
$’000
$’000
$’000
1,118
445
103
517
872
481
403
-
969
590
44
22
4
26
47
27
19
15
24
39
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
762
65
58
461
841
509
338
506
415
869
1,215
448
114
523
876
509
404
-
978
878
1 The opening balances for the 2015 financial year have been adjusted to exclude loan balances applicable to Mr Jenkins who ceased as a KMP on 19 August
2013. They also exclude loans provided to Executives under the Employee Share Ownership Plan. The Corporations Regulations do not require the disclosure
of these loans.
2 Represents aggregate highest indebtedness of the KMP during the financial year. All other items in this table relate to the KMP and their related parties.
Terms and conditions of Director and Executive loans
The loans to Non-executive Directors and executives occur within a normal employee, customer or supplier relationship on terms
and conditions no more favourable than those that it is reasonable to expect the Bank would have adopted if dealing at arms-
length with an unrelated person.
47
2015 ANNUAL FINANCIAL REPORT This Directors’ Report is signed in accordance with a resolution of the Board of Directors.
Robert Johanson
Chairman
Mike Hirst
Managing Director
1 September 2015
48
Financial Statements
Table of contents
Operating assets and liabilities
25. Cash flow statement reconciliation
26. Cash and cash equivalents
27. Goodwill and other intangible assets
28. Other assets
29. Other payables
0ther disclosure matters
30. Risk management
31. Business combinations
32. Subsidiaries and other controlled entities
33. Related party disclosures
34. Involvement with unconsolidated entities
35. Fiduciary activities
36. Provisions
37. Share based payment plans
38. Property, plant and equipment
39. Commitments and contingencies
40. Auditors’ remuneration
41. Events after balance sheet date
Directors’ declaration
Independent Audit Report
Additional information
Key performance indicators
Five year history
Five year comparison
99
100
101
103
103
104
114
115
116
117
119
119
121
124
126
129
129
130
131
133
138
139
Primary statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Cash flow statement
Basis of Preparation
1. Corporate information
2. Summary of significant accounting policies
Results for the year
3. Profit
4. Income tax expense
5. Segment results
6. Earnings per ordinary share
7. Dividends
Lending
8. Loans and other receivables
9. Impairment of loans and advances
Funding and capital management
10. Deposits and notes payable
11. Convertible preference shares
12. Subordinated debt
13. Securitisation and transferred assets
14. Standby arrangements and uncommitted credit facilities
15. Capital management
16. Share capital
17. Retained earnings and reserves
Treasury and investments
18. Financial assets held for trading
19. Financial assets available for sale
20. Financial assets held to maturity
21. Derivative financial instruments
22. Financial instruments
23. Investments accounted for using the equity method
24. Investment property
50
51
52
53
55
56
56
58
61
63
66
68
70
71
73
74
75
76
77
78
79
81
83
84
85
86
90
96
98
49
2015 ANNUAL FINANCIAL REPORT
Primary statements
Income statement
for the year ended 30 June 2015
Net interest income
Interest income
Interest expense
Group
Bank
Note
2015
$m
2014
$m
2015
$m
2014
$m
2,938.7
2,928.2
2,518.3
2,456.9
(1,761.1)
(1,810.0)
(1,483.8)
(1,480.8)
Total net interest income
3
1,177.6
1,118.2
1,034.5
976.1
Other revenue
Dividends
Fees
Commissions
Other
Total other revenue
Share of net profit accounted for using the equity method
Total income
Expenses
Bad and doubtful debts
Bad and doubtful debts recovered
Total bad and doubtful debts
Operating expenses
Staff and related costs
Occupancy costs
Amortisation and depreciation costs
Fees and commissions
Other
Total other expenses
Profit before income tax expense
Income tax expense
Net profit for the year
Earnings per share (cents)
Basic
Diluted
50
1.3
165.6
63.2
136.3
366.4
0.8
160.2
58.4
104.3
323.7
23.8
147.7
18.1
66.7
0.2
140.7
16.5
59.4
256.3
216.8
4.4
0.2
1.7
1.1
1,548.4
1,442.1
1,292.5
1,194.0
(71.2)
2.9
(68.3)
(85.6)
3.7
(81.9)
(55.7)
2.8
(52.9)
(57.1)
3.6
(53.5)
(464.2)
(435.1)
(406.5)
(385.1)
(96.5)
(47.2)
(35.9)
(246.8)
(890.6)
(86.8)
(46.5)
(33.9)
(221.4)
(823.7)
(92.8)
(35.0)
(8.1)
(237.4)
(779.8)
(83.0)
(34.8)
(8.2)
(222.7)
(733.8)
589.5
536.5
459.8
406.7
(165.6)
423.9
(164.2)
372.3
(119.3)
340.5
(124.0)
282.7
92.5
87.3
87.7
83.6
3
23
3
3
4
6
6
Statement of comprehensive income
for the year ended 30 June 2015
Profit for the year
Items which may be reclassified subsequently to the profit & loss:
Net gain on available for sale - equity investments
Transfer to income on sale of available for sale assets
Net loss on cash flow hedges taken to equity
Net (loss)/gain on reclassification from cash flow hedge reserve to income
Net unrealised (loss)/gain on available for sale debt securities
Transfer to income on sale of available for sale assets
Tax effect on items taken directly to or transferred from equity
Total items that may be reclassified to profit & loss
Items which will not be reclassified subsequently to the profit & loss:
Actuarial (loss)/gain on superannuation defined benefits plan
Revaluation of land and buildings
Tax effect on items taken directly to or transferred from equity
Total items that will not be reclassified to profit & loss
Note
17
17
17
17
17
17
17
17
17
17
Group
Bank
2015
$m
423.9
1.0
(2.6)
(17.3)
(0.6)
(0.6)
(0.1)
6.1
(14.1)
(1.6)
-
0.5
(1.1)
2014
$m
372.3
1.4
-
(5.9)
0.1
0.2
(0.2)
1.3
(3.1)
1.6
0.9
(0.8)
1.7
2015
$m
340.5
0.4
-
2014
$m
282.7
0.6
-
(26.3)
(18.4)
(0.6)
(5.0)
(0.1)
9.5
(22.1)
(1.6)
-
0.5
(1.1)
0.1
37.0
(0.2)
(5.8)
13.3
1.6
0.3
(0.6)
1.3
Total comprehensive income for the year
408.7
370.9
317.3
297.3
Total comprehensive income for the year attributable to:
Owners of the Company
408.7
370.9
317.3
297.3
51
2015 ANNUAL FINANCIAL REPORT
Balance sheet
as at 30 June 2015
Assets
Cash and cash equivalents
Due from other financial institutions
Amounts receivable from controlled entities
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Derivatives
Net loans and other receivables
Investments accounted for using the equity method
Shares in controlled entities
Property, plant & equipment
Deferred tax assets
Investment property
Assets held for sale
Goodwill and other intangible assets
Other assets
Total Assets
Liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Loans payable to securitisation trusts
Income tax payable
Provisions
Deferred tax liabilities
Other payables
Convertible preference shares
Subordinated debt
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total Equity
52
Note
26
26
18
19
20
21
8
23
38
4
24
27
28
26
10
10
21
4
36
4
29
11
12
16
17
17
Group
2015
$m
981.6
215.7
-
2014
$m
716.1
242.5
-
5,562.9
7,265.4
601.3
300.7
63.8
643.6
286.6
22.3
Bank
2015
$m
870.4
215.7
188.1
5,563.3
1,260.4
2.0
211.7
2014
$m
610.5
242.4
283.8
7,265.8
1,297.5
2.0
203.0
55,531.6
52,932.8
50,464.6
47,674.6
3.6
-
98.8
146.4
482.0
-
15.7
-
96.8
130.5
404.9
3.3
3.3
564.8
93.8
128.6
-
-
15.1
575.4
92.4
109.0
-
-
1,580.5
1,504.4
459.9
798.0
1,464.6
1,164.2
1,380.3
1,538.5
66,028.8
65,062.9
62,195.5
61,290.3
202.7
363.5
202.4
363.0
53,505.3
52,359.4
50,258.4
48,975.3
4,925.9
5,256.4
108.0
-
18.2
114.7
111.8
688.4
819.5
592.6
79.2
-
17.5
105.0
79.8
918.7
261.4
655.5
330.6
117.4
310.4
77.7
4,306.6
4,760.4
18.2
110.2
106.9
773.1
819.5
573.1
17.5
100.8
101.7
1,023.5
261.4
603.3
61,087.1
60,096.4
57,616.4
56,595.0
4,941.7
4,966.5
4,579.1
4,695.3
4,223.6
4,355.6
4,223.6
4,355.6
95.0
623.1
101.1
509.8
118.8
236.7
134.7
205.0
4,941.7
4,966.5
4,579.1
4,695.3
Statement of changes in equity
For the year ended 30 June 2015
Group
Attributable to owners of Bendigo and Adelaide Bank Limited
At 1 July 2014
Opening balance b/fwd
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Establish operational risk reserve
Share based payment
Equity dividends
At 30 June 2015
1Refer to note 16 Share capital for further details
2Refer to note 17 Retained earnings and reserves for further details
For the year ended 30 June 2014
At 1 July 2013
Opening balance b/fwd
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Prior years' restatement
Reduction in employee share ownership plan (ESOP) shares
Share based payment
Transfer from asset revaluation reserve
Equity dividends
At 30 June 2014
1Refer to note 16 Share capital for further details
2Refer to note 17 Retained earnings and reserves for further details
Issued
ordinary
capital
$m
Other
Issued
capital 1
$m
Retained
earnings
$m
Reserves 2
$m
Total
equity
$m
4,183.3
172.3
509.8
101.1
4,966.5
-
-
-
423.9
(1.1)
-
(14.1)
423.9
(15.2)
422.8
(14.1)
408.7
(190.0)
1.5
4.4
-
-
-
-
-
(1.5)
-
(8.6)
(1.8)
-
(297.6)
623.1
-
-
-
8.6
1.8
(2.4)
-
95.0
(137.6)
(0.3)
4.4
-
-
(2.4)
(297.6)
4,941.7
4,235.4
(11.8)
-
-
-
52.4
(0.3)
-
-
-
-
-
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
Issued
capital 1
$m
Retained
earnings
$m
Reserves 2
$m
Total
equity
$m
3,758.0
169.8
398.1
108.1
4,434.0
-
-
-
427.8
(2.5)
-
-
-
-
-
-
-
-
-
-
-
2.5
-
-
-
372.3
1.1
-
(2.5)
372.3
(1.4)
373.4
(2.5)
370.9
-
-
(7.7)
-
-
2.8
(256.8)
-
-
-
-
(1.7)
(2.8)
-
427.8
(2.5)
(7.7)
2.5
(1.7)
-
(256.8)
4,183.3
172.3
509.8
101.1
4,966.5
53
2015 ANNUAL FINANCIAL REPORT
Statement of changes in equity (continued)
For the year ended 30 June 2015
Bank
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
Issued
capital 1
$m
Retained
earnings
$m
Reserves 2
$m
Total
equity
$m
4,183.3
172.3
205.0
134.7
4,695.3
-
-
-
52.4
(0.3)
-
-
-
-
-
-
-
(190.0)
1.5
4.4
-
-
-
4,235.4
(11.8)
340.5
(1.1)
-
(22.1)
340.5
(23.2)
339.4
(22.1)
317.3
-
(1.5)
-
(8.6)
-
(297.6)
236.7
-
-
-
8.6
(2.4)
-
(137.6)
(0.3)
4.4
-
(2.4)
(297.6)
118.8
4,579.1
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
Issued
capital 1
$m
3,758.0
169.8
-
-
-
-
427.8
(2.5)
-
-
-
-
-
-
-
-
-
-
-
2.5
-
-
Retained
earnings
$m
Reserves 2
$m
Total
equity
$m
186.1
(0.4)
282.7
1.1
122.9
4,236.8
-
-
13.5
(0.4)
282.7
14.6
283.8
13.5
297.3
-
-
(7.7)
-
-
(256.8)
-
-
-
-
(1.7)
-
427.8
(2.5)
(7.7)
2.5
(1.7)
(256.8)
4,183.3
172.3
205.0
134.7
4,695.3
At 1 July 2014
Opening balance b/fwd
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2015
1Refer to note 16 Share capital for further details
2Refer to note 17 Retained earnings and reserves for further details
For the year ended 30 June 2014
At 1 July 2013
Opening balance b/fwd
De-registered subsidiary company
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Prior years' restatement
Reduction in employee share ownership plan (ESOP) shares
Share based payment
Equity dividends
At 30 June 2014
1Refer to note 16 Share capital for further details
2Refer to note 17 Retained earnings and reserves for further details
54
Cash flow statement
for the year ended 30 June 2015
Group
Bank
Note
2015
$m
2014
$m
2015
$m
2014
$m
Cash flows from operating activities
Interest and other items of a similar nature received
2,868.4
2,856.1
2,454.2
2,392.7
Interest and other costs of finance paid
(1,713.3)
(1,793.8)
(1,434.7)
(1,462.6)
Receipts from customers (excluding effective interest)
Payments to suppliers and employees
Dividends received
Income taxes paid
Net cash flows from operating activities
25
Cash flows from investing activities
Cash paid for purchases of property, plant and equipment
Cash proceeds from sale of property, plant and equipment
Cash paid for purchases of investment property
Cash proceeds from sale of investment property
Cash paid for purchases of equity investments
Cash proceeds from sale of equity investments
292.2
(756.1)
1.3
(144.3)
548.2
(26.3)
1.9
(41.4)
27.8
(2.9)
16.5
269.7
(751.6)
0.8
(185.8)
395.4
(53.3)
1.9
(28.2)
22.8
(5.8)
-
242.6
(689.4)
23.8
(112.9)
483.6
(25.0)
1.7
-
-
(2.7)
-
233.0
(703.6)
0.2
(151.0)
308.7
(52.6)
1.5
-
5.6
(10.8)
-
Net increase of loans and other receivables outstanding
(433.4)
(2,503.1)
(1,350.1)
(4,613.1)
Net decrease/(increase) in balance of investment securities
1,737.9
(1,773.9)
2,194.6
(611.3)
Net cash paid on acquisition of businesses/assets
(1,678.5)
(4.4)
(1,678.5)
-
Net cash flows used in investing activities
(398.4)
(4,344.0)
(860.0)
(5,280.7)
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from issue of convertible preference shares
Repayment of preference shares
Net increase in balance of retail deposits
-
379.6
-
379.6
486.2
(102.1)
756.2
-
-
2,597.2
Net (decrease)/increase in balance of wholesale deposits
(233.8)
2,323.2
(Payments to)/proceeds from subordinated debt holders
Dividends paid
Net (decrease)/increase in balance of notes payable
Repayment of ESOP shares
Payment of share issue costs
Net cash flows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
26
(62.9)
(247.8)
301.2
(211.5)
(330.4)
(1,144.2)
4.4
(20.1)
249.7
399.5
595.1
994.6
2.5
(2.5)
4,245.5
296.9
298.2
595.1
-
-
2,514.1
2,339.5
301.2
(211.5)
(39.9)
2.5
(2.5)
5,283.0
311.0
178.9
489.9
486.2
(102.1)
688.8
(29.1)
(30.3)
(247.8)
20.2
4.4
(20.1)
770.2
393.8
489.9
883.7
55
2015 ANNUAL FINANCIAL REPORT Basis of Preparation
This section describes the Group’s significant accounting policies that relate to the financial
statements and notes of the accounts. If an accounting policy relates to a particular note, the
applicable policy is contained within the relevant note. This section also shows new accounting
standards, amendments and interpretations, and whether they are effective in 2015 or later years.
We explain how these changes are expected to impact the financial position and performance
of the Group.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of Bendigo and Adelaide Bank Limited and
all of its controlled entities (the Group). Interests in joint
arrangements and associates are equity accounted and are
not part of the consolidated Group.
A controlled entity is any entity (including special purpose
entities) over which Bendigo and Adelaide Bank Limited has
the power to govern, directly or indirectly, decision-making
in relation to financial and operating policies, so as to obtain
benefits from their activities. The existence and effect of
potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group
controls another entity.
Controlled entities prepare financial reports for consolidation
in accordance with Group accounting policies. Adjustments
are made to bring into line any dissimilar accounting policies
that may exist. The financial statements of controlled
entities are prepared for the same reporting period as the
parent company.
All inter-company balances and transactions between entities
in the Group have been eliminated on consolidation. Where
a controlled entity has been sold or acquired during the year
its operating results have been included to the date control
ceased or from the date control was obtained.
Comparatives
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
Foreign currency transactions and balances
Both the functional and presentation currency of Bendigo
and Adelaide Bank Limited and each of its subsidiaries is
Australian dollars (AUD). Transactions in foreign currencies
are initially recorded in the functional currency at the
exchange rates ruling on the date of the transaction.
All amounts are expressed in Australian currency and all
references to “$” are to Australian dollars unless otherwise
stated. Amounts receivable and payable in foreign currencies
at balance date are converted at the rates of exchange
ruling at that date. Exchange differences relating to amounts
payable and receivable in foreign currencies are brought to
account as exchange gains or losses in the income statement
in the financial year in which the exchange rates change.
1. Corporate information
The financial report of Bendigo and Adelaide Bank Limited
(the Bank) and its controlled entities (the Group) for the year
ended 30 June 2015 was authorised for issue in accordance
with a resolution of the directors on 1 September 2015.
Bendigo and Adelaide Bank Limited is a company limited by
shares incorporated in Australia whose shares are publicly
traded on the Australian Securities Exchange.
The domicile of the company is Australia.
The registered office of the company is:
The Bendigo Centre, 22 – 44 Bath Lane Bendigo, Victoria
2. Summary of significant accounting policies
Basis of preparation
Bendigo and Adelaide Bank Limited is a prescribed
corporation in terms of the Corporations Act 2001. Financial
reports prepared in compliance with the Banking Act are
deemed to comply with the accounts provisions of the
Corporations Act 2001.
The financial report is a general purpose financial report
which has been prepared in accordance with the Banking
Act, Australian Accounting Standards, Corporations Act 2001
and the requirements of law so far as they are applicable to
Australian banking corporations, including the application of
ASIC Class Order 10/654 allowing the disclosure of parent
entity financial statements due to Australian Financial
Services Licensing obligations.
The financial report has been prepared in accordance with
the historical cost convention, except for certain assets and
liabilities where the application of fair value measurement is
required or allowed by relevant accounting standards.
The amounts contained in the financial statements have been
rounded off under the option available to the Company under
ASIC Class Order 98/0100. The Company is an entity to which
the Class Order applies. The Class Order allows for rounding
to the nearest one hundred thousand dollars ($00,000).
Compliance with IFRS
The financial report complies with Australian Accounting
Standards and International Financial Reporting Standards (IFRS).
Significant accounting policies
The Group’s significant accounting policies that relate to a
specific note are summarised within that note. Accounting
policies that affect the financial statements as a whole are set
out below.
Significant judgements and estimates
In the process of applying the Group’s accounting policies,
management has made a number of judgements, apart from
those involving estimations, which have significant effect
on the amounts recognised in the financial statements.
These judgements and estimates that affect the financial
statements as a whole are within the relevant note.
56
2. Summary of significant accounting policies (continued)
Changes in accounting policies
The accounting policies are consistent with those applied in
the previous financial year except as follows:
The Group has adopted the following new and amended
Australian Accounting Standards and AASB Interpretations as
at 1 July 2014:
}} AASB 2012-3 Amendments to Australian Accounting
Standards - Offsetting Financial Assets and Financial
Liabilities
}} AASB 2013-3 Amendments to AASB 136 - Recoverable
amount disclosures for Non-financial assets
}} AASB 2013-4 Amendments to Australian Accounting
Standards - Novation of Derivatives and continuation of
Hedge Accounting
}} AASB 2013-5 Amendments to Australian Accounting
Standards - Investment Entities
}} AASB 1031 - Materiality
}} AASB 2013-9 Amendments to Australian Accounting
Standards - Conceptual Framework, Materiality, and
Financial Instruments
}} AASB 2014-1 Amendments to Australian Accounting
Standards arising from Annual Improvements 2010-2012
Cycle and 2011-2013 Cycle
There has been no material impacts to the Group’s result as a
result of the accounting standards adopted above.
Compliance with IFRS
Recently issued or amended standards not yet effective
Australian Accounting Standards that have recently been
issued or amended but are not yet effective have not been
adopted for the annual reporting period ended 30 June 2015.
AASB 9 Financial Instruments introduces changes to the
classification and measurement of financial assets and
financial liabilities, impairment of financial assets and new
rules for hedge accounting. This standard is mandatory for
the 30 June 2019 financial statements. The potential effects
of adoption of the standard are currently being assessed. The
Group has not elected whether to early adopt this standard at
this point in time.
AASB 15 Revenue from contracts with customers establishes
principles for reporting information about the nature, amount,
timing and uncertainty of revenue and cashflows arising from
customer contracts. This standard is effective for the 30
June 2018 financial statements. AASB 15 is not mandatory
until 1 July 2017, however the IASB has deferred adoption
to 1 July 2018. The AASB is also expected to make a similar
amendment. The potential financial impact of the above to the
Group is not yet possible to determine.
The following amendments to existing standards are not
expected to result in significant changes to the Group’s
accounting policies:
}} 2014-3 Amendments to Australian Accounting Standards –
Accounting for Acquisitions of Interests in Joint Operations
[AASB 1 & AASB 11]
}} 2014-4 Clarification of Acceptable Methods of
Depreciation and Amortisation;
}} 2014-9 Amendments to Australian Accounting Standards –
Equity Method in Separate Financial Statements;
}} 2014-10 Amendments to Australian Accounting Standards
– Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture;
}} 2015-1 Amendments to Australian Accounting Standards –
Annual Improvements to Australian Accounting Standards
2012–2014 Cycle;
}} 2015-2 Amendments to Australian Accounting Standards –
Disclosure Initiative: Amendments to AASB 101;
}} 2015-3 Amendments to Australian Accounting Standards
arising from the Withdrawal of AASB 1031 Materiality; and
}} 2015-5 Amendments to Australian Accounting Standards –
Investment Entities: Applying the Consolidation Exception.
57
2015 ANNUAL FINANCIAL REPORT Results for the year
This section outlines the results and performance of the Group in more detail. Further analysis has
been provided for the following key areas: revenue and expenses, income tax, segment results,
earnings per share and dividends.
3. Profit
Net interest income
Interest income
Cash and cash equivalents
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Loans and other receivables
Total interest income
Interest expense
Deposits
Retail
Wholesale - domestic
Wholesale - offshore
Other borrowings
Notes payable
Convertible preference shares
Subordinated debt
Total interest expense
Total net interest income
Other revenue
Dividends
Other
Distribution from unit trusts
Total dividends
Fees
Assets
Liabilities & other products
Trustee, management & other services
Total fees
Commissions
Wealth solutions
Insurance
Total commissions
Other
Income from property
Foreign exchange income
Factoring products income
Trading profit - held for trading securities
Homesafe revaluation income
Other
Total other income
Group
Bank
2015
$m
3.1
153.4
18.2
12.0
2014
$m
2.4
147.7
20.9
15.4
2015
$m
2.8
153.4
14.3
-
2014
$m
1.9
147.7
17.6
-
2,752.0
2,938.7
2,741.8
2,928.2
2,347.8
2,518.3
2,289.7
2,456.9
(1,291.6)
(1,369.1)
(1,178.3)
(1,241.3)
(225.6)
(16.0)
(166.5)
(23.9)
(37.5)
(180.5)
(16.6)
(199.3)
(14.5)
(30.0)
(223.4)
(16.0)
(7.5)
(23.9)
(34.7)
(174.2)
(16.6)
(8.0)
(14.5)
(26.2)
(1,761.1)
(1,810.0)
(1,483.8)
(1,480.8)
1,177.6
1,118.2
1,034.5
976.1
0.3
1.0
1.3
67.8
92.4
5.4
165.6
44.6
18.6
63.2
3.8
19.4
9.2
8.0
63.4
32.5
0.2
0.6
0.8
62.4
92.8
5.0
160.2
41.8
16.6
58.4
2.2
18.3
12.0
1.5
50.3
20.0
136.3
104.3
23.8
-
23.8
56.7
90.7
0.3
147.7
2.4
15.7
18.1
3.8
19.4
9.2
8.0
-
26.3
66.7
0.2
-
0.2
50.1
90.2
0.4
140.7
1.7
14.8
16.5
2.2
18.3
12.0
1.5
-
25.4
59.4
Share of net profit accounted for using the equity method
4.4
0.2
1.7
1.1
58
3. Profit (continued)
Recognition and measurement
Revenue is recognised at the fair value of the consideration
received or receivable, and meets the criteria below:
}} it is probable that the economic benefits will flow to
the entity and
}} the revenue can be reliably measured.
Interest income and expense are calculated on an accruals
basis using the effective interest method. The effective
interest method, is the interest rate that exactly discounts
estimated future cash receipts through, the expected life of
the financial instrument.
Loan origination and application fees are recognised
as components of the calculation of the effective interest
method, and affect the interest recognised, in relation to
the originated loans. The average life of originated loans is
reviewed annually, to ensure the amortisation methodology
for loan origination fees is appropriate.
Dividend income is recognised by the Group when the right to
receive payment is established.
Fees and commissions charged for services provided or
received by the Group are recognised as they are provided.
Homesafe revaluation income are the gains or losses arising
from changes in the fair value of investment property and are
recognised in the year in which they arise.
Expenses
Bad and doubtful debts
Specific provision
Collective provision
Bad debts written off
Bad debts recovered
Group
Bank
2015
$m
(53.9)
(13.0)
(4.3)
2.9
2014
$m
(74.0)
(8.3)
(3.3)
3.7
2015
$m
(39.2)
(13.0)
(3.5)
2.8
2014
$m
(48.7)
(5.8)
(2.6)
3.6
Total bad and doubtful debts
(68.3)
(81.9)
(52.9)
(53.5)
Operating expenses
Staff and related costs
Salaries, wages and incentives
Superannuation contributions
Payroll tax
Other
(349.9)
(326.6)
(305.5)
(288.0)
(34.6)
(22.1)
(57.6)
(32.8)
(20.6)
(55.1)
(30.1)
(19.3)
(51.6)
(28.9)
(18.0)
(50.2)
Total staff and related costs
(464.2)
(435.1)
(406.5)
(385.1)
Occupancy costs
Operating lease rentals
Depreciation of leasehold improvements
Other
Total occupancy costs
Amortisation and depreciation
Amortisation of intangible assets
Depreciation of property, plant & equipment
Total amortisation and depreciation costs
(55.9)
(11.3)
(29.3)
(96.5)
(36.1)
(11.1)
(47.2)
(48.5)
(9.2)
(29.1)
(86.8)
(36.8)
(9.7)
(46.5)
(55.5)
(11.2)
(26.1)
(92.8)
(24.3)
(10.7)
(35.0)
(48.1)
(9.1)
(25.8)
(83.0)
(25.6)
(9.2)
(34.8)
Fees and commissions
(35.9)
(33.9)
(8.1)
(8.2)
Other operating expenses
Communications, postage and stationery
Computer systems and software costs
Advertising and promotion
Other product and services delivery costs
Other expenses
(34.4)
(73.4)
(33.1)
(32.9)
(73.0)
(32.6)
(70.0)
(32.6)
(32.5)
(53.7)
(36.4)
(68.6)
(30.5)
(32.5)
(69.4)
(38.1)
(59.1)
(30.0)
(32.2)
(63.3)
Total other operating expenses
(246.8)
(221.4)
(237.4)
(222.7)
59
2015 ANNUAL FINANCIAL REPORT 3. Profit (continued)
Recognition and measurement
Operating expenses are recognised as the relevant service is
rendered, or once a liability is incurred.
Occupancy costs
Operating lease payments are recognised as an expense on
a straight line basis over the lease term.
Bad and doubtful debts are measured as the difference
between the carrying amount and the value of the estimated
future cash flows, discounted at the financial instruments
original effective interest rate.
Depreciation and amortisation - refer to Note 38 Property,
plant and equipment for further information on depreciation
and Note 27 Goodwill and other intangibles for amortisation
on intangibles.
Refer to Note 9 Impairment of loans and advances for more
information on loan impairment.
Staff and related costs
Wage and salary costs are recognised over the period in
which the employees provide the service. Refer to Note 36
Provisions for more information relating to staff provisions.
Incentive payments are recognised to the extent that the
Group has a present obligation over the period that the
employees are required to work to qualify for the scheme.
Refer to Note 37 Share based payment plans for further
information on share based payments.
Super contributions are made to an employee accumulation
fund and expensed when they become payable. The Group
operates a defined benefits scheme, the membership
of which is now closed. Refer to Note 39 Commitments
and contingencies for further details of the defined
benefits scheme.
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the
amount of GST except:
}} where the GST incurred on a purchase of goods and
services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item as
applicable; and
}} receivables and payables are stated with the amount of
GST included.
The net amount of GST recoverable from or payable to
the taxation authority is included as part of receivables or
payables in the balance sheet. Cash flows are included in the
cash flow statement on a gross basis. The GST component
of cash flows arising from investing and financing activities,
which are recoverable from or payable to the taxation
authority, are classified as operating cash flows.
60
4. Income tax expense
Major components of income tax expense are:
Income statement
Current income tax
Current income tax charge
Imputation credits
Adjustments in respect of current income tax of previous years
Deferred income tax
De-recognition of temporary differences
Adjustments in respect of deferred income tax of previous years
Relating to origination and reversal of temporary differences
Income tax expense reported in the income statement
Statement of changes in equity
Deferred income tax related to items charged or credited directly in equity
Net loss on cash flow hedge
Net (loss)/gain on available for sale investments
Net (loss)/gain on revaluation of land and buildings
Actuarial (loss)/gain on superannuation defined benefits plan
Income tax expense reported in equity
Group
2015
$m
2014
$m
Bank
2015
$m
174.4
(0.1)
(29.3)
1.2
9.1
10.3
165.6
(5.4)
(0.7)
-
(0.5)
(6.6)
161.5
(0.2)
(5.4)
-
4.0
4.3
164.2
(1.7)
0.4
(0.9)
0.5
(1.7)
152.7
(0.1)
(29.3)
1.2
9.4
(14.6)
119.3
(8.1)
(1.4)
-
(0.5)
(10.0)
2014
$m
129.5
(0.1)
(5.0)
-
4.1
(4.5)
124.0
(5.5)
11.3
0.1
0.5
6.4
A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate
is as follows:
Income tax expense attributable to:
Accounting profit before income tax
The income tax expense comprises amounts set aside as:
Provision attributable to current year at statutory rate, being:
Prima facie tax on accounting profit before tax
Over provision in prior years
Tax credits and adjustments
Expenditure not allowable for income tax purposes
Other non assessable income
Tax effect of tax credits and adjustments
De-recognition of temporary differences
Other
Income tax expense reported in the income statement
Deferred income tax
Deferred income tax at 30 June relates to the following:
Gross deferred tax liabilities
Available for sale financial assets
Deferred expenses
Derivatives
Intangible assets on acquisition
Investment property
Other
589.5
536.5
459.8
406.7
122.0
(0.9)
(0.1)
5.4
(1.8)
-
-
(0.6)
124.0
2014
$m
11.6
4.0
59.7
11.7
-
14.7
101.7
176.9
(20.2)
(0.1)
8.5
(1.3)
-
1.2
0.6
165.6
161.0
(1.4)
(0.2)
4.9
(0.1)
0.1
-
(0.1)
164.2
138.0
(19.9)
(0.1)
8.5
(9.0)
-
1.2
0.6
119.3
Group
Bank
2015
$m
0.9
9.4
15.5
18.8
50.0
17.2
111.8
2014
$m
1.1
4.0
5.5
19.7
34.1
15.4
79.8
2015
$m
10.5
9.4
59.9
11.3
-
15.8
106.9
61
2015 ANNUAL FINANCIAL REPORT 4. Income tax expense (continued)
Deferred income tax (continued)
Gross deferred tax assets
Derivatives
Employee benefits
Intangible liabilities on acquisition
Available for sale financial assets
Provisions
Other
Tax payable attributable to members of the tax consolidated group
At 30 June 2015, there is no unrecognised deferred income
tax liability (2014: Nil) for taxes that would be payable on the
earnings of certain Group subsidiaries or joint ventures, as
the Group has no liability for additional taxation should such
amounts be remitted.
At 30 June 2015, there are no unused tax losses (capital
in nature) (2014: $91.5m). The unused balance reported at
30 June 2014 was cleared during the current year following
resolution of historic matters with the Australian Taxation
Office. No deferred tax asset had previously been recognised
on the losses.
Recognition and measurement
Current taxes
The income tax for the period is the tax payable on the
current period’s taxable income based on the income tax rate,
adjusted for changes in deferred tax assets and liabilities and
unused tax losses.
Deferred taxes
The Group has adopted the balance sheet liability method
of tax effect accounting, which focuses on the tax effects of
transactions and other events that affect amounts recognised
in either the balance sheet or a tax-based balance sheet.
Deferred tax assets and liabilities are recognised for
temporary differences, except where the deferred tax asset/
liability arises from the initial recognition of an asset or
liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss.
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised directly
in equity.
62
Group
Bank
2015
$m
30.6
28.8
-
1.4
60.6
25.0
2014
$m
22.0
27.4
0.1
1.1
53.1
26.8
2015
$m
33.4
27.5
-
1.4
47.5
18.8
2014
$m
21.6
26.1
0.1
1.1
39.6
20.5
146.4
130.5
128.6
109.0
18.2
18.2
17.5
17.5
18.2
18.2
17.5
17.5
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets
and unused tax losses, to the extent that it is probable that
taxable profit will be available against which the deductible
temporary differences, and the carry-forward of unused tax
assets and unused tax losses can be utilised.
The carrying amount of deferred income tax assets is
reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred
income tax asset to be utilised. Unrecognised deferred tax
balances are reviewed annually to determine whether they
should be recognised.
Deferred income tax assets and liabilities are measured at
the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax
rates (and tax laws) that have been enacted or substantively
enacted at the balance sheet date.
Tax consolidation
Bendigo and Adelaide Bank Limited and its 100% owned
subsidiaries form the tax consolidated Group. Members of
the Group entered into a tax sharing agreement to allocate
income tax liabilities to the wholly-owned subsidiaries should
the head entity default on its tax payment obligations. At the
balance date, the possibility of default is remote. The head
entity of the tax consolidated Group is Bendigo and Adelaide
Bank Limited.
Members of the tax consolidated Group have entered into
a tax funding agreement. This agreement provides for the
allocation of current taxes to members of the tax consolidated
Group on a group allocation method based on a notional
stand alone calculation, while deferred taxes are calculated
by members of the tax consolidated Group in accordance with
AASB 112 Income Taxes.
5. Segment results
Segment reporting
An operating segment is a component of the Group that
engages in business activities from which it may earn
revenues and incur expenses. These operating results
are regularly reviewed by the Managing Director, to make
decisions about the resourcing for each segment, and to
assess its performance.
The operating segments are identified according to the nature
of the products and services they provide. All reporting
segments represent an individual strategic business unit.
Each unit offers a different method of delivery, and/or
different products and services.
Segment assets and liabilities reflect the value of
loans and deposits directly managed by each operating
segment. All other assets and liabilities of the Group are
managed centrally.
Segment reporting is consistent with the internal reporting
provided to the Managing Director, and the executive
management team.
Changes to the internal organisational structure of the Group,
can cause the Group’s operating segment results to change.
Where this occurs the corresponding segment information for
the previous financial year is restated.
Types of products and services
Retail banking
Major sources of net interest income are derived from
banking services, along with fee income for the provision of
services. Income is generated through the company owned
branch network and its share of the revenue generated
through the Community Bank® branch network. Delphi Bank
and Community Telco Australia are included within the retail
banking operating segment.
Third party banking
Major revenue sources are net interest income and the
fees derived from the provision of residential, commercial,
consumer and business services, along with the contribution
from Homesafe Trust. Third party banking comprises of the
‘Adelaide Bank’ branded services, portfolio funding, Alliance
Partners and Homesafe Trust.
Wealth
Major revenue sources are net interest income, along with
the fees and commissions derived from the provision of
margin lending, wealth management, wealth deposit, cash
management and financial planning products and services.
Sandhurst Trustees, Leveraged Equities and Bendigo Financial
Planning are included within the wealth segment.
Rural
Major revenue sources are net interest income and fees from
the provision of banking services to agribusinesses in rural
and regional Australia. Rural Bank and Rural Finance are
included within the rural segment.
Central functions
Functions not relating directly to a reportable
operating segment.
Accounting policies and inter-segment transactions
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the Group’s accounting
policies. Segment results are determined by including all
revenue and expenses associated with each business
segment. Transactions between business segments
are conducted at arm’s length and are eliminated on
consolidation.
Segment net interest income is recognised based on
an internally set transfer pricing policy based on pre-
determined market rates of return on the assets and
liabilities of the segment.
Major customers
Revenues from no individual customer amount to greater than
10% of the Group’s revenue.
Geographic Information
The allocation of revenue and assets is based on the
geographic location of the customer. The Group operates in all
Australian states and territories, providing banking and other
financial services.
63
2015 ANNUAL FINANCIAL REPORT 5. Segment results (continued)
For the year ended 30 June 2015
Operating segments
Net interest income
Other income
Share of net profit accounted for using the
equity method
Total segment income
Operating expenses
Credit expenses
Segment result (before tax expense)
Retail
banking
$m
736.7
193.4
-
930.1
(618.6)
(22.1)
289.4
Third
party
banking
$m
205.6
78.1
-
283.7
(89.7)
(34.1)
159.9
Tax expense
(81.3)
(44.9)
Segment result (statutory basis)
208.1
115.0
Add: cash basis adjustments 1
Specific income & expense items
Distributions accrued and/or paid on
preference shares
Amortisation of intangibles
1.5
-
4.4
5.7
-
1.7
Segment result (cash basis)
214.0
122.4
For the year ended 30 June 2014
Wealth
$m
66.8
56.9
-
123.7
(97.0)
1.3
28.0
(7.9)
20.1
-
-
4.4
24.5
Total
operating
segments
$m
1,177.6
336.9
-
Rural
$m
168.5
8.5
-
Central
functions
$m
Total
$m
-
1,177.6
29.5
4.4
366.4
4.4
177.0
1,514.5
33.9
1,548.4
(85.3)
(13.4)
78.3
(890.6)
(68.3)
555.6
-
-
33.9
(890.6)
(68.3)
589.5
(22.0)
(156.1)
(9.5)
(165.6)
56.3
399.5
24.4
423.9
6.8
-
4.8
14.0
(17.3)
(3.3)
-
15.3
(3.5)
-
3.6
(3.5)
15.3
432.4
67.9
428.8
Operating segments
Retail
banking
$m
695.4
189.1
-
884.5
(597.0)
(40.3)
247.2
Third
party
banking
$m
230.7
65.8
-
296.5
(82.6)
(12.6)
201.3
Wealth
$m
72.0
48.5
-
120.5
(79.9)
(1.2)
39.4
Total
operating
segments
$m
1,118.2
309.5
Central
functions
$m
Total
$m
-
1,118.2
14.2
323.7
-
0.2
0.2
1,427.7
(823.7)
(81.9)
522.1
14.4
1,442.1
-
-
(823.7)
(81.9)
14.4
536.5
Rural
$m
120.1
6.1
-
126.2
(64.2)
(27.8)
34.2
Net interest income
Other income
Share of net profit accounted for using the
equity method
Total segment income
Operating expenses
Credit expenses
Segment result (before tax expense)
Tax expense
(75.7)
(61.6)
(12.1)
(10.5)
(159.9)
(4.3)
(164.2)
Segment result (statutory basis)
171.5
139.7
27.3
23.7
362.2
10.1
372.3
Add: cash basis adjustments 1
Specific income & expense items
Distributions accrued and/or paid on
preference shares
-
-
-
-
-
-
-
-
-
-
Amortisation of intangibles
4.6
2.2
3.5
4.9
15.2
0.5
0.5
(5.7)
-
(5.7)
15.2
Segment result (cash basis)
176.1
141.9
30.8
28.6
377.4
4.9
382.3
1refer to Note 6 Earnings per ordinary share for further details.
64
5. Segment results (continued)
Operating segments
Retail
banking
$m
Third party
banking
$m
Wealth
$m
Rural
$m
Total
operating
segments
$m
Central
functions
$m
Total
$m
For the year ended 30 June 2015
Reportable segment assets
30,590.5
17,791.7
1,834.5
5,979.5
56,196.2
9,832.6
66,028.8
Reportable segment liabilities
38,056.2
1,643.4
3,092.5
3,538.0
46,330.1
9,831.1
56,161.2
For the year ended 30 June 2014
Reportable segment assets
29,527.5
17,767.1
1,853.8
4,398.6
53,547.0
11,515.9
65,062.9
Reportable segment liabilities
35,841.4
1,111.5
4,524.8
3,700.4
45,178.1
9,661.9
54,840.0
Reportable segment assets and liabilities
Total assets for operating segments
Total assets
Total liabilities for operating segments
Securitisation funding
Total liabilities
Group
As at June
2015
As at June
2014
66,028.8
65,062.9
66,028.8
65,062.9
56,161.2
54,840.0
4,925.9
5,256.4
61,087.1
60,096.4
65
2015 ANNUAL FINANCIAL REPORT 6. Earnings per ordinary share
Basic
Diluted
Cash basis
Group
2015
Cents per share
2014
Cents per share
92.5
87.3
95.1
87.7
83.6
91.5
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
Reconciliation of earnings used in the calculation of earnings per ordinary share
Profit after tax
Distributions accrued on preference shares
Distributions accrued on step up preference shares
Total basic earnings
Earnings used in calculating basic earnings per ordinary share
Add back: dividends accrued on dilutive preference shares
Total diluted earnings
Earnings used in calculating basic earnings per ordinary share
Add back: after tax intangibles amortisation (excluding software amortisation)
Add back: after tax specific income and expense items
Total cash earnings
Specific income and expense items after tax comprise:
Items included in interest income
Fair value adjustments
Total specific net interest income items
Items included in non interest income
Hedge ineffectiveness
Profit on sale of investment in joint venture
Total specific non interest income items
Items included in operating expenses
Employee shares gain
Integration costs
Impairment of investment in associate
Litigation costs
Total specific operating expense items
Items included in income tax expense
Income tax benefit relating to mergers and acquisitions
Tax impacts relating to prior year impairment losses
Total specific income tax benefit/(expense)
Total specific items attributable to the Group
Weighted average number of ordinary shares
Weighted average number of ordinary shares (basic)
Effect of dilution - executive performance rights
Effect of dilution - preference shares
Weighted average number of ordinary shares (diluted)
66
$m
423.9
(2.6)
(0.9)
420.4
420.4
20.2
440.6
420.4
15.3
(3.3)
432.4
(4.6)
(4.6)
-
3.4
3.4
-
(6.0)
(1.5)
(1.9)
(9.4)
16.7
(2.8)
13.9
3.3
$m
372.3
(2.6)
(3.1)
366.6
366.6
15.9
382.5
366.6
15.2
0.5
382.3
-
-
0.1
-
0.1
0.5
-
-
-
0.5
(1.1)
-
(1.1)
(0.5)
No. of shares
No. of shares
454,457,127
417,934,373
930,926
1,018,919
49,387,341
38,799,357
504,775,394
457,752,649
6. Earnings per ordinary share (continued)
Potentially dilutive instruments
The following instruments are potentially dilutive during the reporting period:
Dilutive
2015
2014
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
No
Significant accounting judgments, estimates
and assumptions
Cash earnings
Cash earnings is an unaudited, non-IFRS financial measure.
It is considered by management to be a key indicator of the
underlying performance of the core business activities of
the Group.
The basis for determining cash earnings is the net profit after
tax, adjusted for specific items after tax, acquired intangibles
amortisation after tax, and distributions for preference share/
step up preference shares.
Specific items
Specific items are those items that are deemed to be outside
of the Group’s core activities and hence these items are
not considered to be representative of the Group’s ongoing
financial performance.
Preference shares
Step up preference shares
Convertible preference shares
Executive performance rights
Subordinated Note (with non viability clause)
Recognition and measurement
Basic EPS is calculated as net profit after tax, adjusted for
distributions on preference shares and step up preference
shares, divided by the weighted average number of
ordinary shares.
Diluted EPS is calculated as net profit after tax, adjusted
for distributions for preference, step up and convertible
preference shares, add back dividends on dilutive preference
shares, divided by the weighted average number of ordinary
shares, and potential dilutive ordinary shares.
Cash basis EPS is calculated as net profit after tax, adjusted
for after tax intangibles amortisation (except intangible
software amortisation), after tax specific income and expense
items, and distributions for preference shares and step up
preference shares, divided by the weighted average number of
ordinary shares.
Executive performance rights - classification of securities
Executive performance rights are treated as dilutive from the
date of issue and remain dilutive, so long as the performance
conditions are satisfied. In the event of a performance
condition not being satisfied, the number of dilutive rights
would be reduced to the number that would have been issued
if the end of the period was the end of the contingency period.
67
2015 ANNUAL FINANCIAL REPORT 7. Dividends
Dividends paid or proposed
Group
Bank
2015
Cents
per
share
¢
Date
paid
Total
amount
$m
Date
paid
2014
Cents
per
share
¢
Total
amount
$m
Date
paid
2015
Cents
per
share
¢
Total
amount
$m
Date
paid
2014
Cents
per
share
¢
Total
amount
$m
Ordinary shares (ASX:BEN)
Dividends paid during the year:
Interim
dividend
Final
dividend
Mar 15
33.0
147.6
Mar 14
31.0
126.0
Mar 15
33.0
147.6
Mar 14
31.0
126.0
Sept 14
33.0
146.5
Sept 13
31.0
125.1
Sept 14
33.0
146.5
Sept 13
31.0
125.1
66.0
294.1
62.0
251.1
66.0
294.1
62.0
251.1
Dividends proposed since the reporting date, but not recognised as a liability:
Final
dividend
30 Sept 15
33.0
148.3
30 Sept 15
33.0
148.3
All dividends paid were fully franked at 30% (2014: 30%). Proposed dividends will be fully franked at 30% (2014: 30%) out of existing franking
credits or out of franking credits arising from payment of income tax provided for in the financial statements for the year ended 30 June 2015.
2015
Cents
per
share
¢
Date
paid
Preference shares (ASX:BENPB)
Dividends paid during the year:
Group
Bank
Total
amount
$m
Date
paid
2014
Cents
per
share
¢
Total
amount
$m
Date
paid
2015
Cents
per
share
¢
Total
amount
$m
Date
paid
2014
Cents
per
share
¢
Total
amount
$m
Sept 2014
73.04
0.7
Sept 2013
74.71
0.7
Sept 2014
73.04
Dec 2013
71.20
0.6
Dec 2014
72.37
Mar 2014
71.35
0.6 Mar 2015
74.17
Jun 2014
72.34
0.7
Jun 2015
66.67
0.7
0.7
0.7
0.6
Sept 2013
74.71
Dec 2013
71.20
Mar 2014
71.35
Jun 2014
72.34
0.7
0.6
0.6
0.7
289.60
2.6
286.25
2.7
289.60
2.6
Dec 2014
72.37
Mar 2015
74.17
Jun 2015
66.67
286.25
0.7
0.7
0.6
2.7
Preference shares were redeemed in June 2015.
Step up preference shares (ASX:BENPC)
Dividends paid during the year:
Jul 2014
Oct 2014
78.00
78.00
0.8
0.8
Jul 2013
Oct 2013
Jan 2014
Apr 2014
85.00
81.00
77.00
76.00
0.8
0.8
0.8
0.7
3.1
Jul 2014
Oct 2014
78.00
78.00
0.8
0.8
Jul 2013
Oct 2013
Jan 2014
Apr 2014
85.00
81.00
77.00
76.00
156.00
1.6
319.00
0.8
0.8
0.8
0.7
3.1
156.00
1.6
319.00
Step up preference shares were redeemed in October 2014.
Convertible preference shares (recorded as debt instruments) (ASX:BENPD)
Dividends paid during the year:
Dec 2014
273.90
7.4
Dec 2013
273.62
7.3
Dec 2014
273.90
Jun 2015
271.20
7.3
Jun 2014
266.49
7.2
Jun 2015
271.20
7.4
7.3
Dec 2013
273.62
Jun 2014
266.49
7.3
7.2
545.10
14.7
540.11
14.5
545.10
14.7
540.11
14.5
Convertible preference shares (CPS2) (recorded as debt instruments) (ASX:BENPE)
Dividends paid during the year:
Dec 2014
59.29
Jun 2015
209.60
268.89
1.7
6.1
7.8
-
-
-
-
-
-
-
-
Dec 2014
59.29
Jun 2015
209.60
268.89
1.7
6.1
7.8
-
-
-
-
-
-
-
-
Convertible preference shares (CPS2) were issued in October 2014.
Convertible preference shares (CPS 3, ASX:BENPF) were issued in June 2015 and as such no dividend has been paid during the June 2015 financial year.
68
7. Dividends (continued)
Dividend franking account
Balance of franking account as at the end of the financial year
Franking credits that will arise from the payment of income tax provided for in the financial report
Impact of dividends proposed or declared before the financial report was authorised for issue but not
recognised as a distribution of equity holders during the period
Group
2015
$m
334.1
18.2
(64.6)
2014
$m
327.1
17.5
(63.1)
Closing balance at 30 June 2015
287.7
281.5
Dividend paid
Dividends paid by cash or satisfied by the issue of shares under the dividend reinvestment plan during the year were as follows:
Paid in cash 1
Satisfied by issue of shares 2
Group
Bank
2015
$m
247.8
50.6
298.4
2014
$m
211.5
45.3
256.8
2015
$m
247.8
50.6
298.4
2014
$m
211.5
45.3
256.8
1Refers to cash paid to shareholders who did not elect to participate in the dividend reinvestment plan.
2Includes share issued to participating shareholders under the dividend reinvestment plan.
Dividend policies
Preference share dividends are non-cumulative and are
payable quarterly in arrears, at the discretion of the directors,
based on a dividend rate equal to the sum of the 90 day Bank
Bill Rate, plus the initial margin multiplied by one minus the
company tax rate. It is expected that dividends paid, will be
fully franked. For the payment of dividends, the preference
shares will rank in priority to the ordinary shares. These
shares were redeemed in June 2015.
Step up preference share dividends are non-cumulative
and are payable quarterly in arrears, at the discretion of the
directors, based on a dividend rate equal to the sum of the
90 day Bank Bill Rate plus the initial margin, multiplied by one
minus the company tax rate. It is expected that dividends paid
will be fully franked. For the payment of dividends, the step up
preference shares will rank equally with the preference shares
and in priority to the ordinary shares. These shares were
redeemed in October 2014.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan provides shareholders with
the opportunity of converting their entitlement from a dividend
into new shares. The issue price of the shares is equal to the
volume weighted average share price of Bendigo and Adelaide
Bank shares traded on the Australian Securities Exchange
over the seven trading days commencing 24 August 2015.
Shares issued under this Plan rank equally with all other
ordinary shares.
Bonus Share Scheme
The Bonus Share Scheme provides shareholders with the
opportunity to elect to receive a number of bonus shares
issued for no consideration instead of receiving a dividend.
The issue price of the shares is equal to the volume weighted
average share price of Bendigo and Adelaide Bank shares
traded on the Australian Securities Exchange over the seven
trading days commencing 24 August 2015. Shares issued
under this scheme rank equally with all other ordinary shares.
The last date for the receipt of an election notice for
participation in either the Dividend Reinvestment Plan
or Bonus Share Scheme for the 2015 final dividend was
21 August 2015.
69
2015 ANNUAL FINANCIAL REPORT Lending
In this section the focus is on the lending assets of the Group. Further information is provided on the
loans and other receivables, and impairment relating to these financial assets.
8. Loans and other receivables
Loans and other receivables - investments
Overdrafts
Credit cards
Term loans
Margin lending
Lease receivables
Factoring receivables
Other
Group
Bank
Note
2015
$m
185.1
2014
$m
397.1
2015
$m
185.1
2014
$m
397.1
3,851.5
4,096.9
3,837.3
4,070.4
287.7
280.4
287.7
280.4
48,978.3
45,902.4
45,699.8
42,457.2
1,792.2
1,822.7
453.1
76.6
106.0
460.9
67.5
85.9
-
376.6
76.6
106.0
-
404.6
67.5
85.9
Gross loans and other receivables
55,730.5
53,113.8
50,569.1
47,763.1
Specific provision
Collective provision
Unearned income
Total provisions and unearned income
Deferred costs paid
9
9
(116.8)
(59.0)
(101.7)
(277.5)
78.6
(114.4)
(42.8)
(106.9)
(264.1)
83.1
(79.3)
(52.8)
(51.0)
(74.2)
(36.6)
(56.1)
(183.1)
(166.9)
78.6
78.4
Net loans and other receivables
55,531.6
52,932.8
50,464.6
47,674.6
Maturity analysis 1
At call / overdrafts
Not longer than 3 months
7,598.8
1,175.4
9,179.2
1,047.4
5,437.6
6,769.9
924.6
921.0
Longer than 3 and not longer than 12 months
1,936.3
1,865.9
1,536.9
1,596.8
Longer than 1 and not longer than 5 years
7,540.9
6,951.8
5,378.3
5,239.8
Longer than 5 years
37,479.1
34,069.5
37,291.7
33,235.6
55,730.5
53,113.8
50,569.1
47,763.1
1
Balances exclude specific and collective provisions, unearned revenue, and deferred costs and are categorised by the contracted maturity date of each loan facility.
All loans are subject to continuous management review, to
assess whether there is any objective evidence that any loan
or group of loans is impaired.
Unearned income on the Group’s personal lending and leasing
portfolios is brought to account over the life of the contracts
on an actuarial basis.
Recognition and measurement
Loans and receivables are measured at amortised cost
using the effective interest method. The effective interest
method calculation includes the contractual terms of the
loan, together with all fees, transaction costs and other
premiums or discounts.
Loans with renegotiated terms are accounted for in the same
manner taking account of any change to the terms of the loan.
Deferred costs include costs associated with the acquisition,
origination or securitisation of loan portfolios. These costs are
amortised through the income statement over the average life
of the loans in these portfolios.
70
9. Impairment of loans and advances
Summary of impaired financial assets
Impaired loans
Loans - without provisions
Loans - with provisions
Restructured loans
Less: specific provisions
Net impaired loans
Group
Bank
2015
$m
2014
$m
80.3
241.9
3.4
(116.1)
209.5
120.3
276.8
14.7
(113.6)
298.2
2015
$m
24.5
141.8
-
(78.6)
87.7
2014
$m
21.8
153.4
12.5
(73.4)
114.3
Net impaired loans % of net loans and other receivables
0.38%
0.56%
0.17%
0.24%
Portfolios facilities - past due 90 days, not well secured
Less: specific provisions
Net portfolio facilities
Loans past due 90 days
4.2
(0.7)
3.5
4.0
(0.8)
3.2
3.7
(0.7)
3.0
Accruing loans past due 90 days, with adequate security balance
Net fair value of properties acquired through the enforcement of security
610.1
114.5
635.5
97.1
538.8
95.3
Group
Bank
Summary of provisions
Specific provision
Opening balance
Provision acquired in business combination
Charged to income statement
Impaired debts written off applied to specific provision
Closing balance
Collective provision
Opening balance
Provision acquired in business combination
Charged to income statement
Closing balance
General reserve for credit losses (GRCL)
Opening balance
Provision acquired in business combination
Closing balance
Total provisions and reserve
Ratios
Specific provision as % of gross loans
Total provisions and reserve as % of gross loans
2015
$m
2014
$m
114.4
104.1
2.1
53.9
(53.6)
116.8
42.8
3.2
13.0
59.0
138.3
8.6
146.9
322.7
0.21%
0.58%
-
74.0
(63.7)
114.4
34.5
-
8.3
42.8
138.3
-
138.3
295.5
0.22%
0.56%
Collective provision and general reserve for credit losses as a % of
risk-weighted assets
Provision coverage ratio1
0.59%
0.56%
99.10%
71.80%
1Provision coverage is calculated as total provisions and reserve divided by total impaired assets
2015
$m
74.2
2.1
39.2
(36.2)
79.3
36.6
3.2
13.0
52.8
119.7
8.6
128.3
260.4
71
4.0
(0.8)
3.2
590.1
82.4
2014
$m
51.3
-
48.7
(25.8)
74.2
30.8
-
5.8
36.6
119.7
-
119.7
230.5
2015 ANNUAL FINANCIAL REPORT Collective provision
Individual loans which are not subject to specific provisioning
are grouped together according to their risk characteristics,
and are then assessed for impairment. This assessment is
based on historical loss data and available information for
assets with similar credit risk characteristics (e.g. by industry
sector, loan grade or product). Adjustments to the collective
provision are recognised in the income statement.
General reserve for credit losses
The Australian Prudential Regulation Authority (APRA)
requires that banks maintain a general reserve for credit
losses to cover risks inherent in loan portfolios. In certain
circumstances the collective provision can be included
in this assessment. Movements in the general reserve
for credit losses are recognised as an appropriation from
retained earnings.
9. Impairment of loans and advances (continued)
Recognition and measurement
A facility is classified as impaired regardless of whether it is
90 days or more past due (arrears) when there is doubt as to
whether the full amounts due (interest and principal) will be
achieved in a timely manner. This is the case even if the full
extent of the loss cannot be clearly determined.
Losses for impaired loans are recognised when there is
objective evidence that impairment of a loan, or portfolio of
loans, has occurred. Impairment losses that are calculated on
individual loans, or on groups of loans assessed collectively
are recorded in the income statement.
Impairment losses are calculated by discounting the expected
future cash flows of a loan, which includes expected future
receipts of contractual interest, at the loan’s original effective
interest rate, and comparing the resultant present value with
the loan’s current carrying amount.
Restructured loans
Restructured loans are facilities in which the original
contractual terms have been modified for reasons related to
the financial difficulties of the customer. Restructuring may
consist of reduction of interest, principal or other payments
legally due, or an extension in maturity.
Specific provision
A specific provision is recognised for all impaired loans when
there is reasonable doubt over the collectibility of principal
and interest, in accordance with the loan agreement. All bad
debts are written off against the specific provision in the
period in which they are classified as not recoverable.
The provision is determined by specific identification or by
estimation of expected losses in relation to loan portfolios,
where specific identification is impractical, based on historical
impairment experience for these portfolios. These portfolios
include unsecured credit cards, overdrawn accounts and
personal loans, where provisions are calculated based on
historical loss experience.
72
Funding and capital management
This section covers the funding and capital structure of the Group. Further information is provided
for the following key areas: Deposits and note payables, convertible preference shares, subordinated
debt, securitisation, share capital, retained earnings and reserves. The Group’s capital management
objectives are outlined in this section.
10. Deposits and notes payable
Deposits
Retail
At call
Term
Treasury
Group
2015
$m
2014
$m
Bank
2015
$m
2014
$m
18,942.0
16,175.5
16,992.4
14,345.9
19,866.4
21,206.4
19,866.4
21,206.4
7,414.3
7,461.1
6,118.0
6,112.2
Total retail deposits
46,222.7
44,843.0
42,976.8
41,664.5
Wholesale
Domestic
Offshore
Total wholesale deposits
Total deposits
Deposits by geographic location
Victoria
New South Wales
Australian Capital Territory
Queensland
6,936.3
6,612.9
6,935.3
6,407.3
346.3
903.5
346.3
903.5
7,282.6
7,516.4
7,281.6
7,310.8
53,505.3
52,359.4
50,258.4
48,975.3
22,987.6
22,505.4
22,303.8
21,777.7
13,979.2
12,528.2
12,747.3
11,366.2
1,030.9
1,089.6
977.7
1,001.8
5,326.3
5,329.3
5,026.3
4,912.8
South Australia/Northern Territory
5,381.6
5,332.6
4,896.7
4,800.7
Western Australia
Tasmania
Overseas
Total deposits
3,254.7
3,388.6
2,879.5
3,011.3
1,038.2
938.3
506.8
1,247.4
926.2
500.9
863.5
1,241.3
53,505.3
52,359.4
50,258.4
48,975.3
Total notes payable
4,925.9
5,256.4
330.6
310.4
Recognition and measurement
Deposits
All deposits are initially recognised at cost, being the fair
value of the consideration received net of issue costs.
Subsequent to initial recognition, interest-bearing borrowings
are measured at amortised cost using the effective interest
method. Amortised cost includes any issue costs and any
discount or premium on settlement. For liabilities carried
at amortised cost, gains and losses are recognised in the
income statement when the liabilities are de-recognised.
Notes payable
The Group conducts an asset securitisation program through
which it packages and sells asset backed securities to
investors. Notes payable are predominately interest-bearing
financial instruments issued through these securitisation
programs. The notes are initially recognised at fair value
less directly attributable transaction costs and subsequently
measured at amortised cost, using the effective interest
method. Interest is recognised in the income statement.
73
2015 ANNUAL FINANCIAL REPORT 11. Convertible preference shares
CPS (ASX Code:BENPD)
Nov 12: 2,688,703 fully paid $100 Convertible preference shares
Unamortised issue costs
CPS2 (ASX Code:BENPE)
Oct 14: 2,921,188 fully paid $100 Convertible preference shares
Unamortised issue costs
CPS3 (ASX Code:BENPF)
June 15: 2,822,108 fully paid $100 Convertible preference shares
Unamortised issue costs
Group
Bank
2015
$m
268.9
(5.2)
263.7
292.1
(9.4)
282.7
282.2
(9.1)
273.1
2014
$m
268.9
(7.5)
261.4
-
-
-
-
-
-
2015
$m
268.9
(5.2)
263.7
292.1
(9.4)
282.7
282.2
(9.1)
273.1
2014
$m
268.9
(7.5)
261.4
-
-
-
-
-
-
Total convertible preference shares
819.5
261.4
819.5
261.4
Nature of shares
Convertible preference shares are long term in nature, are
perpetual and hence do not have a fixed maturity date.
However the shares may be redeemed at the discretion of
the Bank for a price per share on the redemption date. Any
preference shares not already converted will be converted into
ordinary shares on the mandatory conversion date specified in
the issue’s prospectus located at www.bendigoadelaide.com.
au/public/shareholders/prospectus.asp
If the Bank is unable to pay a dividend because of insufficient
profits, the dividend is non-cumulative. The convertible
preference shares rank ahead of the ordinary shares in the
event of liquidation. Under certain circumstances ranking may
be affected resulting in shares being converted or written off.
In accordance with Australian Prudential Regulation
Authority’s Basel III capital adequacy framework, these
convertible preference shares form part of the Bank’s
Additional Tier 1 capital.
Recognition and measurement
These instruments are classified as debt within the balance
sheet and dividends to the holders are treated as interest
expense in the income statement.
Convertible preference shares are initially recognised at
cost, being the fair value of the consideration received, less
charges associated with the issue of the instrument. They are
subsequently measured at amortised cost using the effective
interest method.
The shares carry a dividend which will be determined semi-
annually and payable half yearly in arrears. The dividend rate
will be the floating Bank Bill Rate plus the initial fixed margin,
adjusted for franking credits.
74
12. Subordinated debt
Subordinated debt
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Recognition and measurement
These instruments are classified as debt within the balance
sheet and the interest expense is recorded in the
income statement.
Subordinated debt instruments are initially recognised at
cost, being the fair value of the consideration received, less
charges associated with the issue of the instrument. They are
subsequently measured at amortised cost using the effective
interest method. Amortised cost is calculated by taking into
account any discount or premium on acquisition over the
period to maturity.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised.
Group
2015
$m
2014
$m
Bank
2015
$m
2014
$m
592.6
655.5
573.1
603.3
9.5
-
-
583.1
592.6
-
63.0
9.5
583.0
655.5
-
-
-
573.1
573.1
-
30.4
-
572.9
603.3
75
2015 ANNUAL FINANCIAL REPORT 13. Securitisation and transferred assets
Group
Carrying amount of transferred assets 1
Carrying amount of associated liabilities 2
Fair value of transferred assets
Fair value of associated liabilities
Net Position
Bank
Carrying amount of transferred assets
Carrying amount of associated liabilities 3
Fair value of transferred assets
Fair value of associated liabilities
Net Position
Repurchase agreements
Securitisation
2015
$m
330.5
330.5
2014
$m
310.3
310.3
2015
$m
2014
$m
4,292.6
4,743.8
4,567.0
4,910.3
4,285.4
4,724.1
4,538.4
4,978.5
(253.0)
(254.4)
Repurchase agreements
Securitisation
2015
$m
330.5
330.5
2014
$m
310.3
310.3
2015
$m
2014
$m
8,310.7
9,194.2
8,837.3
9,600.8
8,326.7
9,228.0
8,839.6
9,703.6
(512.9)
(475.6)
1Represents the carrying value of the loans transferred to the trust.
2Securitisation liabilities of the Group include RMBS notes issued by the SPE’s and held by external parties.
3Securitisation liabilities of the Bank include borrowings from SPE’s including the SPE’s that issue internally held notes for repurchase with central banks,
recognised on transfer of residential mortgages by the Bank.
Securitisation programs
The Group uses special purpose entities (SPE’s) to securitise
customer loans and advances that it has originated, in order
to source funding, and/or capital efficiency purposes. The
loans are transferred by the Group to the SPE’s, which in turn
issue debt to investors. This transfer does not give rise to de-
recognition of those financial assets for the Group. The Group
holds income and capital units in the trusts which entitle the
Group to any residual income of the SPE after all payments
to investors and costs of the program have been met. Trust
investors have no recourse against the Group, if cash flows
from the securitised loans are inadequate to service the
trust obligations. Liabilities associated with the SPE’s are
accounted for on an amortised basis using the effective
interest method.
Repurchase agreements
Securities sold under agreement to repurchase, are retained
on the balance sheet when the majority of the risks and
rewards of ownership remain with the Group. The counterparty
liability is included separately on the balance sheet when
cash consideration is received.
Consolidation
SPE’s are consolidated by the Group where the Group has
the power to govern directly or indirectly decision making in
relation to financial and operational policies, and receives the
majority of the residual income or is exposed to the majority
of the residual risks associated with the SPE’s.
The Group enters into interest rate swaps and liquidity
facilities with the trusts, which are all at arm’s length to
the SPE’s.
Securitised and sold loans
The Bank securitised loans totalling $1,462.1 million (2014:
$498.4 million) during the financial year.
The Group invests in some of its own securitisation programs
by holding A and B class notes equivalent to $4,809.5 million
as at 30 June 2015 (2014: $5,265.9 million).
76
14. Standby arrangements and uncommitted credit facilities
Group
2015
$m
2014
$m
Bank
2015
$m
2014
$m
10,417.3
8,502.0
10,417.3
8,502.0
6,000.0
5,750.0
5,000.0
5,000.0
340.9
900.0
340.9
900.0
3,600.9
2,943.0
3,580.0
2,890.0
10,076.4
7,602.0
10,076.4
7,602.0
2,399.1
2,807.0
1,420.0
2,110.0
Recognition and measurement
Funding instruments that are issued in currencies other than
AUD are accounted for at amortised cost. These transactions
are restated to AUD equivalents each month with adjustments
taken directly to income. Funding instruments that have been
utilised appear in Note 10 Deposits and notes payable.
Amount available:
Offshore borrowing facility
Domestic note program
Amount utilised:
Offshore borrowing facility
Domestic note program
Amount not utilised:
Offshore borrowing facility
Domestic note program
Nature and Purpose
The Group utilises debt facilities which include both domestic
and offshore and both short and long term arrangements.
The domestic funding facilities include floating rate notes.
The notes are unsubordinated and unsecured. The coupon
payable on the notes are both fixed and floating. The floating
rate notes are issued at BBSW plus a margin with coupon
payments made quarterly.
The offshore funding facilities include Euro medium term
notes and Euro commercial paper.
The Euro commercial paper programmes are utilised to
satisfy short term funding requirements. They represent
unsubordinated and unsecured obligations. The funding is
issued in both Australian and foreign denominations. The
instruments may be issued at a discount, or bear interest on a
fixed or floating rate basis.
77
2015 ANNUAL FINANCIAL REPORT 15. Capital management
Bendigo and Adelaide Bank Limited’s key capital management
objectives are to:
}} Maintain a sufficient level of capital above the regulatory
minimum to provide a buffer against loss arising from
unanticipated events, and allow the Group to continue as a
going concern;
}} Optimise the level and use of capital resources to
enhance shareholder value through maximising
financial performance;
}} Ensure that capital management is closely aligned with the
Group’s business and strategic objectives; and
}} Achieve progressive improvement to short and long term
credit ratings.
The Group manages capital adequacy according to the
framework provided by the Australian Prudential Regulation
Authority (APRA) Standards.
Capital adequacy is measured at two levels:
}} Level 1 includes Bendigo and Adelaide Bank Limited and
certain controlled entities that meet the APRA definition of
extended licensed entities; and
}} Level 2 consists of the consolidated Group, excluding
non-controlled subsidiaries and subsidiaries involved in
insurance, funds management, non-financial operations
and special purpose vehicles.
APRA determines minimum prudential capital ratios (eligible
capital as a percentage of total risk-weighted assets) that
must be held by all authorised deposit-taking institutions.
Accordingly, Bendigo and Adelaide Bank Limited is required
to maintain a minimum prudential capital ratio at both
Level 1 and Level 2 as determined by APRA. As part of the
Group’s capital management process, the Board considers
the Group’s strategy, financial performance objectives, credit
ratings and other factors relating to the efficient management
of capital in setting target ratios of capital above the
regulatory required levels. These processes are formalised
within the Group’s Internal Capital Adequacy Assessment
Process (ICAAP).
Regulatory capital is divided into Common Equity Tier 1, Tier 1
and Tier 2 capital.
Common Equity Tier 1 capital primarily consists of
shareholders equity less goodwill and other prescribed
adjustments. Tier 1 capital is comprised of Common Equity
Tier 1 plus other highly rated capital instruments acceptable
to APRA. Tier 2 capital is comprised primarily of lower rated
hybrid and debt instruments acceptable to APRA.
Total capital is the aggregate of Tier 1 and Tier 2 capital.
The Group has adopted the Prudential Capital Adequacy
Standardised Approach to credit risk, operational risk and
market risk, which requires the Group to determine capital
requirements based on standards set by APRA. The Group has
satisfied the minimum capital requirements at Levels 1 and 2
throughout the 2014/15 financial year.
78
16. Share capital
Issued and paid up capital
Ordinary shares (ASX Code: BEN) fully paid - 456,566,225 (2014:
452,006,957)
Preference shares (ASX Code: BENPB) $100 face value fully paid - Nil
(2014: 900,000)
Step up preference shares (ASX Code: BENPC) $100 face value fully paid -
Nil (2014: 1,000,000)
Group
2015
$m
2014
$m
Bank
2015
$m
2014
$m
4,235.4
4,183.3
4,235.4
4,183.3
-
-
88.5
100.0
-
-
88.5
100.0
Employee Share Ownership Plan
(11.8)
(16.2)
(11.8)
(16.2)
4,223.6
4,355.6
4,223.6
4,355.6
Movements in ordinary shares on issue
Opening balance 1 July - 452,006,957 (2014: 412,007,864)
4,183.3
3,758.0
4,183.3
3,758.0
Shares issued under:
Bonus share scheme - 191,372 @ $12.73; 205,584 @ $12.62
(2014: 259,797 @ $10.17; 226,848 @ $11.14)
Dividend reinvestment plan - 1,813,234 @ $12.73; 2,184,643 @ 12.62
(2014: 2,105,049 @ $10.17; 2,145,304 @ $11.14)
Institutional placement and entitlement offer - nil
(2014: 21,198,157 @ $10.85)
Retail entitlement offer - 164,435 @ $10.85 (2014: 13,789,655 @ $10.85)
Employee share plan - nil (2014: 274,283 @ $10.47)
Share issue costs
-
50.6
-
1.8
-
(0.3)
-
45.3
230.0
149.6
2.9
(2.5)
-
50.6
-
1.8
-
(0.3)
-
45.3
230.0
149.6
2.9
(2.5)
Closing balance 30 June - 456,566,225 (2014: 452,006,957)
4,235.4
4,183.3
4,235.4
4,183.3
Movements in preference shares on issue
Opening balance 1 July - 900,000 fully paid (2014: 900,000 fully paid)
Redemption 900,000 fully paid shares
Closing balance 30 June - redeemed 900,000 in June 2015 (2014:
900,000 fully paid)
Movements in step up preference shares on issue
Opening balance 1 July - 1,000,000 (2014: 1,000,000)
Redemption 1,000,000 fully paid shares
88.5
(88.5)
-
100.0
(100.0)
88.5
-
88.5
88.5
(88.5)
-
88.5
-
88.5
100.0
100.0
100.0
-
(100.0)
-
Closing balance 30 June - redeemed 1,000,000 in October 2014
(2014: 1,000,000)
-
100.0
-
100.0
Movements in Employee Share Ownership Plan
Opening balance
Reduction in Employee Share Ownership Plan
Closing balance
(16.2)
4.4
(11.8)
(18.7)
2.5
(16.2)
(16.2)
4.4
(11.8)
(18.7)
2.5
(16.2)
Total issued and paid up capital
4,223.6
4,355.6
4,223.6
4,355.6
79
2015 ANNUAL FINANCIAL REPORT
16. Share capital (continued)
Nature of issued capital
Ordinary shares (ASX code: BEN)
Ordinary shares are fully-paid and have no par value. They
carry one vote per share and the right to dividends.
These shares rank in priority to ordinary shares and rank
equally with preference shares with respect to the payment of
dividends and a return of capital on winding up or liquidation.
These shares do not carry a right to vote at general meetings
of the Group, except in limited circumstances.
Preference shares (ASX code: BENPB)
Preference shares are perpetual, redeemable and convertible.
In accordance with the issue’s prospectus dated August 2004
these shares were redeemed in October 2014.
These shares rank equally among themselves and are
subordinated to all depositors and creditors of the Bank.
These shares rank in priority to ordinary shares with respect
to the payment of dividends and a return of capital on winding
up. These shares do not carry a right to vote at general
meetings of the Group, except in limited circumstances.
Recognition and measurement
Ordinary shares, preference shares and step up preference
shares are classified as equity. Issued ordinary capital,
preference and step up preference shares are recognised at
the fair value of the consideration received net of transaction
costs (net of any tax benefit).
In accordance with the issue’s prospectus dated April 2005
these shares were redeemed in June 2015.
Dividends are recognised as a distribution from equity in the
year that they are declared.
Step up preference shares (ASX code: BENPC)
Step up preference shares are perpetual, redeemable
and convertible.
Employee Share Ownership Plan is the value of loans
outstanding in relation to shares issued to employees under
this plan and effectively represents the unpaid portion of
the issued shares.
80
17. Retained earnings and reserves
Retained earnings
Movements
Opening balance
Profit for the year
Prior years' restatement
Transfer from asset revaluation reserve
Movements in general reserve for credit losses
Establish operational risk reserve
Share issue expense
Dividends
Deregistration of subsidiary company
Defined benefits actuarial adjustment
Tax effect of defined benefits actuarial adjustment
Closing balance
Reserves
Movements
Employee benefits reserve
Opening balance
Net decrease in reserve
Closing balance
Asset revaluation reserve - property
Opening balance
Transfer asset revaluation reserve to retained earnings
Tax effect of movement in asset revaluation reserve
Net revaluation increments
Tax effect of net revaluation increments
Closing balance
Asset revaluation reserve - available for sale equity securities
Opening balance
Transfer to income on sale of available for sale assets
Revaluation increments
Tax effect of revaluation increments/(decrements)
Closing balance
Group
Bank
2015
$m
509.8
423.9
-
-
(8.6)
(1.8)
(1.5)
2014
$m
398.1
372.3
(7.7)
2.8
-
-
-
2015
$m
205.0
340.5
-
-
(8.6)
-
(1.5)
2014
$m
186.1
282.7
(7.7)
-
-
-
-
(297.6)
(256.8)
(297.6)
(256.8)
-
(1.6)
0.5
623.1
-
1.6
(0.5)
509.8
-
(1.6)
0.5
(0.4)
1.6
(0.5)
236.7
205.0
16.8
(2.4)
14.4
1.3
-
-
-
-
1.3
2.7
(2.6)
1.0
0.5
1.6
18.5
(1.7)
16.8
3.5
(4.0)
1.2
0.9
(0.3)
1.3
1.7
-
1.4
(0.4)
2.7
18.5
(1.7)
16.8
0.2
-
-
0.3
(0.1)
0.4
0.5
-
0.6
(0.2)
0.9
16.8
(2.4)
14.4
0.4
-
-
-
-
0.4
0.9
-
0.4
(0.1)
1.2
81
2015 ANNUAL FINANCIAL REPORT 17. Retained earnings and reserves (continued)
Reserves (continued)
Movements (continued)
Asset revaluation reserve - available for sale debt securities
Opening balance
Net unrealised (losses)/gains
Transfer to income on sale of available for sale assets
Tax effect of net unrealised gains/(losses)
Closing balance
Operational risk reserve
Opening balance
Establish operational risk reserve
Closing balance
Cash flow hedge reserve
Opening balance
Changes due to mark to market
Tax effect of changes due to mark to market
Changes due to transfer to the income statement
Tax effect of changes due to transfer to the income statement
Group
Bank
2015
$m
1.1
(0.6)
(0.1)
0.2
0.6
-
1.8
1.8
(38.7)
(17.3)
5.2
(0.6)
0.2
2014
$m
1.1
0.2
(0.2)
-
1.1
-
-
-
(34.6)
(5.9)
1.7
0.1
-
2015
$m
26.9
(5.0)
(0.1)
1.5
23.3
-
-
-
(30.0)
(26.3)
7.9
(0.6)
0.2
2014
$m
1.2
37.0
(0.2)
(11.1)
26.9
-
-
-
(17.2)
(18.4)
5.5
0.1
-
Closing balance
(51.2)
(38.7)
(48.8)
(30.0)
General reserve for credit losses (GRCL)
Opening balance
Establishment of GRCL on transfer of business
Closing balance
Acquisition reserve
Opening balance
Closing balance
Total reserves
138.3
8.6
146.9
(20.4)
(20.4)
138.3
-
138.3
(20.4)
(20.4)
119.7
8.6
128.3
-
-
119.7
-
119.7
-
-
95.0
101.1
118.8
134.7
Nature and purpose of reserves
Employee benefits reserve
The reserve records the value of equities issued to Non-
executive employees under the Employee Share Plan and
the value of deferred shares and rights granted to Executive
employees under the Executive Incentive Plan.
Further details regarding these employee equity plans are
disclosed within Note 37 Share based payment plans.
Asset revaluation reserve - property
The reserve records revaluation adjustments on the Group’s
property assets.
Operational risk reserve
The reserve is required to meet Sandhurst Trustees Limited
licence requirements.
Cash flow hedge reserve
The reserve records the portion of gain or loss on the
derivatives that are determined to be in an effective cash flow
hedge relationship.
General reserve for credit losses
APRA Prudential standard, APS 220 Credit Quality, requires a
reserve to be held to recognise estimated future credit losses
which may arise over the life of the Group’s lending portfolio.
Asset revaluation reserve - available for sale - equity
investments and debt securities
The reserve records fair value changes on available for
sale assets.
Acquisition reserve
The reserve records the difference between the carrying value
of the non-controlling interest and the consideration paid to
acquire the remaining interest of the non-controlling interest.
82
Treasury and investments
This section covers the financial instruments held by the Group including: financial instruments,
derivatives, investments accounted for using the equity method (joint arrangements and associates)
and investment property. This section outlines how the fair value of financial instruments is
determined and the associated methodology.
Classification of Financial Instruments
Financial instruments are classified into one of five categories, which determine the accounting treatment.
The classification depends on the purpose for which the instruments were acquired. Designation is re-evaluated at each financial
year end, but there are restrictions on reclassifying to other categories.
The classifications are:
}} Loans and receivables (refer Lending Section)
}} Held to maturity
}} Held for trading
}} Available for sale
}} Non-trading liabilities (refer Treasury and Funding Section)
18. Financial assets held for trading
Discount securities
Floating rate notes
Government securities
Group
2015
$m
2014
$m
Bank
2015
$m
2014
$m
1,754.8
3,348.1
1,755.2
3,348.5
322.1
980.0
322.1
980.0
3,486.0
2,937.3
3,486.0
2,937.3
Total financial assets held for trading
5,562.9
7,265.4
5,563.3
7,265.8
Maturity analysis
Not longer than 3 months
937.4
3,705.6
937.4
3,705.6
Longer than 3 and not longer than 12 months
2,947.5
2,314.4
2,947.5
2,314.4
Longer than 1 and not longer than 5 years
1,678.0
1,245.4
1,678.0
1,245.4
Over 5 years
-
-
0.4
0.4
5,562.9
7,265.4
5,563.3
7,265.8
Recognition and measurement
Financial instruments are classified as held for trading if
they are acquired for the purpose of selling or repurchasing
in the near term. These financial instruments are measured
at fair value with gains and losses recognised in the
income statement.
Fair value measurement is outlined in Note 22
Financial instruments.
83
2015 ANNUAL FINANCIAL REPORT 19. Financial assets available for sale
Debt securities
Negotiable certificates of deposit
Mortgage backed securities
Security deposits
Securitisation notes
Liquidity collateral
Total financial assets available for sale - debt
Equity investments
Listed share investments
Unlisted share investments
Total financial assets available for sale - equity
Group
Bank
2015
$m
109.5
387.2
24.9
-
48.3
569.9
2.4
29.0
31.4
2014
$m
104.5
455.8
-
-
59.0
2015
$m
-
387.2
24.9
811.3
12.4
2014
$m
-
455.8
-
836.8
-
619.3
1,235.8
1,292.6
2.0
22.3
24.3
2.3
22.3
24.6
1.9
3.0
4.9
Total financial assets available for sale
601.3
643.6
1,260.4
1,297.5
81.7
60.8
419.0
8.4
31.4
105.5
20.0
473.3
20.5
24.3
503.3
25.6
386.5
320.4
24.6
537.6
20.0
434.8
300.2
4.9
601.3
643.6
1,260.4
1,297.5
0.4
(2.7)
1.6
(0.2)
(4.6)
(0.1)
37.6
(0.2)
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Non-maturing
Recognised gains/(losses) before tax:
Gain/(loss) recognised directly in equity
Amount removed from equity and recognised in (profit)/loss
Recognition and measurement
Available for sale investments are non-derivative financial
assets that are designated as available for sale or are not
categorised into any of the categories under AASB 139
Financial Instruments: Recognition and Measurement.
Available for sale investments are measured at fair value
and recorded in a reserve within equity. Upon disposal or
impairment, the accumulated gains or losses recorded in
equity are transferred to the income statement.
Fair value measurement is outlined in Note 22
Financial instruments.
84
20. Financial assets held to maturity
Negotiable certificates of deposit
Deposits - other
Other
Total financial assets held to maturity
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Classification and measurement
Non-derivative financial assets with fixed or determinable
payments and fixed maturities are classified as held to
maturity where the Group has the positive intention and ability
to hold to maturity.
Investments that are held to maturity are measured at
amortised cost using the effective interest method. Any
discount or premium on acquisition is taken over the period
to maturity.
Gains and losses are recognised in the income statement
when the investments are sold or impaired.
Group
2015
$m
197.1
102.1
1.5
300.7
2014
$m
197.3
87.8
1.5
286.6
135.6
179.4
61.4
87.9
15.8
17.8
81.8
7.6
300.7
286.6
Bank
2015
$m
2014
$m
-
0.5
1.5
2.0
-
-
-
2.0
2.0
-
0.5
1.5
2.0
-
-
-
2.0
2.0
85
2015 ANNUAL FINANCIAL REPORT 21. Derivative financial instruments
Group 2015
Group 2014
Notional
amount
$m
Fair value
assets
$m
Fair value
liabilities
$m
Net fair
value
$m
Notional
amount
$m
Fair value
assets
$m
Fair value
liabilities
$m
Net fair
value
$m
1,239.7
844.2
54.1
2,138.0
10.4
10.5
1.0
21.9
-
10.4
431.1
3.4
-
3.4
(24.0)
(13.5)
1,036.7
10.1
(18.9)
(8.8)
(0.7)
0.3
46.0
0.5
(0.3)
0.2
(24.7)
(2.8)
1,513.8
14.0
(19.2)
(5.2)
23.3
-
(2.0)
156.8
24.9
0.1
-
-
-
(2.0)
24.9
-
50.9
-
0.1
180.2
24.9
(2.0)
22.9
51.0
-
-
-
-
(2.5)
(2.5)
-
-
-
-
(2.5)
(2.5)
Included in derivatives category
Derivatives held for trading
Futures
Interest rate swaps
Foreign exchange contracts
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
Embedded derivatives
Derivatives held as cash flow hedges
Cross currency swaps
-
-
-
-
195.6
-
(16.8)
(16.8)
Interest rate swaps
24,877.7
17.0
(81.3)
(64.3)
17,694.1
24,877.7
17.0
(81.3)
(64.3)
17,889.7
8.3
8.3
(40.7)
(32.4)
(57.5)
(49.2)
Total derivatives
27,195.9
63.8
(108.0)
(44.2)
19,454.5
22.3
(79.2)
(56.9)
Bank 2015
Bank 2014
Notional
amount
$m
Fair value
assets
$m
Fair value
liabilities
$m
Net fair
value
$m
Notional
amount
$m
Fair value
assets
$m
Fair value
liabilities
$m
Net fair
value
$m
Included in derivatives category
Derivatives held for trading
Futures
1,239.7
10.4
-
10.4
431.1
3.4
-
3.4
Interest rate swaps
9,472.9
158.5
(36.8)
121.7
10,419.0
191.0
(30.0)
161.0
Foreign exchange contracts
54.1
1.0
(0.7)
0.3
92.1
0.5
(0.3)
0.2
10,766.7
169.9
(37.5)
132.4
10,942.2
194.9
(30.3)
164.6
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
23.3
156.8
180.1
-
(2.0)
24.9
24.9
-
(2.0)
(2.0)
24.9
22.9
50.9
-
50.9
Derivatives held as cash flow hedges
Cross currency swaps
-
-
-
-
140.9
Interest rate swaps
24,254.0
16.9
(77.9)
(61.0)
17,395.2
24,254.0
16.9
(77.9)
(61.0)
17,536.1
-
-
-
-
(2.5)
(2.5)
-
-
(2.5)
(2.5)
(7.8)
(7.8)
8.1
8.1
(37.1)
(29.0)
(44.9)
(36.8)
Total derivatives
35,200.8
211.7
(117.4)
94.3
28,529.2
203.0
(77.7)
125.3
86
21. Derivative financial instruments (continued)
As at 30 June, hedged cash flows are expected to occur and
affect the income statement as follows:
Group
2015
Forecast cash inflows (Assets)
Within
1 year
$m
405.2
1 to 2
years
$m
85.9
Forecast cash outflows (Liabilities)
(479.8)
(126.7)
Forecast net cash outflows
Income statement
(74.6)
(50.7)
(40.8)
(31.5)
2014
Forecast cash inflows (Assets)
Forecast cash outflows (Liabilities)
Forecast net cash outflows
Income statement
Bank
2015
Forecast cash inflows (Assets)
Forecast cash outflows (Liabilities)
Forecast net cash outflows
Income statement
2014
Forecast cash inflows (Assets)
Forecast cash outflows (Liabilities)
Forecast net cash outflows
Income statement
269.7
207.0
(302.9)
(233.2)
(33.2)
(26.2)
(26.2)
(21.7)
394.0
83.5
(464.2)
(121.7)
(70.2)
(48.1)
(38.2)
(30.1)
263.2
135.8
(292.0)
(159.1)
(28.8)
(21.9)
(23.3)
(19.9)
Net gains /(losses) arising from hedge ineffectiveness
Gains/(losses) arising from fair value hedges
Gains on hedging instruments
Losses on the hedged items attributable to the hedged risk
Gains arising from cash flow hedges
Gains on hedge ineffectiveness
Nature and purpose
The Group uses derivative financial instruments primarily
to manage risk, including interest rate risk and foreign
currency rate risk. Note 30 Risk management outlines the risk
management framework that the Group applies.
2 to 3
years
$m
39.0
(65.8)
(26.8)
(15.8)
53.3
(66.5)
(13.2)
(13.2)
38.2
(64.1)
(25.9)
(15.4)
52.0
(64.2)
(12.2)
(12.6)
3 to 4
years
$m
175.5
(185.1)
(9.6)
(6.3)
27.0
(32.8)
(5.8)
(8.9)
175.5
(185.1)
(9.6)
(6.3)
26.9
(32.6)
(5.7)
(8.8)
4 to 5
years
$m
9.5
(10.6)
(1.1)
(0.9)
170.6
(173.9)
(3.3)
(4.5)
9.5
(10.6)
(1.1)
(0.9)
170.6
(173.9)
(3.3)
(4.5)
Group
Bank
2015
$m
6.2
(6.7)
0.6
0.1
2014
$m
1.0
(1.1)
0.2
0.1
2015
$m
6.2
(6.7)
0.6
0.1
Greater
than
5 years
$m
32.3
(32.5)
(0.2)
(0.2)
39.7
(40.2)
(0.5)
(0.3)
32.3
(32.5)
(0.2)
(0.2)
39.7
(40.2)
(0.5)
(0.3)
2014
$m
1.0
(1.1)
0.2
0.1
Recognition and measurement
Derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered
into and are subsequently re-measured on a monthly basis.
Any gains and losses arising from a change in fair value of the
derivative, except for those that qualify as cash flow hedges,
are taken directly to the income statement. All derivatives
are classified as Level 2 Investments and the valuation
methodology is outlined in Note 22 Financial instruments.
87
2015 ANNUAL FINANCIAL REPORT 21. Derivative financial instruments (continued)
Recognition and measurement (continued)
Hedge accounting
A hedge relationship is established whereby a hedging
instrument (derivative) is identified as offsetting changes
in the fair value or cash flows of a hedged item (asset or
liability). The Group formally designates and documents the
hedge relationship, including the risk management strategy
for undertaking the hedge. This includes the identification of
the hedge instrument, hedge item, the nature of the risk and
how effectiveness will be tested. Testing is completed on a
monthly basis both retrospectively and prospectively.
Derivatives that meet the hedge accounting criteria are able
to be accounted for as either a fair value hedge or a
cashflow hedge.
Fair value hedges
Fair value hedges principally consist of interest rate swaps
that are used to protect against changes in the fair value of
fixed rate long term financial instruments due to movements
in interest rates. Changes in the fair value of derivatives that
are designated and qualify as fair value hedging instruments
are recorded in the income statement, along with changes in
the fair value of the hedged item. If a hedge relationship no
longer meets the criteria for hedge accounting, then hedge
accounting is discontinued. The cumulative adjustment to the
hedge item is amortised to the income statement over the
remaining period until maturity.
Cashflow hedges
Cashflow hedges consist principally of interest rate swaps
and cross currency swaps that are used to protect against
exposures to movements in future interest cash flows on
assets and liabilities which bear interest at variable rates.
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges are
recognised in equity in the cash flow hedge reserve. The
gain or loss relating to the ineffective portion is recognised
immediately in the income statement. Amounts in the cash
flow hedge reserve are recognised in the income statement in
the periods when the hedged item is recognised in
profit or loss.
Offsetting financial assets and financial liabilities
The Group presents its derivative assets and liabilities on a
gross basis.
Derivative financial instruments entered into by the Group are
subject to International Swaps and Derivatives Association
(ISDA) master netting agreements and other similar master
netting arrangements. These arrangements do not meet the
criteria for offsetting in the balance sheet. This is because
they create for the parties to the agreement a right of set-off,
of recognised amounts that are only enforceable following
an event of default, insolvency or bankruptcy of the Group, or
the counterparties, or following other predetermined events.
In addition, the Group and its counterparties do not intend to
settle on a net basis or to realise the assets and settle the
liabilities simultaneously.
The following table sets out the effect of netting arrangements on derivative financial assets and derivative financial liabilities if
they were to be applied:
Group
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
2015
2014
$m
$m
$m
$m
Amounts subject to enforceable master netting or similar agreements
Amounts of recognised financial assets/liabilities reported on the balance sheet
53.3
101.9
18.2
76.1
Related amounts not set-off on the balance sheet
Financial collateral (received)/pledged
Net amount
Financial assets/liabilities not subject to enforceable master netting
or similar agreements
Total financial assets/liabilities recognised on the balance sheet
(16.3)
37.0
10.5
63.8
(80.5)
21.4
6.1
108.0
-
18.2
4.1
22.3
(22.1)
54.0
3.1
79.2
88
21. Derivative financial instruments (continued)
Offsetting financial assets and financial liabilities (continued)
Bank
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
2015
2014
$m
$m
$m
$m
Amounts subject to enforceable master netting or similar agreements
Amounts of recognised financial assets/liabilities reported on the balance sheet
201.2
111.3
198.9
74.7
Related amounts not set-off on the balance sheet
Financial collateral (received)/pledged
(16.3)
(80.5)
-
(22.1)
Net amount
184.9
30.8
198.9
52.6
Financial assets/liabilities not subject to enforceable master
netting or similar agreements
10.5
6.1
4.1
Total financial assets/liabilities recognised on the balance sheet
211.7
117.4
203.0
3.0
77.7
For the purpose of this disclosure, financial collateral not set off on the balance sheet have been capped by relevant netting
agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the balance sheet (ie over-
collateralisation, where it exists, is not reflected in the tables).
89
2015 ANNUAL FINANCIAL REPORT 22. Financial instruments
All financial instruments are initially recognised at fair value on the date of initial recognition depending on the classification of the
asset and liability. Details of these classifications are included in the introduction to this section (Treasury and Investments).
(a) Measurement basis of financial assets and liabilities
The following table details the carrying amount of the financial assets and liabilities by classification on the balance sheet.
Group
Held at fair
value
At fair value
through
profit & loss
At fair value
through
reserves
Held at amortised cost
Derivatives
$m
Held for
trading
$m
Available
for sale
$m
Loans and
receivables
$m
Other
financial
instruments
$m
Total
$m
981.6
215.7
300.7
5,562.9
601.3
55,531.6
63.8
-
-
-
5,562.9
-
-
-
-
-
-
-
601.3
-
-
-
-
-
-
-
55,531.6
-
981.6
215.7
300.7
-
-
-
-
5,562.9
601.3
55,531.6
1,498.0
63,257.6
-
-
-
-
-
-
-
-
-
-
7,265.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
643.6
-
-
52,932.8
-
202.7
202.7
53,505.3
53,505.3
4,925.9
4,925.9
-
819.5
592.6
108.0
819.5
592.6
60,046.0
60,154.0
716.1
242.5
286.6
-
-
-
716.1
242.5
286.6
7,265.4
643.6
52,932.8
22.3
7,265.4
643.6
52,932.8
1,245.2
62,109.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
363.5
363.5
52,359.4
52,359.4
5,256.4
5,256.4
-
261.4
655.5
79.2
261.4
655.5
58,896.2
58,975.4
-
-
-
-
-
-
63.8
63.8
-
-
-
108.0
-
-
108.0
-
-
-
-
-
-
22.3
22.3
-
-
-
79.2
-
-
79.2
2015
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
2014
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
90
22. Financial instruments (continued)
Bank
2015
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
2014
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Held at fair
value
At fair value
through
profit & loss
At fair value
through
reserves
Held at amortised cost
Derivatives
$m
Held for
trading
$m
Available
for sale
$m
Loans and
receivables
$m
Other
financial
instruments
$m
Total
$m
870.4
215.7
2.0
5,563.3
1,260.4
50,464.6
211.7
-
-
-
5,563.3
-
-
-
-
-
-
-
1,260.4
-
-
-
-
-
-
-
50,464.6
-
870.4
215.7
2.0
-
-
-
-
5,563.3
1,260.4
50,464.6
1,088.1
58,588.1
-
-
-
-
-
-
-
-
-
-
7,265.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,297.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47,674.6
-
202.4
202.4
50,258.4
50,258.4
330.6
-
819.5
573.1
330.6
117.4
819.5
573.1
52,184.0
52,301.4
610.5
242.4
2.0
-
-
-
-
610.5
242.4
2.0
7,265.8
1,297.5
47,674.6
203.0
-
-
-
-
-
-
211.7
211.7
-
-
-
117.4
-
-
117.4
-
-
-
-
-
-
Derivatives
203.0
Total financial assets
203.0
7,265.8
1,297.5
47,674.6
854.9
57,295.8
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
-
-
-
77.7
-
-
77.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
363.0
363.0
48,975.3
48,975.3
310.4
310.4
-
261.4
603.3
77.7
261.4
603.3
50,513.4
50,591.1
91
2015 ANNUAL FINANCIAL REPORT 22. Financial instruments (continued)
(b) Fair Value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Wherever possible, fair values have been calculated using
unadjusted quoted market prices in active markets for
identical instruments. A quoted market price in an active
market provides the most reliable evidence of fair value. For
all other financial instruments, the fair value is determined by
using other valuation techniques.
Valuation of financial assets and liabilities
Various valuation techniques are used to measure the fair
value of financial instruments. The technique adopted is
dependent upon the inputs available.
As part of the fair value measurement, the Group classifies its
assets and liabilities according to a hierarchy that reflects the
observability of significant market inputs.
Group
2015
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
2014
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
Bank
2015
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
92
The three levels of the hierarchy are defined below:
Level 1 - Quoted market prices
The fair value is determined using unadjusted quoted prices in
active markets for identical assets or liabilities.
Level 2 - Valuation technique using observable inputs
The fair value is determined using models whose inputs are
observable in an active market.
Level 3 - Valuation technique using significant
unobservable inputs
The fair value is calculated using significant inputs that are
not based on observable market data.
Financial assets and liabilities carried at fair value
The table below details financial instruments carried at fair
value, by balance sheet classification and hierarchy level:
Level 1
$m
Level 2
$m
Level 3
$m
Total fair
value
$m
Total
carrying
value
$m
-
5,562.9
-
5,562.9
5,562.9
2.4
-
576.7
63.8
-
108.0
22.2
601.3
601.3
-
-
63.8
63.8
108.0
108.0
-
7,265.4
-
7,265.4
7,265.4
2.0
-
638.7
22.3
2.9
-
643.6
643.6
22.3
22.3
-
79.2
-
79.2
79.2
-
2.3
-
-
5,563.3
1,235.8
211.7
117.4
-
5,563.3
5,563.3
22.3
1,260.4
1,260.4
-
-
211.7
211.7
117.4
117.4
22. Financial instruments (continued)
Bank
2014
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
Transfers between levels are deemed to have occurred at the
beginning of the reporting period in which instruments are
transferred. There were no transfers between levels during
the year for the Group or Bank.
Valuation methodology
Financial instruments - debt securities
Each month, independent valuations are determined by the
Middle Office department of the Group’s Finance and Treasury
division. This involves an analysis of independently sourced
data that is deemed most representative of the market.
From this independent data which is made available by
other financial institutions, market average valuations are
calculated, and the value of debt securities are updated.
Level 1
$m
Level 2
$m
Level 3
$m
Total fair
value
$m
Total
carrying
value
$m
-
1.9
-
-
7,265.8
1,292.6
203.0
77.7
-
3.0
-
-
7,265.8
7,265.8
1,297.5
1,297.5
203.0
203.0
77.7
77.7
Financial instruments - equity investments
Level 1 - Listed investments relates to equities held that are
on listed exchanges.
Level 2 - Unlisted investments are equity holdings in unlisted
managed investment schemes. For managed scheme
investments the most recent prices provided by the fund
manager are used.
Level 3 - Unlisted investments are equity holdings in small
unlisted entities. Given there are no quoted market prices and
fair value cannot be reliably measured, investments are held
at cost less impairment.
Derivatives
Where the Group’s derivative assets and liabilities are not
traded on an exchange, they are valued using valuation
methodologies, including discounted cash flow and option
pricing models as appropriate. The most significant inputs into
the valuations are interest rate yields which are developed
from publicly quoted rates.
Movements in level 3 portfolio
The following table provides a reconciliation from the beginning balances to the ending balances for financial instruments which
are classified as level 3:
Financial assets - equity investments
As at 30 June 2014
Purchases
Transfers out
As at 30 June 2015
Group
Bank
2015
$m
2.9
19.3
-
22.2
2014
$m
3.1
-
(0.2)
2.9
2015
$m
3.0
19.3
-
22.3
2014
$m
3.1
-
(0.1)
3.0
93
2015 ANNUAL FINANCIAL REPORT 22. Financial instruments (continued)
Financial assets and liabilities carried at amortised cost
Valuation Hierarchy
The table below details financial instruments carried at amortised cost, by balance sheet classification and hierarchy level:
Group
2015
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Level 1
$m
Level 2
$m
Level 3
$m
981.6
215.7
-
-
-
-
300.7
-
-
-
Total fair
value
$m
981.6
215.7
300.7
Total
carrying
amount
$m
981.6
215.7
300.7
-
55,721.4
55,721.4
55,531.6
Due to other financial institutions
202.7
-
Due to other financial institutions
363.5
-
-
53,125.2
53,125.2
52,932.8
Deposits
Notes payable
Convertible preference shares
Subordinated debt
2014
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Deposits
Notes payable
Convertible preference shares
Subordinated debt
Bank
2015
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Convertible preference shares
Subordinated debt
94
-
-
53,578.7
4,896.5
803.0
-
-
587.4
716.1
242.5
-
-
-
-
286.6
-
-
52,453.4
5,323.6
279.8
-
-
654.1
870.4
215.7
-
-
-
-
2.0
-
-
-
-
-
-
-
-
202.7
202.7
53,578.7
53,505.3
4,896.5
4,925.9
803.0
587.4
819.5
592.6
716.1
242.5
286.6
716.1
242.5
286.6
-
-
-
-
-
-
-
-
363.5
363.5
52,453.4
52,359.4
5,323.6
5,256.4
279.8
654.1
261.4
655.5
870.4
215.7
2.0
870.4
215.7
2.0
-
50,636.4
50,636.4
50,464.6
202.4
-
-
-
803.0
50,324.1
330.6
-
-
567.9
-
-
-
-
-
202.4
202.4
50,324.1
50,258.4
330.6
803.0
567.9
330.6
819.5
573.1
22. Financial instruments (continued)
Bank
2014
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Convertible preference shares
Subordinated debt
Transfers between levels are deemed to have occurred at
the beginning of the reporting period in which instruments
are transferred. There were no significant transfers between
levels during the year for the Group or Parent.
Valuation Methodology
Cash and cash equivalents, due from/to other financial
institutions
The carrying value for these assets and liabilities are a
reasonable approximation of fair value.
Financial instruments - held to maturity
The fair values of financial assets held to maturity are
measured at amortised cost which approximates their fair
value given they are predominantly short-term in nature or
have interest rates which reprice frequently.
Loans & other receivables
The carrying value of loans and other receivables is net of
specific and collective provisions.
For variable rate loans, excluding impaired loans, the carrying
amount is a reasonable estimate of fair value.
The fair value for fixed loans is calculated by utilising
discounted cash flow models, based on the maturity of
the loans.
The discount rates used represent the rate the market is
willing to offer at arms-length for customers of similar credit
quality. The net fair value of impaired loans is calculated by
discounting expected cash flows using these rates.
Level 1
$m
Level 2
$m
Level 3
$m
Total fair
value
$m
610.5
242.4
2.0
Total
carrying
amount
$m
610.5
242.4
2.0
-
-
-
47,848.7
47,848.7
47,674.6
-
-
-
-
-
363.0
363.0
49,060.7
48,975.3
310.4
279.8
598.2
310.4
261.4
603.3
610.5
242.4
-
-
363.0
-
-
279.8
-
-
2.0
-
-
49,060.7
310.4
-
-
598.2
Deposits
The carrying value of deposits at call is considered to
represent fair value given they are short term in nature.
The fair value for all term deposits is calculated using a
discounted cash flow model applying market rates, or current
rates for deposits of similar maturities.
Notes payable
The fair value for all notes payable is calculated using a
discounted cash flow model applying independent market
rates and margins for similar financial instruments.
Convertible preference shares
The fair value for convertible preference shares is based on
quoted market rates for the issue concerned as at 30 June.
Subordinated debt
The fair value of subordinated debt is calculated based on
quoted market prices. For those debt issues where quoted
market prices were not available, a discounted cash flow
model using a yield curve appropriate to the remaining
maturity of the instrument is used.
95
2015 ANNUAL FINANCIAL REPORT 23. Investments accounted for using the equity method
Joint Arrangements
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Associates
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
Dancoor Community Finances Ltd
Homebush Financial Services Ltd
Linear Financial Holdings Pty Ltd 1
Strategic Payments Services Pty Ltd 2
Vic West Community Enterprise Pty Ltd 3
1 Sold in December 2014.
2 Sold in November 2014.
3 Fully impaired in December 2014.
Joint Arrangements
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Associates
Aegis Correctional Partnership Pty Ltd
Aegis Securitisation Nominees Pty Ltd
Aegis Correctional Partnership Trust
Aegis Securitisation Trust
Dancoor Community Finances Ltd 1
Homebush Financial Services Ltd
Linear Financial Holdings Pty Ltd
Strategic Payments Services Pty Ltd
Vic West Community Enterprise Pty Ltd
1 Dancoor Community Finances Ltd (effective January 2014)
All joint arrangements and associates are incorporated in Australia.
Movements in carrying amount of investment
Joint Arrangements
Balance at the beginning of financial year
Return of capital investment
Increase in capital investment
Dividends received from joint arrangements
Share of total comprehensive income
Total investment held in joint arrangements
96
Ownership interest held
by consolidated entity
Balance
date
Profit/(loss)
after tax
Carrying amount of
investments
2015
%
2014
%
2015
$m
2015
$m
2015
$m
2015
$m
Group
Bank
Group
Bank
50.0
50.0
50.0
49.5
49.5
49.5
49.5
49.0
49.0
-
-
50.0
50.0
50.0
50.0
49.5
49.5
49.5
49.5
49.0
49.0
36.0
47.5
50.0
30 June
30 June
30 June
30 June
30 June
30 June
30 June
30 June
30 June
30 June
31 Dec
30 June
(0.3)
0.7
-
0.4
-
-
-
-
-
-
2.7
1.4
(0.1)
4.0
(0.3)
0.7
-
0.4
-
-
-
-
-
-
-
1.4
(0.1)
1.3
1.3
0.4
0.3
2.0
-
-
-
-
0.8
0.8
-
-
-
1.3
0.4
-
1.7
-
-
-
-
0.8
0.8
-
-
-
1.6
1.6
Profit/(loss)
after tax
Carrying amount of
investments
Group
Bank
Group
Bank
2014
$m
2014
$m
2014
$m
2014
$m
0.3
0.4
0.1
0.8
-
-
-
-
-
-
(1.0)
0.3
0.1
(0.6)
0.3
0.4
-
0.7
-
-
-
-
-
-
-
0.3
0.1
0.4
1.2
0.2
0.2
1.6
-
-
-
-
0.8
0.8
0.4
10.5
1.6
14.1
1.2
0.2
-
1.4
-
-
-
-
0.8
0.8
-
10.5
1.6
13.7
Group
Bank
2015
$m
2014
$m
2015
$m
2014
$m
1.6
(0.5)
0.6
(0.1)
0.4
2.0
1.7
(0.6)
-
(0.3)
0.8
1.6
1.4
(0.5)
0.5
(0.1)
0.4
1.7
1.3
(0.6)
-
-
0.7
1.4
23. Investments accounted for using the equity method (continued)
Movements in carrying amount of investment (continued)
Group
Bank
Total comprehensive income from joint arrangements
Profit or loss from continuing operations
Total comprehensive income
Associates
Balance at the beginning of financial year
Carrying amount of investment (disposed)/acquired during the year
Impairment of investment
Share of total comprehensive income
Total investment held in associates
Total comprehensive income from associates
Profit or loss from continuing operations
Total comprehensive income
Subsequent events affecting joint arrangements and
associates for the ensuing year (if any) are disclosed in Note
41 Events after balance sheet date.
The consolidated entity’s share of joint arrangements and
associates commitments and contingent liabilities (if any) are
disclosed in Note 39 Commitments and contingencies.
Significant restrictions
There are no significant restrictions on the ability of joint
arrangements or associates to transfer funds to the Group
in the form of cash dividends, or to repay loans or advances
made by the entity.
2015
$m
0.4
0.4
14.1
(15.0)
(1.5)
4.0
1.6
4.0
4.0
2014
$m
0.8
0.8
13.9
0.8
-
(0.6)
14.1
(0.6)
(0.6)
2015
$m
0.4
0.4
13.7
(11.9)
(1.5)
1.3
1.6
1.3
1.3
2014
$m
0.7
0.7
12.5
0.8
-
0.4
13.7
0.4
0.4
Recognition and measurement
The Group’s investment in joint arrangements and associates
are accounted for under the equity method of accounting
in the consolidated financial statements. Entities in which
the Group holds a 50% interest and have joint control are
classified as joint arrangements. Where the Group holds 20%
but less than 50% interest in an entity, and has significant
influence but not control over these, the investments are
treated as associates.
Investments in joint arrangement and associates are initially
recorded at cost and increased/decreased each year by the
Group’s share of post acquisition profits/losses. The Group
ceases to recognise its share of the losses when its share of
the net assets and amounts due from the entity have been
fully written off, unless it has incurred further obligations.
97
2015 ANNUAL FINANCIAL REPORT 24. Investment property
Investment property values reflect the Group’s investment in residential real estate through the Homesafe trust. The investments
represent shared equity interest alongside the original homeowners in Sydney and Melbourne residential properties.
Opening balance
Additions
Disposals
Net gain from fair value adjustments through the income
statement
Total investment property
Group
2015
$m
404.9
41.4
(26.5)
62.2
482.0
2014
$m
348.9
28.2
(20.5)
48.3
404.9
Bank
2015
$m
-
-
-
-
-
2014
$m
5.9
-
(5.9)
-
-
Recognition and measurement
Investment properties are measured initially at cost, including
transaction costs and then stated at fair value.
Gains or losses arising from changes in the fair values
of investment properties are recognised in the income
statement in the year in which they arise.
Valuation methodology
Subsequent to initial recognition, fair value is determined by
discounting the expected future cash flows of the portfolio,
taking into account the restrictions on the ability to realise the
investment property due to contractual obligations.
Assumptions used in the modelling of future cashflows are
sourced from market indices of property values (Residex) and
long term growth/discount rates appropriate to residential
property and historical experience of contracts that have been
closed out. The discounted cash flow model is prepared on a
monthly basis. Inputs that form part of the discounted cash
flow model include rates of property appreciation, discount
rates, selling costs, mortality rates and future CPI increases.
Fair Value measurement
There are different levels of fair value measurement. When
fair value is calculated using inputs that are not based on
observable market data, then assets will be considered as
Level 3 fair value. Investment property has been categorised
as a Level 3 fair value based on the inputs outlined above.
Sensitivity of Level 3 fair value measurements to reasonably possible alternative assumptions
Valuation technique
Significant
unobservable
inputs
$m
Range of
estimates
(weighted -average)
for unobservable
input
Fair value
measurement
sensitivity to
unobservable
inputs
Discounted cash flow
Rates of property
appreciation - 6%
482.0
4%-8%
Discount rates -
7.75%
482.0
5.75%-9.75%
Significant
increases in these
inputs would
result in higher fair
values.
Significant
increases in these
inputs would result
in lower fair values.
Effect of reasonably possible
alternative assumptions
Favourable
change
$m
Unfavourable
change
$m
144.2
(101.0)
148.7
(103.3)
Where valuation techniques use non-observable inputs that
are significant to a fair value measurement in its entirety,
changing these inputs will change the resultant fair
value measurement.
The most significant inputs impacting the carrying value of
the investment property are the long term growth rates and
the discount rates. There are interdependencies between a
number of the assumptions made which mean that no single
factor is likely to move independent of others, however the
sensitivities disclosed above assume all other assumptions
remain unchanged.
98
Operating assets and liabilities
This section outlines the operating assets and liabilities of the Group and associated information.
Included in this section is information on the following: cash flow statement reconciliation, cash &
cash equivalents, goodwill, other assets and other payables.
25. Cash flow statement reconciliation
Group
Bank
Profit after tax
Non-cash items
Bad debts expense
Amortisation
Depreciation (including leasehold improvements)
2015
$m
423.9
71.2
36.1
22.4
2014
$m
372.3
85.6
36.8
18.9
Revaluation (increments)/decrements
(61.9)
(48.3)
Equity settled transactions
Share of net (profit)/loss from joint arrangements and associates
Impairment write down
Fair value acquisition adjustments
Hedge gains in relation to ineffectiveness
Changes in assets and liabilities
Increase/(decrease) in tax provision
Increase/(decrease) in deferred tax assets & liabilities
(Increase)/decrease in derivatives
Decrease in accrued interest
Increase in accrued employee entitlements
Decrease/(increase) in other accruals, receivables and provisions
1.5
(4.4)
1.5
6.5
(0.1)
0.7
13.3
(12.7)
(6.9)
4.0
53.1
2.0
(0.2)
-
-
(0.1)
(29.6)
6.5
(9.6)
(39.6)
7.2
(6.5)
Net cash flows from operating activities
548.2
395.4
2015
$m
340.5
55.7
24.3
21.9
0.7
1.4
(1.7)
1.5
6.5
(0.1)
0.7
(14.4)
31.0
(14.9)
4.3
26.2
483.6
2014
$m
282.7
57.1
25.6
18.3
0.6
2.0
(1.1)
-
-
(0.1)
(29.6)
4.6
(28.4)
(41.2)
6.3
11.9
308.7
Cash flows presented on a net basis
Cash flows arising from the following activities are presented on a net basis in the cash flow statement: Loans and other receivables,
investment securities, retail deposits and wholesale deposits.
99
2015 ANNUAL FINANCIAL REPORT 26. Cash and cash equivalents
Notes and coins
Cash at bank
Investments at call
Total cash and cash equivalents
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes:
Cash and cash equivalents
Due from other financial institutions
Due to other financial institutions
Recognition and measurement
Cash and cash equivalents include cash on hand, deposits
held at call with banks, bank overdrafts and other short term
investments that have an original maturity of three months or
less. Cash at bank earns interest at variable rates based on
daily bank and short term deposit rates.
Interest is recognised in the income statement using the
effective interest method.
Group
Bank
2015
$m
183.9
567.2
230.5
981.6
2014
$m
177.6
392.7
145.8
716.1
2015
$m
183.9
441.0
245.5
870.4
2014
$m
177.6
327.2
105.7
610.5
981.6
215.7
716.1
242.5
870.4
215.7
610.5
242.4
(202.7)
(363.5)
(202.4)
(363.0)
994.6
595.1
883.7
489.9
100
27. Goodwill and other intangible assets
Group
Goodwill
$m
Computer
software
$m
Deposits
$m
Customer
relationship
$m
Other
acquired
intangibles 1
$m
Trustee
licence
$m
Total
$m
Carrying amount as at 1 July 2014
1,368.4
53.1
28.5
24.1
21.9
8.4
1,504.4
Acquisition through business combination
73.9
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2015
1,442.3
-
35.8
(14.2)
74.7
-
-
(8.5)
20.0
Carrying amount as at 1 July 2013
1,368.4
50.9
37.3
Acquisition through business combination
Additions
Adjustment due to sale
Amortisation charge
-
-
-
-
Closing balance as at 30 June 2014
1,368.4
-
17.3
-
(15.1)
53.1
-
-
-
(8.8)
28.5
Bank
Carrying amount as at 1 July 2014
1,288.9
51.1
22.0
Acquisition through business combination
73.9
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2015
1,362.8
Carrying amount as at 1 July 2013
1,288.9
Additions
Adjustment due to sale
Amortisation charge
-
-
-
Closing balance as at 30 June 2014
1,288.9
-
34.7
(12.9)
72.9
48.1
16.4
-
(13.4)
51.1
-
-
(6.4)
15.6
28.5
-
-
(6.5)
22.0
-
-
(7.9)
16.2
32.7
-
-
-
(8.6)
24.1
5.7
-
-
(2.9)
2.8
9.3
-
-
(3.6)
5.7
2.5
-
(5.5)
18.9
-
-
-
76.4
35.8
(36.1)
8.4
1,580.5
20.5
8.4
1,518.2
6.2
-
(0.5)
(4.3)
21.9
12.6
-
-
(2.1)
10.5
15.2
-
(0.5)
(2.1)
12.6
-
-
-
-
6.2
17.3
(0.5)
(36.8)
8.4
1,504.4
-
-
-
-
-
-
-
-
-
-
1,380.3
73.9
34.7
(24.3)
1,464.6
1,390.0
16.4
(0.5)
(25.6)
1,380.3
1 These assets include customer lists, management rights and trade names.
Recognition and measurement
Intangible assets (other than goodwill)
Intangible assets acquired separately are measured at
cost on initial recognition. Intangible assets acquired in a
business combination are measured at fair value at the date
of acquisition.
Following initial recognition, intangible assets are carried
at cost less accumulated amortisation and impairment
losses. Intangible assets with a finite life are amortised over
a straight line basis over their useful life and tested at least
annually for impairment or when there is an indicator that
impairment may exists. Intangible assets with indefinite
lives are tested for impairment in the same way as goodwill.
The amortisation period and method are reviewed at each
financial year end for all intangible assets.
Computer software includes both purchased and internally
generated software. The cost of internally generated software
comprises all directly attributable costs necessary to create,
produce and prepare the software to be capable of operating
in the manner intended by management. Costs incurred in the
ongoing maintenance of software are expensed as incurred.
Gains or losses arising from the disposal of an intangible
asset are measured as the difference between the sale
proceeds and the carrying amount of the asset and are
included in the income statement in the year of disposal.
101
2015 ANNUAL FINANCIAL REPORT 27. Goodwill and other intangible assets (continued)
A summary of the policies applied to the Group’s intangible assets (excluding goodwill) are as follows:
Useful lives
Method used
Trustee Licence
Computer software/
development costs
Intangible assets acquired in a
business combination
Indefinite
Finite
Finite
Not amortised or
revalued
Straight line over 2.5 to 10 years
Straight line over life of asset
(2 - 15yrs)
Internally generated/acquired
Acquired
Internally generated
or acquired
Acquired
Impairment test/recoverable amount testing
Annually and when
an indicator of
impairment exists
Annually and when an indicator of
impairment exists
Annually and when an indicator
of impairment exists
Recognition and measurement
Goodwill
Goodwill acquired in a business combination is initially
measured at cost. Cost is measured as the cost of the
business combination minus the net fair value of the acquired
identifiable assets, liabilities and contingent liabilities.
Following initial recognition goodwill is measured at cost less
accumulated impairment losses.
Goodwill is allocated to cash generating units (CGU) for the
purposes of impairment testing, which is undertaken at
the lowest level at which Goodwill is monitored for internal
management purposes. Impairment testing is performed
at least annually, or whenever there is an indication of
impairment, by comparing the recoverable amount of a CGU
with its carrying amount. The carrying amount of a CGU is
based on its assets, liabilities and allocated goodwill. The
recoverable amount of a CGU is the higher of its fair value less
cost to sell and its value in use. If the recoverable amount is
less than the carrying value, an impairment loss is charged to
the income statement.
At the date of disposal of a business, attributable goodwill is
measured on the basis of the value of the operation disposed
of and the portion of the CGU retained.
Goodwill has been allocated to the following CGUs:
Retail banking
Third party banking
Wealth
Rural
2015
$m
677.5
464.4
209.7
90.7
2014
$m
677.5
464.4
209.7
16.8
1,442.3
1,368.4
Key assumptions used in value in use calculations
In determining value in use the estimated future (pre-tax)
cash flows are discounted to their present value using a
discount rate. The estimated future cash flows are obtained
from the Group’s forecast which is developed annually and
approved by management. Growth rates are applied to the
approved forecast data to extrapolate for a further four years.
The discount rate used is based on the weighted average
cost of capital for each CGU and reflects current market
assessments of the risks specific to the CGU for which future
estimates of cash flows have not been adjusted.
A terminal growth rate of 3.0% is representative of long term
growth rates, including inflation, in Australia. It is used to
extrapolate cash flows beyond the forecast period for each CGU.
The table below contains discount rates used in the calculation of the recoverable amount for each CGU:
Retail banking
Third party banking
Wealth
Rural
102
Discount rate
10.41%
10.71%
11.01%
11.31%
28. Other assets
Accrued income
Prepayments
Sundry debtors
Accrued interest
Deferred expenditure
Total other assets
Group
Bank
2015
$m
23.9
26.0
144.6
163.1
102.3
459.9
2014
$m
24.2
26.0
499.4
175.5
72.9
798.0
2015
$m
17.9
20.6
892.3
131.4
102.0
2014
$m
17.9
20.7
1,285.5
141.9
72.5
1,164.2
1,538.5
Recognition and measurement
Prepayments and sundry debtors
Prepayments and sundry debtors are recognised initially at
fair value and then subsequently measured at amortised cost
using the effective interest method. Collectability of sundry
debtors is reviewed on an ongoing basis. Debts that are
known to be uncollectable are written off when identified.
Accrued interest
Accrued interest is interest that has been recognised as
income on an accrual basis using the effective interest
method, but is yet to be charged to the loan or receivable.
Deferred expenditure
Deferred expenditure relating to projects is capitalised to
the Balance Sheet when it is probable the future economic
benefits attributable to the asset will flow to the Group. The
cost model is applied which requires the asset to be carried
at cost less any impairment losses. When the project has
been completed these items are transferred to capitalised
software (refer to Note 27 Goodwill and other intangible
assets for further information). The carrying value of deferred
expenditure is reviewed for impairment annually when the
asset is not in use, or more frequently when an indicator of
impairment arises.
29. Other payables
Sundry creditors
Accrued expenses and outstanding claims
Accrued interest
Prepaid interest
Total other payables
Recognition and measurement
Sundry creditors and accrued expenses
Sundry creditors and accrued expenses are carried at
amortised cost, which is the fair value of the consideration to
be paid in the future for goods and services received. Sundry
creditors are generally settled within 30 days.
Accrued interest
Accrued interest is the interest that is recognised as an
expense in the income statement but has yet to be paid to the
customers liability account. Interest is recognised using the
effective interest method.
Group
Bank
2015
$m
14.9
402.4
241.6
29.5
688.4
2014
$m
35.0
590.4
260.9
32.4
918.7
2015
$m
9.9
537.7
225.5
-
2014
$m
24.6
753.9
245.0
-
773.1
1,023.5
Prepaid interest
Prepaid interest is the interest received from customers in
advance. This interest is recognised as income in the income
statement using the effective interest method.
103
2015 ANNUAL FINANCIAL REPORT Other disclosure matters
The following section outlines all other disclosure matters including: risk management, business
combinations, subsidiaries and controlled entities, related party disclosures, provisions,
commitments and contingencies and other required disclosures.
The risk management note outlines the key financial risks that the Group manages.
30. Risk management
Nature of Risk
The Group is exposed to a range of risks which have the
potential to adversely impact its financial performance and
financial position. The Group actively manages those risks it
assesses to be material including key financial risks (i.e. credit
risk, liquidity risk and market risk) and operational risks.
The Board is ultimately responsible for the management of risk
which is achieved by establishing, reviewing and overseeing
the Group’s Risk management framework (the framework)
including its risk profile, risk appetite and risk strategy.
The framework provides a high level description of the
material risks faced by the Group together with the policies
and procedures implemented to measure, monitor and
manage those risks.
The Board’s role is supported by committees namely the Asset
and Liability Management Committee (ALMAC), Management
and Board Credit committees, Operational Risk committee
and the Board Risk Committee who facilitate in monitoring
adherence to policies, limits and procedures.
Further details regarding the Group’s material risks including
our strategic approach to its management is contained within
the Directors’ Report and the Corporate Governance statement.
Our committee charters are available on our website.
Financial risk management
The Group’s exposure to financial risks are considered
significant given financial instruments held by the Group
constitute the core contributors of financial performance
and position. An overview of the Group’s key financial risks is
presented below.
Credit risk
Credit risk is risk of the Group suffering a financial loss if
any of its customers or counterparties fail to fulfil their
contractual obligations.
The Group is predominantly exposed to credit risk as a result
of its lending activities as well as counterparty exposures
arising from the funding activities of Group Treasury due to
the use of derivative contracts.
The table below presents the maximum exposure to credit risk
arising from balance sheet and off-balance sheet financial
instruments. The exposure is shown gross before taking into
account any master netting, collateral agreements or other
credit enhancements.
Gross maximum exposure
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
Shares in controlled entities
Amounts receivable from controlled entities
Gross loans and other receivables
Contingent liabilities
Commitments
Total credit risk exposure
Group
Bank
2015
$m
797.7
215.7
2014
$m
538.5
242.5
5,562.9
7,265.4
601.3
300.7
307.7
63.8
-
-
643.6
286.6
674.9
22.3
-
-
2015
$m
686.5
215.7
5,563.3
1,260.4
2.0
2014
$m
432.9
242.4
7,265.8
1,297.5
2.0
1,023.7
1,427.4
211.7
564.8
188.1
203.0
575.4
283.8
55,730.5
53,113.8
50,569.1
47,763.1
63,580.3
62,787.6
60,285.3
59,493.3
238.0
5,644.6
5,882.6
266.9
5,320.1
5,587.0
235.3
5,445.6
5,680.9
264.2
5,122.9
5,387.1
69,462.9
68,374.6
65,966.2
64,880.4
Where financial instruments are recorded at fair value the amounts shown above represent the current credit risk exposure but not
the maximum risk exposure that could arise in the future as a result of changes in values.
For financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying amount.
For contingent liabilities including financial guarantees granted, it is the maximum amount that the Group would have to pay if the
guarantees were called upon. For loan commitments and other credit-related commitments, it is generally the full amount of the
committed facilities.
104
30. Risk management (continued)
Credit risk (continued)
Concentrations of the maximum exposure to credit risk
Concentration risk is managed by client or counterparty,
by geographical region and by industry sector. The Group
implements certain exposure and concentration limits in order
to mitigate the risk.
The maximum credit exposure to any client or counterparty
as at 30 June 2015 was $672.1 million (2014: $803.5
million) before taking account of collateral or other credit
enhancements and $672.1 million (2014: $803.5 million) net
of such protection.
Geographic - based on the location of the counterparty
or customer
The table below presents the maximum exposure to credit risk
categorised by geographical region.
The exposures are shown gross before taking into account any
collateral held or other credit enhancements.
Gross maximum exposure
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas
Group
2015
$m
28,092.7
11,702.7
3,446.9
9,397.6
7,800.8
5,970.5
2,203.1
848.6
2014
$m
Bank
2015
$m
25,252.8
28,119.9
14,897.7
12,531.2
944.7
10,406.1
7,404.3
7,663.3
1,425.8
379.9
2,407.0
9,044.0
6,895.0
5,338.1
1,340.0
291.0
2014
$m
25,522.5
14,310.4
914.3
9,365.7
6,903.4
6,259.3
1,241.8
363.0
Total credit risk exposure
69,462.9
68,374.6
65,966.2
64,880.4
Industry Sector - is based on the industry in which the customer or counterparty are engaged
The table below presents the maximum exposure to credit risk categorised by industry sector.
The exposures are shown gross before taking into account any collateral held or other credit enhancements.
Industry concentration
Group
Bank
Accommodation and food services
Administrative and support services
Agriculture, forestry and fishing
Arts and recreation services
Construction
Education and training
Electricity, gas, water and waste services
Financial and insurance services
Financial services
Health care and social assistance
Information media and telecommunications
Manufacturing
Margin lending
Mining
Other
Other services
Professional, scientific and technical services
Public administration and safety
Rental, hiring and real estate services
Residential/consumer
Retail trade
Transport, postal and warehousing
Wholesale trade
Gross
maximum
exposure
2015
$m
749.3
286.2
Gross
maximum
exposure
2014
$m
725.0
294.6
Gross
maximum
exposure
2015
$m
747.8
286.2
Gross
maximum
exposure
2014
$m
723.4
294.2
6,597.1
5,229.8
2,899.0
1,410.8
226.3
2,628.2
383.4
191.8
1,177.0
7,890.8
920.3
164.7
878.9
213.9
2,677.9
402.9
201.2
1,400.5
9,405.6
956.8
174.5
920.8
1,792.2
1,822.7
205.6
24.2
687.1
882.5
501.8
216.9
351.7
690.3
880.0
573.4
226.1
2,581.1
383.4
191.8
1,175.7
9,785.0
920.3
164.7
873.1
-
205.6
30.7
686.3
882.2
501.4
213.6
2,631.9
402.9
201.2
1,395.5
11,492.7
956.8
174.5
919.0
-
216.9
356.8
690.1
879.5
575.3
5,116.9
4,763.4
5,104.3
4,750.2
35,745.3
33,883.2
35,911.5
34,009.0
1,318.9
1,412.8
1,318.8
1,412.5
687.0
407.4
742.5
434.2
684.0
407.2
739.6
434.0
69,462.9
68,374.6
65,966.2
64,880.4
105
2015 ANNUAL FINANCIAL REPORT 30. Risk management (continued)
Credit quality
The credit quality of financial assets is managed by the Group using internal credit ratings.
The table below presents the credit quality of financial assets, based on the Group’s credit rating system and are gross of any
impairment allowances.
Group
2015
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
Neither past due or impaired
Standard
grade
$m
Sub-
standard
grade
$m
Unrated
$m
Consumer
loans 1
$m
Past
due or
impaired
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31.4
-
307.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
High
grade
$m
797.7
215.7
5,562.9
569.9
300.7
-
63.8
Total
$m
797.7
215.7
5,562.9
601.3
300.7
307.7
63.8
Loans and other receivables
3,949.8
9,931.7
1,311.8
675.8
37,425.3
2,436.1
55,730.5
11,460.5
9,931.7
1,311.8
1,014.9
37,425.3
2,436.1
63,580.3
2014
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
538.5
242.5
7,265.4
619.3
286.6
-
22.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24.3
-
674.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
538.5
242.5
7,265.4
643.6
286.6
674.9
22.3
Loans and other receivables
3,806.3
8,883.8
928.2
534.4
36,166.4
2,794.7
53,113.8
12,780.9
8,883.8
928.2
1,233.6
36,166.4
2,794.7
62,787.6
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
Bank
2015
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
686.5
215.7
5,563.3
1,235.8
2.0
-
211.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24.6
-
1,023.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
686.5
215.7
5,563.3
1,260.4
2.0
1,023.7
211.7
Loans and other receivables
649.9
8,312.1
1,029.9
649.4
37,872.8
2,055.0
50,569.1
Amounts receivable from controlled entities
Shares in controlled entities
-
-
-
-
-
-
188.1
564.8
-
-
-
-
188.1
564.8
8,564.9
8,312.1
1,029.9
2,450.6
37,872.8
2,055.0
60,285.3
2014
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
432.9
242.4
7,265.8
1,292.6
2.0
-
203.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4.9
-
1,427.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
432.9
242.4
7,265.8
1,297.5
2.0
1,427.4
203.0
Loans and other receivables
349.0
7,302.4
687.0
521.6
36,565.7
2,337.4
47,763.1
Amounts receivable from controlled entities
Shares in controlled entities
-
-
-
-
-
-
283.8
575.4
-
-
-
-
283.8
575.4
9,787.7
7,302.4
687.0
2,813.1
36,565.7
2,337.4
59,493.3
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
106
30. Risk management (continued)
Credit Quality (continued)
The credit ratings range from high grade where there is a
very high likelihood of the asset being recovered in full to
sub-standard grade where there is concern over the obligor’s
ability to make payments when due.
Credit risk stress testing is regularly performed to assess the
likelihood of loan default, to examine the financial strength of
borrowers and counterparties including their ability to meet
commitments under changing scenarios and to assess the
exposure and extent of loss should default actually occur.
Ageing
The following table presents the ageing analysis of past due
but not impaired loans and other receivables.
Loans and receivables which are 90 or more days past due
are not classified as impaired assets where the estimated net
realisable value of the collateral/security is sufficient to cover
the repayment of all principal and interest amounts due.
The exposures are shown net after taking into account any
collateral held or other credit enhancements.
Group
Bank
2015
2014
2015
2014
Less than 30
days
$m
31 to
60 days
$m
61 to
90 days
$m
More than
91 days
$m
Total
$m
Fair value of
collateral
$m
1,109.2
1,310.3
1,045.8
1,214.4
257.0
315.2
211.0
258.4
138.0
122.5
96.5
87.4
606.3
634.9
535.2
589.4
2,110.5
5,896.5
2,382.9
6,063.8
1,888.5
4,699.3
2,149.6
4,673.7
Liquidity risk
Liquidity risk is defined as the risk that the Group is unable to
meet its payment obligations as they fall due. The principal
objectives are to ensure that all cash flow commitments
are met in a timely manner and prudential requirements
are satisfied.
As at January 2015, the Group commenced measurement
and reporting of liquidity under the revised APRA Prudential
Standard APS210, using the scenario based Liquidity
Coverage Ratio (LCR). This new regime requires the Group
to maintain a ratio of High Quality Liquid Assets (HQLA) to
cover defined projected cash outflows over a 30 day period.
The Group supplements the LCR with scenario analysis and
stress testing which will continue to be developed and refined
over 2015.
The Group continues to manage the liquidity holdings in
line with the Board approved funding strategy and funding
plan, ensuring adequate levels of HQLA, other liquid assets
and diversified sources of funding. In meeting our liquidity
requirement the Group makes use of the Reserve Bank of
Australia, Committed Liquidity Facility.
The Group also maintains a significant amount of contingent
liquidity in the form of internal securitisation whereby the
collateral can be presented to the Reserve Bank of Australia
for cash in extraordinary circumstances such as systemic
liquidity issues.
Liquidity risk is managed in line with the Board approved Risk
Appetite, Framework and Policy. The framework incorporates
limits, monitoring and escalation processes to ensure
sufficient liquidity is maintained.
The Group has established a set of early warning indicators
to support the liquidity risk management process, in
particular, to alert management of emerging or increased
risk or vulnerability in its liquidity position. The liquidity
risk management framework is also supported by liquidity
standards and policies which are regularly reviewed and
updated to reflect prevailing market conditions, changes in
operational requirements and regulatory obligations.
107
2015 ANNUAL FINANCIAL REPORT 30. Risk management (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below analyses the Group’s financial liabilities into relevant maturity periods based on the remaining period at the
reporting date to the contractual maturity date. The amounts disclosed in the table represent all cash flows, on an undiscounted
basis, including all future coupon payments, both principal and interest, and therefore may not reconcile with the amounts
disclosed on the balance sheet.
For foreign exchange derivatives and cross currency interest rate swaps, the amounts disclosed are the gross contractual cash flows
to be paid. For interest rate swaps, the cash flows are the net amounts to be paid, and have been estimated using forward interest
rates applicable at the reporting date.
Group
2015
Due to other financial institutions
Deposits
Notes payable
Derivatives
Other payables
Income tax payable
Convertible preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
2014
Not longer
than 3
months
$m
3 to 12
months
$m
-
-
At call
$m
202.7
17,712.6
18,779.3
13,634.5
40.6
-
673.2
-
-
-
459.8
120.9
-
-
-
8.2
132.3
358.9
-
18.2
39.6
24.4
1 to 5
years
$m
-
3,619.0
3,261.6
388.3
-
-
415.0
130.0
Longer
than 5
years
$m
-
Total
$m
202.7
13.5
53,758.9
1,031.7
4,926.0
32.5
-
-
625.0
636.0
900.6
673.2
18.2
1,079.6
798.6
18,629.1
19,368.2
14,207.9
7,813.9
2,338.7
62,357.8
238.0
5,644.6
5,882.6
-
17.9
17.9
-
53.7
53.7
-
213.1
213.1
-
238.0
157.7
157.7
6,087.0
6,325.0
Due to other financial institutions
363.5
-
-
Deposits
Notes payable
Derivatives
Other payables
Income tax payable
Convertible preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
Bank
2015
Deposits
Notes payable
Derivatives
Other payables
Loans payable to securitisation trusts
Income tax payable
Convertible preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
108
14,235.8
21,696.3
13,309.6
8.5
-
837.0
-
-
-
441.3
94.0
-
-
-
10.0
345.3
208.9
-
17.5
14.3
58.6
-
3,477.8
2,745.3
506.4
-
-
297.2
150.8
-
1.0
363.5
52,720.5
1,721.6
5,262.0
40.2
-
-
-
729.1
849.5
837.0
17.5
311.5
948.5
15,444.8
22,241.6
13,954.2
7,177.5
2,491.9
61,310.0
266.9
5,320.1
5,587.0
-
18.9
18.9
-
56.5
56.5
-
187.5
187.5
-
172.3
172.3
266.9
5,755.3
6,022.2
17,420.0
17,179.2
12,311.7
3,555.4
13.5
50,479.8
-
-
764.6
-
-
-
-
330.6
116.6
-
-
347.6
381.5
-
-
-
-
7.9
-
-
36.8
39.6
23.5
-
32.5
-
330.6
878.2
764.6
4,306.6
4,306.6
-
36.8
-
-
-
415.0
125.1
625.0
635.9
1,079.6
792.4
18,387.0
17,634.3
12,759.2
4,477.0
5,613.5
58,871.0
235.3
5,445.6
5,680.9
-
17.9
17.9
-
53.6
53.6
-
213.0
213.0
-
235.3
157.7
157.7
5,887.8
6,123.1
Due to other financial institutions
202.4
-
-
-
-
202.4
30. Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities (continued)
Bank
2014
Due to other financial institutions
Deposits
Notes payable
Derivatives
Other payables
Loans payable to securitisation trusts
Income tax payable
Convertible preference shares
Subordinated debt
Not longer
than 3
months
$m
3 to 12
months
$m
1 to 5 years
$m
Longer
than 5 years
$m
Total
$m
-
-
-
-
363.0
At call
$m
363.0
14,050.2
20,420.5
11,345.1
3,414.8
0.3
49,230.9
-
-
975.3
-
-
-
-
328.5
-
-
-
90.8
201.2
429.9
40.2
-
-
-
-
9.0
-
-
17.5
14.3
55.7
-
-
-
297.2
135.6
-
4,760.4
4,760.4
-
-
674.6
17.5
311.5
874.9
328.5
762.1
975.3
Total financial liabilities
15,388.5
20,848.8
11,633.8
4,277.5
5,475.5
57,624.1
Contingent liabilities
Commitments
264.2
5,122.9
Total contingent liabilities and commitments
5,387.1
-
18.4
18.4
-
55.0
55.0
-
180.2
180.2
-
264.2
163.4
5,539.9
163.4
5,804.1
Market risk (including interest rate and currency risk)
Market risk is the risk that changes in market rates and prices
including: interest rates, foreign currency exchange rates,
equity prices, will affect the Group’s financial performance
and financial position. Market risk is referred to as either
traded or non-traded risk.
Traded market risk primarily represents interest rate risk in
the trading book which operates as an integral part of its
liquidity risk management function. The trading book portfolio
consists of securities held for trading and liquidity purposes.
This risk is represented by the potential adverse impact to
net interest income (NII) and other income resulting from
positions held in traded interest rate securities such as
government bonds and traded interest rate swaps.
Non-traded market risk primarily represents interest rate risk
in the banking book (IRRBB). This risk is represented by the
potential adverse impact to NII resulting from a mismatch
between the maturity and repricing dates of its assets and
liabilities that arises in the normal course of its business
activities. The banking book activities that give rise to market
risk include general lending activities, balance sheet funding
and capital management.
The Group currently uses both a static and dynamic approach
to model the effect of interest rate movements on NII and
market value of equity (MVE). The primary interest rate
monitoring tools used are simulation models and gap analysis
The interest rate simulation model is a dynamic technique
that allows the performance of risk management strategies to
be tested under a variety of rate environments over a range
of timeframes extending out to five years. The results of this
testing are then compared to the risk appetite limits for NII.
109
2015 ANNUAL FINANCIAL REPORT 30. Risk management (continued)
Interest Rate risk (continued)
Group
Fixed interest rate repricing
Floating
interest
rate
$m
Less than
3 months
$m
Between
3 and 6
months
$m
Between
6 and 12
months
$m
Between
1 and 5
years
$m
After
5 years
$m
2015
Assets
Cash & cash equivalents
797.7
-
-
-
-
1,259.2
2,894.1
492.3
29.2
238.4
62.3
-
-
-
-
-
-
-
1,409.6
-
-
-
-
-
-
-
-
-
-
-
Due from other
financial institutions
Financial assets
held for trading
Financial assets
available for sale
Financial assets held
to maturity
Loans & other
receivables
Derivatives
Non
interest
earning/
bearing
$m
Total
carrying
value per
Balance
sheet
$m
Weighted
average
effective
interest
rate
%
183.9
981.6
1.32
215.7
215.7
-
-
5,562.9
2.30
48.4
569.9
2.83
-
300.7
2.70
5.18
33,169.4
7,662.2
2,125.3
4,280.5
8,237.5
29.7
27.0
55,531.6
-
-
-
-
-
-
63.8
63.8
-
Total financial assets
33,967.1
9,652.1
5,110.9
4,280.5
9,647.1
29.7
538.8
63,226.2
Liabilities
Due to other financial
institutions
-
-
-
-
-
-
202.7
202.7
Deposits
17,598.7
21,457.1
9,432.9
3,833.3
1,180.2
3.1
Notes payable
348.1
4,577.8
Derivatives
Convertible
preference shares
Subordinated debt
-
-
-
-
-
819.5
-
-
592.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53,505.3
4,925.9
108.0
108.0
-
-
819.5
592.6
Total financial liabilities
17,946.8
26,627.5
10,252.4
3,833.3
1,180.2
3.1
310.7
60,154.0
-
2.44
3.16
-
4.53
5.47
2014
Assets
Cash & cash equivalents
520.4
18.1
Due from other
financial institutions
-
-
-
-
-
-
-
-
656.3
3,990.0
1,886.7
226.7
505.7
59.0
560.3
-
-
268.7
17.9
-
-
-
-
33,538.2
6,885.5
1,231.2
2,754.5
8,494.1
29.3
-
-
-
-
-
177.6
716.1
1.58
242.5
242.5
-
-
-
-
-
7,265.4
3.02
619.3
3.48
286.6
52,932.8
3.17
5.65
Financial assets
held for trading
Financial assets
available for sale
Financial assets
held to maturity
Loans & other
receivables
Derivatives
-
-
-
-
-
-
22.3
22.3
-
Total financial assets
34,773.9
11,722.6
3,135.8
2,981.2
8,999.8
29.3
442.4
62,085.0
110
30. Risk management (continued)
Interest Rate risk (continued)
Group (continued)
Fixed interest rate repricing
Floating
interest
rate
$m
Less than
3 months
$m
Between
3 and 6
months
$m
Between
6 and 12
months
$m
Between
1 and 5
years
$m
After
5 years
$m
Non
interest
earning/
bearing
$m
Total
carrying
value per
Balance
sheet
$m
Weighted
average
effective
interest
rate
%
-
-
-
-
-
-
363.5
363.5
14,678.6
24,167.5
8,787.1
3,559.5
1,166.4
0.3
356.1
4,900.3
-
-
261.4
-
-
-
-
-
643.5
-
12.0
-
-
-
-
-
-
-
-
-
-
52,359.4
5,256.4
79.2
79.2
-
-
261.4
655.5
-
2.92
3.81
-
5.56
6.06
2014
Liabilities
Due to other financial
institutions
Deposits
Notes payable
Derivatives
Convertible preference
shares
Subordinated debt
Total financial liabilities
15,034.7
29,711.3
9,048.5
3,571.5
1,166.4
0.3
442.7
58,975.4
-
-
-
-
-
Bank
2015
Assets
Cash & cash equivalents
686.5
Due from other financial
institutions
Financial assets
held for trading
Financial assets
available for sale
Financial assets
held to maturity
-
-
-
-
1,259.3
2,894.1
38.3
1,197.5
-
2.0
-
-
-
-
-
-
-
-
-
1,409.9
-
-
-
-
-
-
-
183.9
870.4
1.29
215.7
215.7
-
-
-
-
-
5,563.3
2.32
1,235.8
3.20
2.0
50,464.6
2.98
5.14
Loans & other receivables
25,928.6
11,520.8
1,951.2
3,624.6
7,410.6
28.8
Derivatives
-
-
-
-
-
-
211.7
211.7
Total financial assets
26,653.4
13,979.6
4,845.3
3,624.6
8,820.5
28.8
611.3
58,563.5
Liabilities
Due to other financial
institutions
-
-
-
-
-
-
202.4
202.4
-
-
Deposits
17,032.4
19,959.5
8,715.5
3,263.3
1,284.6
3.1
Notes payable
330.6
-
-
-
-
Loans payable to
securitisation trusts
Derivatives
Convertible preference
shares
Subordinated debt
2,981.3
234.3
229.2
327.7
519.2
-
-
-
-
-
-
819.5
573.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,258.4
2.47
330.6
-
14.9
4,306.6
5.01
117.4
117.4
-
-
-
819.5
573.1
4.53
5.47
Total financial liabilities
20,344.3
20,766.9
9,764.2
3,591.0
1,803.8
3.1
334.7
56,608.0
111
2015 ANNUAL FINANCIAL REPORT
30. Risk management (continued)
Interest Rate risk (continued)
Bank (continued)
Fixed interest rate repricing
Floating
interest
rate
$m
Less than
3 months
$m
Between
3 and 6
months
$m
Between
6 and 12
months
$m
Between
1 and 5
years
$m
After
5 years
$m
2014
Assets
Cash & cash equivalents
432.9
Due from other financial
institutions
-
-
-
-
-
-
-
-
-
Financial assets
held for trading
Financial assets available
for sale
Financial assets
held to maturity
656.3
3,990.3
1,886.8
226.7
505.7
-
-
1,292.5
2.0
-
-
-
-
-
-
-
-
-
-
-
Non
interest
earning/
bearing
$m
Total
carrying
value per
Balance
sheet
$m
Weighted
average
effective
interest
rate
%
177.6
610.5
1.75
242.4
242.4
-
-
-
-
7,265.8
3.02
1,292.5
3.82
2.0
3.43
5.62
-
Loans & other receivables
28,856.3
6,812.1
1,184.5
2,281.1
8,149.2
27.0
364.4
47,674.6
Derivatives
-
-
-
-
-
-
203.0
203.0
Total financial assets
29,945.5
12,096.9
3,071.3
2,507.8
8,654.9
27.0
987.4
57,290.8
Liabilities
Due to other financial
institutions
-
-
-
-
-
-
363.0
363.0
-
Deposits
14,281.2
22,356.0
7,946.0
3,045.7
1,112.4
0.3
233.7
48,975.3
2.87
Notes payable
310.4
-
-
-
-
Loans payable to
securitisation trusts
Derivatives
Convertible preference
shares
Subordinated debt
3,422.2
138.0
139.5
290.2
770.5
-
-
-
-
-
-
261.4
603.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
310.4
-
4,760.4
5.54
77.7
77.7
-
-
-
261.4
603.3
5.56
5.98
Total financial liabilities
18,013.8
23,097.3
8,346.9
3,335.9
1,882.9
0.3
674.4
55,351.5
112
30. Risk management (continued)
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held
constant, on the Group’s income statement and equity.
The sensitivity of the income statement is the effect of assumed changes in interest rates on the net interest for one year, based
on the floating rate financial assets and financial liabilities held at 30 June 2015, including the effect of hedging instruments. The
sensitivity of equity is calculated by revaluing fixed rate available for sale financial assets (including the effect of any associated
hedges), and swaps designated as cash flow hedges, at 30 June 2015 for the effects of the assumed changes in interest rates.
The sensitivity of equity is analysed by the maturity of the asset or swap, with sensitivity based on the assumption that there are
parallel shifts in the yield curve.
Group
Net interest income
Ineffectiveness in derivatives
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
Bank
Net interest income
Ineffectiveness in derivatives
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
+100 basis
points
-100 basis
points
+100 basis
points
-100 basis
points
2015
$m
0.4
12.4
(3.8)
9.0
9.0
(37.1)
11.1
(17.0)
(8.6)
12.4
(1.1)
2.7
2.7
(36.9)
2015
$m
(8.7)
(12.4)
6.3
(14.8)
(14.8)
37.1
(11.1)
11.2
(0.3)
(12.4)
3.8
(8.9)
(8.9)
36.9
11.1
(11.1)
(23.1)
16.9
2014
$m
34.8
4.3
(11.7)
2014
$m
(38.4)
(4.3)
12.8
27.4
(29.9)
27.4
(29.9)
(11.7)
3.5
19.2
11.7
(3.5)
(21.7)
28.9
4.3
(9.9)
23.3
(35.3)
(4.3)
11.9
(27.7)
23.3
(27.7)
(13.9)
4.2
13.6
13.9
(4.2)
(18.0)
The movements in profit are due to higher/lower interest costs
from variable rate debt and cash balances. The movement
in equity is also affected by the increase/decrease in the
fair value of derivative instruments designated as cash flow
hedges, where these derivatives are deemed effective.
This analysis reflects a scenario where no management
actions are taken to counter movements in rates.
Foreign currency risk
The Group does not have any significant exposure to foreign
currency risk, as all borrowings through the Company’s Euro
Medium Term Note program (EMTN) and Euro Commercial
Paper program (ECP) are fully hedged. At balance date the
principal of foreign currency denominated borrowings under
these programs was AUD $340.9 million (2014: AUD $900.0
million) with all borrowings fully hedged by cross currency
swaps, and foreign exchange swaps. Retail and business
banking FX transactions are managed by the Group’s
Financial Markets unit, with resulting risk constrained by
Board approved spot and forward limits. Adherence to limits is
independently monitored by the Middle Office function.
The Group conducts discretionary interest rate and foreign
exchange trading. This trading forms part of the trading book
activity within the liquidity management function. The trading
book positions include approved financial instruments, both
physical and derivative.
113
2015 ANNUAL FINANCIAL REPORT 31. Business combinations
Acquisitions in the 2015 financial year
Rural Finance
On 1 July 2014 Bendigo and Adelaide Bank Group acquired
100% of the business activities and selected assets of
Rural Finance Corporation of Victoria. The acquisition
has strengthened the Group’s commitment to rural and
regional customers.
The consideration for the acquisition of net assets was
$1.76 billion cash.
Rural Finance is based in Bendigo with 11 branches located
across regional Victoria. Rural Finance is a leading lender to
Victorian primary producers. The activities and responsibilities
of Rural Finance include commercial activities as a speciality
financier in the Victorian agricultural sector.
The following table shows the effect on the Group’s assets:
Fair value on
acquisition
$m
1,685.4
2.3
0.6
1,688.3
1.9
1.9
1,686.4
1,760.3
1,686.4
73.9
Recognition and measurement
The Group accounts for a business combination using the
acquisition accounting method when control is transferred.
The consideration transferred for the acquisition is measured
at fair value, including contingent consideration, given at the
date of exchange. The acquired identifiable net assets are
generally measured at fair value. Goodwill will be recorded
on the balance sheet where the purchase price exceeds the
value of the identifiable net assets. Any gain on a bargain
purchase is recognised in the income statement immediately.
Transaction costs are expensed as incurred, except if related
to the issue of debt or equity.
Assets
Loans
Motor vehicles and office equipment
Deferred tax assets
Total assets
Liabilities
Employee provisions
Total liabilities
Net identifiable assets attributable to Bendigo and Adelaide Bank Limited
Cost of acquisition
Fair value of net assets acquired
Goodwill on acquisition
The acquisition accounting method for a business
combination has been completed and as such the fair value of
the net assets acquired on 1 July 2014 has been finalised. It
is expected that the full contractual amounts will be collected.
From the date of acquisition, Rural Finance has contributed
$50 million of revenue and $26.3 million to the net profit
before tax from the continuing operations to the Group. The
goodwill recognised is primarily attributed to the expected
synergies and other benefits from combining the assets and
activities of Rural Finance with those of the Group.
Transaction and integration costs of $2.9 million have been
expensed and are included in the income statement and are
part of operating cashflows in the cash flow statement.
The goodwill recognised is not expected to be deductible for
income tax purposes.
114
32. Subsidiaries and other controlled entities
Subsidiaries
The following table presents the material subsidiaries of the Group. A subsidiary has been considered to be material if it has more
than 0.5% of the total Group assets.
Chief entity and Ultimate parent
Principal activities
Bendigo and Adelaide Bank Limited
Banking
Other entities
Homesafe Trust
Leveraged Equities Ltd
Rural Bank Ltd
Principal activities
Homesafe product financier
Margin lending
Banking
All entities are 100% owned and incorporated in Australia.
Investments in controlled entities
At cost
Group
Bank
2015
$m
-
-
2014
$m
-
-
2015
$m
564.8
564.8
2014
$m
575.4
575.4
Significant restrictions
The Group does not have any significant restrictions on its
ability to access or use its assets and settle its liabilities
other than those resulting from the supervisory frameworks
within which banking subsidiaries operate. The supervisory
framework require banking subsidiaries to keep certain levels
of regulatory capital and liquid assets, limit their exposure
to other parts of the Group and comply with other ratios.
The carrying amounts of banking subsidiaries’ assets and
liabilities are $4.2 billion and $3.6 billion, respectively (2014:
$4.3 billion and $3.7 billion, respectively).
Recognition and measurement
The Group classify all entities where it owns 100% of the
shares and in which it controls as subsidiaries. The basis of
consolidation is presented in Note 2 Summary of significant
accounting policies. Investments in subsidiaries are
stated at cost.
Special Purpose Vehicles (SPE’s)
The following table presents a list of the material SPE’s.
A SPE has been considered to be material where the assets
are more than 0.5% of net assets. For further information
relating to SPE’s refer to Note 13 Securitisation and
transferred assets.
Entity
Principal activities
Entity
Principal activities
Leveraged Equities 2009 Trust
Securitisation
Torrens Series 2013-1 Trust
Securitisation
Torrens Series 2008-1 Trust
Securitisation
Torrens Series 2014-1 Trust
Securitisation
Torrens Series 2008-4 Trust
Securitisation
Torrens Series 2014-2 Trust
Securitisation
Torrens Series 2010-2 Trust
Securitisation
Torrens Series 2015-1 Trust
Securitisation
Torrens Series 2011-1 Trust
Securitisation
115
2015 ANNUAL FINANCIAL REPORT 33. Related party disclosures
Subsidiary transactions
Transactions undertaken with subsidiaries are eliminated in the Group’s financial reports. Transactions between the parent and
the subsidiary are funded through intercompany loans with no fixed repayment date and are repayable upon demand.
A summary of material transactions excluding dividends between the Bank and its subsidiaries during the period were:
Opening balance at beginning of financial year
Net receipts and fees received from subsidiaries
Supplies, fixed assets and services charged to subsidiaries
Net amount owing from subsidiaries at 30 June 2015
2015
$m
(215.9)
170.1
(119.0)
(164.8)
2014
$m
(379.6)
263.0
(99.3)
(215.9)
Bendigo and Adelaide Bank provides funding and guarantee facilities to several subsidiary companies. These facilities are
provided on normal commercial terms and conditions.
Subsidiary
Sandhurst Trustees Limited
Facility
Guarantee
Dividends paid by the subsidiaries
Sandhurst Trustees Limited
Leveraged Equities
Other related party transactions
Limit
$m
0.5
2015
$m
20.0
3.5
Drawn/issued at
30 June 2015
$m
-
2014
$m
-
-
Joint arrangement entities and associates
Bendigo and Adelaide Bank Limited has investments in joint arrangement entities and associates as disclosed in Note 23
Investments accounted for using the equity method.
Transactions entered into with these related entities principally include commissions received and paid, services and supplies
procured and fees charged in relation to the provision of banking, administrative and corporate services. These revenue and
expense items are included in the Group’s income statement. The transactions are conducted on the same terms as other third
party transactions.
A summary of material transactions excluding dividends between the Bank and joint arrangements and associates during the
period were:
Commissions and fees paid to joint arrangements and associates
Supplies and services provided to joint arrangements and associates
Amount owing to/(from) joint arrangements and associates
2015
$m
21.7
10.5
(0.9)
2014
$m
23.4
11.1
(1.2)
Dividends received and receivable from joint arrangements and associates are disclosed in the Group’s income statement.
Bendigo and Adelaide Bank Limited provides loans, guarantees and/or overdraft facilities to joint arrangements and associates.
The loans have agreed repayment terms which vary according to the nature of the facility. These loans are included in the net
amount owing from joint arrangements and associates in the above table.
Other related party transactions
Key management personnel
Key management personnel (KMP) are those persons with authority and responsibility for planning, directing and controlling the
activities of the Group, directly or indirectly.
The Group’s KMP are those members of the Bendigo and Adelaide Bank Group Executive Committee together with its Non-
executive Directors. Further details relating to KMP are located in the Remuneration Report.
116
33. Related party disclosures (continued)
Other related party transactions (continued)
Key management personnel (continued)
The table below details, on an aggregated basis, KMP compensation:
Compensation
Salaries and other short term benefits
Post-employment benefits
Other long term benefits
Share-based payments
Closing balance
30 June 2015
$’000’s
30 June 2014
$’000’s
7,534.1
337.4
139.3
2,731.9
10,742.7
7,600.8
332.3
118.5
2,257.9
10,309.5
The table below details, on an aggregate basis, KMP equity holdings. The holdings comprise ordinary shares, preference shares,
performance shares and deferred shares:
Equity holdings
Ordinary shares (includes deferred shares)
Preference shares
Performance Shares
Closing balance
30 June 2015
No.
30 June 2014
No.
1,802,460
1,972,878
4,040
509,607
2,790
251,309
2,316,107
2,226,977
The table below details, on an aggregated basis, loan balances outstanding at the end of the year between the Group and its KMP:
Loans 1, 2
Loans outstanding at the beginning of the year 3
Loans outstanding at the end of the year
Interest paid or payable
Interest not charged
30 June 2015
$’000’s
30 June 2014
$’000’s
5,670.4
4,888.5
273.0
-
7,728.7
7,746.9
371.3
-
1The balances relate to KMP who were in office as at the end of the financial year.
2The balance of loans outstanding includes the provision of a guarantee to the value of $20,000 which was provided to a KMP in the ordinary course of the
Group’s business and on an arm’s length basis.
3The opening balance for the 2015 financial year has been adjusted to exclude loan balances applicable to Russell Jenkins who
ceased as a KMP on 19 August 2013. They also exclude loans provided to Executives under the Employee Share Ownership Plan.
Loans to directors and senior executives are made in the ordinary course of the Group’s business and on an arm’s length basis.
The loans are processed and approved in accordance with the Bank’s standard lending terms and conditions.
34. Involvement with unconsolidated entities
The table below describes the types of structured entities that the Group does not consolidate but in which it holds an interest.
Type of structured entity
Nature and purpose
Interest held by the Group
Securitisation vehicles - for loans and
advances originated by third parties
Managed investment funds
To generate:
}} external funding for third parties; and
}} investment opportunities for the Group.
These vehicles are financed through the
issue of notes to investors.
To generate:
}} a range of investment opportunities for
external investors; and
}} fees from managing assets on behalf of
third party investors for the Group.
}} Investments in notes issued by
the vehicles
}} Investment in units issued by the funds
}} Management fees
117
2015 ANNUAL FINANCIAL REPORT
34. Involvement with unconsolidated entities (continued)
Risks associated with unconsolidated structured entities
The following table summarises the carrying values recognised in the balance sheet in relation to unconsolidated structured entities:
Balance sheet
Cash and cash equivalents
Loans and other receivables
Financial assets available for sale
Derivatives
Total
2015
$m
0.1
184.9
6.8
0.1
191.9
2014
$m
0.1
396.8
19.4
0.8
417.1
Maximum exposure to loss
Loans and other receivables, the maximum exposure to loss is the current carrying value of these interests representing the
amortised cost at reporting date.
The maximum loss exposure for the interest rate swaps is unlimited and unquantifiable as these swaps pay a floating rate of
interest which is uncapped.
The following table summarises the Group’s maximum exposure to loss from its involvement at 30 June 2015 and 2014 with
structured entities.
Cash and cash equivalents
Senior notes
Investment
Interest rate swap
Carrying
amount
2015
$m
0.1
184.9
6.8
0.1
Maximum
loss exposure
2015
$m
0.1
184.9
6.8
**
Carrying
amount
2014
$m
0.1
396.8
19.4
0.8
Maximum
loss exposure
2014
$m
0.1
396.8
19.4
**
** Maximum loss exposure not disclosed as it is deemed to be potentially unlimited and not quantifiable.
Significant restrictions
There are no significant restrictions imposed by any
unconsolidated structured entity on the Group’s ability to
access or use its assets or settle its liabilities.
Recognition and measurement
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity. Involvement with structured entities
varies and includes debt financing of these entities as well
as other relationships. A review is undertaken to determine
the involvement the Group has and whether the involvement
with these entities results in significant influence, joint
control or control over the structured entity. The structured
entities over which control can be exercised are consolidated.
These entities are outlined in Note 32 Subsidiaries and other
controlled entities.
The Group has no contractual arrangements that would
require it to provide financial or other support to a
consolidated or unconsolidated entity. The Group has not
previously provided financial support, and has no intention to
provide such support to these entities.
Managed Investment funds
Sandhurst Trustees Limited (STL), a subsidiary of the Group,
acts as a responsible entity for certain managed investment
funds. The decision-making rights of the fund are restricted
to the Product Disclosure Statements. The fees received by
STL are not variable, are commensurate with the services
provided and are consistent with similar funds in the market.
Where STL holds investments in the funds, and is exposed to
variability of returns, the magnitude is determined. As long as
the aggregate economic interest by STL represents less than
37% of the total units in the fund, it is concluded that STL is
an agent and consolidation is not required. This percentage
may change depending on certain factors, such as dilution of
unit ownership and duration of operation.
Community Banks
Community Banks are not consolidated by the Group as the
Group does not have power to govern decision making in
those companies, and while the Group’s returns are variable
they are calculated as a percentage of the gross margin.
In some cases the Group holds shares in Community Bank
branches and has representation on the Board, refer to
Note 23 Investment accounted for using the equity method.
Consolidation of a Community Bank Branch would occur when
the Group has power to affect returns through the majority
representation on the Board.
Alliance partners
Alliance partners are not consolidated by the Group as the
Group does not have power to govern decision making, and
while the Group’s returns are variable they are calculated
as a percentage of the gross margin. The Group has no
representation on the board of these entities.
118
35. Fiduciary activities
The Group conducts investment management and other fiduciary activities as responsible entity, trustee, custodian or manager for
a number of funds and trusts, including superannuation, unit trusts and mortgage pools.
The amounts of the funds concerned are:
Funds under trusteeship
Assets under management
Funds under management
Group
2015
$m
4,366.3
1,919.2
2,246.6
2014
$m
3,616.2
1,703.9
1,686.6
Recognition and measurement
The assets and liabilities of these trusts and funds are not included in the consolidated financial statements as the Group does
not have direct or indirect control of the trusts and funds. Commissions and fees earned in respect of the activities are included in
the income statement of the Group.
As an obligation arises under each type of duty, the amount of funds has been included where that duty arises. This may lead to the
same funds being shown more than once where the Group acts in more than one capacity in relation to those funds (e.g. manager
and trustee). Where controlled entities, as trustees, custodian or manager incur liabilities in the normal course of their duties,
a right of indemnity exists against the assets of the applicable trusts. As these assets are sufficient to cover liabilities, and it is
therefore not probable that the Group will be required to settle them, the liabilities are not included in the financial statements.
36. Provisions
Group
Opening balance
Provision acquired in business combination
Additional provision recognised
Movement due to change in discount rate
Amounts utilised during the year
Closing balance
Bank
Opening balance
Provision acquired in business combination
Additional provision recognised
Movement due to change in discount rate
Amounts utilised during the year
Closing balance
Employee Benefits
Property Rent
Other
Total
2015
$m
2014
$m
2015
$m
91.5
83.8
1.9
48.3
(0.4)
0.3
48.1
-
(45.2)
(40.7)
96.1
91.5
87.3
1.9
46.0
(0.3)
80.6
-
45.5
-
(43.3)
(38.8)
91.6
87.3
7.3
-
6.9
-
(1.5)
12.7
7.3
-
6.9
-
(1.5)
12.7
2014
$m
1.1
-
2015
$m
6.2
-
2014
$m
2015
$m
2014
$m
8.6
105.0
93.5
-
1.9
0.3
7.2
296.2
256.6
351.4
311.9
-
-
-
(0.4)
-
(1.0)
(296.5)
(259.0)
(343.2)
(300.7)
7.3
5.9
6.2
114.7
105.0
1.1
-
6.2
-
8.6
100.8
90.3
-
1.9
-
7.2
296.2
256.6
349.1
309.3
-
-
-
(0.3)
-
(1.0)
(296.5)
(259.0)
(341.3)
(298.8)
7.3
5.9
6.2
110.2
100.8
119
2015 ANNUAL FINANCIAL REPORT 36. Provisions (continued)
Recognition and measurement
Employee benefits
The table below shows the individual balances for employee benefits:
Annual leave
Other employee payments
Long service leave
Sick leave bonus
Closing balance
Group
Bank
2015
$m
26.7
6.5
55.8
7.1
96.1
2014
$m
25.2
11.2
48.8
6.3
91.5
2015
$m
24.9
5.8
53.8
7.1
91.6
2014
$m
23.3
10.7
47.0
6.3
87.3
Annual leave and long service leave are measured as the
present value of expected future payments for the services
provided by employees up to the reporting date. The provision
is measured at the amounts that are expected to be paid
when the liabilities are settled. Expected future payments are
discounted using corporate bond rates.
Annual leave is accrued on the basis of full pro rata
entitlement and amounts are estimated to apply when the
leave is paid.
It is anticipated that annual leave will be paid in the ensuing
twelve months.
Long service leave has been assessed at full pro rata
entitlement in respect of all employees with more than one
year’s service. The assessment considers the likely number
of employees that will ultimately be entitled to long service
leave, estimated future salary rates and on-costs.
Sick leave bonus provides an entitlement dependent on an
employee’s years of service and unused sick leave and is paid
on termination.
Other employee payments include short term incentives and
are expected to be paid in the ensuing twelve months.
Property rent
The provision for property rent is to recognise the difference
between actual property rent paid and the property rent
expense recognised in the income statement. The lease
expense is recognised on a straight line basis over the period
of the lease. The provision is expected to be utilised over the
period of the respective leases, typically a period between
three and ten years. However, it is expected that a balance will
continue as old leases expire and are replaced by new leases.
Other
The provision for dividends represents the residual carried
forward balance in relation to ordinary shareholders that
participate in the dividend reinvestment plan. It is expected
that the current balance will be utilised within a twelve month
period. However, an ongoing balance will continue unless all
outstanding balances are paid to shareholders upon ceasing
participation in the dividend reinvestment plan. The provision
also includes accrued dividends relating to preference shares.
The provision of rewards program is to recognise the liability
to customers in relation to points earned by them under the
program. Reward points expire after three years. The balance
will be utilised or forfeited during that period.
Recognition and measurement
Provisions are recognised when the Group has a legal,
equitable or constructive obligation to make a future sacrifice
of economic benefits to other entities as a result of past
transactions or other past events, and it is probable that a
future sacrifice of economic benefits will be required and a
reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions
are determined by discounting the expected cash flows at a
pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific
to the liability.
Where discounting is used the increase in the provision due to
the passage of time is recognised as a finance cost.
A provision for dividend is not recognised as a liability unless
the dividend is declared, determined or publicly recommended
on or before the reporting date.
120
37. Share based payment plans
The Group provides benefits to employees by offering share-
based compensation whereby employees render services in
exchange for shares or rights over shares.
These share based incentive plans form an integral part of the
Group’s remuneration package with the objective of aligning
the interests of executives and general employees to the
interests of shareholders.
Further detailed information including terms and
conditions associated with each plan is included in the
Remuneration Report.
Details of current plans
Performance rights
The Plan provides for grants of performance rights to
the Managing Director, Senior Executives and key senior
management (the Participants) as determined by the Board.
Participants are invited to receive grants of performance
rights (called performance shares) that are subject to
performance conditions set by the Board.
The performance rights are subject to the following
performance conditions:
}} increase in cash earnings per share from previous
financial year, followed by a total shareholder return (TSR)
performance hurdle; and
}} continuing service with the Group.
The number of performance rights granted to Participants
is determined by dividing the remuneration value of the
proposed grant by the volume weighted average closing price
of the Company’s shares for the last five trading days of the
financial year prior to the year of grant.
The Participants are entitled to vote and to receive any
dividend, bonus issue, return of capital or distribution made in
respect of shares they are allocated on vesting and exercise
of their performance rights. The grants to the Managing
Director are subject to a further one year dealing restriction.
There are no other restrictions for other participants.
The outstanding balance as at 30 June 2015 is represented
by 662,051 rights over ordinary shares with an exercise price
of nil, each exercisable upon meeting the required conditions,
and until 2017.
Deferred shares
Under the Plan, Participants are granted deferred shares
as part of their base remuneration and short term incentive
payments. The deferred shares are beneficially owned by the
Participant from the grant date and are held on trust for a
two-year period.
The deferred shares issued are granted subject to certain
Board imposed conditions being satisfied as follows:
}} two-year continued service condition; and
}} risk conditions
If the service condition is satisfied, the deferred shares will
vest subject to any risk conditions.
The number of shares awarded as part of the plan are
calculated by dividing the deferred remuneration value by
the volume weighted average closing price of the Company’s
shares for the last five trading days of the financial year prior
to the year of grant. The Participants are entitled to vote
and to receive any dividend, bonus issue, return of capital or
distribution made in respect of shares they are allocated on
vesting and exercise of their performance rights.
The outstanding balance as at 30 June 2015 is represented
by 263,877 deferred shares over ordinary shares with an
exercise price of nil, each being exercisable upon meeting the
required conditions, and until 2016.
Employee Share Grant Scheme (ESGS)
The Company has established a share based incentive plan
for full time and permanent part time employees of the Group
(excluding Directors and Senior Executives).
The shares will be held in trust for a period of three years
after which time they will be transferred to the employee.
During the restricted period employees will be entitled to
receive dividends and to vote at general meetings.
As at 30 June 2015 there were 246,018 fully paid ordinary
shares held by the Plan Trustee.
Employee Share Plan
The Company established a loan based limited recourse
Employee Share plan in 2006. The Plan is only available to full
time and part time employees of the Group (excluding Senior
Executives and the Managing Director).
The Plan provides employees with a limited recourse interest
free loan for the sole purpose of acquiring fully paid ordinary
shares in the Company. The shares must be paid for by the
employee with cash dividends after personal income tax
being applied to repay the loans. Employees cannot exercise,
dispose or transfer the shares until the loan has been
fully repaid.
The first issue to staff under this plan was completed in
September 2006 with a further grant made in December
2007. There have been no further issues under this Plan.
Employee Share Ownership Plan (discontinued)
In 2006 the Company discontinued the existing loan based
Employee Share Ownership Plan that was open to all
employees of the Group. The Plan will continue as a legacy
plan until such time as the loans provided to fund share
purchases under the Plan have been repaid. There have
been no issues of the shares under this Plan since November
2004. Information on the number, weighted average exercise
price, loan balances and movements in the Employee Share
Ownership Plan during the year have been aggregated into the
Employee Share Plan. The terms of the Plan are consistent
with the Employee Share Plan described above.
The outstanding balance as at 30 June 2015 is represented
by 1,994,420 ordinary shares with a market value of
$24,451,589 at 30 June 2015 (30 June 2015 share price
$12.26), exercisable upon repayment of the employee loan.
121
2015 ANNUAL FINANCIAL REPORT 37. Share based payment plans (continued)
Summary of details under the various plans
The current grants under the Plans are as follows:
Grant date
Share plan Category
Jan-09
Mar-10
Feb-11
Sep-11
Aug-12
Oct-13
Oct-13
Dec-13
Dec-13
Jul-14
Jul-14
Oct-14
Dec-14
Dec-14
ESGS
ESGS
ESGS
Performance rights
Performance rights
ESGS
Deferred STI shares
Deferred Base shares
Performance rights
Deferred Base shares
Performance rights
Deferred STI shares
Deferred Base shares
Performance rights
Number
granted
764,504
340,039
327,233
23,201
202,739
274,251
30,397
80,152
148,090
152,438
152,438
35,714
75,725
158,784
Weighted average
fair value
$10.78
$10.03
$9.78
$5.45
$3.30
$10.47
$10.38
$10.86
$4.45
$12.28
$7.06
$11.74
$12.89
$5.53
The following table details the number (No.), weighted average exercise price (WAEP) and movements in the various plans during
the year:
Performance rights
Deferred shares
2015
No. 2
2015
WAEP 1
2014
No.
2014
WAEP 1
2015
No. 2
2015
WAEP 1
2014
No.
2014
WAEP 1
Outstanding at the
beginning of the
year
358,950
$
Granted during the
year
311,222
Forfeited/lapsed
during the year
Vested/exercised
during the year
(2,843)
(5,278)
Outstanding at the
end of the year
662,051
$
$
$
$
-
-
-
-
-
531,337
$
148,090
(91,522)
(228,955)
358,950
$
$
$
$
-
-
-
-
-
110,549
$
263,877
-
(110,549)
263,877
$
$
$
$
-
-
-
-
-
94,521
$
110,549
-
(94,521)
110,549
$
$
$
$
-
-
-
-
-
1 The performance rights and deferred shares are granted at no cost and have no exercise price.
2 Closing balance of performance rights and deferred shares are exercisable until 30 June 2017 and 30 June 2015 respectively.
Share Grant Scheme
Employee Share Plan
2015
No.
2015
WAEP
2014
No.
2014
WAEP
2015
No.
2015
WAEP
2014
No.
2014
WAEP
262,555
$
-
-
(16,537)
246,018
$
$
$
$
Outstanding at the
beginning of the
year
Granted during the
year
Forfeited during
the year
Vested/exercised
during the year
Outstanding at the
end of the year
Exercisable at the
end of the year
122
-
-
-
-
-
278,310
$
274,251
-
(290,006)
262,555
$
$
$
$
-
-
-
-
-
3,147,589
$
5.16
3,313,037
$
5.65
-
$
-
(1,153,169)
1,994,420
1,994,420
$
$
$
$
-
-
-
-
2.50
(165,448)
5.93
3,147,589
5.93
3,147,589
$
$
$
$
$
-
-
5.67
5.16
5.16
37. Share based payment plans (continued)
Recognition and measurement
The cost of the employee services received in respect
of shares or rights granted is recognised in the income
statement over the period the employee provides the
services, generally the period between the grant date and the
vesting date of the shares or rights.
The overall cost of the award is calculated using the number
of shares or rights expected to vest and the fair value of the
shares or rights at the grant date.
Fair value methodology
The fair value of shares or rights granted under the various
Plans takes into account the terms and conditions upon which
the shares or rights were granted.
Performance rights
The fair value is determined using Black Scholes Merton
Option pricing model incorporating a Monte Carlo Simulation
option pricing model taking into account the terms and
conditions upon which the rights were granted.
The following inputs are used in the models:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of performance rights (years)
Exercise price ($)
Managing
Director
2015
Other
executives
2015
6.50%
6.00%
2014
7.50%
22.00%
18.00%
22.00%
2.57%
2.31%
2.91%
3
Nil
4
Nil
4
Nil
The expected life of the performance rights are based on
historical data, and are not necessarily indicative of exercise
patterns that may occur. The expected volatility reflects the
assumption that the historical volatility is indicative of future
trends, which may also not necessarily be the actual outcome.
No other features of shares granted were incorporated into
the measurement of fair value. The fair value is determined by
an independent valuation.
Deferred Shares
The fair value is measured as at the date of the grant using
the volume weighted average closing price of the Company’s
shares traded on the ASX for five trading days ending on the
grant date.
Employee Share Grant Scheme
The fair value is the issue price and is calculated using the
volume weighted average closing price of the Company’s
shares traded on the ASX for five trading days ending on the
issue date.
Employee Share Plan
The fair value of the shares granted under the Plan is
estimated at the date of each grant using the Black Scholes
Merton Option pricing model incorporating a Monte Carlo
Simulation option pricing model. The fair value is determined
by an independent valuation.
123
2015 ANNUAL FINANCIAL REPORT 38. Property, plant and equipment
Group
Freehold land
$m
Freehold
buildings
$m
Leasehold
improvements
$m
Office
equipment &
vehicles 1
$m
Carrying amount as at 1 July 2014
1.3
1.7
Additions
Additions through business acquisitions
Disposals
Depreciation expense
Closing balance as at 30 June 2015
Carrying amount as at 1 July 2013
Additions
Disposals
Revaluations
Depreciation expense
Closing balance as at 30 June 2014
Bank
-
-
-
-
1.3
1.0
-
-
0.3
-
1.3
-
-
-
-
1.7
1.0
-
-
0.7
-
1.7
Carrying amount as at 1 July 2014
0.3
0.4
Additions
Additions through business acquisitions
Disposals
Depreciation expense
Closing balance as at 30 June 2015
Carrying amount as at 1 July 2013
Additions
Disposals
Revaluations
Depreciation expense
Transfer assets from subsidiary to parent
-
-
-
-
0.3
0.3
-
-
-
-
-
Closing balance as at 30 June 2014
0.3
1 includes office equipment, furniture and fittings.
-
-
-
-
0.4
0.2
-
-
0.2
-
-
0.4
64.2
8.7
0.3
(0.5)
(11.3)
61.4
38.4
35.7
(0.7)
-
(9.2)
64.2
63.6
8.2
0.3
(0.5)
(11.2)
60.4
37.5
35.7
(0.5)
-
(9.1)
-
63.6
29.6
15.3
2.0
(1.4)
(11.1)
34.4
23.0
17.6
(1.3)
-
(9.7)
29.6
28.1
14.5
2.0
(1.2)
(10.7)
32.7
21.5
16.9
(1.0)
-
(9.2)
(0.1)
28.1
If land and buildings were measured using the cost model the carrying amounts would be as follows:
Group
Bank
2015
0.4
0.6
(0.4)
0.6
2014
0.4
0.6
(0.4)
0.6
2015
0.1
0.1
(0.1)
0.1
Land
Buildings
Accumulated depreciation and impairment
Net carrying amount
124
Total
$m
96.8
24.0
2.3
(1.9)
(22.4)
98.8
63.4
53.3
(2.0)
1.0
(18.9)
96.8
92.4
22.7
2.3
(1.7)
(21.9)
93.8
59.5
52.6
(1.5)
0.2
(18.3)
(0.1)
92.4
2014
0.1
0.1
(0.1)
0.1
38. Property, plant and equipment (continued)
Recognition and measurement
Cost and valuation
Plant and equipment is measured at cost less accumulated
depreciation and/or impairment. Land is measured at fair value
and buildings are measured at fair value less accumulated
depreciation.
All assets having limited useful lives, except land, are
depreciated from the date of acquisition using the straight line
method over their estimated useful lives as follows:
Asset category
Freehold buildings
Leasehold improvements
Plant & equipment
Furniture, fixtures and fittings
Motor vehicles
2015
40
10-12
4-10
4-5
5
2014
40
10-12
4-10
4-5
5
The residual value, the useful life and the depreciation
method applied to an asset are reviewed at least annually.
Where an asset’s carrying value is assessed to be more than
the recoverable amount, an impairment loss is recognised.
Revaluations
Following initial recognition at cost, land and buildings
are carried at a revalued amount which is the fair value
at the date of the revaluation less any subsequent
accumulated depreciation on buildings and accumulated
impairment losses.
Derecognition
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any
gain or loss arising on derecognition of the asset is included
in the income statement in the year the item is derecognised.
125
2015 ANNUAL FINANCIAL REPORT 39. Commitments and contingencies
(a) Commitments
The following are outstanding expenditure and credit related commitments as at 30 June 2015. Except where specified, all
commitments are payable within one year.
Operating lease commitments (as lessee)
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Operating lease commitments (as lessor)
Not later than 1 year
Later than 1 year but not later than 5 years
Credit related commitments
Group
Bank
2015
$m
68.6
199.4
157.7
425.7
3.0
13.7
16.7
2014
$m
70.3
187.5
172.3
430.1
1.2
2.5
3.7
2015
$m
68.5
199.3
157.7
425.5
3.0
13.7
16.7
2014
$m
68.3
180.2
163.4
411.9
1.2
2.5
3.7
Gross loans approved, but not advanced to borrowers
1,610.2
1,506.3
1,569.3
1,457.9
Credit limits granted to clients for overdrafts and credit cards 1
Total amount of facilities provided
Amount undrawn at balance date
9,979.6
10,095.6
9,107.0
9,180.3
4,034.4
3,813.8
3,876.3
3,665.0
1 Normal commercial restrictions apply as to use and withdrawal of the facilities.
Recognition and measurement
Operating leases
An operating lease is a lease where substantially all of the
risks and rewards of the leased assets remain with the lessor.
The Group has entered into commercial property leases
and commercial leases on certain motor vehicles and items
of office equipment. The leases have various terms and
some property leases include optional renewal periods in
the contracts.
There are no restrictions placed upon the lessee by entering
these leases. Payments made under operating leases are
recognised in the income statement on a straight line basis
over the term of the lease. Lease incentives received are
recognised as an integral part of the lease expense, over the
term of the lease.
The Group has entered into commercial property leases on
the Group’s surplus office space. These non-cancellable
leases have various terms. All leases have a clause to enable
upward revision of the rental charge on a regular basis
according to prevailing market conditions. Rentals received
are recognised in the income statement on a straight line
basis over the lease term.
Future minimum rentals payable and receivable under non-
cancellable operating leases as at 30 June 2015 are outlined
in the table above.
(b) Superannuation commitments
Defined Benefits Plan
The Bendigo and Adelaide Bank Group has a legally
enforceable obligation to contribute to a superannuation plan
for employees either on an accumulation basis (including
the Superannuation Guarantee Charge) or on a defined
benefits basis (Adelaide Bank staff superannuation plan)
which provides benefits on retirement, disability or death
based on years of service and final average salary. Employees
contribute to the plan at a fixed percentage of remuneration.
The Group’s contribution to the defined benefit plan is
determined by the Trustee after consideration of actuarial
advice. At balance date, the Directors believe that funds
available were adequate to satisfy all vested benefits under
the plan. Contributions are reviewed annually.
126
39. Commitments and contingencies (continued)
(b) Superannuation commitments (continued)
Recognition and measurement
The asset or liability recognised on the balance sheet in respect of the defined benefit plan is the present value of the defined
obligation at the balance date less the fair value of the plan assets. An actuarial valuation is performed on an annual basis.
Any actuarial gains and losses are applied to other comprehensive income. Interest and servicing costs are expensed through the
income statement.
Balance of Defined benefit plan
Defined Benefit Obligation ^
Less Fair value of Plan assets
Net defined benefit (asset)/liability
^ includes defined benefit contributions tax provision
Group
2015
$m
5.9
9.1
(3.2)
2014
$m
7.0
11.9
(4.9)
Actuarial gains and (losses) recorded in other comprehensive income were ($1.1 million) (June 14: $1.1 million) and expenses
recorded in the income statement were $0.1 million (June 14: $0.2 million).
Plan Information
Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. The defined benefit
section of the Plan is closed to new members. All new members are entitled to become members of the accumulation categories
of the fund. The Superannuation Industry Supervision (SIS) legislation governs the superannuation industry and provides the
framework within which superannuation plans operate.
The Plan’s Trustee is responsible for the governance of the Plan. The Trustee has a legal obligation to act solely in the best
interests of Plan beneficiaries.
Plan Assets
The percentage invested in each asset class at the balance sheet date:
Australian Equity
International Equity
Fixed Income
Property
Alternatives
Cash
Group
2015
46%
20%
17%
5%
2%
10%
2014
36%
31%
16%
5%
6%
6%
Risk Exposures
There are a number of risks to which the Plan exposes the Company. The more significant risks relating to the defined benefits are:
Investment Risk - The risk that investment returns will be lower than assumed and the Company will need to increase
contributions to offset this shortfall.
Salary Growth Risk - The risk that wages or salaries (on which future benefit amounts will be based) will rise more rapidly than
assumed, increasing defined benefit amounts and thereby requiring additional employer contributions.
Legislative Risk - The risk is that legislative changes could be made which increase the cost of providing the defined benefits.
Timing of members leaving service - As the Plan has only a small number of members, if members, with large benefits or groups
of members leave this may have an impact on the financial position of the Plan, depending on the financial position of the Plan at
the time they leave. The impact may be positive or negative, depending upon the circumstances and timing of the withdrawal.
127
2015 ANNUAL FINANCIAL REPORT
39. Commitments and contingencies (continued)
(b) Superannuation commitments (continued)
The defined benefit assets are invested in the Mercer Growth Option, a Mercer Superannuation Investment Trust investment
product, and Bendigo and Adelaide Bank Limited Shares (referred to as Bank Shares). The assets have a 66% weighting to equities
and therefore the Plan has a significant concentration of equity market risk. However, within the equity investments, the allocation
both globally and across the sectors is diversified.
(c) Contingent liabilities and contingent assets
Contingent liabilities
Group
2015
$m
2014
$m
Bank
2015
$m
2014
$m
Guarantees
The economic entity has issued guarantees on behalf of clients
231.0
255.2
228.3
252.7
Other
Documentary letters of credit & performance related obligations
7.0
11.7
7.0
11.5
As the probability and value of guarantees, letters of credit
and performance related obligations that may be called on
is unpredictable, it is not practical to state the timing of any
potential payment.
Recognition and measurement
Financial guarantees
Bank guarantees have been issued by the bank on behalf of
customers whereby the bank is required to make specified
payments to reimburse the holders for a loss they may incur
because the customer fails to make a payment.
Contingent liabilities are not recognised on the balance sheet.
The contractual term of the guarantee matches the underlying
obligations to which it relates. The fair value of financial
guarantee contracts has been assessed using a probability
weighted discounted cash flow approach. The guarantees
issued by the bank are fully secured and the bank has never
incurred a loss in relation to the financial guarantees it
has provided.
Legal claims
The Group is engaged in a range of litigation and court
proceedings at any point in time. However, no current
proceedings or claims are expected to have a material effect
on the business, financial condition or operating results of
the Group. For all litigation exposures where loss is probable
and can be reliably estimated an appropriate provision is
made. The Group has no provisions raised for any current
legal proceedings.
Contingent assets
As at 30 June 2015, the economic entity does not have any
contingent assets.
128
40. Auditors’ remuneration
Group
2015
$
2014
$
Bank
2015
$
2014
$
Total fees paid or due and payable to Ernst & Young (Australia) 1
Audit and review of financial statements 2
1,829,042
2,062,943
1,422,670
1,618,026
Audit related fees
Regulatory 3
Non-regulatory 4
313,705
312,057
241,358
240,678
694,833
1,010,536
530,400
798,109
Total audit related fees
1,008,538
1,322,593
771,758
1,038,787
All other fees 5
Taxation services
Other services
Total other fees
2,000
-
2,000
800
4,429
5,229
-
-
-
800
-
800
Total remuneration of Ernst & Young (Australia)
2,839,580
3,390,765
2,194,428
2,657,613
1 Fees exclude goods and services tax.
2 Audit and review of financial statements includes payments for the audit of the financial statements of the Group and Bank, including controlled entities
that are required to prepare financial statements.
3 Audit related fees (Regulatory) consist of fees for services required by statute or regulation that are reasonably related to the performance of the audit of
the Group’s financial statements and are traditionally performed by the external auditor. These services include assurance of the Group’s compliance with
APRA and Australian Financial Services Licensing reporting and compliance requirements.
4 Audit related fees (Non-regulatory) consist of fees for assurance and related services not required by statute or regulation but are reasonably related to
the performance of the audit or review of the Group’s financial statements which are traditionally performed by the external auditor. These services include
assurance of funding and capital raising and data and model validation for Basel II advanced accreditation.
5 All other fees, including taxation services and other advice are incurred under the audit committee’s pre-approval policies and procedures, having regard to
the auditor’s independence requirements of applicable laws, rules and regulations, and assessment that each of the non-audit services provided would not
impair the independence of Ernst & Young.
41. Events after balance sheet date
No other matters or circumstances have arisen since the
end of the financial year which significantly affected or may
significantly affect the operations of the economic entity,
the results of those operations, or the state of affairs of the
economic entity in subsequent financial years.
129
2015 ANNUAL FINANCIAL REPORT Directors’ Declaration
In accordance with a resolution of the directors of Bendigo and Adelaide Bank Limited, we state that:
In the opinion of the directors:
a.
the financial statements and notes of the Company and the Bendigo and Adelaide Bank Group are in accordance with the
Corporations Act 2001, including:
i.
ii.
giving a true and fair view of the Company’s and the Bendigo and Adelaide Bank Group’s financial position as at 30 June
2015 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations
Regulations 2001; and
b.
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2 and
c.
d.
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable;
this declaration has been made after receiving the declarations required to be made to the directors in accordance with
section 295A of the Corporations Act 2001 for the financial year ending 30 June 2015.
Mike Hirst
Managing Director
On behalf of the board
Robert Johanson
Chairman
1 September 2015
130
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent auditor’s report to the members of Bendigo and Adelaide Bank Limited
Report on the financial report
We have audited the accompanying financial report of Bendigo and Adelaide Bank Limited, which comprises the consolidated
balance sheet as at 30 June 2015, the consolidated statement of comprehensive income, the consolidated statement of changes
in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant
accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the
company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors
determine are necessary to enable the preparation of the financial report that is free from material misstatement, whether due
to fraud or error. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance
with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the
financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant
to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the
directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
131
2015 ANNUAL FINANCIAL REPORT Opinion
In our opinion:
a.
the financial report of Bendigo and Adelaide Bank Limited is in accordance with the Corporations Act 2001, including:
i. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the
year ended on that date; and
ii. complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.
Report on the remuneration report
We have audited the Remuneration Report included in pages 24 to 48 of the directors’ report for the year ended 30 June 2015.
The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with
section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our
audit conducted in accordance with Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Bendigo and Adelaide Bank Limited for the year ended 30 June 2015, complies with
section 300A of the Corporations Act 2001.
Ernst & Young
J W MacDonald
Partner
Melbourne
1 September 2015
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
132
Additional information
1. Material differences
There are no material differences between the information
supplied in this report and the information in the preliminary
final report supplied by Bendigo and Adelaide Bank Limited to
the Australian Securities Exchange on 10 August 2015.
2. Audit Committee
As at the date of the Directors’ Report the Group had an Audit
Committee of the Board of Directors.
3. Corporate governance practices
The corporate governance practices adopted by Bendigo
and Adelaide Bank Limited are as detailed in the Corporate
Governance statement. Please refer to www.bendigoadelaide.
com.au/public/corporate_governance for further details.
4. Substantial shareholders
As at 11 August 2015 there were no substantial shareholders
in Bendigo and Adelaide Bank Limited as detailed in
substantial holdings notices given to the Company.
5. Distribution of shareholders
Range of Securities as at 11 August 2015 in the following
categories:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of Holders
Securities on Issue
Fully Paid
Ordinary
Shares
Fully Paid
Employee
Shares
Convertible
Preference
Shares
Convertible
Preference
Shares 2
Convertible
Preference
Shares 3
35,757
40,407
8,343
4,502
101
3,970
593
24
8
1
5,231
274
29
12
1
4,136
373
30
18
1
5,152
361
18
10
-
89,110
4,596
5,547
4,558
5,541
454,037,495
2,528,730
2,688,703
2,921,188
2,822,108
6. Marketable parcel
Based on a closing price of $12.07 on 11 August 2015 the
number of holders with less than a marketable parcel of the
Company’s main class of securities (Ordinary Shares), as at
11 August 2015 was 3,014.
7. Unquoted securities
The number of unquoted equity securities that are on
issue and the number of holders of those securities are
shown in the above table under the heading of Fully Paid
Employee shares.
133
2015 ANNUAL FINANCIAL REPORT Additional information (continued)
8. Major shareholders
Names of the 20 largest holders of Fully Paid Ordinary shares, including the number of shares each holds and the percentage of
capital that number represents as at 11 August 2015 are:
Fully paid ordinary shares
Rank
Name
Number of shares
% of shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
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