A NNU A L F IN A NC I A L
RE P OR T 2016
Contact us
Bendigo and Adelaide Bank Limited
ABN 11 068 049 178
Registered head office
The Bendigo Centre
22-44 Bath Lane
Bendigo VIC
Australia 3550
Telephone: 1300 361 911
Facsimile: 03 5485 7000
Customer Help Centre
1300 361 911 (local call)
8.30am to 7.30pm weekdays
Australian Eastern Standard Time/Australian
Eastern Daylight Time
Shareholder enquiries
Share Registry
1800 646 042
Email: share.register@bendigoadelaide.com.au
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Front Cover - Bendigo Bank’s Marion branch donated $2,000 to
fund a beach access mat which provides wheelchair access to
the shore so that people like Allira (pictured on cover) can have
fun at the beach during summer.
In an effort to reduce our paper consumption and impact on
the environment, the cover of the Annual Financial Report is
printed on paper sourced from managed plantation forests,
is made elemental chlorine free and has Environmental
Management System accreditation.
TABLE OF CONTENTS
Section 1
Directors’ Report
Directors’ Information
Meetings of Directors and Directors’ Interests in Equity
Auditor’s Independence Declaration
Section 2
Operating and Financial Review
Remuneration Report
Section 3
Financial Statements
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Section 4
Additional Information
Key Performance Indicators
2
2
6
10
12
24
52
58
135
136
138
144
1
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 2016.
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), 65 years
Term of office: Robert has been a Director of the Bank for 28 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 (ceased February 2016) and Technology & Change
Group and joint venture directorships: Rural Bank Limited and Homesafe Solutions Pty Ltd (Chair)
Other director and memberships (including directorships of other listed companies for the previous three years):
Deputy Chancellor, University of Melbourne
Chairman, Australia India Institute, The Conversation and MBD Energy Limited
Director, Robert Salzer Foundation Ltd and Grant Samuel Group Pty Ltd.
Mike Hirst, Managing Director, not independent
BCom (Melb), SFFin, MAiCD, 58 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 Limited
Other director and memberships (including directorships of other listed companies for the previous three years):
Member, Business Council of Australia and Financial Sector Advisory Council
Deputy Chairman, Australian Bankers’ Association Council
Director, Racing Victoria Limited
Member, Centre for Workplace Leadership Advisory Board and MasterCard (Asia Pacific) Advisory Board.
2
ANNUAL FINANCIAL REPORT 2016 Jan Harris, Independent
BEc (Hons), 57 years
Term of office: Jan joined the Board in February 2016.
Skills, experience and expertise: Jan has had a distinguished career in the Australian public service with broad experience in public
and regulatory policy development, economics and governance. Jan has had senior roles in the Department of the Treasury and the
Department of the Prime Minister and Cabinet, including as Deputy Secretary of the Treasury. Jan was a member of the Council of Financial
Regulators, the Centre for International Finance and Regulation, the Financial Sector Advisory Council and the board of the Australian
Reinsurance Pool Corporation.
Board committees: Member of Risk and Audit
Group and joint venture directorships: Rural Bank Limited
Other director and memberships (including directorships of other listed companies for the previous three years):
External Member, Audit and Risk Committee of the Australian Security Intelligence Organisation.
Jim Hazel, Independent
BEc, SFFin, FAICD, 65 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.
Board committees: Chair of Risk and member of Credit and Technology & Change
Group and joint venture directorships: Rural Bank Limited
Other director and memberships (including directorships of other listed companies for the previous three 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 March 2016), Adelaide
Football Club Limited, Motor Accident Commission, Coopers Brewery Ltd and Council Member of the University of South Australia.
Jacqueline Hey, Independent
BCom (Melb), Graduate Certificate in Management (Southern Cross University), GAICD, 50 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: Chair of Technology & Change and member of Governance & HR, Credit (commenced February 2016) and Audit
(ceased February 2016)
Group and joint venture directorships: Rural Bank Limited
Other director and memberships (including directorships of other listed companies for the previous three years):
Director, Qantas Airways Limited (ASX listed, period: August 2013 to present), Australian Foundation Investment Company Limited (ASX
listed, period: July 2013 to present), AGL Energy Limited (ASX listed, period March 2016 to present), Cricket Australia and Melbourne
Business School.
Robert Hubbard, Independent
BA(Hons) Accy, FCA, 57 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 is now a professional Non-executive Director.
Board committees: Chair of Audit and member of Risk
Group and joint venture directorships: Rural Bank Limited
Other director and memberships (including directorships of other listed companies for the previous three years):
Chairman, Orocobre Ltd (ASX and TSX listed, period: November 2012 to present), Central Petroleum Ltd (ASX listed, period: December
2013 to present).
Non-executive director, Primary Health Care Ltd (ASX listed, period: December 2014 to present).
Chairman of MS Research Australia and Council Member of the University of the Sunshine Coast.
3
ANNUAL FINANCIAL REPORT 2016 David Matthews, Independent
Dip BIT, GAICD, 58 years
Term of office: David joined the Board in March 2010.
Skills, experience and expertise: David operates a farm and grain export business based in the Wimmera region of Victoria. David has
involvement in a number of agricultural industry bodies including as a Director and Vice Chairman of Pulse Australia. David chaired the first
Community Bank® company in Rupanyup and Minyip and is an advocate and supporter of the Community Bank® model.
Board committees: Member of Credit and Audit
Group and joint venture directorships: Rural Bank Limited and Member of the Community Bank® Strategic Advisory Board.
Other director and memberships (including directorships of other listed companies for the previous three years):
Director, Pulse Australia, Australian Grain Technologies, Rupanyup/Minyip Finance Group Ltd.
Deb Radford, Independent
B.Ec, Graduate Diploma Finance & Investment, 60 years
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: Chair of Credit and member of Technology & Change and Governance & HR
Group and joint venture directorships: Rural Bank Limited
Other director and memberships (including directorships of other listed companies for the previous three years):
Director, SMS Management & Technology Ltd (ASX listed, period: September 2013 to present).
Council Member of La Trobe University.
Tony Robinson, Independent
BCom (Melb), ASA, MBA (Melb), 58 years
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 CEO of Centrepoint Alliance Limited, IOOF Holdings Ltd and OAMPS Limited.
Board committees: Chair of Governance & HR and member of Risk and Audit
Group and joint venture directorships: Rural Bank Limited and Sandhurst Trustees Limited
Other director and memberships (including directorships of other listed companies for the previous three years):
Director, TasFoods Limited (ASX listed, period: June 2014 to present), Pacific Current Group Limited (ASX listed, period: August 2015 to
present), PSC Insurance Group Limited (ASX listed, period: September 2015 to present) and Primary Opinion Limited (ASX listed, period:
November 2015 to present).
4
ANNUAL FINANCIAL REPORT 2016 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.
There was no significant change in the nature of the
activities during the year.
After balance date events
The Bank declared a final dividend of 34 cents per ordinary
share on 8 August 2016.
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.
Operating results
Information on the Group’s operating results for the
financial year are contained in the Operating and Financial
Review section of this report.
Dividends
The Directors announced on 8 August 2016 a fully franked
final dividend of 34 cents per fully paid ordinary share. The
final dividend is payable 30 September 2016. The proposed
payment is expected to amount to $155.2 million.
The following fully franked dividends were paid by the Bank
during the year on fully paid ordinary shares:
• A final dividend for the 2015 financial year of 33 cents
per share, paid on 30 September 2015 (amount paid:
$147.2 million); and
• An interim dividend for the 2016 financial year of 34
cents per share, paid on 31 March 2016 (amount paid:
$153.6 million).
Further details on the dividends provided for or paid
during the 2016 financial year on the Bank’s ordinary and
preference shares are provided at Note 7 Dividends of the
Financial Statements.
Review of operations
An analysis of the Group’s operations for the financial year
and the results of those operations, including the financial
position, business priorities and prospects, is presented in
the Operating and Financial Review section of this report.
State of affairs
In the opinion of the Directors there have been no
significant changes in the state of affairs of the Group
during the financial year. Information on events and matters
that affected the Group’s state of affairs is presented in the
Operating and Financial Review section of this report.
5
ANNUAL FINANCIAL REPORT 2016 Meetings of Directors
Information on Board and committee meeting attendance for the year is presented in the following table:
Director
Board
Audit
Credit
Risk
Governance
& HR
Technology &
Change
Committees
Meetings during the year
Robert Johanson
Jan Harris1
Jim Hazel
Jacquie Hey
Mike Hirst
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
A
12
5
12
12
12
12
12
12
12
B
11
5
12
12
12
12
12
12
12
A
1
7
8
8
8
B
1
7
8
8
7
A
B
5
1
5
5
5
1
5
5
A
5
B
4
5
5
A
5
5
5
B
4
5
5
A
4
2
6
B
3
2
6
6
5
6
5
5
5
5
5
5
5
A = Number eligible to attend
B = Number attended
1 Ms Harris joined the Board in February 2016.
Directors’ Interests in Equity
The relevant interest of each Director in shares in the Bank and in units of registered schemes made available by a related
body corporate at the date of this report is as follows:
Director
Ordinary shares
No.
Preference Shares
No.
Performance Rights
No.
Sandhurst Cash
Common Fund ($)2
Robert Johanson
Mike Hirst1
Jan Harris
Jim Hazel
Jacquie Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
204,887
702,796
1,000
24,172
10,013
10,387
28,361
1,900
23,192
-
-
-
-
250
-
-
3,190
-
-
-
-
-
-
-
-
-
-
15,664
-
-
-
-
-
-
-
-
1 Ordinary shares includes 50,000 shares issued under the Bendigo Employee Share Ownership Plan and 4,412 deferred shares issued under the Employee Salary Sacrifice,
Deferred Share and Performance Share Plan.
2 Being a relevant interest in a managed investment scheme made available by Sandhurst Trustees Limited, a subsidiary of the Bank.
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
ANNUAL FINANCIAL REPORT 2016
Share Options and Rights
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.
Performance rights (“rights”) to ordinary shares in the Bank
are issued by the Bank under the Employee Salary Sacrifice,
Deferred Share and Performance Share Plan (“Plan”). Each
right represents an entitlement to one fully paid ordinary
share in the Bank, subject to certain conditions.
During or since the end of the financial year the Bank
granted 175,373 rights (2015: 311,222). This included
111,020 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 454,024 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 2017 and 30 June 2020.
During or since the end of the financial year no rights vested
(2015: nil) 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 2016 to the date of this report, no
rights have lapsed.
Further details of Key Management Personnel equity
holdings during the financial year are detailed in the 2016
Remuneration Report.
Corporate Governance
An overview of the Bank’s corporate governance structures
and practices is presented in the 2016 Corporate Governance
Statement available from the Bank’s website at
www.bendigoadelaide.com.au/public/corporate_
governance/index.asp
The Bank confirms it has followed the ASX Corporate
Governance Council’s Principles and Recommendations (3rd
edition) during the 2016 financial year.
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 2016 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 an environmental requirement.
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 its greenhouse gas emissions and
has voluntarily reported these emissions since 2011 to the
Carbon Disclosure Project.
Indemnification of Officers
The Bank’s Constitution (Rule 105) provides that the Bank
is to indemnify, to the extent permitted by law, each officer
of the Bank against liabilities (including costs, charges,
losses, damages, expenses, penalties and liabilities of
any kind including, in particular, legal costs incurred in
defending any proceedings or appearing before any court,
tribunal, government authority or other body) incurred by an
officer in or arising out of the conduct of the business of the
Bank or arising out of the discharge of the officer’s duties.
As provided under the Bank’s Constitution, the Bank has
entered into deeds providing for indemnity, insurance and
access to documents for each of its 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 of a subsidiary.
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.
7
ANNUAL FINANCIAL REPORT 2016 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 under
this indemnity to 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 and Company Secretaries of
controlled entities who are not Directors or Company
Secretaries of the Bank. The policy also covers officers who
accept external directorships as part of their responsibilities
with 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.
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 2015.
To support the declaration, a formal risk management
and financial statement 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 2016.
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 2016. A copy of
the auditor’s independence declaration is presented at the
end of this section.
8
ANNUAL FINANCIAL REPORT 2016 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.
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 2016:
a. Assurance related fees (Regulatory)
Service Category
Fees $
Entity
AFSL audits, APS 310 and APS
910 audits
228,982
Bendigo and
Adelaide Bank
Limited
AFSL audit, APS 310 and APS
910 audits
81,014
Rural Bank
Limited
Euro Medium Term Note
Program
30,906
Bendigo and
Adelaide Bank
Limited
Sub-total: Assurance related
fees (Regulatory)
340,902
b. Assurance 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
Funds Transfer Pricing
revenue share
295,800
60,180
Securitisation Trusts
87,802
Sub-total: Assurance related
fees (Non-regulatory)
443,782
Total: Non-audit services
784,684
9
ANNUAL FINANCIAL REPORT 2016
1 0
ANNUAL FINANCIAL REPORT 2016 Section 2
Operating and Financial Review
Risk management framework, business uncertainties and
significant business risks
Remuneration Report
12
21
24
1 1
ANNUAL FINANCIAL REPORT 2016 OPER ATING AND FINANCIAL RE VIEW
The Agribusiness division comprises the business activities
of Rural Bank Limited and the Rural Finance business
acquired from the Victorian government in 2014.
Rural Bank provides specialist financial products and
services to primary producers and agribusiness participants
under a separate banking licence.
Rural Bank and Rural Finance products and services are
available online and from a large national network of outlets
and agribusiness lending specialists predominantly based
in rural and regional centres.
The Customer and Agribusiness divisions are assisted by
the following operational and business support divisions:
a. Engagement Innovation: which includes community
engagement, Alliance Bank, Community Sector Banking
and the Community Enterprise Foundation;
b. Corporate: which includes Finance, Strategy and
Treasury, People and Performance and Customer Service
Improvement;
c. Business Enablement: which includes Technology
Services, Technology Strategy and Architecture and
Technology Risk and Information Security; and
d. Risk: which includes Credit Risk, Operational Risk, Middle
Office, the Advanced Accreditation Program along with
Risk Analytics and Governance.
Performance overview
The Bank announced an after tax statutory profit of $415.6
million for the year. This represents a decrease of 2.0 per
cent on the previous year’s result. The statutory earnings per
ordinary share was 90.4 cents (FY2015: 92.5 cents).
The cash earnings result for the year was $439.3 million,
which represents a 1.6 per cent improvement on the previous
year’s result of $432.4 million. The cash earnings per
ordinary share was 95.6 cents (FY2015: 95.1 cents). The
components of the cash earnings result are presented below.
Business and structure overview
The Group provides a broad range of banking and other
financial services primarily to retail customers and small to
medium sized businesses throughout Australia.
Our main business activity is raising funds through
customer deposits and wholesale funding markets and
lending those funds to our customers. The major lending
activities are commercial finance, business lending and
consumer finance which includes residential loans, personal
loans, credit cards and overdrafts.
Our main revenue sources are:
a. Net interest income which is represented by the interest
earned from our lending activities and liquidity portfolio,
less interest paid on deposits and other funding sources;
and
b. Fee and commission revenue from the provision of
banking, investment, insurance and superannuation
products and services.
During the year we reorganised our operating structure
into two customer-facing divisions. This brings together our
customer-facing businesses to provide a more consistent
customer experience. The divisions are the ‘Customer’
division and ‘Agribusiness’ division.
The Customer division includes:
a. Local Connection which incorporates branch banking
(including Community Bank® and Delphi Bank®), business
banking and financial markets. The services are available
from our national network of more than 600 branches
and agencies, business bankers, call centres, on-line and
phone banking services and network of more than 1,700
ATMs.
b. Partner Connection which brings together our Third Party
Banking, Wealth and Leveraged businesses.
Third Party Banking offers commercial, residential and
consumer finance through intermediaries including
mortgage managers and brokers. It also includes our
Portfolio Funding business which provides funding to
finance companies.
Wealth is our provider of superannuation, investment,
traditional trustee and financial planning services.
The services are mainly provided by our subsidiaries,
Sandhurst Trustees Limited and Bendigo Financial
Planning Limited.
Leveraged is our margin lending business. The services
are provided by our subsidiary, Leveraged Equities
Limited and the dedicated team of business development
and business relationship managers.
c. This division also includes our Online Connection,
Call Connection, Customer Voice and Customer Led
Innovation activities, along with Homesafe Solutions.
1 2
ANNUAL FINANCIAL REPORT 2016 The move to advanced accreditation has significantly lifted
our risk management capability and improved how we serve
our customers.
We are working through a period of very low growth, both
domestically and around the world, and combined with
the record low interest rates and the highly competitive
environment, revenue growth will continue be a challenge
for the banking sector. However, we believe our market
positioning along with the strong capital, funding and credit
position means our outlook remains positive.
Analysis of financial performance
Net interest income
The reduction in net interest income was mainly due to a 4
basis point decrease in our net interest margin for the year.
A breakdown of movements in the net interest margin are
presented below.
1 Community Bank and Alliance share.
The main factors impacting our net interest margin were
the high levels of competition in the lending and deposit
markets, volatile wholesale funding markets and the impact
of cash rate reductions during the period.
The impact of the net interest margin contraction was offset
to some extent by asset growth.
Competition for new lending was again challenging given
the unsustainable pricing offered in the market, particularly
during the first half of the year.
We also experienced a customer preference for fixed rate
mortgages which tend to have a lower margin than variable
rate mortgages.
Our disciplined approach to product pricing, growth and
product mix enabled us to limit the extent to which net
interest margin contracted.
Total assets grew by $2.55 billion and total liabilities
increased by $2.38 billion over the period. The asset growth
was largely driven by growth in our lending portfolios and
the liability growth was mainly represented by deposit
growth.
The cash basis return on average ordinary equity was 8.94
per cent and the return on average tangible equity was
12.94 per cent.
The Bank declared a final fully franked dividend of 34 cents
per share, lifting the full-year dividend by 2 cents to 68
cents per share.
A reconciliation between the statutory profit and cash
earnings for the year is provided at Note 5 Segment Results
in the 2016 Financial Report.
This was again a very challenging year with ongoing market
volatility, high levels of competition for new mortgages and
business loans and generally low levels of consumer and
business confidence.
The result is a positive reflection on how well we are
implementing our business strategies and our unique and
valued customer proposition. The result also shows we are
starting to realise benefits from our major investments and
ongoing focus on cost savings and operating efficiency.
Throughout the year the Bank maintained a strong balance
sheet position including healthy liquidity and capital
positions. Our Basel III Common Equity Tier 1 ratio was
8.09 per cent as at 30 June 2016 and our total capital ratio
was 12.21 per cent. Our indicative net stable funding ratio
was approximately 115 per cent and the liquidity coverage
ratio was 118.2 per cent.
We are consistently ranked number one in customer
satisfaction indexes reflecting the core strength of our retail
brand and distribution network. These strengths enabled
the business to lift the retail deposit mix to 82 per cent at
year end.
The business has continued to invest for the future by
developing the skills and knowledge of our staff and
delivering innovative and customer focused solutions.
This included new technologies and digital functionality to
provide our customers with more flexibility in accessing our
products and services.
The result also demonstrates our disciplined approach
to margin and cost management and focus on growing at
profitable prices. Whilst demand for housing lending has
been solid, particularly in the second half, our customers
have taken advantage of the low interest rates by repaying
their loans ahead of schedule, which impacted overall loan
portfolio growth.
Credit quality is sound with arrears levels and bad and
doubtful debt charges being below the previous financial
year.
The later part of the year saw a return to good lending
volumes and very strong deposit inflows. All our major
businesses recorded sound growth momentum across the
last four months with improved lending growth in our rural,
business and mortgage portfolios.
For the past few years we have been reporting on our
project to achieve advanced accreditation under the
Australian Prudential Regulation Authority's (APRA)
advanced capital measurement model (Basel II). The project
is now very well progressed and we are now managing the
business as an advanced bank from a Basel II perspective.
1 3
ANNUAL FINANCIAL REPORT 2016 Loan portfolio
Net loans at the end of FY16 were $57.25 billion. This
represents an increase of $1.72 billion (3.1 per cent) on the
previous financial year.
The increase for the year included:
a. Residential lending growth of $1,805.6 million
(5 per cent);
b. Consumer lending growth of $101.5 million
(3.8 per cent);
c. Margin lending decrease of $49.8 million (2.8 per cent);
and
d. Commercial lending decrease of $116.3 million
(0.8 per cent).
The above portfolio growth compares to total system growth
of 8.1 per cent and residential lending system growth of 6.6
per cent.
Residential loan approvals for the year remained solid
at $10.85 billion and represents a 3.2 per cent increase
on the previous year. Non-residential loan approvals also
improved for the year at $6.18 billion, representing a
14.1 per cent increase on the previous year. However,
our retail customers have again looked to strengthen
their own personal balance sheets by making principal
repayments ahead of schedule. Approximately 44 per cent
of our home loan customers are ahead of their minimum
loan repayments, of which 28 per cent are three or more
repayments ahead of schedule.
We aim to provide competitive loan pricing to our
customers, however occasions arise where we purposefully
decide not to match other rates available in the market
where the return is not adequate.
The loan portfolio remains well secured. In total, 98.4 per
cent of the portfolio is secured with 97.8 per cent secured
by mortgages and listed securities. The average loan to
valuation ratio for the residential mortgage portfolio is 58.1
per cent and 62 per cent of the portfolio is represented by
owner-occupied loans.
Total impaired assets increased by $24.6 million (7.6
per cent) to $350.2 million. This was mainly due to the
impairment of two commercial loan exposures which was
offset to some extent by a decrease in impairments within
the Rural Bank portfolio.
The gross balance of the Great Southern portfolio has
steadily reduced since the Supreme Court approved the
settlement of the group proceedings in December 2014.
Other income
Total other income before specific items was $376.3 million
for the year. This represents a $15.6 million (4.3 per cent)
increase on the prior year’s result. The major contributors
were fee and commission income of $223.9 million and a
$79.7 million contribution from the Homesafe Trust.
The increase was mainly driven by an increase in the
contribution by the Homesafe Trust of $16.3 million ($11.4
million after-tax) and increases in commission, foreign
exchange and other income. These increases were partly
offset by decreases in asset product fees of $3.9 million
and liability product fees of $4.4 million.
The asset product fee decrease follows specific fee
campaigns introduced to match competitors’ offerings.
Liability product fee income was impacted by an increase
in interchange fees payable due to growth in transaction
volumes.
The increase in the Homesafe Trust contribution was
primarily due to the increase in Sydney and Melbourne
residential property prices during the first half of the year.
Operating expenses
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
operational efficiencies.
Total operating expenses, excluding specific items,
increased by $13.2 million (1.5 per cent) to $886.0 million
and the cost to income ratio increased slightly from 55.1
per cent to 56.0 per cent.
The main movement for the year related to staff costs
which increased by $15 million to $479.2 million, or 3.2%
above the prior year. The increase was mainly due to
salary increases effective from September 2015 and an
increase in redundancy payments. The impact of these
costs was partly offset by tight control of staffing levels
and a restructure within the Local Connection Division. The
number of full time equivalent (FTE) staff decreased by 97
(or 2.1 per cent) during the year.
Other operating expenses (excluding staff costs) totalled
$406.8 million and represents a $1.8 million decrease on
the previous financial year.
1 4
ANNUAL FINANCIAL REPORT 2016 The 90+ day arrears for our residential, business, rural and
consumer portfolios were all below the arrears levels for the
same time last year. The following charts set out the 90+
day arrears trend across our major lending portfolios.
Provisions for doubtful debts, bad and doubtful
debt expense
The total provisions and reserve for bad and doubtful debts
as at year end was $325.6 million. This represents a small
increase on the previous year.
The decrease in the collective provision mainly reflects a
reduction in the provision overlay for the Great Southern
loan portfolio of $6.2 million and an increase of $2.3
million for the commercial portfolio. The collective provision
in respect to dairy industry exposures was increased by
$4 million. The year-end collective provision for the Great
Southern portfolio was $19.01 million and the specific
provision was $23.7 million.
The bad and doubtful debts expense for FY16 was $44.1
million. The result is mainly due to lower arrears levels and
a reduction in the collective provision overlay, and reflects
an improvement in the underlying credit quality of our loan
portfolios.
Our arrears levels compare favourably with available
industry data, being 0.65 per cent for residential loans and
2.27 per cent for business loans.
1 5
ANNUAL FINANCIAL REPORT 2016 Capital adequacy
Funding and liquidity
Total deposits as at year end were $57.06 billion. This
represents an increase of $3.55 billion (6.6 per cent) over
the year, slightly above system.
The growth came from an increase in retail deposits. The
retail deposit funding mix, as a percentage of total funding,
increased from 79.1 per cent to 82.0 per cent over the year.
Our retail funding base is a core strength and key point of
differentiation when compared to other banks. With the new
net stable funding ratio requirements coming into effect at
the end of FY17, we expect the banking sector’s demand for
retail deposits will increase during the coming year.
The Bank maintains a conservative and prudent capital
base that adequately supports our business, allows the
business to grow as well as providing an effective and
efficient capital buffer to protect depositors and investors.
The capital management strategy also plans for changes
in business conditions, including economic cycles,
regulatory and legislative change and potential 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.
The retail and wholesale funding mix is set with the aim of
maintaining a strong market profile consistent with an “A”
credit rating band.
Wholesale funding activities managed by Group Treasury
support the core retail deposit funding strategy. Access
to wholesale financial markets provides additional
diversification and benefits from longer term borrowings.
Group Treasury aims to maintain a stable and prudent
maturity profile by regular benchmark issuance in markets
that are sustainable and viably priced. Whilst the majority
of our wholesale funding is sourced from the domestic
financial markets, we recognise that at times additional
diversity can be achieved by issuances in overseas markets
and currencies.
Securitisation also forms an important part of our funding
strategy and we will continue to monitor this market
and participate where investor appetite and pricing is
appropriate.
The Bank maintains a portfolio of high quality
unencumbered liquid assets to ensure all cash flow
commitments are met in a timely manner under both
normalised business operations as well as over an
extended crisis horizon and alternative scenarios, as
well as to meet minimum internal and prudential liquidity
requirements.
As at 30 June 2016 the Liquidity Coverage Ratio (LCR) was
118.2 per cent with LCR assets totalling $7.403 billion.
1 6
ANNUAL FINANCIAL REPORT 2016 Agribusiness
The cash basis contribution from the Agribusiness segment
decreased from $74.7 million to $73.6 million, a 1.5 per
cent decrease for the financial year.
Net interest income decreased by $7.1 million mainly due to
the reduction in customer rates driven by competition.
The underlying business performed well and returned to
a more normalised credit performance with previously
reported defaulting exposures now having been worked
through, reducing the volume of non-performing loans and
associated credit losses.
Rural Finance’s profit 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.
Credit ratings
The Bank’s credit ratings at the date of this report are:
Short
Term
Long
Term
Outlook
Standard & Poor’s
A-2
A-
Stable
Fitch Ratings
F2
A-
Stable
Moody’s
P-1
A2
Stable
Date last
affirmed
8 March
2016
18
November
2015
18 August
2016
Segment performance
Local Connection
The cash basis contribution from our largest business
segment, Local Connection, decreased from $194.5 million
to $185.7 million. This represents a 4.5 per cent decrease
for the financial year.
The division maintained its leading consumer and business
satisfaction ratings and a strong focus on customer
strategy.
Net interest income increased by $8.4 million. There has
been an improvement in the cost of funds through the
re-pricing of term deposits and continued strong growth in
lower cost at-call deposits.
Operating expenses increased by $18.0 million mainly
due to increase in staffing costs of $12.9 million (includes
redundancy costs of $4.7 million) and an increase in
allocated costs of $6.3 million.
This performance was also positively impacted by a $1.3
million decrease in the bad and doubtful debt expense for
the year.
Partner Connection
The cash basis contribution from the Partner Connection
division increased from $154.8 million to $167.9 million.
This represents an 8.5 per cent increase for the financial
year.
Net interest income decreased by $13.1 million mainly due
to the reduction in the size of the lending portfolio.
Other income increased by $15.4 million mainly due to an
increase in the contribution from the Homesafe Trust.
Credit expenses decreased by $19.3 million mainly due to
the decrease in the collective provision overlay and specific
provisions for the Great Southern loan portfolio.
The result also included an increase in specific item
expense of $2.4 million that mainly related to the
integration of the Alliance Partner businesses.
Third Party Banking business has again been challenged by
the highly competitive mortgage lending environment. The
credit performance of the Third Party mortgage portfolio
improved over the year.
The benefits from our Wealth investments over recent years
are now being seen with funds under management and
administration now recording strong growth. Total funds
and assets under management grew by 12.4 per cent for
the year. This growth included a 16.8 per cent increase in
managed investments including superannuation.
The margin lending portfolio remained relatively stable for
the year notwithstanding the volatility in the domestic equity
market.
17
ANNUAL FINANCIAL REPORT 2016 Financial details
Jun-16
Total
Jun-15
Total
FY2015
to
FY2016
$m
$m
$m
%
Financial performance metrics
Profit after tax attributable to Owners of the Company
Profit after tax and before specific items
Cash earnings
415.6
425.6
439.3
Net interest income (before specific items)
1,172.3
1,184.1
Non-interest income (before specific items)
Bad and doubtful debts
Operating 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
376.3
44.1
886.0
56.0%
2.16%
1.83%
423.9
(8.3)
(2.0)
420.6
432.4
360.7
5.0
6.9
(11.8)
15.6
1.2
1.6
(1.0)
4.3
68.3
(24.2)
(35.4)
872.8
13.2
1.5
55.1%
2.20%
1.89%
Jun-16
Total
Jun-15
Total
FY2015
to
FY2016
$m
$m
$m
%
5,038.8
4,858.5
180.3
49,891.1
46,222.7
3,668.4
4,684.1
4,165.8
518.3
58,227.6
56,540.6
1,687.0
17,032.6
15,261.1
1,771.5
10,852.2
6,180.4
9,858.0
5,403.1
994.2
777.3
2.9
3.7
7.9
12.4
3.0
11.6
10.1
14.4
0.9
Financial position metrics
Ordinary equity
Retail deposits
Funds under management
Loans under management
New loan approvals
> Residential
> Non-residential
Total provisions and reserves for doubtful debts
325.6
322.7
Financial position ratios
Return on average ordinary equity (after tax)
Return on average ordinary equity (cash basis)
8.46%
8.94%
8.84%
9.09%
Return on average tangible equity (cash basis)
12.94%
13.28%
Key shareholder ratios
Earnings per ordinary share (statutory basis)
90.4 cents
92.5 cents
Earnings per ordinary share (cash basis)
Dividend per share - fully franked
95.6 cents
95.1 cents
68.0 cents
66.0 cents
1 8
ANNUAL FINANCIAL REPORT 2016
mobile platforms and they want access to their financial
services when necessary.
But this innovation also creates opportunities for those
who embrace the digital economy and are willing to explore
alternate ways to deliver their services. We have been
strategically investing in this capability for a number of
years and we are well positioned to compete vigorously in
the digital world.
During the year we released more leading edge customer-
focused technologies and digital solutions to improve the
customer experience and make it easier for customers to
do business with us. Much of this development is being
undertaken through partnering models with technology
companies rather than through developing the new
technologies ourselves.
The Bank’s new online share trading solution, Bendigo
Invest Direct was launched in March this year, with more
than 10,000 customers transitioning to the platform. The
solution provides our customers with the market leading
research, sophisticated analytical tools and the speed
needed to execute trades as opportunities are identified.
Another key investment is the upgrade of our core lending
platforms, with the first of these relating to our Third Party
Mortgage business which came online this year. We plan to
develop this platform into a single consolidated consumer
lending system that will be used right across the Bank. This
platform will produce significant efficiencies and savings,
and just as importantly, a more seamless and improved
customer experience.
In 2016 we released Android Pay, working with Google.
This is a simple and secure payment platform that allows
customers to pay in store using their Android phone.
The New Payments Platform (NPP) project is progressing
well. NPP will provide Australian businesses and consumers
with a fast and versatile payments system for making their
everyday payments. The funds will be accessible almost
as soon as the payment is made, even when the payer
and payee have accounts at different financial institutions.
The NPP is being developed collaboratively by the banking
sector.
We have a trusted brand and our style of banking and
value proposition are well regarded by our customers. We
have maintained our leading position, ahead of the major
banks, in customer satisfaction and advocacy and we won a
number of awards during the year, including:
a. Global research house, Forrester, released their findings
into the best customer experience in Australia. The study
ranked the Bank at number one in the top ten brands in
the Australia Customer Experience Index 2015.
b. Bendigo SmartStart Super® was awarded a 5-star
rating by CANSTAR for the third consecutive year for a
superannuation offering; and
c. Our Leveraged business welcomed the Investment Trends
margin lending report released in March 2016. Leveraged
took the number one position in stockbroker, customer
and planner satisfaction and advocacy.
Business development
Advanced Accreditation
Achieving advanced accreditation under APRA’s advanced
capital measurement model (Basel II) is one of our most
significant projects.
Under the prudential framework there are two
methodologies for measuring capital requirements. The first
methodology is referred to as the Standardised Approach.
Under this approach, capital requirements are calculated
based on certain fixed formulae and risk assessments
determined by APRA. The advantage of this approach is that
it is a relatively straight-forward way of assessing capital
requirements. The Bank is currently regulated under the
Standardised Approach.
The second methodology, the Advanced Approach, allows
banks to calculate their own capital requirements, subject
to certain strict conditions set by APRA. This approach
encourages banks to invest heavily in sophisticated
risk management techniques when compared to the
Standardised Approach.
Significant resources have been invested into the project
which have included the development and implementation
of new and contemporary risk management techniques and
models, upgrades to our technology capability including
business systems and platforms, policy improvements and
staff training.
Achieving advanced accreditation is about improving the
way we do business. Importantly this is an initiative that we,
as an organisation, decided to pursue. The key benefits of
achieving the advanced accreditation include:
a. Improving our banking systems and processes, and
consequently the customers’ experience;
b. Enhancing our business and risk management processes
and practices;
c. Strengthening our market profile amongst shareholders,
ratings agencies and regulators;
d. Lifting our market competitiveness; and
e. Allowing us to operate a more capital efficient business
which will ultimately benefit our customers, communities
and shareholders.
This investment is now largely complete and in day-to-day
use across our various business divisions and providing us
with greater insights into our customers and the risks we
manage.
Customer connected
Customers are looking for more control over their banking
requirements as new technologies reshape the business
environment. Digital applications, mobile platforms and
online services are rapidly changing customer expectations
and behaviours and it is vital that we continue to transform
our business to remain competitive as customers look
for new and innovative ways to access our services. We
will continue to develop strategies, platforms, tools and
innovative capabilities needed to deliver the services
sought by our customers.
The amount of technical innovation has also introduced a
real risk of disruption to the industry as existing business
models are progressively made redundant. The transition to
the digital market represents a significant challenge for the
industry. We know that customers are seeing technology as
disposable, they want to interact more than ever through
1 9
ANNUAL FINANCIAL REPORT 2016 Looking forward
The Group’s outlook remains positive. We are well
positioned for growth given our market positioning, long
history of trusted service, our sound balance sheet and
our investments in systems and digital technologies now
coming on stream.
Understanding the needs and objectives of our customers
will continue to be a major focus. Customer behaviour and
insight drives most of what we do and our Customer Voice
activity will coordinate our response to changing customer
behaviour and expectations.
We anticipate the operating environment for the coming year
will again be challenging given continued volatility in global
economies and markets, subdued consumer and business
sentiment and the high level of market competition. The
extended period of absolute low interest rates is also
expected to continue for the foreseeable future.
A significant development during the year related to a
change in bank capital requirements. Banks accredited to
use the internal ratings-based approach to credit risk are
now required to hold additional capital for their domestic
residential mortgage portfolios. Standardised banks were
already required to hold more capital for their residential
mortgage portfolios.
This is an integral step towards creating a more even
playing field for all banks and will increase competitive
neutrality in the market, although there is still an advantage
in being an advanced bank. Given a more level playing
field we expect to see our loan growth returning to a level
that is more consistent with system provided we can be
competitive in respect to pricing.
It is expected that system growth and the demand for credit
will be in line with the levels experienced for the 2016
year and customers will continue to deleverage by making
additional principal repayments in the low interest rate
environment.
Volatility in wholesale funding markets and changes to bank
liquidity requirements should see competition for retail
deposits remain high. This demand, combined with low
absolute interest rates, is again expected to place pressure
on interest margins, including our own.
Our conservative funding base and strong balance
sheet provides us with good capacity to manage these
pressures and grow our business. It also puts us in a solid
position to benefit from market opportunities as well as
any improvement in market confidence and the broader
operating environment. We are confident our customer-
focused banking model will continue to be relevant and
underpin our growth and improved performance.
Our success comes from the success of our customers and
communities and we will continue to align our investments
with our strategic priorities whilst maintaining a disciplined
approach to balance sheet growth, and not simply growing
for growth’s sake.
2 0
ANNUAL FINANCIAL REPORT 2016 Risk management framework, business uncertainties and significant business risks
The Board is responsible for the risk management strategy
which includes approving the risk management framework
and risk appetite within which the business is expected to
operate.
If the Group is unable to compete effectively in its various
businesses and markets, its market share could decline.
Increasing competition could potentially lead to reduced
business volumes and revenue, a compression in our net
interest margins as well as increased advertising and
related expenses to attract and retain customers.
The major business risks that we manage include credit
risk, operational risk, interest rate risk, traded market
risk and liquidity risk. Information on our risk governance
and approach to managing these risks is presented in the
2016 Corporate Governance Statement and 2016 Financial
Report.
Risk dependencies and uncertainties
The Group’s business activities are subject to a number
of dependencies and uncertainties which 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 our control. A summary
of the key dependencies and uncertainties is presented
below.
Dependence on prevailing macro-economic and financial
market conditions
The 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.
Environmental factors
The Group and its customers are based and operate
businesses in a diverse range of domestic geographical
locations.
A significant environmental change or external event
(such as a fire, storm, drought or flood) 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.
Through our agribusiness division we also have a large
exposure to the domestic 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 include mergers and acquisitions,
changes in customer behaviour, entry of new participants,
the development of new sales methods and regulatory
change.
2 1
The Group is also dependent on its ability to offer products
and services that match changing customer preferences.
If we are not successful in developing or introducing
new products and services or responding or adapting to
changes in customer preferences and habits, we may
lose customers to our competitors which could adversely
affect our business, prospects, financial performance and
financial condition.
A weakening in the Australian real estate market
Residential, commercial and rural 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 as well as impact
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
their loans or repay their loans early. 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, standards and industry codes. In
particular, our banking and wealth management activities
are subject to extensive regulation including in relation
to liquidity, capital, solvency, provisioning and licensing
conditions.
The Australian Government and its agencies, including
APRA, the RBA and Australian Securities & Investments
Commission, are the main authorities that have supervisory
oversight of the Bank. Changes to laws, regulations,
codes or policies could affect the Bank in substantial and
unpredictable ways.
Potential changes include increasing required levels
of liquidity and capital or limiting the types of financial
services and products the Bank can offer. These potential
changes may also require substantial investment in staff,
systems and procedures to comply with the regulatory
changes.
ANNUAL FINANCIAL REPORT 2016 Our business continuity and information technology
governance structures and system health assessment
process are overseen by our Business Enablement division.
We continue to invest heavily in our information technology
capability.
Data and Information Security Risk
The risk of security breaches, external attacks and
unauthorised access to our systems continues to increase
with the growing sophistication of fraud and other criminal
activities. We are conscious that threats to information
security are continuously evolving due to the increasing use
of the internet and other digital devices to communicate
data and conduct financial transactions.
Information security capability (including cyber risk
and security) is overseen by the Business Enablement
division. We have a dedicated team of information
security specialists responsible for the development and
implementation of information security systems, policies
and procedures.
The Group has implemented a range of systems,
technologies and measures to detect and respond to cyber-
attacks and we closely monitor and conduct regular reviews
to ensure new or emerging threats are identified and
mitigated, policies and procedures are updated and good
practice is maintained.
Vendor failure or non-performance risk
The Group sources 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 sourcing
framework and policies.
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.
Partner Risk
We have Community Bank® branches operating in all States
and Territories, along with our Alliance Bank network. The
branches are operated by companies that have entered into
franchise and management agreements with the Bank to
manage and operate a Community Bank® or Alliance Bank
branch.
Credit Ratings
External 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 a 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 a level of capital required by APRA and
other key stakeholders to support our business operations
and risk appetite. There can be no certainty that additional
capital required in the future will be available or able to be
raised on acceptable terms.
The Bank maintains a conservative and prudent capital
base that supports business growth, provides effective
protection for depositors and investors and ensures
minimum capital standards are met at all times.
Business risks
Following is an overview of other key business risks that
could impact our operations, performance and prospects.
To manage these risks we have established a framework of
systems, policies and procedures which are overseen by our
independent risk management functions.
Compliance Risk
The Group’s operations are highly regulated. A failure to
comply with the laws, regulations, licence conditions,
codes, principles and industry standards applicable to our
operations could result in a range of actions against the
Group including sanctions being imposed by regulatory
authorities, the exercise of discretionary powers by
regulatory authorities or compensatory action by affected
persons.
Fraud Risk
The Group is 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.
We continue to invest in new techniques and capabilities
to detect and prevent fraud. All actual or alleged fraud is
investigated under the authority of our financial crimes unit.
Risk of disruption of information technology systems or
failure to successfully implement new technology
Most of our daily operations are highly dependent on
information technology and there is a risk that these
systems or technologies might fail or not be available.
The exposure to systems risks includes the complete or
partial failure of information technology or data centre
infrastructure and using internal or third-party information
technology systems that do not adequately support the
requirements of the business.
2 2
ANNUAL FINANCIAL REPORT 2016 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 growing shareholder value.
The risks associated with these strategic business
decisions could, for a variety of reasons, have a material
adverse effect on our current and future financial position or
performance.
Contagion Risk
The Group includes a number of subsidiaries that are
trading entities and holders of Australian Financial Services
Licences and/or Australian Credit Licences.
Dealings and exposures between the Bank and its
subsidiaries principally arise from the provision of
administrative, corporate, distribution and general banking
services. 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 and equity contributions.
The framework to manage risks arising from these dealings
include policies, processes and controls relating to intra-
group exposures, badging and branding requirements
as well as the distribution of financial products issued
by subsidiary companies. Dealings with subsidiaries not
conducted on an arms-length basis are approved by the
Board.
Whilst we carefully assess and monitor the progress of the
franchisees, there can be no guarantee of the success of a
Community Bank® or Alliance 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 implemented a number of administrative and
oversight structures to support this network including:
a. Our Engagement Innovation team provides support to the
Community Bank® and Alliance 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.
b. 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.
c. The Community Bank® Strategic Advisory Board and
Alliance Bank Strategic Advisory Board, each of which
comprise representatives from the Bank and the
Community Bank® and Alliance Bank network, are forums
established to initiate, lead and respond to strategic
issues and opportunities that enhance the sustainability,
resilience and prospects of our partner networks.
Conduct Risk
The business is exposed to risks relating to product flaws,
processing errors and mis-selling. The risks can arise from
product design or disclosure flaws or errors in transaction
processing. It can also include mis-selling of products to our
customers in a manner that is not aligned to the customer’s
best interests, needs or objectives.
The above risks are managed in accordance with our
operational risk management framework and monitored by
the Operational Risk Committee and Board Risk Committee.
Other Risks
Other risks applicable to our business 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.
2 3
ANNUAL FINANCIAL REPORT 2016 REMUNER ATION REPORT
This Remuneration Report is for the financial year ended 30 June 2016. 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).
2 4
ANNUAL FINANCIAL REPORT 2016 Key Management Personnel
The KMP for the 2016 financial year comprise of the Non-executive Directors, the Managing Director and other members of the
Executive Committee as listed in the below table. KMPs are the persons with authority and responsibility for planning, directing
and controlling the activities of the Group, directly or indirectly.
During the financial year, the Managing Director announced a number of changes to the membership and structure of the
Executive Committee, including changes to the responsibilities of some executive team members. The key changes were:
1. Alexandra Gartmann joined the executive team to lead the agribusiness division effective 26 October 2015.
2. Marnie Baker was appointed to the new role of Chief Customer Officer on 12 November 2015 to lead the Customer Division
which incorporates the Local Connection and Partner Connection businesses.
3. Bruce Speirs joined the executive team to lead the Partner Connection business on 29 September 2015.
4. Alexandra Tullio was appointed to lead the Local Connection division on 12 November 2015.
5. Stella Thredgold was appointed to lead the Business Enablement division on 12 November 2015.
6. Richard Fennell’s responsibilities were expanded on 12 November 2015 to include People and Performance, Group
Strategy, Processing and Customer Service Improvement.
7. Dennis Bice ceased as a KMP on 31 March 2016.
8. John Billington ceased as a KMP on 29 September 2015.
Name
Position
Term as KMP
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Part Year
Full Year
Part Year
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Non-executive Directors
Robert Johanson
Chairman
Non-executive Director (appointed on 2 February 2016)
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Managing Director & Chief Executive Officer
Chief Customer Officer (CCO)
Retail Banking
Bendigo Wealth
Corporate and Chief Financial Officer (CFO)
Chief Executive Officer, Rural Bank
Engagement Innovation
Chief Risk Officer (CRO)
Partner Connection
Business Enablement
Local Connection
Customer Service Improvement
Jan Harris
Jim Hazel
Jacqueline Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
Executives
Mike Hirst
Marnie Baker
Dennis Bice
John Billington
Richard Fennell
Alexandra Gartmann
Robert Musgrove
Tim Piper
Bruce Speirs
Stella Thredgold
Alexandra Tullio
Andrew Watts
2 5
ANNUAL FINANCIAL REPORT 2016 CONTENTS
Section 1:
Remuneration overview
Section 2:
Executive remuneration
Section 3:
Company performance and remuneration outcomes
Section 4:
Non-executive Director remuneration
Section 5:
Remuneration governance
Section 6:
KMP remuneration, equity and loan tables
27
30
34
37
37
38
2 6
ANNUAL FINANCIAL REPORT 2016 Section 1: Remuneration overview
1.1 Remuneration framework and components
The remuneration framework is designed to support the achievement of our strategy and strategic objectives. The framework
is described in our Remuneration Policy (the Policy) which was reviewed during the financial year. The changes arising from the
review mainly related to governance and approval responsibilities.
The remuneration framework is based on the following principles:
• Remuneration should promote superior long term results for shareholders and sound risk management.
• 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 and motivation of talent needed to achieve our business goals.
• Remuneration should reinforce leadership, accountability, teamwork and innovation.
• Remuneration should be aligned with the performance of the businesses, teams and individuals.
• Remuneration processes and practices should support the achievement of fair remuneration, including gender pay equity.
The link between these principles and our approach to executive remuneration is represented by the following diagram:
Fixed
(not linked to performance)
TOTAL TARGET REWARD
Variable
Base Remuneration
Short Term Incentive (STI)
Long Term Incentive (LTI)
Fixed Base Cash
Deferred Base Equity
Cash & Equity
Equity
• Cash, or a combination
of cash and deferred
equity.
• Annual grant of
performance rights
(“rights”).
• STI target for each
Executive is set by the
Board at the start of
each year.
• Awards subject to
the achievement
of Group financial
and business goals,
individual performance
and passing risk,
compliance and values
gateways.
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.
• Base salary plus
• Annual grants of deferred
salary sacrifice and
superannuation
contributions.
• Set by reference to the
role and responsibilities,
market data, internal
relativities and the
Group’s performance
outlook.
• Recognises an
individual’s experience,
skills, competencies and
value.
shares.
• Deferred shares (fully paid
ordinary shares) issued at no
cost and beneficially owned
from grant date.
• Subject to a two-year
continued employment
condition.
• Subject to Group financial
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.
27
ANNUAL FINANCIAL REPORT 2016 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 executive remuneration is weighted more
towards base remuneration than incentive based pay
when compared with weightings generally adopted by
the Australian banking sector and other Australian listed
companies. This approach to remuneration mix has been in
place for many years.
The Board has sought to ensure that executives’ total
target reward includes a significant portion of equity-based
remuneration. The executives’ base remuneration and STI
include a deferred equity component and the LTI is also
provided as equity and thereby directly links executive
remuneration to the Bank’s share price performance over
the medium and longer term.
The target remuneration mix reflects differences in
executive responsibilities, such as the executive’s
opportunity to drive and influence business outcomes and
manage potential risk and compliance conflicts. The Board
believes the remuneration structure appropriately balances
executive focus between short term business and financial
targets and sustainable growth in shareholder value over
the medium and longer term.
The below graphs set out the targeted remuneration mix
for executives based on an annual total target reward.
Base remuneration (Fixed base and deferred base)
Short Term Incentive
Long Term Incentive
Managing Director
CFO, CCO and Other Executives
CRO
2 8
ANNUAL FINANCIAL REPORT 2016
Other Executives
CRO
The Managing Director’s remuneration mix has a high
weighting of equity-based remuneration with 55 per cent of
total potential target remuneration payable in equity. The
equity-based remuneration is deferred over two or three
years and at-risk until either the vesting date or completion
of the applicable restriction period.
The Managing Director’s remuneration is also highly
weighted toward base remuneration with fixed base and
deferred base representing 65 per cent of total target
reward. The total target reward includes a target STI award
of 10 per cent and a LTI component of 25 per cent. The
remuneration mix is designed to reflect the Managing
Director’s overall responsibility for leading the organisation
as well as fostering a longer term outlook.
The remuneration mix for other executives varies depending
on the nature of the Executive’s role, with 60 per cent to 70
per cent of total target reward being cash and the remaining
percentage being equity deferred over two to four years and
remaining at risk until vested. The total target reward for
other executives (excluding the Chief Risk Officer) comprises
base (fixed and deferred) remuneration of 60 per cent, a
target STI award of 20 per cent and a LTI component of 20
per cent.
The remuneration mix for the Chief Risk Officer is also more
highly weighted towards base remuneration, and includes
a lower STI component compared to other executives,
in recognition of his risk management and compliance
responsibilities.
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 and the incentive
components (i.e. STI and LTI) are linked to performance
measures that support the Group’s strategy and business
priorities.
The below graphs set out the percentages of executive
remuneration awarded in cash and equity based on the
annual total target reward.
Cash remuneration
Equity remuneration
Managing Director
CFO and CCO
2 9
ANNUAL FINANCIAL REPORT 2016
Section 2: Executive remuneration
2.1 Base remuneration
Executive base remuneration comprises both fixed base
and deferred base components.
Fixed base
Fixed base 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.
Awards of deferred base remuneration are at the discretion
of the Board.
The deferred shares are fully paid ordinary shares granted
at no cost. They have no exercise price and are held by the
plan trustee in trust for two years. The grants are subject
to a two-year service condition and a risk adjustment at the
discretion of the Board.
The number of deferred shares granted to an executive
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 the 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.
There were no increases in executives’ fixed base
remuneration for the financial year, with the exception
of increases awarded to two executives to recognise
changes to their role and responsibilities. The Managing
Director’s deferred base remuneration was approved by
shareholders in 2013 and has remained unchanged. There
were no increases in deferred base remuneration for other
executives with the exception of the two executives referred
to above.
2.2 Short Term Incentive (STI) plan
Executive remuneration includes an annual incentive
component. The incentive is designed to reward the
achievement of Group and divisional business targets and
is subject to passing risk management, compliance and
values gateways.
A target STI award is set by the Board for each executive
at the start of the financial year taking into account the
executive’s role, responsibilities and target remuneration
mix. The objective is to provide an appropriate level of
reward for the achievement of annual financial and business
performance targets. The target STI awards have been set
at relatively modest levels to promote a medium to longer
term focus and discourage risk-taking behaviour. There was
no change to executives’ target STI awards for the year
except for one executive who received an increase to reflect
changes to the executive’s role and responsibilities.
The Managing Director’s STI performance measures
are set at the start of each year by the Board upon
recommendation from the Governance & HR Committee
and comprised financial and non-financial targets. The STI
performance measures for other executives are set at the
start of the year by the Managing Director. The measures
are based on the Executive’s particular role and expected
contribution to the achievement of annual financial targets
and business objectives. Further details of executive STI
measures for the financial year are presented below.
Group bonus pool
The parameters for establishing a group bonus pool are
determined by the Board at the start of each year and
require the achievement of a minimum level of financial
performance before a bonus pool is established. The
bonus pool increases depending on the extent to which
actual performance exceeds the minimum level of financial
performance.
For the 2016 financial year, the bonus pool allocation
was again based on the cash earnings performance and
consisted of:
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.
a. A threshold hurdle requiring the achievement of 95 per
cent of the target cash earnings for the 2016 financial
year; and
For the Managing Director, the percentage of deferred
base to total base remuneration is 40 per cent. For other
executives the percentage of deferred base to total base
remuneration ranges between 10 per cent and 20 per cent.
Setting base remuneration
In setting executive base remuneration the Board considers
the nature and complexity of the role and the skills and
experience needed to successfully fulfil the role. Base
remuneration is also determined in context of the external
market including comparable roles in the banking sector
and other companies of a similar size and complexity.
3 0
b. A maximum potential bonus pool allocation based on
110 per cent of the targeted cash earnings result.
The bonus pool accrues at a predetermined percentage of
actual cash earnings above the threshold hurdle. Higher
percentages apply if actual cash earnings exceed the
target cash earnings by up to 105 per cent, and by up to
110 per cent. The bonus pool stops accruing for financial
performance in excess of 110 per cent of targeted cash
earnings.
The Board also sets prescribed financial and risk hurdles
that can be used to adjust the bonus pool determined using
the formula described above.
ANNUAL FINANCIAL REPORT 2016 The Board determines the annual bonus pool based on an
assessment of the financial performance and achievement
of the additional financial and risk hurdles shortly after the
end of the financial year. Information on the performance
relevant to the establishment of a bonus pool is presented
at section 3 of this report.
STI performance assessments and payments
The payment of STI awards is dependent on the
establishment of a bonus pool from which all STIs and
staff bonuses are funded. If the actual bonus pool is less
than the maximum potential pool, the target STI awards
are proportionately adjusted downwards to reduce the STI
opportunity for each executive. For example, if an executive
has an approved target STI award of $100,000 and the
actual bonus pool allocation represents 50 per cent of the
maximum potential bonus pool, the target STI award is
adjusted downwards to $50,000.
Measure
Description
Each executive’s performance is then assessed against
their specific performance measures and objectives for
the year. The outcome of the assessment is then used to
determine any further adjustment (upward or downward) to
the adjusted target STI award (i.e. $50,000) to determine
the actual STI payment for the year.
Any further adjustment is solely at the discretion of the
Board to allow for risk or compliance issues that were not
contemplated at the time the goals were set.
STI - Managing Director
The Managing Director’s target STI award was maintained
at $400,000. This was set taking into account the
remuneration objectives discussed earlier and the
Managing Director’s target remuneration mix. The Board
also set the following performance measures:
1. Risk
a. The level of risk associated with the Group’s performance was within the Group’s risk appetite; and
b. An effective risk culture is promoted with evidence of enhanced risk practice across the organisation.
Substantial progress has been made towards achieving the following medium term targets:
a. Shareholder Targets: focusing on improved and sustainable shareholder value;
b. Customer Targets: focusing on customer satisfaction, advocacy rankings and growth in the customer base
and products per customer ratio;
2. Medium term targets
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
and
b. The successful integration of the Rural Finance and Alliance Bank businesses.
a. The progress made during the year towards achieving Basel II advanced accreditation by the target date;
4. Public representation
The Group continues to be represented effectively to government (state and federal) and in industry and
public forums.
The Governance & HR Committee assesses the
achievement of the performance measures shortly after
the end of the financial year and applies any upward or
downward adjustment to determine the actual STI award
for the year. The Governance & HR Committee then
recommends the 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 and to ensure any necessary risk and
compliance adjustments occur at the Board’s discretion.
STI - Other executives
The target STI awards for other executives are set by the
Board and are presented at Table 4. The Managing Director
assesses the performance of other executives shortly
after the financial year end based on the financial and
non-financial measures 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
typically include:
a. Group financial and strategic performance goals
including achievement of targeted statutory and cash
earnings performance;
b. Business unit/division (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 in line with project targets and
timeframes, independent industry focused customer
satisfaction and advocacy rankings and customer and
community engagement initiatives;
c Individual contribution to team performance taking
into account the achievement of overall division or
business unit targets and business and risk objectives,
assessment of the extent to which a “one-team” culture
has been promoted, and there is evidence of continuous
improvement in processes and procedures;
3 1
ANNUAL FINANCIAL REPORT 2016 d. Individual performance, including alignment with
corporate values and meeting performance objectives,
based on an assessment of leadership, management of
business unit resources and compliance with corporate
values and code of conduct; and
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.
e. Contribution to meeting risk and compliance
requirements at a Group, team and individual level.
The risk and compliance requirements also represent
a gateway to whether a payment will be made and the
amount of the payment. Notwithstanding the Group’s
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
and/or does not demonstrate behaviour in-line with the
corporate values, no award or a reduced award will be
made. This requirement involves compliance with risk
management and operational policies and procedures.
Taking into account the above, the Managing Director
then assesses if any further adjustment to executive STI
awards are required and proposes STI awards for the other
executives to the Governance & HR Committee. The Board
retains absolute discretion over the STI awards for all
executives, including any risk and compliance adjustments.
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.
The number of deferred shares granted is determined by
dividing the value of the deferred STI component by the
volume weighted average closing price of the Bank’s shares
for the last five trading days ending on the grant date.
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. 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.
3 2
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, 50 per cent of 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
of companies 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 at the end of the applicable performance
period is determined as follows:
a. EPS hurdle: The grant is reduced by 50 per cent 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
TSR below 50th per centile
TSR between 50th per centile and
75th per centile
TSR above 75th per centile
Percentage of
performance rights that
vest
Nil
65%
100%
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. The Board will test the
performance condition as soon as practical after year end.
Any performance rights that do not vest will 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.
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
ANNUAL FINANCIAL REPORT 2016 accruing on the shares during the restriction period will be
paid to the Managing Director by the Plan Trustee.
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.
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.
The Board has a discretion under the Plan Rules to vest all
or a specified number of Performance Rights if there is a
takeover, compromise, scheme of arrangement or merger.
Matters the Board may take into account include the
Company's pro rata performance against the Performance
Conditions and the individual's performance.
Managing Director’s grants
Shareholders approved at the 2013 annual general meeting
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.
The Company announced on 10 November 2015 that the
Managing Director had agreed to continue his employment
contract beyond the current term which ends in July 2016.
Information on a new LTI plan for the Managing Director
will be presented in the 2016 Notice of Annual General
Meeting.
Other executive grants
There have been four single tranche grants to other
executives 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. There were no increases to the LTI opportunities
for other executives for the year. Further details on 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 unforeseen 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.
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.
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.
3 3
ANNUAL FINANCIAL REPORT 2016 Section 3: Company performance and remuneration outcomes
3.1 Overview of company performance
The Group produced a sound operating result in what has continued to be a volatile and highly competitive environment.
Following is an overview of the 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 measures and the progress made in respect to longer term business
priorities.
Company performance measure
Financial year ending
June 2016
June 2015
June 2014
June 2013
June 2012
Statutory earnings per share (cents)
Cash earnings per share (cents)
NPAT ($m)
Cash earnings ($m)
Dividends paid and payable (cents per share)
Share price at start of financial year
Share price at end of financial year
Total shareholder return
90.4
95.6
415.6
439.3
68.0
$12.26
$9.60
(16.2%)
92.5
95.1
423.9
432.4
66.0
$12.20
$12.26
5.9%
87.7
91.5
372.3
382.3
64.0
$10.07
$12.20
28%
84.9
85.4
352.3
348.0
61.0
$7.41
$10.07
44%
48.6
84.2
195.0
323.0
60.0
$8.86
$7.41
(9.6%)
3 4
ANNUAL FINANCIAL REPORT 2016
3.2 Remuneration outcomes
Short term incentive outcomes
The measures used to determine the Group bonus pool allocation and individual STI awards are broadly the annual cash
earnings performance and business and risk management objectives. Following is a summary of the bonus pool measures and
outcomes for the financial year:
Bonus Pool Calculation
Performance Outcomes
Achieve 95% of target cash
earnings (threshold hurdle)
Group cash earnings performance
Bonus Pool Adjustment
Cash earnings per share
Return on Equity (cash basis)
Return on Tangible Equity (cash
basis)
Common Equity Tier 1 Equity
Cost to Income Ratio
Liquidity Coverage Ratio
Risk Weight Assets / Total Assets
• The Group achieved the cash earnings threshold hurdle.
• The Group’s cash earnings result of $439.3 million represented an increase of 1.6 per
cent on the prior year. The target cash earnings performance was achieved for the year.
Risk and Performance Outcomes
• The Group recorded a cash earnings per share result for the year of 95.6 cents per
share. This represented an improvement of 0.5 per cent on the previous financial year
and was slightly above the targeted cash earnings per share performance.
• The return on equity ratio for the year was 8.94 per cent. This was in line with the
targeted performance.
• The return on tangible equity ratio for the year was 12.94 per cent. This was slightly
ahead of the targeted performance.
• The Common Equity Tier 1 ratio at year end was 8.09 per cent. This was in line with the
targeted performance.
• The cost to income ratio for the year was 56.0 per cent. This was better than the
targeted performance.
• The liquidity coverage ratio was maintained in accordance with approved internal and
regulatory limits during the year. This met the targeted performance.
• The risk weighted asset to total asset ratio at year end was 53.2 per cent. This was
better than the targeted performance.
The Board determined that the measures were essentially
met, and a bonus pool was established for the 2016
financial year. Information on short term incentive awards to
executives for the financial year are provided at Table 4.
3 5
ANNUAL FINANCIAL REPORT 2016 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 following table summarises the current LTI performance right grants and performance testing outcomes applicable
to the grants:
Grant
Grant Date
EPS Test
Date
TSR Test
Date
EPS Test
Met
TSR Test
Met
Vested for
2016 %
Lapsed
for 2016
%
Remaining
2013 LTI Other
Senior Executives
2014 LTI Other
Senior Executives
2015 LTI
Managing Director
2015 LTI Other
Senior Executives
2016 LTI Other
Senior Executives
31.08.12
30.06.13
30.06.16
Met
Not met
0%
100%
Nil
17.12.13
30.06.14
30.06.17
Met
Not yet
tested
0%
0%
100%
01.07.14
30.06.15
30.06.16
Met
Not met
0%
100%
Nil
10.12.14
30.06.15
30.06.18
Met
17.12.15
30.06.16
30.06.19
Met
Not yet
tested
Not yet
tested
0%
0%
0%
0%
100%
100%
In relation to the Managing Director’s LTI grant, the EPS
performance hurdle for the second parcel tested on 30
June 2016 was met and 100 per cent of the performance
rights were eligible for testing over the three year TSR
performance period. Both parcels were tested against
the TSR performance measure which was not met and
in accordance with the vesting framework, none of the
performance rights vested.
The performance right grant made in 2013 to other
executives reached the end of the four year performance
period and was also tested against the TSR performance
measure. The measure was also not met and in accordance
with the vesting framework none of the performance rights
vested.
In relation to the 2016 LTI grant to other executives, the
EPS performance hurdle for the parcel tested on 30 June
2016 was met and 100 per cent of the performance rights
have been carried forward for testing over the four year TSR
performance period.
Deferred share grants
The Managing Director’s base pay deferred share grant,
the FY2015 deferred base pay grant to other executives
and the FY2014 deferred STI component were tested and
having regard to the financial soundness of the organisation
it was decided by the Board to vest the deferred shares.
The FY2016 base pay deferred grant and STI deferred share
grant for FY2015 will be tested in future financial periods.
3 6
ANNUAL FINANCIAL REPORT 2016
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 per cent (FY2015:
9.50 per cent) 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,
Sandhurst Trustees or Community Bank® Strategic Advisory
Boards.
The Board decided to increase the base fee by 1 per cent
during the year. It was also decided to round the base fee
and subsidiary fees up to the nearest $500. There was no
general increase to subsidiary fee payments.
The base fee effective from 1 September 2015 was:
a. $193,000 for Directors (inclusive of company
superannuation contributions)
b. $482,000 for the Chairman (two and half times the
base fee and inclusive of company superannuation
contributions).
The Board recently resolved to align the membership of the
Rural Bank Board with the Board of Bendigo and Adelaide
Bank and all directors on the main board have now been
appointed as directors of Rural Bank. The former external
Non-executive Directors on the Rural Bank Board resigned.
A review of the Non-executive Director fees has also been
completed since the end of the financial year. The Board has
approved the following changes to the fee arrangements
effective from 2 August 2016:
37
a. No fees will be paid to Non-executive Directors of the
Board of Rural Bank Limited: and
b. An increase of 1 per cent to the annual base fee (no
additional fees paid for committee memberships).
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
http//www.bendigoadelaide.com.au/public/corporate_
governance/index.asp.
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.
ANNUAL FINANCIAL REPORT 2016 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 2016 and 2015 financial years.
Non-executive Director
R Johanson (Chairman)4
Short-term benefits
Post-employment benefits
Total
Fees1
Non-monetary benefits2
Superannuation contributions3
2016
2015
J Dawson5
2015
J Harris6
2016
J Hazel7
2016
2015
J Hey
2016
2015
R Hubbard
2016
2015
D Matthews8
2016
2015
D Radford
2016
2015
T Robinson9
2016
2015
$534,686
$529,325
$85,000
$72,939
$256,279
$253,998
$175,911
$173,811
$175,925
$173,811
$260,135
$248,620
$175,903
$173,811
$266,809
$198,400
Aggregate totals
2016
2015
$1,918,587
$1,836,776
$4,550
$4,550
$19,308
$18,784
$558,544
$552,659
-
-
-
-
-
-
-
-
$5,674
$4,757
-
-
-
$4,384
$10,224
$13,691
$7,395
$92,395
$6,376
$79,315
$24,338
$24,130
$16,706
$16,512
$16,692
$16,512
$19,308
$18,600
$16,714
$16,512
$19,308
$17,304
$280,617
$278,128
$192,617
$190,323
$192,617
$190,323
$285,117
$271,977
$192,617
$190,323
$286,117
$220,088
$138,750
$135,749
$2,067,561
$1,986,216
1 Fee amounts include the $5,000 Director contribution to the Board scholarship program.
2 Represents fee sacrifice component of the base Director fee amount paid as superannuation.
3 Represents company superannuation contributions.
4 Fees paid to Mr Johanson include the fee paid by Rural Bank Limited of $77,000 inclusive of company superannuation (FY2015: $76,854 including company superannuation
at 9.5%).
5 Ms 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.
6 Ms Jan Harris was appointed to the Board on 2 February 2016.
7 Fees paid to Mr Hazel include the fee paid by Rural Bank Limited of $88,000 inclusive of company superannuation (FY2015: $87,804 inclusive of company superannuation
at 9.5%).
8 The fees paid to Mr Matthews include $15,500 inclusive of company superannuation as a member of the Community Bank® Strategic Advisory Board (CBSAB). They also
include a fee of $77,000 inclusive of company superannuation as a Director of Rural Bank Limited which commenced from 20 August 2014.
9 The fees paid to Mr Robinson include a fee of $93,500 inclusive of company superannuation as a Director of Sandhurst Trustees Limited which commenced on 10 March
2015. Accordingly, the comparative fee amount only includes a fee payment of $28,973 for the Sandhurst Trustees appointment.
3 8
ANNUAL FINANCIAL REPORT 2016
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 Change1
Number at end of year2
Ordinary
shares
Preference
Shares
Ordinary
shares
Preference
Shares
Ordinary
shares
Preference
Shares
Non-executive Directors
R Johanson
257,253
J Harris
J Hazel
J Hey
R Hubbard
D Matthews
D Radford
T Robinson
-
17,922
6,450
5,192
17,214
1,900
18,192
-
-
-
250
-
-
3,190
-
(15,953)
1,000
6,250
3,563
5,195
11,147
-
5,000
1 No equity instruments were granted as compensation to Non-executive Directors during the reporting period.
2 None of the shares are held nominally.
-
-
-
-
-
-
-
-
241,300
1,000
24,172
10,013
10,387
28,361
1,900
23,192
-
-
-
250
-
-
3,190
-
3 9
ANNUAL FINANCIAL REPORT 2016 Table 3: Executive remuneration
The statutory executive remuneration disclosures for the 2016 and 2015 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
Executive
Cash salary1
Cash
bonuses
(STI)2
Non-
monetary
benefits3
Super-
annuation
benefits4
Other
long-term
benefits5
Termination
Share-based payments6
Performance
rights7
Deferred
shares8
Total
Performance
related12
$1,365,435
-
$7,015
$19,308
($14,256)
$1,307,115
$88,431
$73,869
$18,784
$31,362
$549,882
-
$12,174
$19,308
$8,625
$550,811
$44,215
$10,132
$18,784
$20,705
-
-
-
-
$358,737
$996,058 $2,732,297
$358,737
$1,003,283 $2,881,581
$95,032
$186,633
$871,654
$70,294
$171,767
$886,708
$316,894
-
$12,071
$14,507
($69,393)
$774,377
$32,778
$64,598 $1,145,832
$395,326
$30,000
$26,393
$18,784
$14,352
-
$33,729
$90,733
$609,317
$110,706
-
$399,068
$48,000
-
-
$24,506
$18,784
-
-
$589,920
-
$4,500
$19,308
($3,113)
$556,409
$55,269
$4,500
$18,784
$26,838
$412,778
$16,575
$53,518
$618,083
$39,002
$93,494
$598,348
$97,824
$195,646
$904,085
$73,086
$178,019
$912,905
15%
18%
15%
17%
12%
15%
15%
17%
15%
19%
A Gartmann11
2016
$194,964
-
-
-
$13,238
$3,131
$18,288
$29,722
($4,400)
$300,549
$279,248
$44,000
$37,960
$32,588
$10,541
$533,849
-
$15,770
$19,308
$14,245
$520,878
$30,000
$15,770
$18,784
$30,663
2016
$247,020
S Thredgold
$340,995
-
-
$4,902
$14,560
$10,934
$5,000
$19,308
($15,209)
$322,430
$49,742
$5,000
$18,784
$5,226
$346,635
-
$15,329
$19,308
$31,255
$301,761
$33,334
$5,896
$18,784
-
$403,506
-
$17,558
$19,308
($7,604)
$405,956
$36,667
$5,447
$18,784
($420)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$7,916
$30,000
$249,249
3%
$29,530
$70,975
$444,664
$19,635
$68,234
$492,206
$76,012
$140,593
$799,777
$56,222
$143,610
$815,927
9%
15%
11%
13%
$15,918
$22,623
$315,957
5%
$43,624
$75,724
$469,442
$33,729
$80,483
$515,394
$29,530
$84,304
$526,361
$19,635
$80,275
$459,685
$49,275
$74,638
$556,681
$39,379
$78,568
$584,381
12%
20%
9%
16%
13%
17%
M Hirst9
2016
2015
M Baker
2016
2015
D Bice10
2016
2015
J Billington11
2016
2015
R Fennell
2016
2015
R Musgrove
2016
2015
T Piper
2016
2015
B Speirs10
2016
2015
A Tullio
2016
2015
A Watts
2016
2015
Totals
2016
2015
4 0
$5,300,355
-
$112,607
$231,689
($45,785) $1,187,155
$852,751
$1,995,310 $9,634,082
$5,039,002
$459,658
$184,967
$201,644
$139,267
-
$743,448
$1,988,466 $8,756,452
ANNUAL FINANCIAL REPORT 2016 1 Cash salary amounts include the net movement in the executive’s annual leave
accrual for the year.
2 These amounts represent STI cash awards to executives for the financial year.
The cash component is expected to be paid in October 2016. 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.
4 Represents 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.
5 The amounts disclosed relate to movements in long service leave entitlement
accruals.
6 In accordance with the requirements of Australian Accounting Standards,
remuneration includes a proportion of the fair value of equity compensation
granted or outstanding during the year. The fair value of equity instruments is
calculated as at the grant date and is progressively allocated over the vesting
period. The amount included as remuneration is not related to or indicative of
the benefit (if any) that individual 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 5.
7 The 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 three performance right grants. The current
year’s value includes the amortised value for four grants of performance rights.
8 The amounts included in the deferred share column comprise:
• The fair value of deferred STI components amortised over a two-year deferral
period. The deferred STI component for the 2014 financial year is amortised
over the 2015 and 2016 financial years and the deferred STI component for
the 2015 financial year is amortised over 2016 and 2017 financial years.
• 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 2015
financial year is amortised over the 2015 and 2016 financial years and the
deferred base pay grant made during the 2016 financial year is amortised
over the 2016 and 2017 financial years. The comparative figure includes
the fair value of the deferred base pay grant made in the 2014 financial year
amortised over the 2014 and 2015 financial years.
9 The rights relating to the amounts disclosed in the ‘Performance Rights’
column did not meet the performance hurdles and were fully lapsed on 30 June
2016. Accordingly, the Managing Director received no remuneration value for
these rights. However, in accordance with AASB 2 Share-based Payments and
notwithstanding the lapse of the rights, the Managing Director's actual total
remuneration is still required to include the amortised fair value of the grant
allocated over the 2014, 2015 and 2016 financial years.
10 Mr Dennis Bice ceased as a KMP on 31 March 2016 and Mr Bruce Speirs
commenced as a KMP on 29 September 2015. The remuneration amounts for
these KMP (except for the termination payment to Mr Bice) are presented on a
pro-rata basis.
11 Mr John Billington ceased as a KMP on 29 September 2015 and Ms Alex
Gartmann commenced as a KMP on 26 October 2016.
12 The performance related percentage comprises cash bonus (STI) payments, the
amortised fair value of performance right grants and the amortised fair value of
deferred STI components (which form part of the amount disclosed under the
‘Deferred shares’ column). It excludes termination payments.
4 1
ANNUAL FINANCIAL REPORT 2016 Table 4: Executive STI payments
The following short-term incentives were awarded to executives for FY2016. The short term incentives forfeited are also set out
in the table below.
Executive
M Hirst
M Baker
D Bice
J Billington
R Fennell
A Gartmann
R Musgrove
T Piper
B Speirs
S Thredgold
A Tullio
A Watts
Target STI
award2
$400,000
$200,000
$150,000
$160,000
$250,000
$70,000
$100,000
$100,000
$125,000
$150,000
$100,000
$180,000
Paid as cash
STI payment
Deferred into
shares1
STI payment as
% of Target STI
Award
% of Target STI Award
forfeited
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1 One-third of STI awards that exceed the $50,000 threshold set by the Board are subject to deferral for two years into shares in the Bank. No deferred shares were allocated
in relation to STI deferral for FY2016.
2 The STI award is subject to the achievement of financial and non-financial measures. Accordingly, the minimum potential STI award is nil.
4 2
ANNUAL FINANCIAL REPORT 2016 Table 5: All equity plans – equity valuation inputs
The following tables summarise the valuation inputs for current equity instruments issued by the Bank.
a. Deferred Shares
Equity Instrument
Deferred Shares Base Pay
Deferred Shares Base Pay
Deferred Shares Base Pay2
Deferred Shares STI3
Deferred Shares STI
Terms & Conditions for each Grant
Issue price / Fair
value1
Share price at
grant date
Restriction period
end / test date
Expiry date
$12.43
$12.89
$12.28
$10.02
$11.74
$11.24
$12.62
$12.30
$10.36
$11.81
30.06.2017
30.06.2017
30.06.2016
30.06.2016
30.06.2016
30.06.2016
30.06.2017
30.06.2017
30.06.2016
30.06.2016
Grant date
17.12.2015
10.12.2014
01.07.2014
12.10.2015
07.10.2014
1 The fair value of deferred share grants (for STI deferral and deferred base pay) is calculated using the volume weighted average closing price of the Bank’s shares for the
five days prior to and period ending on the grant date.
2 A further 12 month dealing restriction applies to the Managing Director’s grant.
3 The Managing Director’s deferred STI grant was made on 30 September 2015.
b. Performance rights
Terms & Conditions for each Grant
Equity
Instrument
Grant date
Fair
value1
Share
Price
$
Exercise
price
Risk-free
interest
rate
Dividend
yield
Expected
volatility
Expected
life
Performance
period end /
expiry date2
Performance
Rights
Performance
Rights
Performance
Rights3
Performance
Rights
Performance
Rights
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
17.12.2015
$4.92
$11.24
-
-
-
-
-
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
2.18%
6.0%
20%
4 Years
30.06.2019
1 The fair value is calculated as at grant date in accordance with AASB 2 Share-based Payments using an independent valuation.
2 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.
3 The 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 any ordinary
shares allocated in relation to vested rights under the terms of the Managing Director’s grant.
4 3
ANNUAL FINANCIAL REPORT 2016 Table 6: All equity plans - number of instruments
The table below sets out the number and value of equity instruments granted by the Bank during FY2016. It also includes
details of instruments granted in prior years that vested or were forfeited or lapsed during the year.
Executive
Equity Instrument
Grant Date
Granted
Units1
Prior years’
awards
vested3
Units
Prior years’
awards
vested4, 7
$
Granted2
$
Forfeited /
Lapsed 2, 5,6
Units
Forfeited /
Lapsed 5, 6
$
M Hirst
Performance Rights
01.07.2014
Deferred Shares Base Pay
01.07.2014
Deferred Shares STI
07.10.2014
-
-
-
-
-
-
152,438
$1,871,939
6,471
$75,970
-
-
152,438
1,076,212
Deferred Shares STI
Performance Rights
30.09.2015
31.08.2012
4,412
$44,208
-
-
Performance Rights
17.12.2015
20,112
$98,951
Deferred Shares Base Pay
17.12.2015
12,067
$149,993
-
-
-
-
-
-
-
-
Deferred Shares Base Pay
10.12.2014
-
-
12,214
$157,438
Deferred Shares STI
12.10.2015
2,206
$22,104
-
-
M Baker
-
-
-
-
-
-
20,091
$66,300
10,040
$44,678
8,143
$45,031
-
-
-
-
27,397
90,410
-
-
-
-
-
-
-
-
-
-
13,699
45,207
-
-
-
-
-
-
-
-
-
-
-
-
27,397
90,410
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,548
67,808
-
-
-
-
-
-
-
-
-
-
-
-
3,725
$43,732
-
-
-
-
-
-
5,700
$73,473
2,426
$28,481
6,107
2,412
$78,719
$28,317
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,885
$62,968
1,617
$18,984
-
-
-
-
-
-
Deferred Shares STI
Performance Rights
07.10.2014
31.08.2012
-
-
-
-
Performance Rights
17.12.2015
8,045
$39,581
D Bice
Deferred Shares Base Pay
17.12.2015
5,631
$69,993
Deferred Shares Base Pay
10.12.2014
Deferred Shares STI
Performance Rights
07.10.2014
31.08.2012
Performance Rights
17.12.2013
J Billington
Performance Rights
10.12.2014
Deferred Shares Base Pay
10.12.2014
Deferred Shares STI
Performance Rights
07.10.2014
31.08.2012
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Performance Rights
17.12.2015
20,112
$98,951
Deferred Shares Base Pay
17.12.2015
12,067
$149,993
R Fennell
A Gartmann
R Musgrove
Deferred Shares Base Pay
10.12.2014
-
-
12,214
$157,438
Deferred Shares STI
12.10.2015
2,757
$27,625
-
-
-
-
4,790
$56,235
Deferred Shares STI
Performance Rights
07.10.2014
17.12.2015
Deferred Shares Base Pay
17.12.2015
Performance Rights
17.12.2015
6,436
$31,665
4,827
8,045
$60,000
$39,581
Deferred Shares Base Pay
17.12.2015
4,827
$60,000
Deferred Shares Base Pay
10.12.2014
Deferred Shares STI
Performance Rights
07.10.2014
31.08.2012
-
-
-
-
-
-
Performance Rights
17.12.2015
16,090
$79,163
T Piper
Deferred Shares Base Pay
17.12.2015
10,056
$124,996
-
-
-
-
10,179
$131,207
2,128
$24,983
-
-
-
-
Deferred Shares Base Pay
10.12.2014
Deferred Shares STI
Performance Rights
07.10.2014
17.12.2015
8,045
$39,581
B Speirs
Deferred Shares Base Pay
17.12.2015
4,827
$60,000
4 4
ANNUAL FINANCIAL REPORT 2016 Table 6: All equity plans - number of instruments (continued)
Executive
Equity Instrument
Grant Date
Granted
Units1
Prior years’
awards
vested3
Units
Prior years’
awards
vested4, 7
$
Granted2
$
Performance Rights
31.08.2012
-
-
Performance Rights
17.12.2015
8,045
$39,581
S Thredgold
Deferred Shares Base Pay
17.12.2015
4,827
$60,000
-
-
-
-
-
-
Deferred Shares Base Pay
10.12.2014
Deferred Shares STI
Performance Rights
07.10.2014
17.12.2015
-
-
-
-
4,885
$62,968
2,426
$28,481
8,045
$39,581
Deferred Shares Base Pay
17.12.2015
5,631
$69,993
-
-
-
-
A Tullio
Deferred Shares Base Pay
10.12.2014
-
-
4,885
$62,968
Deferred Shares STI
12.10.2015
1,663
$16,663
-
-
Deferred Shares STI
Performance Rights
07.10.2014
31.08.2012
-
-
-
-
Performance Rights
17.12.2015
8,045
$39,581
Deferred Shares Base Pay
17.12.2015
4,022
$49,993
1,617
$18,984
-
-
-
-
-
-
Deferred Shares Base Pay
10.12.2014
-
-
4,071
$52,475
Deferred Shares STI
12.10.2015
1,829
$18,327
-
-
Deferred Shares STI
07.10.2014
-
-
2,426
$28,481
A Watts
Forfeited /
Lapsed 2, 5,6
Units
Forfeited /
Lapsed 5, 6
$
13,699
45,207
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,548
67,808
-
-
-
-
-
-
-
-
-
-
1 The grants to Executives in FY2016 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.
2 The value of the performance right grants and deferred share grants is the fair value (refer Table 5). 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.
3 The percentage of the Managing Director’s performance right grant and the executive performance right grant made in 2013 that vested for the year was nil and the
percentage that was forfeited was 100 per cent. The percentage of all other performance rights that vested, or were forfeited during the year was nil as the TSR measure for
these performance rights will be tested over future periods. The percentage of base pay deferred share grants and STI deferred share grants made in FY2015 that vested
during the year was 100%. The percentage of the deferred share base pay grant and deferred STI grant made in FY2016 that vested during the year was nil as the grants will
be tested over future periods.
4 The 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 5. 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.
5 The 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.
6 The 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.
7 The 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: 108,733 ordinary shares (FY2015: 225,519 ordinary shares); and
b. Average price per ordinary share at which the securities were purchased: $10.42 per security (FY2015: $12.54 per security).
4 5
ANNUAL FINANCIAL REPORT 2016 Table 7: Movements in executives’ 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 2016 Annual Financial Report at
Note 36.
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 LTI, Deferred Base and Deferred STI remuneration components.
The movements in executive (including their related parties) equity holdings for FY2016 are outlined below.
Executive
Equity
Instrument1
Number at
start of year
Number
granted
during the
year as
remuneration
Number
Received on
exercise or
exercised
/ released
during the
year
Number
Lapsed /
expired
during the
year
Net change
other
Number at
end of year2
Vested and
exercisable
at year end
M Hirst
Deferred shares
158,909
4,412
(158,909)
-
-
-
4,412
(42,586)
698,384
Ordinary shares
582,061
Performance
rights
152,438
-
-
158,909
-
(152,438)
M Baker
Deferred shares
15,939
14,273
(15,939)
Ordinary shares
256,809
-
(13,699)
(8,519)
8,519
-
-
-
(38,274)
15,939
-
-
(8,126)
8,126
-
-
-
-
(6,502)
6,502
-
-
-
-
(27,397)
-
-
-
-
(27,397)
-
-
-
-
-
-
-
-
-
-
-
-
(7,311)
7,311
(20,548)
-
-
-
-
-
-
-
-
14,273
15,157
287,905
200
800
-
-
(3,417)
-
-
58,040
5,631
82,577
26,228
-
(4,193)
50,519
-
-
-
-
-
-
-
-
-
-
(14,815)
-
-
-
-
-
(10,000)
-
14,824
89,038
60,550
4,827
-
6,436
4,827
29,378
23,718
10,056
48,502
47,436
4,827
995
17,136
4,827
26,751
-
(13,699)
-
26,228
-
-
20,112
5,631
-
8,045
-
-
-
4,827
-
6,436
4,827
-
8,045
4,827
-
8,045
4,827
-
8,045
14,824
(17,004)
-
17,004
67,835
20,112
10,056
(12,307)
-
12,307
51,894
16,090
Preference
shares
Performance
rights
D Bice
Deferred shares
Ordinary shares
Performance
rights
J Billington
Deferred shares
Ordinary shares
Performance
rights
R Fennell
Deferred shares
Ordinary shares
Performance
rights
A Gartmann
Deferred shares
Ordinary shares
Performance
rights
R Musgrove
Deferred shares
Ordinary shares
Performance
rights
T Piper
Deferred shares
Ordinary shares
Performance
rights
B Speirs
Deferred shares
Ordinary shares
Performance
rights
S Thredgold
Deferred shares
600
65,325
8,126
77,868
31,882
8,519
46,193
38,274
17,004
72,034
-
-
-
6,502
22,876
15,673
12,307
51,010
-
995
9,091
7,311
Ordinary shares
29,440
Performance
rights
31,882
4 6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
ANNUAL FINANCIAL REPORT 2016 Table 7: Movements in executives’ equity holdings (continued)
Executive
Equity
Instrument1
Number at
start of year
Number
granted
during the
year as
remuneration
Number
Received on
exercise or
exercised
/ released
during the
year
Number
Lapsed /
expired
during the
year
Net change
other
Number at
end of year2
Vested and
exercisable
at year end
A Tullio
Deferred shares
Ordinary shares
Performance
rights
A Watts
Deferred shares
Ordinary shares
Performance
rights
6,502
7,411
15,673
6,497
85,019
38,731
7,294
-
8,045
5,851
-
8,045
(6,502)
6,502
-
(6,497)
6,497
-
-
-
-
-
-
(7,340)
-
-
(16,850)
7,294
6,573
23,718
5,851
74,666
-
(20,548)
-
26,228
-
-
-
-
-
-
1 Ordinary share amounts include ordinary shares issued under the Employee Share Ownership Plan.
2 None of the equity holdings are held nominally.
47
ANNUAL FINANCIAL REPORT 2016 All Executives
All Executives
Table 8: 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 Executive to
end the contract without
cause?
What notice must be
provided by the Bank to end
the contract without cause?1
Fixed term to June 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.
What payments must be
made by the Bank for ending
the contract without cause?1
Payment of gross salary in lieu of period of notice (including payment of
accrued / unused leave entitlements calculated to end of relevant notice
period).
What are notice and
payment requirements if the
Bank ends the contract for
cause?
Are there any post-
employment restraints?
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
1 In 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”.
4 8
ANNUAL FINANCIAL REPORT 2016 Table 9: Non-executive Director and executive loans
Details of aggregate of loans to KMP and their related parties are as follows:
Balance
at beginning of
year1
Interest
charged
Interest not
charged
Write-off
Balance at
end of year
Number at
year end
$’000
$’000
$’000
$’000
$’000
Non-executive Directors
Executives
2016
2,268
2016
4,665
Total Directors and Executives
2016
6,933
139
231
370
-
-
-
-
-
-
3,403
5,277
8,680
5
10
15
Details of KMP (including their related parties) with an aggregate of loans above $100,000 in the reporting period are as
follows:
2016
Non-executive Directors
R Johanson
D Matthews
T Robinson
Executives
D Bice
J Billington
R Fennell
R Musgrove
T Piper
S Thredgold
A Tullio
A Watts
Balance
at beginning of
year
Interest
charged
Interest not
charged
Write-off
Balance at
end of year
Highest owing
in period2
$’000
$’000
$’000
$’000
$’000
$’000
1,176
1,067
5
461
841
509
382
506
963
869
-
62
58
19
23
38
29
19
25
39
36
14
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,027
1,351
1,004
421
673
539
375
495
977
784
897
1,082
1,414
-
469
842
539
393
-
1,007
869
978
1 The balances 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.
4 9
ANNUAL FINANCIAL REPORT 2016 This Directors’ Report is signed in accordance with a resolution of the Board of Directors.
Robert Johanson
Chairman
30 August 2016
Mike Hirst
Managing Director
30 August 2016
5 0
ANNUAL FINANCIAL REPORT 2016 FINANCIAL STATEMENTS
TABLE OF CONTENTS
Treasury and investments (continued)
Derivative financial instruments
Financial instruments
Investments accounted for using the equity
method
21
22
23
24
Investment property
Operating assets and liabilities
Cash flow statement reconciliation
Cash and cash equivalents
Goodwill and other intangible assets
25
26
27
28 Other assets
29 Other payables
30
31
32
33
34
35
36
37
38
39
40
Other disclosure matters
Risk management
Subsidiaries and other controlled entities
Related party disclosures
Involvement with unconsolidated entities
Fiduciary activities
Provisions
Share based payment plans
Property, plant and equipment
Commitments and contingencies
Auditors’ remuneration
Events after balance sheet date
Directors’ declaration
Independent audit report
Additional information
Key performance indicators
Five year history
Five year comparison
88
92
99
101
102
103
104
107
107
108
121
122
124
126
126
128
130
132
134
134
135
136
138
144
146
Primary statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Cash flow statement
Basis of preparation
Corporate information
Summary of significant accounting policies
Results for the year
Profit
Income tax expense
Segment results
Earnings per ordinary share
Dividends
Lending
Loans and other receivables
Impairment of loans and advances
Funding and capital management
Deposits and notes payable
Convertible preference shares
Subordinated debt
Securitisation and transferred assets
Standby arrangements & uncommitted credit
facilities
Capital management
Share capital
Retained earnings and reserves
Treasury and investments
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
52
53
54
55
57
58
58
60
63
65
68
70
72
73
75
76
77
78
79
80
81
83
85
86
87
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
5 1
ANNUAL FINANCIAL REPORT 2016 PRIMARY STATEMENTS
Income statement for the year ended 30 June 2016
Net interest income
Interest income
Interest expense
Group
Bank
Note
2016
$m
2015
$m
2016
$m
2015
$m
2,694.4
2,938.7
2,346.4
2,518.3
(1,526.7)
(1,761.1)
(1,314.8)
(1,483.8)
Total net interest income
3
1,167.7
1,177.6
1,031.6
1,034.5
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
5 2
2.1
157.5
66.4
158.3
384.3
1.3
165.6
63.2
131.1
361.2
1.8
140.6
18.6
77.7
23.8
147.7
18.1
66.7
238.7
256.3
(0.1)
4.4
(0.1)
1.7
1,551.9
1,543.2
1,270.2
1,292.5
(56.9)
12.8
(44.1)
(71.2)
2.9
(68.3)
(48.5)
10.2
(38.3)
(55.7)
2.8
(52.9)
(479.2)
(464.2)
(418.9)
(406.5)
(94.7)
(46.0)
(36.8)
(94.6)
(47.2)
(35.9)
(92.8)
(34.2)
(8.1)
(92.8)
(35.0)
(8.1)
(244.2)
(243.5)
(231.4)
(237.4)
(900.9)
(885.4)
(785.4)
(779.8)
606.9
589.5
446.5
459.8
(191.3)
(165.6)
(143.4)
(119.3)
415.6
423.9
303.1
340.5
90.4
81.3
92.5
87.3
3
23
3
3
4
6
6
ANNUAL FINANCIAL REPORT 2016 Statement of comprehensive income for the year ended 30 June 2016
Group
Bank
Note
2016
$m
2015
$m
2016
$m
2015
$m
Profit for the year
415.6
423.9
303.1
340.5
Items which may be reclassified subsequently to the profit & loss:
Net (loss)/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
Transfer to income from cash flow hedge reserve
Net unrealised loss on available for sale - debt securities
Transfer to loss/(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 on superannuation defined benefits plan
Tax effect on items taken directly to equity
Total items that will not be reclassified to profit & loss
17
17
17
17
17
17
17
17
17
(0.1)
-
1.0
(2.6)
-
-
0.4
-
(2.0)
(17.3)
(3.3)
(26.3)
-
(3.3)
1.1
1.3
(0.6)
(0.6)
(0.1)
6.1
-
(99.3)
1.1
30.5
(0.6)
(5.0)
(0.1)
9.5
(3.0)
(14.1)
(71.0)
(22.1)
(1.4)
0.4
(1.0)
(1.6)
0.5
(1.1)
(1.4)
0.4
(1.0)
(1.6)
0.5
(1.1)
Total comprehensive income for the year
411.6
408.7
231.1
317.3
Total comprehensive income for the year attributable to:
Owners of the Company
411.6
408.7
231.1
317.3
5 3
ANNUAL FINANCIAL REPORT 2016
Balance sheet as at 30 June 2016
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
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
5 4
Note
Group
2016
$m
2015
$m
981.6
215.7
-
1,060.0
220.8
-
6,369.1
5,562.9
353.5
382.8
79.0
601.3
300.7
63.8
Bank
2016
$m
2015
$m
933.0
220.8
1,160.1
6,369.4
6,941.1
62.7
290.3
870.4
215.7
1,180.0
5,563.3
5,486.1
2.0
211.7
57,253.6
55,531.6
52,280.6
50,464.6
4.1
-
90.7
131.3
573.4
3.6
-
98.8
146.4
482.0
3.9
569.8
86.0
132.1
-
3.3
564.8
93.8
128.6
-
1,634.7
1,580.5
1,528.7
1,464.6
427.9
459.9
429.9
482.1
68,580.9
66,028.8
71,008.4
66,731.0
267.4
202.7
266.9
202.4
57,054.7
53,505.3
53,786.3
50,258.4
3,822.5
4,925.9
111.8
108.0
502.2
110.7
330.6
117.4
-
34.5
115.0
114.7
536.0
824.4
583.4
-
9,437.3
8,842.1
18.2
114.7
111.8
688.4
819.5
592.6
34.5
110.9
104.1
683.8
824.4
573.4
18.2
110.2
106.9
773.1
819.5
573.1
63,464.4
61,087.1
66,434.5
62,151.9
5,116.5
4,941.7
4,573.9
4,579.1
4,288.2
4,223.6
4,288.2
4,223.6
87.9
740.4
95.0
623.1
43.7
242.0
118.8
236.7
5,116.5
4,941.7
4,573.9
4,579.1
26
26
18
19
20
21
8
23
37
4
24
27
28
26
10
10
21
4
35
4
29
11
12
16
17
17
ANNUAL FINANCIAL REPORT 2016 Statement of changes in equity for the year ended 30 June 2016
Group
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
Issued
capital1
$m
Retained
earnings
$m
Reserves2
$m
Total
equity
$m
4,235.4
(11.8)
623.1
95.0
4,941.7
-
-
-
63.0
-
-
-
-
-
-
-
1.6
-
-
415.6
(1.0)
-
415.6
(3.0)
(4.0)
414.6
(3.0)
411.6
-
-
-
-
3.5
(4.1)
63.0
1.6
(0.6)
(300.8)
-
(300.8)
4,298.4
(10.2)
740.4
87.9
5,116.5
Group
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
Issued
capital1
$m
Retained
earnings
$m
Reserves2
$m
Total
equity
$m
4,183.3
172.3
509.8
101.1
4,966.5
-
-
-
52.4
(0.3)
-
-
-
-
-
-
-
-
(190.0)
1.5
4.4
-
-
-
-
4,235.4
(11.8)
423.9
(1.1)
-
(14.1)
423.9
(15.2)
422.8
(14.1)
408.7
-
(1.5)
-
(8.6)
(1.8)
-
(297.6)
623.1
-
-
-
8.6
1.8
(2.4)
-
(137.6)
(0.3)
4.4
-
-
(2.4)
(297.6)
95.0
4,941.7
At 1 July 2015
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
Reduction in employee share ownership plan (ESOP) shares
Share based payment
Equity dividends
At 30 June 2016
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
for the year ended 30 June 2015
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
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
5 5
ANNUAL FINANCIAL REPORT 2016 Statement of changes in equity for the year ended 30 June 2016 (continued)
Attributable to owners of Bendigo and Adelaide Bank Limited
Bank
Issued
ordinary
capital
$m
Other
Issued
capital1
$m
4,235.4
(11.8)
-
-
-
-
63.0
-
-
-
-
-
-
-
-
1.6
-
-
4,298.4
(10.2)
Retained
earnings
$m
Reserves2
$m
Total
equity
$m
236.7
0.5
303.1
(1.0)
118.8
4,579.1
-
-
(71.0)
0.5
303.1
(72.0)
302.1
(71.0)
231.1
-
-
3.5
(300.8)
242.0
-
-
(4.1)
-
43.7
63.0
1.6
(0.6)
(300.8)
4,573.9
Bank
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital $m
Other
Issued
capital1
$m
Retained
earnings
$m
Reserves2
$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
At 1 July 2015
Opening balance b/fwd
Transfer from 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
Reduction in employee share ownership plan (ESOP) shares
Share based payment
Equity dividends
At 30 June 2016
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
for the year ended 30 June 2015
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
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
5 6
ANNUAL FINANCIAL REPORT 2016 Cash flow statement for the year ended 30 June 2016
Group
Bank
Note
2016
$m
2015
$m
2016
$m
2015
$m
Cash flows from operating activities
Interest and other items of a similar nature received
2,636.1
2,868.4
2,217.3
2,454.2
Interest and other costs of finance paid
Receipts from customers (excluding effective interest)
Payments to suppliers and employees
Dividends received
Income taxes paid
Cash flows from operating activities before changes in operating
assets and liabilities
(Increase)/decrease in operating assets
(1,492.8)
(1,713.3)
(1,272.6)
(1,434.7)
299.3
(1,006.9)
2.1
292.2
(756.0)
1.2
246.8
(885.7)
1.8
242.6
(689.4)
23.8
(155.2)
(144.3)
(138.2)
(112.9)
282.6
548.2
169.4
483.6
Net increase in balance of loans and other receivables
(1,785.5)
(433.4)
(1,245.3)
(1,350.1)
Net (increase)/decrease in balance of investment securities
(650.9)
1,737.9
(2,365.1)
2,194.6
Increase/(decrease) in operating liabilities
Net increase in balance of retail deposits
Net decrease in balance of wholesale deposits
Net (decrease)/increase in balance of notes payable
3,668.4
(119.0)
(1,103.4)
756.2
(233.8)
(330.4)
Net cash flows from operating activities
25
292.2
2,044.7
3,647.2
(119.3)
171.7
258.6
688.8
(29.1)
20.2
2,008.0
Cash flows related to 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
Net cash paid on acquisition of a business combination/acquisition
(14.5)
1.0
(49.4)
37.6
(2.1)
-
-
(26.3)
1.9
(41.4)
27.8
(2.9)
16.5
(1,678.5)
(14.1)
0.8
-
-
(5.6)
-
-
(25.0)
1.7
-
-
(2.7)
-
(1,678.5)
Net cash flows used in investing activities
(27.4)
(1,702.9)
(18.9)
(1,704.5)
Cash flows from financing activities
Proceeds from issue of convertible preference shares
Repayment of preference shares
(Payments to)/proceeds from subordinated debt holders
Dividends paid
Repayment of ESOP shares
Payment of share issue costs
Net cash flows (used in)/from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
-
-
(9.2)
(237.8)
1.6
(0.6)
(246.0)
18.8
994.6
Cash and cash equivalents at the end of period
26
1,013.4
486.2
(102.1)
(62.9)
(247.8)
4.4
(20.1)
57.7
399.5
595.1
994.6
-
-
0.3
(237.8)
1.6
(0.6)
(236.5)
3.2
883.7
886.9
486.2
(102.1)
(30.3)
(247.8)
4.4
(20.1)
90.3
393.8
489.9
883.7
57
ANNUAL FINANCIAL REPORT 2016 BASIS OF PREPAR ATION
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 2016 or later years. We
explain how these changes are expected to impact the financial position and performance of the Group.
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 are within the relevant note.
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.
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 2016 was authorised for
issue in accordance with a resolution of the directors on
30 August 2016.
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
($00,000).
Compliance with IFRS
The financial report complies with Australian Accounting
Standards and International Financial Reporting Standards
(IFRS).
5 8
ANNUAL FINANCIAL REPORT 2016 2. Summary of significant accounting policies
(continued)
The following amendments to existing standards are not
expected to result in significant changes to the Group’s
accounting policies:
> 2014-3 Amendments to Australian Accounting Standards
– Accounting for Acquisitions of Interests in Joint
Operations [AASB 1 & AASB 11];
> 2014-4 Clarification of Acceptable Methods of
Depreciation and Amortisation [AASB 116 and AASB 138];
> 2014-9 Amendments to Australian Accounting Standards
– Equity Method in Separate Financial Statements;
> 2014-10 Amendments to Australian Accounting Standards
– Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture;
> 2015-1 Amendments to Australian Accounting Standards
– Annual Improvements to Australian Accounting
Standards 2012–2014 Cycle;
> 2015-2 Amendments to Australian Accounting Standards
– Disclosure Initiative: Amendments to AASB 101;
> 2015-3 Amendments to Australian Accounting Standards
arising from the Withdrawal of AASB 1031 Materiality;
> 2015-5 Amendments to Australian Accounting Standards
– Investment Entities: Applying the Consolidation
Exception; and
> 2016-1 Amendments to Australian Accounting Standards
– Recognition of Deferred Tax Assets for Unrealised
Losses [AASB 12].
Foreign currency transactions and balances
Both the functional and presentation currency of Bendigo
and Adelaide Bank Limited and each of its subsidiaries is
Australian dollars (AUD). Transactions in foreign currencies
are initially recorded in the functional currency at the
exchange rates ruling on the date of the transaction.
All amounts are expressed in Australian currency and all
references to “$” 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.
Changes in accounting policies
The accounting policies are consistent with those applied in
the previous financial year.
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
2016.
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
cash flows 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.
AASB 16 Leases introduces a requirement to recognise
assets and liabilities for all leases with a term of more than
12 months unless the underlying asset is of low value.
This standard is effective 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.
5 9
ANNUAL FINANCIAL REPORT 2016 RESULTS FOR THE YE AR
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 income
Other
Total other income
Group
2016
$m
2015
$m
Bank
2016
$m
2015
$m
3.1
133.4
12.3
10.8
2,534.8
2,694.4
3.1
153.4
18.2
12.0
2,752.0
2,938.7
2.9
133.4
183.4
-
2,026.7
2,346.4
2.8
153.4
199.8
-
2,162.3
2,518.3
(1,120.7)
(1,291.6)
(1,029.3)
(1,178.3)
(198.4)
(10.3)
(127.5)
(37.7)
(32.1)
(225.6)
(16.0)
(166.5)
(23.9)
(37.5)
(198.8)
(10.3)
(223.4)
(16.0)
(7.4)
(37.7)
(31.3)
(7.5)
(23.9)
(34.7)
(1,526.7)
(1,761.1)
(1,314.8)
(1,483.8)
1,167.7
1,177.6
1,031.6
1,034.5
1.8
0.3
2.1
63.9
88.0
5.6
157.5
45.9
20.5
66.4
3.6
20.8
7.5
8.9
79.7
37.8
0.3
1.0
1.3
67.8
92.4
5.4
1.8
-
1.8
53.6
86.4
0.6
165.6
140.6
44.6
18.6
63.2
1.9
19.4
9.2
8.0
63.4
29.2
1.9
16.7
18.6
5.1
20.8
7.5
8.9
-
35.4
77.7
158.3
131.1
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
Share of net profit accounted for using the equity method
(0.1)
4.4
(0.1)
1.7
6 0
ANNUAL FINANCIAL REPORT 2016 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 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
Total bad and doubtful debts
Operating expenses
Staff and related costs
Salaries, wages and incentives
Superannuation contributions
Payroll tax
Other
Total staff and related costs
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
Fees and commissions
Other operating expenses
Communications, postage and stationery
Computer systems and software costs
Advertising and promotion
Other product and services delivery costs
Other expenses
Total other operating expenses
6 1
Group
Bank
2016
$m
2015
$m
2016
$m
2015
$m
(58.1)
5.6
(4.4)
12.8
(44.1)
(53.9)
(13.0)
(4.3)
2.9
(68.3)
(47.9)
3.4
(4.0)
10.2
(38.3)
(39.2)
(13.0)
(3.5)
2.8
(52.9)
(365.6)
(349.9)
(318.1)
(305.5)
(37.4)
(22.9)
(53.3)
(34.6)
(22.1)
(57.6)
(32.7)
(19.9)
(48.2)
(30.1)
(19.3)
(51.6)
(479.2)
(464.2)
(418.9)
(406.5)
(56.3)
(10.5)
(27.9)
(94.7)
(34.9)
(11.1)
(46.0)
(55.9)
(11.3)
(27.4)
(94.6)
(36.1)
(11.1)
(47.2)
(55.9)
(10.4)
(26.5)
(92.8)
(23.5)
(10.7)
(34.2)
(55.5)
(11.2)
(26.1)
(92.8)
(24.3)
(10.7)
(35.0)
(36.8)
(35.9)
(8.1)
(8.1)
(34.4)
(69.7)
(30.9)
(34.0)
(75.2)
(34.4)
(70.1)
(33.1)
(32.9)
(73.0)
(34.3)
(65.6)
(29.1)
(33.8)
(68.6)
(36.4)
(68.6)
(30.5)
(32.5)
(69.4)
(244.2)
(243.5)
(231.4)
(237.4)
ANNUAL FINANCIAL REPORT 2016 3. Profit (continued)
Occupancy costs
Recognition and measurement
Operating expenses are recognised as the relevant service
is rendered, or once a liability is incurred.
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. 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 35
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 36 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.
Operating lease payments are recognised as an expense
on a straight line basis over the lease term.
Depreciation and amortisation - refer to Note 37 Property,
plant and equipment for further information on depreciation
and Note 27 Goodwill and other intangibles for amortisation
on intangibles.
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.
6 2
ANNUAL FINANCIAL REPORT 2016
4. Income tax expense
Major components of income tax expense are:
Income statement
Current income tax
Current income tax charge
Franking 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 on available for sale investments
Actuarial loss on superannuation defined benefits plan
Income tax expense reported in equity
Group
Bank
2016
$m
2015
$m
2016
$m
2015
$m
181.0
(0.8)
(8.6)
1.9
5.4
12.4
191.3
(0.6)
(0.7)
(0.4)
(1.7)
174.4
(0.1)
(29.3)
1.2
9.1
10.3
165.6
(5.4)
(0.7)
(0.5)
(6.6)
128.1
(0.8)
(8.6)
1.9
5.4
17.4
143.4
(1.0)
(29.5)
(0.4)
(30.9)
152.7
(0.1)
(29.3)
1.2
9.4
(14.6)
119.3
(8.1)
(1.4)
(0.5)
(10.0)
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
6 3
606.9
589.5
446.5
459.8
182.1
(3.2)
(0.8)
11.6
(0.2)
0.2
1.9
(0.3)
191.3
176.9
(20.2)
(0.1)
8.5
(1.3)
-
1.2
0.6
165.6
133.9
(3.2)
(0.8)
11.6
-
0.2
1.9
(0.2)
143.4
Group
Bank
2016
$m
0.2
1.6
17.5
10.4
68.8
16.2
2015
$m
0.9
9.4
15.5
18.8
50.0
17.2
114.7
111.8
2016
$m
0.1
1.6
80.9
5.8
-
15.7
104.1
138.0
(19.9)
(0.1)
8.5
(9.0)
-
1.2
0.6
119.3
2015
$m
10.5
9.4
59.9
11.3
-
15.8
106.9
ANNUAL FINANCIAL REPORT 2016
Group
Bank
2016
$m
32.0
28.4
-
60.5
10.4
2015
$m
30.6
28.8
1.4
60.6
25.0
2016
$m
31.7
27.2
19.1
47.9
6.2
2015
$m
33.4
27.5
1.4
47.5
18.8
131.3
146.4
132.1
128.6
34.5
34.5
18.2
18.2
34.5
34.5
18.2
18.2
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. The tax funding 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.
4. Income tax expense (continued)
Deferred income tax (continued)
Gross deferred tax assets
Derivatives
Employee benefits
Available for sale financial assets
Provisions
Other
Tax payable attributable to members of the tax consolidated group
At 30 June 2016, there is no unrecognised deferred income
tax liability (2015: Nil) for taxes that would be payable on
the unremitted earnings of certain Group’s subsidiaries or
joint ventures, as the Group has no liability for additional
taxation should such amounts be remitted.
At 30 June 2016, there are no unused tax losses (capital in
nature) in the Group (2015: Nil).
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 national
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.
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
6 4
ANNUAL FINANCIAL REPORT 2016 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.
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.
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
Local connection
Contains all local distribution channels, including branch
and community banking, business banking, Delphi Bank,
financial markets and network support.
Partner connection
Contains all partner distribution channels, including
mortgage brokers, mortgage managers, mortgage
originators, Alliance Partners, Homesafe, Leveraged,
portfolio funding, financial planning, wealth management,
responsible entity activities, other trustee services and
custodial services. The partner connection segment is a
combination of the third party and wealth cash generating
units.
Agribusiness
Includes the provision of banking services to agribusinesses
in rural and regional Australia. Rural Bank and Rural Finance
are included within the agribusiness segment.
Central functions
Functions not relating directly to a reportable operating
segment.
6 5
ANNUAL FINANCIAL REPORT 2016 5. Segment results (continued)
For the year ended 30 June 2016
Operating segments
Local
connection
$m
Partner
connection
$m
Agribusiness
$m
Total
operating
segments
$m
Central
functions
$m
Total
$m
Net interest income
Other income
734.0
185.8
264.2
164.4
169.5
1,167.7
-
1,167.7
9.1
359.3
25.0
384.3
Share of net profit accounted for using
the equity method
-
-
-
-
Total segment income
919.8
428.6
178.6
1,527.0
(0.1)
24.9
(0.1)
1,551.9
Operating expenses
Credit expenses
Segment result (before tax expense)
Tax expense
Segment result (statutory basis)
Add: cash basis adjustments1
Specific income & expense items
Amortisation of intangibles
(636.2)
(187.9)
(75.3)
(899.4)
(1.5)
(900.9)
(20.8)
262.8
(82.2)
180.6
0.6
4.5
(13.5)
227.2
(71.1)
156.1
7.3
4.5
(9.8)
93.5
(29.2)
64.3
4.6
4.7
73.6
(44.1)
583.5
(182.5)
401.0
12.5
13.7
427.2
-
23.4
(8.8)
14.6
(2.5)
-
12.1
(44.1)
606.9
(191.3)
415.6
10.0
13.7
439.3
Segment result (cash basis)
185.7
167.9
For the year ended 30 June 2015
Operating segments
Local
connection
$m
Partner
connection
$m
Agribusiness
$m
Total
operating
segments
$m
Central
functions
$m
Total
$m
Net interest income
Other income
Share of net profit accounted for using the
equity method
725.6
186.3
-
277.3
148.9
-
174.7
1,177.6
-
1,177.6
8.5
-
343.7
-
17.5
4.4
361.2
4.4
Total segment income
911.9
426.2
183.2
1,521.3
21.9
1,543.2
Operating expenses
Credit expenses
Segment result (before tax expense)
Tax expense
Segment result (statutory basis)
Add: cash basis adjustments1
Specific income & expense items
Distributions accrued and/or paid on
preference shares
Amortisation of intangibles
(618.9)
(187.1)
(22.1)
270.9
(82.5)
188.4
1.5
-
4.6
(32.8)
206.3
(62.9)
143.4
5.7
-
5.7
Segment result (cash basis)
194.5
154.8
1 Refer to Note 6 Earnings per ordinary share for further details.
6 6
(79.4)
(13.4)
90.4
(27.5)
62.9
6.8
-
5.0
74.7
(885.4)
(68.3)
567.6
(172.9)
394.7
-
-
21.9
7.3
29.2
14.0
(17.3)
-
(3.5)
15.3
424.0
-
8.4
(885.4)
(68.3)
589.5
(165.6)
423.9
(3.3)
(3.5)
15.3
432.4
ANNUAL FINANCIAL REPORT 2016 5. Segment results (continued)
Operating segments
Local
connection
$m
Partner
connection
$m
Agribusiness
$m
Total
operating
segments
$m
Central
functions
$m
Total
$m
For the year ended 30 June 2016
Reportable segment assets
31,728.3
20,097.7
5,964.0
57,790.0
10,790.9
68,580.9
Reportable segment liabilities
40,924.0
5,418.9
3,592.6
49,935.5
9,706.4
59,641.9
For the year ended 30 June 2015
Reportable segment assets
30,590.5
20,155.8
5,873.7
56,620.0
9,408.8
66,028.8
Reportable segment liabilities
38,056.2
5,246.4
3,579.7
46,882.3
9,278.9
56,161.2
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 2016
As at
June 2015
68,580.9
66,028.8
68,580.9
66,028.8
59,641.9
56,161.2
3,822.5
4,925.9
63,464.4
61,087.1
67
ANNUAL FINANCIAL REPORT 2016 6. Earnings per ordinary share
Basic
Diluted
Cash basis
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 and/or paid on preference shares
Distributions accrued and/or paid on step up preference shares
Total basic earnings
Earnings used in calculating basic earnings per ordinary share
Add back: dividends accrued and/or paid on dilutive preference shares
Total diluted earnings
Earnings used in calculating basic earnings per ordinary share
Add back: intangibles amortisation after tax (excluding software amortisation)
Add back: specific income and expense items after tax
Total cash earnings
Specific income and expense items after tax comprise:
Items included in interest income
Fair value adjustments - interest expense
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
Integration costs
Impairment charge
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
6 8
Group
2016
Cents per share
2015
Cents per share
90.4
81.3
95.6
$m
415.6
-
-
415.6
415.6
26.4
442.0
415.6
13.7
10.0
439.3
(3.2)
(3.2)
5.5
-
5.5
(7.8)
(2.1)
(1.0)
(10.9)
-
(1.4)
(1.4)
(10.0)
92.5
87.3
95.1
$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
ANNUAL FINANCIAL REPORT 2016
6. Earnings per ordinary share (continued)
Weighted average number of ordinary shares
Weighted average number of ordinary shares (basic)
Effect of dilution - executive performance rights
Effect of dilution - convertible preference shares
No. of shares
No. of shares
459,536,374
454,457,127
1,054,939
930,926
83,071,324
49,387,341
Weighted average number of ordinary shares (diluted)
543,662,637
504,775,394
Potentially dilutive instruments
The following instruments are potentially dilutive during the reporting period:
Dilutive
2016
2015
n/a
n/a
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.
6 9
ANNUAL FINANCIAL REPORT 2016 7. Dividends
Dividends paid or proposed
Group
Bank
2016
Cents
per
share
¢
Date
paid
Total
amount
$m
2015
Cents
per
share
¢
Date
paid
Total
amount
$m
2016
Cents
per
share
¢
Date
paid
Total
amount
$m
2015
Cents
per
share
¢
Total
amount
$m
Date
paid
Ordinary shares (ASX:BEN)
Dividends paid during the year:
Interim dividend Mar 2016
34.0
153.6
Mar 2015
33.0
147.6
Mar 2016
34.0
153.6
Mar 2015
33.0
147.6
Final dividend
Sept 2015
33.0
147.2
Sept 2014
33.0
146.5
Sept 2015
33.0
147.2
Sept 2014
33.0
146.5
67.0
300.8
66.0
294.1
67.0
300.8
66.0
294.1
Dividends proposed since the reporting date, but not recognised as a liability:
Final dividend 30 Sept 2016
34.0
155.2
30 Sept 2016
34.0
155.2
All dividends paid were fully franked at 30% (2015: 30%). Proposed dividends will be fully franked at 30% (2015: 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 2016.
Group
Bank
2016
Cents
per
share
¢
Date
paid
Total
amount
$m
2015
Cents
per
share
¢
Date
paid
Total
amount
$m
2016
Cents
per
share
¢
Date
paid
Total
amount
$m
2015
Cents
per
share
¢
Total
amount
$m
Date
paid
Preference shares (ASX:BENPB)
Dividends paid during the year:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sept 2014 73.04
Dec 2014
72.37
Mar 2015
74.17
Jun 2015 66.67
286.25
0.7
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 78.00
Oct 2014 78.00
156.00
0.8
0.8
1.6
Step up preference shares were redeemed in October 2014.
Convertible preference shares (recorded as debt instruments) (ASX:BENPD)
Dividends paid during the year:
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sept 2014 73.04
Dec 2014
72.37
Mar 2015
74.17
Jun 2015 66.67
286.25
0.7
0.7
0.7
0.6
2.7
Jul 2014 78.00
0.8
Oct 2014 78.00
0.8
156.00
1.6
Dec 2015 253.52
Jun 2016 261.46
6.8
7.0
Dec 2014 273.90
Jun 2015 271.20
7.4
7.3
Dec 2015 253.52
Jun 2016 261.46
6.8
7.0
Dec 2014 273.90
Jun 2015 271.20
7.4
7.3
514.98
13.8
545.10
14.7
514.98
13.8
545.10 14.7
Convertible preference shares (CPS2) (recorded as debt instruments) (ASX:BENPE)
Dividends paid during the year:
Nov 2015
189.53
5.5
Dec 2014
59.29
May 2016
194.42
5.7
Jun 2015
209.60
383.95
11.2
268.9
1.7
6.1
7.8
Nov 2015
189.53
May 2016
194.42
5.5
5.7
Dec 2014 59.29
Jun 2015 209.60
383.95
11.2
268.9
1.7
6.1
7.8
Convertible preference shares (CPS2) were issued in October 2014.
70
ANNUAL FINANCIAL REPORT 2016 7. Dividends (continued)
Group
2016
Cents
per
share
¢
Total
amount
$m
Date
paid
Date
paid
Bank
2015
Cents
per
share
¢
Total
amount
$m
2016
Cents
per
share
¢
Total
amount
$m
Date
paid
2015
Cents
per
share
¢
Date
paid
Total
amount
$m
Convertible preference shares (CPS3) (recorded as debt instruments) (ASX:BENPF)
Dividends paid during the year:
Dec 2015
219.82
Jun 2016
226.72
6.2
6.4
-
-
446.54
12.6
-
-
-
-
-
-
Dec 2015
219.82
Jun 2016
226.72
6.2
6.4
-
-
446.54
12.6
-
-
-
-
-
-
Convertible preference shares (CPS 3) were issued in June 2015.
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
Closing balance at 30 June 2016
Group
2016
$m
345.1
34.5
(67.6)
312.0
2015
$m
334.1
18.2
(64.6)
287.7
Dividends 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 cash1
Satisfied by issue of shares2
1 Refers to cash paid to shareholders who did not elect to participate in the dividend reinvestment plan.
2 Includes share issued to participating shareholders under the dividend reinvestment plan.
Group
Bank
2016
$m
237.8
63.0
300.8
2015
$m
247.8
50.6
298.4
2016
$m
237.8
63.0
300.8
2015
$m
247.8
50.6
298.4
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
7 1
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 9 September 2016 at a discount of 1.5%.
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 9 September 2016 at
a discount of 1.5%. 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 2016 final dividend was 8
September 2016.
ANNUAL FINANCIAL REPORT 2016
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
2016
$m
197.7
2015
$m
185.1
2016
$m
197.7
2015
$m
185.1
3,600.6
3,851.5
3,590.3
3,837.3
288.4
287.7
288.4
287.7
50,937.7
48,978.3
47,713.4
45,699.8
1,742.4
1,792.2
487.9
99.2
117.6
453.1
76.6
106.0
-
396.3
99.2
117.6
-
376.6
76.6
106.0
Gross loans and other receivables
57,471.5
55,730.5
52,402.9
50,569.1
Specific provision
Collective provision
Unearned income
Total provisions and unearned income
Deferred costs paid
9
9
(125.3)
(53.4)
(106.5)
(285.2)
67.3
(116.8)
(59.0)
(101.7)
(277.5)
78.6
(87.0)
(49.4)
(53.2)
(79.3)
(52.8)
(51.0)
(189.6)
(183.1)
67.3
78.6
Net loans and other receivables
57,253.6
55,531.6
52,280.6
50,464.6
Maturity analysis 1
At call / overdrafts
Not longer than 3 months
Longer than 3 and not longer than 12 months
7,952.2
1,307.1
2,075.7
7,598.8
1,175.4
6,007.0
5,437.6
991.6
924.6
1,936.3
1,704.2
1,536.9
Longer than 1 and not longer than 5 years
7,488.5
7,540.9
5,283.4
5,378.3
Longer than 5 years
38,648.0
37,479.1
38,416.7
37,291.7
57,471.5
55,730.5
52,402.9
50,569.1
1 Balances exclude specific and collective provisions, unearned revenue, and deferred costs and are categorised by the contracted maturity date of each loan facility.
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.
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.
72
ANNUAL FINANCIAL REPORT 2016 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
2016
$m
68.7
235.0
46.5
2015
$m
80.3
241.9
3.4
(124.4)
(116.1)
225.8
209.5
2016
$m
19.9
148.7
43.1
(86.1)
125.6
2015
$m
24.5
141.8
-
(78.6)
87.7
Net impaired loans % of net loans and other receivables
0.39%
0.38%
0.24%
0.17%
Portfolios facilities - past due 90 days, not well secured
Less: specific provisions
Net portfolio facilities
Loans past due 90 days
Accruing loans past due 90 days, with adequate security balance
Net fair value of properties acquired through the enforcement of security
4.8
(0.9)
3.9
574.4
78.2
Group
4.2
(0.7)
3.5
4.4
(0.9)
3.5
3.7
(0.7)
3.0
610.1
114.5
462.9
73.4
538.8
95.3
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
Collective provision and general reserve for credit losses as a % of
risk-weighted assets
2016
$m
79.3
-
47.9
(40.2)
87.0
52.8
-
(3.4)
49.4
128.3
-
128.3
264.7
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
2016
$m
2015
$m
116.8
114.4
-
58.1
(49.6)
125.3
59.0
-
(5.6)
53.4
146.9
-
146.9
325.6
0.22%
0.57%
0.55%
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%
0.59%
Provision coverage1
93.00%
99.10%
1 Provision coverage is calculated as total provisions and reserve divided by total impaired assets.
7 3
ANNUAL FINANCIAL REPORT 2016 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
(eg 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.
74
ANNUAL FINANCIAL REPORT 2016 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
2016
$m
2015
$m
Bank
2016
$m
2015
$m
22,045.4
18,942.0
20,161.7
16,992.4
19,499.5
19,866.4
19,499.5
19,866.4
8,346.2
7,414.3
6,962.7
6,118.0
Total retail deposits
49,891.1
46,222.7
46,623.9
42,976.8
Wholesale
Domestic
Offshore
Total wholesale deposits
Total deposits
Deposits by geographic location
Victoria
New South Wales
Australian Capital Territory
Queensland
6,733.4
6,936.3
6,732.2
6,935.3
430.2
346.3
430.2
346.3
7,163.6
7,282.6
7,162.4
7,281.6
57,054.7
53,505.3
53,786.3
50,258.4
24,127.4
22,987.6
23,411.8
22,303.8
15,450.9
13,979.2
14,328.7
12,747.3
1,458.0
1,030.9
1,350.5
977.7
5,139.5
5,326.3
4,831.9
5,026.3
South Australia/Northern Territory
5,569.7
5,381.6
5,021.2
4,896.7
Western Australia
Tasmania
Overseas
Total deposits
Total notes payable
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.
75
3,564.2
3,254.7
3,188.5
2,879.5
1,105.9
1,038.2
1,018.6
639.1
506.8
635.1
926.2
500.9
57,054.7
53,505.3
53,786.3
50,258.4
3,822.5
4,925.9
502.2
330.6
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.
ANNUAL FINANCIAL REPORT 2016 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
2016
$m
268.9
(3.1)
265.8
292.1
(7.6)
284.5
282.2
(8.1)
274.1
2015
$m
268.9
(5.2)
263.7
292.1
(9.4)
282.7
282.2
(9.1)
273.1
2016
$m
268.9
(3.1)
265.8
292.1
(7.6)
284.5
282.2
(8.1)
274.1
2015
$m
268.9
(5.2)
263.7
292.1
(9.4)
282.7
282.2
(9.1)
273.1
Total convertible preference shares
824.4
819.5
824.4
819.5
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 http://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.
76
ANNUAL FINANCIAL REPORT 2016 Group
Bank
2016
$m
2015
$m
2016
$m
2015
$m
583.4
592.6
573.4
573.1
-
-
260.7
322.7
583.4
9.5
-
-
583.1
592.6
-
-
250.7
322.7
573.4
-
-
-
573.1
573.1
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.
77
ANNUAL FINANCIAL REPORT 2016 13. Securitisation and transferred assets
Repurchase agreements
Securitisation
Group
Carrying amount of transferred assets1
Carrying amount of associated liabilities2
Fair value of transferred assets
Fair value of associated liabilities
Net Position
Bank
Carrying amount of transferred assets
Carrying amount of associated liabilities3
Fair value of transferred assets
Fair value of associated liabilities
Net Position
2016
$m
520.3
520.3
2015
$m
348.7
348.7
2016
$m
3,149.1
3,296.3
3,130.9
3,285.1
(154.2)
Repurchase agreements
Securitisation
2016
$m
502.2
502.2
2015
$m
330.6
330.6
2016
$m
8,989.9
9,430.6
8,952.5
9,354.9
(402.4)
2015
$m
4,292.6
4,567.0
4,285.4
4,538.4
(253.0)
2015
$m
8,310.7
8,837.3
8,326.7
8,839.6
(512.9)
1 Represents the carrying value of the loans transferred to the trust.
2 Securitisation liabilities of the Group include RMBS notes issued by the SPE’s and held by external parties.
3 Securitisation liabilities of the Bank include borrowings from SPE’s including the SPE’s that issue internally held notes for repurchase with central banks, recognised on
transfer of residential mortgages by the Bank.
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 $2,876.4 million
(2015: $1,462.1 million) during the financial year. The
Group invests in some of its own securitisation programs by
holding A and B class notes equivalent to $6,617.7 million
as at 30 June 2016 (2015: $4,809.5 million).
78
ANNUAL FINANCIAL REPORT 2016 14. Standby arrangements and uncommitted credit facilities
Group
2016
$m
10,774.4
6,000.0
426.3
3,987.9
2015
$m
10,417.3
6,000.0
340.9
3,600.9
Bank
2016
$m
10,774.4
5,000.0
426.3
3,976.5
2015
$m
10,417.3
5,000.0
340.9
3,580.0
10,348.1
2,012.1
10,076.4
2,399.1
10,348.1
1,023.5
10,076.4
1,420.0
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.
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.
7 9
ANNUAL FINANCIAL REPORT 2016 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 ranked capital instruments
acceptable to APRA. Tier 2 capital is comprised primarily
of lower ranked hybrid and debt instruments acceptable to
APRA.
Total capital is the aggregate of Tier 1 and Tier 2 capital.
The Group has adopted the 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 2015/16 financial year.
8 0
ANNUAL FINANCIAL REPORT 2016 16. Share capital
Issued and paid up capital
Ordinary shares (ASX Code: BEN) fully paid - 463,762,656 (2015:
456,566,225)
Group
2016
$m
2015
$m
Bank
2016
$m
2015
$m
4,298.4
4,235.4
4,298.4
4,235.4
Employee Share Ownership Plan
(10.2)
(11.8)
(10.2)
(11.8)
4,288.2
4,223.6
4,288.2
4,223.6
Movements in ordinary shares on issue
Opening balance 1 July - 456,566,225 (2015: 452,006,957)
4,235.4
4,183.3
4,235.4
4,183.3
Shares issued under:
Bonus share scheme - 330,292 @ $10.64; 267,943 @ $9.05 (2015:
191,372 @ $12.73; 205,584 @ $12.62)
Dividend reinvestment plan - 2,031,453 @ $10.64; 4,566,743 @
$9.05 (2015: 1,813,234 @ $12.73; 2,184,643 @ 12.62)
Retail entitlement offer - Nil (2015: 164,435 @ $10.85)
Share issue costs
-
63.0
-
-
-
50.6
1.8
(0.3)
-
63.0
-
-
-
50.6
1.8
(0.3)
Closing balance 30 June - 463,762,656 (2015: 456,566,225)
4,298.4
4,235.4
4,298.4
4,235.4
Movements in preference shares on issue
Opening balance 1 July - Nil (2015: 900,000 fully paid)
Redemption - Nil (June 2015: 900,000 fully paid shares)
Closing balance 30 June
Movements in step up preference shares on issue
Opening balance 1 July - Nil (2015: 1,000,000)
Redemption - Nil (October 2015: 1,000,000 fully paid shares)
Closing balance 30 June
Movements in Employee Share Ownership Plan
Opening balance
Reduction in Employee Share Ownership Plan
Closing balance
-
-
-
-
-
-
(11.8)
1.6
(10.2)
88.5
(88.5)
-
100.0
(100.0)
-
(16.2)
4.4
(11.8)
-
-
-
-
-
-
(11.8)
1.6
(10.2)
88.5
(88.5)
-
100.0
(100.0)
-
(16.2)
4.4
(11.8)
Total issued and paid up capital
4,288.2
4,223.6
4,288.2
4,223.6
8 1
ANNUAL FINANCIAL REPORT 2016 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). Dividends are
recognised as a distribution from equity in the year that
they are declared.
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.
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.
Preference shares (ASX code: BENPB)
Preference shares are perpetual, redeemable and
convertible. 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. In accordance with the issue’s prospectus
dated April 2005 these shares were redeemed in June
2015.
Step up preference shares (ASX code: BENPC)
Step up preference shares are perpetual, redeemable and
convertible. 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. In
accordance with the issue’s prospectus dated August 2004
these shares were redeemed in October 2014.
8 2
ANNUAL FINANCIAL REPORT 2016 17. Retained earnings and reserves
Retained earnings
Movements
Opening balance
Profit for the year
Share based payment
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
Closing balance
Asset revaluation reserve - available for sale equity securities
Opening balance
Transfer to income on sale of available for sale assets
Revaluation increments/(decrements)
Tax effect of revaluation increments/(decrements)
Closing balance
Group
Bank
2016
$m
623.1
415.6
3.5
-
-
-
2015
$m
509.8
423.9
-
(8.6)
(1.8)
(1.5)
2016
$m
236.7
303.1
3.5
-
-
-
2015
$m
205.0
340.5
-
(8.6)
-
(1.5)
(300.8)
(297.6)
(300.8)
(297.6)
-
(1.4)
0.4
-
(1.6)
0.5
0.5
(1.4)
0.4
-
(1.6)
0.5
740.4
623.1
242.0
236.7
14.4
(4.1)
10.3
1.3
1.3
1.6
-
(0.1)
-
1.5
16.8
(2.4)
14.4
1.3
1.3
2.7
(2.6)
1.0
0.5
1.6
14.4
(4.1)
10.3
0.4
0.4
1.2
-
-
-
1.2
16.8
(2.4)
14.4
0.4
0.4
0.9
-
0.4
(0.1)
1.2
8 3
ANNUAL FINANCIAL REPORT 2016 17. Retained earnings and reserves (continued)
Reserves (continued)
Movements (continued)
Asset revaluation reserve - available for sale debt securities
Opening balance
Net unrealised losses
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
2016
$m
0.6
(3.3)
1.1
0.7
(0.9)
1.8
-
1.8
(51.2)
(2.0)
0.6
-
-
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
2016
$m
23.3
(99.3)
1.1
29.5
(45.4)
-
-
-
(48.8)
(3.3)
1.0
-
-
2015
$m
26.9
(5.0)
(0.1)
1.5
23.3
-
-
-
(30.0)
(26.3)
7.9
(0.6)
0.2
Closing balance
(52.6)
(51.2)
(51.1)
(48.8)
General reserve for credit losses (GRCL)
Opening balance
Establishment of GRCL on transfer of business
Closing balance
Acquisition reserve
Opening balance
Closing balance
146.9
-
146.9
(20.4)
(20.4)
138.3
8.6
146.9
(20.4)
(20.4)
128.3
-
128.3
-
-
119.7
8.6
128.3
-
-
Total reserves
87.9
95.0
43.7
118.8
Nature and purpose of reserves
Employee benefits reserve
The reserve records the value of equities issued to Non-
executive employees under the Employee Share Ownership
Plan and the value of deferred shares and rights granted to
Executive employees under the Employee Salary Sacrifice,
Deferred Share and Performance Share Plan. Further details
regarding these employee equity plans are disclosed within
Note 36 Share based payment plans.
Asset revaluation reserve - property
The reserve records revaluation adjustments on the Group’s
property assets.
Asset revaluation reserve - available for sale - equity
investments and debt securities.
The reserve records fair value changes on available for sale
assets.
8 4
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.
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.
ANNUAL FINANCIAL REPORT 2016 TRE ASURY 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
2016
$m
2015
$m
Bank
2016
$m
2015
$m
3,377.2
1,754.8
3,377.5
1,755.2
-
322.1
-
322.1
2,991.9
3,486.0
2,991.9
3,486.0
Total financial assets held for trading
6,369.1
5,562.9
6,369.4
5,563.3
Maturity analysis
Not longer than 3 months
1,685.5
937.4
1,685.5
937.4
Longer than 3 and not longer than 12 months
2,091.3
2,947.5
2,091.3
2,947.5
Longer than 1 and not longer than 5 years
2,592.3
1,678.0
2,592.3
1,678.0
Over 5 years
-
-
0.3
0.4
6,369.1
5,562.9
6,369.4
5,563.3
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.
8 5
ANNUAL FINANCIAL REPORT 2016 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
2016
$m
118.7
144.7
24.9
-
34.9
323.2
2.4
27.9
30.3
2015
$m
109.5
387.2
24.9
2016
$m
-
144.7
24.9
2015
$m
-
387.2
24.9
-
6,554.0
4,842.0
48.3
569.9
194.0
207.4
6,917.6
5,461.5
2.4
29.0
31.4
2.4
21.1
23.5
2.3
22.3
24.6
Total financial assets available for sale
353.5
601.3
6,941.1
5,486.1
118.7
34.5
135.1
34.9
30.3
81.6
53.4
386.6
48.3
31.4
-
34.5
135.1
-
25.5
386.6
6,748.0
5,049.4
23.5
24.6
353.5
601.3
6,941.1
5,486.1
(3.4)
1.1
0.4
(2.7)
(99.3)
1.1
(4.6)
(0.1)
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
with gains and losses 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.
8 6
ANNUAL FINANCIAL REPORT 2016 Group
Bank
2016
$m
193.1
188.2
1.5
382.8
2015
$m
197.1
102.1
1.5
300.7
2016
$m
-
61.2
1.5
62.7
204.5
135.6
60.6
86.0
84.7
7.6
61.4
87.9
15.8
-
1.3
0.8
382.8
300.7
62.7
2015
$m
-
0.5
1.5
2.0
-
-
-
2.0
2.0
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.
87
ANNUAL FINANCIAL REPORT 2016 21. Derivative financial instruments
Group 2016
Group 2015
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
$m
$m
$m
$m
$m
$m
$m
$m
Included in derivatives category
Derivatives held for trading
Futures
Interest rate swaps
Foreign exchange contracts
3,474.5
16,842.4
130.4
20,447.3
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
Embedded derivatives
15.5
156.8
-
172.3
Derivatives held as cash flow hedges
19.6
29.4
0.7
49.7
-
22.8
-
22.8
-
(22.0)
(0.5)
(22.5)
(1.6)
-
-
19.6
7.4
0.2
27.2
(1.6)
22.8
-
(1.6)
21.2
1,239.7
5,394.2
54.1
6,688.0
23.3
156.8
0.1
180.2
10.4
19.5
1.0
30.9
-
24.9
-
24.9
-
(18.4)
(0.7)
(19.1)
(2.0)
-
-
(2.0)
10.4
1.1
0.3
11.8
(2.0)
24.9
-
22.9
Interest rate swaps
19,475.2
19,475.2
6.5
6.5
(87.7)
(87.7)
(81.2)
(81.2)
20,327.7
20,327.7
8.0
8.0
(86.9)
(86.9)
(78.9)
(78.9)
Total derivatives
40,094.8
79.0
(111.8)
(32.8)
27,195.9
63.8
(108.0)
(44.2)
Bank 2016
Bank 2015
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
$m
$m
$m
$m
$m
$m
$m
$m
Included in derivatives category
Derivatives held for trading
Futures
Interest rate swaps
Foreign exchange contracts
3,474.5
25,995.5
130.4
29,600.4
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
15.4
156.8
172.2
Derivatives held as cash flow hedges
19.6
240.8
0.7
261.1
-
22.8
22.8
-
(23.3)
(0.5)
(23.8)
(1.6)
-
(1.6)
19.6
217.5
0.2
237.3
(1.6)
22.8
21.2
1,239.7
14,022.9
54.1
15,316.7
23.3
156.8
180.1
10.4
167.5
1.0
178.9
-
24.9
24.9
-
(31.2)
(0.7)
(31.9)
(2.0)
-
(2.0)
10.4
136.3
0.3
147.0
(2.0)
24.9
22.9
Interest rate swaps
18,876.1
18,876.1
6.4
6.4
(85.3)
(85.3)
(78.9)
(78.9)
19,704.0
19,704.0
7.9
7.9
(83.5)
(83.5)
(75.6)
(75.6)
Total derivatives
48,648.7
290.3
(110.7)
179.6
35,200.8
211.7
(117.4)
94.3
8 8
ANNUAL FINANCIAL REPORT 2016 21. Derivative financial instruments (continued)
As at 30 June hedged cash flows are expected to occur and affect the income statement as follows:
Group
2016
Within
1 year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
Greater
than
5 years
$m
$m
$m
$m
$m
$m
Forecast cash inflows
379.6
127.7
Forecast cash outflows
(421.8)
(150.2)
Forecast net cash outflows
(42.2)
(22.5)
2015
Forecast cash inflows
405.2
85.9
Forecast cash outflows
(479.8)
(126.7)
Forecast net cash outflows
(74.6)
(40.8)
Bank
2016
Forecast cash inflows
Forecast cash outflows
Forecast net cash outflows
2015
369.3
(409.6)
(40.3)
125.0
(147.0)
(22.0)
Forecast cash inflows
394.0
83.5
Forecast cash outflows
(464.2)
(121.7)
Forecast net cash outflows
(70.2)
(38.2)
Net gains /(losses) arising from hedge ineffectiveness
Gains/ (losses) arising from fair value hedges
Gains/(losses) on hedging instruments
Gains/(losses) on the hedged items attributable to the hedged risk
Gains on cash flow hedges
Gains on cash flow hedges
Gains on hedges, (not in a hedge accounting relationship)
Gains on hedges
206.6
(214.8)
(8.2)
39.0
(65.8)
(26.8)
206.2
(214.3)
(8.1)
38.2
(64.1)
(25.9)
21.3
(23.0)
(1.7)
175.5
(185.1)
(9.6)
21.3
(23.0)
(1.7)
175.5
(185.1)
(9.6)
11.1
(11.3)
(0.2)
9.5
(10.6)
(1.1)
11.1
(11.3)
(0.2)
9.5
(10.6)
(1.1)
Group
Bank
2016
$m
(1.7)
4.0
2015
$m
26.5
(27.0)
2016
$m
(1.7)
4.0
28.2
(28.3)
(0.1)
32.3
(32.5)
(0.2)
28.2
(28.3)
(0.1)
32.3
(32.5)
(0.2)
2015
$m
26.5
(27.0)
-
0.6
-
0.6
5.6
7.9
-
0.1
5.6
7.9
-
0.1
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.
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 remeasured 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.
8 9
ANNUAL FINANCIAL REPORT 2016 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
and cross currency 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 and
exchange 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.
Cash flow hedges
Cash flow hedges consist principally of interest rate 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
2016
2015
$m
$m
$m
$m
Amounts subject to enforceable master netting or similar agreements
Amounts of recognised financial assets/liabilities reported on the
balance sheet
59.4
(111.8)
53.3
(101.9)
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
(17.1)
42.3
19.6
79.0
91.2
(20.6)
-
(111.8)
(16.3)
37.0
10.5
63.8
80.5
(21.4)
(6.1)
(108.0)
9 0
ANNUAL FINANCIAL REPORT 2016 21. Derivative financial instruments (continued)
Offsetting financial assets and financial liabilities (continued)
Bank
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
2016
2015
$m
$m
$m
$m
Amounts subject to enforceable master netting or similar agreements
Amounts of recognised financial assets/liabilities reported on the
balance sheet
270.2
(110.5)
201.2
(111.3)
Related amounts not set-off on the balance sheet
Financial collateral (received)/pledged
Net amount
(17.1)
253.1
91.2
(19.3)
(16.3)
184.9
80.5
(30.8)
Financial assets/liabilities not subject to enforceable master netting
or similar agreements
20.1
(0.2)
10.5
(6.1)
Total financial assets/liabilities recognised on the balance sheet
290.3
(110.7)
211.7
(117.4)
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).
9 1
ANNUAL FINANCIAL REPORT 2016 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
-
-
-
-
-
-
79.0
79.0
-
-
-
111.8
-
-
111.8
-
-
-
-
-
-
63.8
63.8
-
-
-
108.0
-
-
108.0
Held for
trading
$m
-
-
-
6,369.1
-
-
-
Available
for sale
Loans and
receivables
Other
financial
instruments
$m
$m
$m
Total
$m
-
-
-
-
353.5
-
-
-
-
-
-
-
57,253.6
-
1,060.0
1,060.0
220.8
382.8
-
-
-
-
220.8
382.8
6,369.1
353.5
57,253.6
79.0
6,369.1
353.5
57,253.6
1,663.6
65,718.8
-
-
-
-
-
-
-
-
-
-
5,562.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
601.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
55,531.6
-
267.4
267.4
57,054.7
57,054.7
3,822.5
3,822.5
-
824.4
583.4
111.8
824.4
583.4
62,552.4
62,664.2
981.6
215.7
300.7
-
-
-
-
981.6
215.7
300.7
5,562.9
601.3
55,531.6
63.8
5,562.9
601.3
55,531.6
1,498.0
63,257.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
2016
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
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
9 2
ANNUAL FINANCIAL REPORT 2016 22. Financial instruments (continued)
Held at fair
value
At fair value
through
profit & loss
At fair value
through
reserves
Held at amortised cost
Derivatives
Held for
trading
Available
for sale
Loans and
receivables
Other
financial
instruments
$m
$m
$m
$m
$m
Total
$m
933.0
220.8
62.7
6,369.4
6,941.1
52,280.6
290.3
-
-
-
6,369.4
-
-
-
-
-
-
-
6,941.1
-
-
-
-
-
-
-
52,280.6
-
933.0
220.8
62.7
-
-
-
-
6,369.4
6,941.1
52,280.6
1,216.5
67,097.9
-
-
-
-
-
-
-
-
-
-
5,563.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,486.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,464.6
-
266.9
266.9
53,786.3
53,786.3
502.2
-
824.4
573.4
502.2
110.7
824.4
573.4
55,953.2
56,063.9
870.4
215.7
2.0
-
-
-
-
870.4
215.7
2.0
5,563.3
5,486.1
50,464.6
211.7
5,563.3
5,486.1
50,464.6
1,088.1
62,813.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
-
-
-
-
-
-
290.3
290.3
-
-
-
110.7
-
-
110.7
-
-
-
-
-
-
211.7
211.7
-
-
-
117.4
-
-
117.4
Bank
2016
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
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
9 3
ANNUAL FINANCIAL REPORT 2016 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. 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.
9 4
ANNUAL FINANCIAL REPORT 2016 22. Financial instruments (continued)
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:
Group
2016
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
2015
Financial assets
Financial assets held for trading
Financial assets available for sale
2.4
Derivatives
Financial liabilities
Derivatives
Bank
2016
Financial assets
Financial assets held for trading
-
-
-
Level 1
Level 2
Level 3
Total fair
value
Total
carrying
value
$m
-
2.4
-
-
-
$m
$m
$m
$m
6,369.1
329.9
79.0
111.8
5,562.9
576.7
63.8
108.0
6,369.4
-
6,369.1
6,369.1
21.2
-
-
-
22.2
-
-
-
353.5
79.0
353.5
79.0
111.8
111.8
5,562.9
5,562.9
601.3
63.8
601.3
63.8
108.0
108.0
6,369.4
6,369.4
Financial assets available for sale
2.4
6,917.4
21.3
6,941.1
6,941.1
Derivatives
Financial liabilities
Derivatives
2015
Financial assets
Financial assets held for trading
-
-
-
290.3
110.7
5,563.3
-
-
-
290.3
290.3
110.7
110.7
5,563.3
5,563.3
Financial assets available for sale
2.3
5,461.5
22.3
5,486.1
5,486.1
Derivatives
Financial liabilities
Derivatives
-
-
211.7
117.4
-
-
211.7
211.7
117.4
117.4
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.
95
ANNUAL FINANCIAL REPORT 2016 22. Financial instruments (continued)
Valuation methodology
Level 3 - Unlisted investments are equity holdings in small
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.
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.
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
Group
Bank
As at 30 June 2015
Impairment charge
Purchases
As at 30 June 2016
2016
$m
22.2
(1.6)
0.6
21.2
2015
$m
2.9
-
19.3
22.2
2016
$m
22.3
(1.6)
0.6
21.3
2015
$m
3.0
-
19.3
22.3
9 6
ANNUAL FINANCIAL REPORT 2016
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
2016
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Level 1
$m
1,060.0
220.8
-
-
Financial liabilities
Due to other financial institutions
267.4
Deposits
Notes payable
Convertible preference shares
Subordinated debt
2015
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
-
-
799.1
-
981.6
215.7
-
-
Financial liabilities
Due to other financial institutions
202.7
Deposits
Notes payable
Convertible preference shares
Subordinated debt
Bank
2016
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
-
-
803.0
-
933.0
220.8
-
-
Financial liabilities
Due to other financial institutions
266.9
Deposits
Notes payable
Convertible preference shares
Subordinated debt
-
-
799.1
-
97
Level 2
$m
-
-
382.8
-
-
57,121.8
3,810.9
-
576.1
-
-
300.7
-
-
53,578.7
4,896.5
-
587.4
-
-
62.7
-
-
53,848.1
502.2
-
566.1
Level 3
$m
-
-
-
Total fair
value
$m
1,060.0
220.8
382.8
Total
carrying
amount
$m
1,060.0
220.8
382.8
57,447.2
57,447.2
57,253.6
-
-
-
-
-
-
-
-
267.4
57,121.8
3,810.9
799.1
576.1
267.4
57,054.7
3,822.5
824.4
583.4
981.6
215.7
300.7
981.6
215.7
300.7
55,721.4
55,721.4
55,531.6
-
-
-
-
-
-
-
-
202.7
53,578.7
4,896.5
803.0
587.4
202.7
53,505.3
4,925.9
819.5
592.6
933.0
220.8
62.7
933.0
220.8
62.7
52,458.1
52,458.1
52,280.6
-
-
-
-
-
266.9
53,848.1
502.2
799.1
566.1
266.9
53,786.3
502.2
824.4
573.4
ANNUAL FINANCIAL REPORT 2016 22. Financial instruments (continued)
Financial assets and liabilities carried at amortised cost (continued)
Valuation hierarchy (continued)
Bank
2015
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Level 1
$m
870.4
215.7
-
-
Financial liabilities
Due to other financial institutions
202.4
Deposits
Notes payable
Convertible preference shares
Subordinated debt
-
-
803.0
-
Level 2
$m
-
-
2.0
-
-
50,324.1
330.6
-
567.9
Level 3
$m
-
-
-
Total fair
value
$m
870.4
215.7
2.0
Total
carrying
amount
$m
870.4
215.7
2.0
50,636.4
50,636.4
50,464.6
-
-
-
-
-
202.4
50,324.1
330.6
803.0
567.9
202.4
50,258.4
330.6
819.5
573.1
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.
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.
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 and 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.
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.
9 8
ANNUAL FINANCIAL REPORT 2016 23. Investments accounted for using the equity method
Ownership
interest held by
consolidated entity
Balance
date
Profit/(loss)
before tax
Carrying amount of
investments
Group
Bank
Group
Bank
2016
%
2015
%
2016
$m
2016
$m
2016
$m
2016
$m
Joint Arrangements
Community Sector Enterprises Pty Ltd
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Associates
Aegis Group1
Dancoor Community Finances Ltd
Homebush Financial Services Ltd
Linear Financial Holdings Pty Ltd2
Strategic Payments Services Pty Ltd3
50.0
50.0
50.0
49.5
49.0
49.0
-
-
50.0
50.0
50.0
30 June
30 June
30 June
0.1
0.9
0.1
1.1
0.1
0.9
0.1
1.1
30 June
(1.2)
(1.2)
49.5
49.0
49.0
-
-
30 June
30 June
30 June
31 Dec
-
-
-
-
-
-
-
-
-
-
1.5
0.5
0.3
2.3
0.2
0.8
0.8
-
-
-
1.5
0.5
0.3
2.3
-
0.8
0.8
-
-
-
Vic West Community Enterprise Pty Ltd4
50.0
50.0
30 June
1 Aegis Group - economic interest is 23.5%.
2 Linear Financial Holdings - sold in December 2014.
3 Strategic Payment Services - sold in November 2014.
4 Vic West Community Enterprises - fully impaired in December 2014.
(1.2)
(1.2)
1.8
1.6
Profit/(loss)
before tax
Carrying amount
of investments
Group
2015
$m
Bank
2015
$m
Group
2015
$m
Bank
2015
$m
Joint Arrangements
Community Sector Enterprises Pty Ltd
(0.3)
(0.3)
Homesafe Solutions Pty Ltd
Silver Body Corporate Financial Services Pty Ltd
Associates
Aegis Group
Dancoor Community Finances Ltd
Homebush Financial Services Ltd
Linear Financial Holdings Pty Ltd
Strategic Payments Services Pty Ltd
Vic West Community Enterprise Pty Ltd
All joint arrangements and associates are incorporated in Australia.
9 9
0.7
-
0.4
-
-
-
2.7
1.4
(0.1)
4.0
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
ANNUAL FINANCIAL REPORT 2016 23. Investments accounted for using the equity method (continued)
Group
Bank
2016
$m
2015
$m
2016
$m
2015
$m
2.0
(0.8)
-
-
-
1.1
2.3
1.1
1.1
1.6
1.4
-
(1.2)
1.8
1.6
(0.5)
0.6
(0.1)
-
0.4
2.0
0.4
0.4
14.1
(15.0)
(1.5)
4.0
1.6
1.7
(0.8)
-
-
0.3
1.1
2.3
1.1
1.1
1.6
1.2
-
(1.2)
1.6
1.4
(0.5)
0.5
(0.1)
-
0.4
1.7
0.4
0.4
13.7
(11.9)
(1.5)
1.3
1.6
(1.2)
(1.2)
4.0
4.0
(1.2)
(1.2)
1.3
1.3
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 (or 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.
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
Transfer from de-registered subsidiary company
Share of total comprehensive income
Total investment held in joint arrangements
Total comprehensive income from joint arrangements
Profit or loss from continuing operations
Total comprehensive income
Movements in carrying amount of investment
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 40 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 38 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.
1 0 0
ANNUAL FINANCIAL REPORT 2016 24. Investment property
Investment property values reflect the Group’s investment
in residential real estate through the Homesafe Trust.
Opening balance
Additions
Disposals
Homesafe income
Total investment property
The investments represent shared equity interest alongside
the original homeowners in Sydney and Melbourne
residential properties.
Group
2016
$m
482.0
49.4
(37.7)
79.7
573.4
2015
$m
404.9
41.4
(26.5)
62.2
482.0
Bank
2016
$m
2015
$m
-
-
-
-
-
-
-
-
-
-
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
$m1
Range of
estimates
(weighted
-average) for
unobservable
input
Fair value
measurement
sensitivity to
unobservable
inputs
Effect of reasonably possible
alternative assumptions
Favourable
change
$m
Unfavourable
change
$m
Discounted cash flow
Rates of property
appreciation - long
term growth rate 6%
573.4
5% - 7%
Discount rates - 7.75%
573.4
6.75% - 8.75%
Significant increases
in these inputs would
result in higher fair
values.
Significant increases
in these inputs would
result in lower fair
values.
73.0
(38.6)
74.1
(39.0)
1 This includes a management overlay of $23.6m which reflects an assumed 3% increase in property prices for the next 18 months before returning to a long term growth
rate of 6%.
however the sensitivities disclosed above assume all other
assumptions remain unchanged.
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,
1 0 1
ANNUAL FINANCIAL REPORT 2016 OPER ATING 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)
2016
$m
415.6
56.9
34.9
21.6
2015
$m
423.9
71.2
36.1
22.4
Revaluation (increments)/decrements
(46.2)
(61.9)
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 in tax provision
Increase/(decrease) in deferred tax assets & liabilities
(Increase)/decrease in derivatives
Decrease in accrued interest
(Increase)/decrease in accrued employee entitlements
-
0.1
2.3
5.1
(7.9)
16.3
20.8
(11.4)
(38.3)
(1.4)
(Increase)/decrease in other accruals, receivables and provisions
(185.8)
1.5
(4.4)
1.5
6.5
(0.1)
0.7
13.3
(12.7)
(6.9)
4.0
53.1
2016
$m
303.1
2015
$m
340.5
48.6
23.5
21.1
33.5
1.4
0.1
2.3
5.1
(7.9)
16.3
(6.3)
(85.3)
(37.9)
(1.1)
(147.1)
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
Cash flows from operating activities before changes in operating
assets and liabilities
282.6
548.2
169.4
483.6
Net (Increase)/decrease in operating assets
Net increase of loans to other entities
(1,785.5)
(433.4)
(1,245.3)
(1,350.1)
Net (increase)/decrease of investment securities
(650.9)
1,737.9
(2,365.1)
2,194.6
Net Increase/(decrease) in operating liabilities
Net increase in balance of retail deposits
Net decrease in balance of wholesale deposits
Net (decrease)/increase in balance of notes payable
3,668.4
(119.0)
(1,103.4)
Net cash flows from operating activities
292.2
2,044.7
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.
1 0 2
756.2
3,647.2
(233.8)
(330.4)
(119.3)
171.7
258.6
688.8
(29.1)
20.2
2,008.0
ANNUAL FINANCIAL REPORT 2016 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
2016
$m
179.5
653.0
227.5
1,060.0
1,060.0
220.8
(267.4)
1,013.4
2015
$m
183.9
567.2
230.5
981.6
981.6
215.7
(202.7)
994.6
2016
$m
179.5
546.1
207.4
933.0
933.0
220.8
(266.9)
886.9
2015
$m
183.9
441.0
245.5
870.4
870.4
215.7
(202.4)
883.7
1 0 3
ANNUAL FINANCIAL REPORT 2016 27. Goodwill and other intangible assets
Group
Carrying amount as at 1 July 2015
Additions
Amortisation charge
Impairment charge
Goodwill
$m
1,442.3
-
-
-
Computer
software
$m
Deposits
$m
Customer
relation-
ship
$m
Other
acquired
intangibles 1
$m
Trustee
licence
$m
Total
$m
74.7
89.5
20.0
-
(15.4)
(8.4)
-
-
16.2
-
(6.3)
-
9.9
Closing balance as at 30 June 2016
1,442.3
148.8
11.6
Carrying amount as at 1 July 2014
1,368.4
53.1
28.5
24.1
Acquisition through business combination
73.9
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2015
1,442.3
Bank
Carrying amount as at 1 July 2015
1,362.8
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2016
1,362.8
-
35.8
(14.2)
74.7
72.9
87.6
(14.3)
146.2
-
-
(8.5)
20.0
15.6
-
(6.4)
9.2
-
-
(7.9)
16.2
2.8
-
(1.3)
1.5
18.9
0.2
(4.8)
(0.6)
13.7
21.9
2.5
-
(5.5)
18.9
10.5
-
(1.5)
9.0
8.4
1,580.5
-
-
-
89.7
(34.9)
(0.6)
8.4
1,634.7
8.4
1,504.4
-
-
-
76.4
35.8
(36.1)
8.4
1,580.5
-
-
-
-
-
-
-
-
-
1,464.6
87.6
(23.5)
1,528.7
1,380.3
73.9
34.7
(24.3)
1,464.6
Carrying amount as at 1 July 2014
1,288.9
51.1
22.0
5.7
12.6
Acquisition through business combination
73.9
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2015
1,362.8
1 These assets include customer lists, management rights and trade names.
-
34.7
(12.9)
72.9
-
-
(6.4)
15.6
-
-
(2.9)
2.8
-
-
(2.1)
10.5
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.
1 0 4
ANNUAL FINANCIAL REPORT 2016 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 busi-
ness 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:
Local connection
Partner connection
Wealth
Agribusiness
2016
$m
677.5
464.4
209.7
90.7
2015
$m
677.5
464.4
209.7
90.7
1,442.3
1,442.3
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 and the board. 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:
Local connection
Partner connection
Wealth
Agribusiness
Discount rate
10.44%
10.74%
11.04%
11.34%
1 05
ANNUAL FINANCIAL REPORT 2016 27. Goodwill and other intangible assets (continued)
Sensitivity analysis
Whilst there was no impairment in any of the CGU’s, changes in the key assumptions would affect the recoverable amount of
the CGU’s. The table below discloses the possible changes to key assumptions which could result in impairment first becoming
evident:
Increase/(decrease) in key assumptions
Nil growth rate
Discount rate
Long term growth rate
Wealth
$’000
Agri-
business
$’000
(0.99%)
0.96%
0.48%
(0.65%)
The sensitivities above assume that the specific assumption moves in isolation, while all other assumptions are held constant.
1 0 6
ANNUAL FINANCIAL REPORT 2016 28. Other assets
Accrued income
Prepayments
Sundry debtors
Accrued interest
Deferred expenditure
Total other assets
Group
Bank
2016
$m
39.0
27.7
121.1
158.8
81.3
427.9
2015
$m
23.9
26.0
144.6
163.1
102.3
459.9
2016
$m
33.9
22.8
162.4
129.9
80.9
429.9
2015
$m
17.9
20.6
210.2
131.4
102.0
482.1
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 yet available for use, or more
frequently when an indicator of impairment arises.
Group
Bank
2016
$m
23.1
288.6
199.2
25.1
2015
$m
14.9
402.4
241.6
29.5
2016
$m
20.3
475.4
188.1
-
2015
$m
9.9
537.7
225.5
-
536.0
688.4
683.8
773.1
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.
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.
1 07
ANNUAL FINANCIAL REPORT 2016 OTHER DISCLOSURE MAT TERS
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 their 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.
Group
Bank
Gross maximum exposure
Cash and cash equivalents
Due from other financial institutions
2016
$m
880.5
220.8
2015
$m
797.7
215.7
Financial assets held for trading
6,369.1
5,562.9
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
353.5
382.8
279.9
79.0
-
-
57,471.5
66,037.1
237.3
7,000.2
7,237.5
601.3
300.7
307.7
63.8
-
-
55,730.5
63,580.3
238.0
5,644.6
5,882.6
2016
$m
753.5
220.8
6,369.4
6,941.1
62.7
292.3
290.3
569.8
1,160.1
52,402.9
69,062.9
232.4
6,561.4
6,793.8
2015
$m
686.5
215.7
5,563.3
5,486.1
2.0
341.5
211.7
564.8
1,180.1
50,569.1
64,820.8
235.3
5,445.6
5,680.9
Total credit risk exposure
73,274.6
69,462.9
75,856.7
70,501.7
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.
1 0 8
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Credit risk (continued)
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.
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.
Geographic concentration
Victoria
New South Wales
Queensland
South Australia/Northern Territory
Western Australia
Australian Capital Territory
Tasmania
Overseas
The maximum credit exposure to any client or counterparty
as at 30 June 2016 was $1,107 million (2015: $672.1
million) before taking account of collateral or other credit
enhancements and $1,107 million (2015: $672.1 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.
Group
Bank
2016
$m
30,441.1
14,018.6
9,310.8
7,436.1
6,923.9
2,609.2
1,667.7
867.2
2015
$m
28,092.7
11,702.7
9,397.6
7,800.8
5,970.5
3,446.9
2,203.1
848.6
2016
$m
30,698.7
20,040.4
8,526.1
7,029.0
5,400.8
2,576.3
1,295.7
289.7
2015
$m
28,429.6
16,757.0
9,044.0
6,895.0
5,338.1
2,407.0
1,340.0
291.0
Total credit risk exposure
73,274.6
69,462.9
75,856.7
70,501.7
1 0 9
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Credit risk (continued)
Industry Sector - is based on the industry in which the customer or counter party 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.
Group
Bank
Industry concentration
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
2016
$m
766.0
272.4
6,496.8
219.0
2,631.3
366.6
185.5
1,155.9
8,567.6
914.4
168.0
905.9
2015
$m
749.3
286.2
6,597.1
226.3
2,628.2
383.4
191.8
1,177.0
7,890.8
920.3
164.7
878.9
1,742.4
1,792.2
193.1
317.5
655.9
893.5
456.0
5,285.9
38,760.8
1,245.2
651.6
423.3
205.6
24.2
687.1
882.5
501.8
5,116.9
35,745.3
1,318.9
687.0
407.4
2016
$m
764.4
272.4
2,800.2
218.9
2,583.5
366.6
185.5
1,154.6
16,694.1
914.4
168.0
901.0
-
192.9
243.0
655.6
893.1
455.5
5,269.4
38,807.8
1,244.9
647.8
423.1
2015
$m
747.8
286.2
2,899.0
226.1
2,581.1
383.4
191.8
1,175.7
14,320.5
920.3
164.7
873.1
-
205.6
30.7
686.3
882.2
501.4
5,104.3
35,911.5
1,318.8
684.0
407.2
Total credit risk exposure
73,274.6
69,462.9
75,856.7
70,501.7
1 1 0
ANNUAL FINANCIAL REPORT 2016 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
2016
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
High
grade
Standard
grade
Sub-
standard
grade
Unrated
Consumer
loans1
Past
due or
impaired
$m
$m
$m
$m
$m
$m
880.5
220.8
6,369.1
323.2
382.8
-
79.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30.3
-
279.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$m
880.5
220.8
6,369.1
353.5
382.8
279.9
79.0
Loans and other receivables
3,996.7
9,865.4
1,427.4
748.0
39,016.8
2,417.2
57,471.5
12,252.1
9,865.4
1,427.4
1,058.2
39,016.8
2,417.2
66,037.1
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
797.7
215.7
5,562.9
569.9
300.7
-
63.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31.4
-
307.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
1 1 1
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Credit quality (continued)
Bank
2016
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
High
grade
Standard
grade
Sub-
standard
grade
Unrated
Consumer
loans1
Past
due or
impaired
$m
$m
$m
$m
$m
$m
753.5
220.8
6,369.4
6,917.6
62.7
-
290.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23.5
-
292.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$m
753.5
220.8
6,369.4
6,941.1
62.7
292.3
290.3
Loans and other receivables
480.5
8,363.7
1,245.4
741.5
39,522.8
2,049.0
52,402.9
Amounts receivable from controlled entities
Shares in controlled entities
-
-
-
-
-
-
1,160.1
569.8
-
-
-
-
1,160.1
569.8
15,094.8
8,363.7
1,245.4
2,787.2
39,522.8
2,049.0
69,062.9
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
5,461.5
2.0
-
211.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24.6
-
341.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
686.5
215.7
5,563.3
5,486.1
2.0
341.5
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
-
-
-
-
-
-
1,180.1
564.8
-
-
-
-
1,180.1
564.8
12,790.6
8,312.1
1,029.9
2,760.4
37,872.8
2,055.0
64,820.8
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
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.
1 1 2
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Credit quality (continued)
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
2016
2015
2016
2015
Less than
30 days
31 to
60 days
61 to
90 days
More than
91 days
$m
$m
$m
$m
Fair value of
collateral
$m
Total
$m
1,131.2
1,109.2
246.3
257.0
111.3
138.0
578.2
2,067.0
5,959.6
606.3
2,110.5
5,896.5
1,076.3
1,045.8
196.6
211.0
94.4
96.5
466.6
1,833.9
4,647.3
535.2
1,888.5
4,699.3
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 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 provided 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.
1 1 3
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Liquidity risk (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
2016
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Income tax payable
Convertible preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
2015
Not
longer
than
3 months
$m
-
At call
$m
267.4
3 to 12
months
$m
-
1 to 5
years
$m
-
Longer
than
5 years
$m
-
Total
$m
267.4
20,919.9
17,453.1
15,222.2
3,636.5
14.6
57,246.3
36.0
557.3
3.5
2,450.3
775.9
3,823.0
-
17.5
33.1
42.6
9.9
765.7
-
-
-
-
-
-
7.7
-
34.5
36.6
23.9
-
-
-
-
103.1
765.7
34.5
405.5
379.3
599.5
1,041.6
363.7
774.6
21,989.0
18,035.6
15,353.8
6,914.2
1,763.6
64,056.2
237.3
7,000.2
7,237.5
-
19.4
19.4
-
58.1
58.1
-
246.0
246.0
-
237.3
159.9
7,483.6
159.9
7,720.9
Due to other financial institutions
202.7
-
-
-
-
202.7
17,712.6
18,779.3
13,634.5
3,619.0
13.5
53,758.9
40.6
-
673.2
-
-
-
459.8
120.9
-
-
-
8.2
132.3
3,261.6
1,031.7
4,926.0
358.9
388.3
32.5
-
-
-
-
900.6
673.2
18.2
415.0
130.0
625.0
1,079.6
636.0
798.6
-
18.2
39.6
24.4
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
6,087.0
157.7
6,325.0
Deposits
Notes payable
Derivatives - net settled
Other payables
Income tax payable
Convertible preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
1 1 4
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities (continued)
Bank
2016
Deposits
Notes payable
Derivatives - net settled
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
Not
longer
than
3 months
At call
3 to 12
months
$m
$m
$m
1 to 5
years
$m
Longer
than
5 years
$m
Total
$m
20,572.2
15,978.5
13,801.7
3,599.7
14.6
53,966.7
-
-
502.2
17.0
-
-
31.7
42.1
898.8
-
-
-
-
-
-
-
-
7.5
-
-
34.5
36.6
23.4
-
9.9
-
502.2
100.7
898.8
9,437.3
9,437.3
-
34.5
405.5
366.8
599.5
1,041.6
363.7
761.4
21,737.9
16,505.2
13,927.9
4,414.1
10,425.0
67,010.1
232.4
6,561.4
6,793.8
-
19.3
19.3
-
57.9
57.9
-
245.8
245.8
-
232.4
159.9
7,044.3
159.9
7,276.7
2015
Due to other financial institutions
202.4
-
-
-
-
202.4
17,420.0
17,179.2
12,311.7
3,555.4
13.5
50,479.8
-
-
330.6
116.6
-
-
-
347.6
381.5
32.5
764.6
-
-
-
-
-
-
-
-
7.9
-
-
36.8
39.6
23.5
330.6
878.2
764.6
-
8,842.1
8,842.1
-
36.8
415.0
125.1
625.0
1,079.6
635.9
792.4
18,387.0
17,634.3
12,759.2
4,477.0
10,149.0
63,406.5
235.3
5,445.6
5,680.9
-
17.9
17.9
-
53.6
53.6
-
213.0
213.0
-
235.3
157.7
5,887.8
157.7
6,123.1
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.
Deposits
Notes payable
Derivatives - net settled
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
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 the liquidity risk management function. The trading
book portfolio consists of securities held for trading and
1 1 5
-
-
-
-
-
-
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Interest Rate risk (continued)
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.
Group
Fixed interest rate repricing
Floating
interest
rate
Less than
3 months
Between
3 and 6
months
Between
6 and 12
months
Between
1 and 5
years
After
5 years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
$m
$m
$m
$m
$m
$m
$m
$m
%
2016
Assets
Cash & cash equivalents
698.7
18.0
18.1
36.2
108.7
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
-
-
-
-
-
1,795.0
2,090.1
322.7
-
Financial assets held to maturity
25.3
268.5
89.0
-
-
-
-
-
2,484.0
-
-
-
-
-
-
-
220.8
220.8
-
6,369.1
0.5
323.2
-
382.8
180.3
1,060.0
1.40
Loans & other receivables
35,648.9
8,141.0
1,313.1
2,634.3
9,475.7
40.6
- 57,253.6
Derivatives
-
-
-
-
-
-
79.0
79.0
Total financial assets
36,372.9 10,545.2
3,510.3
2,670.5
12,068.4
40.6
480.6 65,688.5
Liabilities
Due to other financial institutions
-
-
-
-
-
-
267.4
267.4
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
20,415.9 20,316.9
9,185.1
5,445.7
1,689.7
1.4
519.6
3,302.9
-
-
824.4
-
-
583.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,054.7
3,822.5
111.8
111.8
-
-
824.4
583.4
Total financial liabilities
20,935.5 24,203.2 10,009.5
5,445.7
1,689.7
1.4
379.2 62,664.2
1 1 6
-
1.94
2.29
2.86
5.02
-
-
2.28
2.91
-
4.43
5.34
ANNUAL FINANCIAL REPORT 2016 -
2.30
2.83
2.70
5.18
-
-
2.44
3.16
-
4.53
5.47
30. Risk management (continued)
Interest Rate risk (continued)
Group
Fixed interest rate repricing
Floating
interest
rate
Less than
3 months
Between
3 and 6
months
Between
6 and 12
months
Between
1 and 5
years
After
5 years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
$m
$m
$m
$m
$m
$m
$m
$m
%
2015
Assets
Cash & cash equivalents
797.7
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
-
-
-
-
-
-
-
1,259.2
2,894.1
492.3
238.4
29.2
62.3
-
-
-
-
-
-
-
1,409.6
-
-
-
-
-
-
-
215.7
215.7
-
5,562.9
48.4
569.9
-
300.7
183.9
981.6
1.32
Loans & other receivables
33,169.4
7,662.2
2,125.3
4,280.5
8,237.5
29.7
27.0 55,531.6
Derivatives
-
-
-
-
-
-
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
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
17,598.7 21,457.1
9,432.9
3,833.3
1,180.2
3.1
- 53,505.3
348.1
4,577.8
-
-
819.5
-
-
592.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
1 17
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Interest Rate risk (continued)
Bank
Fixed interest rate repricing
Floating
interest
rate
Less than
3 months
Between
3 and 6
months
Between
6 and 12
months
Between
1 and 5
years
After
5 years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
$m
$m
$m
$m
$m
$m
$m
$m
%
2016
Assets
Cash & cash equivalents
572.4
18.1
18.1
36.2
108.7
Due from other financial institutions
Financial assets held for trading
-
-
-
-
1,685.1
2,090.1
Financial assets available for sale
217.8
6,699.8
Financial assets held to maturity
-
62.7
-
-
-
-
-
-
-
2,594.2
-
-
-
-
-
-
-
220.8
220.8
-
-
-
6,369.4
6,917.6
62.7
179.5
933.0
1.70
Loans & other receivables
31,046.8
8,031.9
1,313.9
2,362.6
9,473.1
52.3
- 52,280.6
Derivatives
-
-
-
-
-
-
290.3
290.3
Total financial assets
31,837.0 16,497.6
3,422.1
2,398.8
12,176.0
52.3
690.6
67,074.4
Liabilities
Due to other financial institutions
-
-
-
-
-
-
266.9
266.9
-
2.02
3.10
3.75
4.87
-
-
Deposits
Notes payable
Loans payable to securitisation
trusts
Derivatives
Convertible preference shares
Subordinated debt
18,945.2 19,798.0
8,506.7
4,739.8
1,795.2
1.4
- 53,786.3
2.28
502.2
-
-
-
-
7,252.0
143.3
171.9
327.5
1,542.6
-
-
-
-
-
-
824.4
573.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
502.2
-
9,437.3
5.02
110.7
110.7
-
-
824.4
573.4
-
4.43
5.35
Total financial liabilities
26,699.4 20,514.7
9,503.0
5,067.3
3,337.8
1.4
377.6 65,501.2
1 1 8
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Interest Rate risk (continued)
Bank
Fixed interest rate repricing
Floating
interest
rate
Less than
3 months
Between
3 and 6
months
Between
6 and 12
months
Between
1 and 5
years
After
5 years
Non
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
$m
$m
$m
$m
$m
$m
$m
$m
%
2015
Assets
Cash & cash equivalents
686.5
Due from other financial institutions
Financial assets held for trading
-
-
-
-
-
-
1,259.3
2,894.1
Financial assets available for sale
233.3
5,228.3
Financial assets held to maturity
-
2.0
-
-
-
-
-
-
-
-
-
1,409.9
-
-
-
-
-
-
-
215.7
215.7
-
-
-
5,563.3
5,461.6
2.0
183.9
870.4
1.29
Loans & other receivables
29,078.9
7,590.1
2,063.2
3,835.4
7,868.2
28.8
- 50,464.6
Derivatives
-
-
-
-
-
-
211.7
211.7
Total financial assets
29,998.7 14,079.7
4,957.3
3,835.4
9,278.1
28.8
611.3 62,789.3
Liabilities
Due to other financial institutions
-
-
-
-
-
-
202.4
202.4
-
2.32
3.28
2.98
5.14
-
-
Deposits
Notes payable
Loans payable to securitisation
trusts
Derivatives
Convertible preference shares
Subordinated debt
17,032.4 19,959.5
8,715.5
3,263.3
1,284.6
3.1
- 50,258.4
2.47
330.6
-
-
-
-
6,665.3
332.7
339.4
535.1
969.6
-
-
-
-
-
-
819.5
573.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
330.6
-
8,842.1
5.11
117.4
117.4
-
-
819.5
573.1
-
4.53
5.47
Total financial liabilities
24,028.3 20,865.3
9,874.4
3,798.4
2,254.2
3.1
319.8 61,143.5
1 1 9
ANNUAL FINANCIAL REPORT 2016 30. Risk management (continued)
Interest Rate risk (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
Group
financial liabilities held at 30 June 2016, 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 2016
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.
+100 basis
points
-100 basis
points
+100 basis
points
-100 basis
points
Net interest income
Ineffectiveness in derivatives
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
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
2016
$m
34.1
(33.1)
(0.3)
0.7
0.7
(24.2)
7.3
(16.2)
24.9
(33.1)
2.5
(5.7)
(5.7)
(23.2)
7.0
(21.9)
2016
$m
(38.1)
33.1
1.5
(3.5)
(3.5)
24.2
(7.3)
13.4
(29.2)
33.1
(1.2)
2.7
2.7
23.2
(7.0)
18.9
2015
$m
11.7
(11.3)
(0.1)
0.3
0.3
7.9
(2.4)
5.8
2.7
(11.3)
2.6
(6.0)
(6.0)
8.1
(2.4)
(0.3)
2015
$m
(20.0)
11.3
2.6
(6.1)
(6.1)
(7.9)
2.4
(11.6)
(11.7)
11.3
0.1
(0.3)
(0.3)
(8.1)
2.4
(6.0)
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.
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.
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 $410.6 million (2015:
AUD $340.9 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
1 2 0
ANNUAL FINANCIAL REPORT 2016 31. 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
Bendigo and Adelaide Bank Limited
Other entities
Homesafe Trust
Leveraged Equities Ltd
Rural Bank Ltd
Principal activities
Banking
Principal activities
Homesafe product financier
Margin lending
Banking
All entities are 100% owned and incorporated in Australia.
Investments in controlled entities
Group
Bank
At cost
2016
$m
-
-
2015
$m
-
-
2016
$m
569.8
569.8
2015
$m
564.8
564.8
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 $4.3 billion and $3.7
billion, respectively (2015: $4.2 billion and $3.6 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 total group 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
Torrens Series 2008-1 Trust
Torrens Series 2008-4 Trust
Securitisation
Torrens Series 2014-2 Trust
Securitisation
Torrens Series 2015-1 Trust
Securitisation
Securitisation
Securitisation
1 2 1
ANNUAL FINANCIAL REPORT 2016 32. 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 2016
2016
$m
(164.8)
223.0
(130.0)
(71.8)
2015
$m
(215.9)
170.1
(119.0)
(164.8)
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
Hindmarsh Financial Service Pty Ltd
Other related party transactions
Limit
$m
0.5
2016
$m
-
-
Drawn/issued at
30 June 2016
$m
-
2015
$m
20.0
3.5
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 from joint arrangements and associates
2016
$m
20.2
12.1
(0.8)
2015
$m
21.7
10.5
(0.9)
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.
1 2 2
ANNUAL FINANCIAL REPORT 2016 32. 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
Termination benefits
Share based payments
Total
30 June 2016
30 June 2015
$’000’s
7,341.8
370.4
(45.8)
1,187.2
2,848.1
11,701.7
$’000’s
7,534.1
337.4
139.3
-
2,731.9
10,742.7
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 2016
30 June 2015
No.
1,817,262
4,240
315,718
2,137,220
No.
1,802,460
4,040
509,607
2,316,107
The table below details, on an aggregated basis, loan balances outstanding at the end of the year between the Group and its
KMP:
Loans1
Loans outstanding at the beginning of the year2
Loans outstanding at the end of the year
Interest paid or payable
Interest not charged
30 June 2016
30 June 2015
$’000’s
6,932.7
8,679.7
369.5
-
$’000’s
5,670.4
6,935.8
300.8
-
1 The 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.
2 The opening balance for the 2016 financial year has been adjusted to exclude loan balances applicable to Jenny Dawson who ceased as a KMP on 27 October 2014. 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.
1 2 3
ANNUAL FINANCIAL REPORT 2016 33. Involvement with unconsolidated structured entities
The table below describes the types of structured entities that the Group does not consolidate but in which it holds an interest.
Type of structured entity
Nature and purpose
Interest held by the Group
Securitisation vehicles - for loans and
advances originated by third parties
To generate:
> Investments in notes issued by the vehicles
> external funding for third parties; and
> investment opportunities for the Group.
These vehicles are financed through the issue
of notes to investors.
Managed investment funds
To generate:
> Investment in units issued by the funds
> a range of investment opportunities for
> Management fees
external investors; and
> fees from managing assets on behalf of
third party investors for the Group.
Risks associated with unconsolidated structured entities
The following table summarises the carrying values recognised in the balance sheet in relation to unconsolidated structured
entities:
Balance sheet
Cash and cash equivalents
Loans and other receivables
Financial assets available for sale
Derivatives
Total
2016
$m
0.1
197.4
6.7
-
2015
$m
0.1
184.9
6.8
0.1
204.2
191.9
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 expected to be immaterial but 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 2016 and 2015 with
structured entities.
Cash and cash equivalents
Senior notes
Investment
Interest rate swap
Carrying
amount
Maximum
loss
exposure
2016
$m
0.1
197.4
6.7
-
2016
$m
0.1
197.4
6.7
**
Carrying
amount
2015
$m
0.1
Maximum
loss
exposure
2015
$m
0.1
184.9
184.9
6.8
0.1
6.8
**
** Maximum loss exposure is not disclosed as it is expected to be immaterial and is 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.
1 2 4
ANNUAL FINANCIAL REPORT 2016 33. Involvement with unconsolidated structured entities (continued)
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 31 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,
the Group assessed the Bank’s power over the relevant
activities of the entity and the significance of its exposure
to variable returns to determine whether the Managed
Investment Fund should be consolidated.
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 Investments 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.
1 2 5
ANNUAL FINANCIAL REPORT 2016 34. 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:
Group
2016
$m
2015
$m
Funds under trusteeship
4,868.5
4,366.3
Assets under management
2,060.7
1,919.2
Funds under management
2,623.4
2,246.6
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.
Employee Benefits
Property Rent
Other
Total
2016
2015
2016
2015
2016
2015
2016
2015
35 Provisions
Group
Opening balance
Provision acquired in business combination
Additional provision recognised
$m
96.1
-
39.6
$m
91.5
1.9
47.9
Amounts utilised during the year
(41.0)
(45.2)
Closing balance
94.7
96.1
Bank
Opening balance
Provision acquired in business combination
Additional provision recognised
91.6
-
37.7
87.3
1.9
45.7
Amounts utilised during the year
(38.7)
(43.3)
Closing balance
90.6
91.6
Employee benefits
The table below shows the individual balances for employee
benefits:
Group
Bank
2016
$m
2015
$m
2016
$m
2015
$m
Annual leave
27.8
26.7
26.1
24.9
Other employee payments
1.2
6.5
1.2
5.8
Long service leave
58.2
55.8
55.9
53.8
Sick leave bonus
7.5
7.1
7.4
7.1
Closing balance
94.7
96.1
90.6
91.6
Annual leave and long service leave are measured as the
present value of expected future payments for the services
1 2 6
$m
12.7
-
2.6
(1.2)
14.1
12.7
-
2.6
(1.2)
14.1
$m
7.3
-
$m
5.9
-
$m
6.2
-
$m
$m
114.7
105.0
-
1.9
6.9
303.1
296.2
345.3
351.0
(1.5)
(302.8)
(296.5)
(345.0)
(343.2)
12.7
6.2
5.9
115.0
114.7
7.3
-
5.9
-
6.2
110.2
100.8
-
-
1.9
6.9
303.1
296.2
343.4
348.8
(1.5)
(302.8)
(296.5)
(342.7)
(341.3)
12.7
6.2
5.9
110.9
110.2
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.
ANNUAL FINANCIAL REPORT 2016 35. Provisions (continued)
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.
1 27
ANNUAL FINANCIAL REPORT 2016 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.
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.
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. Refer to the June 2015 annual
financial report or prior years for more detailed information
regarding this Plan.
36. 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 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.
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 are fully-paid ordinary shares in the
Company and are granted subject to certain Board imposed
conditions being satisfied:
> two year continued service condition; and
> risk conditions
If the service condition is satisfied, the deferred shares will
vest subject to any risk conditions.
1 2 8
ANNUAL FINANCIAL REPORT 2016 36. Share based payment plans (continued)
Summary of details under the various plans
The following table details the number (No.) and movements in the various plans during the year. The rights and share are
granted at no cost and have no exercise price.
Performance rights
Deferred shares
Share Grant
Scheme
Employee Share Plan
2016
No.1
2015
No.1
2016
No.1
2015
No.1
2016
No.1
2015
No.1
2016
2016
2015
2015
No.2 WAEP ($)
No. WAEP ($)
Outstanding at
beginning of year
662,051
358,950
263,877
110,549
246,018
262,555
1,994,420
5.93
3,147,589
5.16
Granted
175,373
311,222
94,186
263,877
Forfeited/lapsed
(383,400)
(8,121)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vested/exercised
-
-
(263,877)
(110,549)
(17,980)
(16,537)
(136,242)
5.11 (1,153,169)
2.50
Outstanding
at year end
Exercisable
at year end
454,024
662,051
94,186
263,877
228,038
246,018
1,858,178
5.45
1,994,420
5.93
-
-
-
-
-
-
-
-
-
-
1 Closing balance of performance rights and deferred shares are exercisable upon meeting the required conditions and until 30 June 2019 and 30 June 2017 respectively.
2 The outstanding balance as at 30 June 2016 is represented by 1,858,178 ordinary shares with a market value of $17,838,509 (share price $9.60), exercisable upon
repayment of the employee loan.
Recognition and measurement
The cost of the employee services received in respect
of shares or rights granted is recognised in the income
statement over the period the employee provides the
services, generally the period between the grant date and
the vesting date of the shares or rights. The overall cost of
the award is calculated using the number of shares or rights
expected to vest and the fair value of the shares or rights at
the grant date.
The following inputs are used in the models:
Fair value methodology
The fair value of shares or rights granted under the various
Plans takes into account the terms and conditions upon
which the shares or rights were granted.
Performance rights - The fair value is determined using a
Black Scholes Merton valuation method incorporating a
Monte Carlo Simulation option pricing model taking into
account the terms and conditions upon which the rights
were granted.
Other executives
2016
Managing Director
2015
Other executives
2015
6.00%
20.00%
2.18%
4
Nil
6.50%
22.00%
2.57%
3
Nil
6.00%
18.00%
2.31%
4
Nil
Deferred shares - The fair value is measured as at the date
of the grant using the volume weighted average closing
price of the Company’s shares traded on the ASX for five
trading days ending on the grant date.
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of performance rights (years)
Exercise price ($)
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.
1 2 9
ANNUAL FINANCIAL REPORT 2016 37. Property, plant and equipment
Group
Carrying amount as at 1 July 2015
Additions
Disposals
Depreciation expense
Closing balance as at 30 June 2016
Carrying amount as at 1 July 2014
Additions
Additions through business acquisitions
Disposals
Depreciation expense
Closing balance as at 30 June 2015
Bank
Carrying amount as at 1 July 2015
Additions
Disposals
Depreciation expense
Closing balance as at 30 June 2016
Carrying amount as at 1 July 2014
Additions
Additions through business acquisitions
Disposals
Depreciation expense
Freehold land
Freehold
buildings
Leasehold
improvements
Office
equipment &
vehicles1
$m
1.3
-
-
-
1.3
1.3
-
-
-
-
1.3
0.3
-
-
-
0.3
0.3
-
-
-
-
$m
1.7
-
-
(0.1)
1.6
1.7
-
-
-
-
1.7
0.4
-
-
-
0.4
0.4
-
-
-
-
$m
61.4
3.5
(0.4)
(10.4)
54.1
64.2
8.7
0.3
(0.5)
(11.3)
61.4
60.4
3.6
(0.3)
(10.4)
53.3
63.6
8.2
0.3
(0.5)
(11.2)
60.4
Total
$m
98.8
14.5
(1.0)
$m
34.4
11.0
(0.6)
(11.1)
(21.6)
33.7
90.7
29.6
15.3
2.0
(1.4)
96.8
24.0
2.3
(1.9)
(11.1)
(22.4)
34.4
98.8
32.7
10.5
(0.5)
(10.7)
32.0
28.1
14.5
2.0
(1.2)
93.8
14.1
(0.8)
(21.1)
86.0
92.4
22.7
2.3
(1.7)
(10.7)
(21.9)
32.7
93.8
Closing balance as at 30 June 2015
0.3
0.4
1 Includes office equipment, furniture and fittings.
If land and buildings were measured using the cost model the carrying amounts would be as follows:
Group
Bank
2016
2015
0.4
0.6
(0.4)
0.6
0.4
0.6
(0.4)
0.6
2016
0.1
0.1
(0.1)
0.1
2015
0.1
0.1
(0.1)
0.1
Land
Buildings
Accumulated depreciation and impairment
Net carrying amount
1 3 0
ANNUAL FINANCIAL REPORT 2016 37. 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
2016
40
10-12
4-10
4-5
5
2015
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.
1 3 1
ANNUAL FINANCIAL REPORT 2016 38. Commitments and contingencies
a. Commitments
The following are outstanding expenditure and credit related commitments as at 30 June 2016. 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
Later than 5 years
Credit related commitments
Group
Bank
2016
$m
72.9
232.3
159.9
465.1
4.5
15.4
13.7
33.6
2015
$m
68.6
199.4
157.7
425.7
3.0
13.7
-
16.7
2016
$m
72.7
232.1
159.9
464.7
4.5
15.4
13.7
33.6
2015
$m
68.5
199.3
157.7
425.5
3.0
13.7
-
16.7
Gross loans approved, but not advanced to borrowers
2,243.3
1,610.2
2,195.9
1,569.3
Credit limits granted to clients for overdrafts and credit cards1
Total amount of facilities provided
Amount undrawn at balance date
10,959.8
9,979.6
9,960.1
9,107.0
4,756.9
4,034.4
4,365.5
3,876.3
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 2016 are
outlined in the table above.
1 3 2
ANNUAL FINANCIAL REPORT 2016 Group
Bank
2016
$m
2015
$m
2016
$m
2015
$m
234.7
231.0
230.1
228.3
2.6
7.0
2.3
7.0
38. Commitments and contingencies (continued)
b. Contingent liabilities and contingent assets
Contingent liabilities
Guarantees
The economic entity has issued guarantees on behalf of clients
Other
Documentary letters of credit & performance related obligations
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 2016, the economic entity does not have any
contingent assets.
1 3 3
ANNUAL FINANCIAL REPORT 2016 39. Auditors’ remuneration
Group
Bank
2016
$
2015
$
2016
$
2015
$
Total fees paid or due and payable to Ernst & Young (Australia)1
Audit and review of financial statements2
1,907,192
1,829,042
1,499,158
1,422,670
Audit related fees
Regulatory3
Non-regulatory4
340,902
313,705
259,888
241,358
443,782
694,833
295,800
530,400
Total audit related fees
784,684
1,008,538
555,688
771,758
All other fees5
Taxation services
Total other fees
-
-
2,000
2,000
-
-
-
-
Total remuneration of Ernst & Young (Australia)
2,691,876
2,839,580
2,054,846
2,194,428
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.
40. 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.
1 3 4
ANNUAL FINANCIAL REPORT 2016 Directors’ Declaration
In accordance with a resolution of the directors of Bendigo and Adelaide Bank Limited, we state that:
In the opinion of the directors:
(a)
the financial statements and notes of the Company and the Bendigo and Adelaide Bank Group are in accordance with the
Corporations Act 2001 , including:
(i)
giving a true and fair view of the Company’s and the Bendigo and Adelaide Bank Group’s financial position as at 30
June 2016 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations
Regulations 2001 ; and
(b)
(c)
(d)
t he financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2;
and
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 2016.
Mike Hirst
Managing Director
On behalf of the Board
Robert Johanson
Chairman
30 August 2016
1 3 5
ANNUAL FINANCIAL REPORT 2016
1 3 6
ANNUAL FINANCIAL REPORT 2016 1 37
ANNUAL FINANCIAL REPORT 2016 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 8 August 2016.
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 2016 there was one substantial
shareholder in Bendigo and Adelaide Bank Limited as
detailed in substantial holdings notices given to the
Company - BlackRock Group.
5. Distribution of shareholders
Range of Securities as at 11 August 2016 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
37,184
41,865
8,943
4,980
114
3,665
5,237
554
20
6
-
273
29
9
2
4,589
381
26
19
-
5,084
377
19
9
1
93,086
4,245
5,550
5,015
5,490
461,719,773
2,042,883
2,688,703
2,921,188
2,822,108
6. Marketable parcel
Based on a closing price of $10.51 on 11 August 2016 the
number of holders with less than a marketable parcel of the
company’s main class of securities (Ordinary Shares), as at
11 August 2016 was 3,374.
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.
1 3 8
ANNUAL FINANCIAL REPORT 2016 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 2016 are:
Fully paid ordinary shares
Rank
Name
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
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMS PTY LTD
CITICORP NOMINEES PTY LIMITED
ECAPITAL NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
CARLTON HOTEL LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NAVIGATOR AUSTRALIA LTD
AMP LIFE LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
LEESVILLE EQUITY PTY LTD
CS FOURTH NOMINEES PTY LIMITED
PACIFIC CUSTODIANS PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA PTY LIMITED
Number of
securities
% of
securities
62,768,070
13.53%
37,042,440
19,433,006
18,674,681
5,709,708
5,319,884
1,769,296
1,410,928
1,164,412
1,117,147
1,091,843
1,089,565
1,018,777
889,410
689,158
687,480
678,757
625,042
593,688
587,315
7.99%
4.19%
4.03%
1.23%
1.15%
0.38%
0.30%
0.25%
0.24%
0.24%
0.23%
0.22%
0.19%
0.15%
0.15%
0.15%
0.13%
0.13%
0.13%
162,360,607
35.01%
BBS Nominees Pty Ltd, trustee for the Bendigo and Adelaide Employee Share Plan and Pacific Custodians Pty Limited, trustee
for the Employee Share Grant Scheme, held a combined total of 2,042,883 unquoted shares as at the date of this report.
These shares have not been included in the above table, but are included in total of issued ordinary share capital.
1 3 9
ANNUAL FINANCIAL REPORT 2016 Additional information (continued)
8. Major shareholders (continued)
Names of the 20 largest holders of Bendigo and Adelaide Convertible Preference shares, including the number of shares each holds
and the percentage of convertible preference share capital that number represents as at 11 August 2016 are:
Number of
securities
% of
securities
142,731
108,070
64,409
34,954
15,000
14,400
13,928
12,915
12,327
11,582
10,300
10,000
10,000
10,000
10,000
10,000
9,256
8,943
8,830
8,500
5.31%
4.02%
2.40%
1.30%
0.56%
0.54%
0.52%
0.48%
0.46%
0.43%
0.38%
0.37%
0.37%
0.37%
0.37%
0.37%
0.34%
0.33%
0.33%
0.32%
526,145
19.57%
Fully paid Convertible Preference Shares (CPS)
Rank
Name
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
IOOF INVESTMENT MANAGEMENT LIMITED
WORONORA GENERAL CEMETERY & CREMATORIUM
MR GERHARD JANSSEN & MRS GABRIELE MALUGA
SANDHURST TRUSTEES LTD
PCI PTY LTD
THE TRUST COMPANY SUPERANNUATION LIMITED
WINCHELADA PTY LIMITED
G E MALLAN INVESTMENTS PTY LTD
WALMSLEY DEVELOPMENTS PTY LTD
BAPTIST FINANCIAL SERVICES AUSTRALIA LIMITED
MARENTO PTY LTD
TRISTAR METALS PTY LTD
SUNTECA (WA) PTY LTD
NETWEALTH INVESTMENTS LIMITED
NAVIGATOR AUSTRALIA LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
VIKURI PTY LIMITED
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
1 4 0
ANNUAL FINANCIAL REPORT 2016 Additional information (continued)
8. Major shareholders (continued)
Names of the 20 largest holders of Bendigo and Adelaide Convertible Preference shares 2, including the number of shares each
holds and the percentage of convertible preference share 2 capital that number represents as at 11 August 2016 are:
Fully paid Convertible Preference Shares 2 (CPS2)
Rank
Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
NATIONAL NOMINEES LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
WINCHELADA PTY LIMITED
TGB HOLDINGS PTY LTD
IOOF INVESTMENT MANAGEMENT LIMITED
NETWEALTH INVESTMENTS LIMITED
JOHN E GILL TRADING PTY LTD
CITICORP NOMINEES PTY LIMITED
AUST EXECUTOR TRUSTEES LTD
UNIVERSITY OF TASMANIA
THE TRUST COMPANY SUPERANNUATION LIMITED
NETWEALTH INVESTMENTS LIMITED
FOREST RIGHTS PTY LTD
MBF INVESTMENTS PTY LTD
JGW INVESTMENTS PTY LTD
C ROBERTSON PTY LTD
Number of
securities
% of
securities
85,813
73,317
72,011
44,678
38,850
31,273
30,000
26,610
23,940
23,118
17,130
16,083
15,843
14,685
12,763
11,894
11,000
11,000
10,655
10,000
2.94%
2.51%
2.47%
1.53%
1.33%
1.07%
1.03%
0.91%
0.82%
0.79%
0.59%
0.55%
0.54%
0.50%
0.44%
0.41%
0.38%
0.38%
0.36%
0.34%
580,663
19.89%
1 4 1
ANNUAL FINANCIAL REPORT 2016 Additional information (continued)
8. Major shareholders (continued)
Names of the 20 largest holders of Bendigo and Adelaide Convertible Preference shares 3, including the number of shares each
holds and the percentage of convertible preference share 3 capital that number represents as at 11 August 2016 are:
Number of
securities
107,841
73,704
45,672
37,744
37,126
29,943
26,162
14,830
13,018
10,260
10,000
10,000
10,000
9,400
8,878
8,775
8,314
8,194
7,800
7,670
% of
securities
3.82%
2.61%
1.62%
1.34%
1.32%
1.06%
0.93%
0.53%
0.46%
0.36%
0.35%
0.35%
0.35%
0.33%
0.31%
0.31%
0.29%
0.29%
0.28%
0.27%
485,331
17.18%
Fully paid Convertible Preference Shares 3 (CPS3)
Rank
Name
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
NAVIGATOR AUSTRALIA LTD
BNP PARIBAS NOMS PTY LTD
NETWEALTH INVESTMENTS LIMITED
NATIONAL NOMINEES LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
NETWEALTH INVESTMENTS LIMITED
WINCHELADA PTY LIMITED
JGW INVESTMENTS PTY LTD
BRIPAT MANAGEMENT PTY LTD
BAPTIST FINANCIAL SERVICES AUSTRALIA LIMITED
NARRA HOLDINGS PTY LTD
ZW 2 PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
SANDHURST TRUSTEES LTD
AUST EXECUTOR TRUSTEES LTD
SECURE INVESTMENT CONSULTANTS PTY LTD
JDB SERVICES PTY LTD
KLANE INVESTMENTS PTY LTD
9. Voting rights
Under the Bank’s Constitution, each person who is a voting
Shareholder and who is present at a general meeting of the
Bank in person or by proxy, attorney or official representative
is entitled to one vote on a show of hands or, on a poll, one
vote for each fully paid ordinary share held.
In the case of an equality of votes the Chairman has, on both
a show of hands and at a poll, a casting vote in addition to the
vote to which the Chairman may be entitled as a shareholder,
proxy, attorney or duly appointed representative of a
shareholder.
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ANNUAL FINANCIAL REPORT 2016 This page is intentionally blank
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ANNUAL FINANCIAL REPORT 2016 KE Y PERFORMANCE INDICATORS
The following tables provide a summary of the last five years key metrics
Bendigo and Adelaide Bank Group
Five year history
for the year ended 30 June
2016
2015 1
2014
2013 2
2012 3
Financial Performance
Net interest income
Bad & doubtful debts expense (net of bad debts recovered)
($m)
($m)
1,167.7
1,177.6
1,118.2
1,027.5
44.1
68.3
81.9
69.9
Profit after income tax attributable to Owners of the Company
($m)
415.6
423.9
372.3
352.3
950.1
32.4
195.0
128.0
323.0
($m)
($m)
23.7
8.5
10.0
(4.3)
439.3
432.4
382.3
348.0
($m)
68,580.9
66,028.8
65,062.9
60,272.5
57,237.8
($m)
($m)
($m)
57,253.6
55,531.6
52,932.8
50,511.5
48,670.0
5,116.5
4,941.7
4,966.5
4,434.0
4,217.7
60,877.2
58,431.2
57,615.8
53,839.6
50,983.7
($m)
36,485.5
34,712.9
32,618.4
30,530.2
28,310.1
(%)
(%)
(%)
($)
(¢)
(¢)
(¢)
(¢)
(¢)
(%)
(%)
(%)
(%)
2.31
8.09
1.81
7.51
90.4
95.6
34.0
34.0
68.0
2.43
8.17
1.97
7.36
92.5
95.1
33.0
33.0
66.0
1.26
8.73
2.26
7.24
87.7
91.5
31.0
33.0
64.0
1.43
7.82
1.46
6.62
84.9
85.4
30.0
31.0
61.0
0.66
7.73
2.02
6.16
48.6
84.2
30.0
30.0
60.0
12.94
13.28
13.34
13.48
14.05
0.66
8.94
8.46
0.66
9.09
8.84
0.63
8.96
8.59
0.60
8.58
8.52
0.57
8.36
4.84
Cash earnings adjustments
Cash earnings after income tax
Financial Position
Total assets
Net loans and other receivables
Total equity
Deposits and notes payable
Risk weighted assets
Additional tier 1 capital ratio
Common equity tier 1 capital ratio
Tier 2 capital ratio
Share information (per ordinary share)
Net tangible assets
Earnings (statutory basis)
Earnings (cash basis)
Dividends - fully franked
Interim
Final
Total
Shareholder ratios
Return on average tangible equity (cash basis)
Return on average assets (cash basis)
Return on average ordinary equity (cash basis)
Return on average ordinary equity (after tax)
1 Figures for 2015 includes Rural Finance from 1 July 2014.
2 Figures for 2013 includes Community Telco Australia from December 2012
as a wholly owned subsidiary.
3 Figures for 2012 include Delphi Bank from 1 March 2012.
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ANNUAL FINANCIAL REPORT 2016 Statutory profit and cash earnings ($m)
ROE and ROTE (%)
1 Figures for 2015 includes Rural Finance from 1 July 2014.
2 Figures for 2013 includes Community Telco Australia from December 2012
as a wholly owned subsidiary.
3 Figures for 2012 include Delphi Bank from 1 March 2012.
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ANNUAL FINANCIAL REPORT 2016 Bendigo and Adelaide Bank Group
Five year comparison
for the year ended 30 June
Key Trading Indicators
Number of branches4
Number of staff (excluding
Community Banks)
Assets per staff member
Asset Quality
Impaired loans
Specific provisions
Net impaired loans
Net impaired loans % of gross loans
Specific provision for impairment
Specific provision % of gross loans
Collective provision
General reserve for credit losses (GRCL)
(general provision)
Collective provision & GRCL as a % of risk-
weighted assets
Write-offs as % of average total assets
(FTE)
($m)
($m)
($m)
(%)
($m)
(%)
($m)
($m)
(%)
(%)
2016
1
2015
2014
2
2013
3
2012
523
4,531
15.1
350.2
(124.4)
225.8
0.39
125.3
0.22
53.4
146.9
0.55
0.08
527
4,628
14.3
325.6
(116.1)
209.5
0.38
116.8
0.21
59.0
146.9
0.59
0.09
512
489
486
4,387
4,251
4,189
14.8
14.2
13.7
411.8
(113.6)
298.2
0.56
114.4
0.22
42.8
390.1
(103.3)
286.8
0.57
104.1
0.21
34.5
138.3
138.3
0.56
0.11
0.57
0.12
358.5
(102.1)
256.4
0.53
102.9
0.21
31.8
128.5
0.53
0.06
1 Figures for 2015 includes Rural Finance from 1 July 2014.
2 Figures for 2013 includes Community Telco Australia from December 2012 as a wholly owned subsidiary.
3 Figures for 2012 include Delphi Bank from 1 March 2012.
4 Includes Retail and Community Bank® branches (June 15 includes 11 Rural Finance branches).
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ANNUAL FINANCIAL REPORT 2016 1 For the purposes of this dissection, overdrafts and personal loans secured by
residential and commercial property mortgages are included in residential and
commercial loan categories respectively.
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ANNUAL FINANCIAL REPORT 2016 This page is intentionally blank
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ANNUAL FINANCIAL REPORT 2016 Bendigo and Adelaide Bank Limited
ABN 11 068 049 178