Select Credit Union Ltd is authorised under the
Banking Act to conduct banking business.
ANNUAL FINANCIAL
REPORT 2013
SELECT CREDIT UNION LTD
ABN: 20 058 538 140
Registered Office:
Level 2, Quad 2, 8 Parkview Drive
Sydney Olympic Park, NSW, 2127
Incorporated in Australia
CHAIR’S REPORT
1
CORPORATE GOVERNANCE DISCLOSURES
2
Directors’ report 5
Auditor’s Independence Declaration
10
Independent Auditor’s Report 11
Directors’ declaration 13
Statement of profit or loss
and other comprehensive income
14
Statement of changes in equity 15
Statement of financial position 16
Table of other notes to accounts
16
Statement of cash flows 17
Statement of accounting policies 18
CHAIR’S REPORT
On behalf of the Board of
Directors, I am pleased to
present the 50th Annual
Financial Report for the
year 2012/13.
The financial year was one of challenging market circumstances.
Subdued credit growth and reduced consumer confidence has led
to a significant change in household outlook as consumers pay down
debt, become more cautious with their purchasing decisions, and have
increased savings. The Australian Prudential Regulatory Authority has
correctly described this changed banking environment as being “life in
the slow lane”.
In response, the Reserve Bank reduced the target cash rate on three
occasions during the year, by a total of 0.75%. Combined with the
previous financial year’s 1.25% RBA reduction, the current interest rate
environment is now at a historic low. Nevertheless, the year produced
an acceptable profit performance with an after tax profit of $1,143,254.
I’m pleased to report that Select remains in a strong financial and
operational position to face any likely economic event. The key
performance indicators of Select remain solid, with sound corporate
governance, a very capable management team, and staff that are
committed to providing superior service. With a risk weighted capital
adequacy ratio of 20% Select has a stable and secure balance sheet.
In addition, the Board is satisfied that Select meets all of its regulatory
risk and compliance standards.
Select is a company with a mutual structure registered under the
Corporations Act. Our mutual structure is defined by an economic test
where members have equal rights, and a governance test which
is effectively one member, one vote.
We use the brand Select Mutual Banking because we are an Authorised
Deposit-taking Institution regulated by the Australian Prudential
Regulation Authority under the Banking Act, and credit unions and
mutual building societies (collectively known as “Mutuals”), put their
members first as they are fully owned by their members.
My thanks go to all of Select’s members, and to our staff and
management for their work and commitment, congratulations for a job
well done! My thanks also to my fellow Directors for their counsel and
vision and for their tireless dedication in positioning Select for the future.
Neil Peninton
Chair
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 1
CORPORATE GOVERNANCE
DISCLOSURES
The Board of Select Credit Union Ltd (Select) is
committed to the highest standards of Corporate
Governance. Select is protected by the same
safeguards that apply to all banks and Authorised
Deposit-taking Institutions, being regulated by the
Australian Prudential Regulation Authority (APRA)
under the Banking Act. Select acts in accordance with
all laws, regulations, standards and codes applicable
to it, adopts proper standards of business practice
and operates with integrity.
The Board of Directors
Select’s Board has responsibility for the overall
management and strategic direction of Select. All
Board members are independent of management
and are elected by members on a rotation every
3 years. Each Director must be eligible to act under
Select’s Constitution and the Corporations Act
2001. Directors must also satisfy the Fit and Proper
criteria set down by APRA. The Board has established
policies to govern the conduct of Board meetings,
conflicts of interest and Director education and
training.
The Board meets at least eleven times per year
and otherwise as required, and follows meeting
guidelines set down to ensure all Directors are
made aware of, and have available, all necessary
information to participate in an informed discussion
of all agenda items. The Board believes that it has the
necessary mix of skills and experience to successfully
manage the business for the benefit of its member
owners.
Conflicts of Interest
In accordance with the Corporations Act, any Director
with a material, personal interest in a matter must not
be present when that matter is being considered and
may not vote on that matter.
Corporate Code of Conduct
The Board has adopted a Corporate Code of
Conduct to guide Directors and all staff in ethical and
responsible decision making and in recognising legal
and other obligations to stakeholders. The Board
has also agreed that Select be bound by the Mutual
Banking Code of Practice which sets down principles
by which Select deals with members. As part of
this Code, Select has implemented procedures for
resolving complaints and, where necessary, to refer
disputes to an independent arbiter, the Financial
Ombudsman Service. All Directors, managers and
staff are expected to act with the utmost honesty
and integrity at all times, in accordance with the
values of Select.
Board & Executive Remuneration
The Board receives remuneration that includes
statutory superannuation in the form of a stipend
agreed each year at the Annual General Meeting.
Directors are also reimbursed for out of pocket
expenses. There are no other benefits received
by the Directors from Select. Management is
remunerated by salary only. There are no equity
benefits available to management.
Director Independence
Board Committees
It is the policy of Select that the Chair and a
majority of the Board be independent and elected
Directors. The Board has adopted as its policy on
independence, the definition of independence in
APRA’s prudential standard CPS510 Governance. The
Board collectively and each Director individually has
the right to seek independent, professional advice to
assist them to carry out their responsibilities.
To assist in the execution of its responsibilities, the
Board has established a number of committees, each
with its own charter that is reviewed at least annually.
Board Executive & Remuneration Committee
Key responsibilities include:
• Setting the agenda for Board Meetings
• Co-ordinating the operations of the Board
including strategic planning
2 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
• Board and Chief Executive succession planning
• Chief Executive’s and Executive Managers’
performance and remuneration reviews
• Developing and monitoring Board governance
policies and practices
Audit Committee
The Audit Committee is established to provide an
objective non-executive review of the effectiveness of
Select’s financial reporting and financial management
framework. Its role includes:
• Monitoring audit reports received from internal
and external auditors and management’s
responses thereto
• Liaising with the auditors (internal and external)
on the scope of their work and experience in
conducting an effective audit
• Ensuring the external auditors remain independent
in the areas of work conducted
• Monitoring APRA reporting obligations
• Ensuring relevant risk policies are reviewed
regularly
Risk Committee
The purpose of the Risk Committee is to assist
the Board of Directors in the discharge of its
responsibilities by providing an objective, nonexecutive review of the effectiveness of Select’s
risk management framework. Its role includes:
• Review and acceptance of corporate insurance
policies
• Oversee the assessment of the risk profile of Select
through regular review of core risks and the risk
register
• Monitor the management of identified risks
• Review and determine the adequacy of risk
management policies, systems and procedures
• Assess the risks of new ventures and/or strategic
initiatives and ensure the risks inherent in proposed
business activities are adequately understood and
managed
• Review the Business Continuity Management
policy for adequacy
Corporate Governance Committee
The objectives of the Corporate Governance
Committee are to:
• Provide the Board with a program to review the
performance and remuneration of the Chair,
individual Directors and the Board as a whole
• Develop the expertise of the Board
• Ensure the continuous improvement and
development of the Board
• Ensure relevant policies are reviewed at least
annually
Director Nominations Committee
This Committee may be formed under Select’s
Constitution. Its role is to assess whether individual
nominees possess the appropriate competencies
commensurate with the roles and responsibilities
of a Director by reference to the Board’s Fit and
Proper Policy and Director Assessment Criteria. The
members of the Committee are the Board Chair and
two independent members who are appointed by
resolution of the Board.
Asset & Liability Committee
This Committee comprises executive management
and senior staff and meets on a regular basis to
ensure that Select’s interest rate and liquidity risks
are managed effectively.
Risk Management
The Board determines Select’s tolerance for risk after
taking into account strategic objectives and other
factors, including capital requirements, Select’s
financial position, and experience in managing
risks. The Board is responsible for ensuring material
risks facing Select have been identified and that
appropriate and adequate policies, controls,
monitoring and reporting mechanisms are in place.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 3
Risk Policies
External Audit
The Board has endorsed risk management policies
to suit the risk profile of Select.
The audit is performed by Grant Thornton Audit Pty
Ltd. The firm utilises sophisticated computer assisted
audit software to supplement compliance testing.
Key risk management policies include:
• Enterprise Risk Management
Internal Audit
• Capital Adequacy
An internal audit function has been established using
the services of an experienced internal auditor to
review the areas of internal control and regulatory
compliance. These matters are also examined by the
external auditor. The internal auditor reports to the
Board’s Audit Committee. The internal audit role is
also supplemented by other external compliance
reviews such as security audits on Select’s data
processing centre for adequacy of back up, disaster
recovery and internet security systems.
•Liquidity
• Credit Risk
• Data Risk
• Operational Risk
• Market Risk
• Business Continuity
The Board, management and staff of Select are
committed to providing members with a range
of services that meet member needs. Select has
a goal to provide service to our members that is:
Regulation
•Personal
• Australian Prudential Regulation Authority (APRA)
for the prudential risk management of Select.
•Timely
• Cost efficient and
• Delivered in a professional manner.
To assist in the delivery of service we have developed
a set of standards for all Select staff. This, together
with our competitive products and trained staff, will
ensure that we consistently maintain high service
standards not only to our members but also to
potential new members from the broader community.
Compliance
The Executive Manager – Risk and other Executive
Managers are responsible for maintaining the
awareness by staff of all changes in compliance
legislation and responding to staff enquiries on
compliance matters. They monitor Financial Services
Reform and other license obligations and respond
to member complaints/disputes as they arise.
Select is regulated by:
• Australian Securities and Investment Commission
(ASIC) for adherence to the Corporations Act,
Accounting Standards disclosures in the financial
statements, Australian Financial Services Licence
requirements and the National Consumer Credit
Protection Act.
• Australian Transaction Reports and Analysis Centre
(AUSTRAC) for adherence to the Anti-Money
Laundering/Counter Terrorism Protection Act.
These authorities may conduct periodic inspections
and the external auditor reports on compliance to
APRA and ASIC annually.
Work Health & Safety (WH&S)
The nature of the finance industry is such that the risk
of injury to staff and the public is less apparent than in
other high risk industries. Nevertheless, our two most
valuable assets are our staff and our members and
steps are taken to maintain their security and safety
when circumstances warrant. WH&S policies have
been established for the protection of both members
and staff and are reviewed annually for relevance
and effectiveness.
4 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
DIRECTORS’ REPORT
The Directors present their report on Select Credit Union Ltd (Select) for the financial year ended 30
June 2013. Select is a company with a mutual structure registered under the Corporations Act 2001.
INFORMATION ON DIRECTORS
The names of the Directors in office at any time during or since the end of the financial year are:
Neil Sydney Peninton
Chair (Independent, non-executive)
Chair of the Executive & Remuneration Committee
Member of the Risk Committee
Qualifications & Experience
Member, Australian Institute of Company Directors
Fellow, Australasian Mutuals Institute
Director since 1994
Alan Edward Little
Deputy Chair (Independent, non-executive)
Member of the Executive & Remuneration Committee
Member of the Corporate Governance Committee
Member of the Risk Committee
Qualifications & Experience
Bachelor of Commerce
Member, Australian Institute of Company Directors
Associate Fellow, Australasian Mutuals Institute
Director since 1996
Fiona Louise Bennett
Director (Independent, non-executive)
Chair of the Risk Committee
Member of the Audit Committee
Qualifications & Experience
Bachelor of Business
Certified Practising Accountant
Member, Australasian Mutuals Institute
Director since 2011
John Edward Blackeby
Director (Independent, non-executive)
Member of the Audit Committee
Member of the Risk Committee
Qualifications & Experience
Fellow of the Institute of Public Accountants
Member, Institute of Internal Auditors
Member, Mutuals Audit & Governance Professionals Institute
Member, Australasian Mutuals Institute
Justice of the Peace
Director since 1996
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 5
John Anthony Cottee Director (Independent, non-executive)
Member of the Audit Committee
Qualifications & Experience
Management Consultant
Certified Practising Accountant
Member, Australian Institute of Company Directors
Fellow, Australasian Mutuals Institute
Fellow, Financial Institute of Australasia
Justice of the Peace
Director since 2012
Michael Kean
Director (Independent, non-executive)
Member of the Corporate Governance Committee
Bachelor of Business (Accounting)
Certified Practising Accountant
Associate Fellow of Australasian Mutuals Institute
Director since 1992
Qualifications & Experience
David Geoffrey Lee
Director (Independent, non-executive)
Member of the Corporate Governance Committee
Diploma of Financial Services
Member, Financial Planning Association
Member, Mutuals Audit & Governance Professionals Institute
Associate Fellow, Australasian Mutuals Institute
Justice of the Peace
Director since 2007
Qualifications & Experience
Vera Liondas Director (Independent, non-executive)
(Ceased 29th Nov 2012)
Member of the Corporate Governance Committee
Bachelor of Science
Diploma of Education
Certificate IV Workplace Assessment
Member, Australasian Mutuals Institute
Director since 2012
Qualifications & Experience
6 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
Paul Denis Reid
Director (Independent, non-executive)
Member of the Risk Committee
Qualifications & Experience
Graduate Diploma in Management
Justice of the Peace
Director since 2012
Paul John Strachan
Director (Independent, non-executive)
Chair of the Corporate Governance Committee
Member, Australasian Mutuals Institute
Director since 2005
Qualifications & Experience
Kristen Julie Watts
Director (Independent, non-executive)
Chair of the Audit Committee
Bachelor of Economics (Accounting)
Master of Commerce
Chartered Accountant
Graduate Member, Australian Institute of Company Directors
Member, Australasian Mutuals Institute
Director since 2010
Qualifications & Experience
INFORMATION ON COMPANY SECRETARY
Mark Joseph Worthington
Chief Executive & Company Secretary
Member of the Executive & Remuneration Committee
Qualifications & Experience
Bachelor of Arts
Master of Business Administration
Director, TransAction Solutions Ltd
Member, Australian Institute of Company Directors
Fellow, Australasian Mutuals Institute
Justice of the Peace
26 years credit union management experience
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 7
DIRECTORS’ MEETING ATTENDANCE
Directors
Board
Executive &
Remuneration
Committee
Audit Committee
E
A
E
A
E
A
N S Peninton
11
9
3
3
A E Little
11
11
3
3
J E Blackeby
11
10
3
2
M Kean
11
11
D G Lee
11
11
P J Strachan
11
11
K J Watts
11
11
10
10
F L Bennett
11
11
10
10
J A Cottee
11
9
10
9
P D Reid
11
9
V Liondas
4
4
Corporate
Governance
Committee
E
7
10
5
A
7
9
5
7
7
7
6
3
3
4
Risk Committee
E
A
6
5
2
2
6
5
6
4
2
2
6
6
4
E – Eligible to attend, A – Attended
DIRECTORS’ BENEFITS
INDEMNIFYING OFFICER OR AUDITOR
No Director has received or become entitled to
receive during or since the financial year, a benefit
because of a contract made by Select or a related
body corporate with a Director, a firm of which
a Director is a member or a credit union in which
a Director has a substantial financial interest, other
than that disclosed in Note 30 of the financial report.
Insurance premiums have been paid to insure each
of the Directors and all officers of Select against any
costs and expenses incurred by them in defending
any legal proceedings arising out of their conduct
while acting in their capacity as a Director or officer
of Select. In accordance with normal commercial
practice, disclosure of the premium amount and
the nature of the insured liabilities is prohibited by
a confidentiality clause in the contract. No insurance
cover has been provided for the benefit of the
external auditors of Select.
8 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
FINANCIAL PERFORMANCE DISCLOSURES
PRINCIPAL ACTIVITIES
EVENTS OCCURRING AFTER BALANCE DATE
The principal activities of Select during the year were
the provision of retail financial services to members
in the form of taking deposits and giving financial
accommodation as prescribed by the Constitution.
No significant changes in the nature of these activities
occurred during the year.
No other matters or circumstances have arisen since
the end of the financial year which have significantly
affected or may significantly affect the operations or
state of affairs of Select in subsequent financial years.
OPERATING RESULTS
Subject to regulatory and other approvals, Select is
likely to accept a transfer of business from a small
Sydney based credit union during the 2013/14
financial year. No other matter, circumstance or likely
development in the operations has arisen since the
end of the financial year that has significantly affected
or may significantly affect:
The net profit of Select for the year after providing for
income tax was $1,143,254 (2012 $775,893). Capital
adequacy was 20.03% which was well above the
statutory minimum of 8.00%.
LIKELY DEVELOPMENTS AND RESULTS
DIVIDENDS
(i) the operations of Select;
No dividends have been paid or declared since the
end of the financial year and no dividends have been
recommended or provided for by the Directors.
(ii) the results of those operations; or
(iii) the state of affairs of Select;
in the financial years subsequent to this financial year.
REVIEW OF OPERATIONS
The results of Select’s operations from its activities
of providing financial services to its members did not
change significantly from those of the previous year.
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
There were no significant changes in the state of
affairs of Select during the year.
Neil Peninton
Chair AUDITORS INDEPENDENCE
The auditors have provided the Declaration of
Independence to the Board as prescribed by the
Corporations Act 2001 as set out on page 10.
This report is made in accordance with a resolution of
the Board of Directors and is signed for and on behalf
of the Directors by:
Alan Little
Deputy Chair
1st October 2013
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 9
10 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 11
12 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
DIRECTORS’ DECLARATION
In the opinion of the Directors of Select Credit Union Ltd:
1.The financial statements comprising statement of comprehensive income, statement of changes in equity,
statement of financial position, statement of cash flows and accompanying notes, are in accordance with
the Corporations Act 2001, including;
(a)giving a true and fair view of the financial position of Select as at 30 June 2013 and of its performance
for the financial year ended on that date; and
(b)complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001.
2. There are reasonable grounds to believe that Select will be able to pay its debts as and when they become
due and payable.
3.The financial statements comply with International Financial Reporting Standards.
This declaration is made in accordance with a resolution of the Board of Directors.
Neil PenintonKristen Watts
Chair
Chair of the Audit Committee
1st October 2013
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 13
STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
For the year ended 30 June 2013
Note
2013
$
2012
$
Interest revenue
2.a
16,154,019
17,709,396
Interest expense
2.c
(8,220,148)
(10,426,811)
7,933,871
7,282,585
1,187,072
1,073,403
9,120,943
8,355,988
(3,385)
(47,933)
(793,085)
(721,879)
(796,470)
(769,812)
(3,554,297)
(3,185,481)
(276,186)
(279,279)
(1,092,587)
(1,279,581)
– Office occupancy
(698,275)
(673,021)
– Other administration
(534,313)
(473,473)
(6,155,658)
(5,890,835)
Other operating expenses
(714,584)
(638,040)
Total non-interest expenses
(7,666,712)
(7,298,687)
1,454,231
1,057,301
(310,977)
(281,408)
1,143,254
775,893
—
3,741,828
—
3,741,828
1,143,254
4,517,721
Net interest income
Fee, commission and other income
2.b
Less
Non-interest expenses
Impairment losses on loans receivable from members
2.d
Fee and commission expenses
General administration
– Employees compensation and benefits
– Depreciation and amortisation
2.f
– Information technology
Total general administration
Profit before income tax
Income tax expense
3
Profit after income tax
Other comprehensive income, net of income tax
Items that will not be reclassified subsequently to profit or loss
Gain from transfer of business
Total other comprehensive income, net of income tax
Total comprehensive income for the year
14 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
34
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2013
Capital
Reserve
Other Transfer
Reserve
of
Business
Reserve Retained
for Earnings
Credit
Losses
$
$
Total
$
$
$
222,178
531,185
3,172,433
635,000
20,616,830
25,177,626
–
–
–
–
775,893
775,893
222,178
531,185
3,172,433
635,000
21,392,723
25,953,519
76,975
800,000
2,716,853
148,000
–
3,741,828
–
–
–
65,000
(65,000)
–
5,594
–
–
–
(5,594)
–
Total at 30 June 2012
304,747
1,331,185
5,889,286
848,000
21,322,129
29,695,347
Total at 1 July 2012
304,747
1,331,185
5,889,286
848,000
21,322,129
29,695,347
–
–
–
–
1,143,254
1,143,254
304,747
1,331,185
5,889,286
848,000
22,465,383
30,838,601
–
–
–
–
–
–
9,024
–
–
–
(9,024)
–
313,771
1,331,185
5,889,286
848,000
22,456,359
30,838,601
Total at 1 July 2011
Total comprehensive income for the year – as reported
Sub total
Transfer of Business
Transfer to reserve for credit losses in year
Transfer to capital account on redemption of shares
Total comprehensive income for the year – as reported
Sub total
Transfer to (from) reserves
Transfer to capital account on redemption of shares
Total at 30 June 2013
$
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 15
STATEMENT OF FINANCIAL POSITION
For the year ended 30 June 2013
Note
2013
$
2012
$
Cash
4
6,366,689
4,942,349
Liquid investments
5
94,416,397
98,249,782
Receivables
6
1,422,122
1,608,816
Prepayments
7
146,716
113,708
8&9
191,644,963
191,794,059
Available for sale investments
10
989,493
1,082,013
Property, plant and equipment
11
466,157
681,443
Taxation assets
12
733,996
767,462
Intangible assets
13
83,026
139,893
296,269,559
299,379,525
Assets
Loans to members
TOTAL ASSETS
LIABILITIES
Short term borrowings
14
–
–
Deposits from members
15
261,236,168
264,993,515
Creditor accruals and settlement accounts
16
3,329,874
3,876,658
Taxation liabilities
17
–
10,199
Provisions
18
864,916
803,806
265,430,958
269,684,178
30,838,601
29,695,347
TOTAL LIABILITIES
NET ASSETS
MEMBERS’ EQUITY
Capital reserve account
19
313,771
304,747
General reserve for credit losses
20
848,000
848,000
Other reserves
21
1,331,185
1,331,185
Retained earnings
28,345,645
27,211,415
TOTAL MEMBERS’ EQUITY
30,838,601
29,695,347
Table of other notes to accounts
22 Financial risk management objectives and policies
29 Contingent liabilities
23 Categories of financial instruments
30 Disclosures on Directors and other Key Management Personnel
24 Maturity profile of financial assets and liabilities
31 Outsourcing Arrangements
25 Interest rate change profile of financial assets and liabilities
32 Superannuation liabilities
26 Fair value of financial assets and liabilities
33 Notes to cash flow statement
27 Financial commitments
34 Transfer of business
28 Standby borrowing facilities
35 Corporate Information
16 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
STATEMENT OF CASH FLOWS
For the year ended 30 June 2013
Note
2013
$
2012
$
16,332,257
17,424,311
Fees and commissions
841,162
762,382
Dividends
313,016
243,536
47,534
35,932
Interest paid
(8,760,287)
(10,181,352)
Suppliers and employees
(7,881,829)
(6,560,674)
(287,709)
(544,389)
604,144
1,179,746
299,508
5,513,077
(3,403,763)
16,435,964
Decrease/(Increase) in receivables from other financial institutions (net movement)
3,833,385
(21,781,326)
Net cash from operating activities
1,333,274
1,347,461
53,864
–
Proceeds on sale of investments in shares
316,214
–
Net cash received on transfer of business
–
1,643,916
(201,661)
–
Purchase of property plant and equipment
(41,346)
(437,175)
Purchase of intangibles
(36,005)
(119,037)
91,066
1,087,704
Total net cash increase/(decrease)
1,424,340
2,435,165
Cash at beginning of year
4,942,349
2,507,184
6,366,689
4,942,349
OPERATING ACTIVITIES
Revenue inflows
Interest received
Other income
Revenue outflows
Income taxes paid
Net cash from revenue activities
33.c
Cashflows from other operating activities
Decrease in members loans (net movement)
(Decrease)/Increase in member deposits and shares (net movement)
INVESTING ACTIVITIES
Inflows
Proceeds on sale of property, plant and equipment
Outflows
Purchase of investments
Net cash from investing activities
Cash at end of year
33.a
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 17
STATEMENT OF ACCOUNTING POLICIES
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
This financial report is prepared by Select Credit
Union Ltd (Select) as a single entity for the year ended
the 30 June 2013. The report was authorised for issue
on 1st October 2013 in accordance with a resolution
of the Board of Directors. The financial report is
presented in Australian dollars. The financial report
is a general purpose financial report which has been
prepared in accordance with the requirements of
the Corporations Act 2001, Australian Accounting
Standards and other authoritative pronouncements
of the Australian Accounting Standards Board.
Compliance with Australian Accounting Standards
ensures compliance with the International Financial
Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB).
Select is a for-profit entity for the purpose of
preparing the financial statements.
a.Basis of measurement
The financial statements have been prepared on
an accruals basis and are based on historical costs
which do not take into account changing money
values or current values of non-current assets. The
accounting policies are consistent with the prior
year unless otherwise stated.
b. Classification and subsequent measurement of
financial assets & financial liabilities
Financial assets and financial liabilities are
recognised when Select becomes a party to the
contractual provisions of the financial instrument,
and are measured initially at fair value adjusted by
transactions costs, except for those carried at fair
value through profit or loss, which are measured
initially at fair value. Subsequent measurement
of financial assets and financial liabilities are
described below.
Financial assets are de-recognised when the
contractual rights to the cash flows from the
financial asset expire, or when the financial
asset and all substantial risks and rewards are
transferred. A financial liability is de-recognised
when it is extinguished, discharged, cancelled or
expires.
Classification and subsequent measurement of financial
assets
For the purpose of subsequent measurement,
financial assets other than those designated and
effective as hedging instruments are classified into
the following categories upon initial recognition:
• loans and receivables
•financial assets at fair value through profit or loss
(FVTPL)
• held-to-maturity (HTM) investments
• available-for-sale (AFS) financial assets
The category determines subsequent
measurement and whether any resulting income
and expense is recognised in profit or loss or in
other comprehensive income.
All financial assets except for those at FVTPL are
subject to review for impairment at least at each
reporting date to identify whether there is any
objective evidence that a financial asset or a group
of financial assets is impaired. Different criteria
to determine impairment are applied for each
category of financial assets, which are described
below.
All income and expenses relating to financial assets
that are recognised in profit or loss, are presented
within finance costs, finance income or other
financial items, except for impairment of loans
and receivables which is presented within other
expenses.
Loans and receivables
Loans and receivables are non-derivative financial
assets with fixed or determinable payments that
are not quoted in an active market. After initial
recognition, these are measured at amortised cost
using the effective interest method, less provision
for impairment. Select’s cash and cash equivalents,
trade and most other receivables fall into this
category of financial instruments.
Individually significant receivables are considered
for impairment when they are past due or when
other objective evidence is received that a specific
counterparty will default.
18 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
Financial assets at Fair Value through Profit or Loss
(FVTPL)
Financial assets at FVTPL include financial assets
that are either classified as held for trading or that
meet certain conditions and are designated at
FVTPL upon initial recognition.
Hold to Maturity (HTM) investments
HTM investments are non-derivative financial
assets with fixed or determinable payments and
fixed maturity other than loans and receivables.
Investments are classified as HTM if Select has the
intention and ability to hold them until maturity.
Select currently holds term deposits, Negotiable
Certificates of Deposit (NCD) and Floating Rate
Notes in this category. If more than an insignificant
portion of these assets are sold or redeemed early
then the asset class will be reclassified as availablefor-sale (AFS) financial assets.
HTM investments are measured subsequently at
amortised cost using the effective interest method.
If there is objective evidence that the investment
is impaired, determined by reference to external
credit ratings, the financial asset is measured at the
present value of estimated future cash flows. Any
changes to the carrying amount of the investment,
including impairment losses, are recognised in
profit or loss.
Available-for-Sale (AFS) financial assets
AFS financial assets are non-derivative financial
assets that are either designated to this category
or do not qualify for inclusion in any of the other
categories of financial assets. Select’s AFS financial
assets are the equity investment in Cuscal Limited,
and TransAction Solutions Ltd.
The equity investments in Cuscal Limited, and
TransAction Solutions Ltd are measured at cost
less any impairment charges, as their fair value
cannot currently be estimated reliably. Impairment
charges are recognised in profit or loss.
Classification and subsequent measurement of financial
liabilities
Select’s financial liabilities include borrowings,
trade and other payables.
Financial liabilities are measured subsequently
at amortised cost using the effective interest
method.
c.Loans to members
(i) Basis of recognition
All loans are initially recognised at fair value, net
of loan origination fees and inclusive of transaction
costs incurred. Loans are subsequently measured
at amortised cost. Any difference between
the proceeds and the redemption amount is
recognised in the statement of comprehensive
income over the period of the loans using the
effective interest method.
Loans to members are reported at their
recoverable amount representing the aggregate
amount of principal and unpaid interest owing
to Select at balance date, less any allowance or
provision against impairment for debts considered
doubtful. A loan is classified as impaired where
recovery of the debt is considered unlikely as
determined by the Board of Directors.
(ii) Interest earned
Term loans – interest is calculated on the basis of
the daily balance outstanding and is charged in
arrears to a member’s account on the last day of
each month.
Overdrafts – interest is calculated on the basis of
the daily balance outstanding and is charged in
arrears to a member’s account on the last day of
each month.
Credit cards – the interest is calculated initially on
the basis of the daily balance outstanding and is
charged in arrears to a member’s account on the
last day of each month, on cash advances and
purchases in excess of the payment due date.
Purchases are granted up to 55 days interest free
until the due date for payment.
Non-accrual loan interest – while still legally
recoverable, interest is not brought to account as
income where Select is informed that the member
is deceased or where a loan is impaired.
(iii)Loan origination fees and discounts
Loan origination fees and discounts are initially
deferred as part of the loan balance and are
brought to account as income over the expected
life of the loan as interest revenue.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 19
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
(iv) Transaction costs
Transaction costs are expenses which are direct
and incremental to the establishment of the loan.
These costs are initially deferred as part of the loan
balance and are brought to account as a reduction
to income over the expected life of the loan and
included as part of interest revenue.
(v) Fees on loans
The fees charged on loans after origination of
the loan are recognised as income when the service is provided or costs are incurred.
(vi)Net gains and losses
Net gains and losses on loans to members, to
the extent that they arise from the partial transfer
of business or on securitisation, do not include
impairment write downs or reversals of impairment
write downs.
An assessment is made at each statement of
financial position date to determine whether there
is objective evidence that a specific financial asset
or a group of financial assets is impaired. Evidence
of impairment may include indications that the
borrower has defaulted, is experiencing significant
financial difficulty or where the debt has been
restructured to reduce the burden to the borrower.
(ii) General reserve for credit losses
In addition to the above specific provision, the
Board has recognised the need to make an
allocation from retained earnings to ensure there
is adequate protection for members against the
prospect that some members will experience
loan repayment difficulties in the future as well as
potential losses on investments & other assets.
The reserve is based on estimation of potential risk
in the loan portfolio based upon two broad areas
for potential losses:
d. Loan impairment
Systemic / environmental losses
(i)Specific and collective provisions for impairment
This element of the general reserve is designed
to cover factors external to Select but that will
nevertheless have an impact on the credit facilities
risk carried by Select; and
A provision for losses on impaired loans is
recognised when there is objective evidence that
the impairment of a loan has occurred. Estimated
impairment losses are calculated on either a
portfolio basis for loans of similar characteristics
or on an individual basis. The amount provided
is determined by management and the Board to
recognise the probability of loan amounts not
being collected in accordance with terms of the
loan agreement. The critical assumptions used in
the calculation are as set out in Note 9. Note 22
details the credit risk management approach for
loans.
The Australian Prudential Regulatory Authority
(APRA) prudential standards require a minimum
provision to be maintained, based on specific
percentages of the loan balance which are
contingent upon the length of time the repayments
are in arrears. This approach is used to assess the
collective provisions for impairment.
Portfolio credit losses
This element of the general reserve is designed
to cover general portfolio risks which may arise
over the life of the facilities and are in addition to
provisions relating to credit risk emerging from the
credit risk portfolio profile.
(iii)Renegotiated loans
Loans which are subject to renegotiated terms
which would have otherwise been impaired do not
have the repayment arrears diminished and interest
continues to accrue to income. Each renegotiated
loan is retained at the full arrears position until the
normal repayments are reinstated and brought up
to date and maintained for a period of 6 months.
20 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
e. Bad debts written off (direct reduction in loan
balance)
Bad debts are written off from time to time
as determined by management and the Board
of Directors when it is reasonable to expect that
the recovery of the debt is unlikely. Bad debts are
written off against the provisions for impairment
if a provision for impairment had previously been
recognised.
f.Property, plant and equipment
Property, plant and equipment, with the exception
of freehold land, are depreciated on a straight line
basis so as to write off the net cost of each asset
over its expected useful life. The useful lives are
adjusted if appropriate at each reporting date.
Estimated useful lives as at the balance date are
as follows:
Leasehold improvements – over the period of the
lease or shorter.
Plant and equipment – three years.
Assets less than $1000 are not capitalised.
g.Receivables from other financial institutions
Term deposits and negotiable certificates of
deposit with other financial institutions are
unsecured and have a carrying amount equal to
their principal amount. Interest is paid on the daily
balance at maturity. All deposits are in Australian
currency.
The accrual for interest receivable is calculated
on a proportional basis of the expired period of
the term of the investment. Interest receivable
is included in the amount of receivables in the
statement of financial position.
h. Equity investments and other securities
Investments in shares are classified as available
for sale financial assets where they do not qualify
for classification as loans and receivables, or
investments held for trading. Investments in
shares which do not have a ready market and are
not capable of being reliably valued are recorded
at the lower of cost or recoverable amount. All
investments are in Australian currency.
i.Member deposits
(i) Basis for measurement
Member savings and term investments are quoted
at the aggregate amount of money owing to
depositors.
(ii) Interest payable
Interest on savings is calculated on the daily
balance and posted to the accounts periodically
or on maturity of the term deposit. Interest on
savings is brought to account on an accrual basis
in accordance with the interest rate, terms and
conditions of each savings and term deposit
account as varied from time to time. The amount
of the accrual is shown as part of amounts payable.
j.Borrowings
All borrowings are initially recognised at fair value,
net of transaction costs incurred. Borrowings
are subsequently measured at amortised cost.
Any difference between the proceeds (net of
transaction costs) and the redemption amount
is recognised in the statement of comprehensive
income over the period of the loans and
borrowings using the effective interest method.
k.Provision for employee benefits
Provision is made for Select’s liability for employee
benefits arising from services rendered by
employees to balance date. Employee benefits
expected to be settled within one year have
been measured at their nominal amount. Other
employee benefits payable later than one year
have been measured at the present value of the
estimated future cash outflows to be made for
those benefits discounted using Commonwealth
Government bond rates.
Provision for long service leave is on a pro-rata
basis after twelve months service and backdated
from commencement of employment based on
the present value of estimated future cash flows.
Annual leave is accrued in respect of all employees
on pro-rata entitlement for part years of service
and leave entitlement due but not taken at balance
date. Annual leave is reflected as part of creditor
accruals.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 21
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
Contributions are made by Select to an employee’s
superannuation fund and are charged to the
statement of comprehensive income as incurred.
Select will derive sufficient future assessable
income and comply with the conditions of
deductibility imposed by the law to permit an
income tax benefit to be obtained.
l.Leasehold on premises
Leases where the lessor retains substantially all
the risks and rewards of ownership of the net asset
are classified as operating leases. Payments made
under operating leases (net of incentives received
from the lessor) are charged to the statement of
comprehensive income on a straight-line basis over
the period of the lease.
A provision is recognised for the estimated make
good costs on the operating leases, based on the
net present value of the future expenditure at the
conclusion of the lease term discounted at 5%.
Increases in the provision in future years due to
the unwinding of the interest charge is recognised
as part of the interest expense.
m. Income tax
The income tax expense shown in the statement
of comprehensive income is based on the profit
before income tax adjusted for any non-tax
deductible or non-assessable items between
accounting profit and taxable income. Deferred
tax assets and liabilities are recognised using the
statement of financial position liability method in
respect of temporary differences arising between
the tax bases of assets or liabilities and their
carrying amounts in the financial statements.
Current and deferred tax balances relating to
amounts recognised directly in equity are also
recognised directly in equity.
Deferred tax assets and liabilities are recognised
for all temporary differences between carrying
amounts of assets and liabilities for financial
reporting purposes and their respective tax bases
at the rate of income tax applicable to the period in
which the benefit will be received or the liability will
become payable. These differences are presently
assessed at 30%.
n. Intangible assets
Items of computer software which are not integral
to the computer hardware owned by Select are
classified as intangible assets. Computer software
is amortised over the expected useful life of the
software which ranges from 3 to 5 years.
o. Goods and services tax
As a financial institution Select is input taxed on all
income except for income from commissions and
some fees. An input taxed supply is not subject
to Goods and Services Tax (GST) collection and
similarly, the GST paid on related or apportioned
purchases cannot be recovered. As some income
is charged GST, the GST on purchases are
generally recovered on a proportionate basis.
In addition, certain prescribed purchases are
subject to reduced input tax credits (RITC) of
which 75% of the GST paid is recoverable.
Revenue, expenses and assets are recognised net
of the amount of GST. To the extent that the full
amount of the GST incurred is not recoverable
from the Australian Tax Office (ATO), the GST
is recognised as part of the cost of acquisition
of the asset or as part of an item of the expense.
Receivables and payables are stated with the
amount of GST included. The net amount of
GST recoverable from or payable to the ATO
is included as a current asset or current liability
in the statement of financial position. Cash flows
are included in the cash flow statement on a gross
basis. The GST components of cash flows arising
from investing and financing activities which
are recoverable from or payable to the ATO are
classified as operating cash flows.
Deferred tax assets are only brought to account if
it is probable that future taxable amounts will be
available to utilise those temporary differences.
The recognition of these benefits is based on the
assumption that no adverse change will occur in
income tax legislation; and the anticipation that
22 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
p.Cash and cash equivalents
r.Accounting estimates and judgements
Cash comprises cash on hand and demand
deposits. Cash equivalents are short term, highly
liquid investments that are readily convertible
to known amounts of cash and which are subject
to an insignificant risk of changes in value.
Management has made critical accounting
estimates when applying Select’s accounting
policies with respect to the impairment provisions
for loans — refer Note 9.
s.New or emerging standards not yet mandatory
q. Impairment of assets
At each reporting date Select assesses whether
there is any indication that individual assets are
impaired. Where impairment indicators exist, the
recoverable amount is determined and impairment
losses are recognised in the statement of
comprehensive income where the asset’s carrying
value exceeds its recoverable amount. Recoverable
amount is the higher of an asset’s fair value less
costs to sell and value in use. For the purpose of
assessing value in use, the estimated future cash
flows are discounted to their present value using
a pre-tax discount rate that reflects current market
assessments at the time value of money and the
risks specific to the asset. Where it is not possible
to estimate recoverable amount for an individual
asset, recoverable amount is determined for the
cash generating unit to which the asset belongs.
Certain new accounting standards and
interpretations have been published that
are not mandatory for 30 June 2013 reporting
periods. Select’s assessment of the impact of
these standards and interpretations is set out
below. Changes that are not likely to impact the
financial report of Select have not been reported.
Application
Date
AASB reference
Nature of Change
AASB 9 Financial
Instruments
Periods beginning on or
Amends the requirements for classification and
after 1 January 2015.
measurement of financial assets. The following
requirements have generally been carried forward
unchanged from AASB 139 Financial Instruments:
Recognition and Measurement into AASB 9. These
include the requirements relating to: Classification
and measurement of financial liabilities; and Derecognition requirements for financial assets and
liabilities. However, AASB 9 requires that gains or
losses on financial liabilities measured at fair value
are recognised in profit or loss, except that the
effects of changes in the liability’s credit risk are
recognised in other comprehensive income.
(Issued December
2009 and amended
December 2010).
Impact on initial application
Due to the recent release of these amendments
and that adoption is only mandatory for the
31 December 2015 year end, Select has not
yet made an assessment of the impact of these
amendments.
The entity does not have any financial liabilities
measured at fair value through profit or loss.
There will therefore be no impact on the financial
statements when these amendments to AASB 9
are first adopted.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 23
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
AASB reference
Nature of Change
Application
Date
Annual reporting
periods commencing
on or after 1 July 2013.
When this standard is first adopted for the year
ended 30 June 2014, there will be no impact
on transactions and balances recognised in the
financial statements because Select does not have
any special purpose entities.
Currently, fair value measurement requirements
are included in several Accounting Standards.
AASB 13 establishes a single framework for
measuring fair value of financial and non-financial
items recognised at fair value in the statement
of financial position or disclosed in the notes in
the financial statements. Additional disclosures
required for items measured at fair value in the
statement of financial position, as well as items
merely disclosed at fair value in the notes to
the financial statements. Extensive additional
disclosure requirements for items measured at fair
value that are ‘level 3’ valuations in the fair value
hierarchy that are not financial instruments e.g.
land and buildings, investment properties etc.
Annual reporting
periods commencing
on or after 1 January
2013.
When this standard is adopted for the first time
for the year ended 31 December 2013, there will
be no impact on the financial statements because
the revised fair value measurement requirements
apply prospectively from 1 January 2013.
Main changes include: Elimination of the
‘corridor’ approach for deferring gains/losses
for defined benefit plans. Actuarial gains/
losses on remeasuring the defined benefit plan
obligation/asset to be recognised in OCI rather
than in profit or loss, and cannot be reclassified
in subsequent periods. Subtle amendments to
timing for recognition of liabilities for termination
benefits. Employee benefits expected to be
settled (as opposed to due to be settled under
current standard) within 12 months after the end
of the reporting period are short-term benefits,
and therefore not discounted when calculating
leave liabilities. Annual leave not expected to be
used within 12 months of end of reporting period
from 1 January 2013 is now discounted when
calculating leave liability.
Prior to 1 January 2013 Select calculated its
Annual periods
commencing on or after liability for annual leave employee benefits on
the basis that it was due to be settled within 12
1 January 2013.
months of the end of the reporting period because
employees were entitled to use this leave at any
time. The amendments to AASB 119 required that
such liabilities be calculated on the basis of when
the leave is expected to be taken, i.e. expected
settlement. When this standard was first adopted
for 31 December 2012 year end, annual leave
liabilities were recalculated on 1 January 2013.
Leave liabilities for any employees with significant
balances of leave outstanding who were not
expected to take their leave within 12 months
were discounted.
AASB 10 (Issued August Introduces a single ‘control model’ for all entities,
including special purpose entities (SPEs), whereby
2012) Consolidated
all of the following conditions must be present:
Financial Statements.
Power over investee (whether or not power used in
practice). Exposure, or rights, to variable returns
from investee. Ability to use power over investee
to affect the entity’s returns from investee.
AASB 13 (Issued
September 2012). Fair
value measurement.
AASB 119 (Re-issued
September 2012)
Employee Benefits.
Impact on initial application
When this standard was adopted for the first
time on 1 January 2013,there were no additional
disclosures required under fair values.
24 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
2013
$
2012
$
120,792
180,855
4,161,853
4,561,483
Loans to members
11,871,374
12,967,058
Total interest revenue
16,154,019
17,709,396
7,252
(122)
534,750
571,628
89,982
80,800
Other commissions
172,506
141,630
Total fee & commission revenue
804,490
793,936
313,016
243,536
32,336
35,756
— shares
22,033
—
Miscellaneous revenue
15,197
175
1,187,072
1,073,403
1,474
2,640
Deposits from members
8,218,674
10,424,171
Total interest expense
8,220,148
10,426,811
Increase in provision for impairment
3,385
47,933
Total impairment losses
3,385
47,933
2. STATEMENT OF COMPREHENSIVE INCOME
a. Analysis of interest revenue
Interest revenue on assets carried at amortised cost
Cash – deposits at call
Receivables from financial institutions
b.Fee, commission and other income
Fee and commission revenue
Fee income on loans – other than loan origination fees
Fee income from member deposits
Insurance commissions
Other income
Dividends received on available for sale assets
Bad debts recovered
Gain on disposal of assets
Total fee, commission & other income
c.Interest expense
Interest expense on liabilities carried at amortised cost
Short term borrowings
d.Impairment losses
Loans and advances
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 25
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
2013
$
2012
$
—
185,842
— net movement in provisions for employee annual leave
36,360
36,258
— net movement in provisions for employee long service leave
73,552
79,271
109,912
115,529
— plant and equipment
81,643
90,545
— leasehold improvements
95,827
40,882
5,846
43,353
92,870
104,499
276,186
279,279
615,751
589,363
88,416
35,258
—
53,608
88,416
88,866
13,580
5,350
–
3,255
13,580
8,605
Loss on disposal of assets
19,454
2,274
Net movement in provisions for other liabilities
24,000
24,000
Supervision levy paid to APRA
13,884
11,230
e. Individually significant items of expenditure
The following items of expense are shown as part of administration expenses
and considered to be significant to the understanding of the financial performance:
Merger related costs
f.Other prescribed disclosures
General administration – employee costs include:
General administration – depreciation expenses include:
— lease make good
— amortisation of software
General administration – office occupancy costs include
Property operating lease paymentss
— minimum lease payment
Other operating expenses include:
Auditor’s remuneration (excluding GST)
Audit and review of financial statements
— Auditors – Grant Thornton
— Other auditors
Other Services (excluding GST)
Taxation services
— Auditors – Grant Thornton
— Taxation Services – Other auditors
26 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
2013
$
2012
$
268,161
256,967
71,074
24,441
Less over provision of tax in prior year
(28,258)
—
Income tax expense attributable to operating profit
310,977
281,408
1,454,231
1,057,301
436,269
317,190
— other non-deductible expenses
5,052
7,771
— dividend imputation adjustment
40,245
18,044
(8,485)
(1,452)
473,081
341,553
(134,150)
(60,145)
Income tax expense attributable to current year profit
338,931
281,408
Over provision of tax in prior year
(28,258)
—
304
—
310,977
281,408
3,592,727
3,162,158
Cash on hand
210,465
206,176
Deposits at call
6,156,224
4,736,173
6,366,689
4,942,349
3. INCOME TAX EXPENSE
a
The income tax expense comprises amounts set aside as:
Provision for income tax attributable to current year’s taxable income
Add/(less) movement in the deferred tax asset
b
The prima facie tax payable on profit is reconciled to the income tax expense in the accounts as follows:
Profit
Prima facie tax payable on profit before income tax at 30%
Add tax effect of expenses not deductible
Less tax effect of
— deductions allowed not in accounting expenses
Subtotal
Less
— imputation credit
Adjustment to Deferred Tax Assets
Income tax expense attributable to operating profit
c
Franking credits held by Select after adjusting for franking credits that will arise from the payment
of income tax payable as at the end of the financial year is:
4.cash
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 27
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
Note
2013
$
2012
$
8,877,298
13,745,009
Negotiable certificates of deposit – banks, building societies and credit unions
20,342,772
29,985,582
Floating rate notes
16,706,327
1,012,565
48,490,000
53,506,626
94,416,397
98,249,782
19,500,000
43,506,626
8,000,000
3,000,000
20,990,000
7,000,000
48,490,000
53,506,626
1,110,175
1,288,413
311,947
320,403
1,422,122
1,608,816
146,716
113,708
12,457,534
14,183,713
Term loans
179,222,359
177,795,688
Subtotal
191,679,893
191,979,401
5,664
(6,301)
(2,921)
—
—
—
2,743
(6,301)
191,682,636
191,973,100
(37,673)
(179,041)
191,644,963
191,794,059
5. liquid investments
Investments at amortised cost
Hold to maturity
Negotiable certificates of deposit – Cuscal
Receivables
Term deposits
Dissection of receivables
Deposits with banks
Deposits with credit unions and building societies
Deposits with unrated ADIs
Amounts expected to be repaid within 12 months are as described in Note 24.
6.RECEIVABLES
Interest receivable on deposits with other financial institutions
Sundry debtors and settlement accounts
7. PREPAYMENTS
8.LOANS TO MEMBERS
a.Amount due comprises:
Overdrafts and revolving credit
Less:
Unamortised loan origination fees
Unamortised fixed rate loan renegotiation fees
Unamortised fair value on acquisition adjustment
Subtotal
Less:
Provision for impaired loans
28 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
9
2013
$
2012
$
179,948,205
178,595,293
Partly secured by goods mortgage
5,693,506
6,816,060
Wholly unsecured
6,038,182
6,568,048
191,679,893
191,979,401
— loan to valuation ratio of less than 80%
166,142,114
162,398,223
— loan to valuation ratio of more than 80% and mortgage insured
12,604,008
15,502,120
1,202,083
694,950
179,948,205
178,595,293
51,440,450
51,084,023
Other
140,242,186
140,889,077
Total
191,682,636
191,973,100
Australia
191,676,759
191,968,865
Overseas
5,877
4,235
191,682,636
191,973,100
b.Credit quality – security held against loans
Secured by mortgage over real estate
It is impractical to value all collateral as at the balance date due to the variety of the assets and their
condition. A breakdown of the quality of the residential mortgage security on a portfolio basis is as follows:
Security held as mortgage against real estate is on the basis of
— loan to valuation ratio of more than 80% and not mortgage insured
Total
Where the loan value is less than 80% there is a 20% margin to cover the costs of any sale or potential value
reduction.
c. Concentration of loans
The values discussed below include on statement of financial position undrawn facilities as described in
Note 27.
(i)There are no loans to individual or related groups of members which exceed 10% of reserves in
aggregate
(ii) Loans to members are concentrated to individuals employed in the energy industry:
Ausgrid employees
(iii)Geographical concentrations
Total
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 29
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
2013
Housing
Personal
Business
Total
Central Coast
20,360,732
1,671,375
14,742
22,046,849
St George/Cronulla
30,768,587
1,898,180
85,120
32,751,887
City/North Shore/East Subs
24,626,461
1,069,779
9,245
25,705,485
South West/North West
60,337,458
4,691,958
124,608
65,154,024
Regional NSW
32,497,503
1,376,680
379,155
34,253,338
168,590,741
10,707,972
612,870
179,911,583
Victoria
3,165,358
222,727
—
3,388,085
Queensland
7,177,648
474,071
—
7,651,719
48,710
27,299
—
76,009
474,682
41,950
—
516,632
Tasmania
—
16,593
—
16,593
Northern Territory
—
11,897
—
11,897
42,964
61,277
—
104,241
—
5,877
—
5,877
Total – refer statement of financial position
179,500,103
11,569,663
612,870
191,682,636
2012
Housing
Personal
Business
Total
Central Coast
21,076,123
1,589,693
16,013
22,681,829
St George/Cronulla
31,935,437
2,075,622
92,436
34,103,495
City/North Shore/East Subs
22,575,681
1,404,711
43,780
24,024,172
South West/North West
59,241,427
5,511,984
147,184
64,900,595
Regional NSW
31,830,863
1,616,562
466,121
33,913,546
166,659,531
12,198,572
765,534
179,623,637
Victoria
3,557,136
279,290
—
3,836,426
Queensland
6,921,959
441,269
—
7,363,228
51,229
58,880
—
110,109
757,404
65,963
—
823,367
Tasmania
—
20,575
—
20,575
Northern Territory
—
299
—
299
111,059
80,165
—
191,224
—
4,235
—
4,235
178,058,318
13,149,248
765,534
191,973,100
NSW
Total
Other states & territories
South Australia
Western Australia
ACT
Other
NSW
Total
Other states & territories
South Australia
Western Australia
ACT
Other
Total – refer statement of financial position
30 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
2013
$
2012
$
179,500,103
178,058,318
Personal loans and facilities
11,569,663
13,149,248
Business loans and facilities
190,059
216,524
191,259,825
191,424,090
422,811
549,010
37,673
179,041
179,041
55,588
3,385
47,932
—
108,000
(144,753)
(32,479)
37,673
179,041
144,753
32,479
—
—
144,753
32,479
32,336
35,756
Concentration of loans by purpose
Loans to natural persons
Residential loans and facilities
Loans to corporations
9. PROVISION FOR IMPAIRED LOANS
a. Total provision comprises
Individual specific provisions
b.Movement in the provision for impairment
Balance at the beginning of year
Add (deduct):
Transfers from statement of comprehensive income
Increase from transfer of business
Bad debts written off against the provision for impaired loans
Balance at end of year
Details of credit risk management are set out in Note 22.
c.Impaired loans written off
Amounts written off against the provision for impaired loans
Amounts written off directly to expense
Total bad debts
Bad debts recovered in the year
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 31
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
d.Analysis of loans that are impaired or potentially impaired by class
In the notes below:
• “Carrying value” is the amount in the statement of financial position.
• “Value of impaired loans” is the ‘on statement of financial position’ loan balances which are past due by 90 days or more.
• “Provision for impairment” is the amount of the impairment provision allocated to the class of impaired loans.
2013
Carrying
value
2012
Value of Provision for
Impaired Impairment
Loans
Carrying
value
Value of Provision for
Impaired Impairment
Loans
$
$
$
$
$
$
179,646,214
—
—
178,210,906
290,746
43,612
Personal
8,219,182
29,546
20,272
9,744,624
144,993
118,075
Overdrafts & Credit Cards
3,394,429
29,321
17,401
3,468,560
37,443
17,354
Total Loans to Natural
Persons
191,259,825
58,867
37,673
191,424,090
473,182
179,041
422,811
—
—
549,010
—
—
191,682,636
58,867
37,673
191,973,100
473,182
179,041
Loans to Natural Persons
Mortgages
Corporate Borrowers
Total
e.Analysis of loans that are impaired or potentially impaired based on age of repayments outstanding
2013
Carrying Value
$
Non impaired up to 30 days
2012
Provision Carrying Value
$
$
Provision
$
307,594
—
426,269
—
31 to 89 days in arrears
66,420
—
105,485
—
90 to 181 days in arrears
29,782
11,913
302,879
27,599
182 to 272 days in arrears
—
—
—
—
273 to 364 days in arrears
—
—
291,382
44,121
365 days and over in arrears
14,089
14,089
99,708
99,707
Overlimit facilities 14 days and over
14,996
11,671
13,094
7,614
432,881
37,673
1,238,817
179,041
Total
The impaired loans are generally not secured against residential property. Some impaired loans are secured by bill of sale over motor vehicles or other assets
of varying value. It is impractical to determine the fair value of all collateral as at the balance date due to the variety of assets and their condition.
32 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
2013
$
2012
$
Nil
Nil
f.Assets acquired via enforcement of security
There are no assets acquired by Select. The policy is to sell the assets via auction at the earliest opportunity
after measures to assist the members to repay the debts have been exhausted.
g.Loans with repayments past due but not regarded as impaired
There are loans with a value of $288,122 past due which are not considered to be impaired as the value of related security over residential property is in excess
of the loan due. It is not practicable to determine the fair value of all collateral as at the balance date due to the variety of assets and condition.
Loans with repayments past due but not impaired are in arrears as follows:
2013
1-3 mths
3-6 mths
6-12 mths
Over 12 mths
Total
921,521
—
288,122
—
1,209,643
—
—
—
—
—
42,762
—
—
—
42,762
—
—
—
—
—
37,451
—
—
—
37,451
1,001,734
—
288,122
—
1,289,856
1-3 mths
3-6 mths
6-12 mths
Over 12 mths
Total
Mortgage secured
—
233,881
—
—
233,881
Other loans
—
—
—
—
—
105,485
—
—
—
105,485
—
—
—
—
—
32,136
—
—
—
32,136
137,621
233,881
—
—
371,502
Mortgage secured
Other loans
Personal loans
Credit cards
Overdrafts
Total
2012
Personal loans
Credit cards
Overdrafts
Total
h.Key assumptions in determining the provision for impairment
In the course of the preparation of the annual report, Select has determined the likely impairment loss on loans which have not maintained loan repayments
in accordance with the loan contract, or where there is other evidence of potential impairment such as industrial restructuring, job losses or economic
circumstances. In identifying the impairment likely from these events, Select is required to estimate the potential impairment using the length of time the loan
is in arrears and the historical losses arising in past years. Given the relatively small number of impaired loans, the circumstances may vary for each loan over
time, resulting in higher or lower impairment losses. An estimate is based on the period of impairment.
Period of Impairment
% of balance
Less than 90 days
0
90 days to 181 days
40
182 days to 272 days
60
273 days to 364 days
80
365 days and over
100
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 33
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
Note
2013
$
2012
$
Cuscal Ltd
10.c
766,778
766,778
Cuscal Ltd – Class “B” shares
10.c
—
46
TransAction Solutions Ltd – “A” class shares
10.c
222,715
162,377
TransAction Solutions Ltd – “C” class shares
10.c
—
152,812
CU Technology Development – class “B” Ordinary shares
10.c
6,708
6,708
996,201
1,088,721
32,780
32,780
1,028,981
1,121,501
(39,488)
(39,488)
989,493
1,082,013
6,708
6,708
(6,708)
(6,708)
—
—
32,780
32,780
(32,780)
(32,780)
—
—
10. AVAILABLE FOR SALE INVESTMENTS
Shares in unlisted companies – at cost
Loan to unlisted companies – at cost
CU Technology Development
10.c
Total value of investments
Less provisions for impairment
CU Technology Development
10.c
a.Shares in CU Technology Development Ltd
Shares at cost
Provision for impairment
b.Loan to CU Technology Development Ltd
Loan receivable
Provision against loan
Net value
This loan is an interest free unsecured loan with no fixed maturity date.
c . Disclosures on shares held at cost
Cuscal Ltd
T he shareholding in Cuscal is measured at cost as its fair value could not be measured reliably. This company was created to supply services to member credit
unions, though now has an independent business focus. These shares are held to enable Select to receive essential banking services – refer to Note 31. The
shares are not able to be traded and are not redeemable.
T he financial report of Cuscal records net tangible asset backing of these shares exceeding their cost value. Based on the net assets of Cuscal, any fair
value determination on these shares is likely to be greater than their cost value, but due to the absence of a ready market, a market value is not able to be
determined readily.
Select is not intending, nor is able to dispose of these shares.
34 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
TransAction Solutions Ltd (TAS)
The shareholding in TAS is measured at cost as its fair value could not be measured reliably. This company was created to supply computer support staff and
services to meet the day-to-day needs of credit unions and other customers. The shares are not able to be traded and are not redeemable.
The financial report of TAS records net tangible asset backing of these shares equal to their cost value. Based on the net assets of TAS, any fair value
determination on these shares is likely to be equal to their cost value, but due to the absence of a ready market and restrictions on the ability to transfer the
shares, a market value is not able to be determined readily. Select is not intending, nor able to dispose of these shares without a majority of TAS shareholder
approval.
Credit Union Technology Development (CUTD)
The shareholding in CUTD is measured at cost as its fair value could not be measured reliably. This company was created to provide information technology
facilities in accordance with Select’s previous IT strategy. The shares are not able to be traded and are not redeemable. Select is not able to dispose of these
shares without a majority of CUTD shareholder approval.
2013
$
2012
$
726,818
932,791
(633,569)
(710,556)
93,249
222,235
1,392,127
1,448,538
(1,019,219)
(989,330)
372,908
459,208
466,157
681,443
11. PROPERTY, PLANT AND EQUIPMENT
Plant and equipment - at cost
Less: accumulated depreciation
Capitalised leasehold improvements at cost
Less: accumulated depreciation
Movement in the assets balances during the year were:
2013
2012
Plant &
Leasehold
equipment improvements
$
$
Opening balance
Total
$
Plant &
Leasehold
equipment improvements
$
$
Total
$
222,235
459,208
681,443
175,499
117,078
292,577
22,028
19,318
41,346
136,345
300,830
437,175
—
—
—
1,332
127,413
128,745
Assets disposed
(69,371)
(3,945)
(73,316)
(396)
(1,878)
(2,274)
Depreciation charge
(81,643)
(101,673)
(183,316)
(90,545)
(84,235)
(174,780)
93,249
372,908
466,157
222,235
459,208
681,443
Purchases
Transfer from MemberFirst Credit
Union Ltd
Less
Balance at the end of the year
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 35
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
2013
$
2012
$
37,608
—
696,388
767,462
733,996
767,462
Accrued expenses not deductible until incurred
92,527
131,530
Provisions for impairment on loans
11,302
53,712
286,171
271,581
Provisions for other liabilities
88,416
84,669
Depreciation on fixed assets
203,054
205,912
17,841
18,168
(823)
1,890
(2,100)
—
696,388
767,462
1,255,716
1,257,275
(1,172,690)
(1,117,382)
83,026
139,893
139,893
125,361
36,005
119,037
(2)
(6)
(92,870)
(104,499)
83,026
139,893
Overdraft
—
—
Total Borrowings
—
—
— at call
159,706,517
155,401,658
— term
101,393,173
109,450,243
136,478
141,614
261,236,168
264,993,515
12. TAXATION ASSETS
Tax Refund
Deferred tax assets
Deferred tax assets comprise:
Provisions for employee benefits
Amortisation of intangible assets
Deferred fees (less transaction costs) on loan origination
Prepayments
13. INTANGIBLE ASSETS
Computer software
Less accumulated amortisation
Movement in the assets balances during the year were:
Opening balance
Purchases
Less
Assets disposed
Amortisation charge
Balance at the end of the year
14. SHORT TERM BORROWINGS
15. DEPOSITS FROM MEMBERS
Member Deposits
Member withdrawable shares
A mounts expected to be repaid within 12 months are as described in Note 24. There were no defaults on interest and capital payments on these liabilities
in the current or prior year.
36 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
2013
$
2012
$
35,688,567
34,337,058
35,471,437
36,091,229
Other
225,764,731
228,902,286
Total
261,236,168
264,993,515
Concentration of member deposits
(i)There are two significant member deposits from superannuation funds which in aggregate represent
more than 10% of total liabilities:
(ii)Member deposits at balance date received from individuals including persons employed in the energy
industry:
Ausgrid employees
(iii) Geographical concentrations
Australia
260,703,875
264,530,401
Overseas
532,293
463,114
Total
261,236,168
264,993,515
253,282,906
258,148,530
Victoria
2,298,287
2,192,657
Queensland
3,266,905
2,471,824
South Australia
390,212
645,844
Western Australia
908,472
482,933
1,660
8,050
68,345
54,921
ACT
487,088
525,642
Overseas
532,293
463,114
261,236,168
264,993,515
344,221
344,205
Creditors and accruals
1,030,050
648,249
Interest payable on deposits
1,272,916
1,813,055
Accrual for GST payable
15,095
6,973
Accrual for other tax liabilities
41,584
43,622
571,404
967,188
Unclaimed money
13,056
23,891
Income in advance
41,548
29,475
3,329,874
3,876,658
NSW
Other states & territories
Tasmania
Northern Territory
Total – refer statement of financial position
16. CREDITOR ACCRUALS AND SETTLEMENT ACCOUNTS
Annual leave
Sundry creditors
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 37
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
NOTE
2013
$
2012
$
—
10,199
10,199
297,621
Less paid
(55,277)
(297,621)
Tax refund
73,336
–
Over statement in prior years
(28,258)
–
Liability for income tax in current year
268,161
256,967
Less instalments paid in current year
(305,769)
(246,768)
(37,608)
10,199
Long service leave
609,683
561,064
Lease make good of premises
212,162
212,162
43,071
30,580
864,916
803,806
212,162
136,347
—
75,815
212,162
212,162
Balance – previous year
30,580
32,027
Liability increase in current year
24,000
24,000
(11,509)
(25,447)
43,071
30,580
304,747
222,178
9,024
5,594
—
76,975
313,771
304,747
17. TAXATION LIABILITIES
Current income tax liability
Current income tax liability comprises:
Balance – previous year
Balance – current year
12
18. PROVISIONS
Provisions – other
Provision movements comprises:
Lease make good
Balance – previous year
Liability increase in current year
Balance – current year
Visa Fraud
Less paid
Balance – current year
19. CAPITAL RESERVE ACCOUNT
Balance at the beginning of the year
Transfer from retained earnings on share redemptions
Transfer from MemberFirst Credit Union Ltd
Balance at the end of year
Share Redemption
T he accounts represent the amount of redeemable preference shares redeemed by Select since 1 July 1999. The law requires that the redemption of the shares
be made out of profits. Since the value of the shares has been paid to members in accordance with the terms and conditions of the share issue, the account
represents the amount of profits appropriated to the account.
38 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
2013
$
2012
$
848,000
848,000
848,000
635,000
Add: increase transferred from retained earnings
—
65,000
Transfer from MemberFirst Credit Union Ltd
—
148,000
848,000
848,000
Other reserves
1,331,185
1,331,185
Balance at beginning of year
1,331,185
531,185
—
800,000
1,331,185
1,331,185
20. GENERAL RESERVE FOR CREDIT LOSSES
General reserve for credit losses
General reserve for credit losses
This reserve is maintained to comply with the Prudential Standards set by APRA
Balance at beginning of year
Balance at end of year
21. OTHER RESERVES
Transfer from MemberFirst Credit Union Ltd
Balance at end of year
22. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Introduction
The Board has endorsed a policy of compliance and
risk management to suit the risk profile of Select.
Select’s risk management focuses on the areas of
market risk, liquidity risk and credit risk. The Audit
and Risk Committees are integral to the management
of risk and they act under authority provided by
the Board of Directors. The main elements of risk
governance are as follows:
Board of Directors: This is the primary governing body.
It approves the level of risk to which Select is exposed
and the framework for reporting and mitigating such
risks.
Audit Committee: The Audit Committee is established
to provide an objective non-executive review of
the effectiveness of Select’s financial reporting and
financial management framework. Its role includes
monitoring audit reports received from internal
and external auditors and management’s responses
thereto, liaising with the auditors (internal and
external) on the scope of their work and experience
in conducting an effective audit, ensuring the
external auditors remain independent in the areas
of work conducted, monitoring APRA reporting
obligations, and ensuring relevant risk policies are
reviewed regularly.
Risk Committee: The purpose of the Risk Committee is
to assist the Board of Directors in the discharge of
its responsibilities by providing an objective nonexecutive review of the effectiveness of Select’s risk
management framework. Its role includes: review and
acceptance of corporate insurance policies, oversee
the assessment of the risk profile for Select through
regular review of the core risks and the risk register,
monitor the management of identified risks, review
and determine the adequacy of risk management
policies, systems and procedures, assess the risks of
new ventures and/or strategic initiatives and ensure
the risks inherent in proposed business activities are
adequately understood and managed, and review
the Business Continuity Management policy for
adequacy.
Asset & Liabilities Committee: This committee has
responsibility for monitoring interest rate risk
exposures and ensuring that treasury and finance
functions adhere to exposure limits as outlined in the
policies for interest rate risk and liquidity risk.
Executive Manager — Risk: This person has responsibility for
liaising with the operational function to ensure timely
production of information for the Risk Committee and
ensuring that instructions passed down from the Board
via the Risk Committee are implemented.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 39
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
Internal Audit: Internal audit has responsibility
for implementing controls testing and assessment
as required by the Audit Committee.
KEY RISK MANAGEMENT POLICIES
Key risk management policies encompassed
in the overall risk management framework include:
• Market risk
• Liquidity management
• Credit risk management
• Capital management
Select has undertaken the following strategies to
minimise the risks arising from its operations.
A. MARKET RISK POLICY
The objective of Select’s market risk management
is to manage and control market risk exposures in
order to optimise risk and return.
Market risk is the risk that changes in interest
rates, foreign exchange rates or other prices and
volatilities will have an adverse effect on Select’s
financial condition or results. Select is not exposed
to currency risk or other significant price risk.
Select does not trade in the financial instruments
it holds on its books. Select is exposed only to
interest rate risk arising from changes in market
interest rates.
The management of market risk is the responsibility
of the Assets & Liabilities Committee, which
reports to the Board.
Interest rate risk
Interest rate risk is the risk of variability of the fair
value or future cash flows arising from financial
instruments due to the changes in interest rates.
Most banks are exposed to interest rate risk within
their treasury operations. Select does not trade in
financial instruments.
Interest rate risk in the banking book
Select is exposed to interest rate risk in its banking
book due to mismatches between the repricing
dates of assets and liabilities. The interest rate risk
on the banking book is measured monthly and
reported to the Board.
In the banking book, the most common risk Select
faces arises from fixed rate assets and liabilities
which exposes Select to risk should interest rates
change.
The level of mismatch on the banking book is set
out in Note 25 below. The table at Note 25 displays
the period that each asset and liability will reprice
as at the balance date. This risk is not considered
significant to warrant the use of derivatives as a
mitigant.
Method of managing risk
Select manages interest rate risk by the use of
value at risk (VaR) models, interest rate sensitivity
analysis and gap reporting. The detail and
assumptions used are set out below.
Value at risk (VaR)
Select’s exposure to market risk is measured
and monitored using the VaR methodology of
estimating potential losses. VaR is a technique
which estimates the potential losses that could
occur on risk positions taken due to movements
in market rates and prices over a specified time
period to a given level of confidence. VaR, as set
out in the table below, has been calculated using
historical simulations, using movements in market
rates and prices, a 99 per cent confidence level and
taking into account historical correlations between
different markets and rates.
The VaR on the non-trading book was as follows:
VaR for a 20 day holding period
2013
2012
$352,836
$331,243
Select has therefore calculated that within a 99 per
cent level of confidence given the risks as at 30
June 2013, that for 99 out of 100 observations the
market based loss will not be greater than the VaR
number.
Although the use of VaR models calculates interest
rate sensitivity on the banking book, this is not
reflected in the Pillar 1 capital requirement. Select’s
exposure to banking book interest rate risk is
not expected to change materially in the next
year therefore existing capital requirements are
considered to be an accurate measurement
of capital needed to mitigate interest rate risk.
40 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
B.LIQUIDITY RISK POLICY
Liquidity risk is the risk that Select may encounter
in raising funds to meet commitments associated
with financial intermediation e.g. loan fundings or
member withdrawal demands. It is the policy of the
Board of Directors that Select maintain adequate
cash reserves and committed credit facilities so as
to meet member withdrawal demands.
Select manages liquidity risk by:
•Monitoring daily cash flows and longer term
forecasted cash flows;
•Monitoring the maturity profiles of financial
assets and liabilities;
•Maintaining adequate reserves, liquidity support
facilities and reserve borrowing facilities; and
Select is required to maintain at least 9% of total
adjusted liabilities as liquid assets capable of being
converted to cash within 48 hours under APRA
prudential standards. Select policy is to apply 15%
of funds as liquid assets to maintain adequate
funds for meeting member withdrawal requests.
The ratio is checked daily. Should the liquidity ratio
fall below this level, management and the Board
will address the matter and ensure liquid funds are
obtained from new deposits or borrowing facilities
available. Note 28 describes the borrowing
facilities as at the balance date. These facilities are
in addition to the support available from CUFSS.
The maturity profile of Select’s financial assets
and financial liabilities, based on the contractual
repayment terms, are set out in Note 24. The ratio
of liquid funds over the past year is set out below:
• Monitoring the liquidity ratio daily.
Select has a longstanding arrangement with the
industry liquidity support organisation, Credit
Union Financial Support Services (CUFSS) which
can access industry funds to provide support to
Select should this be necessary at short notice.
2013
2012
Liquid funds to total adjusted liabilities
as at 30 June
17.32%
16.25%
Minimum policy ratio as at 30 June
15.00%
15.00%
Average for the year
16.22%
17.57%
Minimum during the year
14.66%
14.17%
Liquid funds to total member deposits
as at 30 June
20.20%
18.91%
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 41
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
C. CREDIT RISK POLICY
Credit risk is the risk when members, financial institutions and other counterparties are unable to meet their
obligations to Select which may result in financial losses. Credit risk arises principally from Select’s loan book
and investment assets. The analysis of Select’s loans by class is as follows:
2013
2012
Carrying
value
$
Commitments
$
Max.
exposure
$
Carrying
value
$
Commitments
$
Max.
exposure
$
179,646,214
35,247,798
214,894,012
178,210,906
34,192,249
212,403,155
Personal
8,219,182
816,713
9,035,895
9,744,624
1,091,226
10,835,850
Overdrafts & Credit Cards
3,394,429
8,554,381
11,948,810
3,468,560
8,473,781
11,942,341
Total Loans to Natural
Persons
191,259,825
44,618,892
235,878,717
191,424,090
43,757,256
235,181,346
422,811
333,402
756,213
549,010
315,141
864,151
191,682,636
44,952,294
236,634,930
191,973,100
44,072,397
236,045,497
Loans to Natural Persons
Mortgages
Corporate Borrowers
Total
Carrying value is the value on the statement
of financial position. Maximum exposure is the
value on the statement of financial position plus
undrawn facilities (loans approved not advanced,
redraw facilities, line of credit facilities, overdraft
facilities and credit cards limits). The details are
shown in Note 27 and a summary is in Note 8. All
loans and facilities are funded within Australia.
Concentrations are described in Note 8c.
The method of managing credit risk is by way
of strict adherence to credit assessment policies
before a loan is approved, and close monitoring
of defaults in the repayment of loans thereafter
on a weekly basis. The credit policy has been
endorsed by the Board to ensure that loans are
only made to members that are creditworthy, that
is, capable of meeting loan repayments.
Select has established policies over:
•Credit assessment and approval of loans and
facilities covering acceptable risk assessment
and security requirements;
•Limits of acceptable exposure to individual
borrowers, non-mortgage secured loans,
commercial lending and concentrations
to geographic and industry groups that may
be considered at high risk of default;
•Reassessment and review of credit exposures
on loans and facilities;
•Establishment of appropriate provisions to
recognise impairment of loans and facilities;
• Debt recovery procedures;
• Review of compliance with the above policies;
Regular reviews of compliance are conducted as
part of the internal audit scope.
Past due and impaired
A financial asset is past due when the counterparty
has failed to make a contractually due payment.
For example, a member enters into a lending
agreement with Select that requires interest and
a portion of the principal to be paid every month.
If the agreed repayment amount has not been paid
on the agreed repayment date, the loan is past
due. Past due does not mean that a counterparty
will never pay but it can trigger various actions
such as renegotiation, enforcement of covenants
or legal proceedings. Once the past due exceeds
90 days the loan is regarded as impaired unless
other factors indicate the impairment should be
recognised sooner.
Daily reports monitor loan repayments to detect
delays in repayments and recovery action is
undertaken after seven days. For loans where
repayments are doubtful, external consultants may
be engaged to conduct recovery action once the
loan is over 90 days in arrears. Exposures to losses
42 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
arise predominantly in personal loans and facilities
not secured by registered mortgages over real
estate.
If evidence of loss exists, the estimated recoverable
amount of that asset is determined and any
impairment loss, based on the net present value of
future anticipated cash flows, is recognised in the
statement of comprehensive income. In estimating
these cash flows, management makes judgements
about the counterparty’s financial situation and the
net realisable value of any underlying collateral.
In addition to specific provisions against
individually significant financial assets, Select
makes collective assessments for each financial
asset portfolio segmented by similar risk
characteristics. Statement of financial position
provisions are maintained at a level that
management deems sufficient to absorb probable
incurred losses in Select’s loan portfolio from
homogenous portfolios of assets and individually
identified loans.
A provision for incurred losses is established
on all past due loans after a specified period of
repayment default where it is probable that some
of the capital will not be repaid or recovered.
Specific loans and portfolios of assets are
provided for, depending on a number of factors
including changes in a counterparty’s industry and
technological developments, as well as identified
structural weaknesses or deterioration in cash
flows.
The provisions for impaired and past due
exposures relate to loans to members. Past due
value is the ‘on statement of financial position’ loan
balances which are past due by 90 days or more.
Details are as set out in Note 9.
Bad debts
Amounts are written off when collection of the
loan or advance is considered to be remote. All
write offs are on a case by case basis, taking
account of the exposure at the date of the write
off. In relation to secured loans, the write off takes
place on ultimate realisation of collateral value or
from claims on any lender’s mortgage insurance. A
reconciliation of the movement of both past due and
impaired exposure provisions is provided in Note 9.
Collateral securing loans
A sizeable portfolio of the loan book is secured by
residential property in Australia, therefore Select
is exposed to risk in the reduction of the loan to
valuation ratio (LVR) should the property market be
subject to a decline. The risk of losses from loans
undertaken is primarily reduced by the nature and
quality of the security taken.
The Board guideline is to maintain 80% of loans
in well secured residential mortgages which carry
an 80% loan to valuation ratio or less. Note 8b
describes the nature and extent of the security
held against loans as at the balance date.
Concentration risk – individuals
Concentration risk is a measurement of Select’s
exposure to an individual counterparty (or groups
of related parties). If prudential limits (10%) are
exceeded as a proportion of Select’s regulatory
capital a large exposure is considered to exist.
No capital is required to be held against these
exposures although APRA must be informed.
APRA may impose additional capital requirements
if it considers the aggregate exposure to all loans
over the 10% capital benchmark is higher than
acceptable.
The aggregate value of large exposure loans
is set out in Note 8. Select holds no significant
concentrations of exposures to members.
Concentration exposures to counterparties are
closely monitored for all exposures over 5% of the
capital base. Select’s policy on exposures of this
size is to insist on an initial loan to valuation ratio
(LVR) of a maximum 80%.
Concentration risk – industry
Select has a concentration in retail lending for
members who comprise employees and their
families in the energy industry. This concentration
is considered acceptable on the basis that Select
was formed to service these members and the
employment concentration is not exclusive. Should
members leave the industry, the loans continue
and other employment opportunities are available
to the members to facilitate the repayment of the
loans. The details of the geographical and industry
concentrations are set out in Note 8c.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 43
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
Credit risk – liquidity investments
Credit risk is the risk that the other party to a
financial instrument will fail to discharge their
obligation resulting in Select incurring a financial
loss. This usually occurs when borrowers fail to
settle their obligations to Select. The credit policy
is that investments are only made to institutions
that are creditworthy.
The risk of losses from liquid investments
undertaken is reduced by the nature and quality
of the independent rating of the investment body
or the limits to concentration on any one financial
institution. Also, the size of Select as compared to
the industry is relatively low so that the risk of loss
is reduced.
Under the liquidity support scheme at least 3.2%
of Select’s assets must be invested in CUSCAL,
or other approved ADI, to allow the scheme to
have adequate resources to meet its obligations if
needed. Investments except those in other credit
unions and CUSCAL, must be with an Australian
registered ADI with a minimum credit rating grade
of 3, according to APRA prudential standards.
Board policies limit investment exposures to
individual counterparties to 50% of capital and the
maximum individual non rated ADI exposure is
$3,000,000.
External credit assessment for institution investments
Select uses the ratings of reputable ratings
agencies to assess the credit quality of all
investment rated exposures and where applicable,
uses the credit quality assessment scale in APRA
prudential guidance AGN 112. The credit quality
assessment scale within this standard has been
complied with.
The exposure values associated with each credit
quality assessment are as follows:
2013
Investments with
Carrying
value
$
CUSCAL – rated A+ Long Term and A-1 Short term
15,033,522
—
—
18,481,182
—
—
ADIs – rated A-2 and above Short Term
2,000,000
—
—
2,606,626
—
—
ADIs – rated AA- and below Long Term
62,549,099
—
—
74,898,147
—
—
Unrated institutions — Credit Unions, Banks and Building
Societies
20,990,000
—
—
7,000,000
—
—
100,572,621
—
—
102,985,955
—
—
Total
D. CAPITAL MANAGEMENT
Capital levels are prescribed by APRA. Under APRA
prudential standards, capital is determined in three
components, credit risk, market risk (trading book)
and operations risk. The market risk component is
not required as Select is not engaged in a trading
book for financial instruments.
2012
Past due Provision
value
$
$
Carrying
value
$
Past due Provision
value
$
$
Capital resources
Tier 1 capital
The vast majority of Tier 1 capital comprises
retained profits and realised reserves. From
1 January 2013 the Tier 1 capital also includes
property asset revaluation reserves.
Additional Tier 1 capital
This is a new classification of capital and includes
preference share capital approved by APRA.
44 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
Tier 2 capital
Tier 2 capital consists of capital instruments that
combine the features of debt and equity in that
they are structured as debt instruments, but exhibit
some of the loss absorption and funding flexibility
features of equity. There are a number of criteria
that capital instruments must meet for inclusion in
Tier 2 capital resources as set down by APRA.
Tier 2 capital generally comprises general reserve
for credit losses and Tier 2 capital instruments –
subordinated loan.
Other classes included in 2012 have been removed
or transferred to Tier 1 capital.
•Asset revaluation reserve on property (now in
Tier 1).
•Available for sale reserve which arises from the
revaluation of financial instruments categorised
as available for sale and reflects the net gains in
the fair value of those assets in the year.
Capital in Select is made up as follows:
2013
$
2012
$
­­—
—
Capital reserve
313,771
304,747
General reserve
1,331,185
1,331,185
28,345,645
27,211,415
29,990,601
28,847,347
Less prescribed deductions
(1,797,370)
(1,426,090)
Net Tier 1 Common Equity
28,193,231
27,421,257
Additional Tier 1 Capital instruments
­—
—
Less prescribed deductions/adjustments
—
Tier 1 Common Equity
Share capital
Retained earnings
Tier 1 Additional Equity
Net Tier 1 Capital
28,193,231
27,421,257
848,000
848,000
—
(518,735)
848,000
329,265
29,041,231
27,750,522
Tier 2 Capital
Tier 2 Capital instruments
General reserve for credit losses
Less prescribed deductions
Net Tier 2 capital
Total Capital
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 45
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
Select is required to maintain a minimum capital
level of 8% of risk weighted assets at all times.
Risk weights attached to each asset are based on
the weights prescribed by APRA in its Prudential
Standard APS 112. The general rules apply the
risk weights according to the level of underlying
security.
The capital ratio as at the end of the financial year
for the past 5 years is as follows:
Basel III
2013
Basel II
2012
Basel II
2011
Basel II
2010
Basel II
2009
20.03%
18.98%
20.35%
22.75%
21.74%
The capital ratio can be affected by growth in
assets relative to growth in reserves and by
changes in the mix of assets. To manage capital
Select reviews the ratio monthly and monitors
major movements in asset levels. Policies have
been implemented to require reporting to the
Board and APRA if the capital ratio falls below
set trigger ratios. Further, a 5 year capital budget
projection of capital levels is maintained annually
to address how strategic decisions or trends may
impact on the capital level.
Based on this approach, Select’s operational risk
capital requirement is $1,336,732.
It is considered that the standardised approach
accurately reflects Select’s operational risk other
than for the specific items set out below.
Internal capital adequacy management
The objective of the internal capital adequacy
assessment process is to ensure that Select
prudently manages its capital adequacy as
required by law.
The Board is committed to ensuring that Select
maintains an appropriate level and quality of
capital commensurate with the type, amount and
concentration of risks to which Select is exposed
from its activities. The Board has taken into account
the regulatory framework, Select’s risk attitude,
and the relatively small, simple and low risk nature
of Select’s business.
The Board has determined that the prudent level
of capital is the sum of the regulatory capital
requirements, the additional capital required to
cover other material risks as identified, and a buffer
to cover other capital factors as assessed.
Pillar 2 capital for operational risk
This capital component was introduced from
1 January 2008 and coincided with changes in
asset risk weightings for specified loans and liquid
investments. Previously, no operational charge was
prescribed.
Select uses the standardised approach which is
considered to be most suitable for its business
given the small number of distinct transaction
streams. The operational risk capital requirement
is calculated by mapping Select’s three year
average net interest income and net non-interest
income to Select’s various business lines.
46 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
23. CATEGORIES OF FINANCIAL INSTRUMENTS
The following information classifies the financial instruments into measurement classes:
Note
2013
$
2012
$
Cash
4
6,366,689
4,942,349
Liquid investments
5
94,416,397
98,249,782
Receivables
6
1,364,944
1,512,918
8&9
191,644,963
191,794,059
287,426,304
291,556,759
989,493
1,082,013
294,782,486
297,581,121
Financial assets — carried at amortised cost
Loans to members
Total loans and receivables
Available for sale investments — carried at cost
10
Total financial assets
Financial liabilities
Short term borrowings
14
­—
—
Deposits from members
15
261,236,168
264,993,515
Creditors
16
2,928,974
3,481,858
Total carried at amortised cost
264,165,142
268,475,373
Total financial liabilities
264,165,142
268,475,373
Assets measured at fair value
Fair value measurement at end of the reporting period using:
Available-for-sale financial assets
Balance
Level 1
Level 2
Level 3
989,493
—
—
989,493
The shares in unlisted companies are measured at cost as they cannot be measured reliably at fair value.
The fair value hierarchy has the following levels:
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 — inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices); and
Level 3 — inputs for the asset or liability that are not based on observable market data (unobservable inputs).
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 47
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
24. MATURITY PROFILE OF FINANCIAL ASSETS AND LIABILITIES
Monetary assets and liabilities have differing maturity profiles depending on the contractual term and, in the
case of loans, the repayment amount and frequency. The table below shows the period in which different
monetary assets and liabilities held will mature and be eligible for renegotiation or withdrawal. In the case of
loans, the table shows the period over which the principal outstanding will be repaid based on the remaining
period to the repayment date assuming contractual repayments are maintained, and is subject to change in
the event that current repayment conditions are varied. Financial assets and liabilities are at undiscounted
values (including future interest expected to be earned or paid). Accordingly, these values will not agree to
the statement of financial position.
Book
Value
$
Up to 3
months
$
3-12
months
$
1-5
years
$
After 5
years
$
No
Maturity
$
Total
6,371,986
6,161,521
—
—
—
210,465
6,371,986
Liquid investments
95,521,275
34,088,907
46,190,704
17,893,861
—
—
98,173,472
Loans to members
191,679,893
8,346,803
13,702,762
65,167,527
237,185,516
989,493
—
—
—
—
989,493
989,493
On statement of financial position
294,562,647
48,597,231
59,893,466
83,061,388
237,185,516
1,199,958
429,937,559
Total financial assets
294,562,647
48,597,231
59,893,466
83,061,388
237,185,516
1,199,958
429,937,559
—
—
—
—
—
—
—
1,656,057
1,650,307
5,750
–
—
—
1,656,057
Deposits from members – at call
159,842,995
159,706,517
—
—
—
136,478
159,842,995
Deposits from members – term
102,666,089
48,354,732
49,734,590
6,209,861
—
—
104,299,183
Sub total
264,165,141
209,711,556
49,740,340
6,209,861
—
Undrawn loan Commitments Note 27
44,952,294
44,952,294
—
—
—
—
44,952,294
Total financial liabilities
309,117,435 254,663,850
49,740,340
6,209,861
—
136,478
310,750,529
2013
$
assets
Cash
Available for sale investments
— 324,402,608
LIABILITIES
Short term borrowings
Creditors
48 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
136,478 265,798,235
24. MATURITY PROFILE OF FINANCIAL ASSETS AND LIABILITIES continued
Book
Value
$
Up to 3
months
$
3-12
months
$
1-5
years
$
After 5
years
$
No
Maturity
$
Total
4,950,028
4,743,852
—
—
—
206,176
4,950,028
Liquid investments
99,530,516
37,474,731
63,117,385
550,070
—
—
101,142,186
Loans to members
191,979,401
8,936,189
14,890,115
70,032,304
248,779,891
1,082,013
—
—
—
—
1,082,013
1,082,013
On statement of financial position
297,541,958
51,154,772
78,007,500
70,582,374
248,779,891
1,288,189
449,812,726
Total financial assets
297,541,958
51,154,772
78,007,500
70,582,374
248,779,891
1,288,189
449,812,726
—
—
—
—
—
—
—
1,668,803
1,383,803
285,000
—
—
—
1,668,803
Deposits from members – at call
155,543,272
155,401,658
—
—
—
Deposits from members – term
111,263,298
51,466,759
56,042,975
5,941,578
—
Sub total
268,475,373 208,252,220
56,327,975
5,941,578
—
2012
$
assets
Cash
Available for sale investments
— 342,638,499
LIABILITIES
Short term borrowings
Creditors
141,614 155,543,272
—
113,451,312
141,614 270,663,387
Undrawn loan Commitments Note 27
44,072,397
44,072,397
—
—
—
—
44,072,397
Total financial liabilities
312,547,770
252,324,617
56,327,975
5,941,578
—
141,614
314,735,784
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 49
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
24. MATURITY PROFILE OF FINANCIAL ASSETS AND LIABILITIES continued
The table below represents the above maturity profile summarised at discounted values. The contractual
arrangements best represents the estimated minimum amount of repayment on the loans, liquid investments
and on the member deposits within 12 months. While the liquid investments and member deposits are
presented in the table on a contractual basis, as part of our normal banking operations we would expect
a large proportion of these balances to roll over. Loan repayments are generally accelerated by members
choosing to repay loans earlier. These advance repayments are at the discretion of the members and not able
to be reliably estimated.
2013
2012
after
Within
12 months 12 months
$
$
$
Total
after
Within
12 months 12 months
$
$
Total
$
financial assets
Cash
6,366,689
—
6,366,689
4,942,349
—
4,942,349
78,210,932
16,205,465
94,416,397
97,744,812
504,970
98,249,782
Receivables
1,285,129
79,815
1,364,944
1,511,435
1,483
1,512,918
Loans to members – mortgage
5,792,643
173,707,460
179,500,103
5,624,158 172,390,548
178,014,706
Loans to members – personal
5,861,611
5,670,379
11,531,990
6,407,152
6,606,667
13,013,819
145,257
467,613
612,870
174,048
591,486
765,534
—
989,493
989,493
—
1,082,013
1,082,013
197,120,225 294,782,486
116,403,954
181,177,167
297,581,121
—
—
—
Liquid investments
Loans to members – other
Available for sale investments
Total financial assets
97,662,261
financial LIABILITIES
Short term borrowings
—
—
Deposits from members – at call
159,842,995
—
Deposits from members – term
95,687,856
5,705,317
101,393,173
104,133,790
5,316,453
109,450,243
255,530,851
5,705,317
261,236,168
259,677,062
5,316,453
264,993,515
Total financial liabilities
—
159,842,995 155,543,272
— 155,543,272
25. INTEREST RATE CHANGE PROFILE OF FINANCIAL ASSETS AND LIABILITIES
Financial assets and liabilities have conditions which allow interest rates to be amended either on maturity
(term deposits and term investments) or after adequate notice is given (loans and savings). The table below
shows the respective value of funds where interest rates are capable of being altered within the prescribed
time bands, being the earlier of the contractual repricing date or maturity date.
50 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
Ave %
2013
Total
$
Noninterest
bearing
$
Within 1
month
1-3
months
3-12
months
1-5
years
After 5
years
$
$
$
$
$
assets
Cash
2.14
6,156,224
—
—
—
—
210,465
6,366,689
Receivables
N/A
—
—
—
—
—
1,364,944
1,364,944
Liquid investments
4.32
15,519,268
34,547,470
44,349,659
—
—
—
94,416,397
Loans to members – mortgage
5.82
170,061,790
189,548
576,608
8,672,157
—
—
179,500,103
Loans to members – personal
11.36
11,531,990
—
—
—
—
—
11,531,990
Loans to members – other
7.75
612,870
—
—
—
—
—
612,870
Available for sale investments
N/A
—
—
—
—
—
989,493
989,493
203,882,142
34,737,018
44,926,267
8,672,157
—
Total financial assets
2,564,902 294,782,486
LIABILITIES
Short term borrowings
N/A
—
—
—
—
—
—
—
Creditors
N/A
—
—
—
—
—
2,928,974
2,928,974
Deposits from members
3.12
178,257,004
28,932,296
48,205,073
5,705,317
—
136,478
261,236,168
178,257,004
28,932,296
48,205,073
5,705,317
—
3,065,452
264,165,142
44,952,294
—
—
—
—
—
44,952,294
223,209,298
28,932,296
48,205,073
5,705,317
—
3,065,452
309,117,436
Within 1
month
1-3
months
3-12
months
1-5
years
After 5
years
Total
$
$
$
$
$
Noninterest
bearing
$
6.03
4,736,173
—
—
—
—
206,176
4,942,349
N/A
—
—
—
—
—
1,512,918
1,512,918
Liquid investments
5.51
15,582,367
20,931,449
61,230,996
504,970
—
—
98,249,782
Loans to members – mortgage
6.67
172,119,556
349,515
1,460,259
4,085,376
—
—
178,014,706
Loans to members – personal
11.03
13,013,819
—
—
—
—
—
13,013,819
6.89
765,534
—
—
—
—
—
765,534
N/A
—
—
—
—
—
1,082,013
1,082,013
206,217,449
21,280,964
62,691,255
4,590,346
—
2,801,107
297,581,121
Sub—total
Undrawn loan commitments
Note 27
Total financial liabilities
Ave %
2012
$
assets
Cash
Receivables
Loans to members – other
Available for sale investments
Total financial assets
LIABILITIES
Short term borrowings
N/A
—
—
—
—
—
—
—
Creditors
N/A
—
—
—
—
—
3,481,858
3,481,858
Deposits from members
7.87
174,934,917
30,625,729
53,974,802
5,316,453
—
141,614
264,993,515
Sub—total
174,934,917
30,625,729
53,974,802
5,316,453
—
3,623,472
268,475,373
Undrawn loan commitments
Note 27
44,072,397
—
—
—
—
—
44,072,397
Total financial liabilities
219,007,314
30,625,729
53,974,802
5,316,453
—
3,623,472
312,547,770
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 51
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
26. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Fair value has been determined on the basis of the present value of expected future cash flows under the
terms and conditions of each financial asset and financial liability. A significant assumption used in determining
the cash flows is that the cash flows will be consistent with the contracted cash flows under the respective
contracts. The information is only relevant to circumstances at balance date and will vary depending on the
contractual rates applied to each asset and liability, relative to market rates and conditions at the time. No
assets are held which are regularly traded by Select and there is no active market to assess the value of the
financial assets and liabilities. The values reported have not been adjusted for the changes in credit ratings
of the assets. Disclosure of fair value is not required when the carrying amount is a reasonable approximation
of fair value.
The calculation reflects the interest rate applicable for the remaining term to maturity, not the rate applicable
to the original term.
2013
2012
Fair
value
$
Carrying
value
$
Variance
$
Fair
value
$
Carrying
value
$
Variance
$
6,366,689
6,366,689
—
4,942,349
4,942,349
—
94,439,636
94,416,397
23,239
98,337,147
98,249,782
87,365
1,422,122
1,422,122
—
1,608,816
1,608,816
—
Loans — mortgage
179,538,857
179,500,103
38,754 178,046,639
178,014,706
31,933
Loans — personal
11,531,990
11,531,990
—
13,013,819
13,013,819
—
Loans — other
612,870
612,870
—
765,534
765,534
—
Available for sale investments
989,493
989,493
—
1,082,013
1,082,013
—
294,901,657 294,839,664
61,993
297,796,317
297,677,019
119,298
—
—
—
—
— 155,543,272 155,543,272
—
FINANCIAL ASSETS
Cash
Liquid investments
Receivables
Total financial assets
FINANCIAL liabilities
Short term borrowings
—
—
Deposits from members – at call
159,842,995
159,842,995
Deposits from members – term
101,478,688
101,393,173
85,515
109,641,296
109,450,243
191,053
Total financial liabilities
261,321,683
261,236,168
85,515
265,184,568
264,993,515
191,053
Assets where the fair value is lower than the book
value have not been written down in the accounts
of Select on the basis that they are to be held to
maturity or, in the case of loans, all amounts due
are expected to be recovered in full.
redeemable within 12 months, approximate fair value
as they are short term in nature or are receivable on
demand.
The fair value estimates were determined by the
following methodologies and assumptions:
The carrying value of loans and advances is net of
unearned income and specific provisions for doubtful
debts.
Liquid assets and receivables from other financial
institutions
The carrying values of cash and liquid assets and
receivables due from other financial institutions
Loans and advances
For variable rate loans (excluding impaired loans), the
amount shown in the statement of financial position
is considered to be a reasonable estimate of fair
value subject to the assessment of the credit spread
52 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
on personal loans considered to be less marketable.
The fair value for fixed rate loans is calculated by
utilising discounted cash flow models (i.e. the net
present value of the portfolio, future principal and
interest cash flows), based on the period to maturity
of the loans. The discount rates applied were based
on the current applicable rate offered for the average
remaining term of the portfolio.
amount shown in the statement of financial position.
Discounted cash flows were used to calculate the fair
value of other term deposits based upon the deposit
type and the rate applicable to its related period
maturity.
The rate applied to give effect to the discount of cash
flows was 5.54% (2012: 6.19%).
(2013) 2.60%, 2.70%, 2.80%, 2.90%, 3.50%, 3.60%,
3.75%, 3.85%, 3.95%, 7.00%.
The fair value of impaired loans was calculated by
discounting expected cash flows using a rate which
includes a premium for the uncertainty of the cash
flows.
(2012) 3.00%, 3.10%, 3.25%, 3.50%, 3.60%, 4.15%,
4.25%, 4.35%, 4.40%, 4.50%, 4.60%, 4.70%, 7.00%.
Deposits from members
The fair value of call and variable rate deposits, and
fixed rate deposits repricing within 12 months, is the
The rates applied to give effect to the discount of
cash flows were;
Short term borrowings
The carrying value of payables due to other financial
institutions approximate their fair value as they are
short term in nature and repricing frequently.
2013
$
2012
$
2,683,526
1,834,840
26,133,449
26,074,666
28,859,648
30,473,377
(12,724,329)
(14,310,486)
16,135,319
16,162,891
44,952,294
44,072,397
Not later than one year
—
—
Later than 1 year but not 2 years
—
—
Later than 2 years but not 5 years
—
—
Later than 5 years
—
—
—
—
27. FINANCIAL COMMITMENTS
a.Outstanding loan commitments
Loans approved but not funded
b.Loan redraw facilities
Loan redraw facilities available
c. Undrawn loan facilities
Loan facilities available to members for overdrafts, credit cards and line of credit loans are as follows:
Total value of facilities approved
Less amounts advanced
Net undrawn value
These commitments are contingent on members maintaining credit standards and ongoing repayment
terms on amounts drawn
Total financial commitments
d. Future capital commitments
Select has entered into a contract to purchase computer equipment and software for which the amount
is to be paid over the following periods:—
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 53
STATEMENT OF ACCOUNTING POLICIES CONTINUED
2013
$
2012
$
Not later than one year
505,124
499,520
Later than 1 year but not 2 years
505,124
499,520
Later than 2 years but not 5 years
—
499,520
Later than 5 years
—
—
1,010,248
1,498,560
Not later than one year
586,108
656,016
Later than 1 year but not later than 5 years
760,535
1,966,695
49,672
206,112
1,396,315
2,828,823
27. FINANCIAL COMMITMENTS CONTINUED
e.Computer bureau & core banking software expense commitments
f.Lease expense commitments for operating leases on property occupied by Select
Later than 5 years
The operating leases are in respect of property used for providing branch services to members and
administration. There are no contingent rentals applicable to leases taken out. The terms of the leases
are for between 3 to 8 years and options for renewal are usually obtained for a further 3 years.
There are no restrictions imposed on Select so as to limit the ability to undertake further leases or borrow
funds or issue dividends.
28. STANDBY BORROWING FACILITIES
Select has a borrowing facility with Credit Union Services Corporation (Australia) Limited (CUSCAL) of:
2013
Gross
Loan facility
Overdraft facility
Total standby borrowing facilities
$
Current
Borrowing
$
Net
available
$
2,000,000
—
2,000,000
500,000
—
500,000
2,500,000
—
2,500,000
$
Current
Borrowing
$
Net
available
$
4,500,000
—
4,500,000
500,000
—
500,000
5,000,000
—
5,000,000
2012
Gross
Loan facility
Overdraft facility
Total standby borrowing facilities
Withdrawal of the loan facility is subject to the availability of funds at CUSCAL.
CUSCAL holds an equitable mortgage charge over all of the assets of Select as security against loan and
overdraft amounts drawn under the facility arrangements.
54 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
29. CONTINGENT LIABILITIES
Liquidity support scheme
Select is a member of the Credit Union Financial Support Scheme Limited (CUFSS) a company limited
by guarantee, established to provide financial support to member credit unions in the event of a liquidity
or capital problem. As a member, Select is committed to maintaining 3.2% of total assets as deposits with
CUSCAL, or other approved ADI.
Under the terms of the Industry Support Contract (ISC), the maximum call for each participating credit union
would be 3.2% of total assets (3% under loans and facilities and 0.2% under the cap on contributions to
permanent loans). This amount represents participating credit unions irrevocable commitment under the ISC.
At the balance date there were no loans issued to Select under this arrangement.
30. DISCLOSURES ON DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL
a. Remuneration of key management persons
Key management persons (KMP) are those having authority and responsibility for planning, directing
and controlling the activities of Select, directly or indirectly, including any Director (whether executive
or otherwise) of Select. Control is the power to govern the financial and operating policies of a credit union
so as to obtain benefits from its activities.
KMP have been taken to comprise 10 Directors (2012:11) (one ceased on 29th November 2012) and the
4 members of executive management (2012:5) responsible for the day to day financial and operational
management of Select. The aggregate compensation of KMP during the year, comprising amounts paid
or payable or provided for, was as follows:
2013
Directors & other
KMP
$
2012
Directors & other
kmp
$
(a) short-term employee benefits
860,442
767,403
(b) post-employment benefits — superannuation contributions
105,703
104,800
23,060
26,311
335,520
Nil
Nil
Nil
1,324,725
898,514
(c) other long-term benefits – net increases in long service leave provision
(d) termination benefits
(e) share-based payments
In the above table, remuneration shown as “short term benefits” means (where applicable) wages, salaries,
paid annual leave and paid sick leave, profit-sharing and bonuses, value of fringe benefits received, but
excludes out of pocket expense reimbursements.
All remuneration to Directors was approved by members at the previous Annual General Meeting of Select.
Other transactions with related parties
The disclosures are made in accordance with AASB 124 and include disclosures relating to Select’s policy
for lending to related parties and, in respect to related party transactions, the amount included in:
(a) each of the loans and advances, deposits and acceptances and promissory notes;
(b) each of the principal types of income, interest expense and commissions paid;
(c)the amount of the expense recognised in the period for impairment losses on loans and advances
and the amount of any allowance at the reporting date; and
(d) irrevocable commitments and contingencies and commitments arising from off balance sheet
statement of financial position items.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 55
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
b.Loans to directors and other key management persons
Select’s policy for lending to directors and management is that all loans are approved on the same terms and
conditions which apply to members for each class of loan. There are no loans which are impaired in relation
to the loan balances with directors or other KMP.
There are no benefits or concessional terms and conditions applicable to close family members of KMP.
There are no loans which are impaired in relation to the loan balances with close family relatives of directors
and other KMP.
The detail of transactions during the year is as follows:
2013
Mortgage
Secured
$
Other
term
loans
$
Funds available to be drawn
142,372
Balance
Amounts disbursed or facilities increased in the year
Interest and other revenue earned
2012
Credit Mortgage
Cards
Secured
$
$
Other
term
loans
$
Credit
Cards
50,008
6,612
69,134
65,765
5,000
825,513
80,381
3,388
779,394
39,646
0
230,863
119,418
9,512
381,024
57,713
1,920
48,534
5,614
183
54,497
1,686
5
$
Select’s policy for receiving deposits from KMP is that all transactions are approved and deposits accepted
on the same terms and conditions which applied to members for each type of deposit.
Other transactions between related parties include deposits from Directors and other KMP are:
Total value term and savings deposits
Total interest paid on deposits
2013
$
2012
$
875,863
919,920
35,758
46,860
c. Transactions with other related parties
Other transactions between related parties include deposits from director related entities or close family
members to directors and other KMP. Select’s policy for receiving deposits from related parties is that
all transactions are approved and deposits accepted on the same terms and conditions which applied to
members for each type of deposit. There are no benefits paid or payable to close family members of KMP.
There are no service contracts to which KMP or their close family members are an interested party.
56 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
31.outsourcing arrangements
32. SUPERANNUATION LIABILITIES
Select has arrangements with other organisations
to facilitate the supply of services to members.
Select contributes to superannuation funds for the
purpose of superannuation guarantee payments and
payment of other superannuation benefits on behalf
of directors and employees. The superannuation
funds are administered by independent trustees.
a.CUSCAL Limited
CUSCAL is an Approved Deposit-taking Institution
registered under the Corporations Act 2001 and
the Banking Act. Select has equity in the company.
CUSCAL:
(i) p
rovides the license rights to Visa Card in
Australia and settlement with other institutions
for ATM, Visa card and cheque transactions,
direct entry transactions, as well as the
production of Visa and Redicards for use by
members;
Select has no interest in the superannuation funds
(other than as a contributor) and is not liable for the
performance of the funds or the obligations of the
funds.
(ii) operates the computer network used to link
Redicards and Visa cards operated through
Reditellers and other approved ATM providers
to Select’s computer systems.
(iii) provides treasury and money market facilities to
Select. Select invests 14.95% of its liquid assets
with CUSCAL to maximise return on funds and
to comply with the Liquidity Support Scheme
requirements.
b.Ultradata Australia Pty Ltd
This company provides and maintains the core
banking application software utilised by Select.
c. TransAction Solutions Ltd
This company operates the computer facility on
behalf of Select in conjunction with other credit
unions. Select has a management contract with
the company to supply computer support staff
and services to meet the day to day needs of Select
and compliance with relevant prudential standards.
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 57
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
2013
$
2012
$
Cash on hand
210,465
206,176
Deposits at call
6,156,224
4,736,173
Total cash
6,366,689
4,942,349
—
—
1,143,254
775,893
Depreciation expense
183,316
174,780
Gain on sale of shares
(22,033)
—
Loss on sale of assets and intangibles
19,454
2,280
Increase in provisions for staff leave
48,635
115,528
(Decrease) in provision for income tax
(10,199)
(287,422)
12,491
74,368
(Decrease)/Increase in accrued expenses
(388,462)
251,954
(Decrease)/Increase in interest payable
(540,139)
245,459
(33,008)
(5,709)
Decrease/(Increase) in sundry receivables
36,673
(31,553)
Decrease in taxation assets
33,466
24,441
Decrease/(Increase) in interest receivable
178,238
(285,084)
Amortisation expense on intangible assets
92,870
104,499
Amortised fees on loans
(9,044)
4,859
(141,368)
15,453
604,144
1,179,746
299,508
5,513,077
3,833,385
(21,781,326)
(Decrease)/Increase in deposit balances
(3,403,763)
16,435,964
Net cash from operating activities
1,333,274
1,347,461
33. NOTES TO STATEMENT OF CASH FLOWS
a.Reconciliation of cash
Cash includes cash on hand, and deposits at call with other financial institutions and comprises:
b.Cash unavailable for use
Cash which is excluded from the above amount of cash since it is not readily available for use by reason
of it securing overnight settlement obligations.
c. Reconciliation of cash from operations to accounting profit
The net cash increase/(decrease) from operating activities is reconciled to the profit after tax
Profit after income tax
Add/(Deduct) :
Increase in other provisions
(Increase) in prepayments
(Decrease)/Increase in provisions for loans
Net cash from revenue activities
Add (Deduct) non-revenue operations
Decrease in loans balances
Decrease/(Increase) in liquid investment balances
58 / SELECT MUTUAL BANKING 50th Annual Report 2012/13
34.
TRANSFER OF BUSINESS – This note is included as information for comparative purposes
Select accepted a transfer of business from MemberFirst Credit Union Ltd effective 1st March 2012.
All of the shares in MemberFirst Credit Union were redeemed and replaced with Select shares.
The primary reason for the transfer was detailed in the MemberFirst Credit Union members’ special general
meeting information pack, and was to consolidate the mutual interests of both credit unions into an organisation
better capable of withstanding economic pressures and regulatory requirements.
There was no goodwill which arises in the transfer, as MemberFirst Credit Union had surplus net assets in excess
of the value of the shares issued by Select.
Other prescribed disclosures are as follows:
(a) There are no contingent considerations or indemnification assets.
(b)The amounts recognised as of the acquisition date 1st March 2012 for each major class of assets acquired
and liabilities assumed, are as follows:
MEMBERFIRST CREDIT UNION
Gross
Contractual
Amounts
Receivable
$
Fair
value
Provision
for
impairment
Net
amounts
received
$
$
$
1,643,916
—
—
1,643,916
Receivables from ADI’s
10,659,894
—
—
10,659,894
Receivables from members
15,728,396
—
108,000
15,620,396
Other receivables
181,221
—
—
181,221
Fixed Assets
128,745
—
—
128,745
Equity Investments
133,680
—
—
133,680
—
—
—
—
222,983
—
—
222,983
28,698,835
—
108,000
28,590,835
Member Deposits
23,968,921
—
—
23,968,921
Borrowing to ADI’s
—
—
—
—
Staff Leave Provisions
109,505
—
—
109,505
Creditors and Accruals
770,581
—
—
770,581
Other provisions
—
—
—
—
Taxation Liabilities
—
—
—
—
Deferred Tax Liabilities
—
—
—
—
24,849,007
—
—
24,849,007
3,849,828
—
108,000
3,741,828
ASSETS
Cash
Intangible Assets
Deferred Tax Assets
Total Assets
LIABILITIES
Total Liabilities
Net Assets
SELECT MUTUAL BANKING 50th Annual Report 2012/13 / 59
STATEMENT OF ACCOUNTING POLICIES
CONTINUED
(c) C
ontingent liabilities – there are no contingent liabilities other than potential staff redundancy liabilities
that may arise.
(d) T
he following transaction is recognised separately from the acquisition of assets and liabilities and
assumption of liabilities in the business combination:
MemberFirst Credit Union held a lease on premises until 16th December 2015 with a monthly rental
of $6,613 which has been acquired under the transfer of business.
(e) Cost of the acquisition expensed comprised:
MemberFirst
Credit Union
$
Description
Professional due diligence and legal costs
12,618
Acquisition related costs
173,224
Total direct costs
185,842
(f) There are no costs of the acquisition incurred but not expensed.
(g) Post acquisition performance
Since the transfer, revenue and expenses have been absorbed into the revenue and expenses of Select as a
whole and are not separated as a separate business unit. That was done to allow the economies of scale to
maximise the benefits to members and to recognise that the assets and liabilities acquired are not separable
from the combined entity.
35. CORPORATE INFORMATION
Select Credit Union Ltd is a company limited by shares and registered under the Corporations Act 2001.
The address of the registered office is:
Level 2, Quad 2, 8 Parkview Drive, Sydney Olympic Park, NSW 2127.
The address of the principal place of business is:
Level 2, Quad 2, 8 Parkview Drive, Sydney Olympic Park, NSW 2127.
The nature of the operations and its principal activities are the provision of deposit taking facilities and loan
facilities to the members of Select.
ABN: 20 058 538 140
AFSL & ACL: 238257
60 / SELECT MUTUAL BANKING 50th Annual Report 2012/13