2RA0NE1PN6OURATL
CONTENTS
Who We Are 04 // Our Past10 Years in Review 06 // Chairman’s Report 08 // Board of Directors12 // CEO’s Report 14 // Executive Team 18 //
Community Support 20 // Directors’ Report 28 // Corporate Governance Statement 30 // Concise Financial Report 40 //
Directors’ Declaration 50 // Independent Audit Report 52 // Auditor’s Independence Declaration 53
WHO WE ARE
Newcastle Permanent’s vision is to be the leading retail
banking business in Australia. We offer a better way of
banking with a comprehensive range of retail banking services,
superior value products, exceptional service and a meaningful
contribution to the local communities that support us.
Employing nearly1,000 people and servicing more than
325,000 customers, we are the largest building society in
Australia with almost $10 billion in total assets.
Newcastle Permanent is financially the strongest customer-owned
banking institution in Australia in terms of net assets and just like
the major banks, we are supervised by the Australian Prudential
Regulation Authority (APRA), under the Banking Act 1959.
Newcastle Permanent is100% owned by our customers so all
the value we create is shared only with our customers and their
communities, not with shareholders like the major banks.
Our goal is to help our customers achieve financial success and
help to build successful and vibrant communities in the regions
where we operate.
As we continue to expand our digital and physical presence,
even more people will be able to enjoy the benefits of our
customer-owned banking model that is focused on people
and their communities, not just profits.
OUR PAST 10 YEARS IN REVIEW
OUR CUSTOMERS OUR GROWTH
GROWN TO 130% 30%
325,000MORE THAN MORE ATMS GROWTH
CUSTOMERS 2006
2016 IN BRANCHES
600,000SERVICING 2006
2016
MORE
REGIONAL AUSTRALIANS $3.8bnHOME LOAN
94%AVERAGE PORTFOLIO UP
CUSTOMER 88%TOTAL
SATISFACTION
ASSETS UP
$1billion
CREATED IN CUSTOMER VALUE 109%TOTAL RETAIL
DEPOSITS UP
OUR AWARDS
HOME
LENDER
OF THE YEAR 8 TIMES
BUILDING
SOCIETY
OF THE YEAR 10 TIMES
6 ANNUAL REPORT 2016
OUR COMMUNITY 4,000
PEOPLE STAFF VOLUNTEER HOURS
ENTERTAINED
231,800 89 CINEMA $400KSTAFF DONATIONS
UNDER
THE STARS
EVENTS
35 188,101
YEARS SUPPORTING
SURF LIFE SAVING YEAR 5 & 6 STUDENTS
SAT OUR PRIMARY SCHOOL
$13.1 MATHS COMPETITION
MILLION
55,000
IN CHARITABLE FOOTBALLS GIVEN TO
FOUNDATION GRANTS ENTRY-LEVEL PLAYERS
2006 – 2016
ANNUAL REPORT 2016 7
CHAIRMAN’S
REPORT
CHAIRMAN MICHAEL SLATER CONTINUED HIGH PERFORMANCE Newcastle Permanent’s consistently strong
business outcomes since the Global Financial
In this, my final year as Chairman, I am proud Crisis (GFC) in 2007 are the direct result of
to report that Newcastle Permanent has again a resolute focus on delivering against our
performed exceptionally well against our strategic plan priorities, an elevated multi-year
balanced Strategic Performance Scorecard, investment program that has delivered a range
including record results in the home lending of strategically important projects, excellence
component of our core business of retail banking in execution and effective risk management,
(see Chart A: Loan Portfolio 2007–2016 and all of which is supported by an effective system
Chart B: Total Funding). of applied governance.
One area of striking performance against the During the year, Newcastle Permanent
industry sector was the attainment of 11.5% completed a number of strategic projects valued
home loan portfolio growth compared to the at more than $7.8 million. An elevated investment
industry average of 6.7%. These results were program exceeding $70 million over the past
achieved in a challenging business context eight years has driven sustainable business
characterised by historically low interest rates, growth and ensured Newcastle Permanent
which is driving intense competition for home continues to meet its customers’ needs more
loans and customer deposits and is contributing effectively than its competitors (see Chart D:
to ongoing pressure on interest margin. Investment in Projects and Capital Expenditure).
Despite the demanding operating environment, In fact, Newcastle Permanent is significantly
Newcastle Permanent achieved a net profit outperforming its competitors in the
after tax of $40.9 million, which is an customer-owned banking sector on many
increase on last year’s result. This profit is fully key measures including asset growth, capital
retained in the business to support our already position, infrastructure and capability investment,
exceptional financial strength and to help community support, industry awards and
provide our customers with highly competitive customer satisfaction.
products and services including better interest
rates and lower fees compared to the major
banks’ equivalent products. The success of our
business strategy is also evident in the growth
of our retail banking products-per-customer,
which is now equivalent to the major banks
(see Chart C: Products Per Customer).
$4.5bn
$4.8bn
$5.0bn
$5.6bn
$6.1bn
$6.6bn
$6.8bn
$7.0bn
$7.3bn
$8.1bn
$5.2bn
$5.7bn
$5.6bn
$6.1bn
$6.7bn
$7.2bn
$7.5bn
$7.8bn
$8.0bn
$8.8bn
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
CHART A: CHART B:
LOAN PORTFOLIO 2007–2016 TOTAL FUNDING
2007–2016
8 ANNUAL REPORT 2016
To serve current and future generations of FINANCIAL RESILIENCE WORKING FOR OUR CUSTOMERS
customers, Newcastle Permanent has significantly
advanced its digital and mobile capability Newcastle Permanent’s Tier 1 capital ratio As a customer-owned organisation, Newcastle
with a range of enhancements, including a new is superior to all of the major Australian banks Permanent has a clear focus on operating for the
responsive website, online product application and customer-owned financial institutions. benefit and long term success of our customers
capability and new mobile and tablet apps, all of Tier 1 capital is the core measure of a banking and the communities where we operate.
which were deployed this year. These initiatives institution’s financial strength (see Chart E:
have been very well received by our customers, Tier 1 Capital Ratios). Our constant focus on delivering a compelling
with demand for digital (online) banking services customer value proposition ensures our products
evident on a range of measures, including 37.5% In a year when the major banks have been are highly competitive and our customers are highly
growth in internet banking transactions over the directed by the Prudential Regulator to meet satisfied with the products and services they receive.
past two years. increased capital requirements, Newcastle
Permanent’s exceptional capital position, This financial year, Newcastle Permanent created
We are also undertaking a significant investment developed through prudent financial a total of $95.6 million in long term value for our
in a new, state-of-the-art internet and mobile management, has allowed us to focus on customers, made up of $54.7 million of Mutuality
banking platform, which is due to be launched executing our strategic priorities rather than Dividend (which is the additional financial benefit
during the next calendar year. on short term capital management initiatives. our customers receive by banking with Newcastle
Permanent rather than the four major banks) and
Both Moody’s Investors Service and Standard & $40.9 million net profit after tax (see diagram on
Poor’s international credit rating agencies have page10).
reaffirmed Newcastle Permanent’s long term
credit ratings, which remain unsurpassed by any This value our customers receive is in stark
customer-owned banking organisation. contrast to the major banks, which penalise their
customers with relatively lower quality products,
Our relentless focus on delivering an effective inferior interest rates, higher fees, relatively low
strategic plan and driving key financial metrics levels of customer satisfaction and token levels of
has ensured Newcastle Permanent continues community support in order to earn record profits
to thrive despite the persistently challenging so they can pay dividends to their shareholders.
operating environment. Our performance,
combined with the value that our customers We believe our customer-owned business
derive from conducting their business with us, model produces better outcomes for our
reinforces that there remains a significant benefit customers and their communities without the
in continuing to differentiate ourselves as a negative consequences of the banks’ excessive
building society rather than a bank, considering focus on generating profits for the benefit of their
the negative perceptions and experiences shareholders.
associated with banks.
NEWCASTLE
PERMANENT
1.88
2.02 TOP 5
2.17 MUTUALS*
2.27
2.33 MAJOR
2.40 BANKS
2.43
2.45 REGIONAL
2.44 BANKS
2.50
$10.0m
$12.1m
$10.3m
$7.8m
$15.0m
11.88%
10.31%
14.50%
18.86%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2013 2014 2015 2016 2017 BUDGET Source: Most recently available APS330 disclosures.*Excludes Newcastle Permanent.
CHART C: CHART D: CHART E:
PRODUCTS PER CUSTOMER INVESTMENT IN PROJECTS AND CAPITAL EXPENDITURE TIER 1 CAPITAL RATIOS % OF RISK WEIGHTED ASSETS
2007–2016
ANNUAL REPORT 2016 9
CHAIRMAN’S
REPORT CONTINUED
PROFIT MEANINGFUL SUPPORT A TEAM ACHIEVEMENT
FOR OUR COMMUNITIES
$40.9M A sustained focus on achieving strategic
Core to our ethos is our dedication to objectives depends upon a collaborative
Retained as capital improving the lives of all the people who and complementary team environment. I am
for financial strength live in the local communities that support proud of the commitment shown by Newcastle
Newcastle Permanent. Permanent’s staff and my fellow Directors in
+ helping the organisation consistently achieve its
We have continued our meaningful support strategic outcomes over the past decade during
MUTUALITY through community sponsorships, staff my tenure as Chairman.
DIVIDEND donations and corporate fundraising initiatives,
which total more than $1.5 million each year Over this time there has been a committed and
$54.7M in regional NSW. highly effective partnership with the CEO and
Executive Team that has contributed, in no small
Total value delivered to customers In addition, the Newcastle Permanent part, to the achievement of our strategic goals.
through better interest rates Charitable Foundation (Foundation) was
and lower fees compared established by Newcastle Permanent in 2003 In recent years, consistent with the Board Renewal
to the major banks to help redress community disadvantage Policy there has been significant change and
in regional NSW communities. Meeting the renewal in the composition of our Board of
= many volunteers who enthusiastically give Directors. This process recognises the importance
their time to support the disadvantaged has of ensuring that the Board remains open to new
OVERALL been a rewarding experience. The Foundation ideas and independent thinking, including the
CUSTOMER VALUE distributes more than $1.5 million each year introduction of new skills, diversity and capability
to improve the lives of more marginalised where appropriate, while concurrently retaining
members of the community. To date, the the skills and expertise of existing Directors
Foundation has provided more than $15 with their valuable knowledge of Newcastle
million to facilitate more than 500 vital Permanent. The current Board represents a
community projects. good blend of skills, experience, diversity and
independence of thought.
Also being Chairman of the Foundation, it has
given me tremendous personal satisfaction to In my ultimate year as Chairman, I have
see the many wonderful projects the Foundation every confidence that the stewardship of the
has helped bring to life to support less fortunate Board will continue to guide the organisation
people in our local communities. Although to provide ongoing value for its customers and
I am stepping down as Chairman of Newcastle support for their communities. Our customers
Permanent this year, I am looking forward can rest assured that the diversity, experience
to continuing to serve the community as and expertise of the Board of Directors will
Chairman of the Foundation. guide Newcastle Permanent strongly and
sustainably into the future.
$95.6M
10 ANNUAL REPORT 2016
OUR FUTURE
The year ahead will be one of adjustment
for Newcastle Permanent as the Board of
Directors appoints a new Chair in my stead
to lead the organisation forward.
It has been a source of great pride that I
have been afforded the opportunity to make
a contribution to the success of this wonderful
organisation for more than14 years, including
almost 10 years as the Chairman.
Newcastle Permanent has continued to grow
and prosper despite and since the GFC in 2007
and I expect the high level of performance will
be maintained into the foreseeable future.
As the responsibility passes to the new Chair,
customers can feel satisfied that Newcastle
Permanent is on an exceptionally sound
footing so we can look to the future with
pride, enthusiasm and confidence.
MICHAEL SLATER
CHAIRMAN
Left–Right: Terry Millett (CEO), Michael Slater (Chairman)
ANNUAL REPORT 20156 11
BOARD OF
DIRECTORS
Left–Right: Ross Griffiths, Jeffrey Eather, Jennifer Leslie, MICHAEL D. SLATER
Andrew Yost (Co. Sec.), Michael Slater (Chairman),
Samantha Martin-Williams, David Shanley, Philip Neat. BCom, MBA, FCPA, FCIS, FGIA, FAICD, FTIA, FAIM, FCIM
Chairman
Board Member since August 2002
Chairman of the Corporate Governance & Nominations Committee
Michael is a qualified accountant and has financial and management experience with expertise in financial
and management analysis, commercial and organisational reviews and audits, due diligence and corporate
governance. As well as being Chairman of Newcastle Permanent Building Society, he is also the Chairman
of Newcastle Friendly Society Ltd, Chairman of Newcastle Permanent Community Foundation Company
Ltd, which is the trustee of Newcastle Permanent Charitable Foundation, and Chairman of Regional
Development Australia Hunter. Michael is also a Director of the Hunter Westpac Rescue Helicopter Service
Ltd and serves as a member of its Audit Committee, Finance Committee, RFT Committee and Corporate
Governance & Nominations Committee. Michael is a former Chairman and Director of Corky’s Carbon and
Combustion Pty Ltd and former Director of Denis Veitch and Associates Pty Ltd, Corporate Internet Business
Information Systems Pty Ltd, the Hunter Economic Development Corporation and NIB Holdings Limited.
Michael holds a Bachelor’s Degree in Commerce and a Master’s Degree in Business Administration. He is
a Fellow of the Australian Society of Certified Practising Accountants, Fellow of the Governance Institute
of Australia and a Fellow of the Australian Institute of Company Directors (AICD), holding an Advanced
Diploma from AICD. Michael was named Business Leader of the Year at the 2016 Hunter Business Awards.
12 ANNUAL REPORT 20156
JEFFREY R. EATHER JENNIFER M. LESLIE PHILIP J. NEAT
BCom, CPA, FGIA, MAICD BCom, CFP, FCA (Aust) – FPS, MAICD, TFASFA MAICD, FAMI, CPM, GIA (Cert)
Board Member since May 2013 Board Member since June 2015 Board Member since July 2003
Chairman of the Audit Committee Member of the Audit and Remuneration Chairman of the Risk Management Committee
Member of the Corporate Governance & Committees Member of the Corporate Governance &
Nominations and Risk Management Committees Nominations and Remuneration Committees
Jennifer is a Fellow of Chartered Accountants
Jeff is a qualified accountant with strong governance Australia and New Zealand, Certified Financial Phil has been an adviser for over 30 years to major
credentials and hands-on business experience, Planner, a Member of the Australian Institute of Australian and international corporations involved
having overseen some of Newcastle’s leading Company Directors and a Trustee Fellow of the in the infrastructure, property development and
corporations including in his former role as CEO Association of Superannuation Funds of Australia. resource/mining sectors. He had a background
of NBN Television. He is also a Director of Newcastle She has a well-established career forged in the in journalism before establishing his own
Friendly Society Ltd and Hunter Water Corporation, Hunter Region, including11 years as Managing consultancy. Phil also serves on the Board of
the Managing Director of The Callaghan Institute Director of Pitcher Partners Newcastle and Hunter Newcastle Permanent Community Foundation
and was formerly Chairman of the University of Wealth Management. Jennifer holds a Bachelor of Company Ltd, which is the Trustee of Newcastle
Newcastle Foundation. Jeff holds a Bachelor of Commerce (Accounting) and Diploma of Financial Permanent Charitable Foundation. He is a
Commerce from the University of Newcastle and Planning. She is also a Director of Newcastle Member of the Australian Institute of Company
is a Certified Practising Accountant, a Fellow of the Friendly Society Ltd, a Director of Mai Wel Ltd Directors, the Governance Institute of Australia
Governance Institute of Australia and a Member (where she is Chair of the Audit and Finance and a Fellow of the Australian Marketing Institute.
of the Australian Institute of Company Directors. Committee), a member of the AMP Customer
Consultancy Group, a former Advisory Board DAVID E. SHANLEY
ROSS E. GRIFFITHS Member of the Maitland-Newcastle Catholic
Development Fund and a former Advisor Member BCom, CFP, GAICD
Dip Bus Studies (Acc), MBA, FCA (Aust), GAICD of the AMP Customer Advice Review Panel.
Board Member since July 2003
Board Member since January 2015 SAMANTHA J. MARTIN-WILLIAMS Chairman of the Remuneration Committee
Member of the Audit and Risk Management Member of the Audit and Corporate
Committees B.Bus, M.HR&IR, M.CommLaw, FAICD, GIA (Cert) Governance & Nominations Committees
Ross is a chartered accountant with extensive Board Member since February 2012 David has more than 35 years’ experience in the
retail banking, finance and risk management Member of the Risk Management and finance sector with a background in the building
experience. Ross had 28 years’ experience at Remuneration Committees society and credit union industries. For over 25
one of Australia’s major banks before retiring in years David has been an adviser to personal and
2014. His appointments at that bank included Samantha has had a career with over 20 years corporate clients on technical financial planning
Group Chief Credit Officer and Head of Credit of diverse business experience in industries issues. He is a Certified Financial Planner (CFP),
Management. Ross is a former Director of Mirabela including financial services, education, human a member of the Financial Planning Association
Nickel Limited and Commonwealth Managed resources, health and logistics. Samantha has and a Graduate of the Australian Institute of
Investments Limited, which was the Responsible leadership experience at CEO level with expertise Company Directors. David is also a Director of
Entity for two ASX listed Property Trusts. He holds in transformation, corporate governance and Newcastle Friendly Society Ltd and Newcastle
a Diploma of Business Studies (Accounting) and business growth. She has degrees in business, Permanent Community Foundation Company
Masters of Business Administration. Ross is also industrial relations and commercial law and a Ltd, which is the Trustee of Newcastle Permanent
a Fellow of Chartered Accountants Australia and Certificate in Governance and Risk Management Charitable Foundation.
New Zealand and a Graduate of the Australian from the Governance Institute of Australia. She
Institute of Company Directors. currently serves on the Board of Newcastle
Permanent Community Foundation Company
Ltd, which is the Trustee of Newcastle Permanent
Charitable Foundation, the Salvation Army
Advisory Board and is a conjoint lecturer at
the University of Newcastle Business School.
Samantha is a Fellow of the Australian Institute
of Company Directors. Samantha has been
awarded honours including the Telstra Business
Woman of the Year, NSW.
ANNUAL REPORT 20156 13
CEO’S
REPORT
CEO TERRY MILLETT INTRODUCTION The excellent results this year, despite the
difficult operating environment are a testimony
As the Chairman reported, Newcastle Permanent of an unwavering focus and organisational
has again performed strongly given the strategic alignment around delivering against our
priorities, operating environment, intense strategic plan priorities. The secret of Newcastle
competitive pressure from the major banks Permanent’s success over many years has been
and the many challenges presented during the the combination of making the right strategic
year. These challenges included the ongoing choices, executional excellence and the ability
management of regulatory home lending to achieve end-to-end alignment of resources
constraints such as limits for new residential around the key strategic priorities. This simple
investment lending growth and loan-to-valuation principle is very difficult to deliver consistently,
ratio composition. as many less successful retail banking
institutions have discovered.
Our financial performance has been very pleasing
this year with outstanding home loan portfolio This is the sixth consecutive year of a
growth and a strong profit result in a historically significant investment program which is
low interest rate environment, being more notable driving major improvements in our key systems
considering the home lending composition and processes. At any given time Newcastle
constraints mentioned above, a 25 basis point Permanent is concurrently managing 15 to
reduction in the official cash rate (OCR) in May 20 major projects and dynamically allocates
2016, and the materially elevated level of home resources, to ensure alignment with strategic
loan repayments relative to expectations (see and operational priorities and to be responsive
Chart F: Total Home Lending Assets). to the ever changing legislative, regulatory
and scheme-based mandatory requirements.
Despite being in a historically low interest rate
environment, which is reflected in both lending A low interest rate environment requires close
and deposit rates, our retail deposits grew by attention to organisational efficiencies, however
9.9% this year. This is reflective of our consistently we have not wavered from our commitment to
competitive and high quality product suite which delivering strategically important projects.
continues to deliver to the needs of our customers Given the large number of projects undertaken
(see Chart G: Total Retail Deposits). during the year, it is not practical to list them all,
however some of the key initiatives aligned to
A highlight of Newcastle Permanent’s performance enhancing our Customer Value Proposition and
has been the results achieved across a range improving the effectiveness of major business
of customer-centric performance metrics processes include:
and our ability to consistently deliver against
a balanced scorecard for the benefit of all our Completion of a complex multi-year project
key stakeholders. to replace the Home Loan Origination
System including the business to business
electronic data interchange linkages to our
accredited Mortgage Broker organisations;
$6.25bn
$6.51bn
$6.72bn
$7.04bn
$7.86bn
$5.69bn
$5.90bn
$6.11bn
$6.43bn
$7.07bn
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
CHART F: CHART G:
TOTAL HOME LENDING ASSETS TOTAL RETAIL DEPOSITS
$BILLION $BILLION
14 ANNUAL REPORT 2016
Completion of a multi-year project to Superior customer satisfaction, which HERE FOR THE COMMUNITY
upgrade the capability and process for was independently measured this year at
Online Account Opening; 92.3%, significantly better than the best of We recognise that Newcastle Permanent can
the major banks (see Chart H: Customer only be successful if our customers and their
Completion of the multi-year project to Satisfaction v. The Four Major Banks); communities succeed too. Therefore a vital
upgrade our Web Content Management element of our customer-owned banking
system and website; Outstanding product quality and value, model is to make a meaningful contribution
evidenced by a number of industry awards every year in a wide-ranging community
Significant progress on the project to received again this year; support program.
implement the periodic review of fees and
charges to improve competitiveness, Exceptional home loan credit quality, with Proportional to our size we make a far greater
simplicity and maintain adherence to our arrears rate of just 0.13% which is nearly investment in this area than any of the major
regulatory requirements; three times better than the major banks, banks with more than $1.5 million invested
reflecting our approach to responsible every year in children’s sport and education
Continuation of a multi-year project to replace home lending that helps ensure our programs to help our children lead happy and
the existing internet and mobile banking customers are far less likely to get into healthy lives. This includes major partnerships
platform; and financial distress (see Chart I: Home Loan with junior football and support for Surf Life
Arrears Rates); Saving on every beach from the Central Coast
A large number of projects undertaken all the way to the Queensland border.
as a result of regulatory and industry An extensive community support
requirements and to strengthen Newcastle program to help enhance the communities Newcastle Permanent also supports community
Permanent’s hardware and software where our customers live; and events that enrich and entertain the community
Information Technology infrastructure. such as our free Cinema Under the Stars outdoor
Exceptional pricing competitiveness cinema program for young families, which tours
The major banks’ focus on generating ever relative to the equivalent products offered throughout Central and Northern NSW each
increasing profits to provide significant by the major banks evidenced by the Summer and is the largest of its kind in Australia,
dividends to shareholders weakens their ability $54.7 million in Mutuality Dividend entertaining around 50,000 people every year.
to deliver a competitively strong Customer Value that our customers enjoy by doing their
Proposition. In contrast, Newcastle Permanent banking with Newcastle Permanent rather Our staff are also actively involved in supporting
focuses on providing the best value and quality than the four major banks. the community through our CommunityAssist
products and services to its customers as part of program which provides them with two paid
a market leading Customer Value Proposition. The ongoing strengthening of our Customer leave days each year to undertake charity or
Value Proposition includes the opening of community work.
Newcastle Permanent has maintained its our newest and 60th branch in Dubbo, which
exceptional customer satisfaction, strong balance further improves the accessibility of high In addition, for almost 20 years the vast
sheet growth, profitability and an exemplary quality banking services for new and existing majority of our staff have also generously
capital positon. In fact, on many measures customers in the Central West region of NSW. donated a portion of their salaries each fortnight
that are relevant to customers, Newcastle to support local charities and community
Permanent is delivering a better retail banking REGIONAL organisations. This year approximately $60,000
proposition than the major banks, including: BANKS was donated to four charities.
NEWCASTLE PERMANENT 92.3 Newcastle Permanent also supports a number
% of well-known fundraising drives each year to
help these charities continue their vital work
CBA 81.2 MAJOR in the community. This year we helped to raise
ANZ % BANKS approximately $30,000 for a number of charities
78.9 including:
%
Australia’s Biggest Morning Tea for Cancer
WESTPAC 78.1 NEWCASTLE Council NSW;
% PERMANENT
Pink Ribbon Day for Cancer Council NSW;
NAB 78.0 0.41%
% 0.92% Jeans for Genes Day for Children’s Medical
0.13% Research Institute; and
Give Me 5 for Kids appeal that benefits
children’s wards in regional hospitals.
Further details of our community program are
provided in the Community Support section
of this Annual Report.
Source: Roy Morgan Customer Satisfaction Survey, six months to June 2016 Source: Standard and Poor’s RMBS data May 2016
CHART H: CHART I:
CUSTOMER SATISFACTION HOME LOAN ARREARS RATES
V. THE FOUR MAJOR BANKS % OF TOTAL HOME LOANS 90+ DAYS
ANNUAL REPORT 20156 15
CEO’S
REPORT CONTINUED
LEADING THE PACK HERE FOR OUR PEOPLE I would like to acknowledge the exceptional
Again this year, our products and services have contribution of our outgoing Chairman, Michael
been recognised through a variety of industry We believe that Newcastle Permanent Slater, to the strategic leadership of Newcastle
awards. Some of the notable awards were: employees are the best in the business, and it’s Permanent. Over nearly a decade as Chairman,
my honour to lead them in their relentless efforts Michael has provided significant guidance
Our seventh Building Society of the Year to provide superior service to our customers. and support to his fellow Directors and to
award and third Personal Lender of the me as Chief Executive Officer. I would like to
Year Award in Money magazine’s annual This year, we had an outstanding response congratulate Michael on his highly successful
Consumer Finance Awards; to the Employee Engagement Survey, tenure as one of Newcastle Permanent’s
undertaken each year to form an understanding longest serving Chairmen. I would also like
2016 Home Lender of the Year in the Mozo of employees’ views and attitudes and measure to acknowledge the vital stewardship and
Experts Choice Awards – one of the largest employee engagement across four key criteria contribution of our Board of Directors which is
online databases of bank and finance – Commitment, Advocacy, Satisfaction and critical to Newcastle Permanent’s success.
reviews in Australia; Pride. We significantly exceeded industry
benchmarks in all areas, reflecting the quality This year’s results are also testament to the
Best Mutual Lender in RFi Group’s 2016 of leadership at Newcastle Permanent and a cohesive efforts of every staff member
Australian Lending Awards and finalist shared passion to offer an industry-leading throughout Newcastle Permanent and I
in the Best Customer Experience, Best customer experience. would like to thank them for their dedication
Investor Lender and Best Secured Personal and enthusiasm in bringing our values to the
Loan Lender categories; MOVING FORWARD service they provide our customers.
Money magazine’s 2016 Best of the Best Our results this year are the culmination of To our customers, right throughout regional
Awards including Cheapest Home Loan effective strategic planning, executed to the NSW and beyond, I would like to thank you
Package – Non-Bank, Best Savings Account highest standard over many years and the for choosing a better way of banking over that
– Non-Bank, Cheapest Business Credit continued effectiveness of the professional offered by major banks. You are the reason
Card, Cheapest Personal Loan (Unsecured) working relationship of the Newcastle Permanent Newcastle Permanent exists – to empower
– Non-Bank and Cheapest Three-Year Fixed Executive Team. These relationships have been our customers with the best financial products
Home Loan – Non-Bank; and a key contributor to the level of focus on the and services while helping to build better
strategic goals and objectives defined in the communities. Without your support, Newcastle
2016 Mozo Experts Choice Awards for Newcastle Permanent Strategic Plan, successful Permanent would not be Australia’s strongest
Best First Home Loan, Best Fixed Home implementation of key strategic and operational customer-owned financial institution or one of
Loan, Best Fixed Investor Loan, Best Home initiatives and overall organisational performance. the most decorated home lenders in our country.
Loan Package and Best Offset Home Loan.
With a constant focus on delivering the best retail We are committed to continuing to provide you
In addition, Newcastle Permanent achieved banking experience available, we will continue with a superior experience and the best value
31 of the highest 5-star ratings from CANSTAR to implement strategic initiatives to keep our retail banking products and services in the
for our retail banking products including 25 for customers highly satisfied, deliver competitive market as well as support for your communities,
home loan products alone – more than any products against the major banks and continue long into the future.
of the major banks. our community support program to make
a meaningful difference in people’s lives.
TERRY MILLETT
CHIEF EXECUTIVE OFFICER
16 ANNUAL REPORT 20156
ANNUAL REPORT 2016 17
EXECUTIVE
TEAM
Left – Right: Mark Williams, Andrew Yost, David Kett, TERRY MILLETT
Michael Leach, Terry Millett (CEO), Lincoln Rees,
Shaun Hassall, David Harney. BSc, MAgr (Preliminary year), Grad Dip Computing, MBA, FAIM, FAICD
18 ANNUAL REPORT 2016
CHIEF EXECUTIVE OFFICER
Terry joined Newcastle Permanent in July 2005 and was appointed to the role of Chief Executive Officer
in September 2008. He has over 20 years’ experience in the financial services industry. Prior to joining
Newcastle Permanent, Terry held senior management roles with a major Australian bank over a nine-
year period. These roles included responsibility for Retail Banking in regional NSW, development of a
group-wide Private Banking business and leadership of the Funds Management, Insurance and Financial
Advisory business in New Zealand. He has also held senior roles with a major Funds Management and
Insurance group over a 10 year period. In his prior role with Newcastle Permanent, Terry was Chief
Member Officer with responsibility for leading the member-facing components of the organisation.
DAVID HARNEY LINCOLN REES
CHIEF INFORMATION OFFICER MBA (CSU), FAICD, FAIM, FFINSIA
David commenced with Newcastle Permanent in CHIEF MEMBER OFFICER
October 2011 as Senior Manager Development
and Support IT, and was appointed to the position Lincoln joined Newcastle Permanent in February
of Chief Information Officer in September 2013. 2009. He has 20 years’ experience in the financial
Prior to joining Newcastle Permanent, David was services industry, having held several senior
Group Manager, Portals and Device Development executive roles in Retail Banking. Lincoln has
at Singtel Optus Pty Ltd. He has over 20 years’ had responsibility for leading national distribution
experience in IT&T and project delivery. teams in the areas of Mortgage Lending, Wealth
and Business Banking in major financial services
SHAUN HASSALL organisations.
BCom, CA MARK WILLIAMS
HEAD OF RISK MANAGEMENT BCom, CA, GAICD, F Fin
Shaun commenced with Newcastle Permanent CHIEF FINANCIAL OFFICER
in January 2007 and was appointed to the
position of Head of Risk Management in Mark joined Newcastle Permanent in July
December 2013. Prior to this appointment Shaun 2006 as Financial Controller and was
held the position of Financial Controller and appointed to the position of Chief Financial
acted in the position of Chief Financial Officer Officer in December 2009. He is a Chartered
on a number of occasions. He is a Chartered Accountant with over 20 years’ experience
Accountant with over 10 years’ experience working within the chartered accounting
working within the chartered accounting profession and in a number of finance roles in
profession and other commercial finance roles. the commercial and government sectors. Mark
has also previously acted as a Director and
DAVID KETT Chairman of the Audit Committee of a financial
institution, and is currently a Director and
BCom, Grad Dip Management member of the Audit & Risk Committee of an
authorised deposit-taking institution.
HEAD OF SUPPORT SERVICES
ANDREW YOST
David joined Newcastle Permanent in 1991.
He has held senior roles in Retail Branch Banking, B Leg S, LLM, Grad Dip ACG, FGIA, FCIS
Finance, Compliance and Risk Management with
Newcastle Permanent and has over 20 years’ COMPANY SECRETARY AND LEGAL
experience in the financial services sector. COUNSEL
MICHAEL LEACH Andrew commenced with Newcastle Permanent
in August 2004. He is a Chartered Company
BSc (Computer Science), MBA, AMAMI CPM, GAICD Secretary and a qualified lawyer. Andrew has
practised law extensively in the areas of banking
HEAD OF MARKETING and finance, and corporate and commercial
law, both in private practice and in corporate
Michael commenced with Newcastle Permanent legal roles. Andrew has worked at partnership
in August 2006. He has over 20 years’ level in private practice and has held Chief
experience in financial services Sales, Marketing Legal Counsel roles in a subsidiary of an ASX 50
and Product Management at most of the major company and in an Australian subsidiary of
banks in Australia. Michael’s previous roles a large multi-national company.
include General Manager of Marketing at a
major regional bank and General Manager of
Marketing at one of the major Australian banks.
ANNUAL REPORT 2016 19
COMMUNITY
SUPPORT
Giving back to
the communities
that support us.
Through the many components of our community support program,
we enrich the communities where our customers and staff live.
We help children and their families to lead healthy, active and happy lives
by investing more than $1.5 million in children’s education,
community sport and free, family-friendly community events.
HEALTHY BODIES NORTHERN NSW FOOTBALL
HIGHLIGHTS THIS YEAR
COMMUNITY FOOTBALL
We’re committed to providing opportunities for families to lead happy, healthy and active lives. 228 clubs
That’s why we get a real kick out of supporting community football. 4,487 teams
8,200 volunteers
NORTHERN NSW FOOTBALL 60,420 players
As the Official Community Partner of Northern NSW Football, we support players and families by helping 9,000 free balls to new starters
keep registration fees as low as possible and providing entry level players with a free ball to get them started. More than 40,000 matches played
544 accredited coaches
Coaches, clubs and zones also benefit from our partnership, receiving support and funding for essential 48 free coaching courses
equipment and assistance for grassroots coaches to obtain their coaching accreditation free of charge. 6.3% increase in female players
CENTRAL COAST MARINERSACTIVE SCHOOLS PROGRAM AND SCHOOL HOLIDAY CLINICS CENTRAL COAST MARINERS
As the Official Partner of the Central Coast MarinersACTIVE Schools Program, we help children stay healthy HIGHLIGHTS THIS YEAR
and active. This innovative, school-based program provides young children with the opportunity to play
football at no cost, while also promoting the benefits of healthy eating, teamwork and positive life choices. Almost 15,000 primary students participated
Over 1,000 goals scored
As the Official Partner of the Central Coast Mariners School Holiday Clinics, we help children across the More than 600 school holiday participants
Central Coast and Central West hone their football skills with professional coaches and trainers.
SURF LIFE SAVING
SURF LIFE SAVING HIGHLIGHTS THIS YEAR
Our local surf life savers do a lot of good in our community and that’s something we never take for granted! 35 year partnership
That’s why we’ve proudly supported Surf Life Saving (SLS) for more than 35 years. 6 SLS branches
60 SLS clubs
As the major sponsor of six SLS branches from the Central Coast to the Queensland border, we assist Surf Life 7,426 volunteers patrolling our beaches
Saving branches and clubs purchase essential safety equipment, perform volunteer patrols and provide training 11,475 junior surf life savers
and leadership programs to nurture our surf life savers of tomorrow. With a focus on junior SLS, we’re helping 21 junior carnivals
to sustain the future of SLS in our local communities.
Congratulations to all this year’s Newcastle Permanent Junior Surf Life Savers of the Year:
Central Coast Mid North Coast
Cerys Cousins, MacMasters Beach SLSC Grace Kuhnell, Wauchope-Bonny Hills SLSC
Dylan Barrett, Oceans Beach SLSC Isaac Plunkett, Port Macquarie SLSC
Hunter North Coast
Jade Williams, Cooks Hill SLSC Poppy Smyth, Coffs Harbour SLSC
Luke Walmsley, Caves Beach SLSC Patrick de Carle, Sawtell SLSC
Lower North Coast Far North Coast
Annelise Romer, Forster SLSC Hayley Smith, Cudgen Headland SLSC
Jordan Fowler, Forster SLSC Zane Patience, Cabarita SLSC
Supported by
ANNUAL REPORT 2016 21
COMMUNITY
SUPPORT CONTINUED
MATHS COMPETITION HEALTHY MINDS
HIGHLIGHTS THIS YEAR
We are passionate about investing in children’s education, that’s why we support a range of programs focused
35 years on improving numeracy and environmental awareness.
Almost 20,000 students
Over 330 schools PRIMARY SCHOOL MATHEMATICS COMPETITION
Zero calculators! For 35 years, we’ve helped children develop their numeracy and problem-solving skills.
BLACKBUTT RESERVE Numeracy and problem-solving skills are vital life skills for children, and through the Newcastle Permanent
HIGHLIGHTS THIS YEAR Primary School Mathematics Competition, thousands of children have the opportunity to take part in one
of Australia’s longest running annual mathematics competitions.
15+ year partnership
2,800 participants BLACKBUTT RESERVE JUNIOR RANGER PROGRAM
47 volunteers We help children learn more about our natural environment.
600 native trees planted
25 nesting boxes built As the major sponsor of the Newcastle Permanent Blackbutt Reserve Junior Ranger Program, we’re providing
opportunities for children to learn more about our native plant life and wildlife through free education programs.
This year, four themed Junior Ranger Fun Days were held during the school holidays; Rapt in Reptiles, Aquatic
Action, Nature Venture and Indigenous Footprints. Children and their parents came and enjoyed free, interactive,
environmentally-based activities within the Reserve.
22 ANNUAL REPORT 2016
HAPPY LIVES CINEMA HIGHLIGHTS THIS YEAR
CINEMA UNDER THE STARS 16 free events
We help bring families and communities together by providing free outdoor cinema events across regional NSW. 4 blockbuster movies
20,000 bags of free popcorn
Each year, Newcastle Permanent’s Cinema Under the Stars events delight thousands of families with Almost 40,000 keen moviegoers
a unique opportunity to enjoy a night of free, family-friendly entertainment in some of the most beautiful
parks our communities have to offer. CAROLS HIGHLIGHTS THIS YEAR
Cinema Under the Stars has been running for nine years and is now Australia’s largest free regional 4 free carols events
outdoor cinema program. 120 Christmas carols
10,000 free Santa hats
CHRISTMAS CAROLS More than 40,000 smiling faces
We support a number of Christmas Carol events that bring communities together to share in the magic of Christmas.
FUN RUN HIGHLIGHTS THIS YEAR
These hugely popular, family-friendly events provide an opportunity for our customers, staff and the wider
community to celebrate the festive season with an evening of great music and family entertainment. 6 fun runs
6,000 participants
COMMUNITY FUN RUNS 56,000,000 steps
We invest in community fun runs because we think it’s important for people of all ages and fitness levels
to lead a healthy, active lifestyle.
Throughout the year, we proudly supported the Newcastle Permanent Lake Macquarie Running Festival,
the Newcastle Permanent Tamworth Ten, Forster Running Festival, Port Macquarie Running Festival,
Mudgee Running Festival and Ballina Lions Club Fun Run-Walk.
ANNUAL REPORT 2016 23
24 ANNUAL REPORT 2016
ANNUAL REPORT 2016 25
COMMUNITY
SUPPORT CONTINUED
STAFF DONATION RECIPIENTS PASSIONATE PEOPLE
Animal Rights and Rescue Group STAFF COMMUNITYASSIST PROGRAM
Heartfelt Supporting the community is something our people are very passionate about. Our Staff CommunityAssist
Children’s Cancer Institute – program was established to enable staff to make a real difference within their local community through staff
Build for a Cure donations and volunteering.
The Flying Free Project
STAFF DONATIONS
CHARITIES OUR STAFF This year, our staff donated almost $60,000 to local charities and community groups. The majority of staff
VOLUNTEERED TO HELP contribute part of their fortnightly salary to the scheme and they have raised almost $630,000 for charity
since the scheme commenced in 1997.
The Rotary Club of Newcastle –
Youth Driver Awareness Program Participating staff vote for the charities and community groups they would like to support.
Hunter Youth Mentor Collaborative
Mount Hutton Pet Hospital STAFF VOLUNTEERING
Cancer Council NSW The success of our staff volunteering program is another great example of the generosity and community spirit
Lifeline – Bookfest at Newcastle Permanent.
Cerebral Palsy Alliance
Vision Australia We provide each staff member with two paid community leave days each year which they can use to volunteer
Mai Wel Group for local community organisations. This year, our staff contributed more than1,000 volunteer hours to assist local
Salvation Army community organisations across the regions we operate in.
Royal Institute for Deaf & Blind Children
Cure Brain Cancer Foundation CHARITIES WE SUPPORTED
Throughout the year, we participated in fundraising activities and collections for some great causes including:
Australia’s Biggest Morning Tea for Cancer Council NSW
Jeans for Genes Day for the Children’s Medical Research Institute
Pink Ribbon Day for Cancer Council NSW
Give Me 5 for Kids Appeal for children’s hospitals in the Hunter, Central Coast and Coffs Harbour regions
Christmas Toy Drive for the Salvation Army
Blood Donations for the Australian Red Cross Blood Service.
Collectively, our staff and customers raised almost $30,000, donated hundreds of toys and generously gave
blood to those who need it most in our local communities.
26 ANNUAL REPORT 2016
ANNUAL REPORT 2016 27
DIRECTORS’
REPORT
RELATIONSHIP OF THE CONCISE FINANCIAL REPORT TO THE MEETINGS OF DIRECTORS
FULL FINANCIAL REPORT
The concise financial report is an extract from the full financial report for the The number of meetings of Newcastle Permanent’s Board of Directors and
year ended 30 June 2016. The financial statements and specific disclosures of each Board Committee held during the year ended 30 June 2016 and the
included in the concise financial report have been derived from the full numbers of meetings attended by each Director were:
financial report.
Board Meetings
The concise financial report cannot be expected to provide as full an
understanding of the financial performance, financial position and financing Director No. of No.
and investing activities of Newcastle Permanent Building Society Limited Meetings Attended
(‘Newcastle Permanent’) and its controlled entities as the full financial report. Michael Slater5
Further financial information can be obtained from the full financial report. Jeff Eather 13 10
Warren Elliott2,5 13 13
The full financial report and auditor’s report will be sent to members on request, Ross Griffiths 5 4
free of charge. Please call 13 19 87 and a copy will be forwarded to you. Jennifer Leslie 13 13
Samantha Martin-Williams 13 13
The Directors present their report on the consolidated entity consisting of Phil Neat3,5 13 13
Newcastle Permanent and the entities it controlled at the end of, or during, David Shanley 13 10
the year ended 30 June 2016. 13 13
DIRECTORS PRINCIPAL ACTIVITIES
During the year the principal continuing activities of the consolidated entity
The following persons were Directors of Newcastle Permanent during the consisted of the provision of a range of financial products and services
financial year and up to the date of this report. Directors were in office for to members and the operation of a charitable trust.
the entire period unless otherwise stated.
There has been no significant change in the nature of these activities during
M.D. Slater S.J. Martin-Williams the year ended 30 June 2016.
J.R. Eather P.J. Neat
R.E. Griffiths D.E. Shanley
J.M. Leslie
Mr W.J.Elliott was a Director from the beginning of the financial year
until his retirement on 23 October 2015.
Audit Committee Risk Management Corporate Governance & Remuneration Workshops4
Committee Nominations Committee Committee
No.
Michael Slater1 No. of No. No. of No. No. of No. No. of No. Attended
Jeff Eather5 Meetings Attended Meetings Attended Meetings Attended Meetings Attended
Warren Elliott2,5 1
Ross Griffiths - - - - 4 4 - - 1
Jennifer Leslie5 6 6 5 5 4 3 - - -
Samantha Martin-Williams - - 1 1 - - 2 1 1
Phil Neat3,5 6 6 5 5 - - - - 1
David Shanley 6 5 - - - - 5 5 1
- - 5 5 - - 5 5 1
- - 5 4 4 4 5 4 1
6 6 - - 4 4 5 5
Notes
1. The Chairman of the Board frequently attends Committee meetings by virtue of his office.
2. Mr W.J. Elliott retired from the Board on 23 October 2015.
3. Mr P.J. Neat appointed:
a. Mr M.D. Slater as his proxy for the Board meeting on 15 April 2016;
b. Ms S.J. Martin-Williams as his proxy for the Risk Management Committee meeting on 11 September 2015; and
c. Mr D.E. Shanley as his proxy for the Remuneration Committee meeting on 3 May 2016.
4. In addition to the formal Board meetings noted, the Directors were also involved in one workshop regarding strategic planning.
5. Leave of absence may be granted by the Board in advance to excuse a Director from attending a particular meeting
*Number of meetings noted is the number of meetings of the Board or relevant Committee that were held while that Director was on the Board.
28 ANNUAL REPORT 2016
REVIEW OF OPERATIONS In accordance with normal commercial practice, disclosure of the total
The consolidated entity has delivered a solid and consistent performance amount of premium payable under, and the nature of liabilities covered by,
for the year ended 30 June 2016 with net profit after tax attributable to the insurance contract is prohibited by a confidentiality clause in the contract.
members of Newcastle Permanent being $40,920,000 (2015: $36,469,000),
an increase of 12.2%. No insurance cover has been provided for the benefit of the auditor of
the consolidated entity.
Total equity of the consolidated entity increased from $849,142,000 at
30 June 2015 to $877,401,000 at 30 June 2016 (an increase of 3.3%). PROCEEDINGS ON BEHALF OF NEWCASTLE PERMANENT
No person has applied to the Court under section 237 of the Corporations
For further information in respect of the consolidated entity’s review of Act 2001 for leave to bring proceedings on behalf of Newcastle Permanent
operations, refer to the Chairman’s and the Chief Executive Officer’s reports. or to intervene in any proceedings to which Newcastle Permanent is a party
for the purpose of taking responsibility on behalf of Newcastle Permanent
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS for all or part of those proceedings.
There were no significant changes in the state of affairs of the consolidated
entity during the financial year. No proceedings have been brought or intervened in on behalf of
Newcastle Permanent with leave of the Court under section 237 of the
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR Corporations Act 2001.
No matters or circumstances have arisen since 30 June 2016 that have
significantly affected, or may significantly affect: ROUNDING OF AMOUNTS
Newcastle Permanent is an entity referred to in ASIC Corporations (Rounding
i. the consolidated entity’s operations in future financial years; or in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian
ii. the results of those operations in future financial years; or Securities and Investments Commission, relating to the ‘rounding off’
iii. the consolidated entity’s state of affairs in future financial years. of amounts in the Directors’ report. Amounts in the Directors’ report have
been rounded off in accordance with that Instrument to the nearest
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF thousand dollars, or in certain cases, to the nearest dollar.
OPERATIONS
Likely developments, future prospects and business strategies of the AUDITOR’S INDEPENDENCE DECLARATION
operations of the consolidated entity and the expected results of those A copy of the Auditor’s Independence Declaration, as required under
operations have not been included in this report as the Directors believe Section 307C of the Corporations Act 2001, is set out on page 53.
on reasonable grounds that the inclusion of such information would be
likely to result in unreasonable prejudice to the consolidated entity. DISCLOSURE OF PRUDENTIAL INFORMATION
Newcastle Permanent is an Authorised Deposit-taking Institution
ENVIRONMENTAL REGULATION regulated by the Australian Prudential Regulation Authority (APRA).
The consolidated entity has assessed whether there are any particular or As a result of this regulation, Newcastle Permanent is required to comply
significant environmental regulations which apply to it and has determined with Australian Prudential Standards (APSs) released by APRA. APS 330
that there are none. Public Disclosure requires Newcastle Permanent to disclose information
regarding its composition of regulatory capital base and risk exposures
INSURANCE OF OFFICERS and a reconciliation of the balance sheet in the financial statements to the
During the financial year, Newcastle Permanent paid a premium to insure balance sheet prepared under the regulatory scope of consolidation.
the Directors, Company Secretary and the Senior Executive Management Please refer to the ‘Regulatory Disclosures’ section of Newcastle
of Newcastle Permanent and its controlled entities. Permanent’s website for further information.
The liabilities insured are legal costs that may be incurred in defending civil This report is made in accordance with a resolution of Directors.
or criminal proceedings that may be brought against the officers in their
capacity as officers of entities in the consolidated entity and any other M.D.SLATER CHAIRMAN J.R.EATHER DIRECTOR
payments arising from liabilities incurred by the officers in connection with
such proceedings. This does not include such liabilities that arise from Newcastle
conduct involving a wilful breach of duty by the officers or the improper 9 September 2016
use by the officers of their position or of information to gain advantage for
themselves or someone else or to cause detriment to Newcastle Permanent
and its controlled entities. It is not possible to apportion the premium
between amounts relating to the insurance against legal costs and those
relating to other liabilities.
ANNUAL REPORT 2016 29
CORPORATE GOVERNANCE
STATEMENT
Although Newcastle Permanent is not bound by the ASX Corporate PRINCIPLE 1:
Governance Council’s Corporate Governance Principles and LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
Recommendations (‘ASX Principles’), the Board has elected to Recommendation 1.1: Respective roles and responsibilities of the
adopt a best practice approach and apply them where possible. Board and management
As the ASX Principles relate to listed companies, the terminology Role of the Board
typically refers to listed entities and security holders. We have changed The Board’s primary role is to govern Newcastle Permanent so that long term
the terminology where applicable to refer to Newcastle Permanent and member value is enhanced and protected. The Board is responsible for the
its members for greater relevance. overall corporate governance of Newcastle Permanent.
This statement was approved by the Board on 19 August 2016 and Responsibilities of the Board and powers that it has reserved to itself include:
was current as at that date.
providing leadership to Newcastle Permanent by:
• establishing policies, procedures, corporate values and governance
responsibilities; and
• setting the tone of, influencing and overseeing Newcastle
Permanent’s culture;
approving the Strategic Plan and overseeing the performance
and activities of Newcastle Permanent through management’s
implementation of the approved strategies and goals;
approving and monitoring capital expenditure and major
corporate initiatives;
overseeing the management of Newcastle Permanent’s business, including
appointing the Chief Executive Officer(‘CEO’) and Senior Executives and
evaluating the performance of the CEO and Senior Executives;
ensuring that appropriate controls are in place to manage risk;
ensuring that effective risk, legal and regulatory compliance systems are
in place and monitored;
approving and monitoring financial, regulatory and other reporting; and
starting new business activities, terminating existing business activities
or initiating major changes to the field of Newcastle Permanent’s
business activities.
The role and responsibilities of the Board are set out in the Board Charter.
Role of the CEO and Senior Executives
The Board delegates to the CEO, subject to Board oversight, the day to
day management of Newcastle Permanent consistent with the corporate
strategic plan, objectives, culture, budgets and risk appetite agreed to and
set by the Board. The CEO is authorised to sub delegate any of his functions
to other officers and employees.
The CEO and Senior Executives are also responsible for providing the Board with
accurate, clear and timely information to enable the Board to perform its role.
All delegations are comprehensively set out in a Delegations Manual.
The delegations to the CEO and Senior Executives are designed to assist in
decision making and the efficient operation of Newcastle Permanent. The
Board reserves the power to make decisions in relation to specific matters
as set out in the Delegations Manual.
30 ANNUAL REPORT 2016
Recommendation 1.2: Process for undertaking appropriate checks Executives
before appointing or recommending the appointment of a Director
The CEO and Senior Executives have each entered into a written
In general, a proposed new Director of Newcastle Permanent is required employment agreement with Newcastle Permanent, which sets out,
to satisfy a fit and proper assessment prior to their appointment to that amongst other things:
role, which means that the person must:
a description of their position, duties, responsibilities and remuneration;
possess the competence, character, diligence, honesty, integrity
and judgment to perform their duties; the person or body to whom they report; and
not be disqualified from holding a responsible person position the circumstances in which their employment may be terminated and
under the Banking Act 1959 (Cth); and any entitlements on termination.
not suffer from an actual or perceived conflict of interest that Recommendation 1.4: Company Secretary should be accountable
would create a material risk that the Director will fail to perform directly to the Board
their duties properly.
The Company Secretary of Newcastle Permanent has a direct and
There are very limited circumstances where the fit and proper assessment independent reporting responsibility to the Board and each of its
may occur shortly after a person is appointed as a Director, such as Committees. The Company Secretary reports directly to the Chairman
where the Director is appointed pursuant to a members’ resolution at the as the representative of the Board, however each Director can
Annual General Meeting. communicate directly with the Company Secretary and vice versa.
Once appointed, all Directors must satisfy a fit and proper assessment The Board is responsible for the appointment and termination of
annually. The specific requirements of the fit and proper assessment the Company Secretary, and also the terms and conditions of that
are set out in the Fit and Proper Policy. For a new Director appointment, appointment.
the assessment will generally include verification of the person’s
qualifications and experience, criminal history, personal insolvency and The Company Secretary is charged with advising on and facilitating
reference checks, ASIC ‘banned and disqualified persons’ and APRA Newcastle Permanent’s corporate governance processes and as such,
‘disqualification register’ searches and enquiries. holds primary responsibility for ensuring that the Board processes and
procedures run efficiently and effectively.
Where a person is standing for election or re-election as a Director
of Newcastle Permanent, the explanatory notes in the Notice of Recommendation 1.5: Diversity Policy and workplace gender equality
Annual General Meeting include a summary of the Director’s relevant
qualifications, skills, experience and other material information to In recognition of the value and benefits that diversity on a Board can
assist members in making an informed decision on whether to elect or deliver, the Board has adopted a Diversity Policy, which relates to the
re-elect the candidate. The explanatory notes also include a statement Boards of Newcastle Permanent and the other group companies,
as to whether the Board considers the candidate to be an independent Newcastle Friendly Society Ltd and Newcastle Permanent Community
Director and supports the election or re-election of the candidate. Foundation Company Ltd (‘Newcastle Permanent Group’).
Recommendation 1.3: Written agreement with each Director and The Diversity Policy confirms the Board’s commitment to encouraging
Senior Executive setting out the terms of their appointment a corporate culture that supports diversity within the workplace and on the
Board. The Diversity Policy also acknowledges that the concept of diversity is
Directors broad and not limited to any one value. It includes gender, age, ethnicity and
cultural background, and importantly, the ability to have an open mind.
Each Director has signed a letter of appointment acknowledging the
terms of their appointment to the Board. The letter of appointment The process for selecting and identifying prospective candidates for
allows each Director to gain an understanding of: appointment as new Directors is transparent, independent and free
from conscious or unconscious biases. When undertaking searches
the expectations of them as Directors and their commitment to the role; for prospective candidates, the Board stipulates as one of its criteria
that appropriately skilled and experienced female candidates should be
the structure of Newcastle Permanent, its governance framework and shortlisted by the independent search firm. The overriding qualification
key policies; in the Diversity Policy however remains that the principal criteria for
selecting and appointing Directors must be based on the skills,
the roles and responsibilities of the Board and management team; and experience and expertise that they can bring to the role, and the
overall prospect of adding value to the Newcastle Permanent Group.
the strategic, financial, operational and risk management position
of Newcastle Permanent.
ANNUAL REPORT 2016 31
CORPORATE GOVERNANCE
STATEMENT CONTINUED
In 2015, the Board adopted the following measurable objectives related Director Performance Assessment
to increasing the level of female participation on the Boards of Newcastle
Permanent and the Newcastle Permanent Group: The Board also undertakes an annual performance assessment of
each Director, assessed by their peers, as well as an evaluation of the
• short term: to 25% for Newcastle Permanent and 30% for the Newcastle Board performance as a whole. The performance assessment for the
Permanent Group by 30 June 2016; and Chairman of the Board considers both his performance as a Director
and as Chairman. A biennial skills analysis is also undertaken for each
• long term: to 30% for both Newcastle Permanent and the Newcastle Director. Those assessments are facilitated by an independent, external
Permanent Group by June 2019. governance consultant with expertise in this area. Outcomes from those
reviews are considered in a dedicated meeting, developing actions
These objectives are outlined in the Board’s Diversity Policy. and goals to guide improvement. Individual Directors have a feedback
session with the Chairman and formulate individual development
The objectives and the progress towards achieving them are reviewed each plans. The Chairman of the Audit Committee undertakes the feedback
year. As at 30 June 2016, the level of female participation on the Boards of session with the Chairman in relation to the Chairman’s performance.
Newcastle Permanent and the Newcastle Permanent Group were 28.5% and Additionally, the Chairman’s assessment is considered separately by the
30% respectively and therefore, the short term objectives have been met. Corporate Governance & Nominations Committee.
Newcastle Permanent also has an Equal Employment Opportunity Policy, The Board does not endorse the reappointment of a Director who is
which confirms its commitment to providing equality of opportunity to not satisfactorily performing their role.
employees or applicants for employment at all levels of the organisation.
The most recent Committee and Director performance assessments
In accordance with the requirements of the Workplace Gender Equality Act were completed in April 2016.
2012, Newcastle Permanent lodged its annual gender equality report with the
Workplace Gender Equality Agency on 23 May 2016. A copy of this report is Recommendation 1.7: Process for evaluating the performance
available to review at newcastlepermanent.com.au/gender-equality of the CEO and Senior Executives
Recommendation 1.6: Process for evaluating the performance of the The Board is ultimately responsible for evaluating the performance
Board, its Committees and individual Directors of the CEO and Senior Executives. The Board reviews the performance
of the CEO and Senior Executives annually, with the evaluation of the
Board Performance Assessment Senior Executives including recommendations from the CEO. This
includes approving all merit based salary increases and incentive
The Board Charter provides that the performance of the Directors in bonuses that might be paid to the CEO and Senior Executives.
discharging their functions should be regularly assessed. The Board
undertakes a monthly review of its performance at the conclusion The Remuneration Committee undertakes those reviews on behalf of
of each scheduled Board meeting by each Director completing an the Board and makes appropriate recommendations to the Board for its
individual assessment. The assessments are collated and analysed by an decision. The CEO’s performance evaluation is carried out in accordance
independent, expert governance consultant, with the results submitted for with the CEO Evaluation Workbook. The Senior Executive performance
review, consideration and discussion by the Board at its next Board meeting. criteria flow directly from the pre-determined criteria set out in the CEO
The object is to optimise the effectiveness and efficiency of Board Performance Evaluation Workbook.
performance and processes.
The Board also undertakes, through its relevant Committees, a separate
Committee Performance Assessment assessment of the performance of the Company Secretary, Head of Risk
Management and Internal Audit Manager in relation to their independent
The Board Committees undertake a review of their own performance. reporting obligations to the Board and its Committees.
The performance of the Chairman of each Committee is assessed on an
annual basis. The assessment is facilitated by an independent, external In accordance with Newcastle Permanent’s current performance and
governance consultant with expertise in this area. Outcomes from those development review process, the performance of the CEO and Senior
reviews are considered by the Chairman of the Board and through the Executives was reviewed by the Remuneration Committee and Board
Corporate Governance & Nominations Committee. The individual in August 2016.
Committee Chairmen have a separate feedback session with the
Chairman of the Board and formulate individual development plans.
32 ANNUAL REPORT 2016
PRINCIPLE 2: The Committees have written Charters that contain the mandates and
STRUCTURE THE BOARD TO ADD VALUE operating procedures of the Committee. The structure and composition of
the Committees and their respective Charters are reviewed on a regular basis
Board Composition to match the skills of Directors with the work of the relevant Committee and
to balance the level of time that each of the Directors must dedicate to the
The names of the Directors of Newcastle Permanent and their respective governance of Newcastle Permanent.
qualifications, experience and special responsibilities are set out in the
Directors’ Report, which appears separately in the Annual Report. The Board has established a Corporate Governance Framework for the
governance and management of Newcastle Permanent, including a
The composition of the Board is determined using the following principles: system of internal control, legal and regulatory compliance, business
risk management processes and the establishment of appropriate
a minimum of five and not more than nine Directors as required ethical and behavioural standards.
by the Constitution of Newcastle Permanent, with a broad range
of relevant expertise; The Board has also adopted its own Charter that contains:
a majority of independent, non-executive Directors; expectations and obligations for key governance roles, including the Board,
individual Directors, the Chairman, Company Secretary and the CEO;
a relevant blend of skills, including personal experience in accounting
and financial management, retail banking, risk management, legal Board processes and operating procedures;
skills, local contacts and networks and business experience at CEO
or Senior Management level; key Board functions; and
a non-executive, independent Director appointed as Chairman; and continuous improvement provisions for the Board and individual Directors.
enough Directors to serve on various committees without The Board has the capacity to engage independent consultants directly
overburdening the Directors or making it difficult for them to fully to assist it in the execution of its duties. Throughout the year, the Board
discharge their responsibilities. has done so where it was deemed prudent or mandatory, including with
respect to reviewing and advising on risk management policies and
Some of the criteria established for determining the composition of the procedures, remuneration and in relation to Board performance assessment,
Board and its Committees are laid out in mandatory Prudential Standards remuneration and Director independence.
issued by Newcastle Permanent’s prudential regulator, the Australian
Prudential Regulation Authority (‘APRA’). Recommendation 2.1: A Nominations Committee should be established
The Corporate Governance & Nominations Committee is responsible for The Board has established a Corporate Governance & Nominations Committee,
making recommendations to the Board on the appointment of Directors which currently consists of the following four non-executive Directors:
consistent with the criteria established by the Board. The process of
Board succession planning and Director renewal is an ongoing process. Mr M.D. Slater (Chairman)
The process for selecting and identifying prospective candidates for
appointment to the Board of Newcastle Permanent is transparent, Mr J.R. Eather
impartial and independent. It is outlined in the Board Charter and, except
in extraordinary circumstances, includes the utilisation of an independent, Mr P.J. Neat
external recruitment / search agency to identify and shortlist candidates.
Mr D.E. Shanley
Board Processes
All of the current members of the Committee are independent Directors,
The full Board currently holds a minimum of 12 scheduled meetings each including the Chairman. The Committee met four times during the 2016
year, plus strategy meetings and any extraordinary meetings at such other financial year. Details of the individual attendances at the Committee
times as may be necessary to address any specific, significant matters that meetings are set out in the Directors’ Report.
may arise. In addition to attending Board and Committee meetings, the
non-executive Directors allocate time for strategy sessions, attendance The Corporate Governance & Nominations Committee oversees the
at the Asset & Liability Committee meetings (which is a management appointment, induction and succession planning processes for Directors
committee) and preparation in advance of meetings. The Chairman and Committee members and makes recommendations to the Board on
commits additional time and meets regularly with the CEO to review and the selection, appointment and succession planning process of Newcastle
discuss business and strategic issues. Permanent’s CEO.
To assist in the execution of its responsibilities and streamlining of its The Corporate Governance & Nominations Committee facilitates the annual
processes, the Board has established the following Board Committees: review of the effectiveness of the Board, its Committees and individual
Directors. It also monitors, evaluates and makes recommendations to the
Corporate Governance & Nominations Committee Board in respect of Newcastle Permanent’s key governance documents, such
as the Corporate Governance Framework, Board Charter, Code of Conduct
Audit Committee and other Board policies, as well as reviewing compliance with new statutory
and regulatory requirements.
Risk Management Committee
Remuneration Committee
ANNUAL REPORT 2016 33
CORPORATE GOVERNANCE
STATEMENT CONTINUED
Significant Achievements during the Year The skills analysis identified that the current Board composition meets,
and in many cases, exceeds the current needs of Newcastle Permanent,
The significant achievements of the Corporate Governance & Nominations with a blend of skills and experience in areas applicable to the governance
Committee during the year included: of Newcastle Permanent.
reviewing key governance documents and processes, including the The skills analysis assists the Board to identify any potential skill gaps that
Corporate Governance Framework, Board Charter and the process may be addressed through the Board’s succession planning processes, as
for the nomination and election of a new Chair of the Board; well as professional development and training opportunities for the Directors.
overseeing the development of measurable objectives for gender The Board also recognises the value of diversity and its application to the
diversity on the Boards of the Newcastle Permanent Group; structure of the Board is set out under Recommendation 1.5.
overseeing the annual Board performance evaluation process and Recommendations 2.3 and 2.4: Independence of Directors
biennial Director skills assessment; and
Independent Decision Making
ongoing monitoring of developments in the regulatory environment
and making recommendations to the Board as a result. The Board recognises that not only is it critical to have a majority of
independent Directors, it is essential that all Directors possess, exhibit and
Recommendation 2.2: Board skills and diversity bring to bear, independent decision making qualities in all Board deliberations.
Directors are required to have relevant experience in a field which is The Board regularly meets without any management representatives
complementary to Newcastle Permanent’s activities, or to have appropriate present, generally prior to each monthly scheduled Board meeting.
qualifications and experience sufficient to provide meaningful contributions
to the operation of the Board and to its role in governing Newcastle Independent Professional Advice
Permanent and overseeing the proper functioning of management.
Each Director has the right of access to all relevant Newcastle Permanent
A biennial skills analysis is undertaken for each Director, with the most recent information and, subject to the protocols adopted in the Board Charter,
assessment occurring in April 2016. The graphs below set out a summary to Newcastle Permanent’s Executives.
of the 2016 skills analysis results for the Board collectively and detail:
Subject to prior consultation with the Chairman, individual Directors may,
the technical skills and governance competencies that the Board in appropriate circumstances, seek independent professional advice at
considers necessary or desirable for its Directors; Newcastle Permanent’s expense. The Director must consult with an advisor
suitably qualified in the relevant field and obtain the Chairman’s approval
the number of Directors that the Board considers should possess each of the fee payable for the advice before proceeding with the consultation.
skill and competency on the Board ; and A copy of the advice received by the Director is made available to all other
members of the Board.
the number of Directors that were assessed as having each skill and
competency at the desired level in the 2016 skills analysis.1
DESIRED NO. OF DIRECTORS WITH DESIRED NO. OF DIRECTORS WITH
RELEVANT SKILLS OR COMPETENCY RELEVANT SKILLS OR COMPETENCY
NO. OF DIRECTORS AT DESIRED LEVEL NO. OF DIRECTORS AT DESIRED LEVEL
CEO/Snr Mgt Exp. in 3 Applied Governance 4
Financial Sector/APRA – 7 Decision Making 7
Regulated Institutions Policy Framework
CEO/Snr Mgt Exp. in 3 Risk Management 4
Substantial Organisations 3 Compliance 5
Strategy Development Monitoring
and Implementation 2 CEO Selection, Monitoring 4
Risk Management 2 and Evaluation 4
Strategy
Financial Services 2 Contemporary Corporate 3
Industry 2 Governance 4
Capital Markets
2 3
Finance 2 3
Accounting 2 5
2 6
3 3
4 3
3 4
4 5
3
3
TECHNICAL SKILLS AND EXPERIENCE GOVERNANCE COMPETENCIES
1. The relevant threshold required by the Board for each skill is ‘extensive’ experience and each competency is ‘strong’ experience or, in both cases, a rating of four on a five-point rating scale. The only exception to this
is the requirement for CEO / Senior Management experience in the financial sector or APRA-regulated institutions, which is assessed at an ‘operational’ experience level or a rating of three on a five-point rating scale.
34 ANNUAL REPORT 2016
Independence of Directors Conflict of Interest
The Board Charter incorporates a requirement for the independence of
non-executive Directors to be assessed on an ongoing basis and formally Directors must keep the Board advised, on an ongoing basis, of any
at least once each year. The criteria for assessment have been based on the interest that could potentially conflict with those of Newcastle Permanent.
factors set out in the ASX Principles and APRA Prudential Standard CPS 510 The Board has developed procedures to assist Directors with the disclosure
– Governance (‘CPS 510’). of potential conflicts of interest and all material personal interests.
The formal annual review is undertaken by the Corporate Governance
& Nominations Committee with a report and recommendation made Directors are required to be meticulous in ensuring that not only actual,
by the Committee to the Board. but potential and perceived conflicts of interest are disclosed as required
The financial criteria for independence and relationships between by the Corporations Act and Newcastle Permanent’s own policies. A register
Directors and associated entities that have been adopted by the Board is maintained of all standing conflicts of interest and material personal
are also quite stringent. interests disclosed by the Directors. Individual interests that might arise
The last formal assessment found that all of the Directors were independent during a particular meeting are noted in the minutes of that meeting and
based on the criteria established. dealt with by the Board at the time, as required by law.
Independence and Director Tenure Where the Board believes that a significant conflict exists for a Director on
The Board acknowledges that Board renewal is a fundamental governance a Board matter, the Director concerned does not receive the relevant Board
consideration that supports, amongst other things, the Board continuing papers, is not present at the meeting whilst the item is considered and does
to be independent from, and prepared to question and challenge, the ideas not vote on the matter.
and recommendations of management. However, the Board also agrees
with the view outlined in the ASX Principles that a Director’s independence is Details of Directors’ related-entity transactions with Newcastle Permanent
not necessarily a trait that is diminished by duration of tenure on the Board. and the consolidated entity are set out in the notes on ‘Key Management
The Board has adopted an additional process to assist in determining Personnel Disclosures’ in Newcastle Permanent’s full financial report.
whether a Director’s independence may have been affected by their tenure
on the Board. This process involves an independent consultant reviewing Recommendation 2.5: Independence of the Chair
and assessing the actual or perceived independence of a Director if their
duration of service is greater than 10 years and the Director intends to stand As indicated above, all Directors of Newcastle Permanent have been assessed
for re-election at the Annual General Meeting when they are next required as independent and as such, the Chairman is independent.The Board Charter
to retire by rotation under the Constitution of Newcastle Permanent. provides that the Chairman must be an independent, non-executive Director.
In July 2016, the independence of Directors M.D. Slater and P.J. Neat was This means that the roles of Chairman and CEO cannot be exercised by the
assessed under this process because both Directors have tenures of greater same person.
than 10 years and are standing for re-election at the 2016 Annual General
Meeting. The independent consultant assessed Directors M.D. Slater and P.J. Recommendation 2.6: Director Induction and Education
Neat as being independent Directors under the criteria outlined in CPS 510
and the Board Charter. Newcastle Permanent has induction procedures for new Directors to enable
The dates that the current Directors were appointed to the Board are outlined in them to participate in Board decision making at the earliest opportunity. New
the Directors’ Report. As represented in the diagram below, the Board continues Directors are supplied with key Board governance documents, the corporate
to be well-served by Directors with a mix of tenure, some with longer tenures strategic plan and corporate policies and are invited to have individual meetings
who have a detailed understanding of Newcastle Permanent and others with with the Chairman, Company Secretary and CEO. Prospective candidates for the
shorter tenures who have brought fresh perspectives to the Board. role of Director are also invited to attend Board meetings as an invited guest prior
to being offered a Board appointment. All of these steps are designed to ensure
43% 29% that new Directors gain an understanding of:
10+ YEARS 0 – 2 YEARS Newcastle Permanent’s culture, values and financial, strategic,
operational and risk management position;
14% 14%
the rights, duties and responsibilities of the Directors;
4–6 2–4
YEARS YEARS the roles and responsibilities of Senior Executives;
LENGTH OF TENURE the role of Board Committees;
meeting arrangements; and
Director interaction with each other, Senior Executives and other stakeholders.
In order to achieve continuing improvement in Board performance, all
Directors are encouraged to undertake ongoing professional education and
development in fields relevant to their role on the Board and the operations
of Newcastle Permanent. The professional education is aligned to the
individual development plans for each Director. Professional development is
undertaken through approved external service providers, as well as through
regular sessions provided by in-house specialists in relevant areas. Minimum
ongoing professional education is mandated for each Director and records are
maintained to ensure those requirements are met.
ANNUAL REPORT 2016 35
CORPORATE GOVERNANCE
STATEMENT CONTINUED
PRINCIPLE 3: PRINCIPLE 4:
ACT ETHICALLY AND RESPONSIBLY SAFEGUARD INTEGRITY IN CORPORATE REPORTING
Recommendation 4.1: Audit Committee and its structure
Ethical and responsible decision making is fundamental to the operations
of Newcastle Permanent. The Committees established by the Board assist The Board has established an Audit Committee which is appointed by the
in such processes, particularly through the governance oversight of the Board from amongst the non-executive Directors. It currently consists of the
Corporate Governance & Nominations Committee, the Audit Committee following four Directors, all of whom are independent:
and ultimately the Board.
Mr J.R. Eather (Chairman)
The Board has also established a number of policies that ensure and
create a culture of Newcastle Permanent acting fairly and transparently, Mr R.E. Griffiths
and in an ethical and responsible manner in all of its dealings with relevant
stakeholders. In addition, Newcastle Permanent has a Whistleblowing Ms J.M. Leslie
Policy to encourage employees to disclose unacceptable activities and
protect them from repercussions of reporting. That policy includes the use Mr D.E. Shanley
of an independent, external contractor to which reports can be made.
The Audit Committee Charter mandates that the Chairman of the
Recommendation 3.1: Newcastle Permanent’s Code of Conduct Committee must be an independent Director and cannot be the same
person as the Chairman of the Board. The Charter also sets out the
Each Director, manager and employee must comply with Newcastle membership of the Committee, its invitees, meeting protocols and the
Permanent’s Code of Conduct Policy, which includes: duties and powers of the Committee.
aligning the behaviour of the Board and management with the Code The Charter is reviewed at least once per year by the Audit Committee
of Conduct by maintaining appropriate core values and objectives; with any changes recommended to the Board. Only the Board can approve
changes to the Charter.
fulfilling responsibilities to members and customers by maintaining
high standards of product quality, service standards and commitments The Audit Committee advises on the establishment and maintenance of
to fair value; a framework of internal control and appropriate ethical standards for the
management of the consolidated entity.
ensuring compliance with responsibilities to individuals, such as privacy,
use of privileged or confidential information and conflict resolution; The Audit Committee also advises the Board on all aspects of internal
and external audit, the appointment and review of Newcastle Permanent’s
dealing with and managing conflicts of interest in accordance with auditors, statutory financial reporting and controls, review and testing
approved policies; of internal controls, procedures and systems, and Newcastle Permanent’s
compliance with internal policies, regulatory standards and legal
controlling and monitoring corporate opportunities by preventing obligations. The Committee also reviews any proposal for the external
Directors and employees from taking advantage of property, auditor to provide non-audit services and whether it might compromise
information or position for personal gain; the independence of the external auditor.
ensuring confidentiality of corporate information; The Audit Committee met six times during the 2016 financial year.
Further details on the qualifications and experience of the Audit Committee
dealing fairly with each other, members and third parties; members and the individual attendances at the Committee meetings are set
out in the Directors’ Report.
protecting and properly using Newcastle Permanent’s assets;
Significant Achievements during the Year
complying with all laws; and
The significant achievements of the Audit Committee during the year included:
reporting unethical behaviour.
approval of the Internal Audit Plan for the 2016 to 2018 financial years;
The Code of Conduct Policy also includes a specific Directors’ Code of
Conduct, which imposes additional standards and requirements on them, review of, and recommendations in relation to, the group consolidated
consistent with their duties as Directors of Newcastle Permanent. financial statements;
review and oversight of all internal and external audit activity and
the compliance management framework; and
overseeing the commencement of PricewaterhouseCoopers’
engagement as the external auditor.
36 ANNUAL REPORT 2016
Recommendation 4.2: Declarations from the CEO and CFO Recommendation 6.3: Processes to facilitate and encourage
participation at general meetings
The CEO and Chief Financial Officer (‘CFO’) have declared in writing to the
Board that, in their opinion, Newcastle Permanent’s: Election to Receive Communications
financial records have been properly maintained; Newcastle Permanent informs all members when they become a member
of the company, that they are entitled to receive copies of the Annual
financial statements comply with appropriate accounting standards Report and Notice of Annual General Meeting. This is consistent with
and give a true and fair view of the financial position and performance the requirements of the Corporations Act.
of Newcastle Permanent; and
Members can change their mind about receiving the Annual Report
financial statements are founded on a sound and effective system and Notice of Annual General Meeting at any time.
of risk management and internal control.
Meetings
Those declarations were received prior to the Board approving Newcastle
Permanent’s financial statements. Newcastle Permanent provides written notice of its Annual General
Meeting to all members that have requested notice, and places notices
Recommendation 4.3: External auditor attendance at the Annual in conspicuous locations in all its branches and Head Office for at least
General Meeting three weeks in advance of the Annual General Meeting.
Newcastle Permanent ensures that a representative of its external auditor Members are given ample opportunity, and are encouraged to ask
attends the Annual General Meeting and is available to answer questions questions in relation to each of the items of business before the Annual
from members relevant to the external audit. General Meeting, including the financial results, as well as in relation
to operational performance or any other matters not included on the
PRINCIPLE 5: agenda for the meeting. The external auditor also attends the Annual
MAKE TIMELY AND BALANCED DISCLOSURE General Meeting to answer questions from members.
This Principle is designed for entities that are listed on the ASX. Since
Newcastle Permanent is not a listed entity, this Principle is not relevant to it. The full financial report is available on request to all members and includes
relevant information about the operations of Newcastle Permanent during
PRINCIPLE 6: the year, changes in the state of affairs and details of future developments.
RESPECT THE RIGHTS OF MEMBERS
The Board encourages full participation of members at the Annual
Recommendation 6.1: Information on Newcastle Permanent’s website General Meeting, to ensure a high level of accountability and identification
with Newcastle Permanent’s strategy and goals. Important issues are
Newcastle Permanent includes details of its most recent annual reports in presented to the members as single resolutions.
electronic form on its public website. The website also includes a summary
of the financial highlights for the immediately preceding financial year and Recommendation 6.4: Electronic communications
the most recent prudential disclosures regarding the capital adequacy,
risk exposures and remuneration practices of Newcastle Permanent. Newcastle Permanent offers members the choice of receiving their account
statements via email. Members are also able to make general enquiries
Other details regarding Newcastle Permanent’s history, Member Charter, online through the public website or product and service enquiries through
strategy, Board and management structures and other member-related a secure message via internet banking. Members that elect to receive the
information is readily available on the website. Annual Report also have the option of receiving it electronically.
Recommendation 6.2: Member relations program
Newcastle Permanent does not have a member communication policy
but strives to keep all its members informed of its activities.
Newsletters are regularly distributed to members, providing a basis to
inform members on developments and issues that may be of interest.
Financial, regulatory and other general information is available on
Newcastle Permanent’s website as indicated above.
Copies of the Constitution are available to any member on request.
The Annual General Meeting is also a key engagement point with
members. Details on the processes to encourage member participation
at the Annual General Meeting are set out in Recommendation 6.3 below.
ANNUAL REPORT 2016 37
CORPORATE GOVERNANCE
STATEMENT CONTINUED
PRINCIPLE 7: Recommendation 7.2: Review of risk management framework
RECOGNISE AND MANAGE RISK
Recommendation 7.1: Risk Management Committee and its structure The Board has an approved risk management framework that includes
policies designed to identify, assess, monitor and mitigate all material
The Board has established a stand-alone Risk Management Committee, business risks.
which currently consists of the following four members, all of whom are Newcastle Permanent’s risk management framework includes a specific
independent: Risk Appetite Statement that articulates, in both qualitative and quantitative
terms, the risk appetite and tolerance for each of Newcastle Permanent’s
Mr P.J. Neat (Chairman) material risks.
Mr J.R. Eather The Risk Management Committee regularly reviews and makes
Mr R.E. Griffiths recommendations to the Board regarding the risk management framework.
Ms S.J. Martin-Williams In March 2016, the Committee reviewed Newcastle Permanent’s Strategic
The Chairman of the Risk Management Committee must be an independent Risk Profile and the risk appetite settings for each of its material risks.
Director. The Committee has a formal Charter, which is reviewed at least In April 2016, the Committee reviewed and recommended amendments
once per year by the Committee, with any changes recommended to the to the Risk Appetite Statement and the policies and tolerances for
Board for approval. Newcastle Permanent’s material risks.
In June 2016, the Committee reviewed the Corporate Risk Profile of
The Risk Management Committee oversees and makes recommendations Newcastle Permanent to ensure that all business risks were identified and
to the Board in relation to: appropriate controls were implemented to manage the risks in accordance
with the Board’s risk appetite.
the establishment, review, ratification and implementation of Newcastle
Permanent’s risk management strategy and framework, risk appetite Recommendation 7.3: Structure and role of internal audit function
and risk tolerance levels; Newcastle Permanent maintains an in-house internal audit function as
well as using the service of a co-sourced internal audit service provider.
the establishment of an aggregate view of Newcastle Permanent’s The internal auditors work with management to systematically review
risk profile; systems and operations, based on the key areas of risk and strategic
activities. Those reviews are aimed at identifying how well risks are
Newcastle Permanent’s risk culture; managed and identifying areas where efficiencies or innovations could
be made to enhance the effectiveness and efficiency of governance,
managing the group’s insurable interests; risk management and control processes.
The internal auditors report functionally to the Audit Committee and
the conduct of any new activities Newcastle Permanent may decide administratively to the Company Secretary as a delegate of the Board.
to pursue or undertake; and The Audit Committee has direct access to the internal auditors and both
the Audit Committee and the internal auditors have access to management
due diligence activities, including potential mergers or acquisitions. to seek all necessary information and explanations.
The Committee met five times during the 2016 financial year. Details on Recommendation 7.4: Management of economic, environmental
the individual attendances at the Committee meetings are set out in the and social sustainability risks
Directors’ Report. Newcastle Permanent considers and has processes in place to manage
its material risk exposures, including the economic, environmental and
Significant Achievements during the Year social sustainability risks pertaining to its activities.
Newcastle Permanent maintains a strong capital and liquidity position
The significant achievements of the Risk Management Committee during as a key mechanism for managing its exposure to economic risks. It also
the year included: monitors and manages its material exposure to economic risks through
the use of quantitative risk limit frameworks, modelling and stress testing.
overseeing the review of Newcastle Permanent’s home loan Newcastle Permanent has practices in place to manage environmental
serviceability model; and social sustainability risks. For example, its procurement practices
incorporate environmental and social responsibility considerations in
reviewing Newcastle Permanent’s Risk Management Strategy, major purchasing decisions and a number of operational initiatives have
Strategic and Corporate Risk Profiles, risk appetite, risk policies and been introduced to reduce Newcastle Permanent’s environmental impact
Risk Appetite Statement; such as reducing energy and water consumption.
Overall, Newcastle Permanent takes a long term view regarding its
overseeing the review of the stress testing methodologies for business activities, with the goal of being economically, environmentally
Newcastle Permanent’s material risks; and and socially sustainable.
reviewing the qualitative and quantitative indicators utilised
to measure and monitor Newcastle Permanent’s risk culture.
38 ANNUAL REPORT 2016
PRINCIPLE 8: The structure of remuneration for Directors is distinct from that of the
REMUNERATE FAIRLY AND RESPONSIBLY executives and management. Recommendations for increases in Directors’
remuneration must be submitted to and approved by the members at the
Recommendation 8: The Board should establish a Remuneration Annual General Meeting. Directors do not participate in any performance
Committee incentive schemes in order to preserve the independence of the Board and
its decision making processes. Directors first appointed after 1 January 2011
The Board has established a Remuneration Committee, which currently do not receive any retirement benefits from Newcastle Permanent other than
consists of the following four non-executive Directors, all of whom are compulsory superannuation entitlements.
independent:
The remuneration for Senior Executives comprises a mix of fixed and
Mr D.E. Shanley (Chairman) performance-based remuneration, as well as other benefits prescribed
Ms J.M. Leslie in Newcastle Permanent’s approved policies from time to time. The CEO
Ms S.J. Martin-Williams and Senior Executives may be entitled to a payment upon termination of
employment from Newcastle Permanent. Where so entitled, the termination
Mr P.J. Neat payment has been agreed in the contract of employment and is not payable
where termination of employment is for misconduct.
The Chairman of the Committee must be an independent Director.
The Chairman of the Risk Management Committee is a member of the Recommendation 8.3: Equity-based remuneration schemes
Remuneration Committee to facilitate linkages between risk management
and remuneration practices. Newcastle Permanent does not have equity-based remuneration
schemes for its Directors or employees.
The Remuneration Committee reviews and makes recommendations to the
Board on remuneration packages and policies applicable to the CEO, Senior ASSOCIATED ENTITIES
Executives and Directors. It is also responsible for making recommendations
to the Board about employment agreements, incentive performance Newcastle Permanent has several associated entities, which are
packages, superannuation entitlements and termination entitlements. consolidated into the group for reporting purposes. These associated
entities include:
The Remuneration Committee has direct oversight of, and makes
recommendations to the Board in relation to, the Remuneration Policy Newcastle Friendly Society Limited
required in accordance with APRA Prudential Standard CPS 510. This
includes oversight of remuneration and incentive schemes for an expanded Newcastle Permanent Community Foundation Company Limited
group of personnel including those whose primary functions relate to risk
management, compliance, internal audit and financial control. Newcastle Permanent Charitable Foundation
The Remuneration Committee met five times during the 2016 financial year. NPBS Securities Pty Ltd*
Details on the individual attendances at the Committee meetings are set out
in the Directors’ Report. NPBS CP Trust No.1*
Significant Achievements during the Year Newcastle Permanent Funding Trust No.1
The significant achievements of the Remuneration Committee during *On 30 June 2016, NPBS Securities Pty Ltd lodged an application for voluntarily
the year included: deregistration as a company, since it was no longer required by the consolidated
group. NPBS CP Trust No.1, a related entity was wound up on 15 June 2016 for
overseeing the finalisation of the Enterprise Agreement renegotiations; the same reason.
reviewing the Remuneration Committee Charter, including the process COMPANY SECRETARY
and factors taken into consideration when determining the fee payable
to the Chair of the Board; and Mr Andrew Yost is the Company Secretary of Newcastle Permanent, having
been appointed to that position on 19 August 2004. He is a Chartered
reviewing the Remuneration Policy and annual incentive schemes. Secretary and a qualified lawyer. Andrew holds a Master of Laws (LLM) degree,
a Graduate Diploma in Applied Corporate Governance and has completed
Recommendation 8.2: Policies regarding the remuneration the Advanced Management Program at Harvard Business School. He was
of Directors and Senior Executives admitted to practise in the Supreme Court of NSW and the High Court of
Australia in 1993 and to the Supreme Court of South Australia in 2001. He has
The Board has adopted a Remuneration Policy that contains, amongst practised law extensively in the areas of banking and finance, and corporate
other things, an alignment of remuneration with Newcastle Permanent’s risk and commercial law, both in private practice and in corporate legal roles.
management framework. Any incentive schemes that operate are based on
pre-determined criteria and key performance indicators. Andrew has worked at partnership level in private practice and has held
Chief Legal Counsel roles in a subsidiary of an ASX 50 company and in an
Remuneration levels are competitively set to attract and retain Australian subsidiary of a large multi-national company. He is a member
appropriately qualified and experienced Directors and Senior Executives. of the Australian Corporate Lawyers Association, the Law Society of NSW
The Remuneration Committee obtains independent advice on the and a Fellow of the Governance Institute of Australia and the Institute of
appropriateness of remuneration packages and trends in comparable Chartered Secretaries and Administrators.
organisations and makes recommendations to the Board regarding the
remuneration of Directors and Senior Executives.
ANNUAL REPORT 2016 39
CONCISE FINANCIAL
REPORT
INCOME STATEMENTS
For the year ended 30 June 2016
These income statements should be read in conjunction with the accompanying notes.
Parent Entity Consolidated Entity
2016 2015 2016 2015
Notes $’000 $’000 $’000 $’000
4
Interest revenue 4 369,504 381,218 370,717 383,140
Interest expense
Net interest income 5 (197,930) (215,291) (197,837) (215,489)
Fee and commission revenue
Fee and commission expense 6 171,574 165,927 172,880 167,651
Net fee and commission income
Other operating income 19,497 18,970 19,459 18,932
Impairment losses on loans and advances to members
Depreciation and amortisation expense (5,828) (5,096) (5,828) (5,096)
Personnel related expenses
Operating expenses 13,669 13,874 13,631 13,836
Profit before income tax
Income tax expense 5,827 1,649 5,827 1,649
Profit for the year
Attributable to: (991) (706) (991) (706)
Non-controlling interests
Members of Newcastle Permanent Building Society Limited (7,611) (7,744) (7,611) (7,744)
(82,153) (78,221) (82,242) (78,312)
(42,851) (43,572) (44,720) (45,545)
57,464 51,207 56,774 50,829
(16,544) (14,738) (17,344) (14,782)
40,920 36,469 39,430 36,047
- - (1,490) (422)
40,920 36,469 40,920 36,469
40 ANNUAL REPORT 2016
STATEMENTS OF COMPREHENSIVE INCOME Parent Entity Consolidated Entity
For the year ended 30 June 2016
2016 2015 2016 2015
Profit for the year
Other comprehensive income, net of tax $’000 $’000 $’000 $’000
Items that may be reclassified to profit or loss:
Changes in the fair value of cash flow hedges 40,920 36,469 39,430 36,047
Items that may not be reclassified to profit or loss:
Changes in the fair value of property (11,171) (2,649) (11,171) (2,649)
Other comprehensive income for the year, net of tax
Total comprehensive income for the year - (1,631) - (1,631)
Attributable to: (11,171) (4,280) (11,171) (4,280)
Non-controlling interests 29,749 32,189 28,259 31,767
Members of Newcastle Permanent Building Society Limited
- - (1,490) (422)
29,749 32,189 29,749 32,189
ANNUAL REPORT 2016 41
CONCISE FINANCIAL Parent Entity 2015 Consolidated Entity 2015
REPORT CONTINUED 2016 $’000 2016 $’000
$’000
BALANCE SHEETS $’000
As at 30 June 2016
605,807 595,784 634,015 614,153
Assets 11,101 22,259 7,048 8,580
Cash and cash equivalents 72,542 74,794 72,542 74,794
Prepayments and other receivables 837,382 861,080
Derivative financial instruments 930,952 7,255,957 949,465 7,255,957
Held-to-maturity investments 8,049,203 8,049,203
Loans and advances to members 294 294
Other financial assets 294 - 294 472
Deferred tax assets 2,635 2,694 4,330
Intangible assets 6,054 4,330 6,054 50,376
Property, plant and equipment 47,365 50,376 47,365 4,566
Investment properties 4,488 4,566 4,488 8,874,602
Total assets 9,730,441 8,845,742 9,773,168
Liabilities
Payables 9,240 12,509 9,360 12,769
Derivative financial instruments 7,642 2,837 7,642 2,837
Deposits 7,308,490 6,679,046 7,297,864 6,654,808
Life investment contract liabilities 728
Life insurance contract liabilities - - 19,951 895
Borrowings - - 1,544,587 21,329
Current tax liabilities 1,542,641 1,318,909 2,316 1,317,787
Provisions 1,935 136 13,319
Deferred tax liabilities 13,304 12,092 137
Total liabilities - 2,773 - 12,125
Net assets 8,883,252 8,028,302 8,895,767 2,773
Equity 847,189 817,440 8,025,460
Reserves 877,401 849,142
Retained profits
Parent entity interest 37,283 46,895 37,283 46,895
Non-controlling interest 809,906 770,545 809,906 770,545
Total equity 847,189 817,440 847,189 817,440
- - 30,212 31,702
847,189 817,440 877,401 849,142
42 ANNUAL REPORT 2016
STATEMENTS OF CHANGES IN EQUITY – CONSOLIDATED ENTITY
For the year ended 30 June 2016
Attributable to members of
Newcastle Permanent Building Society Limited
Reserves Retained Profits Total Non-controlling Total equity
interests
Balance at 1 July 2015 $’000 $’000 $’000 $’000
Profit for the year 46,895 770,545 817,440 $’000 849,142
Other comprehensive income 40,920 40,920 31,702 39,430
Total comprehensive income for the year - (11,171) (1,490) (11,171)
Transfers between reserves and retained profits (11,171) - 29,749 28,259
(11,171) 40,920 -
Balance at 30 June 2016 1,559 (1,559) - (1,490) -
847,189 877,401
37,283 809,906 -
30,212
Attributable to members of
Newcastle Permanent Building Society Limited
Reserves Retained Profits Total Non-controlling Total equity
interests
Balance at 1 July 2014 $’000 $’000 $’000 $’000
Profit for the year 42,530 742,721 785,251 $’000 817,454
Other comprehensive income 36,469 36,469 32,203 36,047
- (4,280) (4,280)
Total comprehensive income for the year (4,280) - (422) 31,767
32,189 -
Extra-ordinary bonuses credited to (4,280) 36,469 (79)
life insurance contracts (422)
-
Transfers between reserves and retained profits - - - (79) 849,142
Balance at 30 June 2015 8,645 (8,645) - -
46,895 770,545 817,440 31,702
ANNUAL REPORT 2016 43
CONCISE FINANCIAL Attributable to members of
REPORT CONTINUED Newcastle Permanent Building Society Limited
STATEMENTS OF CHANGES IN EQUITY – PARENT ENTITY Reserves Retained Profits Total Equity
For the year ended 30 June 2016
$’000 $’000 $’000
Balance at 1 July 2015 46,895 770,545 817,440
Profit for the year 40,920 40,920
Other comprehensive income - (11,171)
Total comprehensive income for the year (11,171) - 29,749
Transfers between reserves and retained profits (11,171) 40,920
Balance at 30 June 2016 1,559 (1,559) -
37,283 809,906 847,189
Balance at 1 July 2014
Profit for the year Attributable to members of
Other comprehensive income Newcastle Permanent Building Society Limited
Total comprehensive income for the year
Transfers between reserves and retained profits Reserves Retained Profits Total Equity
Balance at 30 June 2015
$’000 $’000 $’000
42,530 742,721 785,251
36,469 36,469
- (4,280)
(4,280) - 32,189
(4,280) 36,469
(8,645) -
8,645 770,545 817,440
46,895
44 ANNUAL REPORT 2016
STATEMENTS OF CASH FLOWS Parent Entity Consolidated Entity
For the year ended 30 June 2016 2016
$’000 2015 2016 2015
Cash flows from operating activities $’000
Interest received $’000 $’000
Other income
Fees and commissions received 369,279 380,214 370,498 382,120
Interest paid 5,886 1,666 5,886 1,647
Donations paid 21,830 21,041 21,792 21,029
Payments to suppliers and employees (inclusive of GST)
Income tax paid (191,277) (215,500) (197,720) (214,595)
(Increase)/decrease in operating assets: - - (1,476) (1,522)
Net movement in held-to-maturity investments
Net movement in loans and advances to members (132,794) (128,420) (133,406) (129,548)
Increase/(decrease) in operating liabilities: (15,372) (18,707) (15,378) (18,763)
Life insurance contract contribution receipts
Life insurance contract withdrawal payments (93,570) (48,984) (88,385) (50,111)
Life investment contract contribution receipts (793,658) (293,532) (793,602) (293,532)
Life investment contract withdrawal payments
Net increase in deposits - - 32 40
Net cash inflow/(outflow) from operating activities - - (1,683) (1,825)
Cash flows from investing activities - -
Payments on unwinding of interest rate swaps - - 35 38
Payments for intangible assets 629,444 350,988 (209) (428)
Payments for property, plant and equipment (200,232) 48,766 643,056 355,163
Proceeds from sale of property, plant and equipment (190,560) 49,713
Net cash outflow from investing activities
Cash flows from financing activities (947) - (947) -
Net increase/(decrease) in borrowings (3,392) (3,391) (3,392) (3,391)
Transfer from cash collateral reserve of a related entity (3,984) (3,878) (3,984) (3,878)
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents 84 99 84 99
Cash and cash equivalents at the beginning of the financial year (8,239) (7,170) (8,239) (7,170)
Cash and cash equivalents at the end of the financial year
215,844 (262,574) 218,661 (266,874)
2,650 1,200 - -
218,494 (261,374) 218,661 (266,874)
10,023 (219,778) 19,862 (224,331)
595,784 815,562 614,153 838,484
605,807 595,784 634,015
614,153
ANNUAL REPORT 2016 45
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
30 JUNE 2016
This concise financial report relates to both Newcastle Permanent as an 1. PRESENTATION CURRENCY
individual entity and the entities it controlled at the end of, or during, the The presentation currency used in this concise financial report is
year ended 30 June 2016. The accounting policies adopted have been Australian dollars.
consistently applied to all years presented.
2. CHANGES IN ACCOUNTING POLICY
Newcastle Permanent is an entity referred to in ASIC Corporations There have been no changes in accounting policy during the financial
(Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the year ended 30 June 2016.
Australian Securities and Investments Commission, relating to the rounding
off of amounts in the Directors’ report. Amounts in the concise financial Comparative information is reclassified where appropriate to enhance
report have been rounded off in accordance with that Instrument to the comparability.
nearest thousand dollars.
3. DIVIDENDS
Newcastle Permanent is a customer-owned building society and is
prohibited from paying dividends.
4. ANALYSIS OF CONSOLIDATED INTEREST REVENUE
AND INTEREST EXPENSE
The following table shows the average balance for each of the significant
categories of interest-bearing assets and liabilities, the amount of interest
revenue or expense and the average interest rate.
2016 2015
Interest
Average Interest Average Rate Average Average Rate
Balance* Balance*
%
Consolidated entity $’000s $’000s $’000s $’000s %
Interest revenue 2.12%
Cash and cash equivalents 702,032 14,888 2.75% 769,141 18,827 2.45%
Held-to-maturity investments 911,395 25,080 4.33% 815,246 26,355 3.23%
Loans and advances to members 7,644,124 330,749 4.00% 7,046,672 337,958 4.80%
9,257,551 370,717 8,631,059 383,140 4.44%
Interest expense 2.14%
Deposits 7,009,848 149,891 3.23% 6,505,809 165,097 2.54%
Borrowings 1,484,142 47,946 2.33% 1,361,389 50,392 3.70%
8,493,990 197,837 7,867,198 215,489 2.74%
Net interest income 172,880 167,651
* Average balances are calculated on an average of monthly closing balances.
46 ANNUAL REPORT 2016
Parent Entity Consolidated Entity
2016
$’000 2015 2016 2015
$’000
$’000 $’000
5. FEE AND COMMISSION REVENUE 8,446 8,620 8,446 8,620
Fee revenue 11,029 10,219 10,991 10,181
Commission revenue
Government subsidies 22 131 22 131
19,497 18,970 19,459 18,932
6. OTHER OPERATING INCOME
Net gain on disposal of plant and equipment 4 -4 -
Rental income from operating leases 380 363 380 363
Bad debts recovered 3,459 332 3,459 332
Other income 1,984 954 1,984 954
5,827 1,649 5,827 1,649
7. MATTERS SUBSEQUENT TO THE END OF THE
FINANCIAL YEAR Loans and advances to members
The total loan portfolio increased by $793.2m between 30 June 2015
No matters or circumstances have arisen since the end of the financial year and the year ended 30 June 2016 to $8.0b which generated additional
which significantly affected or may significantly affect the operations of the interest revenue of $27.2m. However, the average return on home loans
consolidated entity, the results of those operations, or the state of affairs decreased which is the result of two key factors, being:
of the consolidated entity in future financial years. the weighted average official cash rate of 1.97% for the year ended
30 June 2016 being 39 basis points lower than for the year ended
8. MANAGEMENT DISCUSSION AND ANALYSIS 30 June 2015; and
a. Income statement
NPBS responding to an increasingly competitive home lending
Net interest revenue environment and in this environment, ensuring that its lending products
represented best value to its members.
Consolidated: $172.9m (2015: $167.7m)
Parent entity: $171.6m (2015: $165.9m) Cash and cash equivalents and held-to-maturity investments
While the balance of cash and cash equivalents and held-to-maturity
Net interest revenue increased from $167.7m for the year ended 30 June 2015 investments increased by $108.2m between 30 June 2015 and 30 June
to $172.9m for the year ended 30 June 2016 in respect of the consolidated 2016 to $1.6b, the weighted average return decreased. This decrease
entity. For the parent entity, net interest revenue has increased from $165.9m was consistent with the reduction in the weighted average official cash
for the year ended 30 June 2015 to $171.6m for the year ended 30 June 2016. rate during the year ended 30 June 2016.
The movement in net interest revenue between 30 June 2015 and 30 June Interest expense
2016 is comprised as follows: Despite growth in NPBS’ funding of $869.9m from $8.0b at 30 June 2015
to $8.8b at 30 June 2016, total interest expense has decreased by $17.6m.
Parent entity Consolidated The decrease in interest expense primarily reflects a lower average cost
($m) ($m) of funds for the year ended 30 June 2016 driven by the reduction in the
official cash rate which occurred throughout the 2015 and 2016 years.
Decrease in interest revenue (11.7) (12.4)
Other operating income
Decrease in interest expense 17.3 17.6 Consolidated & parent entity: $5.8m (2015: $1.6m)
The increase in other operating income of $4.2m primarily reflects:
Increase in net interest revenue 5.6 5.2
the partial recovery of an impairment loss that was recognised
Interest revenue during the year ended 30 June 2009 ($3.1m); and
The decrease in interest revenue reflects: the receipt of payroll tax rebates from the Office of State Revenue
i. lower interest income on loans and advances to members of $7.2m; and under the NSW Jobs Action Plan and incentives negotiated with
ii. lower interest income on cash and cash equivalents and held-to-maturity a number of NPBS’ partners ($1.2m).
investments of $5.2m.
ANNUAL REPORT 2016 47
NOTES TO THE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
30 JUNE 2016
Net fee and commission income
Consolidated: $13.6m (2015: $13.8m)
Parent entity: $13.7m (2015: $13.9m)
The decrease in net fee and commission income in both the parent entity and consolidated entity primarily reflects a continued decrease in the volume
of transactions that are subject to excess transaction fees. This decrease has occurred as members have increased their use of fee-free transaction accounts,
which offer an unlimited number of transactions and no fee, where certain conditions are met.
Non-interest expenses excluding income tax expense
Consolidated: $135.6m (2015: $132.3m)
Parent entity: $133.6m (2015: $130.2m)
Total operating expenses were $135.6m for the year ended 30 June 2016 compared to $132.3m for the year ended 30 June 2015 in respect of the consolidated
entity, which represents an increase of $3.3m (2.5%).
Total operating expenses in respect of the parent entity were $133.6m for the year ended 30 June 2016 compared to $130.2m for the year ended 30 June 2015,
which represents an increase of $3.4m (2.6%).
The movement in total non-interest expenses for both the consolidated entity and parent entity is comprised as follows:
Increase in personnel expenses Parent entity ($m) Consolidated entity ($m)
Decrease in general administrative expenses 3.9 3.9
Decrease in depreciation and amortisation expense (0.7) (0.8)
Increase in impairment losses on loans and advances (0.1) (0.1)
Increase in non-interest expenses 0.3 0.3
3.4 3.3
Personnel expenses represent 58.2% of the consolidated entity’s operating expenses (2015:57.0%). The increase in personnel expenses is primarily attributable
to annual performance based salary increases and salary increases granted under the parent entity’s Enterprise Agreement, the applicable on-costs and the
revaluation of employee leave provisions reflecting changes to salaries.
Impairment losses on loans and advances for the year ended 30 June 2016 represent 0.01% of the total loan portfolio (2015:0.01%) reflecting the parent entity’s
approach to prudent lending and resulting high credit quality.
The consolidated entity’s cost to income ratio has reduced from 73.0% at 30 June 2015 to 71.4% at 30 June 2016.
b. Balance sheet
Assets
Total assets of the consolidated entity increased by $898.6m from $8.9b at 30 June 2015 to $9.8b at 30 June 2016, representing an increase of 10.1%.
Total assets of the parent entity increased by $884.7m from $8.8b at 30 June 2015 to $9.7b at 30 June 2016, representing an increase of 10.0%.
The composition of the consolidated entity’s assets at 30 June 2016 is broadly consistent with the composition at 30 June 2015. Loans and advances to
members comprise 82.4% of total assets (2015:81.8%) and total cash and cash equivalents and held-to-maturity investments comprise 16.2% of total assets
(2015:16.6%). With respect to loans and advances to members, home loans represent 97.6% (2015:97.0%).
The key movements in assets between 30 June 2015 and 30 June 2016 included:
Increase in loans and advances to members Parent entity ($m) Movement (%) Consolidated ($m) Movement (%) Comment
Increase in held-to-maturity investments 793.2 10.9 793.2 10.9 (i)
Increase in cash and cash equivalents 93.6 11.2 88.4 10.3 (ii)
10.0 1.7 19.9 3.2 (ii)
48 ANNUAL REPORT 2016
i The growth in loans and advances to members during the 2015/16 year of $793.2m primarily consisted of growth in the home loan portfolio of $813.4m
(11.5%). Growth in the home loan portfolio has been achieved as a result of:
the ongoing impact of the sustained period of accommodative monetary policy, with the official cash rate at a historically low level;
the continued competitive pricing of NPBS’ home loan products; and
the implementation and execution of successful integrated promotional strategies to drive home loan acquisition activity.
ii The increase in cash and cash equivalents and held-to-maturity investments of $108.2m is primarily driven by:
Increase in deposits Impact on cash and cash equivalents
Increase in borrowings and held-to-maturity investments ($m)
Increase in gross loans and advances to members
Payments for intangible assets and plant and equipment 643.1
Other net cash receipts 218.7
Total (793.6)
(7.3)
47.3
108.2
Liabilities
Total liabilities of the consolidated entity increased by $870.3m from $8.0b at 30 June 2015 to $8.9b at 30 June 2016, representing an increase of 10.8%.
Total liabilities of the parent entity increased by $855.0m from $8.0b at 30 June 2015 to $8.9b at 30 June 2016, representing an increase of 10.6%.
The key movements in liabilities included:
Increase in retail funding Parent entity ($m) Movement (%) Consolidated ($m) Movement (%) Comment
Increase in wholesale funding 621.2 9.6 635.6 9.9 (i)
232.0 15.6 234.3 15.8 (ii)
i The increase in retail funding consisted of an increase in at-call deposits of $393.3m (10.2%) and an increase in fixed-term deposits of $242.3m (9.4%).
At 30 June 2016, retail funding represents 80.4% of the consolidated entity’s total funding (2015:81.2%).
ii In line with its strategy of maintaining a diversified funding base and an appropriate proportion of long term funding, the consolidated entity obtains
a proportion of its funding from various wholesale funding sources. Wholesale funding represents 19.6% of the consolidated entity’s total funding (2015: 18.8%).
Wholesale funding increased by $234.3m (15.8%) between 30 June 2015 and 30 June 2016 as a result of the consolidated entity continuing to diversify its
wholesale funding sources and increase its proportion of long term funding. At 30 June 2016, long term funding represents 15.1% of total funding (14.7% at
30 June 2015).
c. Statement of changes in equity
Total equity of the consolidated entity has increased by $28.3m (3.3%) from $849.1m at 30 June 2015 to $877.4m at 30 June 2016.
Total equity of the parent entity has increased by $29.8m (3.6%) from $817.4m at 30 June 2015 to $847.2m at 30 June 2016.
The movements were:
Profit for the year ended 30 June 2016 Parent entity ($m) Consolidated ($m)
Decrease in the cash flow hedge reserve 40.9 39.4
Total (11.1) (11.1)
29.8 28.3
The decrease in the cash flow hedge reserve represents the after-tax effect of the changes in the fair value of derivative financial instruments designated as
cash flow hedges during the 2016 financial year.
d. Cash flow statement
There has been an increase in cash and cash equivalents during the year of $19.9m in respect of the consolidated entity and an increase of $10.0m
in respect of the parent entity.
The increase in the consolidated entity’s cash and cash equivalents and held-to-maturity investments is discussed at Section 8(b) (ii) above.
ANNUAL REPORT 2016 49
NEWCASTLE PERMANENT
BUILDING SOCIETY LIMITED
DIRECTORS’ DECLARATION
FOR THE YEAR ENDED
30 JUNE 2016
The Directors declare that in their opinion, the concise financial report of the consolidated entity for the year ended 30 June 2016 as set out on pages
40 to 49 complies with Accounting Standard AASB 1039 Concise Financial Reports.
The concise financial report is an extract from the full financial report for the year ended 30 June 2016. The financial statements and specific disclosures
included in the concise financial report have been derived from the full financial report.
The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing
and investing activities of the consolidated entity as the full financial report, which is available on request.
This declaration is made in accordance with a resolution of the Directors.
M.D.SLATER CHAIRMAN J.R.EATHER DIRECTOR
Newcastle
9 September 2016
50 ANNUAL REPORT 2016
The words you are searching are inside this book. To get more targeted content, please make full-text search by clicking here.
NewcastlePermanent_AnnualReport_2016 (1)
Discover the best professional documents and content resources in AnyFlip Document Base.
Search