annual report 2019 - hunter united credit union · the results of the credit union's...

Hunter United Employees’Credit Union Limited

ACN 087 650 182

Annual Report 2019

AFSL/ Australian Credit Licence No. 238316PO Box 851 Newcastle NSW 2300 | (02) 4941 3888 | www.hunterunited.com.au

Hunter United Employees' Credit Union Limited ACN 087 650 182

Annual report - 30 June 2019 Contents

Page Directors' report 1 Financial report 7

1

Directors' report

The Directors present their report on Hunter United Employees' Credit Union Limited ("the Credit Union") for the year ended 30 June 2019.

Directors

The following persons held office as Directors of the Credit Union during the financial year:

Ms Jann Gardner Mr Mark Hedges Ms Sharon Howes Ms Shirley Liew Mr Donald Magin Mr Timothy Blomfield

Principal activities

During the year the principal continuing activities of the Credit Union involved the provision of financial services to members in the form of taking deposits and providing financial accommodation as prescribed by the Constitution. There were no significant changes in the nature of the Credit Union's activities during the year.

Review of operations

A summary of results is set out below: 2019 2018

$ $ Profit from ordinary activities after income tax expense 203,993 380,195

The results of the Credit Union's operations during the financial year have not in the opinion of the Directors been substantially affected by any item, transaction or event of a material and unusual nature, not otherwise referred to in this report.

The Credit Union's pre-tax profit for the year was $284,442 (2018: $535,842) representing a decrease of 46.9% over the previous financial year, with net profit after tax being $203,993 (2018: $380,195) representing a decrease of 46.3%.

Total assets increased to $333,350,317 for the year to 30 June 2019 (2018: $329,775,721).

Significant changes in the state of affairs

In the opinion of the Directors there were no significant changes in the state of affairs during the year.

Event since the end of the financial year

No matters or circumstances have arisen since the end of the financial year which have significantly affected, or may significantly affect, the operations of the Credit Union in the financial year ended 30 June 2019.

Likely developments and expected results of operations

On the 8 July 2019 the Credit Union announced plans to merge with IMB Ltd trading as IMB Bank. The merger is to be undertaken by way of a voluntary transfer of the business of the Credit Union to IMB Ltd and subject to receipt of all necessary regulatory consents and approval by members the merger will take place in early 2020.

Environmental regulation

The Credit Union has assessed whether there are any particular or significant regulations which apply to it and has determined that there is none.

2

Directors' report

Information on directors

Ms Jann Gardner BA/-LLB, MBA, GAICD

Experience and expertise Lawyer - Former Newcastle Managing Partner Sparke Helmore Lawyers Experienced Litigation and Insurance Lawyer. Held a number of management roles in professional services firm, and is experienced in governance and risk. Recent Non-Executive experience in the infrastructure, government, insurance, university and health sectors.

Other current directorships Non-Executive Director - StateCover Mutual Ltd; Non-Executive Director - Arch LMI Pty Ltd and Arch Financial Holdings Australia Pty Ltd; Member of the Governing Council of Sancta Sophia College; Member of the University of Newcastle Council; Member of the s150 Committee of the Nursing and Midwifery Council of NSW; Chair of Audit and Risk Management Committee, SWSLHD.

Special responsibilities Chair Mergers & Acquisitions Committee Risk Management Committee Nominations, Remuneration & Human Resources Committee

Mr Mark Hedges B. Bus, MBA, M App Fin, CPA, FFTP, GAICD

Experience and expertise Wide experience in financial markets, particularly corporate funding, comprehensive experience and successful track record in senior finance roles in large, listed corporates and leadership in risk management. Former group Treasurer Fairfax Media Ltd.

Other current directorships Newcastle Anglican Church Corporation; Lifeline - Harbour to Hawkesbury; Turramurra Rotary

Special responsibilities Deputy Chair Chair - Risk Management Committee Nominations, Remuneration & Human Resources Committee Audit Committee

Ms Sharon Howes B.Sc, Grad Dip Mgt GAICD

Experience and expertise Current owner of business consultancy specialising in merger and acquisition and culture change to mining services and manufacturing industries. Over 30 years’ experience in management and senior executive roles across energy and manufacturing sectors and management consulting roles, specialising in culture change, leadership development and business improvement. Former GM Safety, HR and Environment at Snowy Hydro Ltd and Macquarie Generation and Projects Director, Vulcan Steel.

Other current directorships Managing Director Ableson Howes & Assoc.

Special responsibilities Chair - Nominations, remuneration & Human Resources Committee Risk Management Committee IT Committee

Ms Shirley Liew GAICD, MBA, BBUS (Fin), FTIA, FCPA, IIA, CRISC (ISACA), FINSIA(Aff)

Experience and expertise Fellow CPA, Chartered Accountant, Internal Auditor, Certified Risk and Information Systems Audit, Risk and Governance Specialist. Over 25 years’ senior executive and lead advisory services with Big 4 and leading accountancy firms in Australian Financial Services Advisory in banking, financial services retail and wholesale sector. Consults on risk, audit and governance to financial institutions. Independent member audit, risk and finance committee: Inner West Sydney Medicare Local, Central Coast Local Health District, NSW Trains.

Other current directorships Non-Executive Director, Chair of Finance, Risk & Audit Committee - Bridge Housing Limited; Lantern Hotels Group Limited; Chair of Outset Group (Ambertiles) Australia; Director and Chair of Audit and Risk Committee, Bellamy’s Australia Limited

3

Directors' report

Information on directors (continued)

Former directorships in last 3 years Non-executive Director and Chair of Finance, Risk and Audit Committee of various organisations in financial services, health and hospitals across for profit and non-for-profit.

Special responsibilities Chair - Audit Committee Mergers and Acquisitions Committee IT Committee

Mr Donald Magin B Maths Grad Dip Mgt MAICD

Experience and expertise Over 27 years’ experience in management and Director roles in the financial services industry and not-for-profit sector. Experienced in a broad range of oversight functions including marketing, IT, remuneration, audit and risk. Former CEO Greater Bank.

Other current directorships Director of the Hunter Medical Research Institute

Former directorships in last 3 years Chairman of the Heal for Life Foundation Director of the Hunter Research Foundation

Special responsibilities Chair - Mergers & Acquisitions Committee Audit Committee Chair - IT Committee

Mr Timothy Blomfield B. Bus, MBA, AMP (INSEAD)

Experience and expertise Commenced with Hunter United as its CEO in May 2016 and brings 26 years’ experience working within the finance industry including senior leadership and business management roles at Westpac, National Australia Bank, UBS and Lloyds Bank.

Special responsibilities Mergers and Acquisitions Committee

Responsible for the implementation of the Board approved strategy and operational performance of Hunter United.

Directors were in office from the beginning of the financial year until the date of this report, unless otherwise stated.

Company secretary Ms Jane Coleman B.Comm, MBA, CA, GAICD, was appointed as Company Secretary effective 22nd May 2017.

4

Directors' report

Meetings of directors

The numbers of meetings of the Credit Union's board of Directors and of each board committee held during the year ended 30 June 2019, and the numbers of meetings attended by each Director were:

Full Board

Meetings of Directors

Audit Committee

Risk Management Committee

Mergers & Acquisitions Committee ^

Nomination, Remuneration

& Human Resource

Committee

IT Committee

A B A B A B A B A B A B Jann Gardner 11 11 ** ** 7 7 1 1 3 3 ** ** Mark Hedges 10 11 4 5 7 7 ** ** 3 3 ** ** Sharon Howes 11 11 ** ** 6 7 ** ** 3 3 4 4 Shirley Liew 11 11 5 5 ** ** 1 1 ** ** 4 4 Don Magin 10 11 4 5 ** ** 1 1 ** ** 4 4 Tim Blomfield 11 11 ** ** ** ** 1 1 ** ** ** **

A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year ** = Not a member of the relevant committee ^ = Given the importance of ensuring that any merger was in the best interest of members, the responsibility for

assessing merger proposals was undertaken by the full Board of Hunter United.

Insurance of officers

During the financial year, the Credit Union paid a premium to insure the Directors, company secretary and senior executive management of the Credit Union.

In accordance with normal commercial practice, disclosure of the total amount of premium payable under, and the nature of liabilities covered by, the insurance contract is prohibited by a confidentiality clause in the contract. No insurance cover has been provided for the benefit of the auditors of the Credit Union.

Proceedings on behalf of the company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Credit Union, or to intervene in any proceedings to which the Credit Union is a party, for the purpose of taking responsibility on behalf of the Credit Union for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Credit Union with leave of the Court under section 237 of the Corporations Act 2001.

Auditor

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. Details of amounts paid and payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services during the year are disclosed in note 16.

5

Directors' report

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 6.

The report is made in accordance with a resolution of the Board of Directors.

Newcastle 28 October 2019

pwc

Auditor's Independence Declaration As lead auditor for the audit of Hunter United Employees' Credit Union Limited for the year ended 30 June 2019, I declare that to the best of my knowledge and belief, there have been:

(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 inrelation to the audit; and

(b) no contraventions of any applicable code of professional conduct in relation to the audit.

Sam Hinchliffe Partner PricewaterhouseCoopers

PricewaterhouseCoopers, ABN 52 780 433 757 Level 3, 45 Watt Street, PO Box 798, NEWCASTLE NSW 2300

T: +61249251100, F: +6124925119 9, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.


6

7

Hunter United Employees' Credit Union Limited ACN 087 650 182

Annual report - 30 June 2019

Contents Page

Financial report Statement of Comprehensive Income 8 Statement of Financial Position 9 Statement of Changes in Equity 10 Statement of Cash Flows 11 Notes to the Financial Report 12 Directors' declaration 42

This financial report covers Hunter United Employees' Credit Union Limited as an individual entity. The financial report is presented in the Australian currency.

Hunter United Employees' Credit Union Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Hunter United Employees' Credit Union Limited 130 Lambton Road Broadmeadow NSW 2292

A description of the nature of the Credit Union's operations and its principal activities is included in the Directors' report on page 1, which is not part of this financial report.

The financial report was authorised for issue by the Directors on 28 October 2019. The Credit Union has the power to amend and reissue the financial report.

8

Statement of Comprehensive Income

2019 2018 Notes $ $

Interest income 2(a) 12,899,162 12,670,221 Interest expense 2(b) (5,820,464) (5,681,856) Net interest income 7,078,698 6,988,365

Fee and commission income 3(a) 1,049,054 1,238,684 Fee and commission expense 3(b) (249,041) (414,643) Net fee and commission income 800,013 824,041

Other operating income 3(a) 105,017 34,365 Impairment losses on loans and advances 5(d)(ii) (56,826) (41,631) General administration expenses 3(b) (4,822,631) (4,578,419) Other operating expenses 3(b) (2,819,829) (2,690,879) Profit before income tax 284,442 535,842

Income tax expense 4 (80,449) (155,647) Profit for the year 203,993 380,195

Item that will not be reclassified to profit or loss Gain on revaluation of property, plant and equipment 7(a) - - Other comprehensive income for the year, net of tax

7(a) - -

Total comprehensive income for the year 203,993 380,195

Total comprehensive income for the year is attributable to: Owners of Hunter United Employees' Credit Union Limited

203,993 380,195

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

9

Statement of Financial Position

2019 2018 Notes $ $

ASSETS Cash and cash equivalents 5(a) 15,567,829 21,737,844 Other receivables 5(b) 242,644 172,838 Placements with other financial institutions 5(c) 40,205,178 35,344,696 Loans and advances to members 5(d) 271,571,242 266,576,916 Other financial assets 5(e) 248,900 248,900 Intangible assets 6(b) 614,582 558,115 Property, plant and equipment 6(a) 4,899,942 5,116,412 Total assets 333,350,317 329,755,721

LIABILITIES Payables 5(f) 947,311 1,160,181 Deposits due to members 5(g) 306,751,517 303,082,242 Current tax liabilities 6(d) 165,745 191,935 Provisions 6(e) 523,453 513,767 Deferred tax liabilities 6(c) 339,491 356,480 Total liabilities 308,727,517 305,304,605

Net assets 24,622,800 24,451,116

EQUITY Reserves 7(a) 4,775,419 4,875,419 Retained profits 7(b) 19,847,381 19,575,697

Total equity 24,622,800 24,451,116

The above Statement of Financial Position should be read in conjunction with the accompanying notes.

10

Statement of Changes in Equity

Notes Reserves

$

Retained Earnings

$ Total

$

Balance at 1 July 2017 4,875,419 19,195,502 24,070,921

Profit for the year - 380,195 380,195 Other comprehensive income

- - -

Total comprehensive income for the year

7(a) - 380,195 380,195

Balance at 30 June 2018 4,875,419 19,575,697 24,451,116

Balance at 1 July 2018 4,875,419 19,575,697 24,451,116 Transfer from reserve for credit losses 7(b) (100,000) 100,000 - Adjustment from adoption of AASB 9 17(p) - (32,309) (32,309) Restated opening balance at 1 July 2018

4,775,419 19,643,388 24,418,807

Profit for the year - 203,993 203,993 Other comprehensive income

- - -

Total comprehensive income for the year

7(a) - 203,933 203,933

Balance at 30 June 2019 4,775,419 19,847,381 24,622,800

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

11

Statement of Cash Flows

2019 2018 Notes $ $

Cash flows from operating activities Interest received 12,899,162 12,670,382 Fees and commissions received 1,019,032 1,509,982 Other operating income 113,081 26,791 Interest paid (5,820,464) (5,681,856) Fees and commissions paid (249,041) (414,643) Payments to employees and suppliers (inclusive of goods and services tax) (7,265,245) (6,609,705) Income taxes paid (123,629) (248,115) Net decrease in placements and withdrawals from other financial institutions (4,860,482) 1,658,946 Net (increase) in loans and advances to members (5,083,460) (19,487,451) Net increase in deposits due to members 3,669,275 26,087,050 Net cash (outflow) from operating activities 8(a) (5,701,771) 9,511,381

Cash flows from investing activities Payments for intangibles 6(b) (288,105) (163,921) Payments for property, plant and equipment 6(a) (180,139) (517,169) Proceeds from sale of property, plant and equipment

- 150

Net cash (outflow) from investing activities (468,244) (680,940)

Cash flows from financing activities Net cash inflow (outflow) from financing activities

- -

Net increase in cash and cash equivalents (6,170,015) 8,830,441 Cash and cash equivalents at the beginning of the financial year

21,737,844 12,907,403

Cash and cash equivalents at end of year 5(a) 15,567,829 21,737,844

The above Statement of Cash Flows should be read in conjunction with the accompanying notes.

12

Contents of the notes to the financial report

Page

1 Segment information 13

2 Interest income and expense 13

3 Non-interest revenue and expenses 13

4 Income tax expense 15

5 Financial assets and financial liabilities 15

6 Non-financial assets and liabilities 19

7 Equity 23

8 Cash flow information 24

9 Critical estimates, judgements and errors 24

10 Financial risk management 25

11 Capital management 32

12 Contingencies 32

13 Commitments 33

14 Events occurring after the reporting period 33

15 Related party transactions 34

16 Remuneration of auditors 35

17 Summary of significant accounting policies 35

18 Changes in Accounting Policies 41

1 Segment information

13

1 Segment information The Credit Union’s operations are confined to one business segment being the provision of financial services and products to members in the form of the acceptance of deposits and providing financial accommodation as prescribed by the constitution.

2 Interest income and expense

(a) Interest income

2019 2018 $ $

Cash and cash equivalents 79,930 87,249 Placements with other financial institutions 1,237,722 1,219,163 Loans and advances 11,581,510 11,363,809

12,899,162 12,670,221

(b) Interest expense2019 2018

$ $

Total deposits and borrowings expense (5,820,464) (5,681,856)

(i) Recognising interest income and expense

Interest income and expense are recognised in the Statement of Comprehensive Income for all instruments measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Credit Union estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties, transactions costs and premiums incurred or discounts received in relation to the contract that are an integral part of the effective interest rate.

Loan fees received in relation to the origination of loans is deferred and recognised as an adjustment to the effective interest rate on loans. The outstanding balance of the deferred origination income is recognised in the balance sheet as a decrease in the value of loan balance outstanding.

3 Non-interest revenue and expenses (a) Non-interest revenue

2019 2018 $ $

Fee and commission income Credit related fees (excluding loan origination fees) 248,488 270,776 Transaction fees 487,414 506,976 Insurance commissions 94,858 133,220 Card and transfer commissions 218,294 327,712

1,049,054 1,238,684

3 Non-interest revenue and expenses

14

(a) Non-interest revenue

2019 2018 $ $

Other operating income Dividends – Indue Ltd 19,150 19,150 Other 85,867 15,215

105,017 34,365

Total non-interest revenue 1,154,071 1,273,049

Non-interest revenue is recognised using the method outlined below.

(i) Fee and commission income

Fee and commission income is recognised in the statement of comprehensive income as and when performance obligations in relation to the contract have been satisfied.

(b) Non-interest expense2019 2018

$ $ Fees and commission expense Card and ATM 249,041 414,643

General and administration expenses Depreciation

Buildings 92,103 92,103 Plant and equipment 202,825 182,237 Leasehold improvements 100,103 60,244

Total depreciation 6(a)

395,031 334,584

Amortisation Computer software 231,622 126,983 Total amortisation 6(b)

231,622 126,983

Employee related expense 3,260,281 3,326,098

Rental expense relating to operating leases 935,697 790,754

Total general and administration expenses 4,822,631 4,578,419

Other operating expenses Branch office costs 196,208 206,606 Advertising 326,427 293,162 Data processing expense 557,750 501,687 Goods and services tax and other taxes 204,673 215,856 Other 1,534,771 1,473,568

2,819,829 2,690,879

4 Income tax expense

15

4 Income tax expense(a) Income tax expense

2019 2018 $ $

Current tax 97,438 304,399 Deferred tax (16,989) (148,752)

80,449 155,647

Deferred income tax expense (revenue) included in income tax expense comprises: (Increase) decrease in deferred tax assets (note 6(c)(i)) (1,392) (147,214) (Decrease) increase in deferred tax liabilities (note 6(c)(ii)) (15,597) (1,538)

(16,989) (148,752)

(b) Numerical reconciliation of income tax expense to prima facie tax payable

2019 2018 $ $

Profit from operations before income tax expense 284,442 535,842 Tax at the tax rate of 30.0% 85,333 160,753 Tax effect of amounts which are not deductible (taxable) in calculating taxable income:

Entertainment 861 639 Dividend imputation credit received 2,462 2,462 Imputation credit gross received (8,207) (8,207)

Income tax expense 80,449 155,647

5 Financial assets and financial liabilities (a) Cash and cash equivalents

2019 2018 $ $

Current assets Cash at bank and on hand 1,233,406 2,174,726 Deposits at call 4,354,049 8,305,908 Interest earning deposits 9,980,374 11,257,210

15,567,829 21,737,844

(i) Reconciliation to cash at the end of the yearThe above figures reconcile to cash at the end of the financial year as shown in the Statement of Cash Flows.

(ii) Classification as cash equivalentsDeposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition.

See note 17(e) for the accounting policy on cash and cash equivalents.

5 Financial assets and financial liabilities

16

(b) Other receivables2019 2018

$ $

Prepayments 194,312 84,841 Other receivables 48,332 87,997

242,644 172,838

Other receivables expected to be recovered within 12 months 242,644 172,838 Other receivables expected to be recovered after 12 months - -

242,644 172,838

(i) Classification as trade and other receivablesOther receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Other receivables are generally due for settlement within 30 days.

The Credit Union’s impairment and other accounting policies for other receivables are outlined in note 17(f).

(c) Placements with other financial institutions2019 2018

$ $

Placements with other financial institutions 40,205,178 35,344,696

Interest earning deposits expected to mature within 12 months 34,185,864 23,383,439 Interest earning deposits expected to mature after 12 months 6,019,314 11,961,257

40,205,178 35,344,696

(i) Assets pledged as securityDeposit of $2,766,000 (2018: $2,766,000) is held as security by Indue Ltd for settlement facilities.

(d) Loans and advances to members2019 2018

$ $

Overdrafts and revolving credit facilities 3,808,853 4,515,249 Term loans 265,552,505 259,182,398 Credit cards 2,294,907 2,944,332 Gross loans and advances 271,656,265 266,641,979

Less: Allowances for impairment losses (i) (85,023) (65,063) Total loans and advances (net) 271,571,242 266,576,916

Loans and advances expected to be paid within 12 months 74,791,423 79,861,360 Loans and advances expected to be paid after 12 months 196,779819 186,715,556

271,571,242 266,576,916

(i) Allowance for impairment losses2019 2018

$ $

Opening balance at 1 July 65,063 66,726 Adjustment from adoption of AASB 9 32,309 - Provision for loan impairment 56,826 27,263 Loans written off during the year as uncollectable (69,175) (28,926) Closing balance at 30 June 85,023 65,063


17

(ii) Impairment losses on loans and advances2019 2018

$ $

Bad and doubtful debts expense - 14,368Increase in allowance for impairment losses 56,826 27,263

56,826 41,631

(iii) Movement analysis of allowance for impairment losses

The Credit Union adopted AASB 9 effective from 1 July 2018 which resulted in the application of an expected credit losses model for measuring the provision for impairment. Comparative information has not been restated. The following table presents the total impairment provisions on lending assets by ECL stage as at 30 June 2019.

Stage 1 Stage 2 Stage 3 12 months

ECL collectively assessed

Lifetime ECL

collectively assessed

Lifetime ECL Collectively assessed

Individually assessed

Total

$ $ $ $ $

As at 1 July 2018 62,156 11,798 23,418 - 97,372New loans originated during the year

13,591 - - - 13,591

Net remeasurement on transfers between stages

(41,027) 16,977 67,285 - 43,235

Loans derecognised during the year - Net changes due to model changes - - - - - Write-offs - - (69,175) - (69,175)As at 30 June 2019 34,720 28,775 21,528 - 85,023

(e) Other financial assets2019 2018

$ $

Non-current assets 248,900 248,900 Equity securities (unlisted) 248,900 248,900

(i) Fair valueUnlisted securities are measured at cost as the fair value could not be reliably measured, due to the absence of a ready market and restrictions in the ability to redeem these shares. The unlisted securities comprise of the Credit Union’s investment in service providers of settlement services to the industry.

(f) Payables2019 2018

$ $ Current liabilities Trade payables 251,527 296,349 Other payables 124,691 229,819 Unearned revenue 225,310 286,932 Annual leave payable 345,783 347,081

947,311 1,160,181

Trade payables are unsecured and are usually paid within 30 days of recognition.

The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature.


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(g) Deposits due to members2019 2018

$ $

Non-current liabilities Call deposits 136,005,151 139,133,869 Term deposits 146,130,793 137,006,542 Retirement savings account 23,646,335 25,903,340 Super Choice 955,866 1,022,187 Redeemable preference shares 13,372 16,304

306,751,517 303,082,242

(h) Recognised fair value measurements

(i) Fair value hierarchyThe Credit Union has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

a) quoted prices (unadjusted) in active markets for identical assets or liabilities (lvl 1)b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either

directly (as prices) or indirectly (derived from prices) (lvl 2), andc) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (lvl

3).

The following table presents the Credit Union’s assets and liabilities measured and recognised at fair value.

30 June 2019 Level 1 Level 2 Level 3 Total $ $ $ $

Financial assets Available-for-sale financial assets Equity securities - - 248,900 248,900 Total financial assets - - 248,900 248,900

30 June 2018 Financial assets Available-for-sale financial assets Equity securities - - 248,900 248,900 Total financial assets - - 248,900 248,900

The level 3 investment comprises of equity investments in an unlisted company. The unobservable inputs to determine fair value is last available price/valuation. As at 30 June 2019, if the unobservable inputs had changed by a higher/(lower) price (+/- 10%) this would increase/(decrease) fair value by $24,890 (2018: $24,890).

6 Non-financial assets and liabilities

19

6 Non-financial assets and liabilities (a) Property, plant and equipment

Freehold Land

Freehold buildings

Leasehold Improvements

Plant and Equipment Total

$ $ $ $ $ At 1 July 2017 Cost or fair value 2,300,000 1,750,000 1,388,936 2,254,696 7,693,632 Accumulated depreciation - (7,570) (1,177,485) (1,564,820) (2,749,875) Net book amount 2,300,000 1,742,430 211,451 689,876 4,943,757

Year ended 30 June 2018 Opening net book amount 2,300,000 1,742,430 211,451 689,876 4,943,757 Additions - - 382,455 134,714 517,169 Depreciation charge - (92,103) (60,244) (182,237) (334,584) Disposals - - (8,942) (988) (9,930)Closing net book amount 2,300,000 1,650,327 524,720 641,365 5,116,412

At 30 June 2018 Cost or fair value 2,300,000 1,750,000 1,624,275 2,325,323 7,999,598 Accumulated depreciation - (99,673) (1,099,555) (1,683,958) (2,883,186) Net book amount 2,300,000 1,650,327 524,720 641,365 5,116,412

Year ended 30 June 2019 Opening net book amount 2,300,000 1,650,327 524,720 641,365 5,116,412 Additions - - 34,390 145,748 180,138 Depreciation charge - (92,103) (100,103) (202,825) (395,031) Disposals - - (79) (1,498) (1,577) Closing net book amount 2,300,000 1,558,224 458,928 582,790 4,899,942

At 30 June 2019 Cost 2,300,000 1,750,000 1,579,700 2,373,947 8,003,647 Accumulated depreciation - (191,776) (1,120,772) (1,791,157) (3,103,705) Net book amount 2,300,000 1,558,224 458,928 582,790 4,899,942

(i) Revaluation, depreciation methods and useful lives

Land and buildings are shown at fair value based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is recognised at historical cost less depreciation.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term as follows:

- Buildings 40 years - Vehicles 4 - 5 years - Furniture, fittings and equipment 3 - 15 years - Leased improvements the lease term or 5 years whichever is the shorter

See note 17(i) for the other accounting policies relevant to property, plant and equipment.


20

(ii) Carrying amounts that would have been recognised if land and buildings were stated at cost

If freehold land and buildings were stated on the historical cost basis, the amounts would be as follows:

2019 2018 $ $

Freehold land Cost 1,044,632 1,044,632 Accumulation depreciation - - Net book amount 1,044,632 1,044,632

Buildings Cost 1,473,474 1,473,474 Accumulated depreciation (858,121) (821,284) Net book amount 615,353 652,190

(b) Intangible assets

Computer software 2019 2018

$ $

Opening Cost 2,008,046 1,844,125 Accumulated amortisation (1,449,931) (1,322,948) Net book amount 558,115 521,177

Movements Opening net book amount 558,115 521,177 Additions 288,105 163,921 Amortisation charge (231,622) (126,983) Disposals (16) - Closing net book amount 614,582 558,115

Closing Cost 2,295,067 2,008,046 Accumulated amortisation (1,680,485) (1,449,931) Net book amount 614,582 558,115

(i) Amortisation methods and useful lives

Acquired computer software licences which are not an integral part of the related hardware are capitalised on the basis of the costs incurred to acquire or bring to use the specific software. They have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of computer software over their estimated useful lives, which vary from 2.5 to 7 years.

See Note 17(j) for the other accounting policies relevant to intangible assets.

(ii) Capital work in progress

Included in intangibles is capital work-in-progress of $Nil (2018: $Nil).


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(c) Deferred tax balances

(i) Deferred tax assets2019 2018

$ $ The balance comprises temporary differences attributable to: Doubtful debts 25,507 19,519 Employee benefits 242,771 240,254 Other provisions – lease incentive 67,593 81,000 Accrued expenses 1,745 6,116 Loan establishment costs 26,573 36,175 Depreciation 90,760 70,493

454,949 453,557

Set-off of deferred tax liabilities pursuant to set-off provisions (454,949) (453,557) Net deferred tax assets - -

Deferred tax assets expected to be recovered within 12 months 265,218 252,627 Deferred tax assets expected to be recovered after more than 12 months

189,731 200,930

454,949 453,557

Movements: Opening balance at 1 July 453,557 306,343 Charged/credited: Charged/(credited) - profit or loss (1,392) (147,214) Closing balance at 30 June 454,949 453,557

(ii) Deferred tax liabilities2019 2018

$ $ The balance comprises temporary differences attributable to: Property, plant and equipment 682,958 698,555 Intangible assets 111,482 111,482

794,440 810,037

Set-off of deferred tax liabilities pursuant to set-off provisions (note (i)) (454,949) (453,557) Net deferred tax liabilities 339,491 356,480

Deferred tax liabilities expected to be settled within 12 months - - Deferred tax liabilities expected to be settled after more than 12 months 794,440 810,037

794,440 810,037

Movements: Opening balance at 1 July 810,037 811,575 Charged/credited:

- profit or loss (15,597) (1,538) - directly to equity - -

Closing balance at 30 June 794,440 810,037

(d) Current tax receivable / payable

Current tax (receivable)/payable 165,745 191,935

All current tax is expected to be received or settled within 12 months.


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(e) Provisions2019 2018

$ $

Employee benefits 463,453 453,767 Other provisions 60,000 60,000

523,453 513,767

All provisions are expected to be settled after more than 12 months.

(i) Information about individual provisions and significant estimates

Employee benefits

The provision for employee benefits relates to the Credit Union’s liability for long service leave.

Refer to note 17(n) for the accounting policies relevant to employee benefits.

(f) Recognised fair value measurements

(i) Fair value hierarchy

30 June 2019 Level 1 Level 2 Level 3 Total $ $ $ $

Assets Land and building - - 4,050,000 4,050,000Total financial assets - - 4,050,000 4,050,000

30 June 2018

Assets Land and building - - 4,050,000 4,050,000 Total financial assets - - 4,050,000 4,050,000

(ii) Valuation techniques used to determine level 2 and level 3 fair values

The Credit Union obtains independent valuations for its freehold land and buildings (classified as property, plant and equipment) at least every three years.

The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available the Directors consider information from a variety of sources including:

• current prices in an active market for properties of different nature or recent prices of similar propertiesin less

• active markets, adjusted to reflect those differencesdiscounted cash flow projections based on reliable estimates of future cash flows

• capitalised income projections based upon a property’s estimated net market income, and acapitalisation

• rate derived from an analysis of market evidence.

(iii) Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the periods ended 30 June 2019 and 2018 for recurring fair value measurements:

30 June 2019 Land and buildings $

Opening balance 1 July 2017 4,050,000 Closing balance 30 June 2018 4,050,000

Closing balance 30 June 2019 4,050,000


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(iv) Valuation processes

The valuation of land and buildings is on the basis of fair market values based on existing use. An annual assessment is made by the Directors to ensure that the carrying values do not differ materially from the fair value. The Directors assessment is supported by an independent valuation performed on the 16 March 2017 by Mr H Pawlik (FAPI, CVP 67838) of WBP Property Group (Newcastle). The revaluation surplus net of applicable deferred income taxes was credited to property, plant and equipment revaluation reserve (note 7(a)).

7 Equity (a) Reserves

The following table shows a breakdown of the balance sheet line item ‘other reserves’ and the movements in these reserves during the year. A description of the nature and purpose of each reserve is provided below the table.

Asset Revaluation

Reserve for credit losses

General reserve

Total

$ $ $ $

Balance at 1 July 2017 1,809,579 501,500 2,564,340 4,875,419 Revaluation - gross 6(a) - - - - Deferred tax 6(c) - - - - Balance at 30 June 2018 1,809,579 501,500 2,564,340 4,875,419

Balance at 1 July 2018 1,809,579 501,500 2,564,340 4,875,419 Revaluation - gross 6(a) - - - - Deferred tax 6(c) - - - - Transfer to retained profits - (100,000) - (100,00)Balance at 30 June 2019 1,809,579 401,500 2,564,340 4,775,419

(i) Nature and purpose of other reserves

Property, plant and equipment revaluation reserve

The property, plant and equipment reserve is used to record increments and decrements on the revaluation of non-current assets as described in note 17(i).

Reserve for credit losses

The reserve for credit losses is used to record the increments and decrements of the prescribed provision and general provision relating to loan impairment required to be maintained to comply with APRA Prudential Standards. APRA Prudential Standards requires:

• A prescribed provision is the minimum provision required to be maintained, based on specificpercentages applied to a portfolio of loans based on the type of security, level of security taken ascollateral and the length of time the loans is in arrears.

• A general reserve is required to be maintained and is based on an economic conditions index calculatedby the Credit Union using quarterly cash and unemployment indices. This index is used to establish aprobability of default for both personal and housing loan portfolios and enables the Credit Union tocalculate a predicted loss given default under stressed economic conditions. Any significant movementin this figure is reflected in quarterly changes to the general reserve.

7 Equity

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General reserve

The general reserve represents amounts transferred from retained profits as determined by the Directors from time to time. The purpose of the reserve is to support the overall financial stability of the Credit Union.

(b) Retained profits

Movements in retained profits were as follows: 2019 2018

$ $

Balance 1 July 19,575,697 19,195,502 Transfer from reserve for credit losses 100,000 - Adjustment from adoption of AASB 9 (32,309) - Net profit for the year 203,993 380,195 Balance 30 June 19,847,381 19,575,697

8 Cash flow information (a) Reconciliation of profit after income tax to net cash inflow from operating activities

2019 2018 $ $

Profit for the year 203,993 380,195 Depreciation and amortisation 626,653 461,567 Net (gain) loss on sale of non-current assets 1,593 9,780 Change in operating assets and liabilities:

(Increase) decrease in other receivables (69,806) 20,707 (Decrease) increase in deferred tax assets and deferred tax

liabilities (16,989) (148,752)

(Decrease) increase in deposit due to members 3,669,275 26,087,050 (Decrease) increase in payables (212,869) 384,475 (Increase) decrease in loans and advances to members (5,026,635) (19,445,659) (Decrease) increase in current tax liabilities (26,190) 56,284 (Increase) decrease in placements with other financial institutions (4,860,482) 1,658,946 (Decrease) increase in provisions 9,686 46,788

Net cash inflow (outflow) from operating activities (5,701,771) 9,511,381

9 Critical estimates, judgements and errors

The Credit Union makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Critical accounting estimates and judgements in applying accounting policies

(i) Impairment losses on loans and advances

The measurement of the expected credit loss allowance requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is further detailed in note 17.

A number of significant judgments are also required in applying the accounting requirements for measuring ECL, such as:

• Determining criteria for significant increase in credit risk;• Choosing appropriate models and assumptions for the measurement of ECL; and• Establishing the number and relative weightings of forward-looking scenarios for each type of product

and the associated ECL;

Detailed information about the judgements and estimates made by the Credit Union in the above areas is set out in note 17(g)(iii).

10 Financial risk management

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10 Financial risk management The Credit Union's activities expose it to a variety of financial risks: market risk being or including interest rate risk, credit risk and liquidity risk. The Credit Union's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Credit Union. The Credit Union uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate risk and aging analysis for credit risk.

Risk management is carried out by senior management under policies approved by the Board of Directors. The Board provides written principles for overall risk management.

(a) Market risk

(i) Interest rate risk

Interest rate risk arises in all activities where the Credit Union’s assets and liabilities have different repricing dates. As a result of these maturity mismatches between assets and liabilities their fair market values may react differently when interest rates change. Financial assets and liabilities issued at variable rates expose the Credit Union to cash flow interest rate risk.

Financial assets and liabilities issued at fixed rates expose the Credit Union to fair value interest rate risk if the assets and liabilities are carried at fair value. The Credit Union takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest rate risk margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise.

There are no hedges currently designated for accounting purposes. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken which is monitored monthly by management and appropriate actions detailed in the policies and procedures are taken to mitigate risk to acceptable levels set by the Board. This model is reviewed annually by management to ensure the continued validity of the assumptions and parameters used in the model. The Credit Union’s exposure to interest rate risk is also managed using the following controls:

• The establishment of an Asset and Liability Committee who meets monthly and/or when necessary

• Maximum product mix ratio’s defined and documented for loans and member deposits

• Repricing of products is folded into the Credit Union’s budget and changes to interest rates areapproved by the Asset and Liability Committee under delegation from the Board of Directors

• An external report on interest rate risk is prepared biennially, reporting on the Value at Risk andSensitivity Analysis of the Credit Union’s portfolio

• The establishment of maximum acceptable interest rate exposure measured as a percentage of thecapital base

• The establishment of limits on the maximum maturity periods that can be offered for term deposits andfixed rate loans

• Performing weekly market research on interest rates to test out any market/pricing risk that may beevident

• Training and attendance at seminars is provided to staff involved in roles of managing interest rate risk

The Credit Union also has a documented derivative management strategy which may be enacted whenever it is determined that the use of derivatives would be beneficial in reducing interest rate risk.


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(a) Market risk

Sensitivity

At 30 June 2019, if interest rates had changed by -25 basis points (2018: +25 basis points) from the year-end rates with all other variables held i.e. assumes interest and expense constant, post-tax profit and equity for the year would have been $(107,666) lower (2018: $92,709 higher), mainly as a result of higher net interest margins of the Credit Union’s portfolio of loans and deposits. The basis point movement between both periods has been determined by management through their review of economic conditions and market influences in existence at each period end. Management have also reviewed information made available by the Reserve Bank of Australia when determining the basis point movement above.

(ii) Price risk

Exposure

The Credit Union is exposed to equity security price risk. This arises from investments held by the Credit Union and classified on the balance sheet as available for sale. The Credit Union holds investments in Indue Limited who provide settlement services to the Credit Union. The investment securities are unlisted hence there is no standard rating provided. Further details of these equity investments are detailed in note 5(e).

(b) Credit risk

Credit risk arises from cash and cash equivalents, placements with other financial institutions, loans and advances to members. The maximum exposure to credit risk at the reporting date is the carrying amount of financial assets as summarised in notes 5(a) to 5(d).

The Board has approved a number of policies for the management of credit risk. As part of the Internal Audit Plan, to be approved by the Audit Committee and Risk Management Committee, a regular review of operations is undertaken to ensure compliance with these policies.

(i) Risk management

Investment Credit Risk

Exposure to credit risk on cash and placements with other financial institutions is managed through the Credit Union's Investment Credit Risk Policy, Large Exposures Policy and Liquidity Risk Policy, which detail the maximum exposure to different types of investments and counterparty limits.

These policies impose maximum exposure limits based on the credit rating of counterparties, as assessed by Standard and Poor’s or Moody’s rating agencies. Limits apply as both a percentage of net assets, and a percentage of total investments.

Investment credit risk is managed by regular review of credit ratings and diversification of investments. Ratings for individual counterparties are reviewed when new investments are being placed, and ratings for all counterparties are reviewed at least quarterly.

2019 $

2018 $

Placements with other financial institutions 40,205,178 35,344,696

Lending credit risk

Exposure to credit risk from lending activities is managed through the Credit Union’s Lending Credit Risk Policy, Large Exposures Policy, Retail Lending Policy, Business Lending Policy and Arrears and Collections Policy. In addition to these, the Credit Union’s lending practices are required to comply with APRA Prudential Standards APS 220 (Credit Quality) and APS 221 (Large Exposures), the National Consumer Credit Protection Act and the National Privacy Principles (Privacy Act).

The above policies define loan serviceability assessment criteria, security requirements and acceptable loan to valuation ratios. They set exposure limits for various types of loans, (mortgage secured, personal secured, personal unsecured, commercial and revolving credit) as well as setting maximum and minimum levels of exposure to loan types and geographic concentrations. Procedures for debt recovery and the recognition of impaired loans and the creation of appropriate provisions for these loans are defined within these policies. The policies place limits on the amount of risk accepted in relation to one borrower, or group of borrowers and type of securities. Such risks are monitored regularly, and policy limits are reviewed at least annually by management and the Board.


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(b) Credit risk (cont)

These policies clarify the level of acceptable risk for the Credit Union (credit risk appetite) and describes the intended balance between meeting member’s borrowing needs, the Credit Union’s need for a financial return and the need to limit lending risk to a level which can be confidently managed.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and principal repayment obligations. Borrower conduct is monitored and followed up on a daily basis. Impairment provisions are provided for potential losses that have been identified at balance date. Significant changes in the economy or a segment that represents a concentration in the Credit Union’s portfolio could result in losses that are different from those provided for at balance date. Management manages this specific exposure to credit risk via the Credit Union’s Credit Risk Management policies.

Exposure to credit risk is also managed in part by obtaining mortgage insurance, collateral and corporate and personal guarantees, but a portion of personal lending is unsecured and no such facilities are obtained. The Credit Union requests collaterals in all loan products except for unsecured loans. Collaterals are fair valued at the point of loan application and approval. Refer to (iv) below for further details of collateral held.

The collateral held for mortgaged loan products is real property. For other loan products, collateral (where it is required to be held under the contract) consists of the goods, which were the purpose of the loan. Refer to (iii) and (iv) below for details of collateral acquired through the enforcement of security during the period.

Further information on the Credit Union’s loan portfolio is set out as follows: 2019

$ 2018

$

Mortgage - secured 262,242,057 255,728,686 Other loan products 9,414,208 10,913,293

271,656,265 266,641,979

(ii) Impaired loan receivables

The Credit Union assessed on a forward looking basis the expected credit losses associated with its loan receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Note 17(g) details how the Credit Union determines whether there has been a significant increase in credit risk.

(iii) Real estate assets acquired through the enforcement of security

The real estate assets acquired through the enforcement of security that are held at 30 June 2019 had a fair value of $Nil (2018: $Nil).


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(iv) Finance assets that have not had a significant increase in credit risk

The credit quality of financial assets that have not had a significant increase in credit risk can be assessed by reference to the external credit rating (if available) or the security provided. The following table provides an analysis of credit risk for financial assets that have not had a significant increase in credit risk by either external credit rating or type of security.

2019 $

Cash on hand 1,233,406 Cash and cash equivalents – by external rating (S&P) A1+ / AAA 4,354,049 A1/AA+/AA/AA- - A2/A+/A/A- 9,980,374 A3 - Unrated - Placements with other financial institutions – by external rating (S&P) A1+ / AAA - A1/AA+/AA/AA- 9,515,125 A2/A+/A/A- 10,906,912 A3 - BBB+ 4,506,701 BBB 7,475,883 BBB- Unrated

1,988,082 5,812,475

Loans and advances Mortgage over residential property security 218,354,269 Mortgage over other property 41,196,175 Other security 4,284,255 No security 5,026,357

324,634,063

(v) Loans where credit risk has increased significantly but are not impaired

The following table provides detail on the gross balance of loans where the credit risk has increased significantly but are not impaired.

2019 $

Loans and advances Mortgage over residential property security 2,257,287 Mortgage over other property - Other security 13,803 No security 23,416

2,294,506


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(vi) Loans that are impaired

The following table provides the gross balance of loans considered impaired, along with the expected credit losses provision and the detail of collateral held against the impaired loans.

2019 Fully secured Partially Secured Unsecured $ $ $

Mortgage over residential property security 434,326 - - Mortgage over other property - - - Other security - 25,295 - No security - - 41,082 Total 434,326 25,295 41,082 Expected credit loss - 10,118 35,945 Carrying amount 434,326 15,177 5,137

2018 Fully secured Partially Secured Unsecured $ $ $

Mortgage over residential property security 27,090 - - Mortgage over other property - - - Other security - 11,080 - No security - - 40,518 Total 27,090 11,080 40,518 Expected credit loss 8,479 4,432 28,679 Carrying amount 18,611 6,648 11,839

(iv) Past due but not impaired

As of 30 June 2019, loan receivables of $9,513,396 (2018: $5,844,108) were past due but not impaired. These relate to a number of independent members for whom there is no recent history of default. The ageing analysis of these loan receivables is as follows:

Mortgage-secured

Other loan products Total

$ $ $

For the year ended 30 June 2019 0 to 29 days 6,153,609 563,358 6,716,967 30 to 59 days 1,763,994 12,254 1,776,248 Over 60 days 927,619 92,562 1,020,181 Total 8,845,222 668,174 9,513,396

For the year ended 30 June 2018 0 to 29 days 4,559,413 561,000 5,120,413 30 to 59 days 335,780 21,398 357,178 Over 60 days 270,910 95,607 366,517 Total 5,166,103 678,005 5,844,108

(v) Collateral held in support of financial assets

The following tables provide detail on the Credit Union’s loan portfolio by class of asset.

2019 $

2018 $

Loans housing & personal

Loans business Total loans



Fully secured 263,691,057 145,061 263,836,118 257,265,157 150,835 257,415,992 Partially secured 2,729,292 - 2,729,292 2,682,253 - 2,682,253Unsecured 5,032,426 58,429 5,090,855 6,477,655 66,079 6,543,734Total 271,452,775 203,490 271,656,265 266,425,065 216,914 266,641,979


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2019 %

2018 %





Fully secured 97.1 71.3 97.1 96.6 69.5 96.5 Partially secured 1.0 - 1.0 1.0 - 1.0Unsecured 1.9 28.7 1.9 2.4 30.5 2.5Total 100.0 100.0 100.0 100.0 100.0 100.0

The following tables provide analysis of the fair value of collateral held as security against each class of asset.

Fair value for collateral, in the form of land and housing, was calculated using the most recent independent valuation, increased by the average capital growth rates since the date of valuation for the relevant geographical areas. Fair value for collateral, in the form of personal property, was calculated using the valuation estimate at the time of loan settlement, discounted by an estimate of the decline in value since the date of valuation, to allow for the depreciable nature of this type of collateral.

Carrying value-Loans

housing & personal

Fair value of collateral


business

Fair value of

collateral

Carrying value-Total

Fair value of collateral-

Total

2019 $ $ $ $ $ $

Fully secured 263,691,057 588,595,734 145,061 740,208 263,836,118 589,335,942 Partially secured 2,729,292 2,170,749 - - 2,729,292 2,170,749 Unsecured 5,032,426 - 58,429 - 5,090,855 - Total 271,452,775 590,766,483 203,490 740,208 271,656,265 591,506,691


housing & personal

Fair value of collateral


business

Fair value of

collateral

Carrying value-Total

Fair value of collateral-

Total

2018 $ $ $ $ $ $

Fully secured 257,265,157 656,222,933 150,835 811,321 257,415,992 657,034,254 Partially secured 2,682,253 2,039,638 - - 2,682,253 2,039,638 Unsecured 6,477,655 - 66,079 - 6,543,734 - Total 266,425,065 658,262,571 216,914 811,321 266,641,979 659,073,892

2019 Loan to

valuation %

2018 Loan to

valuation % Loans

housing & personnel

Loans business

Total Loans

Loans housing

& personnel Loans

business Total loans

Fully secured 44.8 19.6 44.8 39.2 18.6 39.2 Partially secured 125.7 - 125.7 131.5 - 131.5Unsecured - - - - - -Total 45.9 27.5 45.9 40.4 26.7 40.5


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(c) Liquidity risk

Liquidity risk is the risk that the Credit Union will not have sufficient cash and cash equivalents available to meet its commitments as they fall due.

The Credit Union manages liquidity risk through the Liquidity Risk Policy by maintaining sufficient high quality liquid assets which can be quickly realisable to meet any call on its liabilities and to comply with any requirements arising pursuant to any prescribed liquidity support scheme. The availability of funding is mainly through term deposits and other borrowed funds.

The Credit Union is exposed to daily calls on its available cash resources from on-call accounts, maturing deposits, loan advances and additional draw downs. The Credit Union does not maintain cash resources to meet all potential demands, rather the Liquidity Risk Policy sets a minimum required level of high-quality liquid assets which are readily convertible to cash within 48 hours which is in excess of the minimum level required by Prudential Standard APS 210.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Credit Union. It is unusual for Approved Deposit-taking Institutions (ADI) to completely match, as transacted business is often of uncertain term and of different types. An unmatched position potentially enhances profitability but also increases the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Credit Union and its exposure to changes in interest rates.

(c) Liquidity risk (cont)

(i) Standby borrowing facilities

The overdraft facilities with the Commonwealth Bank and Indue Limited consisted of:

Gross $ Used $ Unused $ At 30 June 2019

Overdraft facility 290,000 - 290,000Total 290,000 - 290,000

Gross $ Used $ Unused $ At 30 June 2018

Overdraft facility 290,000 - 290,000Total 290,000 - 290,000

(ii) Liquidity management

The Credit Union further manages liquidity risk under the Liquidity Risk Policy by:

• Management monitoring cash flows and liquidity position on a daily basis

• Management monitoring of large exposures

• Preparation of 12 month and quarterly liquidity forecasts and monthly Board monitoring of the actualliquidity position against these targets

• Diversification of the liability and investment portfolio bases

• Board review of quarterly APRA liquidity reporting

• Maintaining a documented liquidity management contingency plan that is agreed with APRA

(iii) Maturities of financial liabilitiesThe table below analyses the Credit Union’s financial liabilities based on the remaining period at the reportingdate to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cashflows.


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Contractual maturities of financial liabilities

At call 1-3 months 3-12months

1-5 years Over 5 years Total

At 30 June 2019 $ $ $ $ $ $

Trade payables - 251,527 - - - 251,527 Deposits due to members 157,495,125 62,789,153 68,552,307 17,914,932 - 306,751,517Total non-derivatives

157,495,125 63,040,680 68,552,307 17,914,932 - 307,003,044

At 30 June 2018

Trade payables - 296,349 - - - 296,349 Deposits due to members 163,200,547 58,162,586 69,468,839 12,250,270 - 303,082,242

163,200,547 58,458,935 69,468,839 12,250,270 - 303,378,591

For loan commitments refer to note 13(b)

11 Capital management The Credit Union has established a capital management plan. The plan’s objectives are to ensure that the Credit Union maintains a level of capital that is:

• Consistent and appropriate to the risks the Credit Union is exposed to from its activities.

• Sufficient to provide a buffer to absorb any unanticipated losses from its activities and, in the event ofany major problem, enable it to continue operating while the problem is being addressed.

• Sufficient to provide depositors and creditors confidence that the Credit Union will continue to honourobligations to them.

The above plan is consistent with the requirements of the Prudential Standards issued by APRA. The Credit Union is required by APRA to measure and report capital on a risk weighted basis in accordance with the requirements of the Prudential Standards. The risk weighted approach measures the ratio of the actual eligible capital held against a risk weighted balance for all on and off-balance sheet risk positions as well as for other non-balance sheet risk positions.

12 Contingencies

(a) Contingent liabilities

The Credit Union has no contingent liabilities at reporting date.

13 Commitments

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13 Commitments

(a) Capital commitments

Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows:

2019 $

2018 $

Property, plant and equipment Within one year 144,686 68,500 Later than one year but not later than five years - - Later than five years - -

144,686 68,500

2019 $

2018 $

Intangible assets Within one year 6,000 - Later than one year but not later than five years - - Later than five years - -

6,000 -

(b) Loan commitments

2019 $

2018 $

Approved but not advanced loans and credit limits 41,357,646 31,793,197

It is anticipated that the approved and unadvanced loans will be advanced within the next twelve months. Approved credit facilities are available to members for immediate use.

(c) Non-cancellable operating leases

The Credit Union leases various branch sites under non-cancellable operating leases expiring within one to six years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated.

2019 $

2018 $

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year 780,285 811,991 Later than one year but not later than five years 858,823 1,134,487

1,639,108 1,946,478

14 Events occurring after the reporting period

On the 8 July 2019 the Credit Union announced plans to merge with IMB Ltd trading as IMB Bank. The merger is to be undertaken by way of a voluntary transfer of the business of the Credit Union to IMB Ltd and subject to receipt of all necessary regulatory consents and approval by members the merger will take place in early 2020.

Other than the above no other matters or circumstances have arisen since 30 June 2019 that have significantly affected, or may significantly affect:

a) the Credit Union's operations in future financial years, orb) the results of those operations in future financial years, orc) the Credit Union's state of affairs in future financial years.

15 Related party transactions

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(a) Key management personnel compensation2019

$ 2018

$

Short-term employee benefits 1,480,815 1,474,034 Post-employment benefits 159,090 141,330 Other long-term benefits 33,164 26,442

1,673,069 1,641,806

Key management personnel include persons who had authority and responsibility for planning, directing and controlling the activities of the Credit Union, and the Directors of the Credit Union as detailed in the Directors' report.

(b) Loans to/from related parties

Details of loans made to Directors and other key management personnel of the Credit Union, including their personally related parties, are set out in aggregate below.

2019 $

2018 $

Loans to key management personnel Beginning of the year 451,847 525,856 Loans advanced during the year 78,862 61,576 Fees and charges 11,306 10,001 Loan repayments during the year (117,380) (145,586) Key management personnel changes 360,000 - End of year 784,635 451,847

Interest income earned 10,673 9,438 Fees and commissions earned 633 563 Loans approved and not advanced and credit limits 26,131 27,028

No write downs or allowances for impairment losses have been recognised in relation to any loans made to key management personnel.

Movements for Directors, key management personnel and personally related parties as at 30 June 2018 who ceased or became key management personnel during the year ended 30 June 2019 are disclosed above in key management personnel changes.

The loans made to Directors and other key management personnel of the Credit Union, including their personally related parties were made under the same terms and conditions applicable to members.

(c) Deposits received from key management personnelDetails of deposits received from Directors and other key management personnel of the Credit Union, includingtheir personally related parties are set out in aggregate below.

2019 $

2018 $

Balance 1 July 1,434,156 1,140,952 Net movement in transactions 289,681 293,204 Key management personnel changes (4,158) - Balance 30 June 1,719,679 1,434,156

Interest expense paid 14,470 16,340 Fees and commissions earned 832 953


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Movements for Directors, key management personnel and personally related parties as at 30 June 2018 who ceased or became key management personnel during the year ended 30 June 2019 are disclosed above in key management personnel changes.

Deposits received from Directors and other key management personnel of the Credit Union, including their personally related parties were received under the same terms and conditions applicable to members.

16 Remuneration of auditors

During the year the following fees were paid or payable for services provided by the external auditor of the Credit Union:

(a) PricewaterhouseCoopers

(i) Audit and other assurance services

2019 $

2018 $

Audit and other assurance services Audit and review of financial statements and other audit work under the Corporations Act 2001

89,968 86,570

Other assurance services Audit of regulatory returns 41,000 39,400

Total remuneration for audit and other assurance services 130,968 125,970

17 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

(a) Basis of preparation

These general purpose financial reports have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The Credit Union is a for-profit entity for the purpose of preparing the financial reports.

(i) Compliance with IFRS

The financial reports comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

(ii) Historical cost convention

These financial reports have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and land and buildings.

(iii) New and amended standards adopted by the credit union

The Credit Union has applied the following standards and amendments for first time in their annual reporting period commencing 1 July 2018:

• AASB 9 Financial Instruments• AASB 15 Revenue from Contracts with Customers• AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets

for Unrealised Losses• AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to

AASB 107• AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of Investment Property,

Annual improvements to Australian Accounting Standards 2014 – 2016 cycle and other amendments,and

• AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual improvements toAustralian Accounting Standards 2014 – 2016 cycle.


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The Credit Union had to change its accounting policies and make certain retrospective adjustments following the adoption of AASB 9. See note 18(a) below for further details on the impact of the change in accounting policy.

The adoption of AASB 15 and the other amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. See note 17(b) below for further details on the impact of the adoption of AASB 15.

(iv) Critical accounting estimates

The preparation of financial reports requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Credit Union's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial report, are disclosed in note 9.

(b) Income tax

The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial report, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset to liability. An exception is made for certain temporary differences to measure the deferred tax asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity, such as those that are related to fair value re-measurement of available-for-sale investment securities are also charged directly to equity and is subsequently recognised in the Statement of Comprehensive Income together with the deferred gain or loss.

(c) Leases

Leases of property, plant and equipment where the Credit Union, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Credit Union will obtain ownership at the end of the lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (note 13). Payments made under operating leases (net of any incentives received from the lessor) are charged to the Statement of Comprehensive Income on a straight-line basis over the period of the lease. Lease incentives under operating leases are recognized as a liability and amortised on a straight-line basis over the life of the lease.

(d) Impairment of assets

Other non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash


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inflows from other assets or groups of assets (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

(e) Cash and cash equivalents

For cash flow statement presentation purposes, cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition that are readily convertible to known amounts of cash, including cash, deposits at call and highly liquid investments which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within other borrowed funds in liabilities on the Statement of Financial Position.

(g) Investments and other financial assets

(i) Classification

AASB 9 classifies investment and other financial assets based on two criteria:

• The business model that the investment and other financial asset is managed under; and• The contractual cash flow characteristics of the of the investment and other financial asset

The classification of investments and other financial assets based on the criteria above are:

• Amortised cost, where the investments and other financial assets with contractual cash flows comprisesolely of payments of principal and interest only and which are held in a business model where theobjective is to collect the cash flows

• Fair value through other comprehensive income (FVOCI), investments and other financial assets withcontractual cash flows that comprise the payment of principal and interest only and which are held in abusiness model where the objective is to collect their cash flows or to sell them

• Fair value through profit or loss (FVTPL), any other investments or other financial assets not falling intothe above categories are measured at FVTPL.

Loans and receivables

Loans and receivables comprise of loans and advances to members.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Credit Union provides money directly to a debtor with no intention of trading the receivables.

Loans are recognised when cash is advanced to members. Loans are initially recognised at fair value net of transactions costs. Loans and receivables are carried at amortised cost using the effective interest method. Interest calculated using the effective interest rate method is recognised in the Statement of Comprehensive Income; refer to note above.

(ii) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

(g) Investments and other financial assets

(iii) Impairment of financial assets

Loans and advances to members

On adoption of AASB 9, the Credit Union applies the new expected credit loss (‘ECL’) model for impairment. The Credit Union assesses on a forward-looking basis the ECL associated with its loans and advances to members carried at amortised cost.

AASB 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as summarised below:

• A loan that is not credit-impaired on initial recognition is classified in ‘Stage 1’ and has its credit riskcontinuously monitored by the Credit Union.

• If a significant increase in credit risk since initial recognition is identified, the loan is moved to ‘Stage 2’but is not yet deemed to be credit-impaired.

• If the loan or advance is credit-impaired, it is then moved to ‘Stage 3’.


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Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. The ECL of instruments in Stage 2 and 3 are measured based on expected credit losses on a lifetime basis.

Change in credit quality since initial recognition

Stage 1 Stage 2 Stage 3

(Initial Recognition)

12-month expected creditlosses

(Significant increase in credit risk since initial recognition)

Lifetime expected credit losses

(Credit-impaired assets)

Lifetime expected credit losses

The key judgments and assumptions adopted by the Credit Union in addressing the requirements of the standard are discussed below:

To measure the expected credit losses, loans and advances were grouped based on shared risk characteristics. The Credit Union developed four models based on product type and further, for mortgages, the loan to value ratio (LVR) band:

• Mortgages greater than 80% LVR• Mortgages less than 80% LVR• Credit Cards and HELOC• Personal Loans

The Credit Union considers a significant increase in credit risk to have occurred when a borrower is 30 or more days past due on its contractual payments. This aligns with the default position under the standard. The Credit Union considers a loan to be in default (i.e. credit-impaired) when the borrower is more than 90 days past due on its contractual payments. The staging of the loans and advances used in each model is summarised as below:

Days past due ECL Measurement

Stage 1 0-29 12-month expected credit losses

Stage 2 30-89 Lifetime expected credit losses

Stage 3 90+ Lifetime expected credit losses

In relation to each of the four models and each stage, the Credit Union measures ECL as the discounted product of the Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defined as follows:

• The PD represents the likelihood of a borrower defaulting on its financial obligation;• EAD is based on the amount the Credit Union expects to be owed at the time of default;• LGD represents the Credit Union’s expectation of the extent of loss on a defaulted exposure.

The ECL for each stage is determined by projecting the PD, LGD and EAD for each future month. These three components are multiplied together and adjusted for the likelihood of survival. This effectively calculates an ECL for each future month, which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate or an approximation thereof. The total ECL for each portfolio is then applied to the scenarios as outlined below to calculate a final probability-weighted ECL provision.

Forward-looking economic information is also included in determining the PD and LGD. The Credit Union has performed historical analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio. These assumptions vary by product type. The Credit Union has used the following base economic scenario for all portfolios. An additional two downside scenarios were recognised for mortgages and weighted as below:


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Scenario weighting

Base scenario 90%

Bad Scenario 7.5% unemployment; 2.5% cash rate, 20 % reduction in security value

7.5%

Worse Scenario 10% unemployment; 7% cash rate, 40 % reduction in security value

2.5%

As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The Credit Union considers these forecasts to represent its best estimate of the possible outcomes.

(i) Property, plant and equipmentThe Credit Union's accounting policy for property, plant and equipment is explained in note 6(a).

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Credit Union and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the financial period in which they are incurred.

Increases in the carrying amounts arising on revaluation of land and buildings are recognised, net of tax, in other comprehensive income and accumulated in reserves in equity. To the extent that the increase reverses a decrease previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to the asset; all other decreases are charged to the Statement of Comprehensive Income. Each year, the difference between depreciation based on the revalued carrying amount of the asset charged to the Statement of Comprehensive Income and depreciation based on the asset's original cost, net of tax, is reclassified from the property, plant and equipment revaluation surplus to retained earnings.

The depreciation methods and periods used by the Credit Union are disclosed in note 6(a).

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (note 17(d)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. When revalued assets are sold, it is Credit Union policy to transfer any amounts included in other reserves in respect of those assets to retained earnings.

(j) Intangible assets

(i) IT development and software

Costs associated with the development or maintenance of computer software programs are recognised as an expense as incurred. Costs that are directly associated with the development or production of identifiable and unique software products controlled by the Credit Union, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs directly attributable include software development and employee costs.

(k) Financial liabilities

Financial liabilities may be held at fair value through profit or loss or at amortised cost. When a financial liability is recognised, initially it should be measured at its fair value net of transaction costs, unless the financial instrument is designated as fair value through profit or loss.

Refer to note 17(l) for the accounting policy with respect to the financial liabilities of the Credit Union.

(l) Deposits due to members

Represents deposits accepted from members. Deposits are initially recognised at fair value (being fair value of consideration received) are subsequently measured at amortised cost using the effective interest method, refer to note above.

(m) Payables

These amounts represent liabilities for goods and services provided to the Credit Union prior to the end of financial year which are unpaid.


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(n) Employee benefits

(i) Wages, salaries and other employee benefits

Liabilities for wages and salaries, including non-monetary benefits are expected to be settled within 12 months of the reporting date are recognised as payables in respect of employee's services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.

(n) Employee benefits

(ii) Long service and annual leave

The liability for long service leave and annual leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields on the Milliman report with terms to maturity that match, as closely as possible, the estimated future cash outflows.

(iii) On-costs

Costs that are a consequence of employment, but which are not employee benefits, such as payroll tax and workers compensation insurance are recognised as other liabilities.

(iv) Superannuation

Contributions are made by the Credit Union to an employee's superannuation fund and are charged as expenses when incurred. The Credit Union has no legal obligation to cover any shortfall in the fund's obligation to provide benefits to employees on retirement.

(v) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Credit Union recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

(o) Goods and Services Tax (GST)

The Credit Union is treated as an input taxed entity for GST purposes. This means that in most circumstances GST is not chargeable on the services provided and GST incurred by the Credit Union is not recoverable from the Australian Taxation Office. Accordingly, the amount of GST incurred that is not recoverable is recognised as part of the cost of acquisition of an asset or as part of Other Operating Expenses (Note 3b).

(p) New accounting standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2018 reporting periods. The Credit Union has not applied the new amendments at 30 June 2018. The Credit Union's assessment of the impact of these new standards and interpretations is set out below.

(iii) AASB 16 Leases

AASB 16 was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The standard will affect primarily the accounting for the Credit Union’s operating leases.

As at the reporting date, the Credit Union has non-cancellable operating lease commitments of $1,639,108, see note 13(c). The Credit Union expects to recognise right-of-use assets of approximately $542,544 on 1 July 2019, and lease liabilities of $553,799.

For the financial year ended 30 June 2020, the Credit Union expects that expenditure will increase by approximately $15,064 as a result of adopting the new standard. Operating cash flows will increase, and financing cash flows with decrease by approximately $127,448 as prepayment of the principal portion of the lease liabilities will be classified as cash flow from financing activities.

The Credit Union will adopt the standard from 1 July 2019.


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There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

18 Changes in Accounting Policies (a) AASB 9 Financial Instruments

AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting and a new impairment model for financial assets.

The Credit Union has applied AASB 9 retrospectively from 1 July 2018. Accordingly, the adoption of AASB 9 has resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. The Credit Union did not early adopt AASB 9 in previous periods.

As permitted by the transitional provisions of AASB 9, the Credit Union elected not to restate comparative figures.

(i) Classification and measurement of financial instruments

AASB 9 classifies investment and other financial assets based on two criteria:

• The business model that the investment and other financial asset is managed under; and• The contractual cash flow characteristics of the of the investment and other financial asset

The classification of investments and other financial assets based on the criteria above are:

• Amortised cost, where the investments and other financial assets with contractual cash flows comprisesolely of payments of principal and interest only and which are held in a business model where theobjective is to collect the cash flows

• Fair value through other comprehensive income (FVOCI), investments and other financial assets withcontractual cash flows that comprise the payment of principal and interest only and which are held in abusiness model where the objective is to collect their cash flows or to sell them

• Fair value through profit or loss (FVTPL), any other investments or other financial assets not falling intothe above categories are measured at FVTPL.

The classification and measurement of financial liabilities remains relatively unchanged from the previous standard, AASB 139, with the exception that the Credit Union may elect to measure a financial liability at fair value through profit and loss. The Credit Union did not elect to recognise any financial liabilities at fair value through profit and loss, and continued to recognise all financial liabilities at amortised cost under AASB 139.

The classification and measurement for financial assets is based on the business model for managing the financial asset and their contractual cash flow characteristics. This aligns the presentation of the balance sheet with the business objectives of the Credit Union. The majority of the Credit Union's financial assets continue to be measured at amortised cost under AASB 9.

(ii) Impairment

The new impairment model under AASB 9 requires the recognition of impairment provisions based on expected credit losses, rather than only incurred credit losses as required by AASB 139. The Credit Union has developed an expected credit losses provision model that complies with the requirements of AASB 9. See note 17(g)(iii) above for further detail on the Credit Union’s measurement of ECL.

On 1 July 2018, the Credit Union increased the provision for impairment by $32,309 for loans and advances. The total increase resulted in a reduction in retained earnings, and an increase in the provision for impairment.

(b) AASB 15 Revenue from Contracts with Customers

The Credit Union has adopted AASB 15 from 1 July 2018. In accordance with the transition provisions in AASB 15, the Credit Union has adopted the new rules retrospectively. Comparatives for the 2018 financial year have not been restated. The core principle of the new standard is that an entity shall recognise revenue only when the control of a good or service is transferred to a customer.

The majority of the Credit Union’s revenue is derived from loans and advances, investments and fees that are part of the effective interest rate of financial instruments. These items are out of scope of AASB 15 and therefore, are not impacted by the transition to the new standard. Accordingly, the adoption of AASB 15 has an immaterial impact to the accounting policies of the Credit Union and the amounts reported in the financial statements.

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Directors' declaration

In the Directors' opinion:

(a) the financial report and notes set out on pages 7 to 42 are in accordance with the Corporations Act 2001,including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatoryprofessional reporting requirements, and

(ii) giving a true and fair view of the entity's financial position as at 30 June 2018 and of itsperformance for the year ended on that date, and

(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when theybecome due and payable.

Note 17(a) confirms that the financial report also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board.

This declaration is made in accordance with a resolution of Directors.


pwc

Independent auditor's report To the members of Hunter United Employees' Credit Union Limited

Our opinion

In our opinion:

The accompanying financial report of Hunter United Employees' Credit Union Limited (the Company) is in accordance with the Corporations Act 2001, including:

(a) giving a true and fair view of the Company's financial position as at 30 June 2019 and of itsfinancial performance for the year then ended

(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.

U'hat we have audited

The financial report comprises:

• the statement of financial position as at 30 June 2019

• the statement of comprehensive income for the year then ended

• the statement of changes in equity for the year then ended

• the statement of cash flows for the year then ended

• the notes to the financial statements, which include a summary of significant accounting policies

• the directors' declaration.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial report section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2019, but does not include the financial report and our auditor's report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

PricewaterhouseCoopers, AHN 52 780 433 757 Level 3, 45 Watt Street, PO Box 798, NEWCASTLE NSW 2300 T: +61249251100, F: +61 249251199, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

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pwc

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the financial report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001

and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report.

A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar4.pdf. This description forms part of our auditor's report.

PricewaterhouseCoopers

Sam Hinchliffe Partner


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