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Current State Work Stream

Analysis Report Final Status: Final Version: 0.2 Confidential: This document is confidential and not for public dissemination.

Current State Work Stream – Analysis Report (Final Draft)

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Revision History Version Date Author Type Comment 0.1 30/05/2014 Paul Fodor Draft Initial write 0.2 13/06/2014 Paul Fodor Final Final version

Sign Off Name Title Signature Date Paul Fodor Stream Leader - Current State Work

Stream

Chris Nash Project Manager – Project Horizon

Steering Committee Project Horizon Steering Committee

Distribution List Name Title Glyn Yates Co-Chair – Project Horizon

Russell Jenkins Co-Chair – Project Horizon

Robert Musgrove Executive – Community Engagement

Chris Nash Program Manager – Project Horizon

Collin Brady Stream Leader – Future State Work Stream

Russell Carrick Stream Leader – Effort & Reward Work Stream

Kate Wakeling Stream Leader – Transition to Future State Work Stream

Tammy White Senior Manager – Community Banking & Engagement

Mark Cunneen Head of Community Banking & Engagement

Chris DeAraugo Manager – National Community Strengthening

Allan Rutter Strategy Analyst – Group Strategy

Current State Work Stream - All

Future State Work Stream - All

Effort & Reward Work Stream - All


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Contents

1 Introduction .........................................................................................................................................................4

1.1 Background 4 1.2 Purpose 4 1.3 Approach 4

1.4 Reference meetings and workshops 5 1.5 Engagement process 5 1.6 Conclusion 6 1.7 Recommendations 6

2 Findings ...............................................................................................................................................................7

2.1 CS01 Working Group: Strategic Assessment of the model 7 2.2 CS02 Working Group: Model Structure 25 2.3 CS03 Working Group: Capital and Operational Expenses 29

2.4 CS04 Establishment Pipeline 33 2.5 CS05 Non-Financial Value of the Model 44

3 Data Collection and Analysis ..........................................................................................................................54

3.1 Methodology 54 3.2 Selected data 55

4 Observations and Recommendations ............................................................................................................62

4.1 CS01 Working Group: Strategic Assessment of the model 62 4.2 CS02 Working Group: Model Structure 67 4.3 CS03 Working Group: Capital and Operational Expenses 68

4.4 CS05 Non-Financial Value of the Model 69

5 APPENDIX..........................................................................................................................................................71


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1 Introduction 1.1 Background

Project Horizon is the first strategic review of the Community Bank® model and all its elements since its inception 15 years ago. The aim of the Project is to set a shared vision for the model in its next 15 years which will deliver benefits to all stakeholders. In doing so, the Project will:

• undertake a holistic and strategic review of the Community Bank® model;

• define a sustainable model of shared risk, effort and reward; and

• deliver a road map for transformation / transition to future state.

1.2 Purpose The purpose of this Report is to present a comprehensive view of the current state of the Community Bank® model and inform the Effort & Reward and Future State Work Streams. To achieve this purpose, the Current State Work Stream undertook research and analysis over a six month period (commencing on 13 November 2013) in relation to each of the following objectives: Ref Objective CSO1 Strategic assessment of the model; strengths, weaknesses, opportunities and threats,

through the lens of all key stakeholders and perspectives (including Bendigo and Adelaide Bank Limited, community companies, volunteers, communities, people/staff, shareholders, and considering varying demographics such as rural, regional, urban or generational contexts).

CSO2 Robust analysis of model performance. Measurement and comparison of quantitative and qualitative model inputs and outputs for each of the model’s stakeholders (including financial returns, banking business performance, community outcomes and so on). Testing of this performance against established model principles.

Comprehensive analysis of model structure in terms of governance, regulatory and market-place factors.

CSO3 Comprehensive analysis of the capital and operational expenses incurred in the current bank branch model, taking into account establishment hurdles and measuring time-to-profit performance.

CSO4 Analysis of Community Bank® model establishment inquiry pipeline, by time, circumstance and market. Exploration of factors contributing to current demand trend.

CSO5 Assessment of the value created, from both a bank and community perspective, from financial and non financial perspective.

Separate working groups were formed to examine each of the above objectives. The findings of each working group are set in section 2 of this Report.

1.3 Approach The following documents guided the work of the Current State Work Stream:

A. Current State Work Stream Project Planning Working Document (see Appendix 1); and B. Current State Work Stream Project Definition Document (see Appendix 2)


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1.4 Reference meetings and workshops The Current State Work Stream, and its various working groups, met as follows:

Meeting Name Date / Time

Current State Work Stream teleconference 13 November 2013 (15:00 – 16:30)

Current State Work Stream workshop 18 December 2013 (10:00 – 16:30)

Current State Work Stream teleconference 31 January 2014 (10:00 – 11:00)

CS01 Working Group meetings and teleconferences

The group met in person on 12 March 2014, and then met via teleconference on a weekly basis until 14 May 2014

CS02 Working Group teleconferences The group met on an ad hoc basis before establishing regular weekly meetings between 26 March and 30 April 2014

CS03 Working Group teleconferences The group met on an ad hoc basis before establishing regular weekly meetings between 8 April and 13 May 2014

CS04 Working Group This group was comprised of BEN representatives who conducted research and analysis in April/May 2014

CS05 Working Group The group initially met on an ad hoc basis before establishing regular weekly meetings between 25 March and 16 May 2014

Current State Work Stream teleconference 21 February 2014 (14:00 – 15:00)

Current State Work Stream teleconference 6 March 2014 (14:00 – 15:00)

Current State Work Stream – final workshop 23 May 2014 (10:00 – 16:00)

1.5 Engagement process The following engagement activities were undertaken and each provided valuable information and insight into the current state of the Community Bank® model:

A. Feedback received via the Project Horizon mailbox; B. Meetings and discussions with the majority of Community Bank® boards; C. Written surveys and submissions from approximately 80% of the Community Bank® network (a copy of the

pro forma survey provided to Community Bank® boards is set out at Appendix 3); D. Engagement sessions held with various Bendigo and Adelaide Bank Limited (BEN) staff; E. Questionnaires completed by 566 Community Bank® shareholders (see Appendix 4 for the ‘Community

Bank Shareholder Analysis’ report); F. Surveys completed by 7 local government authorities located in communities with a Community Bank®

branch (a summary of the results of the surveys is set out at Appendix 5); and G. Feedback received from participants at various 2014 Community Bank® State Conferences.


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1.6 Conclusion Project Horizon is a review of the Community Bank® model, a model that has been in existence for 15 years. In that time, a review of this size and scope has not been conducted. Since 1998, over 300 Community Banks® have been opened across remote, rural, regional and metropolitan locations, across all States and Territories in Australia and in towns and cities with no other banks as well as those with all the big banks plus other players represented. During this time, there has also been a Global Financial Crisis, and the banking environment has changed considerably. Notwithstanding the challenges noted above, the Community Bank® model has remained intact and prospered. The overwhelming sentiment from key stakeholders, including Community Bank® directors and BEN staff, is that the model is a good model; that its core principles are sound, are relevant and should be maintained at all costs; that the community outcomes and benefits of the model far exceed those which were envisaged 15 years ago; and that the model has great potential for expansion into other (non-banking) areas and even other jurisdictions. This is not to say that the model is perfect or should remain fixed or static. Through the engagement process and analysis undertaken by the Current State Work Stream, numerous issues have emerged in relation to many components of the Community Bank® model. Stakeholders have voiced their concerns about the increased demands now experienced by directors; about the competitiveness of the products, fees and rates offered by the Community Bank® network; about the relevance and effectiveness of the ‘Bendigo Bank’ brand and related marketing campaigns; about the sustainability of the current financial model and the impact of RTB 1 and 2; about the challenges and work pressures faced by Community Bank® directors and staff; and about a range of other issues which are set out in the findings in section 2 of this Report. If no other conclusion is drawn, it must be considered that the Community Bank® model has to be flexible enough and adaptable enough to meet the needs of all stakeholders in the current environment, as well as being up to everything that might be thrown at it in the next 15 years.

1.7 Recommendations In addition to presenting a comprehensive view of the current state of the Community Bank® model, the Current State Work stream has formulated a series of recommendations to inform the work of the Effort & Reward and Future State Work Streams. Those recommendations are set out in section 4 of this Report. In addition, a number of other recommendations have been made that should be considered by BEN itself rather than a specific Work Stream.


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2 Findings 2.1 CS01 Working Group: Strategic Assessment of the Model

2.1.1 BACKGROUND The CS01 Working Group was formed to conduct a strategic assessment of the model; strengths, weaknesses, opportunities and threats, through the lens of all key stakeholders and perspectives (including Community Bank® companies, BEN staff, Community Bank® shareholders and Local Government Authority representatives considering varying demographics such as rural, regional, urban or generational context). The purpose of the assessment was to make observations, draw conclusions and formulate a series of recommendations to inform the work of the Effort and Reward and Future State Work Streams based on qualitative and quantitative data collected through the engagement process. It is a review of the model based on feedback, and where possible backed up by factual data. The Working Group comprised the following members:

• Paul Fodor (BEN) • Lynn Hayward (CBSAB & Community Bank® director) • Peter Kimberley (Community Bank® director) • Sarah Wrigley (Community Bank® director) • Tammy White (BEN) • Allan Rutter (BEN)

The Working Group met in person at BEN’s Docklands office on Wednesday 12 March 2014 and commenced its analysis work, and then met via teleconference on a weekly basis until Wednesday 14 May 2014. 2.1.2 SCOPE OF ANALYSIS The Working Group analysed 25 key themes identified below. Three analysis methodologies were followed in considering each theme: (a) a traditional SWOT analysis; (b) consideration of additional factors including the banking environment, BEN, and local community / board factors; and (c) verification against objective model performance data (see Appendix 6). Observations and recommendations were developed in relation to each theme following the analysis process. 2.1.3 RESULTS The analysis process examined in detail the responses obtained from the External Survey of Community Bank Directors and the Internal Survey of Bendigo and Adelaide Bank staff as outlined in Section 1 of the Current State Work Stream Analysis Report (Preliminary Draft) dated 24 January 2014. Themes were assessed and ranked in accordance with an aggregation of response rates reflected in External/Internal survey data (see Appendix 7), and were merged with other themes where it was considered that the feedback was common to each. Final ranking of themes:

1. Demands on Directors (73.5%1) 2. Competitive products, fees, rates, approval process (62.5%) 3. The model has delivered benefits we did not know were possible (51.5%) 4. Community engagement (49.5%) 5. Branding, marketing, advertising (44%)

1 Percentages reflect a combined score of external and internal engagement.


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6. Financial model (43.5%) 7. Community hub / virtual community (43%) 8. Staffing, recruitment, development and support (43%) 9. Volunteerism (refer Theme 1 ‘Demands on Directors’) (42.5%) 10. Partnership / professional collaboration (39.5%) 11. Greater local control over costs (inflexibility of approach) (39%) 12. Community understanding of the model (education, awareness etc) (38.5%) 13. Technology (34.5%) 14. Cost of delivery of model leading to increased time to profit and longer start-up times, and impact on

volunteers (29%) 15. Restoring the Balance (RTB) (29%; external feedback only) 16. Internal systems and processes (28%; external feedback only) 17. One size does not fit all (28%)

The following themes were incorporated in the analysis of the above themes: 18. Competition-moving into the community space (refer theme 2) 19. Longer-term viability of some sites, revenue-sharing, selling for profit (refer theme 6) 20. Demographic and population relevance (refer theme 17) 21. Products for profit vs best fit (refer theme 2) 22. MDF (refer theme 5) 23. Customer service is important (refer theme 2) 24. BEN is doing better than us (refer theme 3) 25. Support from BEN (refer theme 8)

Note: Additional feedback for the analysis was obtained from a sample survey of Community Bank® shareholders and selected Local Government Authority representatives. Surveys comprised a questionnaire to shareholders through Survey Monkey, and face-to face interviews with senior local government representatives at the General Manager level. The shareholder survey aimed to evaluate stakeholders' knowledge and understanding of the basic precepts of the Community Bank® model and their views as to the potential of the model for further development in the community space. 2.1.4 DETAILED EXAMINATION OF THEMES THEME 1: DEMANDS ON DIRECTORS2

This theme received a very high response from the Internal Survey of BEN staff (hereafter referred to as IRR) of 79% as well as a relatively high response from the External Survey of Community Bank directors (hereafter referred to as ERR) of 68%, reflecting both BEN's concern about the issues facing directors as well as Community Bank® respondents. BEN responses included comments about director succession and support, and the time pressures on volunteer directors. Concerns were raised about the diversity of skills, capabilities and capacities required of the largely volunteer group of directors of Community Bank®

companies. Responses included the following: • BEN takes directors for granted, has high expectations, and is not fully appreciative of effort, with

directives sometimes forgetting the fact that directors are volunteers and some communications being dismissive of the skills and knowledge of directors.

• Board succession, the age of directors, and the need to recruit younger community members are significant issues.

• The difficulty in recruiting suitable directors, particularly in rural/remote locations, is a significant issue.

• The issue of remuneration for directors as recognition of effort and time and skill is significant.

2 In this section, references to ‘directors’ also includes paid board appointments such as CEOs, Executive Officers etc.


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• The lack of expertise and professionalism on Community Bank® boards (e.g. in high risk areas of HR, OHS and Risk) is problematic.

• There is a high need for better director training in rural/remote locations.

Respondents also identified the benefits of being a director in terms of training and experience, and commented on the dedication, passion and commitment of volunteer directors and their selfless work for their communities. Internal respondents identified gaps in BEN's skill set in working with and supporting Community Bank® boards. Stakeholder survey responses indicated a lack of awareness among both Community Bank® shareholders and Local Government of the training and skills required of directors, and of the personal development opportunities a directorship on a Community Bank® board affords. Critical components Four critical areas were identified by the analysis:

1. The role and requirements of Community Bank® directors specifically the legal, community and partner obligations and constraints. Note: While some more established and successful boards have been able to employ administrative support, including financial and marketing duties, many have not been able to either justify or cover the cost of paid support. Therefore, in most cases, much of the administrative workload falls disproportionally on a few directors. Devolvement of marketing, though providing more flexibility to local boards, together with increasing compliance responsibilities, have resulted in a considerable increase in workload, not including the existing community obligations of boards. Opportunities for boards to share administrative support as a way of reducing costs should be considered.

2. The level and quality of support to Community Bank® boards in terms of training and advice.

Directors are able to undertake specific training related to their duties (e.g. AICD courses), and other training provided by BEN tailored to the needs of boards. However, boards in more remote areas struggle to access timely training, and new directors can wait long periods for training support. Not all boards place sufficient emphasis on the responsibility of directors to undertake training. IT expertise and training of boards is an area of identified deficiency. Support provided to boards by regional BEN staff including RMs is variable and often patchy, and dependent on the knowledge, experience and skill set of the individual staff member. Some boards report excellent support, but many do not.

3. Succession planning and diversity. Considerable effort has been directed to this issue by BEN and

the CBSAB over the past 2-3 years through the establishment of the Future Leaders Forum. Community Bank® boards are encouraged to address the issue through the Strategic Planning process, and the issue has been a key item on the agenda at Community Bank® State and National Conferences. A consideration of succession must also include consideration of the attrition/retention rate of directors and the reasons for this as it is desirable to have a balance of experienced and new directors. Recruiting younger people, particularly in smaller communities, continues to present difficulties.

4. Remuneration, reward and recognition of directors and boards, as well as associated risk. This issue

has been discussed by the CBSAB and guidelines for boards have been developed and distributed. However, the issue continues to generate considerable debate in the network, and director remuneration practices continue to be highly variable. Feedback through the engagement surveys tended to reflect both support for the retention of the voluntary character of boards, and some form of remuneration to recognise the time requirements on directors.3

Summary Community Bank® boards and BEN must adopt a joint approach to director support and development. Community Bank® companies must review the skills and training of their boards and take appropriate action to ensure succession planning. BEN, through the CBSAB, must improve the transitional process by which steering committees become Community Bank® boards, and play a key role in improving director skills and

3 Refer Project Horizon eRoom >> Current State Folder >> 01.03 2012 Annual reports Summary, Directors Remuneration Analysis.


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facilitating succession planning. The issue of remuneration of directors should be examined by both Effort & Reward and Future State Work Streams. THEME 2: COMPETITIVE PRODUCTS, FEES, RATES, APPROVAL PROCESSES This theme received the highest response rating from the network with an ERR of 71%, and an IRR of 54%. Responses included the following: • Uncompetitive (with major banks) account fees and interest rates.

• Outdated fee structures. A system of monthly fees/no fees in lieu of the current rebate system is seen as more appropriate.

• Branch Manager delegations to waive fees need to be more flexible rather than requiring Credit Group authorisation.

• Approval processes too lengthy and need same-day approval to be competitive.

• Product suite needs expansion to include internet interest accounts.

• Lending criteria conservative and uncompetitive.

• Over-reliance on customer goodwill because of the community value proposition.

BEN's reputation as a reputable lender, and the "connected to community” proposition which stands behind BEN's product range and represents a strong point of difference were seen as key strengths in customer attraction and retention. This is reflected in the December 2013 Goldman Sachs Report4 which indicates that BEN's "customer stickiness" score is a key strength of BEN's relationship with our customers. However, a number of respondents commented on BEN's lack of competitiveness with the "Big Four" banks in an environment where our competitors' increased focus on community is seen as threatening the Bendigo community-based value proposition. Other comments reflected concern about historically slow responses to consistent feedback from the network regarding the need for youth-attractive product development, and, more generally, time-to-approval processes for a range of lending products. Stakeholder Survey Feedback While response from Community Bank® shareholders showed a relatively low response rate to this issue, Local Government Authority (LGA) respondents raised several issues of concern. The value of the "community component" is often not recognised, understood or appreciated, and therefore not factored in when Council investment policies are reviewed. Therefore, financial decisions are made on narrow, strictly financial criteria, in terms of interest rates and financial service providers. Although some in the LGA area may understand the value Community Bank® companies contribute to communities, decisions on Council investment portfolios do not take the financial contributions of Community Banks® to the community into account, and are based solely on the credit rating requirement. This can result in a Council's token investment in a Community Bank® which does not develop into a comprehensive financial partnership. Since the GFC, Councils have restructured in order to reduce debt, and are less likely to present as loan customers. It is therefore important that Community Bank® boards understand the challenges and constraints of Councils and work towards developing their relationship into a long-term partnership rather than primarily as a business customer.

Critical components Three critical areas were identified by the analysis:

a) BEN’s uncompetitive products / rates.

4 Refer Project Horizon eRoom >> Current State Folder >> Goldman Sachs Report 2013.


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b) A lack of innovation and speed to market.

c) A lack of ongoing management and review of loans.

Summary A number of opportunities to address the issues are within the compass of both BEN and Community Bank® companies. These include companies' ability to influence customer relationships, determining how staff manage the customer relationship, interaction with customers at a community level, and telling the community benefit story to stakeholders, including LGAs. BEN must innovate in terms of its product range and approach to younger customers, and introduce more flexibility into internal systems and processes, where possible in line with major competitors. THEME 3 – THE MODEL HAS DELIVERED BENEFITS WE DID NOT KNOW WERE POSSIBLE This theme received a high IRR of 64% and an ERR of 39%. Many respondents indicated that “the model has delivered benefits we did not know were possible”. This has been a constant theme from the engagement consultations and has been expressed through the surveys in various ways. The sub-text of the comments relates to capacity building of communities, particularly in the area of human capital (i.e. a contribution to communities that is beyond financial contribution). This is supported by comments from BEN respondents who identified the community strengthening aspects of the model, the benefits being seen as the building of better communities through community investment allied with personal and community development at local level. Shareholder surveys reflected that the community is a better place to live because of the benefits brought by their local Community Bank®. LGA comments were more critical of aspects around social welfare issues. One respondent commented that there was too much emphasis on Community Bank® handouts, and that Community Bank® companies should "stick to their knitting" and not attempt to impinge on government responsibilities.

Critical components

The critical components of this theme are:

1. The model has delivered significant benefits in terms of social and intellectual capital beyond the financial capital returned to communities. This surpasses what was originally envisaged for the model by BEN and the early Community Bank® partners.

2. The Community Strengthening Index (CSI) is a useful way of measuring and leveraging the wider benefits of the model, albeit, duplicative in the information it requires and perhaps under estimating the true value of the Community Bank® contribution to the community.

3. While most of the earlier Community Bank® franchises were established to address the loss of banking in communities, this is no longer strictly the case. Most Community Bank® branches now are opened in communities where banking exists or is close by in a nearby town. The model has therefore become more about returning local capital to communities in order to strengthen and engage at a local level.

4. Community Bank® companies should "stick to their knitting" and not compete against local businesses for other services. Rather, they should support the creation and success of other businesses.

Summary The debate about the advantages and disadvantages of the development of the Community Bank® model from a provider of banking services, and the resultant benefit of distribution of funds to help strengthen communities, is reflected in the responses. The success of the model has led to opportunities to develop it to provide additional services by a kind of expansion of the model to embrace the community hub concept for example, or to meet other identified service deficiencies. However, some boards do not appear to have understood or embraced the idea of the community hub, nor do they see opportunities in their respective communities for the provision of other services. Consequently, the adoption of these expanded models appears to be very dependant on the opportunity to expand as well as the profitability and capability of local boards, and the local requirements of their communities. There is therefore a risk that the coherence of the


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model might be threatened by the unevenness of its development. Some of the feedback from stakeholders appears to reflect these concerns.

THEME 4: COMMUNITY ENGAGEMENT This theme received an ERR of 45% and an IRR of 54%. Respondents indicated a significant appetite to deepen community engagement practices, through leveraging for major projects and adopting community investment approaches, and through collaboration with other instrumentalities, service clubs and levels of government. While some communities are satisfied with their level of community engagement and buy-in, others feel that they have not achieved their desired level even after operating in the community for considerable time. BEN feedback expressed concerns that communities lacked understanding of how the model works and benefits communities at a local level. This theme was relevant to and generated a high response rate from stakeholder groups. Including LGA respondents, many of whom commented that their local Community Bank® company does not adequately tell their story, or get their message out. Evidential data • Refer 2010 Partner Sentiment Survey Results.

• Refer “Connecting with Community” working party (Oct 2013-Feb 2014) Report & Findings.

Summary Community engagement is crucial to the success of the model because it represents the core of our point of difference. Some communities report great success with their level of community engagement and the buy-in from their communities while others struggle to improve their level of connection. Results from the stakeholder survey demonstrate two clear themes: despite a local Board’s best efforts, many stakeholders including LGAs believe Community Banks® don’t sell themselves well enough, and, though boards may believe that the community understands what they do, feedback reflects that many community members do not understand the basics of the Community Bank® model. These impressions may work against a higher level of community engagement and stakeholder buy-in. Boards need to reflect the wider demographics of their respective communities, and Community Bank® companies must use their combined skills and networks to actively sell their message to the community. THEME 5: BRANDING, MARKETING, ADVERTISING5 This theme received a relatively high ERR of 63% and a lower IRR of 25%. Respondents indicated strong support for the ‘Bendigo’ brand and a desire to freshen it up and make it more relevant to a younger demographic (i.e. move away from being seen as only a "Mum and Dad” bank. Thoughts about ways of ensuring that the community message is central to the Bendigo brand have also been reflected in the feedback. Responses included the following: • Our brand is our point of difference which creates a unique positioning advantage for BEN and directly

provides business building and growth opportunities.

• We need to increase our national marketing spend and refresh and update our image to relate to a wider demographic (i.e. address the 'small bank" perception of not offering broad banking solutions).

• Adopt a more individualised marketing approach for Community Bank® branches.

• Allow/enable Community Bank® branches to promote BEN as 5th largest bank with all the services that our big four competitors offer.

5 It is important to note that this feedback was provided before the ‘Bigger than a bank’ campaign was launched.


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• Debate as to whether Community Bank® branches should be expected to contribute to national marketing campaigns.

• Concern about the expense of "on-the-ground" marketing materials (e.g. banners).

• Concerns about lack of product/price advertising.

The LGA stakeholder survey reflected a perception among respondents that Community Bank® companies do not sell their benefits well and therefore the uniqueness of the brand was not well understood. Critical components The critical components of this theme are:

1. Relevance of BEN marketing to target markets. Responses reflected the view that the brand is highly recognised, the Community Bank® brand is unique, the brand is well-supported by the physical presence of the Community Bank® branches and customer satisfaction is high. This is supported by the relevant data6. However, there is concern that BEN's marketing is not targeted well enough to potential markets and that consequently BEN is regarded as a "Mum and Dad” bank. This would appear to be reflected in analysis of BEN's customer profile data which shows a clear weighting in the older age groups7.

2. Support/facilitation of markets. Feedback indicates a strong view that BEN's marketing spend is too limited to either support existing markets or facilitate new markets. There is a perception that BEN does not have a strong marketing culture. Responses mentioned a lack of product and price advertising, and a slow introduction of social media/digital marketing. Boards commented on the relative expense of marketing materials for local use. It should be noted that the engagement surveys from which this feedback is drawn were conducted prior to the Bigger than a Bank campaign which involves a $2.7M investment in advertising and marketing.

3. Concern that there is inequity between Community Bank® and BEN corporate sites in marketing spend requirements (i.e. that corporate sites are advantaged by the work done by Community Banks®). This feedback refers to comments that corporate sites "get a free ride" from the work and expense of Community Bank® sites and that the Community Bank® network is carrying the marketing burden for BEN generally.

4. Community Bank® sites (old and new) collaborating in marketing to reduce individual spend. Responses pointed to already successful collaborative marketing campaigns in some regions between Community Banks®. This is seen as an efficient way to address key issues on a regional basis and an opportunity for newer sites to be assisted where their capacity for marketing spend is limited. However, the comment was made that Community Bank® contributions to national collaborative campaigns will limit the opportunity for local marketing initiatives.

5. MDF. The MDF was rated as one of the five "Preserve at all Costs" responses in the External Engagement Survey. The MDF provides Community Bank® boards with local marketing opportunity, both individually and as part of a collaborative marketing project with other Community Banks® in their regions. It is this fund which is accessed for national marketing campaigns. The comment was made that it is common industry practice in many franchise arrangements to include a requirement for franchisee contribution to overall marketing costs to advance a national brand, and that perhaps BEN's franchise agreements should do likewise. At present Community Bank® companies can opt out of national campaigns but still continue to receive the MDF.

6. The level of BEN marketing spend is inadequate. Refer comments in 2. above. It was noted that BEN competitors (i.e. Big Four banks) have much larger marketing budgets. Their growing attention to marketing in the "community space" was also noted as a concern. However, comments included recognition that Community Bank® companies have a high degree of autonomy and flexibility in directing local marketing campaigns.

6 Refer Project Horizon eRoom >> Current State Folder >> Roy Morgan Customer satisfaction Oct. 2013, Graph 01.04 and Quantum Brand Health Check July 2013. 7 Refer Project Horizon eRoom >> Current State Folder >> 02.05 Customer Profile Analysis.


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Summary Our model is our point of difference which creates a unique positioning for BEN and builds the brand. While BEN is not able to match the spend of the Big Four, it has the ability to focus on the strengths of our model, while also addressing the current perception of us as a limited player in the market. There are opportunities in social media, and BEN and the Community Bank® network must be clever and resourceful in how marketing budgets are deployed. Community Bank® companies must be highly involved and committed to this process.

THEME 6: FINANCIAL MODEL This theme received a high IRR of 54% and an ERR of 33%. The gap between the two scores is interesting and may suggest that BEN staff are more knowledgeable and/or interested in the financial aspects of the model than directors. It may also suggest that many Community Bank® boards, given their perception of the model as too cumbersome and complex to easily comprehend, may rely on the treasurer for the financial management of the company and perhaps neglect the education of all directors in the financial aspects of a Community Bank® company’s operation. This is supported by the general flavour of Community Bank® responses which tended to advocate for a more market-responsive and flexible model which would be “fairer”, “more transparent”, and “easier to understand”. Community Bank® respondents overwhelmingly saw the current profit share arrangements as costly and difficult to monitor, commenting that production of a Community Bank® company’s monthly figures requires double-handling by treasurers and book-keepers, is cumbersome and unnecessarily time-consuming. Two key elements of the current Franchise Agreement, the 50/50 split of revenue and the 80/20 distribution of profit, were seen by BEN staff as strengths of the current financial model, but they also commented that pricing returns should be reviewed to improve reward for effort. Stakeholders demonstrated less awareness of the 50/50 split component of the model than the more visible component of financial returns to the community. One LGA stakeholder made reference to the diminishing profitability of their local Community Bank® branch.

Critical components The critical components of this theme are:

1. The 50/50 principle. The 50/50 revenue share should not necessarily be an immutable principle as it has been since the introduction of the Community Bank® model. Undoubtedly, it has worked well over the past 15 years in most cases, and delivered great benefits to communities in the form of returns of capital (e.g. >$110M) and creation of employment. But in the face of a rapidly changing market, post-GFC economic conditions, and with the effects of RTB2 on the sustainability of some branches, it should not be excluded from review and adjustment where circumstances warrant. There appears to be an emerging view throughout the Community Bank® network that more flexible revenue-share arrangements tailored to the individual needs of a Community Bank® branch (e.g. its location, start-up costs, time to profit projections, and short and longer-term feasibility), might provide more incentive and a fairer reward for effort leading up to profitability.

2. Fairness of the model. Respondents raised a number of issues in relation to fairness. For example, some products offered are structurally unsound, there is a history of margin squeeze on core products and Treasury deposits return marginal to zero profit. Deficiencies in the product areas of fixed and variable loans, and Term Deposits (</> 90 days) are leading to an unsustainable environment. Further, the measure of revenue share system is archaic requires urgent review. Some respondents questioned the fairness of applying a set of standard principles to all Community Bank® branches despite the variables of size, age, demographics of community and competition. It was generally agreed that some Community Bank® boards are required to work much harder to achieve profitability, often are limited by


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circumstances in what they can deliver back to communities in early years of operation and struggle to find the time and resources to meet their workloads.

3. Transparency. On the plus side, Community Bank® companies are generally well-supported by BEN and director training programs. The communication across the network is good. However, there is a lack of transparency in reporting mechanisms, business rules and the loading of costs, and tracking and correcting errors is complex and very time-consuming and frustrating, and sometimes beyond the resources and capabilities of the boards.

4. RTB2. This is a significant talking point for the network which has not diminished for some of the more affected boards since the roll-out of the adjustments. There is a strong perception that RTB2 was unfair, and led to Community Bank® companies which have struggled to achieve profitability, going backwards into the red. The was also comments regarding a perceived lack of consultation regarding the need for RTB2 and that Community Bank® companies were not involved in the decision – it was a head office decision only. Comments pointed to a weakening of the formerly close relationship and trust with BEN and the Community Bank® network as a consequence, and concern about a further round of adjustments, as the model required continued adjustments and intervention to make it ‘fair’ to all.

Summary BEN controls the financial model in its capacity as franchisor. However, BEN must respond to calls from the Community Bank® network for a more equitable, flexible and transparent financial model to ensure the trust of franchisees and the future sustainability of the Community Bank® franchise as a whole. Not just the revenue share arrangements, but also other costs imposed or regulated by BEN must be factored in, such as operational costs and franchise fees. There is a key opportunity in this review to revisit the financial model and consider variable (i.e. either more or less generous) revenue share arrangements for sites in differing circumstances.

THEME 7: COMMUNITY HUB / VIRTUAL COMMUNITIES This theme received a high IRR of 57% and an ERR of 29%. Respondents who included the Community Hub concept in their responses did so in a positive manner. Virtual Community and on-line engagement is seen as both an opportunity and a threat to the network. Respondents generally view the Hub concept as a BEN-led initiative at the present time. The network lacks clarity on the concept with many directors not understanding it. The highly individualised nature of the concept has therefore made it difficult to impose a standard on the network. Related to the Community Hub topic is the appetite expressed by several respondents to explore other avenues to generate new business and develop and strengthen their communities. The shareholder and LGA feedback showed a corresponding lack of clarity about the concept with concern expressed that Community Banks® may evolve similar to Australia Post, or other retail outlets. Respondents did not necessarily see a need for Community Banks® to compete in the traditional retail / small business space in the market. Critical components The critical components of this theme are:

1. Disconnect in understanding between BEN and the Community Bank® network. There are considerable differences in viewpoints as to what the concept entails. Definition is unclear and there is no consensus on a framework or guidelines for a model.

2. Concern about competition/duplication with local businesses. There is a concern that BEN and the network do not have a clear set of objectives for this development and therefore will have difficulty engaging the wider network in the concept. Also, that it will create unwelcome competition into a market from which we draw support (e.g. small local businesses). Any framework would need to clearly delineate between an offering of services based on actual community need, as opposed to an extension of our own product range for commercial gain or as a way of using excess retail space.


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3. Variability of application of Hub concept. Not all communities see an opening for expanding services into a Community Hub space, and Community Banks® need to ensure that there is a business need.

THEME 8: STAFFING, RECRUITMENT, DEVELOPMENT AND SUPPORT This theme received an ERR of 36% and an IRR of 50%. Some respondents reported the difficulty of attracting staff, particularly to regional and remote areas. Challenges around portability of entitlements when staff move between Community Bank® and BEN branches, and the potential for a "them and us" attitude between Community Bank® staff and company staff, were also cited as issues. Disparity of salary flexibility between Community Bank® employed staff, and staff seconded to Community Bank® branches was noted. Also noted was the complexity of IR workplace laws which need to be managed by those companies directly employing staff, while those using the secondment model commented on the frustration of being unable to recognise and reward the efforts of these staff by varying their remuneration and bonus payments even though the company was solely responsible for all costs associated. Comments were made about the difference in complexity and responsibility of a Community Bank® Branch Manager's position, as well as the evening and weekend work required, compared with a BEN Branch Manager, and the reliance on the quality of Community Bank® Branch Managers for the promotion of the bank, and the company's profitability. Other comments involved the need for better access to specialist staff in the areas of insurance, business banking and wealth management, and the lack of relief for staff on leave. Stakeholders were not directly asked to comment on this theme, and the comments received from LGAs primarily involved the issue of director training. Critical components The critical components of this theme are:

1. Secondment –v- direct employment models. The key issues are: inequities in remuneration and benefits; lack of flexibility in remuneration of seconded staff, particularly managers; portability of entitlements, career pathways, availability of staff relief for absences, which can be a critical issue for small stand-alone Community Bank® branches, made more difficult by distance. There is a perception that BEN could do more to address the relief issue, given its resources.

2. Training. Community Bank® branches require highly trained staff, particularly where they will be required to cover absences with no hope of relief from the network. Training must be relevant and flexible in its availability and application to recognise the constraints of branches, particularly in more remote areas. Community Bank® branches depend on well-trained, experienced and qualified staff to meet the highly regulated and challenging environment. In addition, Community Bank® staff are required to have community connectedness, and a willingness to become involved in the community initiatives of their companies. BEN is recognised in the feedback as a very committed and dedicated training organisation.

3. Support. Availability of support for Community Bank® boards and staff is dependent largely on the Regional Manager's priorities and capability. Many boards receive excellent support from RMs and their staff, regular board visits, and efficient response to enquiries and requests for assistance. However, some do not receive much support, and will rarely see their RM at board meetings. There is a view that Regional Managers are expected to cover too wide a range of skills, knowledge and capability to be effective across all aspects of their roles, and that a highly expert centralised Community Bank® support service could handle the knowledge and support needs of diverse Community Bank® companies more efficiently and cost-effectively, thus freeing the RM for attention to more managerial level requirements.


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Summary BEN is a committed training organisation with a dedicated, specialist Learning & Development Department. Community Bank® staff are dedicated and enthusiastic about the Community Bank® model and take pride in working for BEN in the community space. There are issues concerning secondment, entitlements, relief and support for boards which need to be addressed into the future to ensure that Community Banks® are a place staff will willingly choose to work.

THEME 9: VOLUNTEERISM (refer also Theme 1 ‘Demands on Directors’) This theme generated roughly equivalent rates of response from both the ERR (42%) and IRR (43%). Many of the issues identified are common to those explored and recorded under ‘Theme 1 – Demands on Directors’. However, the following additional points are considered as useful corollaries. Respondents expressed views about the need to keep volunteering enjoyable with less administrative and operational demands. Many positive comments were received about the high level of volunteerism within communities. Respondents also commented on the growing difficulty of attracting suitable volunteers especially from younger age-groups, the need to recognise that many directors have careers and that the demands on their time and energies are very large. Many directors are volunteering in other community organisations. Some respondents advocated the employment of administrative assistance to free up directors to focus on the community aspects of their volunteering. As the administrative and compliance burden on directors has grown, so has the issue of paid versus volunteer directors. Some boards remunerate directors, but many choose not to do so believing that they need to retain their volunteer character in the community to be on the same level playing field as others volunteering their services. Critical components The critical components of this theme are:

1. Significance of being a volunteer. "Volunteer" signals integrity and trust and assists in positive community perception of the Community Bank® movement, by reinforcing our point of difference. It allows for director development to benefit other groups and organisations.

2. Our volunteers are overworked. The capacity of most volunteers is limited by their own work, and involvement in other activities. This can cause stress when administrative and compliance requirements increase.

3. How do we continue to attract great volunteers? The ability to attract and retain suitable people widely representative of the community is becoming more difficult as the gap between the competencies required of a committee member and a director of a public Community Bank® company widens.

4. Payments to volunteer directors. Some boards have introduced payments for directors to address some of these issues, but the payments are generally made by longer-standing profitable companies, and are uneven in application. The CBSAB has issued guidelines on this matter which recommend a ceiling for director payments similar to the benchmark for other NFP organisations, but it is currently the individual board's discretion as to what they choose.

Summary The general view is that the voluntary nature of boards is a plank of the Community Bank® model and retention of it as a key characteristic should be emphasised. Attracting suitable volunteers to Boards is and will remain challenging. Other means of rewarding the effort and contribution of voluntary directors should be explored besides fees. The ability to offer a wider range of accredited training could be both a recruitment and a reward strategy worth investigating.


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THEME 10: PARTNERSHIP / PROFESSIONAL COLLABORATIONS This theme received an ERR of 36% and an IRR of 43%. The analysis process defined "Professional Collaborations" as partnerships/interactions with other community bodies such as service groups, Chamber of Commerce groups, Enterprise Centres and so on. Survey responses mostly focussed on the opportunity/need to strengthen partnerships with key bodies to leverage community and business outcomes. Local, State and Federal Government agencies were the most commonly cited examples. Community Bank® respondents aspired to develop partnerships with community, social welfare providers for improvements to local mental health facilities and social/respite housing. The ability to work at better communicating with the community rather than just funding already determined projects, and to generate matched funding to achieve better community outcomes was seen as essential to creating productive partnerships and collaboration. Stakeholder feedback showed that shareholders have expectations that their local Community Bank® company will invest in larger programs (e.g. youth initiatives), and that the quality of relationships with LGAs and other potential funding partners is crucial. Critical components The critical components of this theme are:

1. The relationship between the board and LGA and other funding partners. While many boards are able to point to successful relationships with LGAs and other community groups which have resulted in good outcomes, not all Community Bank® companies are connected to the same extent. Those companies not yet in profit are reluctant to approach potential partners because their ability to contribute is limited. Some boards are wary of investing in Council projects because of a belief that the potential projects should be wholly funded by Councils and Government, and that there is a risk of being seen as just another arm of an LGA, if a Community Bank® company creates a close relationship.

Summary While there is considerable evidence of successful partnering between Community Bank® companies, LGAs, in some cases government, and other local funding partners, many boards struggle to achieve the strength and quality of relationships necessary to progress into successful leveraging, and some do not have the capital resources to commence the process. THEME 11: GREATER LOCAL CONTROL OVER COSTS This theme received an ERR of 28% and an IRR of 21%. The majority of the commentary related to the preferred cost-benefit of Community Bank® companies to access local resources to provide goods and services wherever possible thus avoiding the need for costly couriering. Boards expressed strong commitment to using local businesses where possible and proposed that BEN adopt a more flexible approach to this issue. Currently there is a perception that companies are forced to use suppliers associated with BEN and based in Bendigo or greater Victoria. Comments were also made that BEN does not take advantage of the collective buying power of the network when purchasing decisions are taken. This theme was not relevant to stakeholder surveys. Critical components The critical components of this theme are:

1. Lack of control of Community Bank® companies over costs and restrictions on using local traders. Many of the costs incurred by Community Bank® companies are passed on through the internal finance


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system by BEN. Costs are difficult to track and investigations are time-consuming and frustrating. There is a strong appetite in the network to use local traders wherever possible. Centralised purchasing of stationary, furniture and other fittings disadvantages Community Bank® companies outside of Victoria in terms of costs and goes against the espoused philosophy of supporting local communities. It is noted that a "Contractor Management" system has been established by BEN and presented to CBSAB recently. This will facilitate registration of local contractors with BEN and manage associated risk issues, thus providing guidelines and consequent protections to boards.

2. Communication from BEN regarding cost variations. Concern over recent notification of changes to BEN uniform requirements for staff leading to unexpected and unplanned for costs increases has been expressed recently post the original engagement process. Multi-site Community Bank® companies have been particularly affected. It is felt that these decisions must be made in consultation with the network by BEN Retail, particularly given the impact and sensitivity of recent RTB adjustments on the profit share.

THEME 12: COMMUNITY UNDERSTANDING OF THE MODEL (EDUCATION, AWARENESS) ERR responses for themes under this heading were 45% for Education/Awareness theme, and 33% on Telling the Story/Point of Difference. IRR feedback was broadly similar at 36% and 32% respectively. Surveys confirmed earlier observations about communities served by Community Banks® lacking a general understanding of the Community Bank® model. Observations centred on the challenges of communicating the basics of the model, and noted the frustration that, despite the best efforts of boards and staff to sell the story through grants, sponsorship, marketing activities and presentations to community groups, the message was still patchily understood in the wider community. The question was raised as to whether the "community story" is still relevant, and many respondents commented on their on-going efforts to tell and re-tell the story. Stakeholder surveys indicated that our shareholders’ understanding of the Community Bank® concept and story is high. LGA respondents noted that while Community Bank® companies and recipients and those connected to them are aware of the value which goes back into the community in terms of grants etc, they were not as aware of the other benefits to community of the model, such as the experience and training provided to community members who serve on Community Bank® boards. Critical components The critical components of this theme are:

1. The requirement to tell all aspects of the Community Bank® story effectively and consistently. Community Bank® companies have a unique proposition to put to communities, but can lack the marketing skills to be effective communicators. This is exacerbated by a perceived lack of understanding of the reality of the Community Bank® experience in the BEN Marketing Department, and uneven support and understanding in BEN regional and state management structures. When there are campaigns which focus of the community story, there are measurable corresponding benefits to Community Banks® and the network as a whole. This has encouraged Community Banks® in regions to develop collaborative campaigns in which companies can gain from cost-sharing of a common story. These campaigns have been largely effective in assisting boards to get the story out into the community. There is a risk that national brand based campaigns focussed on selling product into specific demographics, will neither choose, nor have the capacity to support the uniqueness of the community bank story. One way of assisting new and/or struggling Community Bank® boards with local marketing may be to adjust the MDF arrangements to make them more generous in the early part of a company's life. However, for this to be effective, effective marketing assistance needs to be available to them.

2. The lack of awareness of the model in many communities, despite the best efforts of the Community Bank® company. There are many stories competing for community attention through a variety of media, and this "crowding of message" is growing constantly. BEN competitors have learned the value of incorporating "community" into their pitch to consumers, and although their programs are largely nationally rather than locally focussed, their spend and therefore their reach is far greater than BEN’s.


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3. The Community Bank® model as a unique point of difference in the market. The model remains as unique and innovative as it was 15 years ago when it was created. It is what has attracted the largely volunteer effort from directors, inspired BEN staff, and resonated in all kinds of communities. It is unlikely that any competitor can match it. However, the way we market it to our communities and to the nation requires a common, concerted effort. It cannot be left solely to individual boards working in local communities, although that too is crucial, but must be embraced by the whole of BEN and supported commensurate with its value to the network.

4. A related issue to this theme is what may be termed “the second generation” (of shareholders). First generation shareholders will want/need to exit at some point in time. A functioning market (and demand) for their shares is necessary. Having a body of local shareholders disenchanted by their inability to sell shares is not good for business. The motivations of the second (and subsequent) generation of shareholders will be quite different from the first, so creating/ensuring ongoing demand for shares may be challenging. It is also noted that while this matter looms large for some Community Bank® companies with many shareholders unable to sell their shares, other companies have waiting lists of potential buyers.

Summary How we sell the Community Bank® story to our communities, both local and in the wider context, is crucial to the community's understanding and likely positive response to our offering. THEME 13: TECHNOLOGY This theme received an ERR of 40% and an IRR of 29%. Generally, responses reflected the growing interest in leveraging social media and technology to support customer connection. Some views suggested that BEN has lost its leading edge in this regard. Respondents felt that BEN communication on technological innovation to the network was poor and that although it appears that a considerable effort is being expended on improving the technological reach, the network was generally unaware of developments. This view was reinforced by feedback from the roundtables at several State Conferences. Boards commented that while the existence of the eRoom was a definite plus, its technology is out-of-date, difficult to use, and requires urgent up-grading to improve support for a wider range of platforms. Similarly, the new web-site process is underdone, and not able to meet the requirements of boards. Stakeholders were not surveyed about this issue. Critical components Two critical components to this theme emerged:

1. Customer technology. Respondents felt that BEN response times to technological innovation were too slow and that this has resulted in a patchy response to customer expectations, particularly in the younger customer demographic. Respondents acknowledged that LINX has been a positive in terms of customer contact and business growth, and expressed a desire to see it expanded to include email and community communication capability. The risk to future business growth was seen as the potential failure to keep pace with the technological developments of our competitors.

2. Technology support to the Community Bank® network. The majority of comments were focussed on the eRoom and web-site access. Opportunity to better prepare directors by up-skilling general IT capability was raised consistently. This includes eRoom training, iPad usage to decrease printing costs and improve timely access to board papers. Several comments were made about internal IT support to branches and the difficulty of accessing timely assistance (e.g. ATM breakdowns, introduction and roll-out of NBN).


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THEME 14: COST OF DELIVERY OF MODEL (Leading to increased time to profit and longer start-up times, and impact on volunteers) This theme received an ERR of 28% and an IRR of 46%. Community Bank® respondents made suggestions such as changing profit share arrangements for sites yet to reach profit, adopting flexible arrangements for payment of the Market Development Fund (MDF), such as a reverse process for payments so that newer sites receive more in their start-up years, and less as they reach profitability. Other comments related to the need to reduce upfront costs for new Community Bank® branches. BEN responses expressed concern about the costs of the model, given current margin reductions, and the costs of compliance and general administrative workloads on Community Bank® boards. There is also a concern from BEN that in some cases there is evidence of inefficient branch operations (i.e. over-staffing) leading to increased costs. This theme was not relevant to either shareholder or LGA stakeholder groups. Critical components The critical components of this theme are:

1. Set-up costs. The average amount of capital required for new campaigns and the consequent establishment of new sites has increased over time but the variation in capital requirements between metro sites and remote sites, for example, has lessened over the same period. This has resulted in the capital-raising capacity of outer-regional and remote sites becoming much more difficult.8 Campaign times can range from 12 months to as much as three years or more. High set-up costs are a critical factor in the decision-making process of setting up a new Community Bank® branch, and the traditional models could pose a barrier to proceeding even where community support is strong. Some modelling has been done recently by BEN on reducing set-up costs9 and trials of low cost models are proceeding in several locations. However, the physical presence of branches and their consistency of appearance supports the Bendigo brand and the expectations customers and communities have of a Community Bank®.

2. On-going costs. Approximately 75% of on-going costs of an average Community Bank® branch relate to staff. Another high cost to day-to-day operations is occupancy for those branches which have leases. Many older branches encouraged to open on Saturday mornings when they were established, now find the costs unjustifiable in terms of customer transactions, but face potential community backlash if they close. The difficulty for Community Bank® companies in meeting on-going costs has been compounded by RTB2. Escalating costs can lead to a dependence on the MDF “to prop-up the bottom line”. Comment was made about the need for streamlining of service delivery, maintenance call-outs etc between branches in reasonable distances from each other to assist with cost reduction.

Summary An underlying issue in the consideration of model costs involves the expectations of communities and the response from the BEN Community Engagement Department in the initial stages of the formation of a steering committee. Over the past 2-3 years, BEN has strengthened its criteria and established measures such as “Business on the Books” requirements, stage-gates, MDF reporting, and more stringent criteria for evaluating the feasibility of projects in an attempt to ensure the viability of projects. However, there is still evidence of some Community Bank® companies presenting with problems, often related to cost-control, long after establishment. BEN has actively encouraged and rewarded Community Bank® companies who expand into multi-site companies. But expansion, without careful strategic and financial planning, can lead to financial pressures and competition between existing sites.

8 Refer Project Horizon eRoom >> Current State Folder >> 02.04 “Capital raised Analysis” and 02.09 “capital raised by FY of Opening. 9 Analysis regarding fit‐out costs by BEN management(J Petrus/J Thomson).


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Theme 15: RESTORING THE BALANCE (RTB) This theme received an ERR of 29%. No IRR response from BEN staff was recorded. Generally, comments about RTB2 are critical in nature with a view from some respondents that BEN is profiting at the expense of the Community Bank® network. Others questioned the inflexibility of the 50/50 principle and the inherent unfairness of the RTB2 process. RTB is seen by some as somewhat arbitrary in application and lacking transparency. For example, boards have considerable difficulty accessing information about how margin share is looked at on a branch by branch basis. It was felt that although RTB1 was clearly explained by BEN, and therefore generally well-understood and accepted, RTB2 was rushed and poorly communicated. Concerns about the impact of RTB2 on less successful/not profitable companies were expressed. This has led to a growing debate about costs and the effect on the future viability of some companies. It was acknowledged that BEN has made efforts to assist many Community Bank® companies through the RTB adjustment process, but the general impression is that RTB is of on-going concern to the Community Bank® network and considerable anxiety remains about the future possibility of more RTB adjustments. This theme was not relevant to any of the stakeholder groups surveyed. Evidential data

• Refer Impact Analysis tool which measures average monthly impact of RTB. Summary This theme continues to generate discussion and concern throughout the network, particularly where boards have either seen their profitable status decline as a result of decreasing margin share, or in the case of newer boards, their time to profit dramatically increase. THEME 16: INTERNAL SYSTEMS AND PROCESSES This theme received an ERR of 28%. No IRR response from BEN staff was recorded. Community Bank® respondents made the following points: • Some processes are cumbersome (financial reporting systems) and internal systems are hard to use

(eRoom). Complaints and suggestions for improvement often result in lack of feedback and action.

• Both branch and board compliance requirements are onerous and complex.

• Marketing processes are sometimes inflexible and hard to access.

• Other respondents commented about frequent loss of board paperwork within the BEN system, and difficulty with inter-team handover issues within BEN.

• Obtaining approval for leasing at the end of the financial year can be slow.

• Business banking staff are changing frequently.

This theme was not relevant to stakeholder groups.

Critical components The critical components of this theme are:

1. Systems / processes which impact on Community Bank® branches. Basel II Accreditation has impacted branch operational workload (e.g. complexity of annual review process, know your customer requirements). Branch managers spend an increasing amount of time on non-business generating


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activities. Staff performance assessment requirements and BEN HR practices add a layer of bureaucracy which is very time-consuming for little measurable value. Lack of timely and suitable relief for staff absences impacts on the compliance load of a Community Bank® branch. Leasing and Business Banking practices (e.g. customer data requirements and Group Credit scoring processes) sometimes result in loss of business through customer dissatisfaction. This creates frustration at the local level.

2. Systems / processes which impact on Community Bank® companies. There are number of systems compliance requirements which have a disproportionate impact on Community Bank® boards compared to their relative value. Some examples of this include OH&S and Risk compliance which requires boards to dedicate two full board training workshops, followed by the development of a complex on-going monitoring system under the control of one or more directors. Another example is the Low Volume Market (LVM) which entails a complex process of registration, contact arrangements and is cumbersome, time-consuming and off-putting to potential share buyers.

3. Marketing systems / support. Marketing is very important to boards at the local level but successful marketing and media contact requires skills and resources many boards find difficult to support. Regional support is highly variable and almost entirely dependent on the individual capacity of local regional staff to understand the needs of boards and to have the requisite knowledge, time and skills to assist. Peer support on this and other issues should be encouraged.

4. Cost escalation. Some costs (e.g. cash carrying) appear to be escalating at rates much higher than CPI.

Summary Singly, none of these issues is by itself unmanageable. However the cumulative burden of having to respond to all of these issues can be all-consuming to a largely voluntary board of directors. Many boards are unable to pay for administrative support to help them deal with compliance issues and are heavily dependent on the skills and willingness of a few directors to deal with the not inconsiderable workload generated by growing compliance requirements. THEME 17: ONE SIZE DOES NOT FIT ALL This theme attracted an ERR of 24% and IRR of 32%. The theme picks up on a common theme identified early in the external consultative process and is supported by more extensive qualitative information with a key question about viability of the model regardless of demography and market conditions. Right across the Community Bank® network, and as a key part of many of the themes explored above in this analysis, this theme is present as a sub-text. BEN staff proposed that the "one size fits all" approach needs reworking to provide more flexibility and options to meet changes in market conditions, community needs and expectations, and evolving patterns of banking behaviour (e.g. digital and app banking). There is acknowledgement that the costs to run a traditional Community Bank® branch outlet impact directly on profitability and sustainability, particularly in rural and remote communities where market size is limited. The model as it was formulated 15 years ago in response to the exodus of banking from small rural communities is now addressing a wider range of community expectations in a very different environment. It is widely considered by both Community Bank® directors and BEN staff that much more flexibility in meeting community needs is required. Critical components The critical components of this theme are:

1. The reasons behind a community wanting to establish a Community Bank® are more varied – a bank leaving town is no longer the main driver. Community investment and engagement has a much bigger role to play, and of course this varies from community to community.

2. The definition of success varies considerably, particularly by location. A remote community with a few hundred population can never achieve the same level of business as a metropolitan based site, and


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expenses such as rent will also vary considerably, as well as the needs of the community around a concept such as a community hub or shared services. However, BEN’s approach to the establishment of a branch remains constant. As detailed earlier, costs of establishment and running a branch for a few 100 people versus tens of thousands of people (population) are similar.

3. The ability to reach and maintain a profitable situation within a branch impacts on their ability to invest back in the community and employ support staff, which in turn impacts on the directors both in their capacity for unpaid management tasks (e.g. company secretary, marketing, community liaison etc) and the company’s ability to fulfil its mission as a community builder.

4. The franchise agreement is set in stone and the revenue split for each product is identical from one branch to another.

5. The maturity of the branch, the makeup of the branch ‘book’, the skills available in a community, the types of banking products required by a community and even the media support within a community vary considerably. Each of these poses different challenges which impact on the perception that one size does not fit all.

6. And of course, communications, training skills, conferences etc are all geared to the ‘middle of the road’, ultimately enhancing the perception that BEN does not recognise that one size does not fit all.

Themes where "one size doesn't fit all" applies: Theme 1: Demands on Directors Rural and remote sites report difficulty in attracting suitable volunteers to serve on boards. Despite this they are required to meet the same demands of workload and compliance issues. Most are not able to afford commensurate administrative/marketing support but must find this from within their voluntary resources. Theme 3: Benefits Benefits are experienced to a greater or lesser extent dependent upon the profitability of the company, their connectedness to the community, and to some extent the support they receive from other entities (e.g. LGAs). The needs and aspirations of communities are diverse, and flexibility is required when introducing community strengthening initiatives (e.g. community forums, community hub etc). Not all communities require such initiatives and not all Community Bank® companies have the ability to develop and progress them. Theme 6: Financial Model The immutability of 50/50 revenue share provision has been questioned through this engagement process. Adjustment to it, particularly in the early segment of a company's existence, may be warranted to support the Community Bank® company’s eventual success. Theme 14: Cost of Delivery This is a key issue attracting suggestions proposing variable profit share arrangements to assist struggling sites, variations in how the MDF is paid to Boards, and the introduction of a range of lower-cost alternatives for meeting community banking needs whilst retaining the core elements of the Community Bank® model.


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2.2 CS02 Working Group: Model Structure 2.2.1 BACKGROUND The CS02 Working Group was formed to conduct a comprehensive analysis of model structure in terms of governance, regulatory and market-place factors. The Working Group comprised the following members:

• Bill den Hartog (BEN) • Dick Menting (Community Bank® director) • Jim Beveridge (Community Bank® director)

The Working Group met on an ad hoc basis before establishing regular weekly meetings between 26 March 2014 and 30 April 2014. 2.2.2 SCOPE OF ANALYSIS The following items were considered within the scope of work of the Working Group:

A. Description of the current Community Bank® model. This involved considering the following:

o The legal and other governing documents which define the relationship between BEN (as franchisor) and Community Bank® companies (as franchisees). These included documents such as the Franchise Agreement, Disclosure Document, BEN policies and procedures and so on.

o The regulatory environment in which the Community Bank® model operates, including the Franchising Code of Conduct and the Corporations Law; and

o Market-place factors including competition from the Big 4, alternate franchise models such as BOQ and Australia Post, and credit unions and building societies.

B. Analysis of key elements of the model structure. This involved examination of the following:

o Pros and cons of current governance structure;

o Alternative franchise structures (e.g. comparing the Community Bank® franchise to others in the market);

o Roles and responsibilities of Community Bank® directors;

o Role of franchisee advocates (e.g. role of the Community Bank Strategic Advisory Board);

o Variations among franchisees: single sites, sub-branches, multi-sites;

o Issues facing new franchisees (new sites, expansion sites, uniform franchise agreement, requirement for additional shareholders);

o BEN support for franchisees (e.g. does BEN adequately support sites seeking to establish a sub-branch).

The following items were considered outside the scope of this Working Group: • Individual, region or state based branch analysis or comparison.

• The release of confidential BEN information that may breach continuous disclosure obligations.

• Financial modelling – to be covered by the Effort & Reward and the Future State work streams.

• Analysis of systemic issues that may impact the model – to be covered in the Future State work stream


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2.2.3 RESULTS Comprehensive analysis of model structure in terms of governance, regulatory and market-place factors.

To simplify the interrelationship between governance and regulatory factors the Working Group amalgamated its research and commentary to one key area for both subjects. Regulatory and Governance – Alternative ownership structures The Working Group investigated the following structures currently utilized within the Community Bank® network: Management Deeds, Public Companies (Listed and unlisted), Limited by Guarantee model (some no longer having shareholders) and Co-operatives. The Working Group discussed continuous disclosure requirements, company constitutions (including clauses specific to Community Bank® companies) and the governance practices in place within the various ownership structures. The Working Group also discussed the eligibility of some Community Bank® companies receiving ATO charitable status, however as very few would be eligible to apply and into the future possibly loose that status should they decide to expand into other communities, no action to progress the discussion was taken. In this section the Working Group discussed the internal changes in the modelling of the feasibility survey results for inclusion into the standard form prospectus. The Working Group noted the recent procedural change to no longer place financial modelling in the prospectus, but rather utilize the internal historical growth data to form the basis for modelling as part of business planning communities as positive change. The requirement for business on the books was also viewed as positive with requirements moving from $0 or some to $5m, to currently $10m also being positive. No negativity in a case by case basis for Community Bank® boards expanding into additional sites setting business on the books to over $10m has been expressed. The Working Group explored the roles and responsibilities of Community Bank® directors (and noting the models discussed possibly the term Custodian of Members funds is more appropriate). The Working Group noted that the Corporations Act does not discriminate between volunteer or paid directors, nor does it discriminate between new directors and those that have been directors for a significant period of time. The Working Group noted that Community Bank® boards are required to observe the requirements of: ASIC, the Corporations Act, the Franchises Agreement, the Company Constitution, BEN Operational Manuals, National Stock Exchange or Low Volume Market Rules, Accounting Standards and various other Government (State and Federal) Acts – including OH&S, Privacy Act, Banking Code of Conduct, FSRA, NCCP, ATO etc. The Working Group also looked at whether there is an obligation by BEN to provide director education programs to assist what are generally considered as non-professional directors. Some Community Bank® boards have introduced a board policy (Director Induction) making it compulsory for directors to attend designated education programs. The Working Group felt that on-going education programs (both internally provided and external) should be encouraged. The Working Group explored the risks (external and internal – bank related) associated with a Community Bank® company and the mitigating controls available to adhere to both internal (BEN operational risks) and external risks (most notably legislative requirements). The Working Group also noted risks associated with the company (e.g. non-adherence to the Franchise Agreement, ability to attract new directors, ability to attract new shareholders, lack of board policies, lack of share trading mechanism etc). The Working Group noted that through direct contact with BEN Regional Managers, assistance from the Community Banking and Engagement Department, paid professionals (e.g. solicitor, accountant), attending Director Education


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programs, assistance is provided to minimize the risks to the business. It is incumbent on the board to seek and act on the assistance available. The Working Group noted the options to expand the Community Bank® business to other towns observing that the current options available are an agency, sub branch, franchise branch and Community Bank® branch. The Working Group also noted that there are variations to the above options which clouds the suite of options available, and in some cases the sub branch and franchise branch model is discouraged. The Working Group discussed the support provided to those Community Bank® companies which are struggling to make profits and felt that providing a guidance document to boards through the eRoom would benefit all boards in growing the business and potentially avoiding the need for BEN assistance with such options as an overdraft. Other challenges such as perceived lack of flexibility in the budgeting process (BEN imposing the budget expectation and the lack of flexibility to allow a stretch budget), lack of Board Policies, inconsistency in bonus payments for exceeding expectations at branch level were noted. Competition / market-place factors The Working Group explored current alternative services providers including the major banks, credit unions, industry banks (such as ME Bank), other regional banks, church funds, mortgage brokers, foreign banks, private franchise models such as BOQ, and those claiming to provide community bank services. Most of the above have stepped up their communication of their deeds and funding (sponsorship or donations) to the wider community in the community space of the community bank story. Many of the competitors use competitive pricing models, have perceived more liberal lending practices, allow branches to more liberally utilize brokerage firms (with appropriate remuneration options), and their key business writers having the appropriate back office support to act as Business Development Managers. The Working Group noted that there continues to be a possibility of new entrants to the market, most notably Australia Post potentially applying for a banking licence. The Working Group also noted that some Community Bank® companies and some BEN corporate branches saw each other as competitors. There is also the prospect of fellow community partners being potential competitive service providers. Current partner service providers such as Rural Bank, Sandhurst Trustees, private franchises, Delphi Bank and Adelaide Bank (through Third Party Mortgages) could also be construed as being part of the competition. This may be due to the reduced income or no income stream available. The Working Group investigated other franchise models such as McDonald’s, Jim’s Mowing and similar franchise service models, Pacific Seven (7 Eleven) and Eagle Boys Pizza. In each case a percentage of turnover was provided to the franchisor for national marketing with a percentage also available for local marketing initiatives. The Community Bank® model structure was noted by the Working Group as forming a key part of the franchise’s unique point of difference. The working group noted:

• Local decisions by local people on local issues;

• Local community ownership;

• 50/50 revenue share;

• Market Development Fund (which could be utilized more effectively);

• No commission paid to support teams (e.g. Financial Planners and Business Banking team), along with no salary cost to the community partners, however lower income streams payable to Community Bank® companies.

The Working Group noted that some Community Bank® companies are now providing additional services to banking within their business (e.g. WA – relationship with Dept of Roads, Vic – Vic Roads), and some are


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offering space for complimentary service providers such as solicitors or accountants. Other services being offered include telecommunications, collecting of council rates, in the past bio-diesel.


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2.3 CS03 Working Group: Capital and Operational Expenses 2.3.1 BACKGROUND The CS03 Working Group was formed to conduct a comprehensive analysis of the capital and operational expenses incurred in the current bank branch model, taking into account establishment hurdles and measuring time-to-profit performance.

The Working Group comprised the following members:

• Trevor Hans (BEN) • Maz Dowling (Community Bank® director) • Dick Menting (Community Bank® director) • Jim Beveridge (Community Bank® director) • Allan Rutter (BEN)

The Working Group initially met on an ad hoc basis before establishing regular weekly meetings between 8 April 2014 and 13 May 2014. 2.3.2 SCOPE OF ANALYSIS The following items were considered within the scope of the Working Group: • Analysis of costs and expenses associated with capital expenditure and start up costs (as an input to

both the Effort & Reward and Future State work streams, where this information will be used as a basis for further analysis and modelling);

• Analysis of costs and expenses associated with operational expenditure after start up; • Commentary supporting the analysis and research.

The following items were considered outside the scope of the Working Group: • Individual, region or state based branch analysis or comparison; • The release of confidential BEN info that may breach our continuous disclosure obligations; • Financial modelling – to be covered by the Effort & Reward and the Future State work streams; • Analysis of systemic issues that may impact the model – to be covered in the Future State work

stream. 2.3.3 RESULTS Research and analysis focussed on three key areas of costs, as described in the sections below. Analysis has been prepared on the basis of a stand alone branch for a new Community Bank® company and does not factor in the variances that can result from an expansion branch for an existing board.

Up front capital expenses The average minimum capital requirement for the last six stand alone sites has been $750K made up of Up Front Capital expenses of -

o Franchise establishment fees - $120K - these have not changed for a number of years; o Feasibility expenses – range of $5k to $15k – amount has remained constant as accountants have

discounted the actual cost price as an opportunity to get future business; o Branch fit out – range of $200k to $250k; o Upfront salaries – range of $15k to $25k - to enable pre-opening training of staff; o Working Capital – in the range of $300k to $400k.


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In reality the only two significant areas of variability are Branch Fit Outs & Working Capital. Branch fit outs have been an area of focus for Group Properties over recent years and have reduced on average by approx $40k, of which the key factors have included:

• Reduced signage costs; • Reduced security costs in line with minimum standards; • Focus on base building works being undertaken by landlords; • Smaller branch requirements as a consequence of ‘open plan’ branch layouts – reduced sq

metres.

Working capital requirements are influenced by operational expenses in conjunction with Banking Business volumes at opening. BEN has placed an increased minimum expectation of $10M Business on the Books for all new sites - this provides for more income from day 1 for new sites thus reducing minimum working capital, the level of which is dependant upon the business mix of the accounts.

BEN provides comparable branch analysis and Trended data for the purpose of assisting a proposed Community Bank® company and its advisers in estimating revenue, expenses and working capital requirements for the proposed Community Bank® branch. The data provides estimates for a comparable branch, not the actual proposed Community Bank® branch.

The data is provided for the first 3 years trading and is estimated using:

1. Footings and revenue: the balance of deposits and loans (Footings) of comparable Community Bank® branches using estimated data (margin and commission) and actual historical data (fee income), and;

2. Expenses: a combination of estimated expenses using calculators (e.g. for computers, staff etc), estimates (e.g. utilities) and quotes (e.g. rent), and, if available reported expenses of existing Community Bank® branches in the same geographic area as the proposed branch.

The estimated revenue and expense data is then aggregated, averaged and assessed for variability. The averages are then used to produce three possible performance scenarios of revenue, expenses and profitability over a three year period for a comparable Community Bank® branch. This information is provided to the proposed Community Bank® company and its advisers to review and consider in the context of the proposed branch.

Operational expenses Many of the standard operational expenses or 'running costs' are subject to BEN national contracts. The aim of a national approach is to deliver economies of scale via BEN’s network negotiating opportunities, these include -

• IT line rental, lease and support costs; • Some insurances; • Stationary; • Staffing; • Freight and cartage - including cash delivery; • Utilities.

BEN’s Corporate Sourcing group provide the central point of expertise for procurement of the supplies needed to run an efficient bank. Where the Bank can improve the value equation, it offers a similar deal for the benefit of Community Banks. The two largest ongoing operational expenses for boards are typically rental and staffing costs - staff costs are in the range of 50% to 60% of total annual expenses. Rental is negotiated between the Community Bank® company and the landlord.


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Staffing costs are impacted by BENs Enterprise Agreement 2012-2015, guidance parameters for salaried staff and staffing levels and structures are set with guidance from BEN and in line with BEN’s operational requirements – including opening hours. For example, the current policy requires that there are two staff members in a branch at all times to ensure cash security processes are adhered to and to also enable the Branch Manager the opportunity to write business both within the branch and in the broader community.

Establishment hurdles The following are some key challenges involved with both setting up a new branch and also within the initial years of operation identified -

• Director expertise, skills and motivation levels to continue the ongoing operations of the company; • Ability to participate in director training can be impacted due to the number of volunteer hours required

by directors; • Amount of capital required to establish a new branch

o Community motivation; o Amount of time and resource required to establish a new branch - in particular the length of the

campaign can impact director fatigue and motivation and can result in steering committee members not transitioning to the actual board,

• Difficulty in writing business in initial years of operation - business drivers have changed – and example of this is early sites had benefit of major bank anger as a result of removing banking services;

• Difficulty in attracting/retaining experienced and capable branch staff - in particular branch managers; • Model structure - publicly listed companies bring a level of corporate governance and legislative

requirements; • Competition from BEN and other Community Bank branches in the area of a branch – in that potential

customers of the new branch may already bank with BEN; • Potential loss events that cannot be budgeted for – i.e. fraud; • Shareholder expectation of dividend payments not being achieved may result in shareholders losing

their advocacy of a branch; • Business on the Books is restricted to new business solely and doesn’t take into account existing BEN

customers who want to support a new branch – that business can only be transferred once a branch opens and only if a customer takes the time to come into the new branch;

• Expense control in first few years of a new branch needs to be disciplined. If reactive decisions are made based on first few weeks trading this can have a negative impact on time to profit – i.e. additional staff hours or PCs.

CS03 APPENDIX A – Time to Profit

The historical information for the 2013 financial year Annual Reports shows that the majority of Community Bank® companies have operating losses for the first four financial years of operation. In each financial year from year five onwards, at least half of all Community Bank® companies have operating profits.

Net profit (after tax and community contributions) and earnings per share

• Across the network for all companies, 153 (71%) of 217 Community Bank® companies posted a net

profit (after tax and community contributions) and positive earnings per share for the 2013

financial year.

• Of the 22 companies that had traded for less than 3 financial years, 2 (9%) recorded a net profit

(after tax and community contributions) for the 2013 financial year.

• 15 (41%) of 37 companies that had traded for a period of between 3 and 6 financial years as at


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the end of the 2013 financial year recorded a net profit (after tax and community contributions)

for that year.

• 136 (86%) of 158 companies that had traded for more than 6 financial years as at the end of the

2013 financial year recorded a net profit (after tax and community contributions) for that year.

The majority of the historical information is data for companies that have a single branch, but it also includes data for companies that have more than one branch

For Community Bank® companies opening an additional branch, performance may be impacted due to the

age, capital position and profitability of the company at the time of opening the additional branch. Given

these variances it is not possible to identify specific trends relating to the performance of companies

operating more than one Community Bank® branch.


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2.4 CS04 Working Group: Establishment Pipeline 2.4.1 BACKGROUND The CS04 Working Group was formed to analyse the Community Bank® model establishment inquiry pipeline, by time, circumstance and market including exploration of factors contributing to current demand trend. The Working Group comprised the following BEN representatives:

• Drew Downie • Allan Rutter • Scott Elkington • Bryan Swift

2.4.2 SCOPE OF ANALYSIS The Working Group identified three Community Bank® branch characteristics/measures which could indicate the potential success of a Community Bank® branch. They are:

1. Origin – by BEN or community;

2. Campaign length; and

3. First year footings.

2.4.3 RESULTS 1. Origin – by BEN or Community This analysis used historical NPAT and footing s data to identify whether the origination of a Community Bank® branch, either by BEN or community, has an impact on the performance of branches total footings and Net Profit After Tax (NPAT). The period of the analysis is from 2001 to 2013 and used monthly footings but from 2007 to 2013 for NPAT data. The analysis reviews performance of footings and NPAT across the four remoteness categories and by the surveyed states of Victoria, Queensland and Tasmania. Note, due to small sample sizes in Tasmania, only Victoria and Queensland have been analysed in isolation


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National (Vic, Qld & Tas) Across the three states analysed, community originated Community Bank® branches commence operations $7m in footings below BEN originated branches but overtake BEN originated branches after almost eight years (92 months) of operations.

NPAT for both BEN and community originated Community Bank® branch branches commence operations at almost identical NPATS, ie. losses of $135k and $143k respectively. In addition, both BEN and community originated branches follow each other’s profitability trends for the 12 years of the sample period to achieve the same NPATs of $345k. Both achieve breakeven NPAT at the three years and four months point.


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Major Cities For Major Cities, community originated footings start at $10m less than BEN originated but overtake BEN branches after nearly four years into operations.

Both community and BEN originated branches commence operations with losses of $154k. Community originated branches, however, increase their NPAT margin by $29k over BEN originated branches after the eight years of sampling.


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Inner Regional BEN originated branches commence operations at $12m more than community originated branches and increase this margin to over community originated branches to $19m over the eight years of the analysis.

Similarly, BEN originated branch NPAT starts $60k higher (lower loss) than community originated branches. This margin reduces over the 8 years of sample data but is still greater than community originated NPAT by $23k.


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Outer Regional BEN originated branch footings start at $2m higher than community originated branch and increase this margin to $35m over the eight years of the analysis.

Community originated NPAT is $37k higher (lower loss) than BEN originated branches but BEN originated branches overtake community originated branches for NPAT after two years of operations. BEN originated branches will generate almost double the NPAT, $215k, of community originated branches after the eight years of operation and maintain a margin of $89k over community originated branches.


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Remote BEN originated footings start at $5m more than community originated branch footings in the first year of operations and grow this dollar margin to approximately $9m over a five year period.

BEN originated branch NPAT starts at $2k lower loss than community originated branch footings but increases this margin to $11k over the five year period of operations. Both BEN and community originated branch NPAT maintained losses over the period of the survey of $15k and $26k, respectively.


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Victoria Victorian BEN originated footings start at $10m more than community originated branch footings in the first year of operations and increase this margin by $2m to more than $12m over the next seven and a half years.

BEN and community originated branches start operations with losses of $128k and $142k, respectively and maintain similar NPAT trajectories. BEN originated branches are perform better by $5k at the eight year point of the analysis.


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Queensland BEN originated branches commence operations $3m higher in footings than community originated branches but BEN originated branches are over taken community originated branches the after 3 years of operation. BEN and Community originated footings achieve footings of $109m and $103m, respectively after 12 years.

Queensland BEN and Community originated branches commence operations with losses around $150k. BEN originated branches grow their NPAT at a greater rate and are $100k ahead of community originated branch NPAT after 12 years of operation.


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Observations The following is a summary of observations from the branch origin analysis: • Based on the statistical trending approach adopted in the review, it would appear that BEN origination

branches tend to perform better in the Inner and Outer regional areas in the short and long term for both annual average branch footings and annual branch NPAT.

• Community originated branches tend to perform better in Inner City areas for both annual average branch footings and annual branch NPAT, with footings performing better for community originated branches in the medium term.

• Although the analysis indicates that BEN origination branches perform better than community originated branches for both footings and NPAT in Remote areas, the small size of the sample means that this outcome should not be relied upon.

• in both Victoria and Queensland, BEN originated branches perform marginally better than community originated branches across all criteria, except for the performance of footings for community originated branches in Queensland which perform better after four years of operation.

2. Campaign length The Campaign Length analysis tried to identify whether campaign length had an impact on profitability of Community Bank® branches. The available data included campaign, length in months, for 51 branches with an average of four corresponding historical NPATs for each branch (i.e. sample size of ~200). Branches from all states and NT, and all four remoteness classifications were included in the analysis. The campaign lengths were grouped into three categories of like sample data size of;

• 10-20 months;

• 20-30 months; and

• >30 months.

Observations The outputs indicated that campaigns which last >30 months commence operations with significantly lower losses but grow profitability at a lesser rate than the 10 to 20 and 20 to 30 month campaign branches and are less profitable after five years of operations. Community Bank® branch campaigns which lasted 10 to 20 months and 20 to 30 months appear to have similar NPAT growth in the mid-term, with 20-30 month campaigns outperforming 10-20 month campaigns by $28k after five years of operations.


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Campaigns between 20 to 30 months reach breakeven NPAT first at 38months, while >30 campaigns and 10-20 month campaigns reach breakeven NPAT at 43 and 44 months respectively, showing no correlation between longer campaign and time to breakeven. 3. First year footings This analysis assessed the value of first year footings on long term profitability. The analysis included 266 branches covering all states and territories with corresponding monthly, NPAT data covering 12+ years. Footings data were grouped into six categories of sample data starting at footing of less than $10million and increasing in increments of $5m to greater than $30m on first year footings. Observations The size of footings on commencement of business (Year 1) clearly shows a correlation with relative growth in NPAT in the long term (i.e. the higher the footings the greater the NPAT growth). The exception is $20m-$25m branches, which start at equally highest loss with <$10m branches and out performs >$30m after 12 years of operation.


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Community Bank® branches which have first year footing of $10 to 15m and <$10m take 60 to 70 months, respectively, to reach break even. Note: this assumes nil donations and sponsorship.


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2.5 CS05 Working Group: Non-Financial Value of the Model 2.5.1 BACKGROUND The CS05 Working Group was formed to conduct an assessment of the non-financial value created by the Community Bank® network, from the perspective of all stakeholders. The Working Group comprised the following members:

• Colin Dunn (Community Bank® director) • Chris Nash (BEN) • Keith McLuckie (BEN) • Barry McKenna (Community Bank® director)

The Working Group initially met on an ad hoc basis before establishing regular weekly meetings between 25 March and 16 May 2014. Special recognition should be given to Colin Dunn who was responsible for much of the substantive work of the Working Group. 2.5.2 SCOPE OF ANALYSIS The following items were considered within the scope of this Working Group:

• Assess the value created by the Community Bank® model from a non-financial perspective. • Consider value from a BEN point of view and a community point of view. • Determine and define what is meant by ‘non-financial value’, and identify this from the perspective of

all stakeholder groups. • Develop a framework to assist its analysis of this topic. • Consideration of the results of the various engagement surveys.

The following items were considered outside the scope of this work stream:

• Individual, region or state based branch analysis or comparison. • The release of confidential BEN info that may breach continuous disclosure obligations. • Financial modelling – to be covered by the Effort & Reward and the Future State work streams. • Analysis of systemic issues that may impact the model – to be covered in the Future State work

stream.

2.5.3 INTRODUCTION The Community Bank Network is a social entrepreneurship network One of the mantras driving the Community Bank® model is ‘building the community balance sheet’. This is done via the use of sponsorships and donations that create community assets without any increase in debt. Through this work, Community Banks® help solve community problems and enable community groups and organisations to survive and grow. In doing this, Community Banks® help develop community spirit and a sense of belonging. In this way community banks are demonstrating social entrepreneurship. A social entrepreneur can be defined as: “A person who pursues an innovative idea with the potential to solve a community problem. These individuals are willing to take on the risk and effort to create positive changes in society through their initiatives. Examples of social entrepreneurship include microfinance institutions, educational programs, providing banking services in underserved areas and helping children orphaned by epidemic disease.” 10

10 http://www.investopedia.com/terms/s/social‐entrepreneur.asp


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Whilst Community Banks® must make profits in order to survive, unlike other banks, one of their mandates is to grow community assets through generous sponsorship and donation programs – often using the purpose built Community Enterprise Foundation. Since 1998, Community Banks® have returned over $110 million to the Australian community, much of which has resulted in a substantial growth in non-financial value. The Community Bank® network is a true social entrepreneurship model. Qualitative and quantitative data Unlike financial value, which relies on quantitative and measurable data, measuring non-financial value is difficult relying as it does on opinion. Conclusions drawn from qualitative data are inherently more open to question than quantitative data. And, in the case of the Community Bank® network, there is a nexus between financial value and non-financial value. Inevitably, as a bank improves its level of local sponsorship in dollar terms, for example, the brand is likely to have greater local recognition and a greater sense of ‘non-financial value’. In this section an attempt has been made, in a limited amount of time, to gather as much evidence of non-financial value as possible. More work should be done on this as it is contended that the value of the brand is directly related to non-financial value – which in turn has been affected by changes in financial value. See Appendix 2 for a discussion on measuring social impact. Definition of non-financial value Deloitte conducted a research study in 2007 and the report was called In the Dark 1111. It enquired via workshops into the views of CEOs and other senior business leaders about what constituted financial and non-financial value in a corporation. Consensus formed around the following: • Customer satisfaction was rated at 98% approx.. • Product and service quality 97% • Financial results 96% • Operational performance 95% • Employee commitment 93% • Quality of governance and management 92% • Innovation 80% • Brand strength 77% • Quality of relationships and external stakeholders 75% • Impact on society and the environment 65%

It can be seen that the majority of ‘values’ that were ranked were non-financial. Using this framework, below is an attempt to begin to articulate the feedback from a range of stakeholders about non-financial value created by BEN and its Community Bank® network. The analysis process examined in detail the responses obtained from the External Survey of Community Bank® directors and the Internal Survey of BEN staff (as outlined in Section 1 of the Current State Preliminary Report. Themes were assessed and ranked in accordance with an aggregation of response rates reflected in External/Internal survey data (see Appendix 7), and were merged with other themes where it was considered that the feedback was common to each.

11 http://www.investorvalue.org/index.htm


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2.5.4 ANALYSIS 1. Customer satisfaction: people-focussed model

• In October 2013, customer satisfaction for the Bendigo Bank was 86.9%, well above the four major banks (79.6%) and total banks (81.2%)12.

• People see the value of highly personalised connection to their customers. (Work stream meeting) • Supporting local business through promoting local shopping – 30% extremely important and 48%

important.13 • Local staff known to customers in other capacities. (Pambula board) • More local and personal service (Pambula board) • Based on a people service model (Pambula board)

2. Product and service quality • Importance of 'Providing banking services to the community - 53% extremely important and 36 very

important.14

3. Employee commitment (and pride)

• Local bank managed by local people for the benefit of the local community (LGA)15

A recent staff survey16 yielded some interesting results:

This demonstrates a high level of commitment from both BEN staff and Community Bank® staff, much higher than other financial service organisations and the Australian average.

12 Customer Satisfaction Consumer Banking in Australia Monthly report October 2013 Roy Morgan Research. 13 Future Focus of Community Banking, Community Bank shareholder analysis – Sarah Wrigley and Chris DeAraugo Slide 19 14 Ibid 15 Answer to Horizon questionnaire completed by the local Shire Manager 16 Engagement results vs benchmarks – internal staff document


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Once again demonstrating that both BEN and Community Bank® network staff show a high level of commitment to the success of the organisation, much higher than other financial service organisations and well above the Australian average.

Community Bank® staff show greater pride in their employer.


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As a result of being proud in what they do and where they work, Community Bank® staff tell others and to a much greater extent than BEN staff and well above the Australian average. 4. Quality of governance and management

• People have discussed how they, as individuals, have grown professionally and personally as a result of being directors. (Work stream meeting)

• Importance of 'Providing new leadership and Governance structures for the community’ – 18% extremely important and 40% important. 17

• Local governance seen as a real strength (LGA) • Local management and control very important (Pambula board)

5. Innovation: Provides community engagement

• Local Community Banks® are not as beholding to the larger corporate ‘owner’. Boards of these banks, whilst operating as a franchise and bound by that agreement, are able to embark on quite innovative ways to support their local communities. The Community Sector Banking (CSB) group was able to provide support to extend The Range Community Children’s Centre in Melbourne’s inner south. Other banks needed the building as security the CSB did not.18

• Importance of other opportunities 'Using the existing retail space to provide new services to the community’ (e.g. a community hub, Internet café, other retail products and services etc) – 11% Extremely important, 22% important and 35% somewhat importance19

• Through the convening of Community Ideas Forums (LGA) • Free wifi in town (Pambula board) • Offers storage space for files of community groups (Pambula board) • Offer free meeting/office space and facilities for local community groups (Pambula board)

17 Future Focus of Community Banking, Community Bank shareholder analysis – Sarah Wrigley and Chris DeAraugo Slide 19 18 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 34 19 Future Focus of Community Banking, Community Bank shareholder analysis – Sarah Wrigley and Chris DeAraugo Slide 19


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6. Brand strength

• It is our Point of Difference – creates a unique positioning for BEN and builds our brand. Provides business building and growth opportunities not otherwise available to us20.

• 80% of shareholders agreed that ‘Having a Community Bank branch in our area’ has, and will, encourage investment in our community (50% Extremely important and 39% Very important).21

• A commitment to support struggling sites by BEN has strengthened the brand by being seen to be committed to a town. (Work stream meeting)

• Quick response to community needs (Pambula board)

7. Quality of relationships with external stakeholders

• Many Community Banks® have fostered relationships with local government. For example, the Collie Community Bank® leveraged funds through ‘building relationships with local, state and federal government’.22

• Importance of other opportunities 'Supporting local youth through programs such as university scholarships, sporting and arts scholarships, youth programs, financial basics seminars etc (34% Extremely important and 43% Very important).23

• Provides leadership in the community and an example of good governance. (LGA) • It has the potential to support large projects across the Shire. (LGA) • Very important in supporting community groups across the Shire. (LGA) • Supporting local business - being a member of local business groups (Chambers of Commerce) • 'Our local Community Bank branch is an important part of our community’ (54% Agree strongly and 37%

Agree).24

8. Impact on society and the environment

• Directors being able to put something back into the community and making people happy. Making a positive and tangible difference for the better. (Pambula shareholder survey)

• High consensus amongst shareholders that communities are a better place to live and work now that ‘we have a community bank’ (50% Agree strongly and 38% Agree).25

• The Community Bank® has provided a key role in building the confidence of the local community. (LGA)

• The bank has increased the employment level in Pambula. (LGA) • Helping to build confidence in the community through its investment and time and effort of board and

staff (Pambula board) • Many Community Bank® franchises (including Pambula, NSW and Cummins in South Australia) have

resulted in returning banking services to towns that have lost their banking services. This has also resulted in the providing community capital and community initiatives and helped restore many other services to towns e.g. in Cummins medical services.26

• A Deloitte Access Economics Report in 2013 observed that the ‘Social benefits (of the Community Bank® model) included community pride and participation, enhanced volunteerism, human capital development, wellbeing and networking – both within and between organisations’27.

• During the fires in January 2014 the Mundaring branch in the Perth Hills ‘connected members of the community, helping to organise a number of community forums to solve immediate problems and also plan for future events’. 28

20 6th March 2014 – Current State Internal Engagement Summary and Overview Report 21 Future Focus of Community Banking, Community Bank shareholder analysis – Sarah Wrigley and Chris DeAraugo Slide 19 22 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 22 23 Future Focus of Community Banking, Community Bank shareholder analysis – Sarah Wrigley and Chris DeAraugo Slide 19 24 Future Focus of Community Banking, Community Bank shareholder analysis – Sarah Wrigley and Chris DeAraugo Slide 17 25 Ibid 26 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 8 27 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 15 28 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 13


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• Community Banks® contribute enormously to the retention of local services and jobs. The Nathalia

Community Bank® in Victoria helped fund the construction of a building for Parks Victoria’s use. They used local tradespeople with the resultant impact on community spending. The building then became available for low cost rental and 16 jobs were created.29

• Community investments have a flow-on economic contribution and these investments are maximised when the investment draws on goods and services provided locally. Less tangible benefits would include, for example, new visitors being attracted to a town because of a recently renovated recreation facility funded by a local Community Bank®.30

• A number of Community Banks® have supported the development of community hubs that provide community services as well as business services such as business writing and advice based services. For example, the Board of the Ringwood East Community Bank® acquired premises to house the Ringwood and Heathmont Community Bank branches and ‘through a partnership with Maroondah City Council and local business initiatives extended use of the site to establish a Community Hub for the local area’.31

• [The Bank] has been responsible for supporting and enabling a prosperous, sustainable and inclusive local economy – and the results can be seen firsthand.32

• It’s not just about providing banking services, the model allows the community to be part of its success, so all can benefit33.

• Warringah Council and local government are advocates for this banking philosophy and the social and economic advantages it has brought to the local area34.

• The Community Bank® built on the resilience of the community, providing not only the finance but also the opportunity for the community to unite for a common purpose35.

• The Mareeba and Dimbulah Bank developed a unique program in support of local homeless people. It did this by networking with key players and it had significant local outcomes.36

CS05 APPENDIX A ‐ MAREEBA HOMELESSNESS PROJECT

Mareeba and Dimbulah Community Bank® Board37

In 2009 we hosted our first Community Forums in both Dimbulah and Mareeba to identify key projects for our communities. A variety of projects came forth, some of which appeared to be out of the scope and capacity of our Board. However what took place over the coming months were outcomes that far exceeded

expectations and highlighted the credibility of the Community Bank® Board and what can be achieved

through facilitation and working with our community.

MAREEBA HOMELESSNESS PROJECT:

At the time of this project Mareeba was experiencing significant anti‐social behaviour due to alcohol abuse and violence in the main CBD area, youth crime that was targeting businesses, issues from the release of prisoners from Lotus Glen in the main street, poor school attendance, and rough sleeping in park areas of the town.

The extent of the problems saw ‘Crisis Housing’ identified as a project at the 2009 Community Consultation

29 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 16 30 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 17 31 Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 page 23 32 Mike Baird (Member for Manly) note to the Financial Systems Enquiry 33 John Vaccaro (Harboard Financial Services) note to the Financial Systems Enquiry. 34 Michael Raegan (Mayor Warringah Council) note to the Financial Systems Enquiry. 35 Gary Bourke (Director, Rupanyup Minyip Finance Group) note to the Financial Systems Enquiry. 36 See CS05 Appendix A. 37 A contribution to the Financial Systems Review.


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Workshop in Mareeba.

To undertake the project the Board invited a wide range of Community Service Providers who worked in the field including Police, Lotus Glen Prison, Corrective Services, Centrelink, Council Social Services Department, Indigenous Organisations and other Not for Profit Service Providers from the community. The Board was encouraged by the stakeholders to also invite various Government Departments from Cairns to ensure Government was a participant in searching for a solution. The first meeting saw at least 25 representatives attend the meeting.

The meeting identified that this was the first time everyone involved in the issue (including Government) were seated at the same table.

The unique position of the Bank representatives was that we had no experience or knowledge of the industry or even of the many representatives who sat at the table. It was a huge learning curve however the lack of experience on our behalf became the positive as it enabled neutral facilitation and input. There was no history with the Bank, we were not representing one side or the other. We were there to try to address a concerning issue in our community that was becoming increasingly worse. We were as new to them as they were to us and this enabled constructive and open conversation about difficult issues. And without the Bank as the facilitator, this group would never have been established.

The initiative also provided a great opportunity for the Government agencies to address the Mareeba Service Providers in one group and really make progress from their perspective. It enabled open communication between local Service Providers and Government Agencies who often had to deal with the unfavourable outcomes of Government Policy – housing shortages, staffing shortages and funding cuts.

Quite early on in the process the Department of Communities advised of an upcoming trial project for the ‘Street to Home’ program that was the new way forward for Government to deal with homelessness. It was not about providing dormitory style accommodation – it was about placing people into homes and wrapping services around them that taught life skills – cooking, cleaning, paying the rent, budgeting and parenting.

It became evident that to be successful in applying for Mareeba to be chosen as the pilot location that statistics were needed to support the application. Many other rural towns across Queensland were going to apply for the program, and without hard evidence of the issues confronting Mareeba, we would not have been capable of lodging a successful proposal.

It was agreed by the group to approach the Board for $15,000 to contract a professional consultant to prepare a Feasibility Study that would provide the statistics and investigate the issues that were impacting the community, the Service Providers and those caught in the homelessness cycle.

This process involved advertising for a consultant, preparing a scope of works, and working closely with the Department of Communities to ensure content of the study would meet the requirements of the pilot

program. This saw very strong linkages develop between the Community Bank®

and Government Departments. Everyone was doing their utmost to ensure Mareeba was chosen – as this would have positive outcomes for the Department of Communities in Cairns and the local Service Providers. The Bank provided their Assistant Secretary to co‐ordinate and organise the project which involved considerable time and it was due to this initiative that the project was able to meet the application deadlines.

It also saw strong linkages develop with the local Council – as they were nominated to administer the project due to the amount of money involved. The Government process was not in favour of a Not for Profit entity being responsible for such a large sum, and were looking for a sound governance structure.


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The outcome of the process was that Mareeba was the successful applicant chosen as the rural location for the pilot ‘Street to Home’ program that attracted $1.4 million over two years to our town. We were euphoric. It was such an achievement against all odds and the result did not come from just the provision of funding – but of the process that the Board undertook to facilitate all involved.

To date the program has seen over 500 people participate in the program, which involves 280 families. The success of long term tenancy is still being determined, but certainly the violent alcoholic incidences in town, the youth crime against business and rough sleeping have been significantly reduced. Local Service Providers are now working together with clients to improve outcomes.

Once the final agreements were signed with the Government the Board took a step back. They had achieved the objective and it was not up to the Agencies to pick up the Street to Home program and make it work. The Board continues to support the Mareeba Homelessness Reference Group through lobbying for continued funding and attending occasional meetings to keep abreast of what is happening in this area.

Homelessness Project Outcome Summary:

• The capacity of the Community Bank® Board to address an overwhelming and serious �community issue.

• The establishment of a Mareeba Homelessness Reference Group that bought Government Agencies and Service Providers together to find a solution to a serious community issue.

• This group still meets to this day and have now developed a Homelessness Strategic Direction Action Plan. • The relationship that developed between Government Agencies and local Service Providers was significantly

strengthened through this project enabling a more conducive partnership that will continue to deliver outcomes into the future

• The collaboration of local Service Providers to work together with clients to achieve better outcomes which continue to grow today.

• The Bank promoted the project within the Community as one of its key outcomes for that year which raised awareness of the issue in our community.

• The project raised the profile of what can be achieved by Community Bank® Boards – they are neutral and

have no hidden political agendas – and they have funds that can leverage Government investment to ultimately bring about better and greater outcomes.

• The project raised the profile of the Community Bank® model in sectors that the Bank had not previously

associated with. This also led to improved business outcomes at the branch. �In summary I would like to reinforce that Community Banks are not just about sponsorships and grants. Homelessness Project required only $15,000 for the Feasibility Study and administrative support through the Assistant Secretary �Our

Community Bank® Board was very pleasantly surprised at the outcomes that we were able to achieve

through this project and the partnerships that have been established. Our involvement has opened opportunities for the Board, for those working in these sectors, and for the community at large.

�Additionally these projects show that Community Bank® Boards and branches can also provide support

for Governments to work in partnership with communities.

Yours sincerely,

Gilbert Teitzel, Chairman, Mareeba and Dimbulah Financial Services Ltd


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CS05 APPENDIX B ‐ SOURCES 1. Deloitte’s report in 2007 In the dark http://www.investorvalue.org/index.htm 2. Pambula survey outcomes o 41 responses 62% over 60 years old o 90% shareholders o 78% customers

3. Pambula Board discussion 3rd December 2013 4. Survey by Manager of the Bega Valley Shire Council (LGA) 5. Horizon Work Stream Meeting Melbourne 18th December 2013 (Work stream meeting) 6. Customer Satisfaction Consumer Banking in Australia Monthly report October 2013 Roy Morgan Research. 7. Bendigo and Adelaide Submission to the Financial Systems Enquiry March 2014 8. Engagement results vs benchmarks – internal staff document

http://www.investorvalue.org/index.htm


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3 Data Collection and Analysis

This section of the report presents research and analysis conducted by the Current State work stream. Other areas of research that contributed to the report are set out in Appendix 6.

3.1 Methodology

3.1.1 Data collection

Information prepared for the Current State work stream was prepared over the period spanning December 2013 to June 2014 using the most current and complete data available at the time.

Sources of information include: Various BEN Management Reports and internal databases from 2001 up to and including 2013. General ledger of Bendigo and Adelaide Bank Ltd from 2001 up to and including 2012. Public annual reports of Community Bank® companies from 2007 up to and including 2012. Community Bank® prospectus documentation. Bendigo and Adelaide Bank Ltd 2013 full year results presentation – 19 August 2013. Various ABS statistics including Remoteness Area and population by State Suburb statistical area. Community Bank® company data as prepared for the quarterly network statistics. “Customer Satisfaction: Consumer Banking in Australia, Monthly Report October 2013” produced by Roy Morgan Research.

Notes Data only relates to Community Bank® branches, franchise branches and sub branches operated by Community Bank® companies. Any other specific exclusions will be noted on the individual analysis. Customer and account number data is only based on RFS-B data (i.e. excludes other products such as insurance, wealth etc). Private franchises are specifically excluded unless noted on individual analysis.

Risks Data and analysis results have not been subjected to internal review for accuracy, consistency and data integrity. External data cannot be checked for integrity only reconciliation to source information.


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3.1.2 Data analysis

Data analysis has been conducted with the intention of providing robust information which will inform and provide relevant insights for the Effort and Reward and Future State work streams and assist these streams in achieving their stated objectives.

Performance of the Community Bank® network has been analysed across numerous metrics including but not limited to:

Metric Footings Community Bank Company profit Community Bank Company Revenue Community Bank Company Expenses Community Bank Company Shareholder Capital Community Bank Company Dividends Community Bank Community Contributions Number of in branch transactions Customer numbers Customer growth Customer attrition Products per customer

These metrics have been analysed via different branch attributes to identify insights and systemic factors that may need to be considered, these include:

Attributes Time– i.e. trends from 2001 to 2013 Age – i.e. maturity impacts to compare branches over their life cycle Remoteness Area – measure of population and access to services and support

• Major Cities of Australia • Inner Regional Australia • Outer Regional Australia • Remote Australia

Number of branches per company

3.2 Selected data

The selected data reproduced on the following pages has been chosen based on the following criteria:

o The take outs are instantly recognisable; o The information is new (i.e. it has not been previously published); and o The information is deemed relevant to the Effort & Reward and Future State work streams.

The selected data is not exhaustive. General performance analysis will also be available to other work streams as a resource to understand the Community Bank® business and model.


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3.2.1 Community Bank® business performance

Community Bank® branches located in Outer Regional and Remote Australia demonstrated limits to their footings growth in the markets they operate, with Outer Regional in particularly reaching, on average, a ceiling at ~$50m in footings. In contrast, Inner Regional and Major Cities show strong and sustained ongoing growth in the markets they operate in.

Figure 1

299 Community Bank branches had total footings of $22,775m

135 96 54 14

1. Footings of Community Bank branches by age (years) - 2001 to 2013

# branches

Remoteness AreaMajor Cities

Inner Regional

Outer Regional

Remote

‐

25

50

75

100

125

150

1 2 3 4 5 6 7 8 9 10 11 12

Millions

Network Major Cities of AustraliaInner Regional Australia Outer Regional AustraliaRemote Australia


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Community Bank® branches located in Major Cities of Australia and Inner Regional Australia areas on average reach profitability in the 3rd year of trading. Outer Regional Australia branches reach profit, on average, in their 5th year of trading. Remote Australia branches take a further 12 months, reaching profit, on average, in their 6th year of trading. This is a systemic difference due to the location of the branches.

Figure 2

Branches operating in Major Cities make up 61% of total CB NPAT in 2012.

Total NPAT of CB Branches operated by Remoteness Area for FY to 30 June 2012 is below:

$93,963 $66,812 $46,024

Inner Regional

Outer Regional

Remote

2. Average Net Profit After Tax of Community Companies by Age (2007-2012)

Av erage Profit at 5 yrs

Remoteness AreaMajor Cities

($34,357)

‐300

‐200

‐100

‐

100

200

300

1 2 3 4 5 6 7 8 9 10 11

Thou

sand

s

Age (years)Network Major Cities of AustraliaInner Regional Australia Outer Regional AustraliaRemote Australia


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3.2.2 Community Bank® model affordability

Required capital to be raised has increased since inception of the model from ~$300k to ~$800k but has flattened out considerably since ~2006.

Figure 3

1. Capital Raised as at 30 June 2012 for each Community Bank Company by number of branches

‐

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

Dec 97 Dec 98 Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12

Thou

sand

s

Earliest branch open date

Single Branch Joint Multi‐site

The capital raised by Community Bank® companies as at 30 June 2012 by Remoteness Area shows that the amount of capital required has remained relatively stable for Major Cities of Australia, but has increased substantially for Inner Regional Australia, Inner Regional Australia and remote Australia. From a range of $300 - $800k between remoteness areas, the capital required in 2012 is in a range of ~$700 - $900k.

Figure 4

1. Capital Raised as at 30 June 2012 by Remoteness area and year of Community Company branch first opened ($'000)

‐

100

200

300

400

500

600

700

800

900

1,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Financial Year of first branch opening

Network Major Cities of Australia Inner Regional Australia Outer Regional Australia Remote Australia


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3.2.3 Community Bank® customer profiles and transactions

Customers acquired by Community Bank® branches do not reflect the national demographic distribution with Gen X and Gen Y clearly under represented. This either presents a clear opportunity in the markets we operate or it may reflect that the location of Community Bank®

branches are in areas with an older demographic.

Figure 5

Ov er represented in Baby Boomer segment.

Over represented in Gen Z & Baby Boomer segments.Under represented in Gen Y, Gen X and Pre Boomer segments.

1. Community Bank Customers by Generation

0%

5%

10%

15%

20%

25%

30%

35%

Gen Z Gen Y Gen X Baby Boomer Pre Boomers

ABS population pyramid 2006 BEN Population mix


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Depth of relationship is lacking in the Community Bank® network with over ~50% of customer only having one product regardless of the customers age however it is more pronounced in the younger generations.

Figure 6

There is a significant opportunity to deepen our customer relationship.

6. Proportion of customers with 1 product only by Generation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Gen Z Gen Y Gen X Baby Boomer Pre Boomers

% of 1 Product Customers

The number of transactions conducted in Community Bank® branches has been steadily dropping which means that branches can benefit from reduced resourcing dedicated to servicing (i.e. more time spent on sales) however this benefit is not available to branches in Remote Australia or Outer Regional Australia as their level of in-branch transactions have remained relatively stable.

Figure 7

Av erage transactions v olumes hav e dropped ~1,000 per month.

3. Average Monthly Transactions by Remoteness Area and Year

0

1000

2000

3000

4000

2005 2006 2007 2008 2009 2010 2011 2012 2013Network Major Cities of AustraliaInner Regional Australia Outer Regional AustraliaRemote Australia


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3.2.4 Bendigo Bank customer satisfaction

Customer satisfaction as a differentiator for Bendigo Bank has been steadily eroded by competitors over the last decade. This puts more pressure on the other components of the Bendigo Bank value proposition to remain competitive in the eyes of customers. This is evident amongst the major banks (Figure 8) along with other regional banks (Figure 9)

Figure 8

Figure 9


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4 Observations and Recommendations 4.1 CS01 Working Group: Strategic Assessment of the Model

4.1.1 Recommendations for the Effort & Reward Work Stream 1. Measures of success: The E&R stream should investigate and develop a set of the key indicators (and

potentially, predictors) of success (and struggle) for Community Bank® companies and branches.

2. The financial model should be updated to make it more transparent and accessible, with a more flexible model which can be tailored for individual circumstances of each site. Issues related to the sustainability of the financial model (e.g. variable rates and term deposits) need urgent attention as part of a product review.

3. Community Bank® Branch Managers’ reward and effort: The E&R stream should conduct an open discussion around the differences between Community Bank® and BEN Branch Managers, and whether the effort and reward arrangements for Community Bank® Branch Managers recognise the re nsibility and complexity of their roles (including the evening and weekend work required). As part of t rocess, the E&R stream should investigate BEN guidelines about employment and remuneration o d Community Bank® staff, particularly the Branch Manager.

4. Staff relief: The E&R stream should consider the issue of Community Bank® staff relief for planned and unplanned absences.

5. Rewarding volunteer directors: The general view is that the voluntary nature of boards is a key plank of the Community Bank® model and retention of it as a key characteristic should be emphasised. Attracting suitable volunteers to Boards is and will remain challenging. Other means of rewarding the effort and contribution of voluntary directors should be explored besides fees. The ability to offer a wider range of accredited training could be both recruitment and reward strategies worth investigating.

6. Cost Control: The E&R stream should consider what measures can be introduced in addition to those already proposed to ensure that the Community Bank® network can exercise greater local control over costs, including the use of local sub-contractors. The E&R stream should also consider the current set-up and on-going costs related to branch establishment, and investigate measures for addressing cost escalation and compare the cost/time of start-up of new Community Bank® companies against the likely reward/profitability of those companies. New steering committees must be made aware of the cost of delivery issues in a clear and consistent way at the outset of the campaign.

7. MDF: The E&R stream should investigate the provision of a greater share of the MDF to boards in the earlier stages of their operation, with adjustments over time.

8. Marketing spend: The standard form Franchise Agreement should be amended to mandate that all Community Bank® companies contribute to collaborative campaigns on a sliding scale related to location, age and profitability of site. In addition, while the MDF was established for the purpose of assisting Community Bank® companies ‘sell the story’ locally, companies were looking for marketing to allocate a proportion of their spend for this purpose.

9. RTB:

spohis pf seconde

The E&R stream should carefully and thoroughly analyse the impact of RTB 1 and 2 for correlation to age of company and location. The stream should canvass the views of Regional Managers as to the practical impact of RTB 1 and 2 on Community Bank® companies and consider the measurable effect and future implications of RTB on vulnerable Community Bank® companies and the fairness of an "across the board" approach.

4.1.2 Recommendations for the Future State Work Stream 1. IT support/training: BEN’s IT web-based support (e.g. eRoom, LENZ and Marketing Central) need

upgrading in terms of useability/user interface. A review and update of the eRoom needs to be undertaken as a priority. The provision of training to boards in eRoom access and usage, and the creation of specialised support/a unit directed at general IT skills (for boards as well as branch staff and managers) should be scoped and developed as part of the Board Training initiative, in consultation with


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view of BEN IT support to Community Bank® ce.

2. Transition from steering committees to Community Bank® boards: The adequacy of support to boards ers and the Community Banking

and Engagement Department should be critically assessed to determine if the current level meets the ds

. Networking: The creation and support of chair forums in regions/States needs to be strongly encouraged

be

overnment Authority (LGA) relationships: The development of these relationships should be

Strengthening Index) and identify ways of

orks, and to include less successful boards in the process.

ine/social media) must be

s should do more to sell their message to

lack of services in such areas and to spread costs

0. Process simplification: The Future State stream should investigate measures which would improve and ommunity Bank® branches, boards

CBSAB and the Community Engagement Department. A rebranches also needs to be undertaken to streamline assistan

and steering committees transitioning to boards from Regional Manag

nee of directors.

3to facilitate regular communication, discussion and feedback. Methods for encouraging peer to peer support, sister sites and other methods of engendering support within the network itself also need to explored.

4. Innovation: The Future State stream should explore how BEN can more rapidly develop and implement new ideas and innovative suggestions in the critical areas of product development and marketing.

5. Local Gconsidered as a special area of interest as a means of achieving the desired outcomes for Community Bank® companies. The Future State stream should critically assess successful projects which have involved leveraging between Community Bank® companies and LGAs (and other bodies) and determine the elements/criteria of success. The Future State stream should also examine the prospect of expanding the capacity of Community Bank® boards to add value to partnerships through governance and organisational rigour (e.g. through the Community facilitating regional projects which involve groups of Community Bank® companies and LGAs on projects of regional significance. There should be a drive to develop individual Community Bank® board capacity and expertise and netw

6. Community investment strategies: The Future State stream should develop a framework for community investment strategies. It needs to identify best practice in this area, and BEN should provide further guidance to Community Banks® on how to achieve effective and equitable community investment (while taking into account the differing needs and requirements of each community). The Future State stream should also explore world’s best practice in sponsorship/granting leverage/paybacks.

7. Marketing strategy: The Future State stream should examine and test BEN’s marketing strategy (including level of expenditure, direction of brand etc). There is a strong sense in the Community Bank® network that BEN's overall commitment to marketing falls short of what is required to address current and future challenges. This issue is exacerbated by the lack of marketing support to Community Bank® boards under the franchise agreement. The knowledge and commitment to marketing at the regional level (i.e. among Regional Managers and their staff, and Community Bank® chairs and directors) should be improved. Alternative/emerging forms of digital marketing (e.g. on-lembraced by both BEN and Community Bank® companies as a matter of urgency.

8. Community Bank® marketing: Community Bank® companiestakeholders (including LGAs) and the amount of marketing spend by Community Bank® companies must be more accurately reported. Community Bank® companies should embrace collaborative forms of marketing such as Community Bank® "sister-site" partnerships and national collaborative campaigns.

9. Multi-purpose agencies: The Future State stream should consider the establishment of multi-agency sites within rural/remote communities to address the over a wider compass of transactions. Proposals for potential expansion of the Community Bank® model should retain the core concept of the model. Provision of additional services or facilities (e.g. community hubs, agency services for utilities etc) should be seen as a way of supporting the banking infrastructure without impinging on services/ products (outside of banking) that compete directly with the existing community.

1simplify internal BEN systems and processes for the benefit of both Cand BEN.

11. Communication: The Future State stream should consider how BEN can more effectively consult, negotiate and communicate proposed cost impacts on Community Bank® companies of policy changes (for example, introduction of new uniforms). Also, Future State outcomes will impact some Community Bank® companies more than others, therefore an effective way of communicating changes and their


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ta; specifically age, gender, qualifications, diversity and inclusiveness, and skill sets)

impact and transitioning those changes is essential. In many ways, this aspect will be the hardest to achieve.

4.1.3 Recommendations for BEN 1. Board composition data: There is a need for better data on the composition of Community Bank® boards

(i.e. demographic dain order to understand how the changes in retirement age are affecting boards and also measure the diversity of boards.

2. CBSAB: The role of the CBSAB as a forum for dealing with network issues needs to be better communicated and understood. In addition, the CBSAB needs to streamline its processes in order to

where

itically assessed to

, Marketing Central,

al

EN and Community Bank® partners become significantly more innovative and nimble in

rk Streams

provide a more effective mechanism to respond to requests from the network for change.

3. Communications: BEN communications have erred on the side of confidentiality to the point Community Bank® companies do not necessarily understand where and what BEN has in the pipeline. This style is impacting on perceptions of trust and openness. Examples include customer technology innovation and trials and RTB2.

_________________________________________

[NOTE: the above recommendations are drawn from the specific recommendations made by the CS01 Working Group under each of the themes. These specific recommendations are as follows: Theme 1: Demands on Directors - Recommendations 1. There is a need for better data on the composition of Community Bank® boards (i.e. demographic data

on; specifically age, gender, qualifications, and skill sets) to understand how the changes in retirement age are affecting boards and also measure the diversity of our boards.

2. The adequacy of support to boards and steering committees transitioning to boards from Regional Managers and the Community Banking and Engagement Department should be crdetermine if the current level meets the needs of directors. Asking boards to define their support requirements from BEN would be a logical first step in this process.

3. The creation and support of chair forums in regions/States needs to be strongly encouraged to facilitate regular communication, discussion and feedback.

4. The role of the CBSAB as a forum for dealing with network issues needs to be better communicated and understood.

5. BEN’s communication platforms and IT web-based support (e.g. eRoom, LENZSocial Media) with requisite training for Community Bank® directors need to be improved.

Theme 2: Competitive Products - Recommendations

1. That the Effort & Reward and Future State Work Streams consider and address the criticcomponents noted above in their analysis.

2. That BEN explore new ideas and innovative suggestions in the critical areas of product development and marketing.

3. That the CBSAB streamline its processes in order to provide a more effective mechanism to respond to requests from the network for change.

4. That both Bresponding to competitive market pressures.

5. That LGA relationships be considered as a special area of interest by the Effort & Reward and Future State Wo

Theme 3: Benefits of Model - Recommendations

1. The Future State Work Stream should carefully examine the development of the Community Bank model in terms of the variable needs, abilities and opportunities of individual community companies.


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identify best practice in this area, and BEN needs to provide further guidance to Community nd equitable community investment (while taking into account the ach community).

xpenditure, direction of brand etc) requires examination twork that BEN's overall commitment to marketing falls

ll their message to stakeholders including LGAs. ®

l media) must be embraced by both

fort & Reward Work Stream investigate and develop a set of the key indicators of success ®

d for individual circumstances of each site should

view.

nces between Community Bank® and BEN Branch

should investigate BEN guidelines about employment ® staff, particularly the Branch Manager.

2. The Future State Work Stream needs to develop a framework for community investment strategies. It needs to

®Banks on how to achieve effective adiffering needs and requirements of e

3. Proposals for potential expansion of the model should retain the core concept of the model. Provision of any services or facilities (eg community hubs, agency services for utilities etc) should be seen as a way of complementing the banking infrastructure without impinging on services/products (outside of banking) that compete directly with the existing community. At this point in time, banking is still the core product offering because of its profitability and the experience of the BEN partner.

Theme 4: Community Engagement - Recommendations The Future State stream should explore world’s best practice in community investment through sponsorship/granting leverage/paybacks. Theme 5: Branding, Marketing, Advertising - Recommendations

1. BEN's marketing strategy (including level of eand testing. There is a strong sense in the neshort of what is required to address the current and future challenges. The knowledge and commitment to marketing at the regional level (i.e. among RMs and their staff, and Community Bank® chairs and directors) must be improved.

2. Community Bank® companies must do more to seCommunity Bank spend on marketing must be more accurately reported.

3. Community Bank® companies must embrace collaborative forms of marketing such as Community Bank® "sister-site" partnerships and national collaborative campaigns.

4. The standard form Franchise Agreement could be amended to mandate that all Community Bank® companies contribute to collaborative campaigns on a sliding scale related to location, age and profitability of site.

5. Alternative/emerging forms of digital marketing (e.g. on-line/sociaBEN and Community Bank® companies as a matter of urgency.

Theme 6: Financial Model - Recommendations

1. That the Ef(and struggle) for Community Bank companies.

2. The financial model should be updated to make it more transparent and accessible.

3. A more flexible financial model which can be tailorebe a priority.

4. That issues related to the sustainability of the financial model (e.g. variable rates and term deposits) be given urgent attention as part of a product re

Theme 7: Community Hub / Virtual Communities No recommendations made. Theme 8: Staffing, Recruitment, Development and Support - Recommendations

1. Conduct an open discussion around the differeManagers, and whether the effort and reward arrangements for Community Bank® Branch Managers recognise the responsibility and complexity of their roles.

2. As part of this process, the E&R Work Stream and remuneration of seconded Community Bank

3. The E & R stream should consider the issue of Community Bank® staff relief for planned and unplanned absences.


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and LGA entities on oard capacity and expertise and networks, and

y Strengthening Index).

pacts of policy changes.

rd Work Stream should investigate the provision of a greater share of the MDF to

ng Community Bank companies ‘sell ies were looking for marketing to allocate a proportion of

d regularly to both ank® branches be

update of the eRoom be undertaken as a priority, and training to boards in eRoom

the Board Training initiative, in consultation with rtment.

heme 14: Cost of Delivery of Model - Recommendations

1. The Effort & Reward Work Stream should consider the current set-up and on-going costs related to

ulti-

w

onsistent

Theme 9: Volunteerism No recommendations made. Theme 10: Partnership / Professional Collaborations - Recommendations

1. Critically assess successful projects which have involved leveraging with Community Bank® companies and LGA, et al and determine the elements/criteria of success.

2. Facilitate regional projects which involve groups of Community Bank® companies projects of regional significance to develop individual bto include less successful boards in the process.

3. Expand the capacity of Community Bank® boards to add value to partnership through governance and organisational rigour (e.g. Communit

Theme 11: Greater Local Control Over Costs - Recommendations

1. Effort & Reward and Future State Work Streams should consider what measures can be introduced in addition to those already proposed to ensure that the Community Bank® network can exercise greater local control over costs, including the use of local sub-contractors.

2. Future State Work Stream to consider how BEN can more effectively consult, negotiate and

communicate proposed cost im Theme 12: Community Understanding of the Model - Recommendations

1. Collaborative marketing campaigns on a regional basis should be encouraged to "sell the point of difference" in a locally relevant way.

2. Successful boards should be encouraged to assist others through a "sister-bank" concept.

3. The Effort & Rewaboards in the earlier stages of their operation, with adjustments over time.

4. While the MDF fund was established for the purpose of assisti ®

®the story’ locally, Community Bank compantheir spend for this purpose.

Theme 13: Technology - Recommendations

1. BEN communications on customer technology innovation and trials be communicateinternal and external networks. A review of internal IT support to Community Bundertaken to streamline assistance.

2. A review andaccess and usage, and a unit directed at general IT skills (for Boards as well as Branch staff and managers) be scoped and developed as part ofCBSAB and the Community Engagement Depa

T

branch establishment, and investigate measures for addressing cost escalation.

2. The Effort & Reward and Future State Work Streams should consider the establishment of magency sites within rural/remote Community Banks® to address the lack of cohesive services in such areas and to spread costs over a wider compass of transactions.

3. The Effort and reward Work Stream should consider and compare the cost/time of start-up of neCommunity Bank® companies against the likely reward/profitability of those companies.

4. New steering committees must be made aware of the cost of delivery issues in a clear and cway at the outset of the campaign.


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heme 15: Restoring the Balance - Recommendations

1. The Effort & Reward Work Stream should carefully and thoroughly analyse the impact of RTB 1 & 2 for

mendation

branches and Community Bank® boards. ethods of engendering support within

e network itself also need to be explored.

Both the Effort & Reward and Future State Work Streams take the strong message from the engagement

4.2

the company authorise so at an AGM, and that the company has a urplus, community and shareholders receive sustainable

red high; n options by either expanding or decreasing

gh the e-room in the ‘Business Expansion’

come driver or

rovide guidance in assisting directors ‘Telling the Story’;

T

correlation to age of company and location.

2. The E&R stream should canvass the views of Regional Managers as to the practical impact of RTB 1 & 2 on Community Bank® companies.

3. The E&R Work Stream to consider the measurable effect and future implications of RTB on vulnerable Community Bank® companies and the fairness of an "across the board" approach.

Theme 16: Internal Systems and Processes - Recom The Future State Work Stream should investigate measures which would improve and simplify internal BEN systems and processes for the benefit of both Community Bank® Methods for encouraging peer to peer support, sister sites and other mth Theme 17: One Size Does Not Fit All - Recommendation

process about "one size doesn't fit all" into account in their considerations, and examine the potential for change.

CS02 Working Group: Model Structure 4.2.1 Regulatory and Governance – Alternative ownership structures: Recommendations

1. A community ownership model be maintained; 2. Minimum Business on the Books of $10m be maintained and consideration may be required to

increase this amount; 3. Minimum number of local shareholders (close connection with the community) be maintained; 4. The volunteer aspect of the Community Bank® board to be maintained as long as practical; 5. Director remuneration (at an acceptable level) can be advantageous to attract directors provided the

members (shareholders) of willingness to pay, is in sustainable sdividends or investments;

6. Consideration be given to mandating certain director education in either the Franchise Agreement or with Board Director Induction policy;

7. BEN to provide a workable Director Education Matrix for boards to ascertain knowledge gaps for boards to discuss their own personal requirements;

8. BEN is seen as having an obligation to continue to provide access to Director Education programs, however take a national approach to content and also investigate and provide delivery options (face to face, self–paced learning, video or Skype conferencing, updates through You-tube) suitable to the directors. The current cost of some programs is conside

9. BEN to be consistent in providing business expansiooptions available and notifying the acceptable options throusection.

4.2.2 Competition / market-place factors: Recommendations

1. Consideration be given to payment and utilization of Market Development Fund to allow for shared and equitable cost-sharing for national marketing campaigns;

2. BEN representatives that attend board meetings should share successes in the network; 3. More clarification may be required as too the definition of a Community Hub – is it an in

adding to government services being provided or a mixture of both; 4. Coordinated visitation from BEN support staff visiting branches; 5. Maintain the point of difference and p


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6. Coordinate a consistent approach to revenue payments for BEN-provided services such as Rural may be seen as competitors rather than providing

an additional range of options for the customer.

4.3 ational Expenses

nt importance and veness is vital.

by the business as to FTE requirements

operations (i.e. is transactional banking by tellers essential? requirements?).

erstanding that sales is a fundamental

ontinue to ensure BENs training programs are sufficiently designed to capitalise on increased sales this should not just be limited to basic banking

ucts such as insurance and superannuation. 8. Where the opportunity presents, and it will have no impact on customer service, explore

o

ch fit

4.3.3 Take a regional approach to reduce costs and share resources at both branch and

ary, treasurer - potential for boards edgeable

Bank, Adelaide Bank (Third Party Mortgages) which

CS03 Working Group: Capital and Oper 4.3.1 Staff: Recommendations

1. As this is always the highest cost for any branch this area is of paramouinvestigation of efficiencies, not just in terms of cost but also effecti

2. There needs to be ongoing analysis and resultant discipline for branches - incorporating Opening Hours and staffing levels and roles in branches.

3. Continue process improvements already underway to make sales and service quicker and simpler for staff thus assisting in the conversion of opportunities into sales – for example LINX.

4. Early discussion as to the requirements and expectation as to types of services required could change the scope and expectation of Could this result in a reduced branch size and staffing

5. Ensure staff continue their focus on sales with an undexpectation of their role.

6. Undertake analysis of the cost to benefit outcomes of TCRs v traditional structures – does the cost involved with the deployment of TCRs justify the increased cost over a traditional branch set up?

7. Copportunities that TCRs are meant to deliver – products but should include subsidiary prod

pportunities for staff to complete administrative board functions. 4.3.2 Cost control

1. Ensure IT leasing and maintenance contracts negotiated by BEN are competitive and as efficient as possible and are using the latest technologies.

bran2. Undertake a benefit analysis investigating the option for new branches to finance the new out over the initial 5 year first term of the franchises, thus leaving “cash” to promote and build business – many new businesses have debt when first establishes.

3. Ensure there is more focus on printing costs –some branches have reported significant wastage of marketing material – anecdotally some branches throw out 50% of brochures/unused posters.

4. Scaling of costs with size of business – gear variable costs as much as possible with the low income at the start of branch life to reduce working capital needs. This should also include operating hours – for example does the new branch need to trade 9 to 5 every day and also open Saturday mornings. Branches should start leaner and then as customer requirements and also income allows, increase hours then. To increase hours sends a positive message however to reduce them is a negative message to the community.

5. Greater understanding and usage of benchmarking within regional branch categories with an aim to provide further guidance to monitor/gauge and enhance projected expenses/income.

6. Minimum Business on the Books of $10m should be maintained, however consideration should be given to increase this amount to provide a higher level of income from day 1;

board level

1. Many small branches have limited access to relief staff which can result in increased expenses if they are required due to them being provided from areas that result in travel and accommodation expenses being incurred.

2. A pool of relief staff, managed centrally, may reduce the subsequent costs. It would also ensure continuity of satisfactory service levels within branches.

cret3. Centralised director administration support – i.e. marketing, seto share the one resource which would offer a relevantly skilled and potentially more knowland effective resource.


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a current strategic/business plan cies by better planning, and

ntinually reinforced to boards and within the guidance available. ween boards and branches.

nd also real opportunity for boards ould be considered. ed approach to information delivery and communication –communication

4.4

panies should:

[Ref: 1. Customer satisfaction: people focussed model]

d service quality]

4. Enhance the opportunities for both the formalised and informal sharing of best practice ideas. 4.3.4 Director skills and board effectiveness

1. Ensure the disciplines are in place to enable every board to haveencompassing succession planning. Boards will achieve better efficienthe importance of this needs to be co

2. Investigate a mentoring program bet 4.3.5 Other items to consider

1. Investigate whether cost benefits can be achieved for board and directors if BEN negotiates preferred buyer arrangement for laptops/printers.

2. Introduce a more integrated software system to enable reporting of branch specific expenses back to BEN. The current process is time consuming and not efficient for both BEN and our Community Bank® partners. It would be more effective if the financial reporting mechanisms enabled financial information to be uploaded by both BEN and boards – i.e. BEN could load Payroll report information directly into the report as could Boards load external expenses into an interactive board report.

3. This recommendation would also improve the transparency of expense charges which are not always clear or easy to obtain and can result in time wastage for both BEN and boards in gaining clarity as to what the charges relate to.

4. General consensus from boards may express a lack of control or transparency over expenses. It is important that BEN is conscious that of the impact of a lack of, or delay, in consultation with the network as to changes or impacts in regards costs and expenses – i.e. new uniform.

5. The minimum $50k excess payable for either fraud by staff or the situation of staff not following policy could have a significant financial impact. Investigate whether a scaled approach, where the level of risk borne by a branch is dependant upon circumstances ato mitigate the risks sh

6. Implement a simplifiupdates could be delivered by a more structured approach of Monthly updates except for urgent updates. Directors currently get information overload. Implement a stronger focus on operational supp7. ort guidance/issues at either a centralised or regional level, due to the complexities of the actual model which does require specialised skills and knowledge to respond quickly and effectively. Continue to educate boards on effective community investment in conj8. unction with the Community Strengthening Index> This will assist boards in making decisions that will market their point of difference and leverage community investments to successfully grow their business.

CS05 Working Group: Non-Financial Value of the Model 4.4.1 Community Bank® com

1. Maintain and enhance their highly personalised connection to their customers; 2. Continue to promote shopping locally; 3. Employ local staff and encourage conversations with customers;

4. Diversify their product range;

[Ref: 2. Product an 5. Continue to recognise the strength of local staff in supporting the brand; 6. involve staff in the community work of the local bank;

[Ref: 3. Employee Commitment and Pride]


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7. Conduct a community forum and establish an on-going mechanism to continue the work of the forum to a

8. Establish a greater connection with local community groups;

11. Be the first responder to local disasters; ir community – when they can;

le professional development for existing and potential board

( chieve its objectives);

9. Foster relationships with local government and local volunteer groups; 10. Establish positive working relationships with local business groups;

[Ref: 5. Innovation: Provides community engagement]

12. Look to a major investment in the[Ref: 6. Brand strength]

13. Establish and maintain comprehensive networks across their community

[Ref: 7. Quality of relationships with external stakeholders]

4.4.2 BEN should:

1. Enable a greater degree of ‘freedom’ for local banks e.g. to try different models and techniques; [Ref: 2. Innovation: Provides Community Engagement]

2. Make available high quality and accessib

members; [Ref: 4. Quality of Governance and Management]

3. Encourage and support the fostering of relationships with local government and local volunteer groups.

[Ref: 7. Quality of relationships with stakeholders]

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