Branches 2017… · Branches scu.net.au Call 13 61 91 ... 2017 annual report. Sydney Credit Union Ltd ... Qualifications – Bachelor of Commerce (Accounting)

Campbelltown Shop U012, Macarthur Square Shopping Centre, Gilchrist Drive, Ambarvale NSW 2560

Fairfield Shop G50, Neeta City Shopping Centre, Smart Street, Fairfield NSW 2165

Greenacre 138 Waterloo Rd, Greenacre NSW 2190

Katoomba 63 Pioneer Place, Katoomba NSW 2780

Leichhardt 7–15 Wetherill Street, Leichhardt NSW 2040

Lidcombe 27–29 Church Street, Lidcombe NSW 2141

Marrickville Shop 7-8, 34 Victoria Road Marrickville NSW 2204

Mascot 1197 Botany Road, Mascot NSW 2020

Parkes 189 Clarinda Street, Parkes NSW 2870

Parramatta 207 Church Street, Parramatta NSW 2150

Penrith 16–20 Riley Street, Penrith NSW 2750

Rockdale Shop 5, Rockdale Plaza, Rockdale NSW 2216

Rouse Hill Shop GR092A, Civic Way, Rouse Hill Town Centre, Rouse Hill NSW 2155

Springwood 268 Macquarie Road, Springwood NSW 2777

Sutherland 20 Eton Street, Sutherland NSW 2232

Sydney City 210 Clarence Street, Sydney NSW 2000

Windsor Shop 7–8, 251 George Street, Windsor NSW 2756

Registered Office: 19 Second Ave, Blacktown NSW 2148

Branches

scu.net.auCall 13 61 91

Sydney Credit Union Ltd ABN 93 087 650 726 AFSL 236476 Australian Credit Licence No 236476. Please address all mail to PO Box 444 Blacktown NSW [email protected]

2017 annual report

Sydney Credit Union Ltd | ABN 93 087 650 726 1

scu.net.au 2017 Annual Report

Chair and CEO’s Report

It is a pleasure to present SCU’s 2016 /17 Annual Report and reflect on what has been a year of stronggrowth and performance where we have delivered on the initiatives to which we committed to remainrelevant to our members.

Highlights

There are many areas that stand out:

• the Board’s approval of our Strategy, our roadmap for building-on our 50 year old foundations andcreating first class technologies to meet the needs of our members and people

• continuing to simplify and standardise the things we do, achieving better outcomes for our membersand our people

• deepening our experience in financial and risk management and operational stability

• delivering on our promise to enhance the member experience through improvements to web basedtechnology, online banking for mobile, loan processing, customer relationship management and dataanalytics

• our financial performance

Financial Performance

I’m pleased to report that SCU continues to be in a strong position financially with an increase in assets to$867m, loans increased to $624m and deposits up 3.2% to $777m.

We hold over $76m in net assets and our capital adequacy ratio sits at 17%.

Our performance reinforces our position as a strong and stable competitor in the financial sector.

Throughout the year, we endeavoured to invest in productivity and technology to secure the organisation’srelevance whilst ensuring we remain financially strong. To this extent we continued our focus on renewaland innovation whilst achieving a Net Profit after Tax (NPAT) of $2.158m.

What are the key actions for 2017/18?

In broad terms our focus is on delivering on our Strategy by continuing to grow, reforming our systems,developing our people, strengthening our engagement with members and achieving our financial targets.

What this means specifically is:

• Review of priorities of current strategic initiatives to allow fast-tracking of member focused projects

• Initiation of a “Fintech” strategy with the first steps involving stakeholder input on key areas forexploration

• Scoping of a cultural change programme

• Review of change management processes

• Structured programs to connect with members so as to increase product penetration and retainbusiness portfolios

SCU 2017 AR inners FFA.qxp_A4 15/10/17 4:27 pm Page 1

2017 Annual Report scu.net.au

2 Sydney Credit Union Ltd | ABN 93 087 650 726

• On-boarding experience developed for new and existing members

• Investing in our people, learning and leadership programs

• Uniform Channel experience embracing “know me”, “remind me”, and “they’ve got it together”;mobile applications that are simpler, faster and easier; and a highly effective website

• Improvement in branch look, functionality and digital capability

• Implement the New Payment Platform as a product available to SCU members

The regulatory landscape remains challenging

One of the things that the recent Senate inquiry into the banking sector highlighted was how important it isfor us to build knowledge and understanding of the mutual sector.

We need to ensure our members’ needs are taken into consideration when government develops policy.SCU needs to do more to educate the decision makers about the impact their decisions are having oncompetition.

SCU will continue to work in this space, being an advocate for competition in the banking sector.

Our People

Our people are essential to our success and are the key driver of member satisfaction and SCU’sperformance.

We thank all our people for their continued achievements during the year.

They are engaged and operate in an environment that promotes ethical behaviour and is member-focused.

It is ultimately our people that set us apart from our peers and we are proud to be an employer of choicefor gender equality, with women in 52.5% of management roles.

We wish to thank the Board of Directors for their wisdom and commitment. Our Board consists of eightdirectors who offer a diversity of specialist skills and who are united in their dedication to our underlyingvalues.

After seven years, Dir. Greg Hayes decided to resign from the SCU Board. Greg filled many Board Executiveroles at SCU, having previously being Chair of Sutherland Shire Council Employees Credit Union.

We thank Greg for his contribution and commitment to SCU.

In May 2017, we welcomed Anton Usher as a SCU Director. Anton brings a breadth of experience andexpertise to the Board and is a member of Board Risk Committee.

We would also like to thank the Members for their continuing support and helping us deliver anothersuccessful year.

Hans Kludass Ashley JenningsChair Chief Executive Officer




Directors’ Report

Your Directors present their report on Sydney Credit Union Ltd (SCU) for the financial year ended 30 June 2017.SCU is a company registered under the Corporations Act 2001.

Information on Directors

The names of the Directors in office at any time during or since the end of the year are:-

Mr H R Kludass (Chair)Mr M E Sawyer (Deputy Chair)Mr R W ThornMr G M VarcoeMs V M BourkeMs K DaynesMr J M ParsonsMr A W Usher (Board appointed May 2017)Mr G J Hayes (retired January 2017)Mr P Stewart (retired November 2016)Mr J W Bourke (retired August 2016)Mr B T Nevin (retired August 2016)

Mr H R Kludass – Director

Qualifications – Bachelor of Commerce (Accounting)Associate Diploma in Business (Accounting)Member of Instil

Experience – Director, June 2009–CurrentChair, Nov 2014–CurrentRemunerations Committee, 2010–CurrentExecutive Committee, 2010–CurrentCorporate Governance Committee, 2010–CurrentBoard Risk Committee, Aug 2016–CurrentDeputy Chair, 2010–Nov 2014Board Audit Committee, Nov 2009–Nov 2014Manager, Sutherland Shire Council Executive Officer, Sutherland Shire Council Employees Credit Union (SSCECU) 2000–2009

Chairman, SSCECU, 1999–2000Director, SSCECU, 1997–2000Business Consultant, 1997–2008

Interest in Shares – 1 Member Share in SCU

Mr M E Sawyer – Director

Qualifications – Diploma of Financial ServicesFellow of the Australasian Mutuals InstituteMember of the Australian Institute of ManagementMember of InstilSupervision Certificate Train the Trainer CertificateElectrical Trades Certificate


Experience – Deputy Chair, Nov 2014–CurrentDirector, Oct 2005–CurrentChair, Corporate Governance Committee, Dec 2011–CurrentExecutive Committee, Dec 2011–CurrentRemuneration Committee, Dec 2011–CurrentBoard Audit Committee, Dec 2005–Nov 2008Board Risk Committee, Nov 2008–Nov 2011 and Aug 2016Director, Karpaty Foundation Pty Ltd, 2011–CurrentDirector, Pinnacle Credit Union, 2003–2005Director of Licensed/Registered Club, 1993–1994Total Quality Management (Energy Australia 1992–1994)Managing Director of a travel company, 2008–Current


Ms V M Bourke – Director

Qualifications – Master of Human Resource ManagementBachelor of Business (HR)Graduate Certificate in Human Resource ManagementGraduate Certificate in Local Government Management Member of Instil

Experience – Director, Nov 2014–CurrentBoard Audit Committee, Nov 2014–Current17 years’ experience in senior HR roles in Local Government


Ms K A Daynes – Director

Qualifications – Graduate Certificate of BusinessGraduate Certificate in ManagementMember of Instil

Experience – Director, Dec 2014–CurrentBoard Risk Committee, Dec 2014–Current16 years’ experience in senior roles at Department of Human ServicesDirector, AMCU, 2004–Nov 2014Vice Chairman, AMCU, 2012–Nov 2014Interest Rate Committee, AMCU, 2012–Nov 2014


Mr J M Parsons – Director

Qualifications – Certificate in AccountingMember of Instil

Experience – Director, Dec 2014–CurrentBoard Risk Committee, Dec 2014–CurrentExecutive Committee, July 2016–CurrentCorporate Governance Committee, July 2016–CurrentRemuneration Committee, July 2016–CurrentChair, Board Risk Committee, July 2016–Current37 years in senior roles at the Australian Tax OfficeDirector, AMCU, 1988–Nov 2014Chairman, AMCU, 1994–Nov 2014





Mr R W Thorn – Director

Qualifications – Bachelor of BusinessCertificate in Electrical EngineeringMember of Instil

Experience – Director, Dec 2005–CurrentExecutive Committee, 2008–CurrentRemuneration Committee, 2010–CurrentCorporate Governance Committee, 2010–CurrentChair, Board Audit Committee, Nov 2008–CurrentBoard Audit Committee, Dec 2005–CurrentDirector, Prospect Credit Union, 2001–2006


Mr A Usher – Director

Qualifications – Bachelor of LawsBachelor of Arts (Economics)Graduate Diploma of Applied Corporate GovernanceCertificate, Human Resource PracticeSolicitor Member, Law Society of NSWFellow, Governance Institute of AustraliaMember, Institute of Chartered Secretaries & AdministratorsAssociate Fellow, Risk Management Institution of AustralasiaMember of Instil

Experience – Director, May 2017–CurrentMember, Board Risk Committee, May 2017–Current Manager, Sutherland Shire Council


Mr G M Varcoe – Director

Qualifications – Bachelor of Engineering (Civil)Master of Business Administration (Technology Management)Graduate Diploma of Management (Technology Management)Builders’ Licence Member of Instil

Experience – Director, Apr 2008–CurrentBoard Risk Committee, Dec 2015–CurrentBoard Audit Committee, May 2008–Nov 2015Director, Blue Mountains & Riverlands Community Credit Union (BM&RCCU),

1997–Mar 2008 Chair, Corporate Governance Committee, BM&RCCU, 2006–Mar 2008Licensed Builder and Consultant Engineer

Interest in Shares – 3 Member Shares in SCU

Mr J W Bourke – Director

Qualifications – Associate, Local Government Administration Member of Instil

Experience – Director, 2008–10 Aug 2016Board Audit Committee, 2008–Aug 2016General Manager, South Sydney Council, 1989–2001





Mr B T Nevin – Director

Qualifications – Certified Practising AccountantMember of Instil

Experience – Director, 1972–10 Aug 2016Chair, 1997–2008, 2010–Nov 2014Deputy Chair, 1986–1997, 2008–2010Executive Committee, 1986–Nov 2014Corporate Governance Committee, 2010–Nov 2014Remunerations Committee, 2010–Nov 2014Board Risk Committee, Jul 2014–Nov 2015Board Audit Committee, Dec 2015–Aug 2016


Mr P Stewart – Director

Qualifications – Diploma of Corporate ManagementAssociate Member of the Institute of Chartered SecretariesAssociate Member of the Institute of Banking & FinanceMember of Instil

Experience – Director, 2010–9 Nov 2016Chair, Board Risk Committee, Nov 2014–Aug 2016Member, Board Risk Committee, 2010–Nov 2016Executive Committee, Nov 2014–Aug 2016Remuneration Committee, Nov 2014–Aug 2016


Mr G Hayes – Director

Qualifications – Bachelor of CommerceLocal Government Managers AssociationMember of Instil

Experience – Director, 2010–22 Jan 2017Member, Board Audit Committee, Dec 2016Member, Board Risk Committee, 2010–Oct 2016Chair, Board Risk Committee, Dec 2013–Nov 2014Executive Committee, Dec 2013–Nov 2014Corporate Governance Committee, Dec 2013–Nov 2014Remuneration Committee, Nov 2013–Nov 2014C.F.O. SSCECU, 1992–2009Director, SSCECU, 1985–1991Chairman, SSCECU, 1989–1991Deputy Chair, SSCECU, 1987–1989





Mr A J Jennings - Chief Executive Officer and Company Secretary

Qualifications - Advanced Diploma in AccountingCertificate III in Investment and Personal Financial PlanningDiploma of ManagementMember of InstilJustice of the Peace

Experience - 36 years in the Financial Services IndustrySydney Credit Union CEO & Company Secretary since 1998

Other Directorships - TransAction Solutions Pty LtdAustralasian Mutuals Institute (AMI)Karpaty Foundation Pty Ltd Shared Services Pty LtdShared Services Partners Pty Ltd

Interest - 1 Member Share in SCU



Executive & Audit & Risk CorporateDirector Board Remuneration Compliance Management Governance Period of Appointment

H A H A H A H A H A

Hans Kludass 11 10 4 4 2 2 - - 3 3 1/7/2016 to 30/6/2017

Mark Sawyer 11 10 4 4 - - 1 1 3 3 1/7/2016 to 30/6/2017

Ray Thorn 11 11 4 4 4 4 1 1 3 3 1/7/2016 to 30/6/2017

Gary Varcoe 11 10 - - - - 4 3 - - 1/7/2016 to 30/6/2017

Vanessa Bourke 11 8 - - 4 1 - - - - 1/7/2016 to 30/6/2017

Kerrie Daynes 11 10 - - - - 4 2 - - 1/7/2016 to 30/6/2017

John Parsons 11 10 3 3 2 2 4 4 3 3 1/7/2016 to 30/6/2017

Anton Usher 2 2 - - - - - - - - 1/7/2016 to 30/6/2017

Greg Hayes 5 1 - - - - 2 0 - - 1/7/2016 to 30/6/2017

Peter Stewart 4 3 1 1 - - 2 1 - - 1/7/2016 to 30/6/2017

Brian Nevin 1 1 - - - - - - - - 1/7/2016 to 30/6/2017

John Bourke 1 0 - - - - - - - - 1/7/2016 to 30/6/2017

H = Meetings Held

A = Meetings Attended




Directors’ Benefits

No Director has received or become entitled toreceive during, or since the financial year, a benefitbecause of a contract made by SCU, controlledentity, or a related body corporate with a Director, afirm of which a Director is a Member or an entity inwhich a Director has a substantial financial interest,other than that disclosed in Note 31 of the financialreport.

Indemnifying Officer Or Auditor

Insurance premiums have been paid to insure eachof the Directors and officers of SCU, against anycosts and expenses incurred by them in defendingany legal proceeding arising out of their conductwhile acting in their capacity as an officer of SCU. Inaccordance with normal commercial practicedisclosure of the premium amount and the natureof the insured liabilities is prohibited by aconfidentiality clause in the contract.

No insurance cover has been provided for thebenefit of the auditors of SCU.

Financial Performance Disclosures

Principal Activities

The principal activities of SCU during the year werethe provision of retail financial services to Membersin the form of taking deposits and giving financialaccommodation as prescribed by the Constitution.

No significant changes in the nature of theseactivities occurred during the year.

Operating Results

The net profit of SCU for the year after providingfor income tax was $2,158,154 (2016 $2,344,533).

There were no significant events during the yearthat impacted upon the current year’s result.

Dividends

Since the end of the financial year, no dividendshave been paid or declared by the Directors ofSCU from the profits earned during the year ended30 June 2017 or prior.

Review Of Operations

The results of SCU’s operations from its activities ofproviding financial services to its Members did notchange significantly from those of the previous year.

Significant Changes In State Of Affairs

There were no significant changes in the state ofthe affairs of SCU during the year.

Events Occurring After Balance Date

No matters or circumstances have arisen since theend of the financial year which significantly affectedor may significantly affect the operations, or state ofaffairs of SCU in subsequent financial years, otherthan:On 30 August 2017 SCU sold its property at 27-29Church Street Lidcombe for a gross sale price of$3,000,000. The estimated profit from the sale ofthis property is $2,046,254. SCU has entered into anagreement with the purchaser to lease back theproperty and will continue to operate its LidcombeBranch operations from the premises.

Likely Developments And Results

No other matter, circumstance or likely developmentin the operations has arisen since the end of thefinancial year that has significantly affected or maysignificantly affect:

(i) The operations of SCU;(ii) The results of those operations; or(iii) The state of affairs of SCU

in the financial years subsequent to this financialyear.


Auditors’ Independence

The auditors have provided the declaration ofindependence to the Board as prescribed by theCorporations Act 2001 as set on page 10 of thisreport.

Rounding

The amounts contained in the financial statementshave been rounded to the nearest one thousanddollars in accordance with ASIC Corporations(Rounding in Financial/Directors’ Reports) Instrument2016/191. SCU is permitted to round to the nearestone thousand ($’000) for all amounts exceptprescribed disclosures which are shown in wholedollars.

This report is made in accordance with a resolutionof the Board of Directors and is signed for and onbehalf of the Directors by:

Signed and dated this 28 September 2017



H Kludass R ThornChair Chair, Board Audit Committee


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Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation.

Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E [email protected] W www.grantthornton.com.au

Auditor’s Independence Declaration To the Directors of Sydney Credit Union Ltd In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Sydney Credit Union Ltd for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been:

a no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

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

GRANT THORNTON AUDIT PTY LTD Chartered Accountants

C L Gilmartin Partner - Audit & Assurance Sydney, 28 September 2017




9

Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation.

Level 17, 383 Kent Street Sydney NSW 2000 Correspondence to: Locked Bag Q800 QVB Post Office Sydney NSW 1230 T +61 2 8297 2400 F +61 2 9299 4445 E [email protected] W www.grantthornton.com.au

Independent Auditor’s Report To the members of Sydney Credit Union Ltd Auditor’s Opinion We have audited the financial report of Sydney Credit Union Ltd (the Company), which comprises the statement of financial position as at 30 June 2017, the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of Sydney Credit Union Ltd is in accordance with the Corporations Act 2001, including: a giving a true and fair view of the Company’s financial position as at 30 June 2017 and of its

performance for the year ended on that date; and

b complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Company in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Information other than the Financial Report and Auditor's Report The Directors are responsible for the other information. The other information comprises the information included in the Company’s report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon.




10

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001. The Directors responsibility also includes such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar3.pdf . This description forms part of our auditor’s report.

GRANT THORNTON AUDIT PTY LTD Chartered Accountants

Claire Gilmartin Partner - Audit & Assurance Sydney, 28 September 2017






Directors’ Declaration

1. In the opinion of the Directors of the SydneyCredit Union Limited:(a) the financial statements and notes of

Sydney Credit Union Limited are inaccordance with the Corporations Act2001, including (i) complying with Australian

Accounting Standards (includingthe Australian AccountingInterpretations) and theCorporations Regulations 2001;and

(ii) giving a true and fair view of theCompany’s financial position asat 30 June 2017 and of its perform ance for the year endedon that date.

(b) there are reasonable grounds tobelieve that Sydney Credit UnionLimited will be able to pay its debts asand when they become due andpayable.

2. The financial statements comply withInternational Financial Reporting Standards.

This declaration is made in accordance with aresolution of the Board of Directors and is signed forand on behalf of the Directors by:

H KludassChair

Dated this 28 September 2017




Statement of Profit and Loss and OtherComprehensive Incomefor the year ended 30 June 2017

Note 2017 2016$’000 $’000

Interest revenue 2.a 31,821 33,696Less: Interest expense 2.c 11,888 13,558Net Interest income 19,933 20,138

Add: Fees, Commission and Other Income 2.b 3,987 3,599Sub Total 23,920 23,737

Less: Non-Interest Expenses Impairment Losses on loans receivable from Members 2.d 348 31Fee and Commission expenses 4,435 4,116

4,783 4,147General Administration — Employees compensation and benefits 11,036 10,614— Depreciation and Amortisation 2.e 651 765— Information Technology 182 395— Office Occupancy 1,954 1,915— Other Administration 1,418 2,022Total General Administration 15,241 15,711

Other Operating Expenses 2.f 984 840

Total Non-Interest Expenses 21,008 20,698

Profit before Income Tax 2,912 3,039

Income Tax Expense 3 754 694

Profit after Income Tax 2,158 2,345

Add: Other Comprehensive IncomeOther Increases in Members equity - -

Total comprehensive income 2,158 2,345

The above Statement of Profit and Loss and OtherComprehensive Income should be read in conjunctionwith the accompanying notes.




Statement of Changes in Member Equityfor the year ended 30 June 2017

Opening Profit Redemption Transfers ClosingBalance for the of Share to/(from) Dividends Balance1/7/2016 Year Capital Reserves Paid 30/6/2017

$’000 $’000 $’000 $’000 $’000 $’000

Preference Share Capital 1,753 - (1,753) - - -

Capital Reserve Account 683 - - 36 - 719

Asset Revaluation Reserve 2,458 - - - - 2,458

General Reserve 12,829 - - - - 12,829

General Reserve for Credit Losses 2,040 - - 260 - 2,300

Retained Earnings 56,636 2,158 - (296) (21) 58,477

TOTAL 76,399 2,158 (1,753) - (21) 76,783

Statement of Changes in Member Equityfor the year ended 30 June 2016

Opening Profit Gain on Transfers ClosingBalance for the Business to/(from) Dividends Balance1/7/2015 Year Transfer Reserves Paid 30/6/2016

$’000 $’000 $’000 $’000 $’000 $’000

Preference Share Capital 1,753 - - - - 1,753

Capital Reserve Account 672 - - 11 - 683

Asset Revaluation Reserve 2,458 - - - - 2,458

General Reserve 12,829 - - - - 12,829

General Reserve for Credit Losses 2,040 - - - - 2,040

Retained Earnings 54,376 2,345 - (11) (74) 56,636

TOTAL 74,128 2,345 - - (74) 76,399




Note 2017 2016$’000 $’000

ASSETSCash and Cash Equivalents 4 13,359 27,748Liquid Investments at Amortised Cost 5 216,007 210,904Receivables 6 2,209 2,067Prepayments 378 330Loans to Members 7 & 8 621,808 591,089Society One Loans 7 & 8 1,698 -Available for Sale Equity Investments 9 1,899 1,899Property, Plant and Equipment 10 7,296 7,767Taxation Assets 11 & 15 2,169 2,076Intangible Assets 12 220 215

TOTAL ASSETS 867,043 844,095

LIABILITIESDeposits from Members 13 777,372 753,627Creditor Accruals and Settlement Accounts 14 6,994 8,382Borrowings – Subordinated Deposit 17 1,997 1,989Taxation Liabilities 15 134 64Provisions 16 3,763 3,634

TOTAL LIABILITIES 790,260 767,696

NET ASSETS 76,783 76,399

MEMBERS EQUITYPreference Share Capital 18 - 1,753Capital Reserve Account 19 719 683Asset Revaluation Reserve 20 (i) 2,458 2,458General Reserves 20 (ii) 12,829 12,829General Reserve for Credit Losses 21 2,300 2,040Retained Earnings 58,477 56,636TOTAL MEMBERS EQUITY 76,783 76,399

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

Note Description Note Description22 Financial Risk Management Objectives and Policies 30 Contingent liabilities23 Categories of financial instruments 31 Disclosures on Directors and other Key 24 Maturity profile of Financial Assets and Liabilities Management Personnel25 Non-Current Profile of Financial Assets and Liabilities 32 Economic dependency26 Interest rate change profile of Financial Assets and 33 Superannuation liabilities

Liabilities 34 Securitisation27 Net fair value of Financial Assets and Liabilities 35 Notes to statement of cash flows28 Financial commitments 36 Corporate information29 Standby borrowing facilities 37 Subsequent events

Statement of Financial Positionas at 30 June 2017




Note 2017 2016$’000 $’000

REVENUE ACTIVITIES

Revenue InflowsInterest received 31,752 34,622Fees and commissions 3,174 2,989Dividends 538 405Other income 182 185

35,646 38,201Revenue OutflowsInterest paid (12,310) (14,187)Suppliers and employees (19,948) (19,804)Income taxes paid (772) (406)Dividends Paid (21) (74)

(33,051) (34,471)Net Cash from Revenue Activities 35(c) 2,595 3,730

INFLOWS FROM OTHER OPERATING ACTIVITIESDecrease in Member loans (net movement) (32,724) (1,125)Increase in Member deposits and shares (net movement) 22,753 30,827Decrease in receivables from other financial institutions (net movement) (5,103) (19,712)

Net Cash from Operating Activities (15,074) 9,990

INVESTING ACTIVITIES

InflowsProceeds on sale of property, plant and equipment 49 28Less: Outflows Purchase of intangible assets (102) (77)Purchase of Investment Shares - -Purchase of property plant and equipment (104) (84)Net Cash from Investing Activities (157) (133)

FINANCING ACTIVITIES

Inflows (Outflows)Decrease in preference shares (1,753) -Increase in preference shares - -Net Cash from Financing Activities (1,753) -

Total Net Cash increase/(decrease) (14,389) 13,587Cash at Beginning of Year 27,748 14,161Cash at End of Year 35(a) 13,359 27,748

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

Statement of Cash Flowsfor the year ended 30 June 2017




1. Statement of Significant Accounting PoliciesThis financial report is prepared for SCU as a single entity, for the year ended the 30 June 2017. The reportwas authorised for issue on 28 September 2017 in accordance with a resolution of the Board of Directors. The financial report is presented in Australian dollars.

The financial report is a general purpose financial report which has been prepared in accordance with therequirements of the Corporations Act 2001, Australian Accounting Standards and other authoritativepronouncements of the Australian Accounting Standards Board. Compliance with Australian AccountingStandards ensures compliance with the International Financial Reporting Standards (IFRSs) as issued by theInternational Accounting Standards Board (IASB). SCU is a for-profit entity for the purpose of preparing thefinancial statements.

a. Basis of Measurement

The financial statements have been prepared on an accruals basis, and are based on historicalcosts, which do not take into account changing money values or current values of non-currentassets. The accounting policies are consistent with the prior year unless otherwise stated.

b. Classification and subsequent measurement of financial assets and financial liabilities

Financial assets and financial liabilities are recognised when SCU becomes a party to the contractualprovisions of the financial instrument, and are measured initially at fair value adjusted by transac -tions costs, except for those carried at fair value through profit or loss, which are measured initially atfair value. Subsequent measurement of financial assets and financial liabilities are described below.

Financial assets are derecognised when the contractual rights to the cash flows from the financialasset expire, or when the financial asset and all substantial risks and rewards are transferred.A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

(i) Classification and subsequent measurement of financial assets

For the purpose of subsequent measurement, financial assets other than those designatedand effective as hedging instruments are classified into the following categories upon initialrecognition: • loans and receivables• financial assets at fair value through profit or loss (FVTPL) • held-to-maturity (HTM) investments • available-for-sale (AFS) financial assets.

The category determines subsequent measurement and whether any resulting income andexpense is recognised in profit or loss or in other comprehensive income.

All financial assets except for those at FVTPL are subject to review for impairment at least ateach reporting date to identify whether there is any objective evidence that a financial asset ora group of financial assets is impaired. Different criteria to determine impairment are appliedfor each category of financial assets, which are described below. As at 30 June 2017, SCU didnot hold any financial assets at FVTPL.

All income and expenses relating to financial assets that are recognised in profit or loss, arepresented within interest revenue and interest expense, except for impairment of loans andreceivables which is presented within other expenses.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinablepayments that are not quoted in an active market. After initial recognition, these aremeasured at amortised cost using the effective interest method, less provision for impairment.SCU's Liquid Investments (Term Deposits), trade and most other receivables fall into thiscategory of financial instruments.

Individually significant receivables are considered for impairment when they are past due orwhen other objective evidence is received that a specific counterparty will default. Receivables




that are not considered to be individually impaired are reviewed for impairment, which aredetermined by reference to the industry and region of a counterparty and other shared creditrisk characteristics. The impairment loss estimate is then based on recent historical counter -party default rates for each identified Credit Union.

(iii) HTM investments

HTM investments are non-derivative financial assets with fixed or determinable payments andfixed maturity other than loans and receivables. Investments are classified as HTM if SCU hasthe intention and ability to hold them until maturity. SCU currently holds Negotiable Certificatesof Deposit (NCD), Bonds, and Bank accepted Bills Of Exchange in this category. If more thanan insignificant portion of these assets are sold or redeemed early then the asset class will bereclassified as Available For Sale financial assets.

HTM investments are measured subsequently at amortised cost using the effective interestmethod. If there is objective evidence that the investment is impaired, determined by referenceto external credit ratings, the financial asset is measured at the present value of estimatedfuture cash flows. Any changes to the carrying amount of the investment, includingimpairment losses, are recognised in profit and loss.

(iv) Available For Sale (AFS) financial assets

AFS financial assets are non-derivative financial assets that are either designated to thiscategory or do not qualify for inclusion in any of the other categories of financial assets. SCU'sAFS financial assets, include the equity investment in Cuscal Limited, Shared Service PartnersPty Ltd (SSP) and TransAction Solutions Pty Limited (TAS).

The equity investment in Cuscal Limited, SSP and TAS are measured at cost less anyimpairment charges, as its fair value cannot currently be estimated reliably. Impairmentcharges are recognised in profit or loss.

All other AFS financial assets are measured at fair value. Gains and losses on these assets arerecognised in other comprehensive income and reported within the AFS reserve within equity,except for impairment losses, which are recognised in profit or loss. When the asset isdisposed of or is determined to be impaired, the cumulative gain or loss is recognised as areclassification adjustment within the comprehensive income. Interest is calculated using theeffective interest method and dividends are recognised in profit or loss within 'other income'.

Reversals of impairment losses are recognised in other comprehensive income, except forfinancial assets that are debt securities which are recognised in profit or loss only if the reversalcan be objectively related to an event occurring after the impairment loss was recognised.

(v) Classification and subsequent measurement of financial liabilities

SCU’s financial liabilities include borrowings and trade and other payables.

Financial liabilities are measured subsequently at amortised cost using the effective interestmethod.

c. Loans to Members

(i) Basis of recognition

All loans are initially recognised at fair value, net of loan origination fees and inclusive oftransaction costs incurred. Loans are subsequently measured at amortised cost. Anydifference between the proceeds and the redemption amount is recognised in the incomestatement over the period of the loans using the effective interest method.

Loans to Members are reported at their recoverable amount representing the aggregateamount of principal and unpaid interest owing to SCU at balance date, less any allowance orprovision against impairment for debts considered doubtful. A loan is classified as impairedwhere recovery of the debt is considered unlikely as determined by the Board of Directors.

(ii) Interest earned

Term loans – The loan interest is calculated on the basis of daily balance outstanding and ischarged in arrears to a Member’s account on the last day of each month.




Overdraft – The loan interest is calculated initially on the basis of the daily balanceoutstanding and is charged in arrears to a Member’s account on the last day of each month.

Credit cards – The interest is calculated initially on the basis of the daily balance outstandingand is charged in arrears to a Member’s account on the 28th day of each month, on cashadvances and purchases in excess of the payment due date. Purchases are granted up to 55days interest free until the due date for payment.

Non-accrual loan interest – While still legally recoverable, interest is not brought to account asincome where SCU is informed that the Member has deceased, or, where a loan is impaired.

(iii) Loan origination fees and discounts

Loan establishment fees and discounts are initially deferred as part of the loan balance, andare brought to account as income over the expected life of the loan as interest revenue.

(iv) Transaction costs

Transaction Costs are expenses which are direct and incremental to the establishment of theloan. These costs are initially deferred as part of the loan balance, and are brought to accountas a reduction to income over the expected life of the loan. The amounts brought to accountare included as part of Interest revenue.

(v) Fees on loans

The fees charged on loans after origination of the loan are recognised as income when theservice is provided or costs are incurred.

(vi) Net gains and losses

Net gains and losses on loans to Members to the extent that they arise from the partialtransfer of business or on securitisation, do not include impairment write downs or reversalsof impairment write downs.

d. Loan Impairment

(i) Specific and Collective Provision for Impairment

A provision for losses on impaired loans is recognised when there is objective evidence thatthe impairment of a loan has occurred. Estimated impairment losses are calculated on eithera portfolio basis for loans of similar characteristics, or on an individual basis. The amountprovided is determined by management and the board to recognise the probability of loanamounts not being collected in accordance with terms of the loan agreement. The criticalassumptions used in the calculation are as set out in Note 8. Note 22 details the credit riskmanagement approach for loans

The APRA Prudential Standards require a minimum provision to be maintained, based onspecific percentages on the loan balance which are contingent upon the length of time therepayments are in arrears. This approach is used to assess the collective provisions forimpairment.

An assessment is made at each statement of financial position date to determine whetherthere is objective evidence that a specific financial asset or a group of financial assets isimpaired. Evidence of impairment may include indications that the borrower has defaulted, isexperiencing significant financial difficulty, or where the debt has been restructured to reducethe burden to the borrower.

(ii) General Reserve for Credit Losses

In addition to the above specific provision, the Board has recognised the need to make anallocation from retained earnings to ensure there is adequate protection for Members againstthe prospect that some Members will experience loan repayment difficulties in the future. Thereserve is based on estimation of potential risk in the loan portfolio based upon:

– the level of security taken as collateral; and– the concentration of loans taken by employment type.




(iii) Renegotiated loans

Loans which are subject to renegotiated terms which would have otherwise been impaired donot have the repayment arrears diminished and interest continues to accrue to income. Eachrenegotiated loan is retained at the full arrears position until the normal repayments arereinstated and brought up to date and maintained for a period of 6 months.

e. Bad debts written off (direct reduction in loan balance)

Bad debts are written off from time to time as determined by management and the Board of Directorswhen it is reasonable to expect that the recovery of the debt is unlikely. Bad debts are written offagainst the provisions for impairment, if a provision for impairment had previously been recognised. Ifno provision had been recognised, the write offs are recognised as expenses in the income statement.

f. Property, Plant and Equipment

Land and buildings are measured at acquisition cost less accumulated depreciation. Valuations areobtained where the Directors believe there has potentially been a diminution in the value of land andBuildings owned by SCU and used to determine the need to recognise in the accounts any impair -ment to the acquisition cost. Any revaluation increments are credited to the asset revaluation reserve,unless it reverses a previous decrease in value in the same asset previously debited to the profit orloss. Revaluation decreases are debited to the profit and loss unless it directly offsets a previousrevaluation increase in the same asset in the asset revaluation reserve.

Property, plant and equipment with the exception of freehold land, are depreciated on a straight linebasis so as to write off the net cost of each asset over its expected useful life to SCU. The useful lives areadjusted as appropriate at each reporting date. Estimated useful lives at the balance date are as follows:

– Buildings – 40 years.– Leasehold Improvements – lesser of the lease term or 10 years.– Plant and Equipment – 3 to 7 years.– Assets less than $300 are not capitalised.

g. Receivables from Other Financial Institutions

Term deposits, Bonds and Negotiable Certificates of Deposit with other financial institutions areunsecured and have a carrying amount equal to their principal amount. Interest is paid on the dailybalance at maturity. All deposits are in Australian currency.

The accrual for interest receivable is calculated on a proportional basis of the expired period of theterm of the investment. Interest receivable is included in the amount of receivables in the statementof financial position.

h. Equity Investments and Other Securities

Investments in shares are classified as available for sale financial assets where they do not qualifyfor classification as loans and receivables, or investments held for trading.

Investments in shares listed on the stock exchanges are re-valued to fair value based on the marketbid price at the close of business on statement of financial position date. The gains and losses in fairvalue are reflected in equity through the asset revaluation reserve.

Investments in shares which do not have a ready market and are not capable of being reliablyvalued are recorded at the lower of cost or recoverable amount.

Realised net gains and losses on available for sale financial assets taken to the profit and lossaccount comprises only gains and losses on disposal.

All investments are in Australian currency.

i. Member Deposits

(i) Basis for Measurement

Member savings and term investments are quoted at the aggregate amount of money owingto depositors.




(ii) Interest Payable

Interest on savings is calculated on the daily balance and posted to the accounts periodically,or on maturity of the term deposit. Interest on savings is brought to account on amount ofmoney owing to depositors on an accrual basis in accordance with the interest rate terms andconditions of each savings and term deposit account as varied from time to time. The amountof the accrual is shown as part of amounts payable.

j. Borrowings

All loans and borrowings are initially recognised at fair value, net of transaction costs incurred.Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (netof transaction costs) and the redemption amount is recognised in the profit and loss over the periodof the loans and borrowings using the effective interest method.

k. Provision for Employee Benefits

Provision is made for SCU’s liability for employee benefits, including annual leave and personal leavearising from services rendered by employees to balance date. Employee benefits expected to besettled within one year, have been measured at their nominal amount.

Other employee benefits payable later than one year have been measured at the present value ofthe estimated future cash outflows to be made for those benefits discounted using nationalgovernment bond rates.

Provision for long service leave is on a pro-rata basis from commencement of employment with SCUbased on the present value of its estimated future cash flows.

Annual leave is accrued in respect of all employees on pro-rata entitlement for part years of serviceand leave entitlement due but not taken at balance date. Annual leave is reflected as part of thesundry creditors and accruals.

Contributions are made by SCU to an employee’s superannuation fund and are charged to theincome statement as incurred.

l. Leasehold on Premises

Leases where the lessor retains substantially all the risks and rewards of ownership of the net assetare classified as operating leases. Payments made under operating leases (net of incentivesreceived from the lessor) are charged to the income statement on a straight-line basis over theperiod of the lease.

A provision is recognised for the estimated make good costs on the operating leases, based on theNet Present Value of the future expenditure at the conclusion of the lease term discounted at 5%.

Increases in the provision in future years due to the unwinding of the interest charge, is recognisedas part of the interest expense.

m. Income Tax

The income tax expense shown in the Profit and Loss is based on the operating profit before incometax adjusted for any non tax deductible, or non-assessable items between accounting profit andtaxable income. Deferred Tax Assets and Liabilities are recognised using the statement of financialposition liability method in respect of temporary differences arising between the tax bases of assetsor liabilities and their carrying amounts in the financial statements. Current and deferred taxbalances relating to amounts recognised directly in equity are also recognised directly in equity.

Deferred tax assets and liabilities are recognised for all temporary differences between carryingamounts of assets and liabilities for financial reporting purposes and their respective tax bases at therate of income tax applicable to the period in which the benefit will be received or the liability willbecome payable. These differences are presently assessed at 30%.

Deferred tax assets are only brought to account if it is probable that future taxable amounts will beavailable to utilise those temporary differences. The recognition of these benefits is based on theassumption that no adverse change will occur in income tax legislation; and the anticipation that




SCU will derive sufficient future assessable income and comply with the conditions of deductibilityimposed by the law to permit a future income tax benefit to be obtained.

n. Cash and cash Equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash and which are subject to aninsignificant risk of changes in value.

o. Intangible Assets

Items of computer software which are not integral to the computer hardware owned by SCU areclassified as intangible assets.

Computer software held as intangible assets is amortised over the expected useful life of thesoftware. These lives range from 2 to 5 years.

p. Goods and Services Tax (GST)

As a financial institution SCU is input taxed on all income except other income from commissionsand some fees. An input taxed supply is not subject to GST collection, and similarly the GST paid onrelated or apportioned purchases cannot be recovered. As some income is charged GST, the GST onpurchases are generally recovered on a proportionate basis. In addition certain prescribedpurchases are subject to reduced input tax credits (RITC), of which 75% of the GST paid isrecoverable.

Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST). Tothe extent that the full amount of GST incurred is not recoverable from the Australian Tax Office (ATO),the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.

Receivables and payables are stated with the amount of GST included where applicable GST iscollected. The net amount of GST recoverable from, or payable to, the ATO is included as a currentasset or current liability in the statement of financial position. Cash flows are included in the cashflow statement on a gross basis. The GST components of cash flows arising from investing andfinancing activities which are recoverable from, or payable to, the Australian Taxation Office areclassified as operating cash flows.

q. Business Combinations

The Group applies the acquisition method in accounting for business combinations.

Under Financial Sector (Transfers of Business) Act 1999 all the assets and liabilities of the transferringbody, wherever those assets and liabilities are located, become (respectively) assets and liabilities ofthe receiving body without any transfer, conveyance or assignment.

The consideration transferred by SCU to obtain control of the net assets is calculated as the sum ofthe acquisition-date fair values of assets transferred, liabilities incurred and the equity interestsissued by SCU, which includes the fair value of any asset or liability arising from a contingentconsideration arrangement. Acquisition costs are expensed as incurred.

SCU recognises identifiable assets acquired and liabilities assumed in a business combinationregardless of whether they have been previously recognised in the acquired entity's financialstatements prior to the acquisition. Assets acquired and liabilities assumed are generally measuredat their acquisition-date fair values.

Goodwill (if applicable) is stated after separate recognition of any identifiable intangible assets. It iscalculated as the excess of the sum of (a) fair value of consideration transferred, (b) the recognisedamount of any non-controlling interest in the acquired entity and (c) acquisition-date fair value of anyexisting equity interest in the acquired entity, over the acquisition-date fair values of identifiable netassets.

Where the fair values of identifiable net assets exceed the sum calculated above, the excess amountis recognised directly in equity for a mutual organisation [as prescribed by AASB 3 Guidance B47].Acquisition costs are expensed as incurred.




r . Impairment of Assets

At each reporting date SCU assesses whether there is any indication that individual assets areimpaired. Where impairment indicators exist, recoverable amount is determined and impairmentlosses are recognised in the profit and loss where the asset's carrying value exceeds its recoverableamount. Recoverable amount is the higher of an asset's fair value less costs to sell and value in use.For the purpose of assessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset. Where it is not possible to estimate recoverableamount for an individual asset, recoverable amount is determined for the cash-generating unit towhich the asset belongs.

s. Accounting Estimates and Judgements

Management have made judgements when applying SCU’s accounting policies with respect to

i. De-Recognition of loans assigned to a special purpose vehicle used for securitisationpurposes – refer Note 34.

ii. The classification of preference shares as equity instruments – refer Note 18.

Management have made critical accounting estimates when applying SCU’s accounting policies withrespect to the impairment provisions for loans – refer Note 8.

t. Rounding

The amounts contained in the financial statements have been rounded to the nearest one thousanddollars in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument2016/191. SCU is permitted to round to the nearest one thousand ($’000) for all amounts exceptprescribed disclosures which are shown in whole dollars.

u. New standards applicable for the current year

There were no new or revised accounting standards applicable for financial years commencing from1 July 2016 that had any significant impact on the financial statements of SCU.

v. New or emerging standards not yet mandatory

Certain Accounting standards and interpretations have been published that are not mandatory for30 June 2017 reporting periods. SCU’s assessment of the impact of these new standards andinterpretations is set out below.

AASBReference

AASB 9 FinancialInstruments(Issued December2015)

Nature of Change

The new standard replaces AASB 139 and supersedesAASB 9 versions previously issued in December 2009 andDecember 2010. It amends the requirements forclassification and measurement of financial assets.AASB 9 requirements regarding hedge accounting

represent a substantial overhaul of hedge accounting thatenable entities to better reflect their risk managementactivities in the financial statements. Furthermore, AASB 9 introduces a new impairment model

based on expected credit losses. Recognition of creditlosses are to no longer be dependent on SCU firstidentifying a credit loss event. SCU will consider a broaderrange of information when assessing credit risk andmeasuring expected credit losses including past experienceof historical losses for similar financial instruments.

ApplicationDate

Periodsbeginning onor after 1January 2018

Impact on Initial Application

Due to the recent release of theseamendments and that adoption is onlymandatory for the 30 June 2019 year end,SCU has not yet made a detailedassessment of the impact of theseamendments.




AASBReference

AASB 15Revenue fromContracts withCustomers

AASB 16 Leases Replaces AASB 117

AASB 2016-1Amendments toAustralianAccountingStandards -Disclosure Initiative:Amendments toAASB 112.

AASB 2016-2Amendments toAustralianAccountingStandards –Disclosure Initiative:Amendments toAASB 107.

Transfers ofInvestment Property(Amendments to IAS40).

Nature of Change

Revenue from financial instruments is not covered by thisnew Standard, but AASB 15 establishes a new revenuerecognition model for other types of revenue.AASB 15 is based on the principle that revenue is

recognised when control of a good or service transfers to acustomer. The standard replaces AASB 118 Revenue, AASB111 Construction Contracts and related revenueinterpretations.

AASB 16: replaces AASB 117 Leases and some lease-relatedInterpretations • requires all leases to be accounted for ‘on-balance sheet’

by lessees, other than short-term and low value assetleases

• provides new guidance on the application of thedefinition of lease and on sale and lease backaccounting

• requires new and different disclosures about leases

AASB 2016-1 amends AASB 112 Income Taxes to clarify howto account for deferred tax assets related to debtinstruments measured at fair value, particularly wherechanges in the market interest rate decrease the fair valueof a debt instrument below cost.

AASB 2016-2 amends AASB 107 Statement of Cash Flows torequire entities preparing financial statements inaccordance with Tier 1 reporting requirements to providedisclosures that enable users of financial statements toevaluate changes in liabilities arising from financingactivities, including both changes arising from cash flowsand non-cash changes.

The amendments clarify that transfers to, or from,investment property are required when, and only when,there is a change in use of property supported by evidence.The amendments also re-characterise the list ofcircumstances appearing in IAS 40,57 (a) – (d) as a non-exhaustive list of examples of evidence that a change inuse has occurred. In addition, the IASB has clarified that achange in management’s intent, by itself, does not providesufficient evidence that a change in use has occurred.Evidence of a change in use must be observable.

ApplicationDate

Periodsbeginning onor after 1January 2018.

Periodsbeginning onor after 1January 2019

1 January2017

1 January2017

1 January2018

Impact on Initial Application

Based upon a preliminary assessment,the Standard is not expected to have amaterial impact upon the transactionsand balances recognised when it is firstadopted, as most of the Bank’s revenuearises from the provision of financialservices which are governed by AASB 9Financial Instruments. Few revenuetransactions of SCU are impacted by thenew standard.

SCU is yet to under take a detailedassessment of the impact of AASB 16. Whilst SCU owns a number of the

buildings used for its business, it alsoleases a number of its branch offices andwill therefore be impacted by this change.

When these amendments are firstadopted for the year ending 30 June 2018there will be no material impact on thefinancial statements.






2. Statement of Profit and Loss and Other Comprehensive Income

Note 2017 2016$’000 $’000

a. Analysis of interest revenue

Interest revenue on assets carried at amortised costCash – deposits at call 392 274Receivables from financial institutions 5,591 5,522Loans to Members 25,838 27,896Loans to capital investors - 4TOTAL INCOME FROM RECEIVABLES 31,821 33,696

b. Fee, commission and other income

Fee and commission revenueFee income on loans – other than loan origination fees 395 532Fee Income from Member deposits 875 1,025Other fee income 496 96Insurance commissions 595 467Other commissions 874 893TOTAL FEE AND COMMISSION REVENUE 3,235 3,013

Other income Available for sale assetsDividends received on available for sale assets 538 405Bad debts recovered 88 122Income from property (rental income) 97 42Gain on disposal of assets– Property, plant and equipment 29 17TOTAL FEE COMMISSION AND OTHER INCOME 3,987 3,599

c. Interest expenses

Interest expense on liabilities carried at amortised cost Deposits from Members 11,653 13,367Overdraft 21 19Interest – Subordinated Debt 214 172TOTAL INTEREST EXPENSE 11,888 13,558

d. Impairment losses Available for Sale Assets - -

Loans and advances Increase in provision for impairment 348 31

TOTAL IMPAIRMENT LOSSES 348 31




Note 2017 2016$’000 $’000

e. Other prescribed disclosures

General administration – employees costs include:– net movement in provisions for employee

annual leave 44 16– net movement in provisions for employee

long service leave 118 152

General Administration – Depreciation & Amortisation expense comprisesBuildings 212 212Plant and equipment 168 177Leasehold improvements (includes lease make-good prov.) 174 255Intangibles 97 121

651 765General Administration – Office Occupancy costs include –Property operating lease payments– minimum lease payments 1,350 1,334

f. Other Operating expenses include

Audit and review of financial statements (GST Exclusive)– Audit fees – current year – Grant Thornton 106 111

Other Services (GST Exclusive)

– Taxation Services – Grant Thornton 6 11– Compliance Services – Grant Thornton 7 3

119 125

Defined contribution superannuation expenses 16 13

Loss on disposal of assets– Property, plant, equipment - -




Note 2017 2016$’000 $’000

3. Income Tax Expensea. The income tax expense comprises amounts

set aside as:-

Current tax expense 851 867Adjustments for previous years (10) (64)Deferred tax expense (87) (109)Total current income tax expense 754 694

b. The prima facie tax payable on profit is reconciled to the income tax expense in the accounts as follows:

Profit 2,912 3,039Prima facie tax payable on profit before income tax at 30% 874 911

Add tax effect of expenses not deductible– Other non-deductible expenses 162 67– Dividend Imputation adjustment 69 56Subtotal 1,105 1,034

Less– Deductions Allowed not in Accounting Expenses (22) (22)– Franking rebate (232) (186)– Deferred tax asset not previously brought to account (87) (68)– Adjustments for previous years (10) (64)Income tax expense attributableto current year profit 754 694

c. Franking CreditsFranking credits held by SCU after adjusting forfranking credits that will arise from the payment ofincome tax payable as at the end of the financial year is: 14,700 12,862

4. Cash and Cash EquivalentsCash on hand 1,195 1,323Deposits at call 12,164 26,425

13,359 27,748

5. Liquid Investments at Amortised Costa. Hold to Maturity

Negotiable Certificates of Deposits 131,965 119,786Bonds 32,040 31,358ReceivablesTerm Deposits 52,002 59,760

216,007 210,904b. Dissection of Receivables

Deposits with Industry Bodies – Cuscal 34,557 16,401Deposits with other Societies 41,390 40,957Deposits with banks 140,060 153,546

216,007 210,904




Note 2017 2016$’000 $’000

6. ReceivablesInterest receivable on deposits with other financial institutions 1,043 974

Sundry debtors and settlement accounts 1,166 1,0932,209 2,067

7. Loans To Membersa. Amount due comprises:

Overdrafts and revolving credit 16,646 17,588Term loans 607,582 574,091Subtotal 624,228 591,679Less:Unamortised loan origination fees (15) (53)Unearned Income (123) (126)Subtotal 624,090 591,500Less:Provision for impaired loans Note 8 (8) (584) (411)

623,506 591,089b. Credit Quality – Security held against loans

Secured by mortgage over business assets 5,375 4,372Secured by mortgage over real estate 581,409 544,876Partly secured by goods mortgage 9,850 10,856Wholly unsecured 27,594 31,575 Total 624,228 591,679

It is not practicable to value all collateral as at thebalance date due to the variety of assets andcondition. A breakdown of the quality of theresidential mortgage security on a portfolio basisis as follows:

Security held as mortgage against real estate is on the basis of

– loan to valuation ratio of less than 80% 518,956 469,826

– loan to valuation ratio of more than 80% but mortgage insured 55,423 61,998

– loan to valuation ratio of more than 80% and not mortgage insured 7,370 13,052

Total 581,749 544,876

The Board decided not to require disclosure of the fair value of collateral held, but to requiredisclosure of only a description of collateral held as security and other credit enhancements. TheBoard noted that such disclosure does not require an entity to establish fair values for all its collateral(in particular when the entity has determined that the fair value of some collateral exceeds thecarrying amount of the loan) and, thus, would be less onerous for entities to provide than fair values.




Note 2017 2016$’000 $’000

c. Concentration of Loans

The values discussed below include on statement of financial position values and off statement of financial position undrawn facilities as described in Note 29. (29)

(i) Loans to individual or related groups of Members which exceed 10% of Member’s equity in aggregate - -

(ii) There are no loans to Members concentrated to individuals employed in any individual industry

(iii) Loans to Members are concentrated in the following Geographical locations:

New South Wales 587,104 557,148ACT 6,932 6,043Victoria 7,643 4,510Queensland 16,840 18,092South Australia 1,200 1,756Western Australia 2,824 2,465Northern Territory 767 387Tasmania 918 1,278TOTAL 624,228 591,679

(iv) Loans by Customer type were:

Loans to Natural persons– Residential loans and facilities 574,007 538,691– Personal loans and facilities 36,644 39,623– Society One loans 1,751 -– Business loans and facilities - -

612,402 578,314 Loans to corporations 11,826 13,365TOTAL 624,228 591,679

8. Provision on Impaired Loans

a. Total provision comprises

Individual Specific provisions 531 394Society One provision 53 -General provision - 17Total Provision 584 411

b. Movement in the provision for impairment

Balance at the beginning of year 411 719Add (deduct):– Transfers from (to) Income Statement 348 31– Bad debts written off provision (175) (339)Specific Provision Balance at end of year 584 411

Details of credit risk management is set out in Note 22. (22)




2017 2016$’000 $’000

c. Impaired loans written off

Amounts written off against the provision for impaired loans 175 339Total bad debts 175 339Bad debts recovered in the period 88 122

88 122

d. Analysis of loans that are impaired or potentially impaired by class

In the Note below – Carrying Value is the amount of the statement of financial position– Impaired loans value is the ‘on statement of financial position’ loan balances which are past due by

• for mortgage loans 91 days or more • for personal loans 31 days or more• for revolving credit facilities 14 days or more

– Provision for impairment is the amount of the impairment provision allocated to the class ofimpaired loans

2017 2017 2017 2016 2016 2016Carrying Value of Provision for Carrying Value of Provision for

value Impaired impairment value Impaired impairmentLoans Loans

$’000 $’000 $’000 $’000 $’000 $’000Loans to Members Mortgages 574,007 2,536 - 538,691 - -Personal & Commercial 33,575 819 390 36,702 656 344Revolving Credit Facilities& Credit cards 16,646 217 141 16,286 83 50

Total 624,228 3,572 531 591,679 739 394

Past due value is the statement of financial position’s loan balances which are past due by 91 days or more.It is not practicable to determine the fair value of all collateral as at the balance date due to the variety ofassets and condition.

e. Analysis of loans that are impaired or potentially impaired based on age of repayments outstanding

2017 2017 2016 2016Carrying Provision Carrying Provision

Value Value$’000 $’000 $’000 $’000

31 to 90 days in arrears 321 64 237 4791 to 182 days in arrears 762 68 147 59183 to 272 days in arrears 1,622 84 71 43273 to 365 days in arrears 35 28 47 38Over 365 days in arrears 615 146 154 154

Over-limit facilities over 14 days 217 141 83 53Total 3,572 531 739 394

The impaired loans are generally not secured against residential property. Some impaired loans aresecured by bill of sale over motor vehicles or other assets of varying value. It is not practicable to determinethe fair value of all collateral as at the balance date due to the variety of assets and condition.




f. Loans with repayments past due but not regarded as impaired

There are loans with a value of $2,535,514 past due which not considered to be impaired as thevalue of related security over residential property is in excess of the loan due. It is not practicable todetermine the fair value of all collateral as at the balance date due to the variety of assets andcondition

Loans with repayments past due but not impaired are in arrears as follows:

Loans Members 1-3 Mths 3-6 Mths 6-12 Mths > 1 Year Total$’000 $’000 $’000 $’000 $’000

2017Mortgage secured 1,169 589 1,480 466 3,704Personal loans - - - - -Revolving Credit andCredit Card Facilities - - - - -

Total 1,169 589 1,480 466 3,704

2016Mortgage secured 2,173 - 723 - 2,896Personal loans - - - - -Revolving Credit andCredit Card Facilities - - - - -

Total 2,173 - 723 - 2,896

g. Key assumptions in determining the provision for impairment

In the course of the preparation of the annual report SCU has determined the likely impairment losson loans which have not maintained the loan repayments in accordance with the loan contract, orwhere there is other evidence of potential impairment such as industrial restructuring, job losses oreconomic circumstances. In identifying the impairment likely from these events SCU is required toestimate the potential impairment using the length of time the loan is in arrears and the historicallosses arising in past years. Given the relatively small number of impaired loans, the circumstancesmay vary for each loan over time resulting in higher or lower impairment losses. An estimate isbased on the period of impairment

Period of impairment % of

Up to 30 days 031 days to 90 days 2091 days to 182 days 40183 days to 272 days 60273 days to 365 days 80Over 365 days 100




2017 2016$’000 $’000

9. Available for Sale InvestmentsShares in Unlisted companies – at cost– Cuscal Limited (a) 1,875 1,875– Shared Service Partners Pty Ltd 20 20– TransAction Solutions Pty Limited (b) 258 258Total Value of investments 2,153 2,153

Less Provisions for impairment– TransAction Solutions Pty Limited (b) (254) (254)TOTAL INVESTMENTS net of provision 1,899 1,899

Disclosures on Shares held at cost

a. Cuscal Limited

The shareholding in Cuscal is measured at cost as its fair value could not be measured reliably. Thiscompany supplies services to SCU organisations. These shares are held to enable SCU to receiveessential banking services – refer to Note 32. The shares are able to be traded.

The financial reports of Cuscal record net tangible asset backing of these shares exceeding their costvalue. Based on the net assets of Cuscal, any fair value determination on these shares is likely to begreater than their cost value, but due to the absence of a ready market, a market value is not able tobe determined readily.

SCU is not intending to dispose of these shares.

b. TransAction Solutions Pty Limited (TAS)

The shareholding in TAS is measured at cost as its fair value could not be measured reliably.

These shares are held to enable SCU to receive essential computer support staff and services tomeet the day to day needs of SCU, and compliance with the relevant Prudential Standards. Theshares are not able to be traded and are not redeemable.

The financial reports of TAS record net tangible asset backing of these shares exceeding their costvalue. Based on the net assets of TAS, any fair value determination on these shares is likely to begreater than their cost value, but due to the absence of a ready market and restrictions on the abilityto transfer the shares, a market value is not able to be determined readily.

SCU is not intending to dispose of these shares.




Note 2017 2016$’000 $’000

10. Property, Plant and Equipment

a. Fixed AssetsLand – at deemed cost 480 1,171

480 1,171Buildings – at deemed cost 7,784 8,015Less: Provision for depreciation (2,171) (2,002)

5,613 6,013Total Land & Buildings 6,093 7,184Plant and equipment – at deemed cost 2,135 2,621Less: Provision for depreciation (1,879) (2,278)Total Plant and equipment 256 343Capitalised Leasehold Improvements at deemed cost 2,482 2,691Less: Provision for amortisation (2,415) (2,455)

67 236Lease Make-good Asset 295 295Less: Provision for amortisation (295) (291)

- 4Total Leasehold Improvements and Make-good 67 240

Non Current Assets Held For SaleLand – Lidcombe 691 -

691 -Buildings – at deemed cost 231 -Less: Provision for depreciation (42) -

189 -Total Non-Current Assets Held For Sale 880 -TOTAL PROPERTY, PLANT AND EQUIPMENT 7,296 7,767

Movement in the assets balances during the year were:

2017 2016Plant & Available Plant & Available

Property equipment Leasehold for Sale Property equipment Leasehold for Sale$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Opening balance 7,184 343 240 - 7,396 447 495 -Purchases in the year - 206 - - - 84 - -Transfer (880) - - 880 - - - -

6,304 549 240 880 7,396 531 495 -

LessAssets Disposed - (22) - - - (11) - -Depreciation charge (211) (271) (173) - (212) (177) (255) -

Balance at the end of the year

6,093 256 67 880 7,184 343 240 -




Note 2017 2016$’000 $’000

11. Taxation AssetsDeferred Tax Asset 2,058 1,971GST Recoverable 111 105

2,169 2,076

Deferred tax asset comprise:Accrued expenses not deductible until incurred 149 194Provisions for impairment on loans 159 123Provisions for employee benefits 1,397 1,297Depreciation on fixed assets 331 325Black Hole Expenses for otherwise Capital Costs 23 33Unearned Income (1) (1)

2,058 1,971

12. Intangible AssetsComputer software 1,547 1,445Less provision for amortisation (1,327) (1,230)

220 215

Movement in the asset balances during the year were:

Opening balance 215 259Purchases 102 77LessAmortisation charge (97) (121)Impairment loss - -Balance at the end of the year 220 215

13. Deposits From MembersMember Deposits– at call 456,614 422,887– term 320,505 330,451Member Withdrawable Shares 253 289TOTAL DEPOSITS & SHARES 777,372 753,6 27




Note 2017 2016$’000 $’000

Concentration of Member Deposits

There were no significant individual Memberdeposits which in aggregate represent morethan 10% of the total liabilities:

(i) Geographical concentrations

New South Wales 749,919 727,291ACT 3,819 4,679Victoria 4,478 3,233Queensland 14,822 14,198South Australia 486 459Western Australia 1,535 1,197Northern Territory 239 259Tasmania 2,074 2,311Total per Balance Sheet 777,372 753,627

14. Creditor Accruals and Settlement AccountsAnnual Leave 1,168 1,238Creditors and accruals 3,084 4,025Interest payable on deposits 1,937 2,367Accrual for GST payable 60 43Sundry creditors 745 709TOTAL AMOUNTS PAYABLE 6,994 8,382

15. Taxation LiabilitiesCurrent income tax liability 134 64TOTAL TAXATION LIABILITIES 134 64

Current income tax liability comprises:

Balance – previous year 64 (333)Less: Payments in current year (54) 397Over / under statement in prior year 10 64

Liability for income tax in current year 851 867Less: Instalments paid in current year (717) (803)Balance/(refund due) – current year 134 64

16. ProvisionsLong service leave 2,559 2,441Lease make good of premises 295 295Provisions – other 909 898TOTAL PROVISIONS 3,763 3,634




Note 2017 2016$’000 $’000

17. Long Term Borrowings –Subordinated DebtSUBORDINATED DEBT ACCOUNTBalance at the beginning of the year 2,000 2,000Less: Debt Raising Discount (3) (41)Add: Debt Raising Discount amortised - 30Balance at the end of year 1,997 1,989

18. Preference Shares Balance at the beginning of the year 1,753 1,753Decrease due to shares redeemed (1,753) -Balance at the end of year - 1,753

SCU entered into an agreement to issueredeemable preference shares.

SCU issued 20,000 redeemable preference - 2,000shares with a face value of $100 each to AustralianMutual T1 Capital Funding Trust. The shares wereredeemed on 28 September 2016.

Less capital raising costs associated with the issue - (47)

As part of the capital raising scheme, SCU - (200)was required to provide a limited recourseunsecured subordinated loan to the Trustee for10% of the face value of shares issued. The loan isrepayable upon the redemption of the shares.

Net amount received for the issue of shares - 1,753

Key Assumptions

The structure of the share issue agreement and theT1 Loss Reserve are considered to be effectively onetransaction to raise capital. This view is consistentwith the way the capital is treated for prudentialcapital adequacy requirements.

19. Capital Reserve AccountBalance at the beginning of the year 683 672Transfer from retained earnings on share redemptions 36 11Balance at the end of year 719 683




Note 2017 2016$’000 $’000

a. Share Redemption

The accounts represent the amount of redeemablepreference shares redeemed by SCU since 1 July 1999.The Law requires that the redemption of the shares bemade out of profits. Since the value of the shares hasbeen paid to Members in accordance with the terms andconditions of the share issue, the account represents theamount of profits appropriated to the account.

20. Other ReservesAsset revaluation reserve – land & buildings 2,458 2,458General Reserve 12,829 12,829TOTAL OTHER RESERVES 15,287 15,287

Movements in Reserves

(i) Asset Revaluation Reserve – Land & BuildingsThe asset revaluation reserve accounts for the unrealised gains on assets due to revaluation to fair value

Balance at the beginning of the year 2,458 2,458Less: Asset Revaluations Realised - -Balance at the end of year 2,458 2,458

(ii) General ReserveBalance at the beginning of the year 12,829 12,829Transfer from Allied Members Credit Union - -Balance at the end of year 12,829 12,829

21. General Reserve For Credit LossesGeneral reserve for credit losses 2,040 2,040Transfer from Retained Earnings 260 -TOTAL CREDIT LOSS GENERAL RESERVES 2,300 2,040

22. Financial Risk Management Objectives And Policies Introduction

The Board of Directors has endorsed a policy of Compliance and Risk Management to suit the risk profile of SCU.

SCU’s risk management focuses on the major areas of market risk, credit risk, capital management, liquidity riskand operational risk. Authority flows from the Board of Directors to the Risk Committee and the Audit Committeewhich are integral to the management of risk. The following diagram of Board and Committee GovernanceStructure gives an overview of the structure.




The diagram shows the Risk Management structure. The main elements of risk governance are as follows:

Board of Directors: This is the primary governing body. It approves the level of risk which SCU is exposed toand the framework for reporting and mitigating those risks.

The Board will create a Governance Committee, Board Risk Committee, Board Audit Committee and otherCommittees as appropriate, to oversee critical functions; the Board retains responsibility for decision makingat all times and for ensuring the performance of the duties delegated to the Committees, including Audit &Compliance and Risk Management.

The Board should ensure that its decisions and actions do not pose an unacceptable prudential risk to theinstitution by way of monitoring the compliance with prudential and statutory requirements to which SCU isobliged to comply.

Board Risk Committee (BRC): This is a key body in the control of risk. It comprises a minimum of three (3)Directors. Senior Management and the Risk Manager attend by invitation.

The BRC’s purpose shall be to assist the Board by providing objective non-executive oversight of theimplementation and operation of SCU’s risk management framework and that it remains appropriate givenSCU’s size, business mix and complexity. The Committee will use prevailing best practice and adopt themethodologies of Australian Standards in relation to risk management e.g. AS/NZS ISO 31000:2009.

The Board Risk Committee carries out a regular review of all operational areas to ensure that operationalrisks are being properly controlled and reported. It also ensures that contingency plans are in place toachieve business continuity in the event of serious disruptions to business operations. Regular monitoring iscarried out by the Risk Committee of operational reports and control assignments are reviewed by the RiskCommittee to confirm whether risks are within the parameters outlined by the Board.

The Risk Committee monitors compliance with the framework laid out in the policy and reports in turn to theBoard, where actual exposures to risks are measured against prescribed limits .

Board & Committee Governance Structure August 2017

CorporateGovernanceCommittee

Board of Directors

Deputy CEOExecutive ManagerCorporate Services

ExternalAuditor

Internal AuditManager

ExecutiveCommittee

Board AuditCommittee

Asset & LiabilityManagementCommittee

DirectorNominationsCommittee

Chief Risk Officer

ChiefExecutiveOfficer

Board RiskCommittee

Operations RiskCommittee




Audit Committee: Its key role in risk management is the assessment of the controls that are in place tomitigate risks. The Audit Committee considers and confirms that the significant risks and controls are to beassessed within the internal audit plan. The Audit Committee receives the internal audit reports on assess -ment and compliance with the controls, and provides feedback to the Risk Committee for their consideration.

Asset & Liability Committee (ALCO): This committee of senior management meets monthly and hasresponsibility for managing and reporting risk exposure in the areas of:

• Credit Risk,• Liquidity Risk,• Capital Risk,• Market Risk (including Interest Rate Risk), and• Financial and Accounting Risk.

It scrutinises operational reports and monitors exposures against limits determined by the Board. The ALCOCommittee has responsibility for implementing policies to ensure that all risk exposures are properlymeasured and controlled.

This committee also has responsibility for managing interest rate risk exposures, and ensuring that thetreasury and finance functions adhere to exposure limits as outlined in the policies for interest rate GAP.

Chief Risk Officer: The Chief Risk Officer provides advice to the relevant Directors on risk managementmatters. The Chief Risk Officer is accountable through the Board Risk Committee for the implementation ofrisk management strategies, plans, policies, operating controls and processes to facilitate the identification,analysis and understanding of key material risks affecting SCU. The Chief Risk Officer also establishes anintegrated risk management framework to manage those risks.

Internal Audit: Internal Audit has responsibility for implementing the controls testing and assessment asrequired by the Audit Committee. The Internal Audit Manager is responsible for compliance and internalaudit functions to ensure that systems and set procedures meet prudential standards and consumerlegislation and to test the operation of such systems for improvement in codes, policies and rules asrequired.

Key risk management policies encompassed in the overall risk management framework include:

• Market Risk (primarily Interest Rate Risk) • Liquidity Management• Capital Management• Credit Risk Management• Operations Risk Management including data and fraud risk management.

SCU has undertaken the following strategies to minimise the risks arising from financial instruments.

A. Market Risk and Hedging Policy

The objective of SCU’s market risk management is to manage and control market risk exposures inorder to optimise risk and return.

Market risk is the risk that changes in interest rates and volatilities will have an adverse effect onSCU's financial condition or results. SCU is not exposed to currency risk, and other significant pricerisk. SCU does not trade in the financial instruments and has not undertaken any hedging at thistime. SCU is exposed only to interest rate risk arising from changes in market interest rates.

The management of market risk is the responsibility of the ALCO Committee, which reports directly tothe Board Risk Committee.

Interest rate risk

Interest rate risk is the risk of variability of the fair value or future cash flows arising fromfinancial instruments due to the changes in interest rates. Most banks are exposed to interestrate risk within its Treasury operations. SCU does not have a treasury operation and does nottrade in financial instruments.




Interest rate risk in the banking book

SCU is exposed to interest rate risk in its banking book due to mismatches between therepricing dates of assets and liabilities. The interest rate risk on the banking book is measuredand reported to the ALCO, the Risk Committee and the Board, on a monthly basis. In thebanking book the most common risk SCU faces arises from fixed rate assets and liabilities.This exposes SCU to the risk of sensitivity should interest rates change.

The level of mismatch on the banking book is set out in Note 26 below. The table set out atNote 26 displays the period that each asset and liability will reprice as at the balance date.This risk is not considered significant to warrant the use of derivatives to mitigate this risk.

Method of managing risk

The policy of SCU to manage the risk is to maintain a balanced ‘on book’ strategy by ensuringthe net interest rate gaps between assets and liabilities are not excessive.

SCU’s exposure to market risk is measured and monitored using the Value-at-Risk (VaR)methodology of estimating potential losses. VaR is a technique which estimates the potentialchange in the value of the financial assets and liabilities that could occur on risk positionstaken due to movements in market rates and prices over a specified time period to a givenlevel of confidence. VaR, as set out in the table below, has been calculated using historicalsimulations, using movements in market rates and prices, a 99.5 per cent confidence leveland taking into account historical correlations between different markets and rates.

Any potential exposures in excess of the exposure limits stated above are rectified throughtargeted fixed rate interest products available through investment assets, and term depositsliabilities to rectify the imbalance to within acceptable levels. The policy of SCU permits theundertaking of derivatives to reduce interest rate risks, but no such derivatives have beenundertaken to date. SCU’s exposure to interest rate risk is set out in Note 26 which details thecontractual interest change profile.

Based on the calculations as at 30 June, the impact on the net economic value as apercentage of the Capital Base, for a 2% movement in interest rates would be as follows:

2017 2016Value-at-Risk Methodology 0.25% 0.15%

SCU is therefore confident within a 99.5 per cent confidence level that, given the risks as at 30June 2017, it will not incur a one day loss on its non-trading book of more than the amountcalculated above, based on the VaR model used. Although the use of VaR models calculatesthe interest rate sensitivity on the banking book, this is not reflected in the Pillar 1 capitalrequirement.

SCU’s exposure to banking book interest rate risk is not expected to change materially in thenext year so existing capital requirements are considered to be an accurate measurement ofcapital needed to mitigate interest rate risk.

B. Liquidity Risk

Liquidity risk is the risk that SCU may encounter difficulties raising funds to meet commitmentsassociated with financial instruments, e.g. borrowing repayments or Member withdrawal demands.It is the policy of the board of Directors that SCU maintains adequate cash reserves and committedcredit facilities so as to meet the Member withdrawal demands when requested.

SCU manages liquidity risk by:

– Continuously monitoring actual daily cash flows and longer term forecasted cash flows; – Monitoring the maturity profiles of financial assets and liabilities;– Maintaining adequate reserves, liquidity support facilities and reserve borrowing facilities; and– Monitoring the prudential liquidity ratio daily.




SCU has a longstanding arrangement with the industry liquidity support organisation, Credit UnionFinancial Support Services (CUFSS), which can access industry funds to provide support to SCU shouldit be necessary at short notice. SCU has not had any need to access funds from this source.

Under the APRA Prudential Standards, SCU is required to maintain a minimum of 9% of total adjustedliabilities as liquid assets capable of being converted to cash within 24 hours (Minimum LiquidityHolding Ratio – MLH). SCU policy is to main tain 15% of funds as liquid assets, to ensure that SCUmaintains at all times adequate funds for meet ing Member withdrawal requests. The ratio is checkeddaily. Should the liquidity ratio fall below this level the Management and Board are to address thematter and ensure that the liquid funds are obtained from new deposits, borrowing facilities or otherliquidity support facilities available. Note 30 details the borrowing facilities as at balance date. Thesefacilities are in addition to the support from CUFSS.

The maturity profile of the financial assets and financial liabilities, based on the contractualrepayment terms are set out in Note 24. The ratio of liquid funds over the past year is set out below:

Total adjusted liabilities 2017 2016

Minimum Liquidity Holdings $175,354,573 $174,398,644

As at 30 June 20.92% 20.63%Average for the year 22.59% 19.67%Minimum during the year 20.25% 16.76%Maximum during the year 24.15% 21.26%

Total Liquid investments $230,409,095 $239,626,395

As at 30 June 27.49% 28.34%Average for the year 29.52% 27.18%Minimum during the year 26.60% 24.71%Maximum during the year 31.29% 28.66%

C. Credit Risk

Credit risk is the risk that Members, financial institutions and other counterparties will be unable tomeet their obligations to SCU which may result in financial losses. Credit risk arises principally fromSCU’s loan book, and investment assets.

(i) Credit Risk – Loans

The analysis of SCU’s loans by class, is as follows:

2017 2017 2017 2016 2016 2016Carrying Commitments Max. Carrying Commitments Max.

Loans to value exposure value exposure$’000 $’000 $’000 $’000 $’000 $’000

Mortgage 574,007 46,789 620,796 538,691 47,505 586,196Personal 23,399 65 23,464 23,337 72 23,409Revolving Credit 16,646 - 16,646 16,286 - 16,286Commercial - - - - - -

Total to natural persons 614,052 46,854 660,906 578,314 47,577 625,891

Corporate borrowers 10,176 - 10,176 13,365 - 13,365

Total 624,228 46,854 671,082 591,679 47,577 639,256




Carrying value is the value on the Statement of Financial Position. Maximum exposure is thevalue on the Statement of Financial Position plus the undrawn facilities (loans approved notadvanced, available redraw facilities, and undrawn approved revolving credit line facilities).The details are shown in Note 28.

All loans and facilities are within Australia. The geographic distribution is not analysed intosignificant areas within Australia as the exposure classes are not considered material.Concentrations are described in Note 7(c).

The method of managing credit risk is by way of strict adherence to the credit assessmentpolicies before the loan is approved and close monitoring on a weekly basis of defaults in therepayment of loans thereafter. The credit policy has been endorsed by the Board of Directors,to ensure that loans are only made to Members that are creditworthy (capable of meetingloan repayments).

SCU has established policies over the:

– Credit assessment and approval of loans and facilities covering acceptable riskassessment, security requirements;

– Limits of acceptable exposure over the value to individual borrowers, non-mortgagesecured loans, commercial lending and concentrations to geographic and industrygroups considered at high risk of default;

– Reassessing and review of the credit exposures on loans and facilities; – Establishing appropriate provisions to recognise the impairment of loans and facilities;– Management and recovery procedures for loans in repayment default; and– Review of compliance with the above policies;

A regular review of compliance is conducted as part of the internal audit scope.

Past due and impaired

A financial asset is past due when the counterparty has failed to make a payment whencontractually due. Past due does not mean that a counterparty will never pay, but it cantrigger various actions such as renegotiation, enforcement of covenants, or legal proceedings.Once the past due is sufficient to warrant a provision for potential loss to be raised, the loan isregarded as impaired, unless other factors indicate the impairment should be recognisedsooner.

Loan repayments are monitored daily to detect delays in repayments, and recovery action isundertaken. For loans where repayments are doubtful, external consultants are engaged toconduct recovery action. The exposures to losses arise predominantly in the personal loansand revolving credit facilities not secured by registered mortgages over real estate.

If such evidence exists, the estimated recoverable amount of that asset is determined and anyimpairment loss, based on the net present value of future anticipated cash flows, isrecognised in the profit and loss. In estimating these cash flows, management makesjudgements about a counterparty’s financial situation and the net realisable value of anyunderlying collateral.

In addition to specific provisions against individually significant financial assets, SCU makescollective provision assessments for each financial asset portfolio segmented by similar riskcharacteristics.

The Statement of Financial Position provisions are maintained at a level that managementdeems sufficient to absorb probable incurred losses in SCU’s loan portfolio from homogenousportfolios of assets and individually identified loans.

A provision for incurred losses is established on all past due loans after a specified period ofrepayment default where, based on past experience, it is probable that some of the capital




will not be repaid or recovered. Specific loans and portfolios of assets are provided againstdepending on a number of factors including deterioration in counterparty’s risk, changes in acounterparty’s industry conditions and technological developments, as well as identifiedstructural weaknesses or deterioration in cash flows.

The provisions for impaired and past due exposures relate to the loans to Members. Past duevalue is the ‘on balance sheet’ loan balances which are past due by 90 days or more. (Detailsare as set out in Note 8.)

Bad debts

Amounts are written off when collection of the loan or advance is considered to be remote. All write offs are on a case by case basis, taking account of the exposure at the date of thewrite off.

On secured loans, the write off takes place on ultimate realisation of collateral value, or fromclaims on any lenders mortgage insurance.

A reconciliation in the movement of both past due and impaired exposure provisions isprovided in Note 8.

Collateral securing loans

A sizeable portfolio of the loan book is secured on residential property in Australia. Therefore,SCU is exposed to risks in the reduction the Loan to Value (LVR) cover should the propertymarket be subject to a decline.

The risk of losses from the loans undertaken is primarily reduced by the nature and quality ofthe security taken.

The Board policy is to maintain at least 50% of the loans in well secured residential mortgageswhich carry an 80% loan to valuation ratio or less. Note 7(b) describes the nature and extentof the security held against the loans held as at the balance date.

Concentration risk – Individuals

Concentration risk is a measurement of SCU’s exposure to an individual counterparty (orgroup of related parties). If prudential limits are exceeded as a proportion of SCU’s regulatorycapital (10%) a large exposure is considered to exist. No capital is required to be held againstthese but APRA must be informed. APRA may impose additional capital requirements if itconsiders the aggregate exposure to all loans over the 10% capital benchmark, to be higherthan acceptable.

SCU holds no significant concentrations of exposures to Members

Concentration risk – Industry

There is no concentration of credit risk with respect to loans and receivables as SCU has alarge number of customers dispersed in areas of employment.

(ii) Credit Risk – Liquid Investments

Credit risk is the risk that the other party to a financial instrument will fail to discharge theirobligation resulting in SCU incurring a financial loss.This usually occurs when debtors fail tosettle their obligations owing to SCU.

There is a concentration of credit risk with respect to investment receivables with theplacement of investments in Cuscal. The credit policy is that investments are only made to




institutions that are credit worthy. Directors have established policies that a maximum of 50%of SCU’s capital base can be invested with any one financial institution at a time. With respectto Cuscal, this limit is increased to 150%.

The risk of losses from the liquid investments undertaken is reduced by the nature and qualityof the independent rating of the investment body and the limits to concentration on one CreditUnion. Also the relative size of SCU as compared to the industry is relatively low such that therisk of loss is reduced.

Under SCU Industry’s liquidity support scheme, at least 3.2% of the total assets must beinvested in Cuscal, to allow the scheme to have adequate resources to meet its obligations ifneeded. The board policy is to maintain a significant proportion of the investments in CuscalLimited, a company set up to support its Member Credit Unions. Cuscal has a long-term creditrating of A+ and a short-term credit rating of A-1.

The Board has approved that the majority of its investments will generally be with financialinstitutions with a rating not lower than BBB-. The Board permits investments withcounterparties with ratings below this rating, or otherwise unrated to a limit of 10% of SCU’scapital base for any single counterparty, or 30% of the capital base in total for all suchcounterparty investments.

External Credit Assessment for Institution Investments

Where available, SCU uses the ratings of Standard & Poors ratings agency to assess the creditquality of investment exposures, where applicable, using the credit quality assessment scalein APRA prudential guidance AGN 112. The credit quality assessment scale within this standardhas been complied with.

The exposure values associated with each credit quality step are as follows:

30 June 2017 30 June 2016Carrying Past due Carrying Past due

Investments with value value Provision value value Provision$’000 $’000 $’000 $’000 $’000 $’000

Cuscal – rated A+ 42,439 - - 37,690 - -Banks – rated AA and above - - - - - -

Banks – rated below AA 129,318 - - 152,624 - -

Non-Banks rated AA and above - - - - - -

Non-Banks rated below AA 38,375 - - 10,500 - -

Unrated Approved Deposit-taking institutions 18,000 - - 36,457 - -

Total 228,132 - - 237,271 - -

(iii) Credit Risk – Guarantees

SCU provides financial guarantees on behalf of Members. All guarantees provided are fullysecured against either an existing registered mortgage facility already held by SCU, or byfunds lodged as a term deposit with SCU. The total value of guarantees issued at 30 June2017 amounted to $1,094,180 (30 June 2016 $1,031,921) .




D. Operational Risk

Operational risk is the risk of loss to SCU resulting from deficiencies in processes, personnel,technology and infrastructure, and from external factors other than credit, market and liquidity risks.Operational risks in SCU relate mainly to those risks arising from a number of sources including legalcompliance; business continuity; data infrastructure; outsourced services failures; fraud; andemployee errors.

SCU’s objective is to manage operational risk so as to balance the avoidance of financial lossesthrough the implementation of controls, whilst avoiding procedures which inhibit innovation andcreativity. These risks are managed through the implementation of polices and systems to monitorthe likelihood of the events and minimise the impact.

Systems of internal control are enhanced through:

– the segregation of duties between employee duties and functions, including approval andprocessing duties;

– documentation of the policies and procedures, employee job descriptions and responsibilities, toreduce the incidence of errors and inappropriate behaviour;

– implementation of the whistle blowing policies to promote a compliant culture and awareness ofthe duty to report exceptions by staff;

– education of members to review their account statements and report exceptions to SCU promptly; – effective dispute resolution procedures to respond to member complaints; – effective insurance arrangements to reduce the impact of losses; and – contingency plans for dealing with the loss of functionality of systems or premises or staff.

(i) Fraud

Fraud can arise from member card PINS and internet passwords being compromised wherenot protected adequately by the member. It can also arise from other systems failures. SCUhas systems in place which are considered to be robust enough to prevent any materialfraud. However, in common with all retail banks, fraud is potentially a real cost. Fraud losseshave arisen from card skimming, internet password theft and false loan applications.

(ii) IT systems

The worst case scenario would be the failure of SCU’s core banking and IT network suppliersto meet customer obligations and service requirements. SCU has outsourced the IT systemsmanagement to an Independent Data Processing Centre (IDPC) which is owned by a collectionof credit unions. This organisation has the experience in-house to manage any short-termproblems and has a contingency plan to manage any related power or systems failures.Other network suppliers are engaged on behalf of SCU by the industry body CUSCAL toservice the settlements with other financial institutions for direct entry, ATM & Visa cards, andBPay etc.

A full disaster recovery plan is in place to cover medium to long-term problems which isconsidered to mitigate the risk to an extent such that there is no need for any further capital tobe allocated.

E. Capital Management

The minimum capital levels required to be maintained by all Financial Institutions are prescribed bythe Australian Prudential Regulation Authority (APRA). Under the APRA prudential standards capital isdetermined in three components

• Credit risk • Market risk (trading Book) • Operations risk.

The market risk component is not required as SCU is not engaged in a trading book for financialinstruments.




Capital resources

Tier 1 Capital

The vast majority of Tier 1 Capital comprises:

– Preference share capital – Retained profits – Realised reserves– Asset Revaluation Reserve on Properties

Additional Tier 1 capital

This is a new classification of capital and includes Preference share capital approved by APRA andqualifies as Tier 1 capital.

Tier 2 Capital

Tier 2 Capital consists of capital instruments that combine the features of debt and equity in that theyare structured as debt instruments, but exhibit some of the loss absorption and funding flexibilityfeatures of equity. There are a number of criteria that capital instruments must meet for inclusion inTier 2 Capital resources as set down by APRA.

Tier 2 Capital generally comprises:

– Tier 2 capital instruments - subordinated loan– General Reserve for Credit Losses

Capital in SCU is made up as follows:2017 2016

Tier 1 Common Equity $’000 $’000

Capital reserve account 683 683Asset revaluation reserves on property 2,458 2,458General reserves 12,829 12,829Retained earnings 58,463 56,636

74,433 72,606Less prescribed deductions (4,070) (3,960)Net tier 1 Common Equity 70,363 68,646

Tier 1 Additional EquityAdditional Tier 1 Capital Instruments - 1,953Less prescribed deductions - (1,953)Additional Net Tier 1 Equity - -Total Net Tier 1 Capital 70,363 68,646

Tier 2Subordinated debt 1,997 1,989Reserve for credit losses 2,300 2,040

4,297 4,029Less prescribed deductions (1,600) (1,200)Net tier 2 capital 2,697 2,829TOTAL CAPITAL 73,060 71,475

SCU is required to maintain a minimum capital level as compared to the risk weighted assets at anygiven time. The above capital is in excess of the minimum required.

The risk weights attached to each asset are based on the weights prescribed by APRA in its GuidanceAGN 112-1. The general rules apply the risk weights according to the level of underlying security.




The capital ratio as at the end of the financial year over the past 5 years is as follows

2017 2016 2015 2014 201317.14% 17.47% 17.56% 18.45% 18.47%

The level of capital ratio can be affected by growth in asset relative to growth in reserves and bychanges in the mix of assets between different risk weighting categories.

To manage SCU’s capital SCU reviews the ratio monthly and monitors major movements in the assetlevels. Policies have been implemented to require reporting to the Board and the regulator if thecapital ratio falls below 15%. Further a 3 year capital budget projection of the capital levels ismaintained annually to address how strategic decisions or trends may impact on the capital level.

Pillar 2 Capital on Operational Risk

This capital component was introduced as from the 1 January 2008 and coincided with changes inthe asset risk weightings for specified loans and liquid investments. Previously no operational chargewas prescribed.

SCU uses the Standardised approach which is considered to be most suitable for its business giventhe small number of distinct transaction streams. The Operational Risk Capital Requirement iscalculated by mapping SCU’s three year average net interest income and net non-interest income toSCU’s various business lines.

Based on this approach, SCU’s operational risk requirement is as follows:

– operational risk capital $4,012,121 (2016 : $3,784,252)

It is considered that the Standardised approach accurately reflects SCU’s operational risk other thanfor the specific items set out below.

Internal capital adequacy management

SCU manages its internal capital levels for both current and future activities through a combination ofthe various Committees. The outputs of the individual Committees are reviewed by the Board ofDirectors in its capacity as the primary governing body. The capital required for any change in SCU’sforecasts for asset growth, or unforeseen circumstances, are assessed by the Board. The financedepartment then update the forecast capital resources models produced and the impact upon theoverall capital position of SCU is reassessed.

In relation to the operational risks, the major measurements for additional capital as a percentage ofrisk weighted assets are:

– Credit Correlation risk 7.09%– Interest Rate Risk 3.57%– Liquidity Risk -1.98%– Strategic Risk 0.14%– Operational Risk 1.59%

10.41%

The optional additional capital charge recognised by the Board equates to $10,272,484 (2016 : $10,064,237).




23. Categories of Financial Instrumentsa. The following information classifies the financial Note 2017 2016

instruments into measurement classes $’000 $’000

Financial assets – carried at amortised costCash and Cash Equivalents 4 13,359 27,748Receivables 6 2,209 2,067Liquid Investments 5 216,007 210,904Total Receivables from financial institutions 231,575 240,719

Loans to Members 7&8 623,506 591,089Total loans 623,506 591,089

Available for sale investments – carried at cost 9 1,899 1,899Total Available for sale investments 1,899 1,899

TOTAL FINANCIAL ASSETS 856,980 833,707

Financial liabilitiesCreditors 14 5,826 7,144Deposits from Members 13 777,372 753,627Long term borrowings 17 1,997 1,989Total carried at amortised cost 785,195 762,760

TOTAL FINANCIAL LIABILITIES 785,195 762,760

b. Assets measured Fair value measurement at end of the reporting period using:at fair value Balance Level 1 Level 2 Level 3Financial assets at fair value through

profit or loss – hedge derivatives - - - -Cash flow Hedge derivatives - - - - Available-for-sale financial assets - - - -Land and Buildings 6,973 - 6,973 -Equity investments 1,899 - - 1,899

Total 8,872 - 6,973 1,899

The fair value hierarchy has the following levels:

(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

(b) inputs other than quoted prices included within Level 1 that are observable for the asset orliability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and

(c) inputs for the asset or liability that are not based on observable market data (unobservableinputs) (Level 3).

The above equity investments are measured at cost less provision for impairment, as their fair valuecould not be reliably measured. These equities were acquired for the purpose of gaining access tothe use of the services provided by these companies rather than for speculative investmentpurposes. The equities are not able to be traded and are not redeemable.

The financial reports of these companies record the net tangible asset backing of these equitiesexceeding their cost. Based upon the net assets, any fair value determination on these shares islikely to be greater than their cost value, but due to the absence of a ready market and restrictionson the ability to transfer the shares, a market value is not able to be determined readily.

SCU obtains independent valuations for its land and buildings at least every 5 years. At the end ofeach reporting period the Directors update their assessment of the fair value of each property,having regard to the most recent independent valuations. The Directors determine a property value




within a range of reasonable fair value estimates. The best evidence of fair value is current prices inan active market for similar properties. Where such information is not available the Directors considerinformation from a variety of sources including:

- Current prices in an active market for properties of a different nature, or recent or similarproperties in a less active market, adjusted to reflect those differences.

- Capitalised income projections based upon a property estimated net market income, andcapitalised at a rate derived from an analysis of market evidence.

The resulting fair value estimates for land and buildings are included in Level 2.

24. Maturity Profile Of Financial Assets And LiabilitiesMonetary assets and liabilities have differing maturity profiles depending on the contractual term and in thecase of loans the repayment amount and frequency. The table below shows the period in which differentmonetary assets and liabilities held will mature and be eligible for renegotiation or withdrawal. In the caseof loans, the table shows the period over which the principal outstanding will be repaid based on theremaining period to the repayment date assuming contractual repayments are maintained, and is subjectto change in the event that current repayment conditions are varied. Financial assets and liabilities are atthe undiscounted values (including future interest expected to be earned or paid). Accordingly these valueswill not agree to the statement of financial position.

Book Within 1 1–3 3–12 1–5 After 5 No2017 Value month months months years years Maturity Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000ASSETSCash and Cash Equivalents 13,359 12,164 - - - - 1,195 13,359Receivables 2,209 2,209 - - - - - 2,209Liquid Investments atamortised cost 216,007 36,347 67,928 83,809 32,579 - - 220,663

Loans to Members 623,506 4,355 8,923 38,849 183,533 663,663 - 899,323Available for sale Equity Investments 1,899 - - - - - 1,899 1,899

On statement offinancial position 856,980 55,075 76,851 122,658 216,112 663,663 3,094 1,137,453

Undrawn commiments Note 28 - - - - - - - -

Total Financial Assets 856,980 55,075 76,851 122,658 216,112 663,663 3,094 1,137,453


$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000LIABILITIESBorrowings - - - - - - - -Creditors 5,826 5,826 - - - - - 5,826Deposits from other financial institutions - - - - - - - -

Deposits from Members– at call 456,867 456,614 - - - - 254 456,868

Deposits from Members – term 320,505 54,485 85,433 177,075 6,324 - - 323,317

Subordinated debt 1,997 - - 1,997 - - - 1,997On statement of

financial position 785,195 516,925 85,433 179,072 6,324 - 254 788,008Undrawn commitments - - - - - - 78,487 78,487

Total Financial Liabilities 785,195 516,925 85,433 179,072 6,324 - 78,741 866,495





$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000ASSETSCash and Cash Equivalents 27,748 26,425 - - - - 1,323 27,748Receivables 1,093 1,093 - - - - - 1,093Liquid Investments atamortised cost 210,904 43,882 44,572 96,528 31,284 - - 216,266

Loans to Members 591,679 4,433 8,823 38,301 179,009 642,247 - 872,813Loans to Capital Investors - - - - - - - -Available for sale Equity Investments 1,899 - - - - - 1,899 1,899

On statement offinancial position 833,323 75,833 53,395 134,829 210,293 642,247 3,222 1,119,819

Undrawn commiments Note 28 - - - - - - - -

Total Financial Assets 833,323 75,833 53,395 134,829 210,293 642,247 3,222 1,119,819


$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000LIABILITIESBorrowings - - - - - - - -Creditors 7,144 7,144 - - - - - 7,144Deposits from other financial institutions - - - - - - - -

Deposits from Members– at call 423,176 422,887 - - - - 289 423,176

Deposits from Members – term 330,451 56,556 119,082 149,712 8,088 - - 333,438

Subordinated debt 1,989 - - - 2,000 - - 2,000On statement of

financial position 762,760 486,587 119,082 149,712 10,088 - 289 765,758Undrawn commitments - - - - - - 74,098 74,098

Total Financial Liabilities 762,760 486,587 119,082 149,712 10,088 - 74,387 839,856




25. Non-Current Profile ofFinancial Assets And Liabilities

The table below represents the above maturity profile summarised at discounted values. The contractualarrangements best represents the estimated minimum amount of repayment on the loans, liquidinvestments and on the member deposits. While the liquid investments and member deposits arepresented in the table below on a contractual basis, as part of our normal banking operations we wouldexpect a large proportion of these balances to roll over. Loan repayments are generally accelerated bymembers choosing to repay loans earlier. These advance repayments are at the discretion of the membersand not able to be reliably estimated.

2017 2016

Within 12 After 12 Within 12 After 12Item Months Months Total Months Months Total

$’000 $’000 $’000 $’000 $’000 $’000

FINANCIAL ASSETSCash and Cash Equivalents 13,359 - 13,359 27,748 - 27,748Liquid Investments atAmortised Cost 185,967 30,040 216,007 182,846 28,058 210,904

Loans to Members 42,254 581,252 623,506 42,445 549,234 591,679Receivables 2,209 - 2,209 1,093 - 1,093Available For Sale EquityInvestments - 1,899 1,899 - 1,899 1,899

Loans to Capital Investors - - - - - -

Total Financial Assets 243,789 613,191 856,980 254,132 579,191 833,323

FINANCIAL LIABILITIESBorrowings - - - - - -Creditors 5,826 - 5,826 7,145 - 7,145Deposits from other financialinstitutions - - - - - -

Deposits from Members – Call 456,613 254 456,867 422,887 289 423,176Deposits from Members – Term 314,181 6,324 320,505 322,853 7,598 330,451Subordinated debt 1,997 - 1,997 - 1,989 1,989

Total Financial Liabilities 778,617 6,578 785,195 752,885 9,876 762,761




26 . Interest Rate Change Profile of Financial Assets And Liabilities

Financial assets and liabilities have conditions which allow interest rates to be amended either on maturity(term deposits and term investments) or after adequate notice is given (loans and savings). The table belowshows the respective value of funds where interest rates are capable of being altered within the prescribedtime bands, being the earlier of the contractual repricing date, or maturity date.

Within 1 1-3 3-12 1-5 Non interest 2017 month months months years bearing Total

$’000 $’000 $’000 $’000 $’000 $’000ASSETSCash and Cash Equivalents 12,164 - - - 1,195 13,359Liquid Investments at Amortised Cost 65,879 80,891 69,237 - - 216,007Receivables 2,209 - - - - 2,209Loans to Members – mortgage 390,478 2,052 15,834 164,921 - 573,285Loans to Members – personal 34,748 - 12 4,773 - 39,533Loans to Members – other 8,616 - 558 1,514 - 10,688Available for Sale Equity Investments - - - - 1,899 1,899Loans to Capital Investors - - - - - -On statement of

financial position 514,094 82,943 85,641 171,208 3,094 856,980Undrawn loan commitments Note 28 - - - - - -



$’000 $’000 $’000 $’000 $’000 $’000LIABILITIESDeposits from Members 460,450 80,108 230,413 6,147 254 777,372Deposits from otherfinancial institutions - - - - - -

Borrowings - - - - - -Creditors - - - - 5,826 5,826Subordinated Debt - 1,997 - - - 1,997On statement of

financial position 460,450 82,105 230,413 6,147 6,080 785,195Undrawn loan commitments Note 28 - - - - 78,487 78,487

Total Liabilities 460,450 82,105 230,413 6,147 84,567 863,682





$’000 $’000 $’000 $’000 $’000 $’000ASSETSCash and Cash Equivalents 26,425 - - - 1,323 27,748Liquid Investments at Amortised Cost 60,055 89,847 61,002 - - 210,904Receivables 1,093 - - - - 1,093Loans to Members – mortgage 395,601 11,003 26,990 105,097 - 538,691Loans to Members – personal 35,442 - 31 5,512 - 40,985Loans to Members – other 10,735 - - 1,268 - 12,003Available for Sale Equity Investments - - - - 1,899 1,899Loans to Capital Investors - - - - - -On statement of

financial position 529,351 100,850 88,023 111,877 3,222 833,323Undrawn loan commitments Note 28 - - - - - -



$’000 $’000 $’000 $’000 $’000 $’000LIABILITIESDeposits from Members 479,378 118,535 147,827 7,598 289 753,627Deposits from otherfinancial institutions - - - - - -

Borrowings - - - - - -Creditors - - - - 7,145 7,145Subordinated Debt - 1,989 - - - 1,989On statement of

financial position 479,378 120,524 147,827 7,598 7,434 762,761Undrawn loan commitments Note 28 - - - - 74,098 74,098

Total Liabilities 479,378 120,524 147,827 7,598 81,532 836,859




27. Net Fair Value of Financial Assets and LiabilitiesNet fair value has been determined on the basis of the present value of expected future cash flows underthe terms and conditions of each financial asset and financial liability.

Significant assumptions used in determining the cash flows are that the cash flows will be consistent withthe contracted cash flows under the respective contracts.

The information is only relevant to circumstances at balance date and will vary depending on thecontractual rates applied to each asset and liability, relative to market rates and conditions at the time. Noassets are held regularly traded by SCU, and there is no active market to assess the value of the financialassets and liabilities. The values reported have not been adjusted for the changes in credit ratings of theassets. The calculation reflects the interest rate applicable for the remaining term to maturity not the rateapplicable to the original term.

2017 2016Fair Value Book Value Variance Fair Value Book Value Variance

$’000 $’000 $’000 $’000 $’000 $’000FINANCIAL ASSETSCash and Cash Equivalents 13,359 13,359 - 27,748 27,748 -Liquid Investments atAmortised Cost 217,023 216,007 1,016 212,038 210,904 1,134

Receivables (1) 2,209 2,209 - 1,093 1,093 -Loans to members – mortgage 574,082 573,286 796 539,815 538,691 1,124Loans to members – personal 39,235 39,532 (297) 40,474 40,895 (421)Loans to members – other 10,280 10,688 (408) 11,874 12,003 (129)Available for Sale EquityInvestments 1,899 1,899 - 1,899 1,899 -

Loans to Capital Investors - - - - - -


2017 2016Fair Value Book Value Variance Fair Value Book Value Variance

$’000 $’000 $’000 $’000 $’000 $’000FINANCIAL LIABILITIESBorrowings - - - - - -Deposits from Members – call 456,614 456,867 (253) 422,887 422,887 -

Deposits from Members – term 323,197 320,505 2,692 333,398 330,451 2,947

Deposits from other institutions - - - - - -

Creditors (1) 5,826 5,826 - 7,144 7,144 -Subordinated debt 1,997 1,997 - 2,000 2,000 -

Total Financial Liabilities 787,634 785,195 2,439 765,429 762,482 2,947

(1) For these assets and liabilities the carrying value approximates fair value.

Assets where the fair value is lower than the book value have not been written down in the accounts ofSCU on the basis that they are to be held to maturity, or in the case of loans, all amounts due are expectedto be recovered in full.




The net fair value estimates were determined by the following methodologies and assumptions:

(i) Liquid Assets and Receivables from other Financial Institutions

The carrying values of cash and liquid assets and receivables due from other financial institutionsredeemable within 12 months approximate their fair value as they are short term in nature or arereceivable on demand.

(ii) Loans and Advances

The carrying value of loans and advances is net of unearned income and both general and specificprovisions for doubtful debts.

For variable rate loans, (excluding impaired loans) the amount shown in the statement of financialposition is considered to be a reasonable estimate of fair value subject to the assessment of thecredit spread on personal loans considered to be less marketable. The fair value for fixed rate loansis calculated by utilising discounted cash flow models (i.e. the net present value of the portfolio futureprincipal and interest cash flows), based on the repricing maturity of the loans. The discount ratesapplied were based on the current applicable rate offered for the average remaining term of theportfolio.

The average rates applied to give effect to the discount of cash flows were 4.36% (2016: 4.18%).

The fair value of impaired loans was calculated by discounting expected cash flows using a ratewhich includes a premium for the uncertainty of the flows.

(iii) Deposits From Members

The fair value of call and variable rate deposits, and fixed rate deposits repricing within 12 months, isthe amount shown in the statement of financial position. Discounted cash flows were used tocalculate the fair value of other term deposits, based upon the deposit type and the rate applicableto its related period maturity.

The average rates applied to give effect to the discount of cash flows were 2.25% (2016: 2.45%).

(iv) Short Term Borrowings

The carrying value of payables due to other financial institutions approximate their fair value as theyare short term in nature and reprice frequently.

2017 2016$’000 $’000

28. Financial Commitmentsa. Outstanding Loan Commitments

The loans approved but not funded 6,089 5,706

b. Loan Redraw FacilitiesThe loan redraw facilities available 41,859 42,884

c. Undrawn Loan FacilitiesLoan facilities available to Members for overdraftsand line of credit loans are as follows:– Total value of facilities approved 47,185 43,096– Less: Amount advanced (16,646) (17,588)

Net Undrawn Value 30,539 25,508

Total Financial Commitments 78,487 74,098

These commitments are contingent on Members maintaining credit standards and ongoingrepayment terms on amounts drawn.




2017 2016$’000 $’000

d. Lease expense commitments for operating leases on property occupied by SCUNot later than one year 1,275 1,260Later than one year but not later than five years 2,954 2,426Over five years 40 -

4,269 3,686

The operating leases are in respect of property used for providing branch services to Members. Thereare no contingent rentals applicable to leases taken out. The terms of the leases are for between 1 to5 years and options for renewal are usually obtained for a further period up to 5 years.

There are no restrictions imposed on SCU so as to limit the ability to undertake further leases, borrowfunds or issue dividends.

e. Computer Bureau Expense CommitmentsAs referred to in Note 32, SCU has a managementcontract with TransAction Solutions Pty Limited (TAS) tosupply computer support staff and services to meetthe day to day needs of SCU and compliance withthe relevant Prudential Standards.

2017 2016The costs committed under contracts with TAS are as follows: $’000 $’000

Not later than one year 534 534Later than 1 year but not 2 years 534 534Later than 2 years but not 5 years 667 1,201Later than 5 years - -

1,735 2,269f. Other expense commitments

Not later than one year 601 580Later than 1 year but not 2 years 601 580Later than 2 years but not 5 years 1,604 1,739Later than 5 years - 386

2,806 3,285

29. Standby Borrowing FacilitiesSCU has a borrowing facility with Cuscal of:

Current Net2017 Gross Borrowing Available

$’000 $’000 $’000Overdraft Facility 2,000 - 2,000

TOTAL STANDBY BORROWING FACILITIES 2,000 - 2,000

Current Net2016 Gross Borrowing Available

$’000 $’000 $’000Overdraft Facility 2,000 - 2,000

TOTAL STANDBY BORROWING FACILITIES 2,000 - 2,000

Withdrawal of the loan facility is subject to the availability of funds at Cuscal. Cuscal holds an equitablemortgage charge over all of the assets of SCU as security against loan and overdraft amounts drawn underthe facility arrangement.




30. Contingent Liabilities

Liquidity Support Scheme

SCU is a Member of SCU Financial Support Scheme Limited (CUFSS) a Company limited by guarantee,established to provide financial support to Member Credit Unions in the event of a liquidity or capitalproblem. As a Member, SCU is committed to maintaining 3.2% of the total assets as deposits with CuscalLimited.

Under the terms of the Industry Support Contract (ISC), the maximum call for each participating CU wouldbe 3.2% of SCU's Total Assets (3% under loans and facilities and 0.2% under the cap on contributions topermanent loans). This amount represents the participating credit union's irrevocable commitment underthe ISC. At the balance date there were no loans issued under this arrangement.

Guarantees

SCU has issued guarantees on behalf of Members for the purpose of lease and trade credit facilities. Theamounts of the guarantees are in total $1,094,180 (30 June 2016 $1,031,921). The guarantee is payable onlyon the Member defaulting on the contractual repayments to the Lessor/supplier. The guarantees aregenerally fully secured against registered first mortgages or Term Deposit funds lodged.

31. Disclosures on Directors and other Key Management Personnel

a. Remuneration of Key Management Personnel [KMP]

Key Management Persons (KMP) has been taken to comprise the Directors and the Members of theexecutive management responsible for the day to day financial and operational management of SCU.

The aggregate Compensation of Key Management Persons during the year comprising amountspaid or payable or provided for was as follows:

2017 2016

Directors & Directors &Other KMP Other KMP

$’000 $’000

(a) short-term employee benefits; 869 767

(b) post-employment benefits - Superannuation contributions 150 148

(c) other long-term benefits – net increases in Long Service leave and Personal leave provision 43 291

(d) termination benefits; - -

(e) share-based payment. - -

Total 1,062 1,206

In the above table, remuneration shown as Short Term benefits means (where applicable) wages,salaries and social security contributions, paid annual leave and paid sick leave, profit-sharingand bonuses, value of Fringe Benefits received, but excludes out-of-pocket expense reimbursements.

All remuneration to Directors was approved by the Members at the previous Annual GeneralMeeting of SCU.




2017 2016$’000 $’000

b. Loans to Directors and other Key Management Persons

(i) The aggregate value of loans to Directors and other KeyManagement Personnel as at Balance date amounted to 127 177

(ii) The total value of revolving credit facilities approved to Directors and other Key Management Personnel, as at Balance date amounted to 64 94Less amounts drawn down and included in (i) (12) (12)Net balance available 52 82

(iii) During the year the aggregate value of loans disbursed to Directors and other Key Management Personnel amounted to:Revolving credit facilities 139 179Term Loans 30 181

169 360(iv) During the year the aggregate value of Revolving

Credit Facility limits granted or increased to Directors and other Key Management Personnel amounted to: - 3

(v) Interest and other revenue earned on Loans and revolving credit facilities to KMP 2 2

SCU’s policy for lending to Directors and Management is that all loans are approved and depositsaccepted on the same terms and conditions which applied to Members for each class of loan ordeposit with the exception of loans to KMP who are not Directors. There are no loans which areimpaired in relation to the loan balances with Director’s or other KMP’s.

KMP who are not Directors receive a concessional rate of interest on their loans and facilities. Thesebenefits, where subject to Fringe Benefits tax, are included in the remuneration in Note 31(a) above.

There are no benefits or concessional terms and conditions applicable to the close family Membersof the Key Management Persons. There are no loans which are impaired in relation to the loanbalances with close family relatives of Directors and KMP.

c. Transactions with Other Related Parties

Other transactions between related parties include deposits from Director related entities or closefamily Members of Directors, and other KMP.

SCU’s policy for receiving deposits from related parties is that all transactions are approved anddeposits accepted on the same terms and conditions which applied to Members for each type ofdeposit.

There are no benefits paid or payable to the close family Members of the key management persons.

There are no service contracts to which key management persons or their close family Members arean interested party.

2017 2016$’000 $’000

Total value Term and Savings Deposits from KMP 1,099 1,601

Total Interest paid on deposits to KMP 19 29




32. Economic DependencySCU has an economic dependency on the following suppliers of services.

a. Cuscal

Cuscal is an Approved Deposit Taking Institution registered under the Corporations Act 2001 and theBanking Act. This entity:

(i) provides the license rights to Visa Card in Australia and settlement with Bankers for ATM, Visa cardand cheque transactions, direct entry transactions, as well as the production of Visa and Redicardsfor use by Members;

(ii) provides treasury and money market facilities to SCU. SCU has invested the majority of itsliquid assets with the entity to maximise return on funds, and to comply with the LiquiditySupport Scheme requirements.

(iii) operates the computer network used to link Redicards and Visa cards operated throughReditellers and other approved ATM suppliers to SCU's EDP Systems.

b. Ultradata Australia Pty Limited

Provides and maintains the core banking system application software utilised by SCU.

c. TransAction Solutions Pty Limited

This entity operates the computer facility on behalf of SCU in conjunction with other Credit Unions.SCU has a management contract with the company to supply computer support staff and services tomeet the day to day needs of SCU and compliance with the relevant Prudential Standards.

33. Superannuation LiabilitiesSCU contributes to the CUE Super Plan for the purpose of superannuation guarantee payments andpayment of other superannuation benefits on behalf of employees. The Plan is administered by anindependent corporate trustee.

SCU has no interest in the Superannuation Plan (other than as a contributor) and is not liable for theperformance of the Plan, or the obligations of the Plan.

SCU contributes to the State Authorities Superannuation Scheme (SASS) and to the State Authorities Non-Contributory Superannuation Scheme (SANCS) for the purpose of defined benefits superannuation schemesfor 2 employees and no new employees are eligible to join these schemes. The Plan is administered by anindependent corporate trustee.

SCU has no interest in the Superannuation Plan (other than as a contributor) and is liable for any shortfall inreserves to meet the employees’ entitlements. Currently the Plan is in surplus and it is anticipated SCU isunlikely to be required to have any further liability to these funds.

34. SecuritisationSCU had an arrangement with Integris Securitisation Services Pty Limited whereby it acted as an agent topromote and complete loans on their behalf, for on sale to an investment trust. While this arrangement hasterminated, SCU continues to manage the loans portfolio previously securitised on behalf of the trust. SCUbears no risk exposure in respect of these loans. SCU receives a management fee to recover the costs ofon-going administration of the processing of loan repayments and the issuing of statements to Members.

The amount of securitised loans under management as at 30 June 2017 $5,944,303 (30 June 2016$8,250,079).




2017 2016$’000 $’000

35. Notes To Statement Of Cash Flowsa. Reconciliation of Cash

Cash includes cash on hand, and deposits at call with other financial institutions and comprises:

Cash on hand 1,195 1,323Deposits at call 12,164 26,425Bank overdraft - -Total Cash 13,359 27,748

b. Cash unavailable for use

Cash which is excluded from the above amount of cash since it is not readily available for use by reason of it securing overnight settlement obligations. - -

c. Reconciliation of Cash from Operations to Accounting Profit

The net cash increase/(decrease) from operating activities is reconciled to the operating profit after tax:

Profit after income tax 2,158 2,345Add (Deduct):– Increase in Provision for Impairment 348 31– Increase in Unearned Income (3) (24)– Increase in Unamortised Fees (38) (2)– Depreciation expense 555 644– Amortisation of Intangible Assets 97 121– Amortisation of Debt Raising Costs 8 8– Profit on sale of assets (28) (17)– Loss on sale of assets - -– Increase in provisions for staff leave 98 232– Increase in tax liabilities 69 397– Increase in other provisions (39) (42)– Increase in accrued expenses 54 26– Increase in interest payable (430) (637)– Increases in Other Liabilities - -– Decreases in prepayments & sundry receivables (48) (94)– Decrease in other Assets - -– Decrease in Receivables (92) 925– Decrease in Taxation Assets (93) (109)– Bad debts written off - -– Dividends Paid (21) (74)Net Cash From Operating Activities 2,595 3,730




36. Corporate Information SCU is a company limited by shares registered under the Corporations Act 2001

The address of the registered office is: 19 Second Avenue, Blacktown NSW 2148

The address of the principal place of business: 19 Second Avenue, Blacktown NSW 2148

The nature of the operations and its principal activities are the provision of deposit taking facilities and loanfacilities to the Members of SCU.

37. Subsequent events

On 30 August 2017 SCU sold its property at 27-29 Church Street Lidcombe for a gross sale price of$3,000,000. The estimated profit from the sale of this property is $2,046,254.

SCU has entered into an agreement with the purchaser to lease back the property for a minimum period of12 months, with an option to extend this period if desired. Under the terms of the lease, SCU can continue tooperate its Lidcombe Branch operations from the premises.




NOTES




NOTES


Campbelltown Shop U012, Macarthur Square Shopping Centre, Gilchrist Drive, Ambarvale NSW 2560

Fairfield Shop G50, Neeta City Shopping Centre, Smart Street, Fairfield NSW 2165

Greenacre 138 Waterloo Rd, Greenacre NSW 2190

Katoomba 63 Pioneer Place, Katoomba NSW 2780

Leichhardt 7–15 Wetherill Street, Leichhardt NSW 2040

Lidcombe 27–29 Church Street, Lidcombe NSW 2141

Marrickville Shop 7-8, 34 Victoria Road Marrickville NSW 2204

Mascot 1197 Botany Road, Mascot NSW 2020

Parkes 189 Clarinda Street, Parkes NSW 2870

Parramatta 207 Church Street, Parramatta NSW 2150

Penrith 16–20 Riley Street, Penrith NSW 2750

Rockdale Shop 5, Rockdale Plaza, Rockdale NSW 2216

Rouse Hill Shop GR092A, Civic Way, Rouse Hill Town Centre, Rouse Hill NSW 2155

Springwood 268 Macquarie Road, Springwood NSW 2777

Sutherland 20 Eton Street, Sutherland NSW 2232

Sydney City 210 Clarence Street, Sydney NSW 2000

Windsor Shop 7–8, 251 George Street, Windsor NSW 2756

Registered Office: 19 Second Ave, Blacktown NSW 2148

Branches

scu.net.auCall 13 61 91

Sydney Credit Union Ltd ABN 93 087 650 726 AFSL 236476 Australian Credit Licence No 236476. Please address all mail to PO Box 444 Blacktown NSW [email protected]

2017 annual report

Documents

Branches 2017… · Branches scu.net.au Call 13 61 91 ... 2017 annual report. Sydney Credit Union Ltd ... Qualifications – Bachelor of Commerce (Accounting)