TSB Bank Limited. Disclosure Statement. for the Six Months Ended 30 September 2017

Transcription

1 TSB Bank Limited Disclosure Statement for the Six Months Ended ember

2 Contents Disclosure Statement Name and Registered Office of Registered Bank Corporate Information Ownership Directorate Auditor Pending Proceedings or Arbitration Credit Rating Guarantee Arrangements Conditions of Registration... 1 Index & Interim Financial Statements... 2 Directors Statement Independent Review Report Directory... 35

3 Disclosure Statement For the Six Months ended ember This Disclosure Statement contains information as required by the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended) (the "Order"). 1. Name and Registered Office of Registered Bank TSB Bank Limited (trading as TSB) is a registered bank (elsewhere in this statement referred to as the "Bank"). Registered Office: Level 5, TSB Centre, 120 Devon Street East, New Plymouth. 2. Corporate Information The Bank was established in 1850, incorporated under the provisions of the Trustee Bank Restructuring Act 1988, and the Companies Act 1955 on 30 August 1988 and reregistered under the Companies Act 1993 in May Ownership The Bank is wholly owned by the TSB Community Trust (an independent body), through the Trust's fully owned subsidiary, TSB Group Limited, and is domiciled in New Zealand. TSB Community Trust appoints the Board of Directors. TSB Community Trust address is 21 Dawson Street, PO Box 667, New Plymouth Directorate There have been no changes to Directors since the full year Disclosure Statement was signed on 8 June. 5. Auditor KPMG 10 Customhouse Quay Wellington Pending Proceedings or Arbitration This Bank has no proceedings or arbitration pending in New Zealand or elsewhere which may have a material adverse effect on the Bank. 7. Credit Rating The Bank has a credit rating applicable to its long term senior unsecured obligations payable in New Zealand, in New Zealand dollars. The current rating is A-/Stable/a-, a Long-Term Issuer Default Rating assigned by Fitch Ratings on 10 October. 8. Guarantee Arrangements No material obligations of the Bank are guaranteed. 9. Conditions of Registration No changes have been made to the Bank's Conditions of Registration since the last Disclosure Statement issued for the three months ended 30 June. Internal Audit identified a failure to calculate capital in accordance with BS2A which represented a minor breach of the Bank s conditions of registration, minor as the adjustment to the reported March Total Capital Ratio would have been 0.02% lower. Page 1

4 Index & Interim Financial Statements Income Statement... 3 Statement of Comprehensive Income... 3 Statement of Changes in Equity... 4 Statement of Financial Position... 7 Statement of Cash Flows... 8 Notes to the Interim Financial Statements Statement of Accounting Policies Interest Income Other Operating Income Operating Expenses Liquidity Risk Derivative Financial Instruments Investment Securities Loans and Advances to Customers Other Assets Credit Risk Management and Asset Quality Deposits Other Liabilities Share Capital Dividend Fair Value of Financial Instruments Market Risk Management Liquidity Risk Management Capital Adequacy Securitisation, Funds Management, Other Fiduciary Activates and the Marketing and Distributing of Insurance Products Commitments and Contingent Liabilities Related Parties Risk Management Policies Subsequent Events Page 2

5 Interim Financial Statements Income Statement For the Six Months ended ember Note Interest Income 2 146, , ,385 Interest Expense 83,555 81, ,850 Net Interest Income 62,822 66, ,535 Other Operating Income 3 18,294 9,134 17,224 Net Operating Income 81,116 75, ,759 Operating Expenses 4 41,194 34,917 80,241 Profit before Impairment and Tax 39,922 40,394 68,518 Impairment Losses ,663 1,900 4,010 Net Profit before Tax 38,259 38,494 64,508 Income Tax Expense 10,783 10,764 18,168 Net Profit after Tax 27,476 27,730 46,340 Statement of Comprehensive Income For the Six Months ended ember Net Profit after Tax 27,476 27,730 46,340 Other Comprehensive Income (Net of Tax) Items that may be reclassified subsequently to Profit or Loss Movement in Fair Value of Available for Sale Investments (3,679) (3,703) (7,014) Movement in Effective Portion of Changes in Fair Value of Cash Flow Hedges (2,200) (1,092) 3,369 Income Tax on items that may be reclassified to Profit or Loss 1,646 1,343 1,021 Other Comprehensive Income for the Period (Net of Tax) (4,233) (3,452) (2,624) Total Comprehensive Income for the Period 23,243 24,278 43,716 These interim financial statements are to be read in conjunction with the notes on pages 10 to 30. Page 3

6 Interim Financial Statements Statement of Changes in Equity For the Six Months ended ember Note Share Capital Available for Sale Investments Revaluation Reserve Cash Flow Hedge Reserve Retained Earnings Total Equity Balance at 1 April 10,000 14,083 (1,842) 565, ,124 Total Comprehensive Income for the Period Net Profit after Tax ,476 27,476 Other Comprehensive Income: Movement in Effective Portion of Changes in Fair Value of Cash Flow Hedges (Net of Tax) - - (1,584) - (1,584) Movement in Fair Value of Available for Sale Investments (Net of Tax) - (2,649) - - (2,649) Total Other Comprehensive Income - (2,649) (1,584) - (4,233) Total Comprehensive Income for the Period - (2,649) (1,584) 27,476 23,243 Transactions with Owner, recorded directly in Equity Dividends to Equity Holder (12,657) (12,657) Total Transactions with Owner (12,657) (12,657) Balance at ember () 10,000 11,434 (3,426) 580, ,710 These interim financial statements are to be read in conjunction with the notes on pages 10 to 30. Page 4

7 Interim Financial Statements Statement of Changes in Equity For the Six Months ended ember Note Share Capital Available for Sale Investments Revaluation Reserve Cash Flow Hedge Reserve Retained Earnings Total Equity Balance at 1 April 10,000 19,133 (4,268) 529, ,408 Total Comprehensive Income for the Period Net Profit after Tax ,730 27,730 Other Comprehensive Income: Movement in Effective Portion of Changes in Fair Value of Cash Flow Hedges (Net of Tax) - - (786) - (786) Movement in Fair Value of Available for Sale Investments (Net of Tax) - (2,666) - - (2,666) Total Other Comprehensive Income - (2,666) (786) - (3,452) Total Comprehensive Income for the Period - (2,666) (786) 27,730 24,278 Transactions with Owner, recorded directly in Equity Dividends to Equity Holder (3,173) (3,173) Total Transactions with Owner (3,173) (3,173) Balance at ember () 10,000 16,467 (5,054) 554, ,513 These interim financial statements are to be read in conjunction with the notes on pages 10 to 30. Page 5

8 Interim Financial Statements Statement of Changes in Equity For the Year ended Note Share Capital Available for Sale Investments Revaluation Reserve Cash Flow Hedge Reserve Retained Earnings Total Equity Balance at 1 April 10,000 19,133 (4,268) 529, ,408 Total Comprehensive Income for the Period Net Profit after Tax ,340 46,340 Other Comprehensive Income: Movement in Effective Portion of Changes in Fair Value of Cash Flow Hedges (Net of Tax) - - 2,426-2,426 Movement in Fair Value of Available for Sale Investments (Net of Tax) - (5,050) - - (5,050) Total Other Comprehensive Income - (5,050) 2,426 - (2,624) Total Comprehensive Income for the Period - (5,050) 2,426 46,340 43,716 Transactions with Owner, recorded directly in Equity Dividends to Equity Holder (10,000) (10,000) Total Transactions with Owner (10,000) (10,000) Balance at () 10,000 14,083 (1,842) 565, ,124 These interim financial statements are to be read in conjunction with the notes on pages 10 to 30. Page 6

9 Interim Financial Statements Statement of Financial Position As at ember Note ASSETS Cash and Cash Equivalents 5 122,327 97, ,200 Derivative Financial Instruments Investment Securities 7 1,919,081 2,227,549 1,969,995 Loans and Advances to Customers 8 4,996,560 4,165,223 4,657,668 Current Tax Asset Deferred Tax Asset 4,913 3,702 3,248 Property, Plant and Equipment 17,320 20,432 17,662 Other Assets 9 11,280 6,629 9,557 TOTAL ASSETS 7,071,516 6,522,343 6,802,680 LIABILITIES Deposits 11 6,420,192 5,899,819 6,156,809 Derivative Financial Instruments 6 8,507 12,413 8,285 Current Tax Liability 4,554-2,451 Other Liabilities 12 39,553 34,598 47,011 TOTAL LIABILITIES 6,472,806 5,946,830 6,214,556 SHAREHOLDER s EQUITY Share Capital 13 10,000 10,000 10,000 Available for Sale Investments Revaluation Reserve 11,434 16,467 14,083 Cash Flow Hedge Reserve (3,426) (5,054) (1,842) Retained Earnings 580, , ,883 TOTAL SHAREHOLDER S EQUITY 598, , ,124 TOTAL LIABILITIES AND SHAREHOLDER S EQUITY 7,071,516 6,522,343 6,802,680 Total Interest Earning and Discount Bearing Assets 6,987,371 6,437,424 6,722,094 Total Interest and Discount Bearing Liabilities 6,073,746 5,591,577 5,838,074 These interim financial statements are to be read in conjunction with the notes on pages 10 to 30. Page 7

10 Interim Financial Statements Statement of Cash Flows For the Six Months ended ember Note CASH FLOWS FROM OPERATING ACTIVITIES: Cash provided from (applied to) Interest Received 145, , ,911 Other Income Received 17,476 7,782 17,021 Interest Paid (69,622) (68,619) (159,492) Operating Expenditure (42,106) (40,817) (75,078) Tax and Subvention Payment (8,699) (7,521) (11,512) Cash Flows from Operating Profits before Changes in Operating Assets and Liabilities 42,731 41,072 63,850 Net changes in Operating Assets and Liabilities: Increase in Loans and Advances to Customers (338,667) (338,322) (831,077) Derivative Financial Instruments (1,663) Increase in Deposits 249,449 73, ,259 Cash Flows from net changes in Operating Assets and Liabilities Net Cash Flows from Operating Activities (90,881) (264,173) (486,418) (48,150) (223,101) (422,568) CASH FLOWS FROM INVESTING ACTIVITIES: Cash provided from (applied to) Property, Plant and Equipment Sold/(Purchased) (1,246) (2,759) (1,561) Net (Purchase) / Maturity of Investment Securities 46, , ,394 Intangible Asset Purchased (1,691) (940) (5,750) Net cash (used by) / from Investing Activities 43, , ,083 CASH FLOWS FROM FINANCING ACTIVITIES: Cash provided from (applied to) Dividends Paid (16,828) (9,475) (12,648) Net cash used by financing activities (16,828) (9,475) (12,648) Net (decrease)/ increase in Cash and Cash Equivalents (21,873) (20,468) 25,867 Add Cash and cash equivalents at beginning of Period 144, , ,333 Cash and cash equivalents at End of Period 5 122,327 97, ,200 These interim financial statements are to be read in conjunction with the notes on pages 10 to 30. Page 8

11 Interim Financial Statements Statement of Cash Flows (continued) For the Six Months ended ember Reconciliation of Net Profit after Tax to Net Cash Flows from Operating Activities Net Profit after Tax 27,476 27,730 46,340 Non-cash Items: - Amortisation of Intangible Assets ,052 - Depreciation 1,588 1,490 3,063 - Impairment Losses 1,663 1,900 4,010 Add Movements in Statement of Financial Position Items: 4,037 3,709 8,125 - Accounts Payable 10,646 5, Current Tax 2,103 3,650 6,930 - Deposits 249,450 73, ,259 - Deferred Tax Asset (19) (407) (274) - Accounts Receivable (1,513) 1,319 2,323 - Derivative Financial Instruments (1,663) Loans and Advances to Customers (338,667) (338,322) (831,077) Net Cash Flows from Operating Activities (79,663) (254,540) (477,033) (48,150) (223,101) (422,568) Reconciliation of Cash and Cash Equivalents to the Statement of Financial Position Note Balances with Reserve Bank 5 92,400 74, ,508 Cash and Cash at Bank 5 29,927 23,832 27,692 Total Cash and Cash Equivalents at End of Period 122,327 97, ,200 These interim financial statements are to be read in conjunction with the notes on pages 10 to 30. Page 9

12 1 Statement of Accounting Policies The Financial Statements of the Bank incorporated in this Disclosure Statement have been prepared in accordance with the requirements of NZ IAS 34 Interim Financial Reporting and should be read in conjunction with the Annual Report. The Bank's Financial Statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP), as appropriate for profit-oriented entities. There have been no changes in accounting policies since the approval of the Annual Report and Disclosure Statement on 8 June. To ensure consistency with the current period, comparative figures have been restated where appropriate. 2 Interest Income Cash and Cash Equivalents ,671 Investment Securities 32,131 44,860 81,024 Loans and Advances to Customers * 113, , ,690 Total Interest Income 146, , ,385 * Interest income on Loans and Advances to Customers includes interest earned of $0.191m (ember, $0.393m; and 31 March, $0.523m) on Impaired Assets. 3 Other Operating Income Gain on Sale of Fixed Assets Lending and Credit Facility Related Income 1,322 1,367 2,639 Commission and Other Trading Income * 6,236 5,643 11,204 Other Income 1,736 2,093 2,169 Cumulative Gain transferred from Available for Sale Investments Revaluation Reserve ** 9, (Loss)/ Gain on Derivative Financial Instruments at Fair Value (105) 12 1,193 Total Other Operating Income 18,294 9,134 17,224 * Includes income from TSB Realty and TSB Foreign Exchange. ** Includes recovery from Solid Energy (SENZ) (Subject to Deed of Company Arrangement) Restructured Asset of $7.4m. Page 10

13 4 Operating Expenses Fees Paid to Auditor: Audit and Review of Financial Statements Other Services * Depreciation 1,588 1,490 3,063 Amortisation of Intangible Assets ,052 Directors' Fees Personnel 20,397 16,102 34,564 Defined Contribution Plan ,635 Information Technology 4,244 3,701 9,058 Premises Occupancy 1,659 1,426 3,039 Marketing 3,919 4,187 11,678 Other 7,380 6,512 15,057 Total Operating Expenses 41,194 34,917 80,241 5 Liquidity Risk Cash and Cash Equivalents Cash and Cash at Bank 29,927 23,832 27,692 Balances with Reserve Bank 92,400 74, ,508 Total Cash and Cash Equivalents 122,327 97, ,200 Investment Securities (Liquid Investment Portfolio) Local Authority Securities 453, , ,235 Sovereigns and Central Banks 414, , ,943 Registered Bank Securities 460, , ,472 Registered Bank Term Investments 15, Other Investments 261, , ,709 Total Investment Securities 1,604,648 1,379,191 1,472,359 Total Core Liquid Assets 1,726,975 1,477,056 1,616,559 Page 11

14 6 Derivative Financial Instruments Interest Rate Swaps The Bank uses Interest Rate Swaps to manage the interest rate exposure on identified fixed rate Loans, Investment Securities and Deposits. The Fair Value of these derivatives is obtained from observable market prices as at reporting date. FX Forward Exchange Currency Assets The Bank enters into Forward Exchange Contracts (FEC) on its own and on behalf of customers with other banks. Where the contract is entered on behalf of customers, a separate contract is signed between the customer and TSB for any liability/asset that may arise as a result of the FEC.The Fair Value of these derivatives is obtained from observable market prices as at reporting date. Interest Rate Swaps Notional Amount As at ember Fair Value Assets Fair Value Liabilities Derivatives held as Economic hedges 100,207 - (1,645) Derivatives held as Fair Value hedges 29,000 - (117) Derivatives held as Cash-Flow hedges 858, (6,745) Total Interest Rate Swaps 987, (8,507) FX Forward Exchange Currency Asset Total FX Forward Exchange Currency Asset Total Derivative Financial Instruments 987, (8,507) 7 Investment Securities Available for Sale Local Authority Securities 458, , ,336 Sovereigns and Central Banks 414, , ,943 Registered Bank Securities 513, , ,680 Registered Bank Term Investments 15, Other Investments * 517, , ,036 Total Investment Securities 1,919,081 2,227,549 1,969,995 * Other Investments relate to investments in Utility Companies, SOE s and Commercial Paper, and Bonds of New Zealand corporates. Included in this amount are $2.800m for Solid Energy (SENZ) (Subject to Deed of Company Arrangement) Restructured Asset (30 September ; $16.006m; $17.825m). The decrease in the value of investment is due to the cash flow from SENZ, partly offset by the revision of the estimated recoveries from the sale of SENZ. Page 12

15 8 Loans and Advances to Customers Note Residential Mortgages 4,126,408 3,398,310 3,851,176 Commercial 472, , ,265 Agricultural 312, , ,672 Community 4,124 4,939 4,504 Other * 105,378 87,431 97,299 Total Gross Loans and Advances to Customers 5,020,431 4,186,425 4,680,916 Less Provision for Doubtful Debts 10 (23,871) (21,202) (23,248) Total Loans and Advances to Customers 4,996,560 4,165,223 4,657,668 * Other is inclusive of lending through Harmoney platform, other retail lending and credit card balances. 9 Other Assets Trade and Other Receivables 2,036 2,366 1,218 Intangible Assets 9,244 4,263 8,339 Total Other Assets 11,280 6,629 9, Credit Risk Management and Asset Quality Impaired Assets are any credit exposures for which an impairment loss is required to be recognised in accordance with NZ IAS 39. The majority of the Bank s provisions for impairment for lending assets are made on a collective basis. The loan portfolio is predominantly (82%) residential mortgages which are secured by a first registered mortgage over freehold dwellings. For overdrafts and credit card balances, some are unsecured while others are secured by an all obligation mortgage, which cover all undertakings with the Bank. The Bank does not have any assets under administration or material assets acquired through the enforcement of security. Undrawn balances on lending commitments to counterparties for whom drawn balances are classified as individually impaired, total $28k. The Bank has reviewed its holdings of Investment Securities in terms of its counterparty credit policy and based on this review, and other information on hand, does not believe there is any evidence to indicate impairment in this portfolio. The collective provision against this portfolio is assessed on a quarterly basis. Furthermore, no specific provisions are being held against possible non-performance by any investment in this portfolio. At ember the Bank had no lending restructured assets and one investment restructured asset (refer Note 7). Interest foregone on lending restructured assets throughout the year was Nil, and on investment restructured assets Nil. The credit quality of Loans and Advances to Customers that were neither past due or impaired can be assessed by reference to the Bank s internal rating system. At the origination of Loans and Advances to Customers, loans are risk graded based on debt servicing ability and Loan-to-Valuation (LVR) ratios. These risk grades are reviewed periodically for adverse changes during the loan s life. Interest continues to be accrued on all loans. Page 13

16 10 Credit Risk Management and Asset Quality (continued) 10.1 Credit Quality Information for Loans and Advances to Customers Note Neither Past Due or Impaired 4,938,487 4,124,213 4,612,865 Past Due Assets Not Impaired 78,514 48,758 59,132 Impaired Assets 3,430 13,454 8,919 Total Gross Loans and Advances to Customers 8 5,020,431 4,186,425 4,680,916 Lending commitments to customers were $151.9m as at ember (ember, $138.9m; and, $164.1m). Past Due Assets Not Impaired As at ember Residential Mortgage Loans Agricultural Exposures Commercial Exposures Other Exposures Total Credit Exposures Less than 30 days 58,951 2, , to 59 days 4, , to 89 days 1, , days or more 6,128 1, ,517 Balance at End of Period 71,447 4,969 1, ,514 Movements in Individually Impaired Assets As at ember Residential Mortgage Loans Agricultural Exposures Commercial Exposures Other Exposures Total Credit Exposures Balance at Beginning of Period 1,203 7, ,919 Additions Amounts Written Off/Loans Closed Out (348) (348) Transfers back to Loans and Advances to (872) (3,824) (247) (238) (5,181) Customers Balance at End of Period - 3, ,430 Specific Provisions The estimated fair value of collateral and other charges related to financial assets that are individually impaired is $3.268m. Page 14

17 10 Credit Risk Management and Asset Quality (continued) Impairment Losses charges to Income Statement Movement in Collective Provisions 1,561 1,658 4,202 Movement in Specific Provisions (938) 138 (360) Individual Impairment Expenses 1, Impairment Losses Loans and Advances 1,663 1,900 4, Movements in balances of Total Credit Impairment Allowances Specific Provision for Doubtful Debts As at ember Residential Mortgage Loans Agricultural Exposures Commercial Exposures Other Exposures Total Credit Exposures Balance at Beginning of Period ,138 Add New Provisions Current Period Amounts Written Off (348) (348) Reversal of Previously Recognised Provision (252) (300) (160) (148) (860) Balance at End of Period Collective Provision for Doubtful Debts As at ember Residential Mortgage Loans Agricultural Exposures Commercial Exposures Other Exposures Total Credit Exposures Balance at Beginning of Period 17,256 2,139 2, ,110 Charged to Income Statement 1, (132) (11) 1,561 Balance at End of Period 18,555 2,544 2, ,671 Total Provision for Impairment Loss Specific Provisions for Doubtful Debts 200 1,636 1,138 Collective Provisions for Doubtful Debts 23,671 19,566 22,110 Total Provisions for Impairment Loss 23,871 21,202 23,248 Page 15

18 10 Credit Risk Management and Asset Quality (continued) 10.3 Concentrations of Credit Exposures Concentrations of Credit Exposures arise where the Bank is exposed to risk in activities or industries of a similar nature. Credit exposure is calculated on the basis of selected items On and Off Balance Sheet. On Balance Sheet Note Cash and Cash Equivalents 5 122,327 97, ,200 Investment Securities 7 1,919,081 2,227,549 1,969,995 Loans and Advances to Customers 8 4,996,560 4,165,223 4,657,668 Off Balance Sheet Lending commitments , , ,945 Total Credit Exposures 7,752,180 7,138,224 7,470,808 Australian and New Zealand Standard Industrial Classification ( ANZSIC ) codes have been used as the basis for disclosing customer industry sectors. An analysis of financial assets by geographical region and industry sector as at balance date is as follows: Concentration of Credit Exposure by Industry Sector Cash on Hand 5,316 2,675 7,670 Local Government Lending and Investments 525, , ,969 New Zealand Registered Banks 553, , ,948 Multilateral Development Banks and Other International Institutions 255, , ,819 Sovereigns and Central Bank 506, , ,194 Food Product and Beverages 19,556 19,273 19,510 Agricultural Lending 324, , ,490 Utilities 174, , ,757 Mining 2,800 16,006 17,825 Transport, Postal and Warehousing 32,382 56,616 32,396 Information Media and Telecommunications 28,615 62,432 28,667 Finance 5,009 56,166 - Residential Lending 4,593,584 3,793,865 4,301,945 Personal and Other Lending 225, , ,970 Community Lending 6,476 7,174 5,690 Commercial Lending 518, , ,206 Provision for Impairment Loss (23,871) (21,202) (23,248) Total Credit Exposure 7,752,180 7,138,224 7,470,808 Page 16

19 10 Credit Risk Management and Asset Quality (continued) Concentration of Credit Exposure by Geographical Location Cash and Cash Equivalents New Zealand 122,327 97, ,200 Total Cash and Cash Equivalents 122,327 97, ,200 Investment Securities New Zealand 1,557,924 1,873,973 1,634,172 Outside New Zealand 361, , ,823 Total Investment Securities 1,919,081 2,227,549 1,969,995 Loans and Advances to Customers Taranaki 2,293,648 2,097,538 2,189,206 Auckland 1,615,472 1,207,942 1,469,389 Rest of North Island 704, , ,830 South Island 407, , ,491 Provision of Impairment Loss (23,871) (21,202) (23,248) Total Loans and Advances to Customers 4,996,560 4,165,223 4,657,668 Off-Balance Sheet New Zealand 714, , ,945 Total Off-Balance Sheet 714, , ,945 Total Credit Exposure 7,752,180 7,138,224 7,470, Concentrations of Credit Exposures to Individual Counterparties The following disclosures show the number of individual counterparties (not being members of groups of closely related counterparties) or groups of closely related counterparties (excluding central government of any country with a long-term credit rating of A- or A3 or above, or its equivalent, and connected persons), where the period end and peak end-of-day credit exposures equalled or exceeded 10% of the Bank s equity as at reporting date. The peak aggregate end of day credit exposures is the greater of actual credit exposures for the last quarter. Credit exposures disclosed are based on actual exposures. The credit rating is applicable to an entity s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars. There were no peak or balance date credit exposures to bank counterparties with a long-term credit rating below A- or A3, or its equivalent, which exceeded 10% of Equity for the six months ended ember. Page 17

20 10 Credit Risk Management and Asset Quality (continued) ember Number of Non-Bank Counterparties ember Number of Non-Bank Counterparties "A" Rated "B" Rated Unrated Total "A" Rated "B" Rated Unrated Total As at Balance Date 11% - 15% % - 20% Total Peak Exposure 11% - 15% % - 20% % - 25% Total Number of Non-Bank Counterparties "A" Rated "B" Rated Unrated Total As at Balance Date 11% - 15% % - 20% % - 25% Total Peak Exposure 11% - 15% % - 20% % - 25% Total Note: "A" Rated - "B" Rated - Unrated - those counterparties that have a long-term credit rating of A- or A3 or above, or its equivalent. those counterparties that have a long-term credit rating of at least BBB- or Baa3, or its equivalent, and at most BBB+ or Baa1, or its equivalent. those counterparties that do not have a long-term credit rating, being Local Authorities and Utilities Maximum Exposure to Credit Risk The Bank does not have any material exposures on which balances have been netted. As such, the carrying amount of loans and advances (gross of provisions), investment securities, plus commitments as set out in Note 20 represent the Bank s maximum exposure to credit risk for on and off Balance Sheet financial instruments. Page 18

21 11 Deposits Retail Term Deposits 3,418,982 2,767,104 3,080,422 On Call Deposits Bearing Interest 2,629,823 2,824,473 2,737,705 On Call Deposits Not Bearing Interest 346, , ,736 Wholesale Deposits Bearing Interest 24,941-19,946 Total Deposits 6,420,192 5,899,819 6,156,809 All creditors and depositors are ranked equally. Wholesale Deposits consist of Registered Certificates of Deposit Concentrations of Funding Concentrations of Funding arise where the Bank is funded by industries of a similar nature or in particular geographies. An analysis of financial liabilities by industry sector and geography at balance date is as follows: Retail Deposits $000 s $000 s $000 s Taranaki 2,959,963 2,842,853 2,891,680 Rest of New Zealand 3,288,080 2,873,304 3,084,608 Outside New Zealand 172, , ,521 Total Funding by Geographic Region 6,420,192 5,899,819 6,156,809 Government and Public Authorities 3,585 6,736 4,558 Finance (Wholesale Deposits) 24,941-19,946 Households 6,276,246 5,785,706 6,018,088 Community 42,879 42,395 44,742 Commercial 72,541 64,982 69,475 Total Funding by Industry 6,420,192 5,899,819 6,156, Other Liabilities Employee Entitlements 11,411 8,844 10,801 Dividend Payable 2,657 3,173 6,827 Trade and Other Payables 24,793 21,972 28,660 Other Liabilities Total Other Liabilities 39,553 34,598 47,011 All creditors and depositors are ranked equally and have equal priority to any creditor claims. Page 19

22 13 Share Capital Issued and Fully Paid Up Capital: 20,000,000 Ordinary Shares 10,000 10,000 10,000 Total Share Capital 10,000 10,000 10,000 All Ordinary Shares have equal voting rights and share equally in dividends and assets on winding up. All shares are held by the TSB Community Trust and its fully owned subsidiary. Dividends are recognised in the financial year in which they are authorised and approved by the Board of Directors. 14 Dividend ember ember $ Per Share $ Per Share $ Per Share Interim 2, , , Special 10, Final , Total 12, , , Fair Value of Financial Instruments The following table summarises the carrying amounts and fair values of financial assets and financial liabilities. As at ember Financial Assets Note Available For Sale $000 s Held-for Trading $000 s Loans and Receivables $000 s Other Amortised Cost $000 s Total Carrying Amount Fair $000 s Value $000 s Cash and Cash Equivalents ,010 5, , ,327 Derivative Financial Instruments Investment Securities 7 1,919, ,919,081 1,919,081 Loans and Advances to Customers ,996,560-4,996,560 4,969,509 Other Assets ,036-2,036 2,036 Total Financial Assets 1,919, ,115,606 5,317 7,040,039 7,012,988 Financial Liabilities Deposits ,420,192 6,420,192 6,433,346 Derivative Financial Instruments 6-8, ,507 8,507 Other Liabilities ,415 43,415 43,415 Total Financial Liabilities - 8,507-6,463,607 6,472,114 6,485,268 Page 20

23 16 Market Risk Management Market risk is the risk that movements in the level or volatility of market rates and prices will affect the Bank s income or the value of its holdings of financial instruments Interest Rate Repricing Schedule The interest rate repricing schedule of On-Balance Sheet financial assets and financial liabilities has been prepared on the basis of contractual maturity or next repricing date, whichever is earlier As at ember Assets 0 3 Months 3 6 Months 6 12 Months 1-2 Years Over 2 Years Not Interest Sensitive Total Cash and Cash Equivalents 117, , ,327 Investment Securities 1,143, ,114 99, , ,075-1,919,081 Loans and Advances to Customers 1,639, ,870 1,049,652 1,346, ,115 (23,871) 4,996,560 Other Financial Assets ,071 2,071 Total Financial Assets 2,900, ,984 1,149,097 1,529, ,190 (16,483) 7,040,039 Liabilities Deposits 3,980, , , , , ,756 6,420,192 Other Financial Liabilities ,922 51,922 Total Financial Liabilities 3,980, , , , , ,678 6,472,114 Lending Commitments 714, ,212 Derivative Notional Principals 987,512 (45,855) (250,000) (605,057) (86,600) - - Interest Sensitivity Gap 621,102 (70,142) 22, , ,300 (353,161) 1,282,137 1 Other Assets include Receivables. 2 Other Liabilities include Accounts Payable, Provision for Dividend, and Employee entitlements Sensitivity Analysis In accordance with NZ IFRS 7, an assessment has been undertaken of the market risk sensitivity of net interest income and Shareholders equity based on fluctuations in interest rates. The primary objective of the Bank s framework for the management of interest rate risk is to minimise the impact of changes in wholesale interest rates on the Bank s earnings. The Risk Framework includes limits for both earnings at risk and market value, as well as re-pricing gap analysis. Page 21

24 16. Market Risk Management (continued) Next 12 Months Interest Earnings The earnings at risk measure looks at the sensitivity of net interest earnings over the next twelve months to potential changes in interest rates and is measured on a monthly basis. Earnings at risk is measured assuming immediate one percent and two percent parallel movement in interest rates across the yield curve. Sensitivity of net interest earnings is measured using a model that takes into account current and projected future Balance Sheet changes in terms of asset and liability levels as well as product mix. The figures in the table below indicate the outcome of the earnings at risk measure for the current period. % Change in Net Interest Earnings ($m) Scenarios -2.0% % % (1.4) (1.5) (1.1) +2.0% (2.7) (3.0) (2.1) Economic Value of Shareholder s Equity The Economic Value of Shareholders Equity (EVE) risk measure looks at the sensitivity of the economic value of the Bank to changes in wholesale interest rates and is measured on a monthly basis. The current Economic value for both On and Off-Balance Sheet assets and liabilities is derived from their contractual cash flows, which are discounted to reflect current market rates. The sensitivity of the EVE is measured assuming immediate one percent and two percent parallel movements in interest rates across the yield curve. The figures in the table below indicate the outcome of the EVE measure for the current period. % Change in EVE ($m) Scenarios -2.0% % % (12.7) (12.6) (11.8) +2.0% (25.1) (25.0) (23.2) Page 22

25 17 Liquidity Risk Management The following table analyses the Bank s financial assets and financial liabilities into relevant maturity groupings based on the remaining period as at balance date to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows and include principal and future interest cash flows, and therefore will not agree to the carrying values on the Statement of Financial Position. As at ember Contractual Cash Flows Assets On Demand 0 1 Months 1 3 Months 3-12 Months 1 5 Years Over 5 Years Total Cash and Cash Equivalents 122, ,327 Investment Securities - 222, , ,663 1,051, ,010,942 Loans and Advances to Customers 33, ,459 68, ,445 1,454,539 4,389,705 6,655,848 Other Financial Assets * - 2, ,071 Total Financial Assets 155, , , ,134 2,506,082 4,390,431 8,791,188 Liabilities Deposits 3,001, , ,983 1,737, ,710-6,532,828 Other Financial Liabilities ** - 31,162 1,913. 3,633 4,618 10,596 51,922 Total Financial Liabilities 3,001, , ,896 1,740, ,328 10,596 6,584,750 Lending Commitments (Off Balance Sheet) 714, ,212 Net Financial Assets / (Liabilities) (2,131,526) 396,688 (608,543) (952,558 ) 1,836,754 4,379,835 2,920,650 * Other Financial Assets include Receivables and Derivative Financial Instruments. ** Other Financial Liabilities include Accounts Payable, Provision for Dividend, Employee entitlements, and Derivative Financial Instruments. As at ember Current and Non-current Assets and Liabilities Current $000 Non-current $000 Assets Cash and Cash Equivalents 122, ,327 Derivative Financial Instruments Investment Securities 927, ,433 1,919,081 Loans and Advances to Customers 1,781,706 3,214,854 4,996,560 Deferred Tax Asset - 4,913 4,913 Property, Plant and Equipment - 17,320 17,320 Other Assets 2,036 9,244 11,280 Total Assets 2,833,752 4,237,764 7,071,516 Liabilities Deposits 5,787, ,767 6,420,192 Derivative Financial Instruments 3,704 4,803 8,507 Other Liabilities 36,660 7,447 44,107 Total Liabilities Total $000 5,827, ,017 6,472,806 Page 23

26 17 Liquidity Risk Management (Continued) Assets and liabilities are classified as current if it is expected they will be realised, consumed or settled within 12 months of the reporting date. Non-current assets include property, plant and equipment and intangible assets as well as financial assets of a long term nature. Non-current liabilities include financial and non-financial liabilities which are expected to be settled after twelve months from reporting date. 18 Capital Adequacy 18.1 Capital Management Policies The Bank is subject to regulation by the RBNZ. The RBNZ has set minimum regulatory capital requirements for banks that are consistent with the internationally agreed framework developed by the Basel Committee on Banking Supervision. These requirements define what is acceptable as capital and provide for methods of measuring the risks incurred by the Bank. The Bank must comply with RBNZ minimum capital adequacy ratios under its Conditions of Registration. The Board of Directors has ultimate responsibility for Capital Adequacy, and approves capital policy and minimum capital levels and limits. These are typically at a higher level than required by the Regulator to reduce the risk of breaching the Conditions of Registration. The Bank monitors its Capital Adequacy and reports this on a regular basis to the Board and on a monthly basis to the RBNZ. The Capital Adequacy tables set out on the following pages summarise the composition of regulatory capital and the Capital Adequacy ratios for the Bank for the period ended ember. During the period and the comparative periods shown, the Bank complied with all of the RBNZ capital requirements to which it is subject. Basel III The Bank has adopted Basel III capital framework with effect from 1 January Pillar 2 of Basel III is intended to ensure that Banks have adequate capital to support all risks in their business, and includes the requirement on banks to have an "Internal Capital Adequacy Assessment Process (ICAAP)" for assessing their overall Capital Adequacy in relation to risk profile and a strategy for maintaining adequate capital to support risk. The Bank's ICAAP has identified other areas of risk not covered by Pillar I (credit risk, market risk, and operational risk) and assigned a level of capital to them. These risks include but are not limited to strategic risk, reputational risk, environmental risk, liquidity risk, investment portfolio risk, sector and regional concentration risk, natural disaster risk, brand risk and ownership structure. The Bank has made an internal capital allocation of $171m (ember $215.8m;, $217.9m) to cover these identified risks. RBNZ Minimum Ratio Requirement Basel III Basel III Basel III Common Equity Tier 1 Capital ratio 4.5% 14.55% 14.59% 14.60% Tier 1 Capital ratio 6.0% 14.55% 14.59% 14.60% Total Capital ratio 8.0% 14.55% 14.59% 14.60% Buffer ratio 2.5% 6.55% 6.59% 6.60% Page 24

27 18. Capital Adequacy (continued) 18.2 Capital Tier 1 Capital Common Equity Tier 1 ( CET1 ) Capital Basel III Issued and fully paid up Share Capital 10,000 Retained Earnings 553,226 Current period s Retained Earnings 27,476 Available for Sale Investment Revaluation Reserve 11,434 Cash Flow Hedge Reserve (3,426) Less Deductions from CET1 Capital 598,710 Intangible Assets 9,244 Cash Flow Hedge Reserve (3,426) Deferred Tax Asset 4,913 10,731 Total Common Equity Tier 1 Capital 587,979 Additional Tier 1 - Total Tier 1 Capital 587,979 Tier 2 Capital - Total Capital 587,979 Page 25

28 18 Capital Adequacy continued 18.3 Total Risk Weighted Exposures September On Balance Sheet Exposures Risk Weight Total Exposure after Credit risk mitigation Sept-17 $000 Risk Weight Exposure Sept-17 $000 Minimum Pillar One Capital Requirement Sept-17 $000 Cash 0% 5, Sovereigns & Central Banks 0% 506, Multilateral Development Banks 0% 198, % 56,770 11, Public Sector Entities 20% 470,407 94,081 7,527 Banks 20% 165,655 33,131 2,651 50% 387, ,673 15,494 Corporate 20% 6,796 1, % 47,603 23,802 1, % 208, ,113 16,649 Residential Mortgages Not Past Due Non property-investment Residential <80% LVR * 35% 2,612, ,350 73,148 Non property-investment Residential 80%<90% LVR * 50% 218, ,461 8,757 Non property-investment Residential 90%<100% LVR * 75% 22,303 16,727 1,338 Non property-investment Residential >100% LVR * 100% Property Investment Residential <80% LVR * 40% 1,089, ,712 34,857 Property Investment Residential 80%<90% LVR * 70% 10,311 7, Property Investment Residential 90%<100% LVR * 90% Welcome Home <80% LVR * 35% 3,344 1, Welcome Home 80%<90% LVR * 35% 56,420 19,747 1,580 Welcome Home 90%<100% LVR * 50% 71,887 35,943 2,875 Welcome Home >100% LVR * 100% 4,911 4, Reverse Mortgages <60% LVR * 50% 10,900 5, Reverse Mortgages 60%<80% LVR * 80% Reverse Mortgages >80% LVR * 100% Past Due Residential Mortgages * 100% 5,852 5, Other Past Due Assets 150% 5,261 7, Other Lending 100% 871, ,962 69,757 Other Assets 100% 19,391 19,391 1,551 Non-Risk Weighted Assets 0% 14, Total On-Balance Sheet Exposures 7,071,516 3,022, ,803 * Total residential mortgages $4,107,853k. Page 26

29 18 Capital Adequacy (continued) Off Balance Sheet Exposures Commitments that can be cancelled unconditionally Commitment with certain drawdown Market Related Contracts Total Exposure Sept Credit Conversion Factor Credit Equivalent Amount Sept Average Risk Weight Risk Weighted Exposure Sept Minimum Pillar One Capital Requirement Sept 562,285 0% - N/A , % 151,927 48% 72,232 5,779 Foreign Exchange Contracts 305 Various 12 50% 6 - Interest Rate Contracts * 987,208 Various 3,964 42% 1, Credit Valuation Adjustment (CVA) Total Off-Balance Sheet Exposures 1,701, ,903 74,875 5,990 * The Credit Equivalent Amount for market related contacts (which are all interest rate contracts) were calculated using the current exposure method. Total Capital Requirements Total Exposure after credit risk mitigation Risk Weighted Exposure or Implied RWE Capital Requirement Total Credit Risk plus Equity 7,227,419 3,097, ,793 Operational Risk 430,241 34,419 Implicit Risk 268,066 21,446 Market Risk 246,227 19,698 Total 4,041, ,356 Residential Mortgages by Loan-to-Valuation Ratio (LVR) 0% - 80% LVR Range 80% - 90% 90% - 100% >100% Total On Balance Sheet Exposures 3,732, ,988 95,045 5,729 4,120,280 Past Due and Impaired 5, ,128 Total Value On Balance Sheet Exposures (refer Note 8 and 10) Less: Provisions: 3,738, ,258 95,045 5,880 4,126,408 Collective 16,726 1, ,555 Specific Total Residential Mortgages 3,721, ,950 94,558 5,846 4,107,853 Off Balance Sheet Exposures 452,671 13,697 1, ,479 Total Residential Mortgages 4,174, ,647 95,669 5,846 4,575,332 Page 27

30 18 Capital Adequacy (continued) Market Risk Implied Risk Weighted Exposure Aggregate Aggregate Capital Capital Charge as % Charge of Banks s Equity Bank s Equity End of Period Capital Charges Interest Risk 246,227 19, % 587,979 Peak end of day Capital Charges Interest Risk 246,227 19, % 587,979 In accordance with clause 9 of Schedule 9 of the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended), peak end-of-day aggregate capital charge and peak end-of-day aggregate capital charge as a percentage of the Bank s Equity at the end of the period, is derived by following the risk methodology for measuring capital requirements within Part 10 of Capital Adequacy Framework (Standardised Approach) (BS2A). 19 Securitisation, Funds Management, Other Fiduciary Activates and the Marketing and Distributing of Insurance Products The Bank has no involvement with any Securitisation, Custodial, or other Fiduciary activities. The Bank does not conduct any insurance business, however; general insurance, life insurance, and KiwiSaver products are marketed through the Bank's branch network. These have been provided on arm s length terms and conditions and at fair value. The Bank provides no funding to the entities on whose behalf the insurance products are marketed. External third party insurance companies underwrite these, and the Bank has no financial association with them. The Bank markets Fisher Funds KiwiSaver products through the Bank s Branch Network. Refer to Note 21 in regards to the Related Party Loan to TSB Group Limited. TSB Bank Limited is the manager and promoter of the TSB Bank PIE Unit Trust, and the New Zealand Guardian Trust Company Limited is the Trustee. Units in the Fund do not directly represent deposits or other liabilities of TSB Bank. However, the Trust Deed stipulates that the TSB Bank PIE Unit Trust is invested exclusively in TSB Bank debt securities. As at 30 September, the TSB Bank PIE Unit Trust had $22.2m (ember $36.4m;, $29.1m) invested with the Bank. 20 Commitments and Contingent Liabilities Lending Commitments Commitments approved to advance less than one year 107, , ,276 Commitments approved to advance greater than one year * 606, , ,669 Total Lending Commitments 714, , ,945 Other Commitments Rental/Lease Commitments less than one year 2,624 3,213 3,095 Rental/Lease Commitments great than one year 11,711 13,041 11,528 Capital Commitments 1,318 2, Total Other Commitments 15,653 18,860 15,501 Total Commitments and Contingent Liabilities 729, , ,446 * Includes $12.2m (ember $28.8m; $32.2m) related to the facility granted to TSB Group Limited, a related entity. There are no material contingent liabilities and outstanding claims known by the Directors as at ember that would impact on the financial statements. Page 28

31 21 Related Parties The Bank is wholly owned by the TSB Community Trust through the Trust's fully owned subsidiary, TSB Group Limited. During the period the Trust operated normal bank account facilities which were on normal customer terms and conditions. As at 30 September the Trust had $18.536m invested with the Bank at market rates, with interest accrued of $0.132m (30 September, $19.010m with interest accrued of $0.196m; and 12 months to, $17.009m invested with interest accrued of $0.192m). Interest paid to the Trust for the six months to ember was $0.377m (ember, $0.285m; and 12 months to, $0.633m). Loans and Advances (Note 8) include a Commercial Loan to TSB Group Limited of $71.444m with a total facility limit of $83.600m on normal customer terms and conditions (ember $50.353m;, $46.327m). Income received from TSB Group Limited for the 6 months ended ember totalled $0.981m (ember, $1.072m; and 12 months to, $1.974m). TSB Group Limited received dividends as detailed in Note 14. Subvention payments were made to TSB Group Limited of $1.122m (ember $0.990m), TSB Group Capital Limited of $0.104m (ember $0.047m) and TSB Group Investments Limited of $0.022m (ember Nil). The Bank markets Fisher Funds KiwiSaver products through the Bank s Branch Network. For the 6 months ended 30 September commissions received from Fisher Funds totalled $0.230m (ember, $0.161m; and 12 months to, $0.336m). On 3 August, TSB Group Investments Limited and TSB Group Capital Limited (both wholly owned subsidiaries of the Banks holding company TSB Group Limited) acquired an additional 51 % stake in Fisher Funds Investments Limited and then on sold a 24.99% shareholding (with an agreement to sell a further 9.01% shareholding subject to Overseas Investment Office approval) to an unrelated company. Transactions with Directors and Key Management Personnel Key Management Compensation $000 s Short-term Employee Benefits 3,042 Other Long-term Benefits 145 Directors Fees 278 Loans to Directors and Key Management Personnel 3,465 Balance at Beginning of Period 2,952 Net Loans (repaid) during the Period (9) Balance at End of Period 2,943 Deposits from Directors and Key Management Personnel Balance at Beginning of Period 3,201 Net Deposits received during the Period 505 Balance at End of Period 3,706 Page 29

32 22 Risk Management Policies The Bank is committed to the management of risk and has management structures and information systems to manage individual risks. The Board of Directors has overall responsibility for the establishment and oversight of the Bank's risk management framework. As part of its regular policy review cycle, the Bank has updated its Enterprise Risk Management Framework (ERMF) to take into account the latest market approaches. Apart from the ERMF and the items outlined below, there have been no material changes to the risk management policies since publication of the previous Disclosure Statement. The changes below are either refinements to existing policies or centralisation of existing risk management processes to reflect the updated ERMF and changes in the overall Board risk appetite in these areas: Agribusiness Credit Policy Business and Commercial Credit Policy A prior internal audit report found that, while the Bank has a regulatory compliance policy and frameworks; a register of key legislative and regulatory mandates and sub-mandates; as well as a core obligation training programme, the various frameworks to monitor the performance of the obligations against the mandates and sub-mandates are still under development. On-going development continues to enable this finding to be addressed. 23 Subsequent Events No matters or circumstances have arisen since the end of the quarter which significantly affected or could significantly affect the operations of the Bank, the results of those operations or the state of affairs of the Bank in future financial years. Page 30

33 Directors Statement For the Six Months Ended ember The Directors believe, after due enquiry, that as at the date of this Disclosure Statement: a. The Disclosure Statement contains all the information required by the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended) (the "Order"); and b. The Disclosure Statement is not false or misleading. The Directors believe, after due enquiry that for the period ended ember : a. The Bank has complied with the Conditions of Registration; b. Credit Exposures to Connected Persons were not contrary to the interests of the Bank; and c. Subject to the comment under the heading "Risk Management Policies" on page 30, the Bank has systems in place to monitor and control adequately the Bank's material risks, including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risks and other business risks, and that these systems are being properly applied. Director J. J. Kelly (Chair - Board of Directors) Director M. I. Bain (Deputy Chair) Director M. A. Blackburn Director K. M. Marriner Director K. J. Murphy (Managing Director/CEO) Director N. Pearce Director P. M. Schuyt Director D. J. Tuuta Director H. P. W. Wano Dated this 29 th day of November, Page 31

34 Independent Review Report Page 32

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