Southland Building Society

Transcription

1 Disclosure Statement For the three months ended 30 June 2014 Number 25 Issued August 2014

2 Disclosure Statement for the three months ended 30 June 2014 Contents Page General Information 3 Guarantee Arrangements 3 Pending Proceedings or Arbitration 3 Other Material Matters 3 Directorate 3 Credit Rating 3 Conditions of Registration 3 Directors' Statement 4 Interim Financial Statements Income Statement 5 Statement of Comprehensive Income 5 Statement of Changes in Equity 6 Statement of Financial Position 7 Statement of Cash Flows 8 Notes to the Financial Statements Statement of Accounting Policies 2 Risk Management Policies 3 Advances to Customers 4 Asset Quality and Provisions for Credit Impairment 5 Contingent Liabilities and Credit Related Commitments 6 Related Parties 7 Liquid Assets 8 Concentrations of Credit Exposures to Individual Counterparties 9 Capital Adequacy 10 Fair Value of Financial Instruments 11 Insurance Business 12 Subsequent Events 2

3 Disclosure Statement for the three months ended 30 June 2014 General Information Southland Building Society (SBS) is registered as a bank under the Reserve Bank of New Zealand Act 1989, and is required to comply with the conditions of registration as laid down by the Reserve Bank of New Zealand. Southland Building Society operates under two brands "SBS Bank" and "HBS Bank". This Disclosure Statement has been issued by Southland Building Society in accordance with the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended) (the 'Order'). Words and phrases defined by the Order have the same meanings when used in this Disclosure Statement. Name and Address for Service of Registered Bank The name of the Registered Bank is Southland Building Society (referred to either by its full name, as "SBS", or as the "Bank", or as the "Registered Bank") and the address for service is 51 Don Street, Invercargill. The "Banking Group" consists of the Bank and all of its controlled entities. All controlled entities are incorporated in New Zealand. Details of Incorporation Southland Building Society was established in 1869 and is incorporated under the Building Societies Act SBS's registration number is Ownership Southland Building Society is a mutual building society and is owned by its members by virtue of their membership interests in Southland Building Society. Membership entitlements and voting rights are set out in the Rules of Southland Building Society. Guarantee Arrangements As at the signing date of this Disclosure Statement, the material obligations of the Bank are not guaranteed. Pending Proceedings or Arbitration There are no pending proceedings at the date of this Disclosure Statement that may have a material adverse effect on the Bank or the Banking Group. Other Material Matters The Bank's Directors are of the opinion that there are no other matters relating to the business or affairs of the Registered Bank or the Banking Group which would, if disclosed in this Disclosure Statement, materially adversely affect the decision of a person to subscribe for debt securities of which the Registered Bank or any members of the Banking Group is the issuer. Directorate Since the publication date of the previous full year Disclosure Statement, R L Smith resigned from the role of Group Managing Director/Chief Executive Officer of the Bank, effective 31 July In addition, M J Skilling was appointed as an independent director of the bank on 20 August There have been no other changes in the composition of the Board. Credit Rating As at 30 June 2014, and for the period to the date of this Disclosure Statement, the credit rating assigned to Southland Building Society is BBB stable. This credit rating is applicable to long term unsecured obligations payable in New Zealand, in New Zealand dollars. The credit rating was issued by Fitch Ratings on 17 July 2007 and was reaffirmed on 14 August The rating is not subject to any qualifications. Conditions of Registration The Bank's conditions of registration were changed during the period since the signing of the previous Disclosure Statement to refer to revised versions of various Reserve Bank of New Zealand documents all dated July 2014, as follows: The Reserve Bank of New Zealand document "Capital Adequacy Framework (Standardised Approach)" (BS2A) has been amended to update various definitions relating to capital requirements for residential mortgage lending; The Reserve Bank of New Zealand document "Framework for Restrictions on High-LVR Residential Mortgage Lending" (BS19) has been amended to update certain defined terms in the loan-to-valuation ratio (LVR) restrictions, and has added additional clauses on anti-avoidance; The Reserve Bank of New Zealand documents "Connected Exposures Policy" (BS8), "Liquidity Policy" (BS13) and "Corporate Governance" (BS14) have been updated to reference the Financial Reporting Act 2013 or the Financial Markets Conduct Act 2013 or to cross-reference the latest versions of other Reserve Bank Banking Supervision Handbook documents. In addition minor changes were made to some definitions to reference the Financial Markets Conduct Act

4 Disclosure Statement for the three months ended 30 June 2014 Directors' Statement The directors of Southland Building Society (the "Bank") state that each director of the Bank believes, after due enquiry, that: 1. As at the date on which the Disclosure Statement is signed: (a) (b) the Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended); and the Disclosure Statement is not false or misleading. 2. Each director of the Bank believes, after due enquiry, that during the three months ended 30 June 2014: (a) (b) (c) the Bank has complied with the conditions of registration applicable during the period; and credit exposures to connected persons were not contrary to the interests of the Banking Group; and the Bank had systems in place to monitor and control adequately the Banking Group's material risks, including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risk and other business risks, and that those systems were being properly applied. This Disclosure Statement is dated 20 August 2014 and has been signed by or on behalf of all the directors. JF Ward (Chairman) JB Walker (Deputy Chairman) KJ Ball GJ Mulvey JJ Grant FE Spencer AG Neill MJ Skilling 4

5 Income Statement for the three months ended 30 June 2014 Unaudited Unaudited Audited 3 Months 3 Months 12 Months 30/06/ /06/ /03/2014 Interest income 43,296 42, ,936 Interest expense 2,648 3,197 11,524 Dividends on redeemable shares 21,377 22,580 88,970 24,025 25, ,494 Net interest income 19,271 16,972 69,442 Other income 5,280 5,336 21,368 Total operating income 24,551 22,308 90,810 Operating expenses 15,608 14,552 58,237 Provision for credit impairment 2,932 2,465 10,529 Operating surplus 6,011 5,291 22,044 Net gain/(loss) from financial instruments designated at fair value 2 (245) (706) Share of associates profit net of tax Revaluation of property Revaluation of investment properties - - (200) Surplus before income tax 6,104 5,046 21,184 Less income tax expense 1,788 1,316 5,545 Net surplus 4,316 3,730 15,639 Attributable to: Members' interests 3,892 3,051 13,915 Non-controlling interests ,724 4,316 3,730 15,639 Southland Building Society Statement of Comprehensive Income for the three months ended 30 June 2014 Unaudited Unaudited Audited 3 Months 3 Months 12 Months 30/06/ /06/ /03/2014 Net surplus for the period 4,316 3,730 15,639 Items that may not be reclassified subsequently to profit or loss Net change in property, plant and equipment reserve, net of tax Items that may be reclassified subsequently to profit or loss Net change in available for sale asset reserve, net of tax 259 (1,772) (4,724) Net change in cash flow hedging reserve, net of tax (198) 4,300 10,579 Other comprehensive income for the period, net of tax 61 2,528 6,206 Total comprehensive income for the period 4,377 6,258 21,845 Attributable to: Members' interests 3,946 5,544 20,046 Non-controlling interests ,799 4,377 6,258 21,845 The accounting policies and other notes form part of, and should be read in conjunction with, these financial statements. 5

6 Statement of Changes in Equity for the three months ended 30 June 2014 Revaluation reserve - property, plant and equipment Balance at beginning of the period Other comprehensive income for the period Unaudited Unaudited Audited 3 Months 3 Months 12 Months 30/06/ /06/ /03/ Balance at end of the period Revaluation reserve - available for sale assets Balance at beginning of the period Other comprehensive income for the period 67 4,803 4, (1,763) (4,736) Balance at end of the period 324 3, Revaluation reserve - cash flow hedging Balance at beginning of the period Other comprehensive income for the period Acquisition of non-controlling interests 7,775 (2,726) (2,726) (203) 4,257 10, (16) Balance at end of the period 7,572 1,531 7,775 Retained earnings Balance at beginning of the period Net surplus for the period Acquisition of non-controlling interests Non-controlling interests present value adjustment 221, , ,400 3,892 3,051 13, (14,875) (125) (304) Balance at end of the period 224, , ,136 Total equity attributable to member's interests 233, , ,783 Non-controlling interests Balance at beginning of the period 4,430 6,659 6,659 Net surplus for the period ,724 Other comprehensive income for the period Dividends (422) (60) (1,334) Change in capital of non-controlling interests - - (2,693) Balance at end of the period 4,439 7,312 4,430 Total equity at end of the period 238, , ,213 Represented by: Equity at beginning of the period Net surplus for the period Other comprehensive income for the period Total comprehensive income for the period 234, , ,590 4,316 3,730 15, ,528 6,206 4,377 6,258 21,845 Dividends (422) (60) (1,334) Change in capital of non-controlling interests (12) (125) - (17,888) Total equity at end of the period 238, , ,213 The accounting policies and other notes form part of, and should be read in conjunction with, these financial statements. 6

7 Statement of Financial Position as at 30 June 2014 Assets Note Unaudited Unaudited Audited 30/06/ /06/ /03/2014 Cash on hand and at bank 17,019 33,188 17,714 Funds with financial institutions 123, ,454 92,710 Investment securities 332, , ,685 Derivative financial instruments 8,527 5,684 9,589 Current tax assets 1,938 1,809 1,659 Advances to customers (3) 2,274,099 2,230,745 2,278,436 Investment in associates 3, Other assets 2,748 2,782 1,991 Investment properties 3,130 3,330 3,130 Property, plant and equipment 18,648 18,997 19,082 Intangible assets 3,863 3,548 3,993 Deferred tax assets - 3, ,789,446 2,871,253 2,787,776 Liabilities Redeemable shares 2,211,845 2,210,259 2,248,755 Deposits from customers 221, , ,552 Due to other financial institutions 50,200 70,211 50,178 Derivative financial instruments 1,479 4,022 1,194 Current tax liabilities Deferred tax liabilities Other liabilities 23,481 17,667 24,877 Subordinated redeemable shares 43,218 61,249 19,007 2,551,403 2,633,465 2,553,563 Net assets 238, , ,213 Equity Reserves 8,701 5,025 8,647 Retained earnings 224, , ,136 Attributable to members of the society 233, , ,783 Attributable to non-controlling interests 4,439 7,312 4, , , ,213 Total interest earning and discount bearing assets 2,747,378 2,831,260 2,747,545 Total interest and discount bearing liabilities 2,526,424 2,611,776 2,527,492 For and on behalf of the Board of Directors: Chairman J F Ward Deputy Chairman J B Walker 20 August 2014 The accounting policies and other notes form part of, and should be read in conjunction with, these financial statements. 7

8 Statement of Cash Flows for the three months ended 30 June 2014 Cash flows from operating activities Unaudited Unaudited Audited 3 Months 3 Months 12 Months 30/06/ /06/ /03/2014 Interest and dividends received 44,794 44, ,700 Interest and dividends paid (23,421) (26,092) (103,017) Other cash inflows provided by operating activities 6,818 6,777 27,689 Other cash outflows used in operating activities (19,288) (16,594) (62,523) Net cash flows from operating activities before changes in operating assets and liabilities 8,903 8,272 31,849 Net changes in operating assets and liabilities (92) 31,174 (105,064) Net cash flows provided by/(used in) operating activities 8,811 39,446 (73,215) Cash flows from investing activities Cash inflows provided by investing activities 25, ,428 Cash outflows used in investing activities (3,536) (22,285) (4,104) Net cash flows provided by/(used in) investing activities 21,814 (22,181) 30,324 Cash flows from financing activities Cash inflows provided by financing activities Cash outflows used in financing activities (422) (265) (12,336) Net cash flows provided by/(used in) financing activities (422) (265) (12,336) Net increase/(decrease) in cash held 30,203 17,000 (55,227) Add opening cash and cash equivalents 109, , ,986 Closing cash and cash equivalents 139, , ,759 Reconciliation of cash and cash equivalents Cash on hand and at bank 17,019 33,188 17,714 Funds with financial institutions 123, ,454 92,710 Interest accrued on available for sale assets (347) (656) (665) 139, , ,759 Reconciliation of net surplus to net operating cash flows Net surplus for period 4,316 3,730 15,639 Non-cash items 4,608 4,043 16,171 Deferral or accruals of past or future operating cash receipts or payments (431) 31,024 (105,665) Items classified as cash Net cash flows from operating activities 8,811 39,446 (73,215) The accounting policies and other notes form part of, and should be read in conjunction with, these financial statements. 8

9 Notes to the Financial Statements for the three months ended 30 June Statement of Accounting Policies (a) Basis of Preparation Southland Building Society (SBS) was established in 1869, is incorporated under the Building Societies Act 1965, and is registered as a bank under the Reserve Bank of New Zealand Act The consolidated financial statements presented here are for the reporting entity of the Banking Group comprising SBS and its subsidiaries. These financial statements have been prepared in accordance with NZ IAS 34 Interim Financial Reporting and the Registered Bank Disclosure Statement (New Zealand Incorporated Registered Banks) Order 2014(as amended) and should be read in conjunction with the Banking Group's financial statements for the year ended 31 March These financial statements were authorised for issue by the Board of Directors on 20 August (b) Comparatives To ensure consistency with the current period, comparative figures have been restated where appropriate. (c) Changes in Accounting Policies During the quarter, the Banking Group acquired a 25% indirect shareholding in Abbott Insurance Brokers Ltd via it's subsidiary, Southsure Assurance Ltd. This investment will be accounted for as an associate in line with the following accounting policy adopted: Associates: Associates are entities over which the Banking Group exerts significant influence but does not exercise control, or joint control over the financial and operating policies. Associates are accounted for under the equity method of accounting. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition the consolidated financial statements include the Banking Group's share of profit or loss and other comprehensive income of the associates until the date significant influence ceases. All other accounting policies are consistent with those used in the financial year ended 31 March Risk Management Policies There has been no material change in the Banking Group's policies for managing risk, or material exposures to any new types of risk since the authorisation date of the previous Disclosure Statement on 3 June Advances to Customers Unaudited Unaudited Audited 30/06/ /06/ /03/2014 Residential 1,731,597 1,653,711 1,724,904 Agricultural 288, , ,774 Commercial 147, , ,607 Consumer 119, , ,751 Gross advances 2,287,885 2,254,184 2,300,036 Provisions for credit impairment (13,341) (21,529) (20,807) Deferred fee revenue and expenses (445) (1,910) (793) Total net advances 2,274,099 2,230,745 2,278, Asset Quality and Provisions for Credit Impairment Balances as at 30 June 2014 (Unaudited) Residential Mortgages Retail Exposures Corporate Exposures Total Gross advances individually determined to be impaired 2,302-7,541 9,843 Individually assessed provisions 726-1,816 2,542 Collective provision 5,380 3,907 1,512 10, day past due assets not impaired 4, ,034 6,622 Charges to the income statement Bad debts written off/(recovered) during the period 268 1, ,799 Individual provisions ,133 Collective provision Total provision for credit impairment charged to the income statement 583 1,207 1,142 2,932 - Residential mortgages comprise advances to individuals and corporates that are secured against residential properties. They include investments in residential property as well as owner-occupied housing - Retail exposures comprise consumer personal and consumer finance lending - Corporate exposures comprise primarily advances to individuals, corporates or small to medium enterprises that are secured against commercial or agricultural properties 9

10 Notes to the Financial Statements for the three months ended 30 June Contingent Liabilities and Credit Related Commitments Unaudited Unaudited Unaudited Unaudited Audited Audited Contract or Credit Contract or Credit Contract or Credit Notional Amt Equivalent Notional Amt Equivalent Notional Amt Equivalent 30/06/ /06/ /06/ /06/ /03/ /03/2014 Credit related commitments Commitments with uncertain drawdown Commitments to extend credit which can be unconditionally cancelled Total credit related commitments 21,690 10,845 27,762 13,881 32,373 16, , , , ,851 10, ,206 13, ,284 16,187 The Banking Group has no material contingent liabilities. 6. Related Parties The Banking Group is controlled by SBS who is also the ultimate parent. Since 31 March 2014, the Banking Group acquired a 25% indirect shareholding in an associate company, Abbott Insurance Brokers Ltd, via it's subsidiary Southsure Assurance Ltd. There have been no other changes to the composition of the Banking Group. Details of subsidiaries consolidated into the Banking Group are set out in note 15 of the Banking Group's Disclosure Statement for the year ended 31 March At 30 June 2014 there are no amounts due from, or due to any related entities that are outside of the Banking Group. 7. Liquid Assets To meet both expected and unexpected fluctuations in operating cash flows the Banking Group maintains a stock of core liquid assets to adequately meet day-to-day operational requirements, a potential crisis or 'funding stress' scenario. Total liquidity includes committed but undrawn funding lines with other registered banks. The Banking Group also has an in-house residential mortgage backed security (RMBS) facility (the SBS Oreti Trust No. 2) that issues securities which can be used as collateral for borrowing from the RBNZ under its liquidity management arrangements. Whilst not intended to be used for standard daily liquidity requirements, this facility is available as contingent funding and accordingly core liquid assets includes this RMBS. The eligible RMBS collateral is discounted for the 'haircut' 1 that applies to those securities under the RBNZ's Domestic Operations for the purposes of those operations. Core liquid assets Unaudited 30/06/2014 Cash on hand and at bank 17,019 Funds with financial institutions 123,290 Investment securities 332,970 Committed and undrawn funding lines 500 Eligible RMBS collateral (less haircut 1 ) 69,274 Total liquidity 543,053 1 A "haircut" is a percentage that is subtracted from the par value of the assets that are being used as collateral. The size of the haircut reflects the perceived risk associated with holding the assets. 10

11 Notes to the Financial Statements for the three months ended 30 June Concentration of Credit Exposures to Individual Counterparties The Banking Group's disclosure of concentrations of credit exposure to individual counterparties and groups of closely related counterparties, which equalled or exceeded 10% of the Banking Group's equity, is based on actual credit exposures and calculated on a gross basis (net of specific provisions). Credit exposures to the central government of any country with a long term credit rating of A- or A3 or above, or its equivalent, banks with a long term credit rating of A- or A3 or above, or its equivalent, and connected persons are excluded. Peak end of day credit exposures to individual counterparties are calculated over the last quarter using the Banking Group's end of period equity. Number of Non Bank Counterparties Number of Non Bank Counterparties End of Period Exposure 30/06/ /06/2013 Percentage of equity "A" Rated "B" Rated Total "A" Rated "B" Rated Total 10%-14% %-19% %-24% Total Peak Exposure Percentage of equity "A" Rated "B" Rated Total "A" Rated "B" Rated Total 10%-14% %-19% %-24% Total Number of Non Bank Counterparties End of Period Exposure 31/03/2014 Percentage of equity "A" Rated "B" Rated Total 10%-14% %-19% %-24% Total 4-4 Peak Exposure Percentage of equity "A" Rated "B" Rated Total 10%-14% %-19% %-24% Total 4-4 Note: "A" Rated - those counterparties that have a long term credit rating of A- or A3 or above "B" Rated - 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 There were no peak or balance date credit exposures to bank counterparties with a credit rating below A- or A3, or its equivalent, which exceeded 10% of the Banking Group's equity for the three months ended 30 June

12 Notes to the Financial Statements for the three months ended 30 June Capital Adequacy The Banking Group 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 Banking Group. The Banking Group must comply with RBNZ minimum capital adequacy ratios as determined in its conditions of registration. These conditions require capital adequacy ratios for the Banking Group to be calculated under the Basel III framework in accordance with the RBNZ document Capital Adequacy Framework (Standardised Approach) (BS2A). Basel III consists of 3 pillars - Pillar One covers the capital requirements for banks for credit, operational, and market risks, Pillar Two covers all other material risks not already included in Pillar One, and Pillar Three relates to market disclosure. (i) Regulatory capital ratios Minimum ratio requirement Unaudited Unaudited Unaudited 30/06/ /06/ /03/2014 Common equity tier 1 capital ratio 4.50% 13.70% 13.31% 13.26% Tier 1 capital ratio 6.00% 13.82% 13.51% 13.39% Total capital ratio 8.00% 15.64% 14.33% 13.69% Buffer ratio 2.50% 7.64% 6.33% 5.69% (ii) Qualifying capital Tier 1 capital Common equity tier 1 (CET1) capital Retained earnings 221,136 Acquisition of non-controlling interests - Non-controlling interests present value adjustment (125) Current period's retained earnings 3,892 Available for sale assets reserve 324 Cash flow hedging reserve 7,572 Less deductions from CET1 capital Intangible assets (3,863) Deferred tax assets - Cash flow hedging reserve (7,572) Total CET1 capital 221,364 Additional tier 1 (AT1) capital Non-controlling interests (net of deductions and surplus AT1 capital) 2,032 Total AT1 capital 2,032 Total tier 1 capital 223,396 Tier 2 capital Revaluation reserves 805 Subordinated redeemable shares 28,543 Total tier 2 capital 29,348 Total capital 252,744 During the quarter the Bank launched a revised 'SBS Premier Bond' to retail investors. These-five year fixed rate bonds are issued continuously as subordinated redeemable shares and rank behind redeemable shareholders, depositors and other unsecured creditors of SBS and are subject to loss absorption provisions. At 30 June 2014 the balance issued was $38.3 million. After adjustments for potential tax or other offsets $27.5 million has been recognised as tier 2 capital for RBNZ capital adequacy purposes. 12

13 Notes to the Financial Statements for the three months ended 30 June Capital Adequacy (continued) (iii) Pillar one capital requirements Unaudited On balance sheet credit risk Residential mortgages (including past due) 53,469 Corporates 4,973 Claims on banks 4,244 Other 48,511 Total on balance sheet credit risk 111,197 Other capital requirements 30/06/2014 Off balance sheet credit exposures 861 Operational risk 13,531 Market risk 3,689 Total other capital requirements 18,081 Pillar one capital requirements 129,278 (iv) Residential mortgages by loan to valuation ratio On balance Off balance sheet sheet Unaudited Unaudited LVR range 0-80% 30/06/2014 1,359,904 30/06/ , % 211,903 2,934 90% + 155,322 1,572 Total residential mortgages 1,727, ,871 Welcome Home Loans make up 93% of the residential mortgages in the 90%+ loan to valuation grouping and 46% of the 80-90% loan to valuation grouping. The Welcome Home Loan product is fully insured by Housing New Zealand Corporation. (v) Pillar two capital for other material risks Pillar Two of Basel III is intended to ensure that banks have adequate capital to support all material risks inherent in their business activities and includes the requirement on banks to have an "Internal Capital Adequacy Assessment Process (ICAAP)" for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining adequate capital to support risk. Southland Building Society's ICAAP has identified other areas of risk and requires it to hold capital against them. These risks include but are not limited to: i Earnings Risk - The risk due to uncertainty in future reported earnings arising from adverse changes in the business environment and from adverse business decisions. ii Liquidity Risk - The risk that the Bank cannot meet or generate sufficient cash resources to meet its cash out goings as they fall due. Capital is not held for day to day liquidity. Instead a portfolio of cash, highly liquid instruments and committed funding lines is held. This largely mitigates the requirement to hold additional capital for liquidity risk, however capital is held to allow for excessive costs of raising suitable funds in adverse market conditions. iii Access to Capital - The risk that the Bank may not be able to raise additional capital as required in a timely manner, particularly arising from the mutual status of SBS. iv Reputational Risk - The potential that negative publicity regarding the banks business practices or financial position, whether true or not, will cause a decline in the customer base, costly litigation or impact future earnings and funding. As at 30 June 2014 the Bank has made an internal capital allocation of $22.50 million to cover these identified risks. 13

14 Notes to the Financial Statements for the three months ended 30 June Fair Value of Financial Instruments Carrying values and the fair values of those assets and liabilities that are not presented at fair value in the Statement of Financial Position are outlined below: Financial assets Unaudited Unaudited Unaudited Unaudited Audited Audited Carrying value Fair value Carrying value Fair value Carrying value Fair value 30/06/ /06/ /06/ /06/ /03/ /03/2014 Advances to customers 2,274,099 2,264,643 2,230,745 2,229,731 2,278,436 2,271,081 Total 2,274,099 2,264,643 2,230,745 2,229,731 2,278,436 2,271,081 Financial liabilities Redeemable shares 2,211,845 2,201,276 2,210,259 2,207,897 2,248,755 2,239,553 Deposits from customers 221, , , , , ,956 Subordinated redeemable shares 43,218 43,306 61,249 62,766 19,007 19,206 Total 2,476,224 2,465,075 2,541,565 2,540,414 2,477,314 2,467,715 The Banking Group uses valuation techniques within the following hierarchy for determining the fair value of financial instruments: Level 1: Fair values are determined using quoted (unadjusted) prices in active markets for identical assets and liabilities; Level 2: Fair values are determined using other techniques where all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: Fair values are determined using techniques that use inputs which have a significant effect on the recorded fair value and are not based on observable market data. Financial assets and liabilities that are recognised and measured at fair value on a recurring basis are categorised below: at 30/06/2014 (Unaudited) Level 1 Level 2 Level 3 Total Financial assets Derivative financial assets - 8,527-8,527 Funds with financial institutions 43,384 79, ,290 Investment securities 1, , ,970 Total financial assets 44, , ,787 Financial liabilities Derivative financial instruments - 1,479-1,479 Total financial liabilities - 1,479-1,479 at 30/06/2013 (Unaudited) Level 1 Level 2 Level 3 Total Financial assets Derivative financial assets - 5,684-5,684 Loans and advances to customers * - - 2,383 2,383 Funds with financial institutions 23, , ,454 Investment securities 2, , ,873 Total financial assets 26, ,900 2, ,394 Financial liabilities Derivative financial instruments - 4,022-4,022 Total financial liabilities - 4,022-4,022 at 31/03/2014 (Audited) Level 1 Level 2 Level 3 Total Financial assets Derivative financial assets - 9,589-9,589 Funds with financial institutions 27,920 64,790-92,710 Investment securities 1, , ,685 Total financial assets 29, , ,984 Financial liabilities Derivative financial instruments - 1,194-1,194 Total financial liabilities - 1,194-1,194 * Loans and advances to customers measured at fair value through profit and loss were repaid in full during the 2014 financial year. Further information on valuation techniques and assumptions for specific asset classes is included in Note 27 of the Bank's annual Disclosure Statement. 14

15 Notes to the Financial Statements for the three months ended 30 June Insurance Business The Banking Group markets and distributes insurance products through its subsidiary Southsure Assurance Limited. The Banking Group derives premium income from the sale of insurance products. The total assets of Southsure Assurance Limited as at 30 June 2014 are $12.4 million which is 0.4% of the total assets of the Banking Group. 12. Subsequent Events On 1 July 2014, the bank increased its shareholding in Finance Now Ltd from 85% to 90%. On 1 August 2014, W L (Wayne) Evans commenced as Chief Executive Officer of the Bank. There have been no other material subsequent events after 30 June