ASB Covered Bond Trust Financial Statements

Transcription

1 ASB Covered Bond Trust Financial Statements

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3 Contents Statement of Comprehensive Income 2 Statement of Changes in Trust Funds 2 Balance Sheet 3 Cash Flow Statement 4 Notes to the Financial Statements 1 Statement of Accounting Policies 5 2 Other Income 7 3 Derivative Financial Instruments 7 4 Asset Quality 7 5 Fair Value of Financial Instruments 7 6 Related Party Transactions and Balances 8 7 Capital Commitments and Contingent Liabilities 9 8 Events after the Reporting Period 9 Independent Auditor's Report 10 ASB Covered Bond Trust 1

4 Statement of Comprehensive Income $ thousands For the year ended 30 June Note Interest income 6 161, ,789 Interest expense 6 160, ,814 Net interest earnings 1, Other income Total operating income 1, Total operating expenses 6 1, Other expenses 6 1, Net profit before taxation Taxation - - Net profit after taxation Total comprehensive income Statement of Changes in Trust Funds $ thousands Note Trust Capital Retained Earnings Total Trust Funds Balance at beginning of year 2-2 Total comprehensive income Distribution to beneficiary 6 - (20) (20) Balance as at 30 June For the year ended 30 June 2015 Balance at beginning of year 2-2 Total comprehensive income Distribution to beneficiary 6 - (20) (20) Balance as at 30 June These statements are to be read in conjunction with the notes on pages 5 to 9 and the Independent Auditor's Report on pages 10 to ASB Covered Bond Trust

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6 Cash Flow Statement $ thousands 2015 Cash flows from operating activities Cash was provided from: Interest received 160, ,340 Total cash inflows provided from operating activities 160, ,340 Cash was applied to: Interest paid Operating expenses (159,230) (204,366) (1,008) (955) Total cash outflows applied to operating activities (160,238) (205,321) Net cash flows from operating activities Cash flows from investing activities Cash was provided from: Net decrease in advances to related parties - 1,587,463 Total cash inflows provided from investing activities - 1,587,463 Cash was applied to: Net increase in advances to related parties (2,418,254) - Total cash outflows applied to investing activities (2,418,254) - Net cash flows from investing activities (2,418,254) 1,587,463 Cash flows from financing activities Cash was provided from: Net increase in borrowings from related parties 2,418,253 - Total cash inflows provided from financing activities 2,418,253 - Cash was applied to: Net decrease in borrowings from related parties - (1,587,462) Distribution to beneficiary (20) (20) Total cash outflows applied to financing activities (20) (1,587,482) Net cash flows from financing activities 2,418,233 (1,587,482) Summary of movements in cash flows Net increase/(decrease) in cash and cash equivalents - - Add: cash and cash equivalents at beginning of year Cash and cash equivalents at end of year These statements are to be read in conjunction with the notes on pages 5 to 9 and the Independent Auditor's Report on pages 10 to ASB Covered Bond Trust

7 Notes to the Financial Statements 1 Statement of Accounting Policies General Accounting Policies The reporting entity, ASB Covered Bond Trust (the "Trust"), was established in New Zealand on 11 August 2011 under the terms of the Trust Establishment Deed. The Trustee of the Trust and Covered Bond Guarantor is ASB Covered Bond Trustee Limited (the "Guarantor")/(the Trustee ). The sole beneficiary of the Trust is ASB Securitisation Charitable Trust (the Beneficiary ). The manager of the Trust is Securitisation Management Services Limited (the "Manager"), a wholly owned subsidiary of ASB Bank Limited ( ASB ). The registered office of the Manager is Level 2, ASB North Wharf, 12 Jellicoe Street, Auckland 1010, New Zealand. The Trust is a special purpose, bankruptcy remote entity, established by ASB. The activities of the Trust include the acquisition, management and sale of mortgage loans, the borrowing of monies to fund the acquisition of the assets and the hedging of associated risks. The Guarantor provides guarantees over covered bonds issued by ASB or its subsidiary ASB Finance Limited (the "Issuers"). The Guarantor has guaranteed payments of interest and principal under the covered bonds pursuant to a guarantee which is secured over the mortgage loans, related security and other assets of the Trust. The amount of the guarantee is limited to the assets of the Trust. There are no material conditions applicable to the guarantee other than non-performance. These financial statements are for the year ended 30 June 2016 and have been prepared in accordance with the requirements of the Trust Establishment Deed. The Trust's financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice. The Trust is eligible to apply Tier 2 For-profit Accounting Standards (New Zealand equivalents to International Financial Reporting Standards Reduced Disclosure Regime ("NZ IFRS RDR )) on the basis that it does not have public accountability and is not a large for-profit public sector entity. Basis of Preparation The measurement base adopted is that of historical cost except where otherwise stated. Presentation Currency and Rounding The functional and presentation currency is New Zealand dollars. The amounts contained in these financial statements are presented in thousands, unless otherwise stated. Particular Accounting Policies There have been no changes to accounting policies in the year ended 30 June All policies have been applied on a basis consistent with that used in the year ended 30 June Revenue Recognition Revenue is recognised to the extent that it is probable that there will be economic benefits and that revenue can be reliably measured. Revenue is recognised for each principal source as follows: - Interest income is recognised using the effective interest method. Certain fees are charged by ASB to the Trust in exchange for maintaining records, settlement and credit management of the mortgages on behalf of the Trust. These directly related transaction costs form part of the effective interest rate. - Other income is recognised on an accruals basis. Expense Recognition Interest expense is recognised using the effective interest method. Other expenses are recognised on an accruals basis. Taxation Under tax rules, ASB is treated as carrying out the activities of the Trust. Consequently it is ASB, and not the Trust, that accounts for and reports taxation arising from these activities. The Trust therefore has no income tax expense or taxation payable. ASB Covered Bond Trust 5

8 Notes to the Financial Statements 1 Statement of Accounting Policies (continued) Particular Accounting Policies (continued) Financial Instruments RECOGNITION AND DERECOGNITION The Trust recognises financial assets on the date it becomes a party to the contractual agreement and recognises financial liabilities when an obligation arises. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired. Derecognition also occurs when the rights to receive cash flows from financial assets have been transferred together with substantially all of their risks and rewards. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires. CLASSIFICATION AND MEASUREMENT Financial instruments are classified under the following categories: Financial Instruments at Fair Value through Income Statement Financial instruments in this category are initially recognised at fair value with subsequent changes in their fair value recognised in the Income Statement. This includes derivative instruments whose values are derived from one or more underlying variables such as a specified interest rate or an index as defined in the contract. Derivative assets are those contracts which have a positive fair value. Derivative liabilities are those contracts which have a negative fair value. Loans and Receivables Assets in this category are financial assets with fixed and determinable payments that are not quoted in an active market. Loans and receivables are initially recognised at fair value including transaction costs and subsequently measured at amortised cost using the effective interest method. The carrying amounts of these financial assets are reviewed at each balance date to determine if there is any objective basis of impairment. If any such basis exists, the financial asset's recoverable amount is estimated. If the estimated recoverable amount is less than its carrying amount, a provision is made and an impairment loss is recognised in the Statement of Comprehensive Income. Loans and receivables include: - Cash and Cash Equivalents Cash and cash equivalents include cash on hand, bank current accounts and short-term investments that are readily convertible to known amounts of cash which are subject to an insignificant risk of changes in value. - Other Assets Other assets include interest receivable. - Advances to Related Parties The Trust has acquired residential mortgage loans (the "Mortgage Loans") originated by ASB. The Mortgage Loans have not been derecognised in the financial statements of ASB because it retains exposure to substantially all of the risks and rewards of the Mortgage Loans. Accordingly, the Mortgage Loans are recognised as advances to related parties. Financial Liabilities at Amortised Cost Liabilities in this category are initially recognised at fair value including transaction costs and subsequently measured at amortised cost using the effective interest method. This includes: - Other Liabilities Other liabilities include interest payable and related party payables. - Borrowings from Related Parties The Trust has taken demand and fixed term deposits from ASB. When fair value hedge accounting is applied, the carrying amount of the deposits is adjusted for changes in fair value associated with interest rate risk. OFFSETTING FINANCIAL INSTRUMENTS Financial assets and financial liabilities are offset where there is currently a legally enforceable right to set-off and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. HEDGE ACCOUNTING The Trust uses derivatives as part of its asset and liability management activities to manage exposures to interest rate and foreign currency. The Trust applies fair value hedge accounting when transactions meet the specified criteria to obtain hedge accounting treatment. The Trust discontinues hedge accounting when it is determined that a hedge has ceased to be highly effective; when the derivative expires, or is sold, terminated, or exercised; when the hedged item matures or is sold or repaid; or when the Trust elects to revoke the hedge designation. For qualifying fair value hedges, the change in fair value of the hedging derivative is recognised within other income in the Statement of Comprehensive Income. Those changes in fair value of the hedged item which are attributable to the risks hedged with the derivative instrument are reflected in an adjustment to the carrying amount of the hedged item, and are also recognised in other income. 6 ASB Covered Bond Trust

9 Notes to the Financial Statements 1 Statement of Accounting Policies (continued) Particular Accounting Policies (continued) Distributions In accordance with the Trust Establishment Deed, the Trust fully distributes net income, and any other amounts determined by the Manager to the Beneficiary in cash. Cash Flow Statement The Cash Flow Statement has been prepared using the direct method. 2 Other Income $ thousands 2015 Fair value hedge ineffectiveness: Loss on hedged items (7,433) (21,954) Gain on hedging instruments 7,433 21,954 Total ineffective portion of hedges - - Total other income Derivative Financial Instruments The Trust has applied fair value hedge accounting to hedge the interest rate risk on borrowings from related parties. As at 30 June 2016, the fair value of interest rate swaps designated as fair value hedges was $16,084k (30 June 2015 $8,142k), and the notional value was $500,000k (30 June 2015 $500,000k). 4 Asset Quality The financial assets of the Trust as classified within the loans and receivables category in note 1 are considered to be of sound quality. None of these financial assets were past due or impaired as at 30 June 2016 (30 June 2015 nil). 5 Fair Value of Financial Instruments The fair value of a financial instrument is the price that would be received to sell a financial asset, or paid to transfer a financial liability, in an orderly transaction between market participants at the measurement date. The best evidence of fair value is a quoted market price in an active market. Therefore, where possible, fair value is based on quoted market prices. Where a quoted market price for a financial instrument is not available, its fair value is based on present value estimates or other valuation techniques based on current market conditions. These valuation techniques rely on market observable inputs wherever possible, or in a limited number of instances, rely on inputs which are unobservable but are reasonable assumptions based on market conditions. There are three levels in the hierarchy of fair value measurements which are based on the inputs used to measure fair values: Level 1: inputs are quoted prices (unadjusted) in active markets for identical financial assets or financial liabilities that the Trust can access. Level 2: where quoted market prices are not available, fair values have been estimated using present value or other valuation techniques using inputs that are observable for the financial asset or financial liability, either directly or indirectly. Level 3: fair values are estimated using inputs that are unobservable for the financial asset or financial liability. The Trust considers transfers between levels, if any, to have occurred at the end of the reporting period for which the financial statements are prepared. The Trust s derivative financial instruments have been classified as level 2 in the fair value hierarchy as at 30 June 2016 and 30 June The carrying amounts of financial assets and liabilities not measured at fair value are considered to be reasonable approximations of their fair values as at 30 June 2016 and 30 June ASB Covered Bond Trust 7

10 Notes to the Financial Statements 6 Related Party Transactions and Balances During the year the Trust entered into transactions with ASB and other related parties. These transactions were conducted on an arm's length basis and on normal commercial terms. The Manager has delegated all customer management and account administration to ASB. Refer below for details of fees paid to the Manager and ASB. The Trust purchases eligible assets and takes deposits from ASB. The Trust also entered into a total return swap and interest rate swaps with ASB to hedge interest rate risk on certain assets and liabilities. The terms of the total return swap are such that ASB retains exposure to substantially all of the risks and rewards of the mortgage loans. Consequently, the Trust treats the mortgage loans acquired and the total return swap as an imputed loan, shown as advances to related parties on the Balance Sheet. The interest flows in respect of the swap are embedded in the advance, such that the Trust receives interest at a rate equivalent to the floating leg of the swap (BKBM plus a margin) less directly related transaction costs. Refer to note 3 for further information. The Trust has also entered into interest rate swaps to hedge interest rate risk on liabilities, and these are measured at fair value. Fair values are obtained from market yields and discounted cash flow models as appropriate. Covered bonds are guaranteed by ASB and the Guarantor as trustee of the Trust. To ensure sufficient funds are available to meet the guarantee if invoked, the Trust has entered into contingent cross currency swaps with ASB. The cross currency swaps would be activated simultaneously with the guarantee to mitigate currency and interest rate risk between the underlying mortgage receivables and the foreign currency denominated covered bonds subject to the guarantee. The cross currency swaps are contingent on the Issuers or Guarantor defaulting on payments, becoming insolvent or failing to perform obligations with respect to the covered bonds. They are not reported on the Balance Sheet as their fair value at balance date is immaterial. $ thousands 2015 Related Party Transactions Interest income Received from ASB 161, ,789 Interest expense Paid to ASB 160, ,814 Other expenses Administration fees paid to ASB Management fees paid to the Manager Trustee fees paid to the Trustee , Distribution to beneficiary Paid to the Beneficiary ASB Covered Bond Trust

11 Notes to the Financial Statements 6 Related Party Transactions and Balances (continued) $ thousands As at 30 June Related Party Balances Cash and cash equivalents Held with ASB Derivative assets Interest rate swaps with ASB 16,084 8,142 Other assets Interest receivable from ASB 15,826 14,145 Advances to related parties Advances to ASB 6,138,457 3,720,203 Total related party assets 6,170,387 3,742,510 Other liabilities Interest payable to ASB 19,286 17,115 Accrued distributions payable to the Beneficiary Administration fees payable to ASB Management fees payable to the Manager ,394 17,203 Borrowings from related parties Borrowings from ASB 6,150,991 3,725,305 Total related party liabilities 6,170,385 3,742,508 7 Capital Commitments and Contingent Liabilities The Trust had no capital commitments or contingent liabilities as at 30 June 2016 (30 June 2015 nil). 8 Events after the Reporting Period There were no events subsequent to the reporting period which would materially affect the financial statements. ASB Covered Bond Trust 9

12 Independent Auditor s Report to the Trustee of ASB Covered Bond Trust Report on the Financial Statements We have audited the financial statements of ASB Covered Bond Trust (the Trust ) on pages 2 to 9, which comprise the balance sheet as at 30 June 2016, the statement of comprehensive income, the statement of changes in trust funds and the cash flow statement for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information. Manager s Responsibility for the Financial Statements The Manager is responsible, on behalf of the Trust, for the preparation and fair presentation of these financial statements in accordance with New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime and for such internal controls as the Manager determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the Trust s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We are independent of the Trust. Other than in our capacity as auditor we have no relationship with, or interests in, the Trust. PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand T: , F: , pwc.co.nz

13 Independent Auditor s Report ASB Covered Bond Trust Opinion In our opinion, the financial statements on pages 2 to 9 present fairly, in all material respects, the financial position of the Trust as at 30 June 2016, and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards Reduced Disclosure Regime. Restriction on Use of our Report This report is made solely to the Trust s Trustee. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trust and the Trust s Trustee, for our audit work, for this report or for the opinions we have formed. Chartered Accountants 23 September 2016 Auckland PwC 11