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    Auswide Bank - Ic 0

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    Auswide Bank - Ic 0

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    Auswide Bank.ic 0

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    26 views6 pages

    Auswide Bank - Ic 0

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    of 6

    21-204

    June 17, 2021

    Auswide Bank
    John Core, Ignacio Galindo, and Christopher Noe

    Company Background
    Auswide Bank grew out of the communities of Queensland, Australia’s Wide Bay Burnett region
    through a series of mergers of several local building societies.1 It later expanded outside of Queensland
    by opening branches in Sydney and Melbourne. In 1994, it listed on the Australian Stock Exchange. In
    2015, it converted from a building society to a bank.2

    Commenting on Auswide’s mission, Managing Director Martin Barrett said, “We’re taking on the ‘big
    banks’ and setting out to redefine what ‘real banking’ means. By opening an account with us or applying
    for a loan, our customers will be helping to re-establish a balance in Australian banking which is
    currently dominated by the ‘Big 4’ and their subsidiaries. Even though we are smaller, we believe that
    we can make a big difference.”3 Auswide’s mission statement – “to demonstrate the ‘power of small’
    by placing customers at the centre of everything we do” – reflected this smaller is better mindset.4

    As of the fiscal year end June 30, 2020, Auswide had assets of AUD3,789 million, loans and advances
    of AUD3,206 million, and deposits and short term borrowings of AUD3,019 million. In fiscal year
    2020, the bank generated net interest revenue of AUD70.5 million and net profit after tax of AUD18.5
    million. It also paid dividends of AUD13.6 million. See Exhibit 1 for Auswide’s fiscal year 2020
    financial statements.

    1
    Building societies provide banking and other financial services to their members. They are similar to credit unions.
    2
    Details of Auswide’s history from https://www.auswidebank.com.au/about-us/our-company/ (accessed June 2021).
    3
    “Country’s Newest Bank,” The NewsMail, April 2, 2015.
    4
    Auswide Bank Annual Report, June 30, 2020.

    This case was prepared by Professor John Core, Ignacio Galindo, MBA 2021, and Senior Lecturer Christopher Noe.
    Copyright © 2021, John Core, Ignacio Galindo, and Christopher Noe. This work is licensed under the Creative Commons
    Attribution-Noncommercial-No Derivative Works 3.0 Unported License. To view a copy of this license visit
    http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San
    Francisco, California, 94105, USA.
    AUSWIDE BANK
    John Core, Christopher Noe, Ignacio Galindo

    Representative Transactions
    Assume that Auswide engaged in the following representative transactions during the fiscal year ended
    June 30, 2021:
    1. On July 3, 2020, the bank issued 1,000,000 shares of common stock for AUD4.90 per share.
    2. On August 8, 2020, the bank borrowed an additional AUD40 million under the Reserve Bank of
    Australia’s term funding facility at a rate of 0.25% for a term of three years. Auswide reflected this
    borrowing on its balance under “other borrowings.”
    3. On September 7, 2020, the bank purchased AUD300,000 in office supplies from Officeworks on
    credit. The terms of the purchase required the bank to pay cash in 60 days.
    4. On September 24, 2020, the bank used cash to purchase AUD700,000 in office furniture from
    IKEA.
    5. Customers made AUD300 million in deposits and AUD100 million in withdrawals over the year.
    6. Customers took out AUD680 million in loans and repaid AUD450 million in loans over the year.
    7. Interest revenue received from loans outstanding totaled AUD120 million for the year. Of this
    amount, 95% was paid in cash while the remaining 5% was accrued as interest receivable.
    8. Interest expense on customer deposits totaled AUD37 million for the year. Of this amount, 85%
    was paid in cash while the remaining 15% was accrued as interest payable.
    9. Employee benefits expense totaled AUD24 million for the year, all of which was paid in cash.
    10. Commissions to third-party mortgage brokers for originating mortgages totaled AUD 8 million for
    the year, all of which was paid in cash.
    11. The bank sold one of its loans with a carrying value of AUD800,000 to another bank for
    AUD850,000 in cash.
    12. On March 31, 2021, the bank paid a dividend of AUD12 million.
    13. The bank recorded depreciation expense of AUD3 million for the year.
    14. The bank recorded loan impairment expense of AUD8 million for the year.
    15. The bank determined that its goodwill had not been impaired during the year.

    Suggested Assignment Questions


    1. Record the representative transactions in the spreadsheet accompanying this case using the
    balance sheet equation.

    2. Prepare a balance sheet as of the fiscal year end June 30, 2021 assuming that the representative
    transactions were the only ones that occurred during this fiscal year.

    June 17, 2021 2


    AUSWIDE BANK
    John Core, Christopher Noe, Ignacio Galindo

    3. Calculate fiscal year 2021 net income and cash flow assuming that the representative
    transactions were the only ones that occurred during this fiscal year.

    June 17, 2021 3


    AUSWIDE BANK
    John Core, Christopher Noe, Ignacio Galindo

    Exhibit 1 Auswide Bank Fiscal Year 2020 Financial Statements

    Fiscal Year End June 30, 2020


    Consolidated Statement of Profit or Loss AUD'000
    Interest revenue 126,252
    Interest expense (55,736)
    Net interest revenue 70,516
    Other non-interest income 9,959
    Total operating income 80,475
    Employee benefits expense 21,584
    Depreciation expense 3,324
    Amortisation expense 710
    Occupancy expense 1,533
    Fees and commissions 11,524
    General and administration expenses 10,406
    Other expenses 1,051
    Operating expenses less loan impairment expense 50,132
    Loan impairment expense 3,845
    Total operating expenses 53,977
    Profit before income tax expense 26,498
    Income tax expense 7,994
    Net profit after tax 18,504

    June 17, 2021 4


    AUSWIDE BANK
    John Core, Christopher Noe, Ignacio Galindo

    Exhibit 1 (cont.) Auswide Bank Fiscal Year 2020 Financial Statements

    Fiscal Year End June 30, 2020


    Consolidated Statement of Financial Position AUD'000
    ASSETS
    Cash and cash equivalents 106,478
    Due from other financial institutions 16,293
    Other financial assets 378,266
    Current income tax assets 3,344
    Loans and advances 3,205,775
    Other investments 1,379
    Property, plant and equipment 21,394
    Other intangible assets 1,198
    Deferred tax assets 5,726
    Other assets 3,250
    Goodwill 46,363
    Total assets 3,789,466
    LIABILITIES
    Deposits and short term borrowings 3,018,508
    Other borrowings 49,793
    Payables and other liabilities 25,645
    Loans under management 420,731
    Deferred tax liabilities 1,404
    Provisions 3,347
    Subordinated capital notes 28,000
    Total liabilities 3,547,428
    Net assets 242,038
    EQUITY
    Contributed equity 193,261
    Reserves 14,431
    Retained profits 34,346
    Total equity 242,038

    June 17, 2021 5


    AUSWIDE BANK
    John Core, Christopher Noe, Ignacio Galindo

    Exhibit 1 (cont.) Auswide Bank Fiscal Year 2020 Financial Statements

    Fiscal Year End June 30, 2020


    Consolidated Statement of Cash Flows AUD'000
    Cash flows from operating activities
    Interest received 127,029
    Other non-interest income received 10,670
    Interest paid (60,529)
    Income tax paid (10,313)
    Cash paid to suppliers and employees (inclusive of goods and services tax) (59,689)
    Net cash provided by / (used in) operating activities 7,168
    Cash flows from investing activities
    Net movement in investment securities (61,207)
    Net movement in amounts due from other financial institutions 4,701
    Net movement in loans and advances (124,549)
    Net movement in other investments (57)
    Proceeds from sale of property, plant and equipment -
    Payments for non current assets (2,847)
    Net cash provided by / (used in) investing activities (183,959)
    Cash flows from financing activities
    Net movement in deposits and short term borrowings 265,695
    Net movement in amounts due to other financial institutions and other liabilities (71,022)
    Principal payment of lease liabilities (2,152)
    Proceeds from share issue -
    Dividends paid (13,554)
    Movement in share capital due to employee incentive scheme (87)
    Net cash provided by / (used in) financing activities 178,880
    Net movement in cash and cash equivalents 2,089
    Cash and cash equivalents at the beginning of the financial year 104,389
    Cash and cash equivalents at end of the financial year 106,478

    Source: Auswide Bank Annual Report, June 30, 2020.

    June 17, 2021 6

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