2018/2019 Member Report 2 Heritage Limited Member Report 2018/19

The Heritage Bank community was deeply member prosperity, but also guided us through saddened in May 2019 with the news that the Global Financial Crisis, to help us emerge as our long-serving senior executive Peter the strong and prosperous bank we are today. Cleary had passed away after bravely battling Peter was passionate about his work, his family illness for a number of years. and life in general. The respect he commanded, Peter had a highly successful 24-year career and more importantly gave, was legendary – with Heritage. He started in the Finance this was a man who would never put himself Department and became our Chief Financial first. His integrity was without question and his Officer and a Senior Executive Group member courage and dignity were never more on display from 2005 through to 2017, before then than the way he tackled, fought and dealt with serving as a special adviser to the CEO. Through his illness. Our thoughts and prayers continue that time, Peter not only steered Heritage to go out to his wife Marie, and his children through a period of significant growth and Anna, Sean, and Laura.

Acknowledgement of Country

Heritage acknowledges the Traditional Custodians of the lands on which we live and work. We pay our respects to Elders past, present and emerging. 1 Heritage Bank Limited Member Report 2018/19 Contents

CEO and Chairman’s Report...... 2

Heritage Board...... 6

Senior Executive Group...... 8

The Heritage Bank story...... 10

The Customer-owned Difference...... 11

Our Promises to You...... 12

Operating Sustainably...... 14 1. Serving our members...... 15 2. Looking after our people...... 18 3. Operating with good governance...... 20 4. Protecting our planet...... 22 5. Staying financially strong and becoming more efficient...... 23

Financial Highlights...... 24

Auditors Contact Details Ernst & Young Telephone (07) 4690 9000 International 61 7 4690 9000 Registered Office Internet www.heritage.com.au Contact Centre 13 14 22 Heritage Bank Limited Heritage Access Line 13 14 72 th 6 Floor 400 Ruthven Street Qld 4350 Heritage Bank Limited Postal Address ABN 32 087 652 024 P.O. Box 190 Toowoomba Qld 4350 Australia AFSL and Australian Credit Licence 240984 2 Heritage Bank Limited Member Report 2018/19

CEO and Chairman’s Report

Heritage Bank once again recorded ongoing transformation. Our after tax profit than large amounts being paid out to strong financial results in 2018/19, of $43.28 million was 3.9% lower than the shareholders. We invest our profits back while continuing the ongoing record profit achieved in the previous year, into the business, to help improve our transformation process that is reshaping but still strong. Our pre-tax profit of technology, products, services and staff our bank to better meet the needs of $61.71 million was similarly 3.9% lower skills, so we can deliver an even better our members. We’ve invested heavily in than the $64.21 million recorded the banking experience for our members. recent years in laying the foundations for previous year. Delivering for our members means our transformation, particularly in Pleasingly, we recorded growth across a maintaining a balance between the digital our technology areas. We’re now number of key metrics despite the subdued capabilities that are radically reshaping building on those foundations to market we faced. Loan approvals totalled the banking landscape while continuing to continue our evolution across other $1.880 billion in 2018/19, 8.3% on the provide the personal touch that many of aspects of our operations. $1.736 achieved the previous year. Our loan our members prize so highly. It is essential that Heritage remains book grew by $396.15 million in the year, We must accelerate the pace at which we financially strong to continue our a 109.8% uplift on the $188.80 recorded are adopting and applying new technologies transformation process, and we’re in the previous year. Our retail deposits in our business. This is a multi-faceted pleased to say that we have done so in grew by $364 million in the year to reach process. It involves investing in our website, 2018/19. Of particular note is that we $6.938 billion as at 30 June 2019, a 5.5% our banking apps and our online banking passed the milestone of $10 billion in increase. We grew our customer numbers capabilities, particularly for transactional total consolidated assets in 2018/19, an by approximately 1.8%. activities. We know people increasingly achievement all members should be proud We lifted our capital adequacy ratio to want to carry out their everyday of. We ended the financial year with assets 14.42% as at 30 June, up from 14.11%. We transactions quickly and simply from the of $10.088 billion, up 5.9% on the previous also increased our liquidity ratio to 15.50% convenience of their mobile phone. We have year. Reaching that milestone consolidates from 14.74%. to make it easy for them to do so. our position as the largest customer-owned bank in Australia and reinforces our ongoing They are an excellent set of results, We also work together with third-party strength and growth. Heritage’s origins date achieved despite considerable headwinds providers to ensure we keep pace with back to 1875. It took until 1995 for us to in the banking industry. In 2018/19 we technology changes occurring externally. reach $1 billion in assets. We then reached faced a continuing period with the lowest That’s why we have introduced a range the $5 billion mark in 2005, and 14 years interest rates in history, along with falls in of services that allow later we have passed $10 billion. The steady household property prices in Sydney and members to make purchases at contactless increase in our asset size is testament Melbourne, and generally flat economic payment terminals using their compatible to our effectiveness in meeting member performance across the country. smartphone or wearable device. This needs. Our asset size is also noteworthy included ™, , It’s also pleasing that we delivered those because one of our strategic goals is to Pay™ and Garmin Pay™. We are working to good results, while maintaining our high build a bank to be proud of, which means introduce even more digital wallet services levels of customer service and satisfaction. building member value. All of our members in 2019/20. We also introduced the ability As a customer-owned bank, our focus is have an equal share in Heritage, and we for our customers to create a PayID and on the best interests of our members, not serve their best interests by increasing the send or receive money in real time via the on maximising profits. However, being total value of their asset. (NPP). profitable is still important for our long- In a difficult operating environment in term sustainability and development. The Digital technology is also essential in 2018/19, we recorded a solid profit result difference between us and the big making our processes more efficient, for our members while also investing in our is that all our profits stay with us, rather to deliver a better experience for our 3 Heritage Bank Limited Member Report 2018/19

The steady increase in our asset size is testament to our effectiveness in members. This financial year we conducted “ meeting member needs. a Proof of Concept process on a potential new loans origination platform for Heritage. This process tested the ability of the loans origination platform to integrate with our core banking system. Currently, our ” staff have to move in and out of multiple systems and programs to complete all the different components of a loan application. recommend their bank to someone else. computer or mobile phone. We removed Often this requires doubling up on data Our high score indicates that our members most transaction fees from our savings entry in different programs. The potential are proud to do their banking with Heritage. and transaction accounts. We also piloted a digital savvy seniors workshop, inviting new loans origination platform would bring A key reason for our high satisfaction and members to come into our branches to all those systems and program together advocacy scores is that we genuinely act learn about using online banking services. and require data entry only in one place. in the best interests of our members and The Board and the Executive have made While digital advances are important, we our communities. We did that in many ways clear that the main priority for everyone at remain committed to our branch network. in 2018/19. For example, we introduced Heritage is what’s best for our members. We know our members want to sit down online redraw capabilities, which means face-to-face with an expert to discuss the members can tap into payments in advance This year we were proud to become one of biggest financial decisions of their lives. they’ve made on their eligible home or the few financial institutions in the country We know people want the comfort of being personal loan, from the convenience of their to offer a 24/7 Contact Centre service, able to deal directly with a real person in times of need. That’s why we opened a new branch at Coomera this financial year and announced our plans to open new branches in Sydney. As with any retailer, we will continually review the exact locations of our branches, but we will maintain and invest in a branch network for our members.

Given that meeting member needs is our goal, we were delighted to be recognised as the Bank of the Year in the Roy Morgan Customer Satisfaction Awards for 2018. The award is based on the monthly surveys of banking customers that Roy Morgan carries out across the country, and recognised that we had the highest customer satisfaction score in Australia. We ended the financial year with a Net Promoter Score of 31 (Roy Morgan June 2019), much higher than the average NPS of the four big banks which was -8.7. The NPS score is based on the likelihood that a customer would Kerry Betros, Peter Lock, Chairman CEO 4 Heritage Bank Limited Member Report 2018/19

Our teams continue to be passionate about helping our members achieve enabling our members to speak with one “ of our people at any time of the day or their financial dreams and are night. That’s the kind of people-focussed approach that sets us apart. committed to building a bank that we

We were thrilled in 2018/19 to partner can all be proud of. with Woolworths in launching the Woolworths Organic Growth Fund. Through the Fund, Woolworths is providing up to $30 million over a five year period in grants and interest-free loans to encourage ” Australian farmers to produce more organic goods. Woolworths chose Heritage to be the findings were unsurprising, but the which opens up opportunities for mutuals the financial administrator for the grants impacts on the big banks have been to issue capital-raising instruments without and interest-free loans. This partnership underwhelming. It is telling that none of jeopardising their mutual status. Access to reflects the reputation that Heritage the customer-owned banks were called capital has always been a limiting factor enjoys for its professionalism and for its to appear before the hearings. The Royal on the ability of mutuals to expand and community focus. We’re delighted to be Commission findings highlighted that much offer greater competition to the big banks. working with Woolworths on this project of the poor behaviour identified in the big This new legislation has overcome many and look forward to collaborating with them banks was the result of profit being put of those hurdles. However, the devil is in on other projects in future. ahead of people. That’s the polar opposite the detail, and there is still much work to do before mutuals will be in position to Another highlight of the year was the of what mutuals such as Heritage are all issue a capital-raising instrument. Heritage announcement at our Annual General about. The inevitable outcome of the Royal will continue to lead the customer-owned Meeting in 2018 that we would be Commission will be increased scrutiny sector in investigating how we can best establishing a new charitable arm called and regulation of the banking sector. That take advantage of this legislation. We will the Heritage Bank Charitable Foundation, creates a conundrum which could adversely be amending the Heritage constitution in with a seeding fund contribution of $2 impact mutuals. Applying a one-size- late 2019 to make it possible for us to issue million. We’ve now completed all legal fits-all approach to increased regulation a mutual capital instrument, if and when and logistical requirements to make the means mutuals will be disproportionately we decide to take that step. Foundation operational, and we officially impacted by the extra costs and resourcing “launched” it at functions in Toowoomba required. Even though the questionable At Heritage, we are extremely proud of our and Brisbane in June 2019. The Charitable conduct at the heart of the Royal long history, but we are also very aware Foundation can now accept tax-deductible Commission occurred at the big banks, the that we must evolve as a business to meet donations from the public, and we aim to customer-owned banks pay the penalty of the future needs of our members and start providing grants in 2020. Creating facing extra Government compliance and the environment they will live in. We will lasting legacies and mutual benefit are regulatory costs. That is unfair. Heritage will continue to put our members at the very core to Heritage Bank model and making continue to push the Federal Government forefront of our thinking and our actions. the Foundation operational is one of our to recognise that there are “more than Our teams continue to be passionate about proudest achievements in 2018/19. four” banks in Australia, and to deliver helping our members achieve their financial proportionate regulation. dreams and are committed to building a Any reflection on this financial year bank that we can all be proud of. must make mention of the Hayne This financial year also saw the passing Royal Commission findings, which were into legislation of the Treasury Laws Kerry Betros Peter Lock handed down early in 2019. As a whole, Amendment (Mutual Reforms) Bill 2019, Chairman CEO 5 Heritage Bank Limited Member Report 2018/19

Heritage Bank staff members marched in the 2018 Toowoomba Carnival of Flowers Grand Parade alongside our mascot, Priscilla. 6 Heritage Bank Limited Member Report 2018/19

Heritage Board 2019 Mr David W. Thorpe, Mr Brendan P. Baulch, Ms Susan M. Campbell, Mr Kerry J. Betros (Chairman), Dr Dennis P. Campbell (Deputy Chairman), Mrs Wendy Machin, Mr Stephen Davis, Mrs Vivienne A. Quinn. 7 Heritage Bank Limited Member Report 2018/19 8 Heritage Bank Limited Member Report 2018/19

Senior Executive Group

Mr Peter Lock held senior management roles at Company Directors. He has a keen CHIEF EXECUTIVE OFFICER the , St George interest in leadership and community, Bank, and the , and has been part of numerous Mr Peter Lock joined Heritage as following a career with the National capacity-building committees in a Chief Executive Officer in November Australia Bank. He has also run his mentoring capacity. Mr Lock holds a 2015. Mr Lock has more than 30 own corporate advisory firm. Bachelor of Business and a Master years’ experience in the financial of Business Administration from the services industry spanning insurance, Mr Lock is a Senior Fellow of the University of South Australia and a institutional banking, business Institute of Graduate Diploma in Applied Finance development, business banking Australasia, and a Graduate Member from the Finance and Securities and corporate banking. He has of the Australian Institute of Institute of Australia.

Ms Kerry Beebe Mr Arjan Bloemer Ms Jane Calder Mr Wayne Marchant CHIEF RISK OFFICER CHIEF OPERATING OFFICER CHIEF PRODUCT AND CHIEF INFORMATION OFFICER MARKETING OFFICER Ms Kerry Beebe was appointed Mr Arjan Bloemer joined Heritage Mr Wayne Marchant was appointed Chief Risk Officer at Heritage in May as Chief Operating Officer in May Ms Jane Calder joined Heritage in Chief Information Officer in 2018. She is a finance executive 2018. Originally from Amsterdam, 2008 and is responsible for customer December 2016 after initially joining with 30 years’ experience in Mr Bloemer began his career with marketing and sponsorship, digital the Bank as Interim CIO, consulting Australia, Canada and the United Dutch bank MeesPierson before banking, product development and to Heritage through 451 Consulting. States and has worked with major becoming Head of Operations for portfolio management, customer banks and NAB, with State Europe’s first 100% digital bank. He experience and internal and Mr Marchant has more than 26 Government departments and then moved into consulting, first in external communications. years in IT management across broker aggregators, and in non-bank large and medium businesses the Netherlands, followed by banking Prior to Heritage, Ms Calder worked lending roles. in a diverse range of industry roles with the Royal Bank of Scotland in senior executive, management sectors. Before joining Heritage, Before joining Heritage she was Chief in London and then consulting in and senior level consulting roles Mr Marchant was responsible for Risk Officer for Computershare in the Australia with Ernst and Young. He across organisations in Australia and leading significant transformational United States and Head of Enterprise was Managing Director at Accenture the United Kingdom including MBF change as the Regional CIO for Risk at mortgage lender RESIMAC in Australia from early 2017, before the (now BUPA), Newcastle Permanent Sydney. Ms Beebe specialises in risk, move to Heritage Bank. , PFour Consulting in Billabong and at Department of Main Roads through 451 Consulting. compliance and internal audit and Mr Bloemer left his role at Heritage London, and BT Funds Management. He has also held Senior IT roles at has substantial experience in major Bank in August 2019. Ms Calder holds a Bachelor of issue management. Science (Hons) in Management Flight Centre and Woolworths. In August 2019, Ms Beebe stepped and Chemical Sciences from the down from her role at Heritage Bank. University of Manchester (UMIST). 9 Heritage Bank Limited Member Report 2018/19

Senior Executive Group

Ms Margo Dewar Mr Kevin Potter Mr Darren Stephens Mr Paul Williams CHIEF PEOPLE OFFICER CHIEF CUSTOMER OFFICER CHIEF TRANSFORMATION OFFICER CHIEF FINANCIAL OFFICER

Ms Dewar joined Heritage Bank Mr Kevin Potter joined Heritage Mr Stephens joined Heritage in Mr Paul Williams joined Heritage in 2009 and has over 17 years’ in March 2017 as Chief Operating December 2016 as Chief People in 2000 and is currently the Chief experience in human resources. Officer before moving into the Officer before moving into the role Financial Officer for Heritage Bank. She was appointed Chief People role of Chief Customer Officer in of Chief Transformation Officer He is responsible for financial Officer in March 2019 and is April 2018. As Chief Customer in March 2019. He is responsible accounting, analysis and reporting, responsible for the bank’s overall Officer, Mr Potter is responsible for fast tracking key projects to business and operational strategy human resources strategy, leading for the customer facing aspects of transform the way Heritage operates formulation and implementation, this function across recruitment, business through Heritage’s retail to accelerate its goal of becoming a capital markets and financial risk learning and development, branches including the community digital bank with a physical presence. management activities. employee relations, health and branch model, business banking, Mr Stephens has more than Mr Williams has more than safety, organisational development customer contact centre and broker 20 years’ experience in human 25 years’ experience in the finance and change management. distribution channel. resources, including running his own and property industries having Prior to commencing with Heritage Mr Potter has more than 25 years’ management consultancy in Sydney, previously worked in Australia and Bank, Ms Dewar worked for experience in the financial services and prior to that in senior human South Africa for various banks Deloitte in Human Capital and industry and prior to Heritage held resources roles at Westpac and St as well as global advisory and Change Management Consulting senior management roles with George Bank. He has also worked commercial real estate services on transformational projects in Suncorp and National Australia with Sydney Water and in various firms. He holds a Bachelor’s energy, resources, tertiary and Bank encompassing risk, sales, roles within the New South Wales degree from the University of public sector engagements. She has distribution, product and projects. public sector. , a Master’s degree also held human resources roles from the University of Cambridge with Suncorp, and the Australian in the UK, an MBA from the Government. Ms Dewar holds a University of Southern Queensland Master’s degree from the University and a Graduate Diploma in Applied of Southern Queensland and a Finance from the Finance and Bachelor of Business (Human Securities Institute of Australia. Resources) from Queensland University of Technology. 10 Heritage Bank Limited Member Report 2018/19

The Heritage Bank Story

Heritage Bank is Australia’s largest Heritage gives our customers access to a customer-owned bank. Our origins go full suite of banking products, including back to 1875 when the Toowoomba savings and transaction accounts, term Permanent Building Society was formed, deposits, home loans, personal loans, followed by the Darling Downs Building business banking, credit and debit cards, Society in 1896. Those two organisations superannuation and financial planning, co-existed in Toowoomba until 1981 insurance, and foreign currency and travel when they merged to become Heritage finance products.* Building Society. In 2011, Heritage We also offer multiple ways to access our Building Society changed its name to services, including online banking, mobile Heritage Bank. apps, phone banking, ATMs, a Queensland- With a history stretching back to 1875, we based contact centre, our branch network are one of the longest-standing financial and Bank@Post. institutions in the country.

Heritage has 58 branches in southern Queensland and offers our award-winning home loans via a network of mortgage brokers in every state and territory in Australia. That makes Heritage a national player in the home loan market. With $10 billion in total assets, we are Australia’s largest customer-owned bank.

With $10.1b in total assets we are Australia’s largest customer-owned bank

*Some products are offered by third parties. Please refer to Heritage’s Financial Services Guide. 11 Heritage Bank Limited Member Report 2018/19 The Customer-owned The Heritage Bank Story Difference

The big difference between Heritage and dreams. That means great products, great the big banks is that we are owned by rates and great service, every time. We our customers, not by shareholders. So, truly care about your interests because why does that matter? that’s why we exist. We’re passionate about helping people. It’s simple. Our main focus is on giving value to our customers, because they The big banks often say they’re committed are also our owners. Everything we do is to customers. But at the end of the day designed to benefit customers. The profits the people they truly serve are their we make stay at Heritage and we use shareholders. They make profits from their them to improve our products, services and customers so they can pay dividends to interest rates. Our goal is to maximise the their owners. That’s their bottom line. value we provide for customers. We believe that our customer-owned When you join Heritage, you’re not just structure, and the way this focuses a customer, you’re a part owner of the our attention delivering value for our business. You are the reason we exist. customers, makes Heritage a very Our Sunshine Coast staff supported the 2018 Fire You are our focus. Our driving motivation attractive alternative. in the Sky family fireworks event at Cotton Tree is to help you achieve your financial

The Customer-owned Advantage

THE BIG 4 BANKS

PROFITS STAY DIVIDENDS WITH US PAID TO TO BENEFIT SHARE HOLDERS MEMBERS CUSTOMERS CUSTOMERS

$$$$ $$$$ MODEST $$$$ PROFITS HIGHER PROFITS 12 Heritage Bank Limited Member Report 2018/19

Our Promises to You

Heritage Bank has proudly committed to The 10 promises are as follows: 9. We will recognise our impact on the upholding the Customer Owned Banking wider community 1. We will be fair and ethical in our Association’s (COBA) Code of Practice. dealings with you 10. We will support and promote this The Code contains 10 promises that 2. We will focus on our customers Code of Practice outline how mutual financial institutions deliver on their pledge to always put 3. We will give you clear information Heritage lives up to those promises every customers first. about our products and services day through our people first approach to 4. We will be responsible lenders banking. We live the mutual philosophy by The Code has been developed in close focussing on the best overall interests of consultation with a wide range of 5. We will deliver high customer service stakeholders, including government, and standards our customers, not the highest profit we consumer groups and COBA members. 6. We will deal fairly with any complaints can make.

The Code is an important public expression 7. We will recognise our customers’ You can read more about the COBA Code of of the value Heritage places on improving rights as owners Practice at the following website the financial wellbeing of our customers 8. We will comply with our legal and www.customerownedbanking.asn.au/ and their communities. industry obligations consumers/cobcop

Our proud team launch the new Coomera Branch 13 Heritage Bank Limited Member Report 2018/19

Our Promises to You

Inaugural Chair Bill Armagnacq (left) and CEO Peter Lock help officially launch the Heritage Bank Charitable Foundation.

Heritage cements legacy with launch of new Charitable Foundation

Heritage Bank further cemented The Foundation will also be able to accept and announce grant recipients twice a its legacy of community support by tax-deductible donations from members of year. There will be no limit on the size of launching the new Heritage Bank the public and from other benefactors. the grants that can be made, but they are Charitable Foundation in 2018/19. expected to be in the range of $5,000 to The Foundation will provide funding to $50,000. The exact amount available for The new Charitable Foundation will add not-for profit organisations and community grants will depend on the sustainability of to our legacy via regular grants to worthy groups for projects aimed at building the Foundation’s holdings. charitable organisations that are working and improving community wellbeing to improve wellbeing and life outcomes for and life outcomes for people, including The grants will be open to organisations communities across Australia. disadvantaged and at-risk families, elderly across Australia to reflect our national persons and young people, particularly presence. Heritage allocated $2 million in seed in relation to education, cultural, health, funding to establish the Charitable social and financial wellbeing. Foundation in the 2018/19 financial year and will make regular contributions in When the Foundation is fully operational, subsequent years. it is expected to call for submissions 14 Heritage Bank Limited Member Report 2018/19

Operating Sustainably

Heritage is committed to operating a sustainable business. We are pleased to report on the social, environmental and economic challenges and opportunities facing us, our industry and the communities that we operate in. We’ve grouped our report into five focus areas:

1. Serving our members

2. Looking after our people

3. Operating with good governance

4. Protecting our planet

5. Staying financially strong and becoming more efficient 15 Heritage Bank Limited Member Report 2018/19

Operating Sustainably

1. Serving our members

The Hayne Royal Commission has rightly WE HELP PEOPLE WITH IMPROVING OUR ONLINE called out a number of Australia’s bigger SPECIAL NEEDS SERVICE OFFERING banks for practices that put profit ahead Heritage introduced a range of initiatives In July 2018, Heritage improved its service of the best interests of customers. As in 2018/19 to meet the varied needs of offering with the launch of an online a customer-owned bank, Heritage’s our members. Recognising the higher risk redraw option. With online redraw, Heritage primary goal is to serve the interests of that some people, like the elderly, or other members can tap into payments in advance our members. vulnerable persons experience, Heritage they’ve made on their eligible home or personal loan when they need them, from WE TAKE A RESPONSIBLE launched an internal financial elder abuse APPROACH TO LENDING prevention campaign. The campaign the convenience of their computer or sought to educate Heritage staff in how mobile phone. Members have the option We do not prioritise profit ahead of what’s to recognise and respond to suspected to access the payments in advance for any best for our customers. That means we financial abuse of our elderly members. purpose at any time and can continue to always carefully assess loan applications Heritage also ran a Digital Savvy Seniors pay off their loan without extending the to determine whether they are affordable original term. workshop in Toowoomba to help seniors for the customer, both now and in the demystify internet banking in a supported This year we expanded our range of future. We apply stringent checks to ensure environment. Through one-on-one digital banking services, making it quicker any credit will help customers meet their sessions with Heritage staff, attendees and easier for members to do their financial goals. had the opportunity to learn the ins and everyday banking. We introduced a range WE HELP CUSTOMERS FACING outs of banking online and via the mobile of digital wallet services allowing FINANCIAL HARDSHIP app. Additionally, Heritage held its members to make purchases at inaugural first home buyer’s information contactless payment terminals using Heritage understands that life can take session, open to the general public, their compatible smartphone or unexpected turns. For this reason, we which provided helpful information wearable device, including: have developed policies and processes to every first home buyer should consider assist members with their mortgage loans, • Google Pay™ when applying for a home loan. personal loans and credit cards in times • Samsung Pay of financial hardship. When members are WE CONTINUE TO OFFER BANK@POST • Fitbit Pay™ having difficulty meeting their financial • Garmin Pay™ commitments, our Heritage staff will Heritage continues to provide our discuss their circumstances discreetly and customers access to the Bank@Post service We completed our rollout of services via work with them to help them through this offered by Australia Post. This means our the New Payments Platform, a payments tough time. Members also have the option customers can deposit or withdraw cash, infrastructure introduced in Australia to complete a Hardship Relief application and complete a number of other simple that allows people to transfer funds that allows them to explain their situation banking transactions, at 3,500 Australia almost immediately between accounts at which helps us better understand their Post outlets around the country. Heritage participating financial institutions. Heritage needs so we can come up with a long does not charge fees for Bank@Post members now have the convenience and term solution. Heritage may also provide transactions on Pension Plus accounts, nor flexibility to both send and receive NPP hardship assistance to loan balances, for a range of rural and remote post codes faster payments via the Heritage Mobile offering members short term help until they where members have limited access to Banking App using a BSB and account are back on their feet. other banking channels. number, or a PayID. 16 Heritage Bank Limited Member Report 2018/19

Operating Sustainably continued

GIVING GREAT VALUE TO CUSTOMERS • Highly Trusted has now raised $806,000 for worthy • Staff Friendliness community and charitable causes across Because our customers are our main focus, that period. This year’s event raised a we always aim to deliver financial benefits • Mozo Experts Choice Home Loan Awards: record $75,000, which was distributed in to them. Rather than seeking massive Variable Rate Loan (Home Advantage) - grants to 13 community groups operating profits, our goal is to give customers a Winner Packaged Home Loan category across southern Queensland. better overall deal. • Employer of Choice in the 2018 • We’ve been producing the annual That’s backed up by independent analysis Australian Business Awards, for the Heritage calendar for 37 years. In 2006 from research company CANSTAR, which eighth year in a row we started accepting gold coin donations found that our customers were almost • Canstar Gold 5-Star Ratings for from customers to obtain a copy, and $79 million a year better off in 2018/19 products including our Gold Low Rate donating the proceeds to charities. Since through banking with Heritage rather than Credit Card, Pension Plus, Business loan, then, we have donated $314,000 to 63 one of the banks.* and Variable and Fixed Rate home loans charity groups through the funds raised Our members gained a $36 million benefit for Owner Occupiers. by the calendar. in rates and fees on our lending products, WE GIVE BACK TO THE COMMUNITY • Heritage proudly supported the 2019 and $43 million because of better interest Fire in the Sky event at Cotton Tree on rates and fees on deposit products.. Heritage works to create better the Sunshine Coast, for the fifth year. communities for our customers. Around 50 of our staff and their family PROVIDING A SATISFYING We understand that it’s not just the members volunteered to attend the event, BANKING EXPERIENCE financial products we offer members which attracts 25,000 people, and hand Heritage continues to receive external that can make a difference to their lives. out giveaways. awards and recognition that help It’s also the prosperity and sustainability of their communities. • Heritage sponsors many other community measure our success in achieving our events, including the Street Concert at vision of being passionate about helping We actively seek out ways that we can the Ipswich Festival, the Bundy Flavours people. In 2018/19 we received the make a positive difference to the overall Festival in Bundaberg, the Ekka, the following accolades: well-being of the communities we operate Toowoomba Languages and Cultures in. That means throwing our support behind • 2018 Roy Morgan – Bank of the Year Festival, the Apple and Grape Festival in the key events and activities that are Award for Customer Satisfaction Stanthorpe, the Gold Coast Multicultural important to communities. It’s also about Festival, the Redlands Multicultural • 2019 Forbes World’s Best Banks developing close links to our communities, Festival, the Business Excellence Awards – Number one Australian bank which helps us know what those key events in Gatton, Warwick and Dalby, the and activities are. • 2019 Mozo People’s Choice Awards for Toowoomba Carnival of Flowers and the the following categories: The highlight of 2017/18 was announcing Toowoomba Royal Show. that we would be establishing the Heritage • Most Recommended • Heritage continued our long-standing Bank Charitable Foundation, with a $2 (third year in a row) support of the photographic community million seeding grant from Heritage. • Outstanding Customer Satisfaction in Australia by holding the 30th annual Award (second year in a row) • In November 2018 Heritage Bank held Heritage Photographic Awards in 2019. • Excellent Customer Service our 21st Annual Charity Golf Day, which The Awards are among the longest

*CANSTAR Member Valuation Report, June 2019 17 Heritage Bank Limited Member Report 2018/19

Supporting Woolworths Organic Growth Fund

Heritage Bank has partnered Through the Fund, Woolworths will invest Heritage, who will administer the with Woolworths as the financial up to $30 million over a five-year period. lending and financial aspects of the administrator for the $30 million This funding will be made available to Fund’s operations. Woolworths Organic Growth Fund, eligible Australian farmers in the form of We were delighted to announce in June launched in October 2018. financial grants and interest-free loans. 2019 that the first loan given out in Woolworths has established the Woolworths will manage the Fund Queensland through the Fund went Woolworths Organic Growth Fund to and will be responsible for applicant to Lockyer Valley producer Australian support investment in Australian organic selection. Successful applicants will then Organic Farmers. farming projects. enter into a funding agreement with

Celebrating the first Queensland loan provided under the Woolworths Organic Growth Fund were (from left) Queensland Agriculture Minister Mark Furner, Australian Organic Farmers founder Anthony Bauer, Woolworths Queensland Supermarkets Assistant General Manager Peta Handley, and Heritage CEO Peter Lock.

running and richest photography Community Branches – at Forest Lake, organisations and causes. In 2018/19, competitions in Australia, with $7,500 in Karalee, Nanango, Millmerran, Palmwoods, we reached the milestone of $47 million prizes on offer. This year’s competition Highfields and Crows Nest. They operate in funds that these Community Branches attracted 1,300 entries from people as on a partnership model, as joint ventures have cumulatively injected back into young as seven. between Heritage and a community their local communities since the first • Heritage is particularly proud of our company with local representation. opened at Crows Nest in 1999. This Community Branch model and the Under the model, half the profits are figure is made up of community grants, significant contribution they make given to the community company to sponsorships, wages, rent and payments to their communities. We have seven provide grants for worthwhile local for other services. 18 Heritage Bank Limited Member Report 2018/19

Operating Sustainably continued

2. Looking after our people

WE’VE INTRODUCED A NEW WE OFFER GREAT BENEFITS TO STAFF Recipients are notified immediately an CODE OF CONDUCT This financial year, we launched our eCard is sent to them. Staff collectively Our members and our communities expect revamped Staff and Family Benefits, sent 1060 eCards to each other in high standards from Heritage Bank. That’s extending the benefits that we offer 2018/19. why in early 2019 we launched a new Code to better support our staff, both at work • Staff can nominate their colleagues to of Conduct, which sets out the expectations and in daily life. A major change was receive a Heritage Hero award in seven for how we act, solve problems and make extending a range of banking benefits categories: decisions. Our Code provides a set of seven to the family members of our staff. We • Passion guiding principles to help bring our vision, also held our first Staff Benefits Expo at • Courage mission, and values to life. This Code is head office, giving staff the opportunity to • Teamwork much more than just a set of words in a speak with some of our employee benefit booklet. It’s an essential piece of our culture providers about the great offers available • Customer Service and puts into words the ethical foundation to them. • All Rounder on which we are based. • Respect means Protect We’re proud to celebrate the (health and safety) WE LAUNCHED A RESPECT MEANS contributions our staff make via our • SNAP (continuous PROTECT INITIATIVE Heritage Heroes reward and recognition program. This is an innovative and improvement program) At Heritage, we’re passionate about extremely popular way for our staff to The Heritage Hero award winners are protecting the health, safety and show their appreciation for their peers by considered for the quarterly Silver Heritage wellbeing of our staff, our customers using an online portal to nominate their Hero Awards, and can also then go into the and everyone we come in contact with. colleagues in two ways: running for the annual Platinum Heritage To help us focus our efforts in this area, Hero Awards, which reward the best of the in 2018 we launched the Respect Means • Staff can send their peers a range of best across Heritage. Protect program. This initiative is all about congratulatory “eCards” to each other at making workplace health and safety a any time, to provide an instant, virtual A total of 836 Heritage Heroes awards were more central consideration in everything “well done”. Staff can customise the presented during the year. we do at Heritage. cards with their own special message. We have a strong commitment to developing the careers of individual. All staff have access to the on-line Learning Portal, which provides a range of training and eLearning courses. In-house trainers also provide a range of face-to-face courses on a wide range of subjects. Heritage is a Registered Training Organisation (RTO) and gives staff the opportunity to complete a Certificate IV in Banking Services and a Diploma of Management. This year Heritage launched our videos on demand learning platform

Heritage staff supporting Triathlon Pink on the Gold Coast Photo courtesy of Leanne Handreck 19 Heritage Bank Limited Member Report 2018/19

Federal Treasurer Josh Frydenberg (second from left) paid a special visit to Heritage Bank's Head Office to meet with (from left) Member for Groom Dr John McVeigh, CEO Peter Lock and Chairman Kerry Betros.

which has improved not only learning and Heritage is a corporate supporter of our senior female leaders participating in development delivery but is proving to be a Women in Banking and Finance (WiBF) being mentored by other executives in the great platform for staff communications. . which means all of our employees are Queensland finance sector. automatically a member. WiBF is a In October 2018 we launched The Couch, Heritage has included in its balanced non-profit organisation that creates a new initiative empowering staff to scorecard for senior executives a target that smart and innovative business take control of their own development. 40% of Heritage’s top 100 jobs will be held opportunities for its members. It provides Driven by staff, for staff, The Couch by women by the end of the next financial a supportive environment for career and involves a series of forums held throughout year, with a stretch target of 50%. Our personal development, as well as an the year with a panel of special guests Workplace Gender Equality Agency Report opportunity to network with like-minded who answer questions on leadership can be seen on our website. professionals to help all members reach and staff development topics. These their full potential. Heritage hosted a WiBF Heritage was proud to support RUOK Day? sessions allow staff to ask questions event in Brisbane in February with more with messages from members of the about career development, share learning than 50 attendees from across the financial Senior Executive team featuring on our experiences and meet like-minded people services industry. We also celebrated intranet, ‘mateship’ packs for all Heritage in the organisation. International Women’s Day by raising teams, lunchtime barbecue at head office WE VALUE DIVERSITY AND INCLUSION awareness with a series of breakfasts and access to a free webinar created across the Heritage network and profiles by our Employee Assistance Program Heritage Bank is proud to support diversity of Heritage staff members on our intranet provider, Access EAP. Among many within the workforce. Our Diversity Policy featuring their thoughts on championing other events and activities, we also sets out our commitment to providing a gender equity in the workplace. This year supported the Cancer Council’s Australia’s working environment where all employees Heritage has participated in the Queensland Biggest Morning Tea, NAIDOC Week and feel safe and included. WiBF Mentoring program with three of Harmony Day. 20 Heritage Bank Limited Member Report 2018/19

Operating Sustainably continued

3. Operating with good governance

Heritage’s Board and senior executives All directors are encouraged and assisted impact of undesired and unexpected are committed to managing our business to attend educational courses to enhance events on its business activities. ethically and maintaining high standards their skills. All directors, senior executives Heritage has adopted an integrated of corporate governance. and other employees are expected to meet approach to risk management which the highest ethical standards of corporate meets the international standard OUR BOARD behaviour. The directors have adopted a IS0 31000 Risk Management. Heritage The Board has adopted a formal Charter Director Code of Conduct and Heritage has has an appointed Chief Risk Officer and setting out its roles and responsibilities also adopted an Employee Code of Conduct, is compliant with APRA Prudential The Board’s primary role is to ensure which outlines the principles and standards Standards CPS 220 (Risk Management) that Heritage provides customers with expected of them. and APS 310 Audit & Related Matters. appropriate financial services on the most COMMUNICATION beneficial terms available and to protect INTERNAL AUDIT and enhance long-term customer value. Part of Heritage’s responsibility to act in An effective Internal Audit function provides Responsibility for managing the day-to-day the best interests of its customers is to an independent assurance function. operations of Heritage has been delegated provide them with relevant information in Heritage’s internal audit plan is approved by to the CEO, subject to Board oversight. a timely way. Customers have access to the Audit Committee. The Head of Internal information in relation to Heritage through Currently, Heritage’s Board has eight Audit reports to the Chairman of the Audit the quarterly publication of the Working For independent non-executive directors. One- Committee and to the CEO for day-to-day You newsletter, the annual Member Report third of the elected directors must retire operational issues as appropriate. The Head and Financial Report, the Chairman’s and from office at each annual general meeting. of Internal Audit has unfettered access to CEO’s addresses to the Annual General Directors must keep the Board advised of the Chairman of the Board and the whole Meeting, through media announcements, any potential conflict of interest, as must Board if required. The Internal Audit social media channels and our website. senior executives. Directors and key staff function is governed by an Internal Heritage’s Member Report and Financial members must also be assessed to ensure Audit Charter. Report are posted on our website and are they have appropriate skills, experience and made available to the media. EXTERNAL AUDITOR knowledge and that they act with honesty and integrity. This must generally happen The external auditor is Ernst & Young. ANNUAL GENERAL MEETING prior to their initial appointment and then We have since changed to KPMG for reassessed annually. Heritage members have the opportunity 2019/20. The key partner representatives to raise matters with the Board at the are refreshed periodically in accordance The Board currently holds 11 scheduled Annual General Meeting, generally held in with APRA’s prudential standards. The meetings each year. To help in executing its October each year. external auditor has access to the Audit responsibilities, the Board has established Committee and the Board through the the following committees: RISK MANAGEMENT APPROACH Chairman of the Board. • Audit Committee Heritage is committed to implementing PRIVACY • Technology Committee appropriate strategies and processes that • Risk and Compliance Committee identify, analyse and manage the risks Heritage is committed to the protection of • Remuneration and Nominations associated with its activities as a means of personal information and Heritage’s Privacy Committee realising opportunities and minimising the Policy is available on Heritage’s website. 21 Heritage Bank Limited Member Report 2018/19

Guests enjoy the presentation of prizes event for the 30th Heritage Bank Photographic Awards.

GENDER EQUITY extensive skills and experience to the CORPORATE GOVERNANCE position. For the previous four years, she was STATEMENT Heritage strives to provide a workplace that Chair of COBA, the peak body that represents promotes gender equality. You can read the A full Corporate Governance Statement the mutual sector. She is currently Chair report Heritage submitted to the Workplace of the Australasian New Car Assessment has been included in Heritage’s 2018/19 Gender Equality Agency as required under Programme (ANCAP) and Reflections Holiday Financial Report, which can be found on our the Workplace Gender Equality Act 2012 by Parks, as well as being a Director of the website at www.heritage.com.au/about/ following the link on our website as follows: NSW Forestry Corporation. In July 2019, financial-reports www.heritage.com.au/about/careers/ we farewelled Susan Campbell, who retired why-join-heritage-bank as a Director after almost 14 years on the Heritage Board. Ms Campbell became our NEW DIRECTOR first interstate Director when appointed in In March 2019, Heritage appointed Wendy November 2005. We thank Susan for her Machin to the Board. Ms Machin brings outstanding contribution to Heritage. 22 Heritage Bank Limited Member Report 2018/19

Operating Sustainably continued

4. Protecting our planet

WE’RE REDUCING THE • LED lighting: A vast majority of branches ENVIRONMENTAL IMPACTS and a significant proportion of areas in OF OUR OPERATIONS the head office complex have LED lighting Heritage has implemented a number of installed, which uses less electricity than initiatives to reduce the environmental other types of lighting. impact of our assets and operations. WE’RE BECOMING MORE DIGITISED • Recycling and reducing waste: Heritage Heritage has undertaken a number utilises weekly recycling bin collection of actions to reduce paper waste and to encourage increased staff use and transition to digital operations: awareness of recycling bins. • All publications are available on our • Fleet: Heritage continues to specify fuel website and electronically via email efficient vehicles in its approved fleet list upon request. and no longer includes larger vehicles. • Increased member communications sent • Contract Renewals: Heritage’s Facilities via email and SMS, instead of letters department takes greater consideration where possible. of contractors’ environmental credentials as part of tender documentation for • Staff emphasis on ensuring members’ new contracts. details are up-to-date – including our “Update your details” campaign • Plastics: Heritage no longer allows single – and encouraging members to use plastics to be purchased from our convert to eStatements. stationery supply company. • Removal of all printed brochures • Air-conditioning replacement: Heritage from a number of branches excluding continues to upgrade air-conditioning compliance brochures. units at its head office with more energy efficient replacements. • Regular brochure and publication review including content and usage. We have • Reduced electricity usage: Over consolidated a number of publications 2012 – 2019, Heritage reduced its into a smaller number, grouping related monthly electricity usage at its head information together where possible. office by 25 per cent thanks to the introduction of energy efficient plant • Brochure kiosks available within a and lighting. Significantly, this has number of our transformed branches occurred while Heritage has increased where customers can view and email the number of staff and amount of brochures to themselves. equipment at the building. 23 Heritage Bank Limited Member Report 2018/19

Operating Sustainably continued

5. Staying financially strong and becoming more efficient

WE HIT THE MILESTONE OF that is identifying ways to replace time- This year we farewelled Company Secretary $10 BILLION IN TOTAL ASSETS consuming paper-based processing tasks Bill Armagnacq, who retired after As a member-owned bank, Heritage has with automated solutions. Not only does 12 years in the role. Benn Wogan will take a responsibility to protect and increase this make us more efficient and deliver over Bill’s responsibilities in the role of the value of this company, which we’ve better outcomes for our members, it also General Counsel and Company Secretary. built up throughout our 144-year history. frees up staff to carry out other activities OUR BRANCH LOCATION We serve our members by not only that better serve customers. MIX IS CHANGING providing financial benefits through WE’VE RESTRUCTURED our products and services, but also by Heritage is committed to maintaining a PARTS OF OUR BUSINESS TO increasing the value of the stake they branch network as an important part of our IMPROVE EFFICIENCIES hold in Heritage. service to members. Unlike many of our We’re continuing to evolve our structures competitors, we value a bricks and mortar We’re proud to say that in 2018/19 we and operations in response to our changing presence and have no plans to reduce our surpassed the milestone of $10 billion in environment. As the banking industry total number of branches. total consolidated assets. That reinforces changes, we must also change to remain our position as the largest customer-owned What we will be doing is continuing to relevant and efficient. bank in Australia. review the exact locations of our branches, To help us achieve that evolution, we in response to changing demographics and WE’VE INVESTED IN BETTER established a new Transformation Office, circumstances. There may be some existing MANAGING OUR PROJECTS with responsibility for driving the key locations where a branch is no longer projects at Heritage that will transform We’ve recognised that to complete the viable, or there may be other locations that the way we operate. Darren Stephens has important work needed to help us evolve, have become growth hotspots where a been seconded into the temporary role of we must improve the way we run our branch would be ideal. Chief Transformation Officer, while Margo major projects. That’s why we have invested With that in mind, in 2018/19 we opened Dewar has been promoted to fill Darren’s more heavily this year in setting up an a new branch at Coomera on the Gold substantive role of Chief People Officer. Enterprise Management Office (EMO), Coast, while closing existing branches which provides specialist expertise and This year we introduced a new structure at Mt Ommaney and Cleveland. We also resources in project management. The in our branch network, with Area Branch announced our plans to open two branches EMO team provides advisory, Managers now looking after a cluster of in Sydney, at Castle Hill and Parramatta. In implementation and review services to branches, supported by specialist lenders the locations where we closed branches, we ensure we run our projects efficiently. and leaders at individual branches. Our put significant effort into helping members aim is to develop specialists who can transition to alternative ways of doing their WE’RE LEADING THE WAY focus on developing expertise in particular day-to-day banking. IN ROBOTICS functions, rather than generalists who cover We will continue to adjust the exact spread Heritage has become a leader in the all functions. We also revised the structure of branch locations to maximise the Australian banking sector in using robotics of our Operations department, disbanding benefits for members. software to automate menial manual the Projects team while adding Quality processes. We have created a robotics team Assurance roles. 24 Heritage Bank Limited Member Report 2018/19

Financial Highlights

14.42% 2019 2018 14.11% Profit before tax $61.708 million $64.213 million 13.95%

Profit after tax $43.275 million $45.041 million

13.44% Loan approvals $1.880 billion $1.736 billion 13.37%

Total consolidated assets $10.088 billion $9.524 billion

Capital adequacy 14.42% 14.11%

Liquidity 15.50% 14.74%

Mortgage loan arrears 0.66% 0.58% 2014/15 2015/16 2016/17 2017/18 2018/19 greater than 30 days CAPITAL ADEQUACY RATIO

64.21 2,391 61.71

56.31

51.11 1,880 1,838 48.01 1,780 1,736 2014/15 2015/16 2016/17 2017/18 2018/19 2014/15 2015/16 2016/17 2017/18 2018/19

PRE TAX PROFIT ($M) LOAN APPROVALS ($M) 6,938 6,575 10.088 6,372 9.379 9.524

8.557 8.441 5,155 4,861 2014/15 2015/16 2016/17 2017/18 2018/19 2014/15 2015/16 2016/17 2017/18 2018/19

CONSOLIDATED ASSETS ($M) RETAIL DEPOSITS ($M) 25 Heritage Bank Limited Member Report 2018/19

Financial Highlights

TOTAL $ CONSOLIDATED 10.1b ASSETS

LOAN $1.88b APPROVALS

Heritage announces interstate expansion

In 2018/19, Heritage Bank Queensland branches. We already announced that we would have thousands of customers in be opening two branches in Sydney, and we’ve had an office Sydney by the end of 2019 in Parramatta for many years to – our first branches ever support our broker team. outside Queensland. Opening branches in Sydney Heritage will open one branch reflects our desire to increase in the Castle Towers Shopping our presence nationally and our Centre at Castle Hill at the end of belief that the Heritage brand can October and another at Westfield resonate strongly with consumers Parramatta in December. wherever they live.

The move into bricks and mortar We’re excited to be bucking the in Sydney reflects the desire to industry trend by opening new build our national footprint and branches. People still want to our belief in the future of the come into a branch and talk face- branch concept. to-face with an expert about the We’ve been providing home loans biggest financial commitments to customers throughout Australia they will make in their lives, so for 20 years via mortgage branches will be around for many brokers, as well as through our years to come. heritage.com.au

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