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Annual Report | 2007 08

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MyState Financial Board
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From left: Bob Gordon, Tim Gourlay, Peter Armstrong, Tony Reidy (Chairman), Colin Hollingsworth (Deputy Chair), Dianne Bowerman and Graeme Little (below).

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Contents

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|MyState Financial Board|2|
|Corporate Governance|3|
|Chairman’s Report|5|
|Chief Executive’s Report|7|
|Financial Statements|9|
|Directors’ Report|10|
|Income Statement|14|
|Balance Sheet|15|
|Cash Flow Statement|16|
|Statement of Changes in Equity|17|
|Notes to the Financial Statements|18|
|Directors’ Declaration|53|
|Independent Auditor’s Report|54|

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MyState Financial Annual Report | 2007 08 1

MyState Financial Board

MyState Financial Board

Tony Reidy – Chairman

FAICD FAMI MFIA JP

Bob Gordon – Director

BSc MIFA MAICD AFAMI CPM FAMI

Tony is Executive Director of the Royal Hobart Hospital Research Foundation, and has been a credit union director for more than twenty years. He was elected Chairman of connectfinancial and The Gourmet Club Pty Ltd in December 2006, and was appointed Chairman of MyState Financial from 1 July 2007. Tony is a Fellow of both the Australian Institute of Company Directors and the Australasian Mutuals’ Institute, and holds qualifications in company direction and superannuation management. He is also a Member of the Fundraising Institute of Australia.

Colin Hollingsworth – Deputy Chairman

CPA FAMI MAICD

Colin was General Manager, Corporate Services, TAFE Tasmania from 1998 until April 2008. He was a former director of CPS Credit Union for 20 years, five of those as Chairman. Colin was Chairman of islandstate at the time of the merger with connectfinancial and was first appointed to the islandstate Board in 2000. Colin is a director of The Gourmet Club Pty Ltd and is currently the Chairman of MyState Financial’s Executive Committee and a member of MyState Financial’s Audit and Risk Committee.

Peter Armstrong – Director

BEc (Hons) DipEd DipFP CPA FAICD FAMI

Peter is Acting Assistant Principal at Hobart College. He has been a credit union director for over 20 years, and is currently Chairman of MyState Financial’s Audit and Risk Committee. Peter held many senior positions with the former connectfinancial, including six years as Chairman. He is a Fellow of both the Australian Institute of Company Directors and the Australasian Mutuals’ Institute.

Bob is the Managing Director of Forestry Tasmania. He has been a credit union director for fourteen years, including six years as Chairman of connectfinancial. Bob is a director of The MyState Financial Foundation and The Gourmet Club Pty Ltd. He is also a member of MyState Financial’s Governance Committee.

Tim Gourlay – Director

DipTeach TTC Grad Cert Mgmt MAICD Dip MAMI

Tim is Capital Works and Planning Consultant with the Catholic Education Office, was formerly Manager (Facility Services) with the Department of Education, and has been a credit union director for more than twenty years. He is a director of The Gourmet Club Pty Ltd and Chairman of the MyState Financial Community Foundation. Tim is currently a member of MyState’s Governance Committee as well as a member of both the Australian Institute of Company Directors and the Australasian Mutuals Institute.

Graeme Little - Director

BE GAICD MAMI FIBD

Graeme spent thirty-six years in the brewing industry in Tasmania and was a director of J. Boag & Son (1997-2000) and a former Manager of Boags (1988-2000) and Cascade (1982-1986) breweries. First elected to the islandstate Board in 2002 he was a member of the Executive and Audit and Risk Committees. Graeme is a director of The Gourmet Club Pty Ltd and is currently a member of MyState Financial’s Executive and Audit and Risk Committees.

Julia Butler – resigned 30 November 2007

LLB GAICD MAMI

Dianne Bowerman - Director

GAICD MAMI

Julia was first elected to the Board of islandstate in 2004 and was appointed a MyState Financial director on 1 July 2007. Julia resigned effective 30 November 2007.

Dianne was an employee of islandstate for 11 years attaining the position of Special Projects Manager. Previously a Senior Manager with insurer AAMI for more than twenty years she was first elected to the islandstate Board in 2002. Dianne was Vice Chairman and a member of the islandstate Executive and Audit and Risk Committees and is currently the Chairman of the MyState Financial’s Governance Committee, and a member of the Victoria/Tasmania regional council of the Australasian Mutuals’ Institute. Dianne is also a director of The Gourmet Club Pty Ltd.

2 MyState Financial Annual Report | 2007 08

Corporate Governance

Corporate Governance

The Board of Directors is responsible for the corporate governance of MyState Financial Credit Union of Tasmania Limited (MyState Financial). The Board guides and monitors the business and affairs of MyState Financial on behalf of the members to whom they are accountable. The Board of Directors and Senior Management continually monitor corporate behaviour, accountability and financial objectives.

To ensure the Board is well equipped to discharge its responsibilities it has a comprehensive list of Board policies that guide its activities. These policies are reviewed at least annually to ensure that they meet the needs of the business, and remain up to date with regulatory requirements.

The Board reviews risks and sets performance expectations, and is responsible for ensuring that management’s objectives and activities are appropriately aligned. This is achieved through the Board committees and a range of mechanisms including the following:

Developing the strategic and business plan with the Executive Management Team
Monitoring implementation of the Strategic Business Plan and budget by management including the establishment of key performance indicators (both financial and non-financial) for all significant processes
Active participation with management in industry developments
Facilitation of Director and staff development through independent professional advice and training.

The Board meets at least monthly and follows meeting guidelines set down to ensure all Directors are made aware of, and have available all necessary information to participate in an informed discussion of all agenda items.

Board members must satisfy the Australian Prudential Regulatory Authority’s (APRA) “Fit & Proper” person requirements.

The Directors in office at the date of this statement are:

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|---|---|
|Name|Position|
|Tony Reidy|Chairman, Non-Executive Director|
|Colin Hollingsworth|Deputy Chairman, Non-Executive Director|
|Peter Armstrong|Non-Executive Director|
|Dianne Bowerman|Non-Executive Director|
|Bob Gordon|Non-Executive Director|
|Tim Gourlay|Non-Executive Director|
|Graeme Little|Non-Executive Director|

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Director independence

Directors of MyState Financial are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement.

In accordance with the definition of independence above, all Directors of MyState Financial are considered to be independent.

Delegation of authority

The Board delegates responsibility for the effective operation of MyState Financial to the Chief Executive. The Board ensures the Chief Executive is appropriately qualified and experienced to discharge their responsibilities, and has in place agreed procedures to assess the performance of the Chief Executive.

Board composition

The Board currently comprises of seven independent non-executive Directors.

The skills, experience and expertise relevant to the position of Director held by each Director in office at the date of the annual report is included on page 2 and in the Directors’ Report on page 10.

The composition of the Board is determined in accordance with the Constitution including the requirement that the independent Nominations Committee must first assess every prospective Director, whether appointed or elected. The Board of Directors selects the Chairman and other Board and committee office holders.

Board and Director performance

Directors are encouraged to participate in industry forums and professional development programs. Newly elected Directors participate in an induction program appropriate to the level of their previous experience and are required to undertake the Company Directors’ Diploma. All Directors are apprised of their role and duties as a Director.

The Board conducts a number of specific activities with the objective of continuously improving the governance of MyState Financial and complying with prudential standards. These include:

Participation in an independently-conducted skills and performance assessment to ensure that adequate coverage of the necessary skills and expertise exists on the Board
A fitness and propriety assessment of each Director in accordance with both Board policy and APRA’s prudential standard
An interview and assessment of all Board members by the Nominations Committee to ensure they meet required standards

MyState Financial Annual Report | 2007 08 3

Corporate Governance

A review of Board standing committee structure and development of charters approved by the Board
Performance appraisal of the Board as a whole and as individual Directors.

Strategy

The Board and management have met to consider the strategic position of MyState Financial and developed a Strategic Business Plan that provides a clear direction for the future. Management reports to the Board on a regular basis to ensure delivery of the outcomes set out in the Strategic Business Plan.

Governance Committee

Consists of Directors: Dianne Bowerman (Chairman), Bob Gordon and Tim Gourlay.

The objective of the Governance Committee is to assist the Board of MyState Financial in the discharge of its responsibilities by developing, reviewing and making recommendations on governance policies and processes.

Nominations Committee

Consists of: Two independent experts and Tony Reidy (Board Chairman).

Board Committees

Board members contribute to important areas of the Group’s business by serving on various subsidiary boards, industry boards and committees.

The responsibility of the Nominations Committee is to ensure members are informed as to whether candidates standing for election or appointment to the Board meet the APRA prudential requirements and to enable them to make informed decisions when voting in Board elections.

Audit and Risk Committee

Consists of Directors: Peter Armstrong (Chairman), Colin Hollingsworth and Graeme Little.

The Audit and Risk Committee operates under Charter approved by the Board. It is the Board’s responsibility to ensure that an effective risk and internal control framework exists within MyState Financial. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes. It also includes the safeguarding of assets and maintaining proper accounting records, and the reliability of financial information as well as nonfinancial considerations such as the benchmarking of operational key performance indicators. The Board has delegated responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of MyState Financial to the Audit and Risk Committee. The committee also provides the Board with additional assurances regarding the reliability of financial information for inclusion in the financial reports.

Assets and Liability Committee

Consists of: Executive and Senior Management.

The committee meets monthly to ensure MyState Financial interest rates and liquidity risk are managed effectively; prudential requirements are maintained; and to manage and monitor risk inherent in the balance sheet portfolio mix.

Board remuneration

Directors are remunerated by fees determined by the Board within the aggregate amount, plus the Superannuation Guarantee Levy (SGC), approved by the members at the Annual General Meeting for this purpose. The aggregate amount for the year July 2007 to October 2008 as approved by members of islandstate and connectfinancial at Special General Meetings held in May was $309,111 p.a. plus compulsory Government SGC.

Executive Committee

Consists of Directors: Tony Reidy (Chairman), Colin Hollingsworth (Deputy Chairman) and Graeme Little.

The role of the Executive Committee is to assist the Board in the discharge of its responsibilities and to provide guidance and assistance to the Chief Executive, including managing the performance and succession aspects of executive management; monitoring and reporting on industry matters; providing advice to the Board on strategic direction and business opportunities; and reviewing the Chief Executive’s performance and remuneration.

MyState Financial Annual Report | 2007 08

Chairman’s Report

Chairman’s Report

Year one of MyState Financial has been a time of immense change for our members, for our staff and in the international financial markets.

I am proud to present this Annual Report, detailing the achievements of the past year and the challenges we have overcome as the world adjusts to the fallout from the now well-known ‘credit crunch’.

At MyState Financial we started the year focused on the range of projects that needed to be delivered to ensure a successful merger for our members. Less than three months into the financial year we were faced with the credit crunch, bringing significant change to the way the international financial markets operate, consequently impacting us and continuing to affect all financial institutions. I am pleased to report that on both fronts, MyState Financial has come through with flying colours.

The challenges of merging the two credit unions are largely overcome, and our management and staff have delivered a new credit union in which our members and the Tasmanian community can take great pride. Our aspiration to ‘create wealth for Tasmanians by being more innovative, more responsive and giving better advice’ continues to drive us as we remain focused on improving on areas that we know need attention.

At the same time, we managed through the credit crunch to deliver a stronger, more sustainable credit union that has the flexibility to weather difficult times such as these. Our strong relationship with other financial institutions combined with the loyalty of our members and our increased ability to offer competitive products and services to Tasmanians, delivered strong results. This is no mean feat in the current climate and certainly a result of which the Board is very proud.

Financial performance

2007–08 showed strong returns for the newly merged MyState Financial. In a volatile financial market and a slowing housing market, profit for the year reflected careful management of our balance sheet as we brought the two organisations together.

The $12.15m profit (2006–07: $1.8m for islandstate and $4.96m for connectfinancial, which included $6.3m in merger costs), increased members’ equity to $119.83m (up on $51.4m in the previous year for islandstate and $52.91m for connectfinancial).

Importantly, other prudential measure outcomes reflect the strength created with the bringing together of the two previous organisations.

Despite the combined impact of a slowing in the Tasmanian housing market, an increasing interest rate environment and increasing cost of funds, assets under management continued to grow strongly for

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the first six months and consolidated to result in a year-end $1.48b, an increase of 8.7% on 2006–07.

The market volatility impacted the funds under advice that we manage for our members and clients, and the results reflect the market trends for the year, decreasing to $303.4m at year end. Financial planning remains a core component in our service model and we will continue to deliver sound financial advice to our members through all market cycles.

This financial performance is a strong result in a year of significant internal and external change and the Board is pleased to deliver these results to members.

Merger outcomes

Since the formation of MyState Financial at the start of the year, we have remained committed to delivering on the promises made to members regarding the benefits of the merger. On 3 September we launched our new brand and commenced offering services to all members through our newly revitalised branches across Tasmania, with the Burnie, Hobart and Launceston duplicate branches consolidated on launch.

Since then we have continued to adjust our branches to meet the needs of the combined membership. This includes a new, larger branch in Claremont and consolidation of our two Rosny branches into a single expanded facility.

In Kingston, we consolidated our two branches and then quickly opened a new larger branch in Kingston Plaza. The Devonport branches were consolidated, and improvements to facilities in our New Town and Kings Meadows branches expanded and improved our services in both locations. It was a pleasure to have the Lord Mayor of Hobart open our new Sandy Bay branch in April, which is starting to develop a strong following in the shopping precinct.

During the year we were also able to consolidate our Head Office functions into more streamlined office space for our staff in Hobart. To complete the schedule of property works for the merger, we will move into a new location in New Norfolk in October this year, and expect work at Glenorchy to result in the consolidation of our two busy branches in the main street within the next six months.

MyState Financial Annual Report | 2007 08 5

Chairman’s Report

These works have put us well within our commitment to complete the merger within eighteen months, which is a great result for members.

Another key promise was the expansion of the ATM network throughout Tasmania. Additional ATMs in Bridgewater (Green Point Shopping Centre), Hobart City (ANZ Centre), Legana, Northgate Shopping Centre at Glenorchy, Salamanca Square, Sandy Bay and Ulverstone have delivered to members an increased network of 48 ATMs, with seven more scheduled for installation over the coming six months.

Providing passbook services to existing members proved a difficult technical issue to resolve, but we were pleased to be able to reintroduce this facility later in the year and thank members for their patience. We continue to work through the consolidation of our products, focusing on ensuring members receive the best possible suite of products to meet current and future needs.

Regulatory developments

As has been the trend, regulatory changes continue to provide challenges for the organisation. Meeting requirements of the regulator, in terms of the new Anti Money Laundering Legislation, with minimal impact on members’ day-to-day banking needs has been time consuming and costly, but we continue to meet the implementation schedule as required.

Board and staff

It has been a challenging and exciting year for both the Board and staff.

I would like to thank my fellow Board members for their time and commitment in driving MyState Financial during this first year. I would particularly like to thank Julia Butler who played a key role as a director of islandstate and then MyState Financial, and who resigned as a Board member in November.

Finally, I would like to thank our Chief Executive Chris Brooks, his Executive and the staff of MyState Financial for their tenacity during a year of incredible change. They have worked tirelessly to achieve outstanding results and have delivered a strong platform upon which we will build and grow the largest Tasmanian-owned financial institution.

We look forward to continuing to deliver strong results for our members and Tasmania over the coming twelve months.

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Tony Reidy
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During the year, the credit crunch increased the Australian Prudential Regulatory Authority’s attention on all financial institutions across the nation, due to the volatility in the international financial markets. I am pleased to report that careful management of MyState Financial’s funding mix and adjustments to our policy ratios have been effective. It is expected that the increased scrutiny will continue, but we are well placed to meet all the industry regulator’s requirements.

Strategy implementation

In conjunction with management, the Board developed and approved a Strategic Business Plan for the year, focusing on the integration program while ensuring continued growth during the twelve months. Many projects were delivered during the year and it was pleasing to see the benefits of the merger as staff gained confidence in their new environment as these operational projects were completed.

Additional external challenges created by the volatility in the economic environment were met with careful planning and adjustments to our operations and were delivered on top of the original Strategic Business Plan projects and goals.

MyState Financial Annual Report | 2007 08

Chief Executive’s Report

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Chief Executive’s Report

In 2007–08 MyState Financial experienced an eventful year. Although we commenced the year with a clear and firm focus on merging the two credit unions and consolidating a platform for growth, only months into the year we were faced with the additional challenges of the impact of unexpected volatility in the international financial markets – the ‘credit crunch’.

Despite this, MyState Financial’s results were more than pleasing. The results are demonstrated in both our financial performance as well as in the achievement of the large number of operational projects required to create MyState Financial, and I am proud of what the organisation has delivered to its members.

The Chairman’s report details the key financial measures we have delivered, as well as some of the merger promises that were met during the twelve months. There were, of course, some projects that were not able to be achieved within a twelve month timeframe , and we are looking forward to completing those in this next consolidation phase of the merged entity.

To ensure we meet this objective, we spent considerable time in the last quarter of the year planning for the medium term. The resulting 2008–11 Strategic Business Plan, which was approved by the Board in July, includes a range of projects and initiatives that will both address the outstanding merger projects, as well as deliver improvements to our operations that will maximise growth and increase member service.

Included in the plan are projects designed to identify and implement strategic opportunities to diversify our business, as well as implement new product areas such as business banking. Providing Tasmanian businesses with full banking facilities was a key merger promise, and we are keen to deliver this product and service offering it into the market as soon as possible.

Other projects to achieve operational efficiencies never viable for either former organisation are now, as a larger entity, able to be considered. We are excited at the benefits these will deliver for members and the efficiencies they will create for our staff.

Another key project that has been important to both the Board and management is the development of a more effective Corporate Social Responsibility (CSR) strategy for MyState Financial. Over the past twelve months, the MyState Financial Foundation continued to play a central role in this, delivering more than $100,000 in grants to local charities across the state, as well as almost $30,000 in scholarships through the University of Tasmania’s Springboard to Higher Education program. The Foundation will continue to remain a central component in our CSR strategy.

Other initiatives included the MyState Financial Student Film Festival, which encourages artistic expression by young people in the arts,

specifically through film. This festival has the strong support of the Department of Education, and again, will remain a central component in our strategy.

Other initiatives designed to reflect the broader contribution that we are now able to make to Tasmania and to the state’s economy include the Tasmanian Economic Index. This quarterly research provides insight into the consumer confidence of Tasmanians in their own personal financial situation as well as their thoughts on the health of the Tasmanian economy. In its infancy, this research has delivered some interesting results that will grow into a lead indicator of consumer sentiment for business, government and the community. We look forward to continuing to provide this research over the coming year and watching trends develop.

CSR and the Tasmanian Financial Index support awareness of MyState Financial’s brand across Tasmania. Following our launch last year, which was well received by staff, members and the Tasmanian community, we conducted extensive research into how well the brand was positioned against our competitors. This clearly indicated brand awareness was high across the state. The launch campaign was closely followed by a number of product campaigns designed to ensure members and the market were aware of MyState Financial and our range of services. Not only did this deliver results in terms of product uptake and deposit and lending growth, the campaigns won three Australian Marketing Institute (Tasmania) State Awards. This is a wonderful acknowledgement of the strength of the brand, as well as the marketing initiatives that are implemented by our staff and Tasmanian agency. That said, we continue to compete against the much larger budgets of the Australian banks and other financial institutions, and we will continue to seek cost-efficient and effective methods to grow MyState Financial over the coming period.

While our marketing activities are firmly focused on Tasmania, the credit crunch once again confirmed that we operate in an international stage and are not immune to the impact of financial crisis created on the other side of the world. The credit crunch, sparked by the subprime issue in the United States, demonstrated the importance of the strength of our balance sheet and flexibility in managing our funding mix. Our Strategic Plan has specifically identified a number of initiatives designed to ensure we remain flexible and competitive.

MyState Financial Annual Report | 2007 08 7

Chief Executive’s Report

Of course, the last twelve months were challenging for our staff as we adjusted to the new operating environment of MyState Financial. Staff engagement was measured and tracked throughout the year and management was pleased to see improvements in engagement over this period. That said, there is still a long way to go, and we have a number of initiatives that are designed to ensure we develop, grow and support our staff through the ongoing changes. Our staff are our most important asset and we will continue to ensure we deliver programs and provide opportunities that enable us to retain and attract the best people in Tasmania.

It is only with the best people that we can continue to meet – and exceed – our members’ needs. Our market research this year indicated that 23% of the Tasmanian population consider us their primary financial institution. Further, customer satisfaction of these members is 89% – the highest satisfaction rating of all financial institutions surveyed. This is an outstanding result for MyState Financial, but we know that we have considerable room for improvement after what was a difficult year for staff and members.

We know this improvement will come as we address staff engagement and continue to provide competitive products and a full range of services for our members, which remains our focus. Our values of more innovative and more responsive service and giving better advice ensure we remain consistent in establishing our Strategic Business Plan for the next period and continue to reflect on how we can deliver on these values for our members.

In closing, I want to thank the Board for their support, direction and encouragement this past twelve months. I am looking forward to driving the delivery of the Strategic Business Plan with my staff during this next period. I know that the careful and structured development process for this Plan will maximise MyState Finanical’s growth opportunities for our members.

Finally, I want to thank my staff for their commitment to MyState Financial and our members. You have met the number of challenges we faced together and have delivered exceptional results. I look forward to working with you over the coming twelve months and beyond.

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Chris Brooks

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

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Financial Statements

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|---|---|
|Directors’ Report|10|
|Income Statement|14|
|Balance Sheet|15|
|Cash Flow Statement|16|
|Statement of Changes in Equity|17|
|Notes to the Financial Statements|18|
|Directors’ Declaration|53|
|Independent Auditor’s Report|54|

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MyState Financial Annual Report | 2007 08 9

Financial Statements 2007-08

Directors’ Report

Your Directors submit their report for the year ended 30 June 2008.

Directors

The qualifications, experience and special responsibilities of the Directors are set out on page 2 and 3. The names of Directors in office during the financial year and until the date of this report are as follows (The Directors were in office for this entire period unless otherwise stated):

Tony Reidy - Chairman

Colin Hollingsworth - Deputy Chairman Peter Armstrong Dianne Bowerman Julia Butler (resigned 30 November 2007) Bob Gordon Tim Gourlay Graeme Little

Management

The name of the Chief Executive in office during the financial year and until the date of this report:

Chris Brooks BBus, AICD, FAIM, MACUI

Chris has extensive business experience and was Chief Executive of islandstate Credit Union Limited for two years.

The name of the Company Secretary in office during the financial year and until the date of this report:

Scott Lukianenko Grad Cert BA, Adv Dip Bus Mgt, AICD

Scott has worked in the finance industry for 19 years, and was the company secretary of the islandstate Group for seven years.

Registered office

172 Collins Street HOBART TAS 7000 Ph: 138 001

Corporate structure

MyState Financial Credit Union of Tasmania Limited (Connect Credit Union of Tasmania Limited prior to 1 July 2007) is a company limited by guarantee that is incorporated and domiciled in Australia. MyState Financial Credit Union of Tasmania Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year, which are outlined in the following illustration of the Group’s corporate structure:

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MyState Financial Credit Union of Tasmania Limited (Parent Company)
The Gourmet Club Pty Ltd Connect Asset Management Pty Ltd Island State Financial Planning Pty Ltd
(100% ownership) (100% ownership) (100% ownership)
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10 MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

Nature of operations and principal activities

The principal activities during the year of entities within the consolidated entity were:

Provision of retail financial services to members of MyState Financial Credit Union of Tasmania Limited
Provision of financial planning services to members of MyState Financial Credit Union of Tasmania Limited
Provision of insurance advice to members of MyState Financial Credit Union of Tasmania Limited
Running of a member reward program
Administering a mortgage securitisation program.

Employees

The consolidated entity employed 321 full-time equivalent employees as at 30 June 2008 (2007: 159 full-time equivalent employees).

Corporate responsibility

MyState Financial Credit Union of Tasmania Limited provided a donation to the Connect Community Foundation Trust for a total of $251,748 (2007: $250,487) used for distributions to charitable organisations within Tasmania to support young people within the community.

Due to the legal structure of the Trust it is not required to be consolidated into the Group’s financial accounts.

Board meetings

Of the total number of 19 Board meetings, 5 Audit Committee meetings, 7 Executive and 6 Governance Committee meetings held from 1 July 2007 to 30 June 2008, attendance by Directors was as follows :

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Board Audit and Risk Committee Governance Committee Executive Committee
A B A B A B A B
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||||||||||
|---|---|---|---|---|---|---|---|---|
|Tony Reidy - Chairman|17|19|7|7|
|Colin Hollingsworth - Deputy Chairman|17|19|4|5|5|7|
|Peter Armstrong|16|19|5|5|
|Dianne Bowerman|19|19|6|6|
|Bob Gordon|18|19|1|1|3|3|5|5|
|Tim Gourlay|17|19|5|6|
|Graeme Little|17|19|5|6|7|7|
|Julia Butler (resigned 30 November 2007)|10|10|3|3|

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A - Number of meetings attended

B - Number of meetings held during the time the Director held office/was a member of the committee during the year

Results

The net surplus after tax of the consolidated entity for the period ended 30 June 2008 was $12,150,654 (2007: $4,964,104).

In reviewing operations the Directors note the consolidated Group has experienced a 145% increase in operating profit after income tax on the result for last year.

The financial results and performance of the Group are discussed further in the Chairman’s Report and Chief Executive’s Report.

MyState Financial Annual Report | 2007 08 11

Financial Statements 2007-08

Significant change to our services occurring during the financial year

There have been no significant changes to the services of the consolidated Group during the financial year.

Significant events after the balance date

There have been no significant changes to the operations after balance date.

Likely developments and expected results

Market conditions make short-term forecasting more difficult than usual. The current state of the financial markets means that it will be difficult to repeat our most recent performance. However, we continue to be well positioned due to effective risk management, committed quality staff and a strong capital base.

Current markets are challenging but we are well positioned to take advantage of opportunities that arise and mitigate risk to acceptable levels.

Treasury function

MyState Financial Credit Union of Tasmania Limited has a treasury function responsible for managing the organisation’s liquidity, interest rate and exposure risk.

The treasury function is managed within policies set by the Board and the Board ensures that management’s actions are in line with policy on a monthly basis.

Director entitlements

Since the end of the previous financial period, no Director has received or has become entitled to receive a benefit by reason of a contract made by the credit union or a related corporation with the Director or with a firm of which he/she is a member or a company in which he/she has a substantial financial interest.

Loans to Directors are made only on the same terms and conditions applying to all members. Directors’ shareholdings are on the same terms and conditions as other members, with each Director holding one $10 share.

Indemnification and insurance of Directors and Officers

During the year, a premium was paid in respect of a contract insuring Directors and Officers of the company against liability.

The Officers of the company covered by the insurance contract include the Directors, Executive Officers, Secretary and employees.

In accordance with normal commercial practice, disclosure of the total amount of premium payable under, and the nature of liabilities covered by the insurance contract is prohibited by a confidentiality clause in the contract.

No insurance cover has been provided for the benefit of the auditors of the company.

Tax consolidation

Effective 1 July 2003, for the purposes of income taxation, MyState Financial Credit Union of Tasmania Limited and its wholly-owned subsidiaries have formed a tax consolidated Group.

The members of the Group have also entered into a tax-sharing agreement which limits the income tax liability of the wholly-owned subsidiaries to the tax allocated to each subsidiary if the head entity defaults on its tax payment obligations.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

Auditor independence

The Directors received the following declaration from the auditor of MyState Financial Credit Union of Tasmania Limited:

Auditor’s independence declaration to the Directors of MyState Financial Credit Union of Tasmania Limited

In relation to our audit of the financial report of MyState Financial Credit Union of Tasmania Limited for the financial year ended 30 June 2008, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

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D J McCarthy PARTNER WISE LORD & FERGUSON Dated 27th August 2008

Non-audit services

The following non-audit services were provided by the entity’s auditor, Wise Lord & Ferguson. The Directors are satisfied that the provision of nonaudit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

Wise Lord & Ferguson received or are due to receive the following amounts for the provision of non-audit services:

Tax compliance services Assurance related services Audit of loans sold into securitisation program	$22,500 $7,750 $16,500 $46,750

Signed in accordance with a resolution of the Directors

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T Reidy C Hollingsworth Chairman Director

Signed at Hobart this 27th day of August 2008.

MyState Financial Annual Report | 2007 08 13

Financial Statements 2007-08

Income Statement

for the year ended 30 June 2008

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Consolidated Credit Union
Notes 2008 2007 2008 2007
$ $ $ $
Interest income 2 132,036,858 63,224,589 105,161,986 42,241,497
Interest expense 2 (76,771,968) (35,078,167) (52,875,005) (17,369,465)
Net interest margin 55,264,890 28,146,422 52,286,981 24,872,032
Other revenue 3 20,002,853 11,808,357 19,871,672 11,904,386
Other expenses 4 (55,156,503) (32,387,894) (53,591,559) (31,216,659)
Profit before doubtful debts expense and income tax 20,111,240 7,566,885 18,567,094 5,559,759
Bad and doubtful debts expense 11(b) (3,442,163) (584,277) (3,442,163) (584,277)
Profit before income tax expense 16,669,077 6,982,608 15,124,931 4,975,482
Income tax expense 5 (4,518,423) (2,018,504) (4,023,034) (1,431,779)
Net profit after income tax expense 24 12,150,654 4,964,104 11,101,897 3,543,703
Profit after income tax attributable to members of
12,150,654 4,964,104 11,101,897 3,543,703
MyState Financial Credit Union of Tasmania Limited
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The accompanying notes form part of these financial statements.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

Balance Sheet

as at 30 June 2008

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Consolidated Credit Union
Notes 2008 2007 2008 2007
$ $ $ $
ASSETS
Cash and cash equivalents 8 8,485,146 3,993,373 6,141,726 3,993,173
Available for sale financial assets 9 184,323,964 77,578,944 176,556,268 69,077,669
Receivables 10 5,609,441 6,514,335 5,776,778 7,141,025
Loans 11,12 1,482,013,037 790,394,541 1,162,983,131 467,090,251
Other investments 15 3,378,961 1,696,372 3,878,962 2,196,373
Property, plant and equipment 16 12,200,741 2,551,444 12,198,757 2,548,110
Tax assets 6 4,080,754 1,879,234 3,989,866 1,832,273
Other assets 17 908,178 56,432 908,178 36,193
Intangible assets and goodwill 18 5,694,482 4,751,407 5,101,102 3,879,577
TOTAL ASSETS 1,706,694,704 889,416,082 1,377,534,768 557,794,644
LIABILITIES
Deposits 19 1,217,602,763 492,927,862 1,218,060,259 492,927,862
Interest bearing loans and borrowings 20 323,445,023 333,100,299 1,359,153 6,010,509
Payables and other liabilities 21 41,306,332 8,958,740 38,494,380 8,077,696
Tax liabilities 7 1,314,730 (99,975) 1,243,816 (100,684)
Provisions 22,30 2,827,926 1,617,021 2,771,622 1,570,602
TOTAL LIABILITIES 1,586,496,774 836,503,948 1,261,929,230 508,485,986
NET ASSETS 120,197,930 52,912,134 115,605,538 49,308,658
EQUITY
Redeemable preference share capital 23 363,410 100,900 363,410 100,900
Reserves 24 119,834,520 52,811,234 115,242,128 49,207,758
TOTAL EQUITY 120,197,930 52,912,134 115,605,538 49,308,658
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The accompanying notes form part of these financial statements.

MyState Financial Annual Report | 2007 08 15

Financial Statements 2007-08

Cash Flow Statement

for the year ended 30 June 2008

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Consolidated Credit Union
2008 2007 2008 2007
Notes $ $ $ $
Cash flows from operating activities
Interest received 129,777,926 63,198,419 102,898,324 42,215,327
Interest paid (69,741,482) (34,560,089) (45,827,854) (16,851,387)
Fees and commissions received 28,561,358 8,495,948 28,947,744 8,451,216
Other non-interest income received 682,418 815,019 757,592 918,664
Payments to suppliers and employees (61,204,445) (31,706,615) (61,563,814) (30,219,294)
Dividends received 418,378 209,909 418,378 209,909
Income tax paid (3,546,926) (2,995,509) (3,101,998) (2,373,228)
Net cash flows from operating activities 32 24,947,227 3,457,082 22,528,372 2,351,207
Cash flows from investing activities
Net (increase)/decrease in member loans (121,377,534) (113,736,536) (125,651,918) (34,558,828)
Net movement due from other financial
institutions (39,335,012) (8,099,509) (40,068,591) (5,112,582)
Purchase of income streams (648,001) (391,713) (648,000) (391,713)
Purchase of property, plant and equipment (3,775,202) (1,231,793) (3,775,204) (821,103)
Net movement in loans and receivables to
subsidiaries - - - (36,065)
Net cash flows (used in) investing activities (165,135,749) (123,459,551) (170,143,713) (40,920,291)
Cash flows from financing activities
Net increase in member deposits 204,226,385 31,620,710 204,404,700 31,620,710
Net increase/(decrease) due to other financial
institutions (70,323,404) 84,813,217 (65,319,484) 3,379,832
Cash Transferred from ISCU 10,777,314 - 10,678,678 -
Net cash flows from financing activities 144,680,295 116,433,927 149,763,894 35,000,542
Net increase/(decrease) in cash held 4,491,773 (3,568,542) 2,148,553 (3,568,542)
Cash at beginning of financial year 3,993,373 7,561,915 3,993,173 7,561,715
Closing cash carried forward 32 8,485,146 3,993,373 6,141,726 3,993,173
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The accompanying notes form part of these financial statements.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

Statement of Changes in Equity

for the year ended 30 June 2008

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Consolidated
Redeemable Asset
preference General reserve revaluation Hedging reserve Total
share equity reserve
At 1 July 2006 82,790 47,865,240 - - 47,948,030
Profit for the year - 4,964,104 - - 4,964,104
Transfers from/(to) other reserves or 18,110 (18,110) - - -
equity
At 30 June 2007 100,900 52,811,234 - - 52,912,134
Profit for the year - 12,150,654 - - 12,150,654
Transfers from/(to) other reserves or 51,820 (51,820) - - -
equity
Transfer of Island State Credit Union equity 210,690 51,794,551 2,496,383 - 54,501,624
balances
Revaluation of buildings - 494,011 - 494,011
Fair value investments - (3,171) - - (3,171)
Fair value borrowings - (7,779) - - (7,779)
Cash-flow hedge movements - - - 150,457 150,457
At 30 June 2008 363,410 116,693,669 2,990,394 150,457 120,197,930
Credit Union
Redeemable Asset
preference General reserve revaluation Hedging reserve Total
share equity reserve
At 1 July 2006 82,790 45,682,165 - - 45,764,955
Profit for the year - 3,543,703 - - 3,543,703
Transfers from/(to) other reserves or 18,110 (18,110) - - -
equity
At 30 June 2007 100,900 49,207,758 - - 49,308,658
Transfers from/(to) other reserves or 51,820 (51,820) - - -
equity
Profit for the year - 11,101,897 - - 11,101,897
Fair value investments - (3,171) - - (3,171)
Fair value borrowings - (7,779) - - (7,779)
Transfer of Island State Credit Union equity 210,690 51,854,392 2,496,383 - 54,561,465
balances
Revaluation of buildings - - 494,011 - 494,011
Cash-flow hedge movements - - - 150,457 150,457
At 30 June 2008 363,410 112,101,277 2,990,394 150,457 115,605,538
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The accompanying notes form part of these financial statements.

MyState Financial Annual Report | 2007 08 17

Financial Statements 2007-08

Notes to the Financial Statements

1 Summary of significant accounting policies

(a) Basis of accounting

The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 including applicable Australian Accounting Standards.

The financial report has been prepared on a historical cost basis, except for land and buildings measured at fair value.

The financial report has been presented in Australian dollars.

(b) Statement of compliance

The financial report complies with Australian Accounting Standards, which include Australian Equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS).

The principle accounting policies adopted in the preparation of the financial report are set out below.

(c) Basis of consolidation

The consolidated financial statements comprise the financial statements of MyState Financial Credit Union of Tasmania Limited and its subsidiaries as at 30 June each year (the Group).

Information from the financial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the parent had control.

Subsidiary acquisitions are accounted for using the purchase method of accounting.

The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies.

All intercompany balances and transactions, including unrealised profits arising from intra-Group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

(d) Critical accounting estimates and significant judgements

The preparation of the financial report in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the accounting policies. The notes to the financial statements set out areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the Company and Group financial report such as: - fair value of financial instruments

impairment losses on loans and advances, associates and held for sale investments
recoverability of deferred tax assets.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. Management believes the estimates used in preparing the financial report are reasonable. Actual results in the future may differ from those reported.

(e) Cash and cash equivalents

Cash and liquid assets in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Cash flows arising from members’ deposits, share capital, investments, loans to subsidiaries and investments in associates are presented on a net basis in the Cash Flow Statement.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

1 Summary of significant accounting policies (cont’d)

(f) Receivables

Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an accrual basis.

Other receivables are carried at the nominal amount due and are non interest bearing.

An estimate of doubtful debts is made when the collection of the full amount is no longer probable. Bad debts are written off when identified.

(g) Investments

All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment.

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification.

Other long-term investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortised cost using the effective interest method.

Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity.

For investments carried at amortised cost, gains and losses are recognised in income when the investment is derecognised or impaired, as well as through the amortisation process.

Available for sale financial assets

Available for sale investments are those non-derivative financial assets that are designated as available for sale or are not classified as any of the three preceding categories. After initial recognition available for sale securities are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

(h) Recoverable amount of assets

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

(i) Property, plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Land and buildings are measured at fair value less accumulated depreciation.

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

MyState Financial Annual Report | 2007 08 19

Financial Statements 2007-08

1 Summary of significant accounting policies (cont’d)

(i) Property, plant and equipment (cont’d)

If such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses are recognised in the Income Statement.

Revaluations

Following initial recognition at cost, land and buildings are carried at revalued amount which is the fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses.

Fair value, is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at valuation date.

Any revaluation surplus is credited to the asset revaluation reserve included in the equity section of the balance sheet unless it reverses a revaluation decrease of the same asset class previously recognised in the Income Statement.

Any revaluation deficit is recognised in the Income Statement unless it directly offsets a previous surplus of the same asset class in the asset revaluation reserve.

Any accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Independent valuations are performed with sufficient regularity to ensure the carrying amount does not differ materially from the asset’s fair value at the balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Income Statement in the year the item is derecognised.

Depreciation

Property, plant and equipment, other than land, is depreciated on a straight-line basis so as to write off the net cost of each asset over its expected useful life, using the following rates:

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||||
|---|---|---|
|Buildings|2.50%|(2007: 2.50%)|
|Office furniture and fittings|15.00%|(2007: 15.00%)|
|Building fit-out (owned buildings)|25.00%|(2007: 25.00%)|
|Office equipment|25.00%|(2007: 25.00%)|
|Computer hardware|33.33%|(2007: 33.33%)|

----- End of picture text -----

Leasehold improvements – over the term of the lease. This is consistent with the 2007 financial year.

(j) Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

1 Summary of significant accounting policies (cont’d)

(j) Leases (cont’d)

Operating leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis in the Income Statement over the life of the lease.

The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter.

(k) Goodwill

Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is not amortised.

Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefit from the combination’s synergies.

Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates.

Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

(l) Intangible assets

Acquired both separately and from a business combination

Intangible assets acquired separately are capitalised at cost and from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets.

The useful lives of these intangible assets are assessed to be either finite or infinite.

Where amortisation is charged on assets with finite lives, this expense is taken to the Income Statement.

Intangibles assets created within the business are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred.

Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of indefinite life intangibles annually, either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Credit Union Technology Development Ltd licence fee

The licence fee represents MyState Financial Credit Union of Tasmania Limited’s right to use a computer licence which runs the credit union’s main banking functions.

As the licence option to acquire a perpetual licence was exercised during the 2005 year the licence fee has been amortised from 2005 on a straightline basis over a period during which benefits are expected to be received.

This is taken as being six years.

MyState Financial Annual Report | 2007 08 21

Financial Statements 2007-08

1 Summary of significant accounting policies (cont’d)

(m) Payables and other liabilities

Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity.

The terms and conditions for creditors and other liabilities are payable between 7 and 30 days.

Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accrual basis.

The terms and conditions for payables to related parties are payable within 30 days.

(n) Interest recognition

Interest on members’ loans is calculated daily on the outstanding balance and charged monthly in arrears. Future interest on long-term loans is not accounted for in advance.

Interest expense on deposits is calculated on the daily balance.

All borrowings are measured at the principal amount. Interest is charged as an expense as it accrues.

(o) Provisions

Provisions are recognised when the Group has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events and it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation.

(p) Loans and advances

Loans and advances are recognised at recoverable amount, after assessing required provisions for impairment.

Impairment of a loan is recognised when there is reasonable doubt that not all the principal and interest can be collected in accordance with the terms of the loan agreement. Impairment is assessed by specific identification in relation to individual loans and by estimation of expected losses in relation to loan portfolios where specific identification is impracticable.

The loan interest is calculated on the daily balance and is charged in arrears to a member’s account on the last day of each month.

All housing loans are secured by registered mortgages. The remaining loans are assessed on an individual basis.

Bad debts are written off when identified. If a provision for impairment has previously been recognised in relation to a loan, write-offs for bad debts are made against the provision. If no provision for impairment has previously been recognised, write-offs for bad debts are recognised as expenses in the Income Statement.

All loans and advances are reviewed and graded according to the anticipated level of credit risk. The classification adopted is described below:

Non-accrual loans, being loans classified as categories two, three and four under the APRA Prudential Standard APS 220 – Credit Quality, where statutory provisioning is required. Interest on these loans is not recognised as revenue. There is reasonable doubt about the ultimate collectability of principal and interest, and hence provisions for impairment are recognised.
Restructured loans, consisting of all loans for which the original contractual terms have been revised to provide for concessions of interest, principal or repayment. Loans with revised terms are included in non-accrual loans when impairment provisions are required.
Other real estate and assets owned are assets acquired in full or partial settlement of a loan or similar facility through enforcement of security arrangements.
Past due loans, consisting of loans classified as category one under APS 220 where payments of principal or interest are at least 90 days in arrears but the loans are well secured.

(q) Member shares

These are reclassified as redeemable preference shares according to transitional provisions in the Corporations Act 2001 and have been classified as a current liability.

22 MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

1 Summary of significant accounting policies (cont’d)

(q) Member shares (cont’d)

Each member holds, or is deemed to hold, one $10 share.

In accordance with the Corporations Act 2001 (s254k) redeemable preference shares redeemed by members from 1 July 2003 are represented in the Redeemable Preference Share Capital account. This is outlined further in note 23.

(r) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Interest

Revenue is recognised as the interest accrues (using the effective interest rate method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset.

Fees

Control of a right to receive consideration for the provision of fees has been attained.

Commission

Control of a right to receive consideration for the provision of funds placement, insurance policy sales or participation in card activities has been attained.

(s) Taxes

Income taxes

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance sheet date.

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
when the taxable temporary differences associated with the investments in subsidiaries, and the timing of the reversal of the temporary differences can be controlled, and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax assets and unused tax losses can be utilised except:
when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affect neither the accounting profit nor the taxable profit and loss
when the deductible temporary differences are associated with investments in subsidiaries, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that the future taxable profit will allow the deferred tax asset to be recovered.

MyState Financial Annual Report | 2007 08 23

Financial Statements 2007-08

1 Summary of significant accounting policies (cont’d)

(s) Taxes (cont’d)

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the Income Statement.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxable authority.

(t) Other taxes

Revenues, expenses and assets are recognised net of the amount of GST except:

where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable
receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

(u) Derecognition of financial instruments

The derecognition of a financial instrument takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all of the cash flows attributable to the instrument are passed through to an independent third party.

(v) Derivative instruments and hedging

The Group is exposed to changes in interest rates. The only derivative instruments currently entered into by the Company are interest rate swaps which are used to mitigate the risks arising from the exposure to changes in interest rates. These derivative instruments are principally used for the risk management of existing financial liabilities.

All derivatives, including those used for balance sheet hedging purposes, are recognised on the balance sheet and are disclosed as an asset where they have a positive fair value at balance date or as a liability where the fair value at balance date is negative.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently remeasured to their fair value. Fair values are obtained from quoted market prices in active markets and valuation techniques where appropriate. Movements in the carrying amounts of derivatives are recognised in the Income Statement, unless the derivative meets the requirements for cash-flow hedge accounting.

The Group documents the relationship between the hedging instruments and hedged items at inception of the transaction, as well as its risk management and strategy for undertaking various hedge transactions. The Group also documents its assessment of whether the derivatives used in hedging transactions have been or will continue to be, highly effective in offsetting changes in the fair values or cash flows of hedged items. This assessment is carried out both at inception and on a monthly basis.

Accounting for hedges

Cash-flow hedges

For a derivative or financial instrument designated as hedging a cash flow exposure arising from a recognised asset or liability (or a highly probable forecast transaction), the gain or loss on the derivative or financial instrument associated with the effective portion of the hedge is initially recognised in equity in the cash-flow hedge reserve and subsequently released to the Income Statement when the hedged item affects the Income Statement. The gain or loss relating to the ineffective portion of the hedge is recognised immediately in the Income Statement.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

1 Summary of significant accounting policies (cont’d)

(v) Derivative instruments and hedging (cont’d)

Derivatives that do not qualify for hedge accounting

Changes in the fair value of any derivative financial instrument that does not qualify for hedge accounting are recognised in the Income Statement in ther period in which they arise.

(w) Comparatives

Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.

2 Interest income and interest expense

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
Interest income
Loans, other than commercial 117,468,375 57,002,059 91,335,853 36,651,874
Commercial loans 4,045,011 1,703,816 4,045,011 1,703,816
Deposits with other financial institutions 10,523,472 4,518,714 9,781,122 3,885,807
Total interest income 132,036,858 63,224,589 105,161,986 42,241,497
Interest expense
Interest on members' deposits 52,105,434 17,368,523 52,105,434 17,368,523
Interest due to other financial institutions 24,666,534 17,709,644 769,571 942
Total interest expense 76,771,968 35,078,167 52,875,005 17,369,465
3 Other revenue
Revenue from operating activities
Insurance commissions 2,615,859 1,455,321 2,615,859 1,455,321
Bad debts recovered 229,424 64,133 229,424 64,133
Loan fee income 2,341,074 1,446,224 2,341,074 1,446,224
Management fees - - 740,318 710,434
Other income 682,418 758,502 757,592 144,097
Other commissions 3,973,063 2,846,883 3,787,835 2,846,883
Other fee income 9,742,637 5,027,385 8,981,192 5,027,385
Total revenue from operating activities 19,584,475 11,598,448 19,453,294 11,694,477
Revenue from non-operating activities
Dividends and distributions:
- Other corporations 418,378 209,909 418,378 209,909
Total revenue from non-operating activities 418,378 209,909 418,378 223,659
Total other revenue 20,002,853 11,808,357 19,871,672 11,904,386
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MyState Financial Annual Report | 2007 08 25

Financial Statements 2007-08

4 Expenses

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
Personnel costs 24,122,380 15,285,788 23,620,630 14,969,538
Provision for employee benefits 739,340 (326,220) 739,340 (336,943)
Supervision levy 49,059 25,760 49,059 25,760
Auditors remuneration:
- External audit services 154,950 72,487 122,250 48,741
Other accounting services 63,416 120,660 79,281 121,181
Depreciation of property, plant and equipment:
- Depreciation of plant and equipment 1,048,257 443,873 1,046,908 442,528
- Depreciation of buildings 114,320 33,473 114,320 33,473
Total depreciation of property, plant and equipment 1,162,577 447,346 1,161,228 476,001
Amortisation of intangible assets:
- Amortisation of software 871,631 761,359 871,631 761,359
- Amortisation of CUTD licence 509,072 188,247 509,072 188,247
- Amortisation of RMBS set-up costs 137,250 48,744 - -
- Amortisation of goodwill valuation fee - 2,083 - -
Total amortisation of intangible assets 1,517,953 1,000,433 1,380,703 949,606
Total depreciation and amortisation expenses 2,680,530 1,477,779 2,541,931 1,425,607
National networking – member products 5,867,629 2,912,256 5,857,290 2,912,256
Marketing 3,852,374 1,208,187 3,246,119 1,221,657
Computer 3,501,732 2,876,567 3,501,732 2,856,574
Operating lease payments 595,760 298,775 595,760 298,775
Fees and commissions 2,426,420 1,846,912 2,406,440 1,309,479
General administration 11,102,913 6,588,943 10,831,727 6,364,034
Total expenses 55,156,503 32,387,894 53,591,559 31,216,659
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MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

5 Income tax

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
Income tax expense
The major components of income tax expense are:
Current tax expense 4,663,421 2,178,539 4,177,127 1,589,729
Deferred tax expense
- Decrease/(increase) in deferred tax assets (note 6) (34,405) (168,078) (14,659) (164,225)
- (decrease)/increase in deferred tax liabilities (note 7) (105,212) 17,189 (134,053) 16,727
Adjustments for current tax of prior years (5,381) (9,146) (5,381) (10,451)
4,518,423 2,018,504 4,023,034 1,431,780
Reconciliation of income tax expense to prima facie tax
payable
Accounting profit before tax 16,656,822 6,956,101 15,112,689 4,975,482
Prima facie tax at statutory income tax rate of 30% 4,997,046 2,086,830 4,533,806 1,492,644
Adjustments for current tax of prior years (5,381) (9,146) (5,381) (10,451)
Other adjustments 23,672 12,559 (5,956) 12,559
Franked dividends received (125,513) (62,972) (125,513) (62,972)
Depreciation of buildings (16,156) - (16,156) -
Difference between tax and accounting distributions 2,520 (8,767) - -
Adjustments to tax values (260,680) - (260,680) -
Recognition of DTA for prior year losses (97,085) - (97,086) -
Income tax expense 4,518,423 2,018,504 4,023,034 1,431,780
Weighted average effective tax rates 27.15% 29.01% 26.65% 28.77%
Tax consolidation
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MyState Financial Credit Union and its 100% owned subsidiaries have elected to form a tax consolidated Group with effect from 1 July 2003. The head company is MyState Financial Credit Union of Tasmania Limited.

Members of the Group have entered into a tax-sharing agreement to provide for the allocation of income tax liabilities between the entities should the head company default on its tax payment obligations. Under the agreement, tax liabilities are allocated to members in accordance with the tax liabilities that would arise if the individual members were stand-alone taxpayers. At the balance date, the possibility of default is remote.

MyState Financial Annual Report | 2007 08 27

Financial Statements 2007-08

6 Deferred tax assets

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
The balance comprises temporary differences attributable to:
Amounts recognised in the Income Statement
Other 3,284 14,956 3,284 -
Provision for doubtful debts 1,084,568 279,616 1,084,568 279,616
Depreciation of property, plant and equipment 926,733 398,125 926,733 384,513
Land and buildings 439,872 - 439,872 -
Employee provisions 850,967 485,105 834,076 471,180
Creditors and accruals 461,624 554,042 456,466 549,577
Carried forward losses 97,086 - 97,086 -
Other costs to be amortised for tax purposes 425,625 147,390 356,786 147,387
4,289,759 1,879,234 4,198,871 1,832,273
Amounts recognised directly in equity
Land and buildings (211,718) - (211,718) -
Hedging liability 2,713 - 2,713 -
4,080,754 1,879,234 3,989,866 1,832,273
Movements
Opening balance 1 July 2007 1,879,235 1,689,217 1,832,273 1,652,016
Transfer of Island State Credit Union Ltd balance 2,380,945 - 2,356,762 -
Credited/(charged) to Income Statement 34,405 168,078 14,659 164,225
Credited/(charged) to equity (209,005) - (209,005) -
Adjustments for deferred tax of prior years (4,826) 21,940 (4,823) 16,032
Closing balance at 30 June 2008 4,080,754 1,879,235 3,989,866 1,832,273
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MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

7 Deferred tax liabilities

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
The balance comprises temporary differences
attributable to:
Amounts recognised in the Income Statement
Accrued income 7,500 - 7,500 -
Prepaid expenses 225 1,716 - 1,006
Intangible asset 35,232 115,954 - 115,954
42,957 117,670 7,500 116,960
Amounts recognised directly in equity
Land and buildings 325,230 - 325,230 -
Hedging asset 67,195 - 67,195 -
392,425 - 392,425 -
435,382 117,670 399,925 116,960
Movements
Opening balance 1 July 2007 117,670 100,234 116,961 100,234
Transfer of Island State Credit Union Ltd balance 349,822 - 349,822 -
Charged/(credited) to Income Statement (104,503) 17,189 (134,053) 16,726
Credited/(charged) to equity 67,195 - 67,195 -
Adjustments for deferred tax of prior years 5,198 247 - -
Closing balance at 30 June 2008 435,382 117,670 399,925 116,960
Current tax liabilities
Current tax payable 879,348 (217,645) 843,891 (217,645)
Total tax liabilities 1,314,730 (99,975) 1,243,816 (100,684)
8 Cash and liquid assets
Cash on hand 8,485,146 3,993,373 6,141,726 3,993,173
Total cash and liquid assets 8,485,146 3,993,373 6,141,726 3,993,173
9 Available for sale assets
Due from other financial institutions 47,648,985 14,001,250 39,911,178 5,500,000
Due from other non-bank financial institutions 136,674,979 63,577,694 136,645,090 63,577,669
Total due from other financial institutions 184,323,964 77,578,944 176,556,268 69,077,669
10 Receivables
Interest receivable 1,848,209 547,663 1,764,352 459,075
Related party receivables
- Controlled entities within the wholly-owned Group - - 260,748 166,017
Credit Union Technology Development loan 205,201 102,204 205,201 102,204
Other receivables 3,556,031 5,864,468 3,546,477 6,413,729
Total receivables 5,609,441 6,514,335 5,776,778 7,141,025
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MyState Financial Annual Report | 2007 08 29

Financial Statements 2007-08

11 Loans

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Consolidated Credit Union
Notes 2008 2007 2008 2007
$ $ $ $
(a) Classification
Residential 1,276,225,705 671,833,375 957,195,799 348,529,085
Personal 160,198,552 88,427,672 160,198,552 88,427,672
Commercial 49,204,009 31,065,550 49,204,009 31,065,550
Total loans 1,485,628,266 791,326,597 1,166,598,360 468,022,307
Provision for doubtful debts 11(b) (3,615,229) (932,056) (3,615,229) (932,056)
Total net loans 1,482,013,037 790,394,541 1,162,983,131 467,090,251
(b) Provision for doubtful debts
Specific provision
Opening balance 932,056 1,805,938 932,056 1,805,938
Balance transfer from ISCU 428,820 - 428,820 -
Charge against profit 2,254,353 (873,882) 2,254,353 (873,882)
Closing balance 3,615,229 932,056 3,615,229 932,056
General provision
Opening balance - - - -
Charge against profit - - - -
Closing balance - - - -
Total provision 3,615,229 932,056 3,615,229 932,056
Charge to profit for bad and doubtful debts
comprises:
- Bad debts written off directly (1,187,810) 1,458,159 (1,187,810) 1,458,159
- (credit)/debit to doubtful debts (2,254,353) (873,882) (2,254,353) (873,882)
Total charge for bad and doubtful debts (3,442,163) 584,277 (3,442,163) 584,277
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MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

12 Impaired assets

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Consolidated Credit Union
Notes 2008 2007 2008 2007
$ $ $ $
Non-accrual loans
With provisions 5,010,659 1,294,448 5,010,659 1,294,448
Specific provision for impairment (3,615,229) (932,056) (3,615,229) (932,056)
Net non-accrual loans 1,395,430 362,392 1,395,430 362,392
Restructured loans
With provisions - - - -
Specific provision for impairment - - - -
Net restructured loans - - - -
Specific provision
Non-accrual loans (3,615,229) (932,056) (3,615,229) (932,056)
Restructured loans - - - -
Total specific provision for impairment 11(b) (3,615,229) (932,056) (3,615,229) (932,056)
Past due loans 1,452,439 108,001 1,452,439 108,001
Interest recognised on impaired assets 36,168 29,110 36,168 29,110
Interest income forgone on impaired assets 341,332 103,223 341,332 103,223
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13 Securitisation

During this financial year, MyState Financial Credit Union of Tasmania Limited securitised residential, mortgage insured home loans amounting to $75,130,923 (2007: $130,741,934).

Pursuant to AASB 139 Financial Instruments: Recognition and Measurement Connect Asset Management is consolidated with the MyState Financial Group and accordingly securitised loans are included in consolidated accounts.

14 Credit risk concentrations

There are no loans that individually represent 10% or more of shareholders' equity of the credit union. The majority of loans are advanced to members in the state of Tasmania.

MyState Financial Annual Report | 2007 08 31

Financial Statements 2007-08

15 Other investments

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Unlisted shares
Credit Union Financial Services (TAS) Pty Ltd 6,700 3,350 6,700 3,350
Commercial shares in CUSCAL 3,347,038 1,679,279 3,347,038 1,679,279
Shares in Credit Union Technology Development Ltd 25,223 13,752 25,223 13,752
Shares in subsidiaries - - 500,001 500,001
Total other investments 3,378,961 1,696,381 3,878,962 2,196,382
Interests in subsidiaries
Percentage of equity
Name Country of interest held by the Investment Investment Investment Investment
incorporation
consolidated entity
2008 2007 2008 2007
% $ $ $ $
The Gourmet Club Pty Ltd Australia 100 500,000 500,000 500,000 500,000
Connect Asset Management Pty Ltd Australia 100 1 1 1 1
Island State Financial Planning Pty Ltd Australia 100 141,200 - - -
641,201 500,001 500,001 500,001
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16 Property, plant and equipment

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Consolidated
Furniture,
fittings and improvements Leasehold independent Buildings at Land Total
equipment at at cost valuation
cost
Year ended 30 June 2008
At 1 July 2007, net of accumulated depreciation 563,338 175,318 1,212,787 600,000 2,551,443
Additions 986,028 1,799,206 233,656 - 3,018,890
Revaluations [#] - - 550,000 - 550,000
Transfer of assets from Island State Credit Union Ltd 851,212 635,392 3,520,705 2,100,000 7,107,309
Depreciation write back - - 155,729 - 155,729
Disposals - (20,053) - - (20,053)
Depreciation charge for the year (554,243) (494,014) (114,320) - (1,162,577)
At 30 June 2008, net of accumulated
1,846,335 2,095,849 5,558,557 2,700,000 12,200,741
depreciation
At 30 June 2008
Cost or fair value 6,382,767 4,583,876 8,407,670 2,700,000 22,074,313
Accumulated depreciation (4,536,432) (2,488,027) (2,849,113) - (9,873,572)
Net carrying amount 1,846,335 2,095,849 5,558,557 2,700,000 12,200,741
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Based on valuation of 144 Collins Street by Knight Frank as at 30 June 2008 Valuation of 172 Collins Street by Brothers & Newton as at 30 June 2007 remains current

32 MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

16 Property, plant and equipment (cont’d)

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Credit Union
Furniture,
fittings and improvements Leasehold independent Buildings at Land Total
equipment at at cost valuation
cost
Year ended 30 June 2008
At 1 July 2007, net of accumulated depreciation 560,005 175,318 1,212,787 600,000 2,548,110
Additions 986,028 1,799,206 233,656 - 3,018,890
Revaluations [#] - - 550,000 - 550,000
Transfer of assets from Island State Credit Union Ltd 851,212 635,392 3,520,705 2,100,000 7,107,309
Disposals - (20,053) - - (20,053)
Depreciation write back - - 155,729 - 155,729
Depreciation charge for the year (552,894) (494,014) (114,320) - (1,161,228)
At 30 June 2008, net of accumulated
1,844,351 2,095,849 5,558,557 2,700,000 12,198,757
depreciation
At 30 June 2008
Cost or fair value 6,369,484 4,583,876 8,407,670 2,700,000 22,061,030
Accumulated depreciation (4,525,133) (2,488,027) (2,849,113) - (9,862,273)
Net carrying amount 1,844,351 2,095,849 5,558,557 2,700,000 12,198,757
Consolidated
Furniture,
fittings and improvements Leasehold independent Buildings at Land Total
equipment at at cost valuation
cost
Year ended 30 June 2007
At 1 July 2006, net of accumulated depreciation 571,334 274,640 1,246,261 600,000 2,692,235
Additions 276,356 80,664 - - 357,020
Disposals - (20,465) - - (20,465)
Depreciation charge for the year (284,352) (159,521) (33,473) - (477,346)
At 30 June 2007, net of accumulated
563,338 175,318 1,212,788 600,000 2,551,444
depreciation
At 1 July 2006
Cost or fair value 2,274,081 1,965,647 1,339,829 600,000 6,179,557
Accumulated depreciation (1,702,747) (1,691,007) (93,568) - (3,487,322)
Net carrying amount 571,334 274,640 1,246,261 600,000 2,692,235
At 30 June 2007
Cost or fair value 2,544,726 1,593,008 1,339,829 600,000 6,077,563
Accumulated depreciation (1,981,388) (1,417,690) (27,041) - (3,526,119)
Net carrying amount 563,338 175,318 1,212,788 600,000 2,551,444
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Based on valuation of 144 Collins Street by Knight Frank as at 30 June 2008

MyState Financial Annual Report | 2007 08 33

Financial Statements 2007-08

16 Property, plant and equipment (cont’d)

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Credit Union
Furniture,
fittings and improvements Leasehold independent Buildings at Land Total
equipment at at cost valuation
cost
Year ended 30 June 2007
At 1 July 2006, net of accumulated
566,656 274,640 1,246,260 600,000 2,687,556
depreciation
Additions 276,356 80,664 - - 357,020
Disposals - (20,465) - - (20,465)
Depreciation charge for the year (283,007) (159,521) (33,473) - (476,001)
At 30 June 2007, net of accumulated
560,005 175,318 1,212,787 600,000 2,548,110
depreciation
At 1 July 2006
Cost or fair value 2,260,797 1,965,647 1,339,829 600,000 6,166,273
Accumulated depreciation (1,694,141) (1,691,007) (93,569) - (3,478,717)
Net carrying amount 566,656 274,640 1,246,260 600,000 2,687,556
At 30 June 2007
Cost or fair value 2,531,442 1,593,008 1,339,829 600,000 6,064,279
Accumulated depreciation (1,971,437) (1,417,690) (127,042) - (3,516,169)
Net carrying amount 560,005 175,318 1,212,787 600,000 2,548,110
Equitable charge
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Credit Union Services Corporation (Australia) Limited holds an equitable charge over all assets of the credit union, as security for the central banking facilities provided.

17 Other assets

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
Interest rate swap asset 223,983 - 223,983 -
Other 684,195 56,432 684,195 36,193
Total other assets 908,178 56,432 908,178 36,193
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MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

18 Intangible assets and goodwill

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Consolidated
Goodwill Licence fees Software RMBS set-up costs Total
Year ended 30 June 2007
At 1 July 2007, net of accumulated amortisation 1,863,125 507,501 2,018,835 361,946 4,751,407
Transfer of assets from Island State Credit Union
1,261,034 584,881 362,524 - 2,208,439
Ltd
Additions - - 393,789 - 393,789
Write backs (141,200) - - - (141,200)
Amortisation - (509,072) (871,631) (137,250) (1,517,953)
At 30 June 2008, net of accumulated
2,982,959 583,310 1,903,517 224,696 5,694,482
amortisation
At 30 June 2008
Cost (gross carrying amount) 2,982,959 2,570,227 6,716,921 410,690 12,680,797
Accumulated amortisation - (1,986,917) (4,813,404) (185,994) (6,986,315)
Net carrying amount 2,982,959 583,310 1,903,517 224,696 5,694,482
Credit Union
Goodwill Licence fees Software RMBS set-up costs Total
Year ended 30 June 2008
At 1 July 2007, net of accumulated amortisation 1,353,241 507,501 2,018,835 - 3,879,577
Transfer of assets from Island State Credit Union
1,261,034 584,881 362,524 - 2,208,439
Ltd
Additions - - 393,789 - 393,789
Amortisation - (509,072) (871,631) - (1,380,703)
At 30 June 2008, net of accumulated
2,614,275 583,310 1,903,517 - 5,101,102
amortisation
At 30 June 2008
Cost (gross carrying amount) 2,614,275 2,570,227 6,716,921 - 11,901,423
Accumulated amortisation - (1,986,917) (4,813,404) - (6,800,321)
Net carrying amount 2,614,275 583,310 1,903,517 - 5,101,102
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MyState Financial Annual Report | 2007 08 35

Financial Statements 2007-08

18 Intangible assets and goodwill (cont’d)

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Consolidated
Goodwill Licence fees Software RMBS set-up costs Total
Year ended 30 June 2007
At 1 July 2006, net of accumulated amortisation 1,471,412 695,748 2,316,108 - 4,483,268
Additions 391,713 - 464,086 410,690 1,266,489
Amortisation - (188,247) (761,359) (48,744) (998,350)
At 30 June 2007, net of accumulated
1,863,125 507,501 2,018,835 361,946 4,751,407
amortisation
At 1 July 2006
Cost (gross carrying amount) 1,471,412 1,394,474 4,968,104 - 7,833,990
Accumulated amortisation - (698,726) (2,651,996) - (3,350,722)
Net carrying amount 1,471,412 695,748 2,316,108 - 4,483,268
At 30 June 2007
Cost (gross carrying amount) 1,863,125 1,394,474 5,432,189 410,690 9,100,478
Accumulated amortisation - (886,973) (3,413,354) (48,744) (4,349,071)
Net carrying amount 1,863,125 507,501 2,018,835 361,946 4,751,407
Credit Union
Goodwill Licence fees Software RMBS set-up costs Total
Year ended 30 June 2007
At 1 July 2006, net of accumulated amortisation 961,528 695,748 2,316,108 - 3,973,384
Additions 391,713 - 464,086 - 855,799
Amortisation - (188,247) (761,359) - (949,606)
At 30 June 2007, net of accumulated
1,353,241 507,501 2,018,835 - 3,879,577
amortisation
At 1 July 2006
Cost (gross carrying amount) 961,528 1,394,474 4,968,104 - 7,324,106
Accumulated amortisation - (698,726) (2,651,996) - (3,350,722)
Net carrying amount 961,528 695,748 2,316,108 - 3,973,384
At 30 June 2007
Cost (gross carrying amount) 1,353,241 1,394,474 5,432,189 - 8,179,904
Accumulated amortisation - (886,973) (3,413,354) - (4,300,327)
Net carrying amount 1,353,241 507,501 2,018,835 - 3,879,577
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36 MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

19 Deposits

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Consolidated Credit Union
Notes 2008 2007 2008 2007
$ $ $ $
Deposits include deposits by members and shares that can be converted from redeemable preference shares into deposits.
Redeemable preference shares – members 1,320,080 543,690 1,320,080 543,690
Member deposits 1,216,282,683 492,384,172 1,216,740,179 492,384,172
Total member deposits 1,217,602,763 492,927,862 1,218,060,259 492,927,862
Concentration of liabilities
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There are no members who individually have deposits which represent 10% or more of total liabilities.

20 Interest bearing loans and borrowings

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Due to other financial institutions 323,445,023 333,100,299 1,359,153 6,010,509
Total Interest bearing loans and borrowings 323,445,023 333,100,299 1,359,153 6,010,509
21 Payables and other liabilities
Accounts payable and other creditors 30,851,176 5,556,780 28,039,224 4,678,736
Accrued interest payable 10,446,111 3,398,960 10,446,111 3,398,960
Interest rate swap liability 9,045 - 9,045 -
Total payables and other liabilities 41,306,332 8,958,740 38,494,380 8,077,696
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22 Provisions

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Employee benefits 30 2,827,926 1,617,021 2,771,622 1,570,602
Total provisions 2,827,926 1,617,021 2,771,622 1,570,602
23 Redeemable preference share capital
Redeemed member shares 363,410 100,900 363,410 100,900
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Under the Corporations Act 2001 (s254K) redeemable preference shares (member shares) may only be redeemed out of profits or new shares issued for the purpose of the redemption. The Redeemable Preference Share Capital account represents the shares redeemed by members since 1 July 2003. Member shares for existing members of the credit union are shown as liabilities (see note 19).

	Number	$
Movement in redeemable preference share capital
At 1 July 2006	8,279	82,790
Issued during year	1,811	18,110
At 1 July 2007	10,090	100,900
Transferred as part of merger with Island State Credit Union of Tasmania Limited	21,069	210,690
Issued during year	5,182	51,820
At 30 June 2008	36,341	363,410

MyState Financial Annual Report | 2007 08 37

Financial Statements 2007-08

24 Reserves

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Consolidated
Cash-flow Asset General
hedging revaluation reserve Total
reserve reserve
At 1 July 2006 - - 47,865,240 47,865,240
Transfer to redeemable preference share capital - - (18,110) (18,110)
Transfer from retained profits - - 4,964,104 4,964,104
At 30 June 2007 - - 52,811,234 52,811,234
Transfer to redeemable preference share capital - - (51,820) (51,820)
Transfer equity from Island State Credit Union of Tasmania Limited - 2,496,383 51,794,551 54,290,934
Cash-flow hedge movements 150,457 - - 150,457
Revaluation of buildings - 494,011 - 494,011
Fair value of investments - - (3,171) (3,171)
Fair value of borrowings - - (7,779) (7,779)
Transfer from retained profits - - 12,150,654 12,150,654
At 30 June 2008 150,457 2,990,394 116,693,669 119,834,520
Credit Union
Cash-flow Asset General
hedging revaluation reserve Total
reserve reserve
At 1 July 2006 - - 45,682,165 45,682,165
Transfer to redeemable preference share capital - - (18,110) (18,110)
Transfer from retained profits - - 3,543,703 3,543,703
At 30 June 2007 - - 49,207,758 49,207,758
Transfer to redeemable preference share capital - - (51,820) (51,820)
Transfer equity from Island State Credit Union of Tasmania Limited - 2,496,383 51,854,392 54,350,775
Cash-flow hedge movements 150,457 - - 150,457
Revaluation of buildings - 494,011 - 494,011
Fair value of investments - - (3,171) (3,171)
Fair value of borrowings - - (7,779) (7,779)
Transfer from retained profits - - 11,101,897 15,686,203
At 30 June 2008 150,457 2,990,394 112,101,277 115,242,128
Nature and purpose of reserves
General reserve
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The general reserve contains amounts of retained profits that have been set aside by Directors for the purpose of funding specific projects and asset replacement that are announced from time to time.

Cash-flow hedge reserve

The cash-flow hedge reserve constitutes movements in the fair value of the underlying interest rate swap derivative where it has been deemed to be effective. If at any stage the derivative is deemed to be ineffective, the fair value movement is taken from the reserve to the Income Statement.

Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements in the value of non current assets.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

25 Financial risk management

Risk is an integral part of the MyState Financials Group's business. The Board set policy to mitigate risks where necessary and ensure the risk management framework is appropriate to direct the way in which the Group conducts business. Policies published on the MyState intranet ensure compliance with Board policy and this is monitored through a compliance tracking system. This compliance tracking system assigns risk treatment plans to specific people within MyState Financial with a completion timeframe. An escalation process ensures overdue transactions are reported to the approriate manager/executive and/or the Board.

The main risks faced by the Group are market risk, credit risk, liquidity risk, operation risk, legal compliance risk and documentation risk. Responsibility for management of these risks lies with the individual business units giving rise to them. It is the responsibility of the Risk Business Unit to ensure the appropriate assessment and management of these risks.

Credit risk

Credit risk is the risk of a counterparty failing to complete its contractual obligations when they fall due. Credit risk arises from the Group's lending activities.

The Group's philosophy on credit risk management reflects the principle of separating prudential control from operational management. The responsibility for approval of credit exposures is delegated to specific individuals with oversight of credit risk exposures by the Assets and Liabilities Committee (ALCO). The roles of funding and oversight of credit are separated.

The Group has a Board-approved loans policy which outlines the process for all loan approvals. All loans over a designated amount, whether within delegated limits or not, are reported to the Board on a monthly basis and the Board Audit and Risk Committee on a quarterly basis. Any loan outside of delegated parameters must be approved by the Board prior to funding.

The Group's policy to control credit risk includes monitoring and regulation of large exposures to single counterparties or groups of counterparties.

The tables below detail the concentration of credit exposure of the Group's assets to significant counterparty types.

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Consolidated 2008 Due from banks Loan assets held at amortised cost Total
Financial institutions 47,648,985 - 47,648,985
Other 136,674,979 1,482,013,037 1,618,688,016
Total 184,323,964 1,482,013,037 1,666,337,001
Consolidated 2007 Due from banks Loan assets held at amortised cost Total
Financial institutions 67,686,621 - 67,686,621
Other 9,892,323 790,394,541 800,286,864
Total 77,578,944 790,394,541 867,973,485
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Ageing analysis of assets past due but not impaired and impaired assets

A facility is considered past due when a contractual payment falls overdue by one or more days. When a facility is classified as past due, the entire facility balance is disclosed in the past due analysis.

The factors taken into consideration by the Group when determining whether an asset is impaired are set out in note 1(p).

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Consolidated 2008 Past due but not impaired
Class of financial asset 31 to 60 days 61 to 90 days More than 90 days Total
$m $m $m $m
Loan assets held at amortised cost 9.04 2.58 3.37 14.99
Total 9.04 2.58 3.37 14.99
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MyState Financial Annual Report | 2007 08 39

Financial Statements 2007-08

25 Financial risk management (cont’d)

Liquidity management

Liquidity risk is the risk that the Group is unable to meet its financial and statutory obligations as they fall due, which could arise due to mismatches in cash flows. The Group's liquidity risk management framework ensures that Mystate Financial are able to meet their funding requirements as they fall due under a range of market conditions. The primary liquidity objective is to fund in a way that will facilitate growth (and income) in core business under a wide range of market conditions.

The Asset and Liabilities Committee (ALCO) assists the Executive Group with oversight of asset and liability management – including liquidity risk management. The Group's liquidity policies are approved by the Board after endorsement by the ALCO.

Funding and liquidity management is performed centrally by Treasury, with oversight from ALCO. Treasury manages liquidity on a daily basis and provides regular reports to ALCO.

MyState Financial models liquidity scenarios over a twelve-month timeframe taking into account past and expected future cash-flows. The objective of this modelling is to determine MyState Financial's capacity for asset growth whilst meeting all financial and statutory obligations over the next twelve months. The maturity analysis in this note higlights mismatches in maturities between asset and liability classes which is taken into consideration when modelling future cash-flow constraints.

MyState Financial maintains a portfolio of highly liquid assets to ensure adequate funding is available under all conditions. These liquid assets are held to cover both known and contingent funding outflows. The assets are predominately held in the most liquid asset classes such as short dated inter-bank deposits.

Treasury undertake regular reviews of the liquidity characteristics of the Group's balance sheet. This provides an understanding of the liquidity characteristics of assets and liabilities against a backdrop of changing market conditions. The analysis ensures that the balance sheet is able to be appropriately funded and the liquidity ramifications of market conditions are clearly understood.

The below table summarises the maturity profile of financial liabilities as at 30 June 2008 based on contractual undiscounted repayment obligations.

Repayments which are subject to notice are treated as if notice was given immediately. However, it is expected that many customers will not request repayment on the earliest date that the credit union could be required to pay and the table does not reflect the expected cash-flows indicated by the credit union's deposit retention history.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

25 Financial risk management (cont’d)

Liquidity management (cont’d)

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2008
Between 3
3 months or Between 1 and More than 5
On demand months and 1 Total
less 5 years years
year
$ $ $ $ $ $
Assets
Available for sale assets 101,387,389 78,529,855 24,881,054 - - 204,798,298
Receivables 5,609,441 - - - - 5,609,441
Loans 5,036,507 36,388,230 114,001,233 312,720,240 1,247,752,351 1,715,898,561
Other receivables 3,378,961 - - - - 3,378,961
Total 115,412,298 114,918,085 138,882,287 312,720,240 1,247,752,351 1,929,685,261
Liabilities
Due to banks and other
financial institutions - 157,084,919 - 186,047,009 - 343,131,928
Deposits 513,097,980 473,709,129 291,353,979 4,508,663 - 1,282,669,751
Payables - 41,306,332 - - - 41,306,332
Total 513,097,980 672,100,380 291,353,979 190,555,672 - 1,667,108,011
Net mismatch (397,685,682) (557,182,295) (152,471,692) 122,164,568 1,247,752,351 262,577,250
2007
Between 3
3 months or Between 1 and More than 5
On demand months and 1 Total
less 5 years years
year
$ $ $ $ $ $
Assets
Due from other financial 22,078,944 52,165,223 6,919,876 - - 81,164,043
institutions
Receivables 6,514,335 - - - - 6,514,335
Loans 6,594,714 16,575,829 34,165,485 245,769,424 554,371,437 857,476,889
Other receivables 1,696,372 - - - - 1,696,372
Total 36,884,365 68,741,052 41,085,361 245,769,424 554,371,437 946,851,639
Liabilities
Due to banks and other
financial institutions - 117,659,753 - 230,888,587 - 348,548,340
Deposits 363,043,330 67,276,923 81,349,650 1,865,368 - 513,535,270
Payables - 8,958,740 - - - 8,958,740
Total 363,043,330 193,895,416 81,349,650 232,753,955 - 871,042,350
Net mismatch (326,158,965) (125,154,364) (40,264,289) 13,015,469 554,371,437 75,809,289
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MyState Financial Annual Report | 2007 08 41

Financial Statements 2007-08

25 Financial risk management (cont’d)

Market risk

Market risk is the exposure to adverse changes in the value of the Group's portfolio as a result of changes in market prices or volatility. The Group is exposed to the following risks:

interest rates: changes in the level, shape and volatility of yield curves, the basis between different interest rate securities and derivatives and credit margins.

Derivative financial instruments

The Group uses derivatives to hedge asset/liability management. MyState Financial only enters into cash-flow hedges to mitigate the exposure to volatility in future interest cash flows.

MyState Financial recognised $nil (2007: nil) in the Income Statement due to hedge ineffectiveness. At 30 June 2008, the fair value of outstanding derivatives held and designated as cash flows was $150,457 positive (2007: nil).

MyState Financial only uses interest rate swaps for hedging purposes. Swap transactions provide for two parties to swap a series of interest rate cash flows in relation to an underlying principal amount, usually to exchange fixed interest for a floating interest rate.

The following table provides details of the Group's outstanding derivatives used for hedging purposes as at 30 June 2008:

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2008
Consolidated
Notional amount Asset revaluations Liability revaluations Tax adjustment Net fair value
Interest rate contracts swaps 85,000,000 223,983 (9,045) (64,481) 150,457
85,000,000 223,983 (9,045) (64,481) 150,457
2007
Consolidated
Notional amount Asset revaluations Liability revaluations Tax adjustment Net fair value
Interest rate contracts swaps - - - - -
- - - - -
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MyState Financial uses Value-at-Risk (VaR) to monitor market risk. VaR is a statistical measure based on a 20-day holding period and 99% confidence level. MyState Financial uses a historical simulation method for the calculation of VaR. VaR focuses on unexceptional prices moves, it does not account for losses that occur beyond the 99% level of confidence. These factors can limit the effectiveness of VaR in predicting future price moves when changes to future risk factors deviate from the movements expected by the above assumptions.

The table below shows the average, maximum and minimum VaR over the year for interest rate market risk.

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2008
$m
Average 1.287
Maximum 1.949
Minimum 0.400
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Interest rate risk

The Group also has exposure to interest rate risk generated by banking products such as loans and deposits. Interest rate risk is assessed by Group Treasury and the ALCO on a regular basis. MyState has entered into interest rate swaps to reduce the exposure to fluctuations in variable interest rates. These derivative instruments have been classified as cash-flow hedges as outlined in note 27.

The following table represents the Group's contractual interest rate risk sensitivity from repricing mismatches as at 30 June 2008 and the corresponding weighted average effective interest rates.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

25 Financial risk management (cont’d)

Interest rate risk (cont’d)

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Asset and liability repricing
interest rate Floating 1 year or less and 5 years Between 1 than 5 More years Non interest bearing balance sheetamount in Carrying average effective interest rateWeighted
2008 $ $ $ $ $ $ %
Assets
Cash and liquid assets - - - - 8,485,146 8,485,146 0.00%
Available for sale assets 39,026,897 145,297,067 - - - 184,323,964 7.94%
Receivables - - - - 5,609,441 5,609,441 0.00%
Loans 1,229,192,354 41,353,905 211,466,778 - - 1,482,013,037 9.27%
Other investments - - - - 3,378,961 3,378,961 0.00%
Total financial assets 1,268,219,251 186,650,972 211,466,778 - 17,473,548 1,683,810,549
Liabilities
Deposits 513,097,979 700,829,734 3,675,050 - - 1,217,602,763 5.36%
Interest bearing liabilities - 323,445,023 - - - 323,445,023 8.08%
and borrowings
Payables and other - - - - 41,306,332 41,306,332 0.00%
liabilities
Total financial liabilities 513,097,979 1,024,274,757 3,675,050 - 41,306,332 1,582,354,118
Net mismatch 755,121,272 (837,623,785) 207,791,728 - (23,832,784) 101,456,431
Derivatives 85,000,000 - (85,000,000) - - -
840,121,272 (837,623,785) 122,791,728 - (23,832,784) 101,456,431
Asset and liability repricing
interest rate Floating 1 year or less and 5 years Between 1 than 5 More years Non interest bearing balance sheetamount in Carrying average effective interest rateWeighted
2007 $ $ $ $ $ $ %
Assets
Cash and liquid assets - - - - 3,993,373 3,993,373 0.00%
Due from other financial 22,078,944 55,500,000 - - - 77,578,944 5.66%
institutions
Receivables - - - - 6,514,335 6,514,335 0.00%
Loans 745,289,770 4,985,565 40,119,206 - - 790,394,541 8.09%
Other investments - - - - 1,696,372 1,696,372 0.00%
Total financial assets 767,368,714 60,485,565 40,119,206 - 12,204,080 880,177,565
Liabilities
Deposits 251,763,837 239,375,486 1,788,539 - - 492,927,862 3.94%
Due to other financial - 333,100,299 - - - 333,100,299 6.29%
institutions
Payables and other - - - - 8,958,740 8,958,740 0.00%
liabilities
Total financial liabilities 251,763,837 572,475,785 1,788,539 - 8,958,740 834,986,901
Net mismatch 515,604,877 (511,990,220) 38,330,667 - 3,245,340 45,190,664
Derivatives - - - - - -
515,604,877 (511,990,220) 38,330,667 - 3,245,340 45,190,664
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MyState Financial Annual Report | 2007 08 43

Financial Statements 2007-08

26 Average balances and related interest

The following table shows the major categories of interest-earning assets and interest-bearing liabilities, together with their respective interest earned or paid by the consolidated entity and average interest rates.

Averages used are predominantly monthly averages. Interest income figures include interest income on non-accruing loans to the extent that cash payments have been received.

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2008 2007
Average balance Interest Average rate Average balance Interest Average rate
$ $ % $ $ %
Average assets and interest income
Interest-earning assets
Cash and liquid assets 13,100,110 451,682 3.45% 10,693,167 407,198 3.81%
Due from other financial 140,301,572 9,684,440 6.90% 67,309,827 4,111,516 6.11%
institutions
Loans 1,428,851,991 121,913,512 8.53% 731,312,518 58,705,875 8.03%
Total average interest- 1,582,253,672 132,049,634 8.35% 809,315,512 63,224,589 7.81%
earning assets
Non interest-earning
assets
Property, plant and 13,461,338 - - 2,595,999 - -
equipment
Other assets 25,430,724 - - 12,656,610 - -
Total average non 38,892,062 - - 15,252,609 - -
interest-earning assets
Total average assets 1,621,145,734 132,049,634 8.15% 824,568,121 63,224,589 7.67%
Average liabilities and interest expense
Interest-bearing
liabilities
Deposits 1,150,049,926 52,377,684 4.55% 479,737,129 17,227,583 3.59%
Due to other financial 7,068,423 497,481 7.04% 1,958,333 140,940 7.20%
institutions
ConQuest notes and bonds
320,194,783 23,922,366 7.47% 281,590,135 17,708,702 6.29%
on issue
Total average interest- 1,477,313,132 76,797,531 5.20% 763,285,597 35,077,225 4.60%
bearing liabilities
Non interest-bearing
liabilities
Other 30,537,498 - - 9,812,884 - -
Total average non interest- 30,537,498 - - 9,812,884 - -
bearing liabilities
Total average liabilities 1,507,850,630 76,797,531 5.09% 773,098,481 35,077,225 4.54%
Reserves 113,295,104 - - 51,469,639 - -
Total average liabilities 1,621,145,734 76,797,531 4.74% 824,568,120 35,077,225 4.25%
and reserves
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44 MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

27 Maturity analysis of assets and liabilities

The following table shows the maturity profile of the consolidated entity's assets and liabilities. This analysis is based upon contractual terms.

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Due between Due between No
Due within Due in over
At call Overdraft 3 months 3 months and 12 months 1 year and 5 years 5 years specifiedmaturity Total
2008 $ $ $ $ $ $ $ $
Assets
Cash and liquid 8,485,146 - - - - - - 8,485,146
assets
Due from
other financial 91,251,371 - 70,678,977 22,393,616 - - - 184,323,964
institutions
Receivables 5,609,441 - - - - - - 5,609,441
Loans - 100,730,147 14,441,922 47,472,777 205,747,717 1,117,235,703 - 1,485,628,266
Other - - - - - - 3,378,961 3,378,961
investments
Total assets 105,345,958 100,730,147 85,120,899 69,866,393 205,747,717 1,117,235,703 3,378,961 1,687,425,778
Liabilities
Deposits 513,097,980 - 433,657,210 266,720,116 4,127,457 - - 1,217,602,763
Due to other
financial - - - - 323,445,023 - - 323,445,023
institutions
Accounts
payable and - - 41,306,332 - - - - 41,306,332
other liabilities
Total liabilities 513,097,980 - 474,963,542 266,720,116 327,572,480 - - 1,582,354,118
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	At call	Overdraft	Due within 3 months	Due between 3 months and 12 months	Due between 1 year and 5 years	Due in over 5 years	No maturity specifed	Total
2007	$	$	$	$	$	$	$	$
Assets
Cash and liquid assets	3,993,373	-	-	-	-	-	-	3,993,373
Due from
other fnancial	22,078,944	-	49,000,000	6,500,000	-	-	-	77,578,944
institutions
Receivables	6,514,335	-	-	-	-	-	-	6,514,335
Loans	-	63,012,839	5,200,196	22,965,014	63,711,086	635,505,406	-	790,394,541
Other investments	-	-	-	-	-	-	1,696,372	1,696,372
Total assets	32,586,652	63,012,839	54,200,196	29,465,014	63,711,086	635,505,406	1,696,372	880,177,565

Liabilities
Deposits	348,090,578	-	64,505,972	77,999,083	1,788,539	-	-	492,384,172
Due to other
fnancial	6,010,509	-	106,371,111	-	220,718,679	-	-	333,100,299
institutions
Accounts
payable and	-	-	8,958,740	-	-	-	-	8,958,740
other liabilities
Total liabilities	354,101,087	-	179,835,823	77,999,083	222,507,218	-	-	834,443,211

MyState Financial Annual Report | 2007 08 45

Financial Statements 2007-08

28 Net fair value

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Consolidated Consolidated Consolidated Consolidated
2008 Carrying value 2008 Net fair value 2007 Carrying value 2007 Net fair value
$ $ $ $
Assets
Cash and liquid assets 8,485,146 8,485,146 3,993,373 3,993,373
Due from other financial institutions 184,323,964 184,323,964 77,578,944 77,578,944
Receivables 5,609,441 5,609,441 6,514,335 6,514,335
Loans 1,482,013,037 1,480,937,816 790,394,541 782,151,233
Other investments 3,378,961 3,378,961 1,696,372 1,696,372
Total financial assets 1,683,810,549 1,682,735,328 880,177,565 871,934,257
Liabilities
Deposits 1,217,602,763 1,217,043,609 492,927,862 493,136,257
Due to other financial institutions 323,445,023 323,445,023 333,100,299 333,100,299
Accounts payable 41,306,332 41,306,332 8,958,740 8,958,740
Total financial liabilities 1,582,354,118 1,581,794,964 834,986,901 835,195,296
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The net fair value estimates of all assets and liabilities with a maturity of less than 12 months were determined based on the assumption that the carrying amounts in the balance sheet approximate fair value because of their short term to maturity or are receivable on demand.

The net fair value of deposits with more than 12 months to maturity assumes the carrying amount is discounted by the market rate. The net fair value of fixed loans with more than 12 months to maturity assumes the carrying amount is discounted by the market rate.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

29 Contingent liabilities and expenditure commitments

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
(a) Lease expenditure commitments
(i) Operating leases
- not later than 1 year 1,566,130 1,265,933 1,566,130 1,256,333
- later than 1 and not later than 5 years 1,859,785 2,237,701 1,859,785 2,237,701
- later than 5 years - 2,532 - 2,532
Total lease expenditure contracted for at balance date 3,425,915 3,506,166 3,425,915 3,496,566
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Operating leases have an average lease term of 3 years and are non-cancellable. Assets that are the subject of operating leases are computer equipment and property.

(b)	Loans approved but not advanced	18,801,011	24,522,449	18,801,011	24,522,449

(c)	Undrawn continuing lines of credit	79,264,508	40,899,185	79,264,508	40,899,185

(d)	Performance guarantees	3,109,848	1,236,033	3,109,848	1,236,033

(e) MyState Financial Credit Union of Tasmania Limited, in association with all member credit unions of Credit Union Financial Services (Tas) Pty Ltd (CUFSTAS), has contracted its computer requirements to CUFSTAS, which in turn has contracted TransAction Solutions Pty Ltd to provide these requirements.

(f) Credit Union Financial Support System Limited

With effect from 1 July 1999, MyState Financial Credit Union of Tasmania Limited is a party to the Credit Union Financial Support System (CUFSS). CUFSS is a voluntary scheme that all credit unions who are affiliated with Credit Unions Services Corporation (Australia) Limited (CUSCAL) have agreed to participate in.

CUFSS is a company limited by guarantee, each credit union's guarantee being $100.

As a member of CUFSS, MyState Financial Credit Union of Tasmania Limited:

May be required to advance funds up to 3.00% (excluding permanent loans) of the credit union's total assets to another credit union requiring financial support
May be required to advance permanent loans of up to 0.20% of the credit union's total assets per financial year to another credit union requiring financial support
Agrees, in conjunction with other members, to fund the operating costs of CUFSS.

MyState Financial Annual Report | 2007 08 47

Financial Statements 2007-08

30 Employee benefits

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
The aggregated employee benefit liability is comprised of the following:
Bonus 750,000 76,642 750,000 76,642
Provisions 2,827,926 1,617,021 2,771,622 1,570,602
Total employee benefits 3,577,926 1,693,663 3,521,622 1,647,244
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Superannuation commitments

Superannuation plans have been established by MyState Financial Credit Union of Tasmania Limited for the provision of benefits to employees on retirement, death or disability. Benefits provided under the plan are based on contributions for each employee. Employees contribute various percentages of their annual salaries and the credit union contributed between 9% and 14% of the employees annual salaries thus complying with the Superannuation Guarantee Legislation.

As the plans are accumulation schemes, the credit union does not guarantee their performance.

31 Economic dependency

MyState Financial Credit Union of Tasmania Limited has an economic dependency on the following suppliers of services:

(i) Credit Union Services Corporation (Australia) Ltd (CUSCAL)

CUSCAL provides central banking services including overdraft and standby facilities, electronic settlement services and access to member services products of member chequing, Visa and Redicard.

(ii) Credit Union Financial Services (Tas) Pty Ltd (CUFSTAS)

The credit union, in association with all member credit unions of CUFSTAS, has entered into an agreement to contract its computing requirements to CUFSTAS. CUFSTAS has outsourced its hardware and network management to TransAction Solutions Pty Ltd.

(iii) Fiserv (ASPAC) Pty Ltd

Fiserv provides services and maintains the core banking system.

(iv) First Data International Ltd (FDI)

FDI is the provider of the electronic switching network which transfers transactions and settlement details for the EFT, Visa and Redicard systems.

MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

32 Cash flow statement

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
(a) For the purpose of the Cash Flow Statement, cash includes the following items which are reconciled to the related items in the balance sheet:
Cash on hand 8,485,146 3,993,373 6,141,726 3,993,173
Total cash and liquid assets 8,485,146 3,993,373 6,141,726 3,993,173
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The credit union has an approved overdraft of $4m, a pre-committed loan facility of $5m, a standby facility of $6.5m and $35m in uncommitted facilities with Credit Union Services Corporation (Australia) Ltd and a $5m overnight facility with the National Australia Bank. The uncommited facilties with Credit Union Services Corporation (Australia) had $13m drawn down at 30 June 2008. None of the other facilities were in use at 30 June 2008.

At 30 June 2008 the ConQuest Securities securitisation program had available a number of support facilities. These were a $3m Cash Advance Facility specifically available to meet cash shortfalls as a result of the timing of the receipt of payments on loans and a $36.5m and $140m liquidity facility available for the repayment of maturing ConQuest Notes in the event that the Notes could not be reissued within the market place at the time of maturity. At 30 June 2008 these facilities had not been drawn upon since the inception of the program.

(b) Cash flows arising from the following activities are presented on a net basis in the:
(i) Customer deposits and withdrawals from savings and fixed-term deposit accounts
(ii) Movements in investments
(iii) Movements in member share capital
(iv) Due from other financial institutions
(v) Loans from subsidiaries
(vi) Due to other financial institutions
(vii) Member loans

Net proft	12,150,654	4,964,103	11,101,897	3,543,702
Adjustments for
Depreciation of non-current assets	1,162,577	1,287,449	1,161,228	476,001
Amortisation of non-current assets	1,517,953	190,330	1,380,703	949,605
Net loss/(gain) on sale of property, plant and equipment	20,053	20,464	20,053	20,464

Changes in assets and liabilities
Decrease/(increase) in accrued interest	(1,300,546)	(26,170)	(1,305,277)	(26,170)
Decrease/(increase) in receivables	9,855,899	(2,892,013)	10,481,466	(2,848,968)
Decrease/(increase) in property, plant and equipment	(705,729)	72,217	(705,729)	79,832
Decrease/(increase) in other assets	(203,745)	-	(223,984)	-
Decrease/(increase) in deferred tax assets	(167,009)	-	(147,265)	-
Increase/(decrease) in payables and provisions	(8,659,676)	1,822,375	(10,512,037)	2,113,582
Increase/(decrease) in interest payable	7,047,151	518,078	7,047,151	518,078
Increase/(decrease) in provision for employee benefts	(83,881)	(648,865)	(13,156)	(659,588)
Increase/(decrease) in provision for doubtful debts	2,254,353	(873,882)	2,254,353	(873,882)
Increase/(decrease) in deferred income tax liabilities	317,712	17,436	282,964	16,728
Increase/(decrease) in provision for income tax liability	1,096,993	(804,424)	1,061,536	(777,920)
(Increase)/decrease in deferred tax liabilities	-	(190,017)	-	(180,257)
(Increase)/decrease in reserves	644,468	-	644,468	-
Net cash fows from operating activities	24,947,227	3,457,082	22,528,371	2,351,207

MyState Financial Annual Report | 2007 08 49

Financial Statements 2007-08

33 Events subsequent to balance date

There were no material post-balance sheet events occurring after the reporting date requiring disclosure in these financial statements.

34 Director and Executive disclosures

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
Total remuneration paid to Directors 319,557 340,635 319,557 286,135
Number Number Number Number
The number of Directors of the entity whose remuneration (including superannuation contributions) fell within the following bands are:
$0–$9,999 - 2 - 2
$10,000–$19,999 1 5 1 -
$20,000–$29,999 - 4 - 4
$30,000–$39,999 3 - 3 -
$40,000–$49,999 3 - 3 -
$50,000–$59,999 - 4 - 4
$60,000–$69,999 1 - 1 -
Compensation of key management personnel
Short term 1,272,323 1,129,602 1,272,323 1,089,602
Post employment 223,231 337,637 223,231 323,137
Other long-term employee benefits 129,437 52,249 129,437 52,249
Termination benefits - 1,285,967 - 1,285,967
1,624,991 2,805,455 1,624,991 2,750,955
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Key Management Personnel includes the Directors listed in note 34 and the following:

2008 2007 Chris Brooks John Hensby Nick Connor Nick Connor Nina Nelson Eve Pettit Tim Rutherford Sue Shoobridge Scott Lukianenko Nina Nelson Darren Turner Marsha Cadman Pene Hughes

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MyState Financial Annual Report | 2007 08

Financial Statements 2007-08

35 Related party disclosures

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Consolidated Credit Union
2008 2007 2008 2007
$ $ $ $
(a) The Directors of the consolidated entity throughout the financial year were:
Tony Reidy - Chairman Julia Butler (resigned 30 November 2007)
Colin Hollingsworth - Deputy Chairman Dianne Bowerman
Tim Gourlay Graeme Little
Bob Gordon Peter Armstrong
(b) As at 30 June 2008 the relevant Directors who had loans or overdrafts with the credit union were:
Nil (2007: Robert Soward)
The aggregate loans and overdrafts to all Directors and their - 14 - 14
spouses amounted to:
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All transactions were loans provided to Directors on the same terms and conditions as other members. All loans to Directors are approved by the Board. Directors shareholdings are on the same terms and conditions as other members, with each Director holding one $10 share.

(c) MyState Financial Credit Union of Tasmania Limited holds a 50% shareholding in The Credit Union Financial Services (TAS) Pty Ltd (CUFSTAS), Chief Executive C Brooks, Company Secretary S Lukianenko and T Rutherford General Manager Business Systems are directors of CUFSTAS. They received no remuneration or other benefits for this role. MyState Financial Credit Union of Tasmania Limited does not have control over CUFSTAS and as a result, the company is not a subsidiary of MyState Financial Credit Union of Tasmania Limited.

(d) Wholly-owned Group transactions:

MyState Financial Credit Union of Tasmania Limited has Connect Asset Management Pty Ltd, Island State Financial Planning Pty Ltd and The Gourmet Club Pty Ltd as its wholly-owned subsidiaries. Transactions with related parties in the Group are conducted on an arm’s length basis in the normal course of business and on commercial terms and conditions. The credit union’s aggregated investment in controlled entities is disclosed in note 15. Loans to controlled entities are disclosed below. All transactions between Group entities are eliminated on consolidation.

(e) Ultimate parent entity:

MyState Financial Credit Union of Tasmania Limited is the ultimate parent company.

Loans

MyState Financial Credit Union of Tasmania Limited made payments on behalf of The Gourmet Club Pty Ltd,which are reimbursed the following month by The Gourmet Club Pty Ltd through a loan account. At the end of each month The Gourmet Club Pty Ltd is charged interest on the unpaid portion of the loan balance at the variable CUSCAL overdraft within limits rate plus a margin of 0.75%. At the end of the financial year the loan balance totalled $nil (2007: $2,004).

MyState Financial Credit Union of Tasmania Limited makes payments on behalf of Connect Asset Management Pty Ltd, which are reimbursed the following month by Connect Asset Management Pty Ltd. At the end of each month Connect Asset Management Pty Ltd is charged interest on the unpaid portion of the loan balance at the variable CUSCAL overdraft within limits rate plus a margin of 0.50%. At the end of the financial year the loan balance totalled $nil (2006: $128).

Management fee

MyState Financial Credit Union of Tasmania Limited charges Connect Asset Management Pty Ltd a management fee of $4,120 per month. This fee covers accounting, payroll, computer and occupancy charges.

Servicing fee - Connect Asset Management Pty Ltd

MyState Financial Credit Union of Tasmania Limited charges Connect Asset Management Pty Ltd a loan servicing fee based on the outstanding monthly balance of the loans sold to ConQuest Mortgage Trust at an interest rate of 0.25% per annum. For the 2008 financial year the total of the servicing fee was $502,710 (2007: $455,169).

MyState Financial Annual Report | 2007 08 51

Financial Statements 2007-08

35 Related party disclosures (cont’d)

Servicing fee - ConQuest 2007/1 Trust

MyState Financial Credit Union of Tasmania Limited charges the ConQuest 2007/1 Trust a loan servicing fee based on the outstanding monthly balance of the loans sold to ConQuest 2007/1 Trust at an interest rate of 0.25% per annum. For the 2008 financial year the total of the servicing fee was $237,597 (2007: $284,972).

Tax consolidation balances

Note 5. Taxes outlines the tax-sharing arrangement between MyState Financial Credit Union of Tasmania Limited and its wholly-owned subsidiaries. At 30 June 2008 the wholly-owned subsidiaries owed MyState Credit Union of Tasmania Limited the following amounts in tax instalments:

Connect Asset Management Pty Ltd $91,451 (2007: $159,224) The Gourmet Club Pty Ltd $Nil (2007: $4,661) These amounts will be paid to MyState Financial Credit Union of Tasmania Limited by 31 August 2008.

36 Auditor’s remuneration

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MyState Connect
Financial
Credit Union
Consolidated Credit Union
of Tasmania
of Tasmania
Limited
Limited
2008 2007 2008 2007
$ $ $ $
Amounts received or due and receivable by the external auditors
Wise, Lord & Ferguson for:
- an audit of the financial statements of the consolidated entity 108,200 77,240 80,000 52,060
- other non-external audit services
tax compliance services 22,500 27,540 18,000 27,540
assurance related services 7,750 19,050 7,750 19,050
audit of loans sold into the securitisation program 16,500 16,500 16,500 16,500
46,750 63,090 42,250 63,090
37 Franking credit balance
The amount of franking credits available for the subsequent
financial year are:
Franking account balance as at the end of the financial year at
36,480,949 14,763,627 36,480,949 14,763,627
30% (2007: 30%)
Franking credits that will arise from the payment of income tax
payable at the end of the financial year 840,609 (1,070,752) 840,609 (1,070,752)
Franking credits which the entity is prevented from distributing
37,321,558 13,692,875 37,321,558 13,692,875
under its constitution
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52 MyState Financial Annual Report | 2007 08

Directors’ Declaration

Directors’ Declaration

In accordance with a resolution of the Directors of MyState Financial Credit Union of Tasmania Limited, we state that:

In the opinion of the Directors:

(a) the financial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the year ended on that date
(ii) complying with Accounting Standards and Corporations Regulations 2001
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

On behalf of the Board

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T Reidy P Armstrong
Chairman Director
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Dated this 27th day of August 2008.
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MyState Financial Annual Report | 2007 08 53

Independent Auditor’s Report

Independent Auditor’s Report

MyState Financial Annual Report | 2007 08

Independent Auditor’s Report

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MyState Financial Annual Report | 2007 08

56 MyState Financial Annual Report | 2007 08

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How to contact MyState Financial

Mail: MyState Financial GPO Box 1274 Hobart Tasmania 7001 Phone: 138 001 Facsimile: 03 6233 0799 Email: [email protected] Website: mystate.com.au

138 001 mystate.com.au

MyState Financial Credit Union of Tasmania Limited ABN 89 067 729 195 AFS Licence Number 240896 Registered Office – Heritage House 172 Collins Street Hobart Tasmania 7000

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How to contact MyState Financial

Mail: MyState Financial GPO Box 1274 Hobart Tasmania 7001 Phone: 138 001 Facsimile: 03 6233 0799 Email: [email protected] Website: mystate.com.au

138 001 mystate.com.au

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MyState Financial Credit Union of Tasmania Limited ABN 89 067 729 195 AFS Licence Number 240896 Registered Office – Heritage House 172 Collins Street Hobart Tasmania 7000

AI assistant

MYSTATE LIMITED — Annual Report 2008

65395_rns_2009-09-09_825a2f38-d5ca-45c1-ae46-3b563a159393.pdf

Contents

MyState Financial Board

Tony Reidy – Chairman

FAICD FAMI MFIA JP

Bob Gordon – Director

Colin Hollingsworth – Deputy Chairman

CPA FAMI MAICD

Peter Armstrong – Director

Tim Gourlay – Director

Graeme Little - Director

Julia Butler – resigned 30 November 2007

Dianne Bowerman - Director

GAICD MAMI

Corporate Governance

Director independence

Delegation of authority

Board composition

Board and Director performance

Strategy

Governance Committee

Nominations Committee

Board Committees

Audit and Risk Committee

Assets and Liability Committee

Board remuneration

Executive Committee

Chairman’s Report

Financial performance

Merger outcomes

Regulatory developments

Board and staff

Strategy implementation

Chief Executive’s Report

Financial Statements

Directors’ Report

Directors

Management

Chris Brooks BBus, AICD, FAIM, MACUI

Scott Lukianenko Grad Cert BA, Adv Dip Bus Mgt, AICD

Registered office

Corporate structure

Nature of operations and principal activities

Employees

Corporate responsibility

Board meetings

Results

Significant change to our services occurring during the financial year

Significant events after the balance date

Likely developments and expected results

Treasury function

Director entitlements

Indemnification and insurance of Directors and Officers

Tax consolidation

Auditor independence

Auditor’s independence declaration to the Directors of MyState Financial Credit Union of Tasmania Limited

Non-audit services

Income Statement

for the year ended 30 June 2008

Balance Sheet

as at 30 June 2008

Cash Flow Statement

for the year ended 30 June 2008

Statement of Changes in Equity

for the year ended 30 June 2008

Notes to the Financial Statements

1 Summary of significant accounting policies

(a) Basis of accounting

(b) Statement of compliance

(c) Basis of consolidation

(d) Critical accounting estimates and significant judgements

(e) Cash and cash equivalents

1 Summary of significant accounting policies (cont’d)

(f) Receivables

(g) Investments

Available for sale financial assets

(h) Recoverable amount of assets

(i) Property, plant and equipment

MYSTATE LIMITED Annual Report 2008