Together for the better Annual Report 2023 MyState Limited Annual Report 2023 At MyState Limited we understand the importance of tailoring financial services to all stages of life. We’re always ready to serve the best interests of our customers and shareholders. About MyState Limited MyState Limited (MYS) is the non-operating holding company of a diversified financial services group listed on the ASX and is a leading provider of banking, trustee and wealth management services to customers across the country through our retail brands – MyState Bank and TPT Wealth. MyState Limited Annual Report 2023 Introduction and performance Contents 24 Board of Directors 26 Key Management Personnel 28 Directors’ report 35 Remuneration report 53 Financial report 104 Shareholder information 105 Corporate directory 12 16 Our strategy ESG update Annual General Meeting Corporate Governance The Board of MyState Limited is committed to upholding the highest levels of corporate governance and subscribes to the Corporate Governance Principles and Recommendations To this end, the Board of MyState Limited has a governance framework whereby the appropriate Board policies, meeting the APRA prudential requirements, apply across the Group. MyState Limited’s Board-approved Corporate Governance Statement is available on the Company’s website at mystatelimited.com.au Shareholder information and corporate directory In accordance with the Corporations Act 2001, hard copies of the Notice of AGM (NoM) will not be sent to shareholders unless they have previously requested a hard copy. Instead, the NoM and other related material, including an online meeting guide, can be viewed and downloaded from our AGM website accessible via mystatelimited.com.au published by the ASX Corporate Governance Council in order to promote investor confidence in the company and within the broader market. In addition, the Australian Prudential Regulation Authority (APRA) requires MyState Limited, as the nonoperating holding company of a bank, to comply with the prudential obligations that apply directly to its wholly owned subsidiary MyState Bank Limited. Financial report The 2023 Annual General Meeting of MyState Limited will be held on Thursday, 19 October 2023 at 10:30 a.m. (Hobart time) at the Best Western Hotel, 156 Bathurst Street, Hobart and online. Directors’ report and remuneration report 14 Approach to risk 08 Board of Directors and KMP 10 Chief Executive Officer’s review Chair’s review ESG update Group performance Our strategy and approach to risk 06 Highlights Chief Executive Officer’s review 05 03 Our values Chair’s review 02 Our purpose 01 MyState Limited Annual Report 2023 Together for the better. Our purpose We’re a Tasmanian-based financial services company with big ambitions. We make managing your money easy, to help you achieve what matters most. We invest in our people and communities, so together we can thrive. What does this mean for: Our shareholders We deliver sustainable, profitable growth Our community In late 2022, one of our defining moments was reimagining our purpose. A purpose is the North Star of any organisation, and when our people told us our original purpose was no longer resonating, we knew something had to change. Our team created a new purpose from the ground up, working together to capture the care for our customers, and the need for continued investment in our people and the communities that we serve. 02 Our people were committed to creating a purpose that represented the ways we collaborate with each other, our customers, our shareholders and our community to show how we all work together to deliver the best outcomes. The final result is a long form purpose statement capturing who we are, why we exist and our continued focus on growth and investment. Our purpose is lived through our rally cry – Together for the better. Since launching our purpose in December 2022, it has already informed a number of our business decisions as we strive to become a purpose-driven organisation. We invest into and support our local communities Our customers and clients We care about what matters Our people We grow and achieve great things MyState Limited Annual Report 2023 Introduction and performance Chair’s review Chief Executive Officer’s review Our strategy and approach to risk ESG update Our values Collaborate to win • We walk in our customers’ shoes and appreciate their perspectives. • We are bold in our ambition. • We care for each other, our customers, partners and community. • We think and act in the best interests of our customers. • We make things simpler and easier for our customers. • We simplify (and digitise) to deliver exceptional customer experiences, with a human touch. • We seek industryleading productivity and always drive for better outcomes. • We hold each other to account. • We openly share information so that everyone can make informed decisions. • We reach out across teams to rapidly solve problems – and celebrate our successes and learnings. Shareholder information and corporate directory • We design and deliver exceptional customer experiences, with a human touch. • We have the courage to try new things and grow from our failures. • We give our best, do the right thing, and trust our colleagues to do the same. Financial report • We are clear, concise and trustworthy in our customer interactions. • We seek out and embrace the change that is required to succeed. Directors’ report and remuneration report Chase the better Board of Directors and KMP Create customer ‘wow’ 03 MyState Limited Annual Report 2023 We’re focused on the long-term prosperity of our customers and shareholders and are committed to growing our business ethically and sustainably. 04 MyState Limited Annual Report 2023 Introduction and performance Highlights Chair’s review Home loan book From FY22 +12.3% From FY22 deposit growth driving $6.2b Strong favourable funding mix Net profit after tax New customer growth Record +33% NPAT $38.5m Highest on record to bank +25,690 New customers From FY22 From FY22 Growth achieved more efficiently From FY22 35.5cps Uplift on FY22 Strong customer advocacy Shareholder information and corporate directory As at June 2023 +16.8% Financial report Net Promoter Score +35 Earnings per share Directors’ report and remuneration report 64.0% Board of Directors and KMP -440bps ESG update Strong uplift on FY22 Cost to income ratio Our strategy and approach to risk loan growth 2.9x $7.8b Home system in FY23 Chief Executive Officer’s review +14.1% Customer deposits 05 MyState Limited Annual Report 2023 Group performance 2019 2020 2021 2022 2023 06 11.5 11.5 11.5 12.5 14.5 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 132.6 110.2 112.0 99.5 89.4 Net interest income ($ million) 64.0 68.4 61.3 14.5 35.5 30.3 39.2 32.9 34.2 Cost-to-income ratio (%) 62.8 8.7 7.7 10.3 9.2 9.7 Return on average equity (%) 2019 2020 2021 2022 2023 64.8 38.5 32.0 36.3 30.1 31.0 2019 2020 2021 2022 2023 13.0 Dividends – fully franked per share (cents) 12.5 Earnings per share (cents) 14.25 Net profit after tax ($ million) 2019 2020 2021 2022 2023 Annual Report 2023 MyState Limited Introduction and performance Chair’s review Chief Executive Officer’s review Our strategy and approach to risk ESG update Board of Directors and KMP Directors’ report and remuneration report Financial report Shareholder information and corporate directory 07 MyState Limited Annual Report 2023 Chair’s review Core earnings $57.7m Vaughn Richtor Chair Earnings per share Our growth strategy is on track, as is our transformation into a first-choice financial services company with a strong digital focus. I am pleased and proud to present the FY23 Annual Report as chair of MyState Limited. In a tumultuous year in financial services our company has maintained momentum as we deliver on our growth strategy. In FY23 we delivered a record profit and increased earnings per share. Tasmania is our heartland, and we continue to build our strong brand in the state while increasing our national footprint. Net interest margin (NIM) eased 4bps to 1.63% due to intense competition for both mortgages and retail deposits, with wholesale funding costs also increasing significantly. TPT Wealth’s result was more subdued in FY23 as we refocused our energies on Tasmania and cut costs interstate. Operating performance Our key portfolios of mortgages and savings saw strong aboveindustry growth. TPT Wealth income eased 3.5% to $14.4m. Statutory net profit after tax (NPAT) for the fiscal year was a record $38.5 million (m), up 20.2% on FY22. Dividend and capital Our strategy of deepening relationships with independent mortgage brokers continues to pay dividends with robust growth in home lending at almost three times the industry average. Earnings per share increased 16.8% to 35.5 cents per share (cps). We achieved record customer growth, attracting 25,690 new to bank customers from within and outside Tasmania. I am pleased to say the growth came while maintaining high customer advocacy as measured by the Net Promoter Score – a key measure of our customer focus. Our growth strategy is on track, as is our transformation into a first-choice financial services company with a strong digital focus. The digital transformation is improving our cost to income ratio, making growth in customers and balance sheet sustainable. 08 I congratulate the team at MyState for continuing to serve the Tasmanian community and maintaining customer focus. +16.8% Core earnings (operating profit before bad and doubtful debts expense and income tax) increased 30.3% to $57.7m with total operating income up 14.4% and operating expenses up 7.1%. Significantly operating income is outpacing expense growth. The cost-to-income ratio improved by 440 basis points (bps) to 64% for the full year. Return on equity improved 100bps over FY22 to 8.7%. The total loan book grew by 13.5% to $7.9 billion (b), while home lending grew almost three times system growth. Customer deposits grew at twice system growth. In the 2023 fiscal year, the Board determined to pay a final dividend of 11.5 cps, fully franked, equivalent to a payout ratio of 64.9% of after-tax earnings. This decision is in line with the current dividend guidance range and strikes a balance between pursuing our growth strategy and rewarding shareholders. During the year MyState issued a $400m Term RMBS and established a new committed warehouse funding agreement. Both transactions support MyState’s growth strategy and provide flexibility to MyState’s capital management options. MyState Limited Annual Report 2023 Introduction and performance Our growth strategy remains on track with prudent, sustainable and profitable growth at its heart. We continue to pursue the home state advantage combined with prudent expansion of our national footprint. I would like to thank shareholders for not only supporting the business, but also being loyal customers. Our future FY23 has been a solid year and put the business on track to deliver on our growth strategy. Our future is bright with progress on system improvements and cost management. Vaughn Richtor Chair Our strategy and approach to risk The current Australian banking market is highly competitive and credit growth is slowing. MyState’s robust growth in mortgages over the past two years is forecast to ease to nearer to two times system growth for FY24. Our focus remains on sustainable growth while maintaining customer focus. Chief Executive Officer’s review Growth strategy MyState has a proud Tasmanian heritage that gives us a competitive advantage at home. Chair’s review Statutory net profit after tax for the 2023 financial year was a record $38.5m up 20.2%. ESG update Board of Directors and KMP Directors’ report and remuneration report Financial report Shareholder information and corporate directory 09 MyState Limited Annual Report 2023 Chief Executive Officer’s review Home loan book $7.8b Brett Morgan Managing Director and CEO We delivered mortgage growth of over 14% to $7.8b, almost three times the industry average, at a time of intense competition. Delivering for customers 2023 has been a significant year for both customers and MyState and I am proud to say the business has ended the year in very good shape. The re-emergence of inflation, and the fastest increase in interest rates in more than 30 years, has tested customers and the bank. Mortgage customers have shown resilience, having built up savings when rates were low. One in three of our mortgage customers are more than six months ahead in repayments. We proactively contact every customer coming off low fixed interest home loans to offer help as they transition to higher repayments. Our focus on the customer has seen the rate of late loan repayments track below the industry average. Over the year, we also helped customers save by substantially increasing our award-winning bonus saver and term deposit rates. Our competitive rates attracted many new customers and increased deposit growth to double the industry level. 10 New to bank customers increased 33% Delivering on our growth strategy Delivering for the community In this turbulent environment, the bank delivered record customer growth, 33% higher than the previous year, and strong above-system growth in both mortgages and savings. Our approach to sustainability focuses on driving positive change in the bank and the community. This growth was achieved while maintaining prudent risk settings. We delivered mortgage growth of over 14% to $7.8b, almost three times the industry average, at a time of intense competition. Our customer deposits grew by over 12%, double the industry average, to $6.2b. We welcomed a further 25,690 new to bank customers across Australia. We achieved this growth more efficiently as we leveraged digital systems and lowered the cost to income ratio by 440bps to 64%. Consequently, we delivered a record NPAT of $38.5m, up 20.2% on the previous year. Core earnings increased 30.3% to $57.7m. We were able to achieve this whilst having a high level of customer advocacy with a Net Promotor Score of +35. TPT Trustee Services distributed cash and transferred assets valued at $83m to more than 3,000 beneficiaries. We are refocusing the wealth management side of the business on our home market of Tasmania where we have a long 135 year legacy and competitive brand advantage. TPT Wealth’s operating income eased due to lower fee revenue from the investment management business. I am proud to say we started to measure our material Scope 3 financed emissions, those greenhouse gas (GHG) emissions associated with residential mortgage lending. This data will help us set relevant emissions reduction targets. We continue to encourage customers to adopt e-statements with an additional 18,540 bank customers now on e-statements. The MyState Foundation continued to support the Tasmanian community by providing grants of more than $175,000 across 20 community programs focused on providing greater opportunities for youth. The Foundation also supported Colony47 as the first corporate partner of its JumpStart program, assisting young people in Tasmania to access affordable housing. In addition to our Foundation grants, our team raised a further $15,000 for youth-focused charities. The recipients included JCP Youth, Make a Wish, Riding for the Disabled Association South, Anglicare Tasmania’s Taz Kids clubs, Hobart Women’s Shelter and Tassie Mums. This investment in our community also provided opportunities for our team to connect with local initiatives. MyState Limited Annual Report 2023 Introduction and performance Chair’s review We redeveloped online application forms to make it easier for new and existing customers to engage with us. Staff in branches are increasingly helping customers use digital services and tools. We know that people want to work at places where they are proud of the organisation’s purpose. The launch of our new purpose in December 2022 sharpened our focus on making it easier to deal with 2023 has seen a significant increase in concern about cyber security and scams. Australians lost more than $3 billion through the year to scammers. Everyone has become a target and the types of scams are constantly evolving. Protecting our customers from scams is a top priority and we do this by preventing, detecting and responding to scam threats and working with industry, government and other sectors of the economy. It takes a team approach, including the active involvement of our customers to shut down the scammers. To support scam prevention we educate customers on scam threats through the website, customer updates and social media. Customer education includes information on protecting passwords, double-checking new billers and being wary of unsolicited calls and clicking on links. We expect competition in financial services to remain fierce, and while we anticipate growth will ease next year, we expect to maintain abovesystem growth in our key portfolios of mortgages and savings while continuing to improve efficiency. We remain focused on improving customers’ digital and human experience across both MyState Bank and TPT Wealth and will continue to simplify our products, processes and systems. Thank you On a personal note, I would like to thank customers and clients for choosing MyState and TPT and shareholders for their support. This report marks my first full year as CEO of MyState, and I would like to thank everyone for the way my family and I have been welcomed into the Tasmanian community. Brett Morgan Managing Director and CEO Shareholder information and corporate directory Providing a great place to work Protecting customers Over the first two years of our growth strategy, we have grown our major portfolios of mortgages and deposits by 43% and 40% respectively. Financial report Our digital products are becoming more helpful and intuitive, with timely reminders about upcoming bills and personal notifications about money moving into and out of accounts. We improved our staff engagement score year on year to 73%, which places MyState well within the high-performance band (>65%). Looking ahead Directors’ report and remuneration report We continue to invest in nextgeneration digital technology, with the development of an improved banking experience. This focus has resulted in a sharp rise in successful internal promotions. To respond to scams we have increased surveillance of unusual transactions and message customers whenever new billers are added. Board of Directors and KMP Our customers continue to shift towards digital banking with more than 77% of customers registered for internet and mobile banking. To help our people develop and perform to their potential, we continue to invest in learning and leadership programs, focusing on training and development to support our growth ambitions. We also created a wellbeing program to enhance resilience and provide more opportunities to engage with our Foundation grant recipients. To detect scams we invest in cyber security including enhancing artificial intelligence capability to monitor unusual transactions. ESG update Digital banking Our purpose was created by our people and has energised and united our team. Two factor authentication and Pay-ID are effective barriers to scammers when passwords and codes are kept secure and not shared. Our strategy and approach to risk MyState also continued to sponsor Rise Above the Rim Shoot-a-thon, a 12-hour basketball shooting challenge raising much-needed funds for Ronald McDonald House Charities in Tasmania and Victoria. customers, helping our people be their best and investing in our communities. Chief Executive Officer’s review Our partnership with the Tasmania JackJumpers exemplified our commitment to fostering a vibrant sports culture and inspiring future generations of athletes in Tasmania. The MyState Arena partnership provided us with a platform to connect with customers and the community through events, concerts and sport. Other sporting sponsorship included support for the women’s super league and leadership development program through Football Tasmania. 11 MyState Limited Annual Report 2023 Our strategy Our strategic ambition to grow our share in deposits, lending and funds under management remains unchanged. Two years into our growth strategy, our home lending book has grown by 43% to $7.8 billion, with nearly twothirds of our home loan customers now originating from mainland Australia. Deposits are up 40% over the same period. The award-winning products and services offered by MyState Bank and TPT Wealth mean we can help people across all life stages. We do this through our core offerings of everyday banking products, home and investment loans, asset management and commercial lending, right through to estate planning and administering trusts. These products and services are delivered through our key channels. For MyState Bank this encompasses digital, brokers to grow outside our heartland of Tasmania, mobile lenders in Tasmania, as well as our Tasmanian branches and contact centre. For TPT Wealth, our key channels include digital, relationship managers and our client services team. And given the importance of a strong and positive culture – which is critical to the success of our strategy – we have three key values that we live by every day – create customer wow, chase the better and collaborate to win. 12 Our investment into distribution capability and capacity in particular has supported the acceleration of customer and deposit growth and has made our business stronger for the future. In FY23 we delivered continued growth in loans, deposits and customer numbers, and improved our cost to income ratio while maintaining a strong balance sheet and preserving credit quality. Our investment into distribution capability and capacity in particular has supported the acceleration of customer and deposit growth and has made our business stronger for the future. While our strategy remains the same, as we enter a new financial year our aim is to reinforce our focus on returns, execution, sustainable growth and capital generation. This will drive the business forward to better support and enhance the experience for our stakeholders. FY23 was a momentous year that saw the re-emergence of inflation and the fastest rise in interest rates in more than 30 years. The economy is slowing, as is credit growth, while customers adjust to the new normal. Competition is forecast to remain strong. Within this environment MyState remains well placed to continue to benefit from the willingness of Australians to switch banks, and we expect to continue to attract new customers and grow above system in both mortgages and deposits. Though the external market remains highly competitive, our goal is to continue to execute on our growth strategy and tell our unique story of making managing money easy, to help our customers and clients achieve what matters most, so together we can thrive. MyState Limited Annual Report 2023 Introduction and performance Chair’s review Chief Executive Officer’s review Our strategy and approach to risk ESG update Together for the better Core offering Lending Asset management Trustee services • Transaction accounts • Saving accounts • Term deposits • Home loans • Investment loans • Mortgage funds • Commercial lending • Wills & estate planning • Estate administration • Charitable trusts Key channels • Brokers • Mobile lenders (TAS) • Digital • Contact centre Key channels • Relationship managers • Digital • Asset consultants • Direct Our purpose and values underpin our strategy Shareholder information and corporate directory • Digital • Branches (TAS) • Contact centre Financial report Everyday banking Directors’ report and remuneration report Core offering Board of Directors and KMP Our ambition is to grow our share in deposits, lending and funds under management Create customer ‘wow’ | Chase the better | Collaborate to win 13 MyState Limited Annual Report 2023 Approach to risk Management of financial and non-financial risks continues to be a key focus of our business, and an integral part of the platform upon which we have built our growth strategy. Throughout FY23, we continued to focus on a strong culture of risk awareness and accountability across the organisation. The risk strategy for the past year was built on three pillars: 14 Promote risk management principles Fit for purpose risk framework Digitised and simplified process Awareness and adoption of risk management principles and practices that support a healthy risk culture, making managing money simpler and easier for our customers. A dynamic, iterative and responsive to change risk framework. Digitisation and simplification of risk management processes to support business growth and productivity. Our risk management frameworks are designed to identify, mitigate and/or manage risks on a timely basis. We undertake regular reviews of these frameworks so that we continue to meet our regulatory obligations and deliver the best possible outcomes for our customers and stakeholders. We use our values to continue to build a culture of risk accountability among our employees. This encompasses facilitating training programs, alerting employees to indicators of risk, initiating timely closure of risk incidents, and providing recognition for employees who champion our risk principles. During the past year, assurance reviews focused on further enhancing our operational risk capabilities, including but not limited to our risk controls for information and cyber security. Controls related to fraud risks were also enhanced to support and protect our customers from scams. We remained conscious of our duty of care to customers in need of additional assistance, and continued to offer support to these customers via our customer contact centre, branches, collection teams and customer advocate. Annual Report 2023 MyState Limited Introduction and performance Chair’s review Chief Executive Officer’s review The award-winning products and services offered by MyState Bank and TPT Wealth means we can help people across all life stages. Our strategy and approach to risk ESG update Board of Directors and KMP Directors’ report and remuneration report Financial report Shareholder information and corporate directory 15 MyState Limited Annual Report 2023 ESG update In this section we aim to provide a clear picture of our Environmental, Social and Governance (ESG) performance and impact for the period 1 July 2022 to 30 June 2023 in six key areas. 1. Supporting customers 2. Governance, conduct and culture 3. Helping our people be their best 4. Digital enablement and data security 5. Environmental sustainability 6. Community investment We understand the importance of ESG to create and sustain long-term value in a rapidly changing world and believe these six topics provide strong foundations that will create value for our stakeholders and protect our business into the future. The launch of our new purpose in December 2022 has sharpened our focus on supporting our customers, helping our people be their best and investing in our communities so together we can thrive. To help our people be at their best, we have continued investment into our learning and leadership programs, focusing on developing our people to support our growth ambitions and creating a wellbeing program to enhance resilience. Our diversity and inclusion collective, Belong, has also been fostering a workplace culture where everyone feels included. We continued to support the Tasmanian community through the MyState Foundation, investing $175,000 across 20 community programs focused on providing greater opportunities for youth. This investment in our community 16 connects our team with our community initiatives as we pursue being a purpose-led organisation. In relation to digital enablement and data security, our customers continue to shift towards digital banking with more than 78% of customers registered for internet and mobile banking. In response to an increase in concern about cyber security and scams, during the year we stepped up investment in cyber security and importantly in educating customers on how to avoid being scammed. Continuing our commitment to measure and manage our greenhouse gas (GHG) emissions, we broadened our measurement to also include our most material Scope 3 financed emissions – those GHG emissions associated with residential mortgage lending – which accounts for over 95% of the value of our lending portfolio. Now that we understand our combined operational and financed emissions, we will begin to explore appropriate emissions reduction targets and initiatives. More information on our emissions data can be found in our Task Force on Climate Related Financial Disclosure (TCFD) update later in this section. TCFD is a globally recognised standard set of recommendations used by more than 3,000 leading organisations that either prepare or use financial disclosures, with the aim of building a more resilient financial system through climate-related disclosure. How we listen and engage As in previous years, in 2023 we continued to capture the voices of MyState’s stakeholders through formal and informal feedback methods. Our stakeholder groups include customers, shareholders, investors, our people, communities, regulators, government and suppliers. Our key measure of customer advocacy, Net Promotor Score or ‘NPS’, finished the year at +35. MyState is proud of this score and that it reflects our ongoing commitment of putt