Announcement PDF Together for the better Annual Report 2024 MyState Limited Annual Report 2024 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. Scan to learn more about our RAP and the artist that created our artwork, Bianca Templar. Acknowledgement of Country MyState Limited acknowledges Aboriginal and Torres Strait Islander Peoples and their rich culture. We acknowledge the Traditional Owners and Custodians of Country throughout Australia and their connections to land, sea and community. We acknowledge MyState’s Aboriginal and Torres Strait Islander employees, partners and stakeholders, and pay our respects to their Elders, both past and present, for they are the knowledge-keepers who hold the memories and traditions of the oldest continuing living culture in the world. We recognise and value the ongoing contribution of Aboriginal and Torres Strait Islander cultures to Australian life and how this enriches us and our communities. We embrace the spirit of reconciliation, working towards mutual respect, equality and a better future together. 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 2024 Introduction and performance Contents Group performance 07 Chair’s review 08 Chief Executive Officer’s review 10 Our strategy 12 Approach to risk 14 Sustainability report 16 Board of Directors 28 Key Management Personnel 30 Directors’ report 32 Remuneration report 39 Financial report 57 Shareholder information 108 The 2024 Annual General Meeting of MyState Limited will be held on Wednesday, 23 October 2024 at 10:30 a.m. (Hobart time) at the MyState Bank Arena, 601 Brooker Hwy, Glenorchy and online. Corporate Governance Shareholder information 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. Financial report The Board of MyState Limited is committed to upholding the highest levels of corporate governance and subscribes to the Corporate Governance Principles and Recommendations 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 non-operating holding company of a bank, to comply with the prudential obligations that apply directly to its wholly owned subsidiary MyState Bank Limited. Directors’ report and remuneration report 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 Board of Directors and KMP Annual General Meeting Sustainability report 04 Our strategy and approach to risk Our year at a glance Chief Executive Officer’s review 03 Chair’s review Our purpose and values MyState Limited’s Board-approved Corporate Governance Statement is available on the Company’s website at mystatelimited.com.au 01 MyState Limited Annual Report 2024 Together for the better 02 MyState Limited Annual Report 2024 Introduction and performance Our purpose and values Chair’s review MyState purpose Our shareholders Our community We deliver sustainable, profitable growth We invest into and support our local communities Our purpose is lived through our rally cry – Together for the better. Our customers and clients We care about what matters Our people We grow and achieve great things Sustainability report MyState values Create customer ‘wow’ • We think and act in the best interests of our customers. • We design and deliver exceptional customer experiences, with a human touch. • We seek out and embrace the change that is required to succeed. • We have the courage to try new things and grow from our failures. • We simplify (and digitise) to deliver exceptional customer experiences, with a human touch. • We seek industry-leading productivity and always drive for better outcomes. • We care for each other, our customers, partners and community. • We give our best, do the right thing, and trust our colleagues to do the same. • 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. Financial report • We make things simpler and easier for our customers. • We are bold in our ambition. Collaborate to win Directors’ report and remuneration report • We are clear, concise and trustworthy in our customer interactions. Chase the better Board of Directors and KMP • We walk in our customers’ shoes and appreciate their perspectives. Our strategy and approach to risk What this means for: Our purpose represents the way we collaborate with each other, our customers, our shareholders and our community to deliver the very best outcomes for all. Chief Executive Officer’s review 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. Shareholder information 03 MyState Limited Annual Report 2024 Our year at a glance Our performance Home loan book $8.0b New digital experience Customer deposits $5.9b Total bank customers Net profit after tax $35.3m New to bank customers acquired 14,100 Earnings per share 32.0 cps Net promoter score +58 Cost to income ratio Dividend 04 Our customers 66.3% 23.0 cps 174,390 Expanded our trustee services offering Award-winning products MyState Limited Annual Report 2024 Introduction and performance Chair’s review Our team Tasmania JackJumpers Employee experience score Principal partner of the NBL championship-winning team New leadership program launched 320 Staff volunteering hours Partnership to assist with youth accessing housing in Tasmania 62 Employees promoted MyState Bank Arena 41% 59% Celebrating diversity Male Female 18 Sustainability report MyState employees Naming rights sponsorship of the home of entertainment and sport in Tasmania Our strategy and approach to risk Colony 47 JumpStart program Chief Executive Officer’s review 70% Our community Community programs supported through the MyState Foundation Board of Directors and KMP Directors’ report and remuneration report Financial report Shareholder information 05 MyState Limited 06 Annual Report 2024 MyState Limited Annual Report 2024 Introduction and performance Group performance Earnings per share (cents) Chair’s review Net profit after tax ($ million) Dividends – fully franked per share (cents) 11.5 11.5 11.5 11.5 12.5 11.5 13.0 12.5 14.5 35.5 30.3 39.2 32.9 35.3 38.5 32.0 36.3 32.0 Net interest income ($ million) Board of Directors and KMP Cost to income ratio (%) 2020 2021 2022 2023 2024 Sustainability report Return on average equity (%) 2020 2021 2022 2023 2024 Our strategy and approach to risk 30.1 Chief Executive Officer’s review 2020 2021 2022 2023 2024 Directors’ report and remuneration report 124.5 132.6 110.2 112.0 2020 2021 2022 2023 2024 Shareholder information 2020 2021 2022 2023 2024 99.5 66.3 64.0 68.4 61.3 62.8 7.7 8.7 7.7 10.3 9.2 Financial report 2020 2021 2022 2023 2024 07 MyState Limited Annual Report 2024 Chair’s review I congratulate the team at MyState for continuing to provide high-quality customer service, supporting the communities in which we operate and maintaining shareholder returns in a challenging environment. Vaughn Richtor Chair Introduction I am pleased to present the FY24 Annual Report as Chair of MyState Limited. In a challenging year in financial services our Company has balanced growth, revenue and costs to produce a solid return. While down on our record profit in 2023, it compares very favourably with others in the industry in a year where deposit and loan pricing was extremely competitive. MyState growth slowed over the year as the management team successfully executed strategies to protect revenue and control costs. At the same time, the foundations for growth were strengthened with strategic investments designed to support accelerated growth as conditions improve. Over FY24 we have maintained a stable dividend and increased our capital strength. We grew mortgages in a particularly competitive environment and maintained a prudent approach to managing risk. Arrears remain low and below industry average. We grew new to bank customers from within and outside Tasmania, while improving our customer advocacy rates as measured by the Net Promoter Score – a key measure of customer focus. Digital transformation is a key part of the strategy of making growth in customers and balance sheet 08 sustainable. We continued the digital transformation of the bank with the launch of a new internet and mobile banking platform, replacing our outdated capability with enhanced functionality and ease of use. I congratulate the team at MyState for continuing to provide high-quality customer service, supporting the communities in which we operate and maintaining shareholder returns in a challenging environment. Operating performance Statutory net profit after tax (NPAT) for the fiscal year was $35.3 million, down 8.3% on the record result in FY23. Revenue fell 5.0% largely driven by an 18-basis point compression in NIM over the period, reflective of intense competition for both mortgages and retail deposits. NIM was stable halfon-half as conditions normalised. The business closely managed operating expenses, which fell 1.6% to $101 million. This was a pleasing result given the higher inflation Australia experienced over the period. Earnings per share fell 9.7% to 32.0 cps. Return on equity was 7.7% from 8.7% the previous year. TPT Wealth saw a solid improvement in NPAT, with an increase in revenue and a decline in underlying operating expenses, as a result contributing positively to the Group’s financial performance. Dividend and capital In the 2024 fiscal year, the Board determined to pay a final dividend of 11.5 cents per share, fully franked, equivalent to a payout ratio of 72% 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. MyState’s capital position strengthened with a total capital ratio of 16.4% at 30 June 2024, up from 15.4% at 30 June 2023, providing capacity for future investment and growth. During the year MyState issued $500 million in Term RMBS and established a second committed warehouse funding agreement. The Term Funding Facility was fully repaid in June. MyState Limited Annual Report 2024 Introduction and performance Chair’s review Chief Executive Officer’s review Our strategy and approach to risk Sustainability report We expect the proposed merger will significantly enhance the scale and value proposition of the Group, providing it with the opportunity to accelerate its earnings and growth profile while benefiting from an enlarged balance sheet and increased funding flexibility. The strategy will be enhanced with the proposal to merge with Auswide Bank, headquartered in Queensland. We expect significant cost synergies and revenue-enhancing opportunities from the merger, which we also expect to be earnings per share accretive for MyState shareholders from FY26 on a post synergies run rate basis. As always I would like to thank shareholders for not only supporting the business, but also being loyal customers. Shareholder information Vaughn Richtor Chair Financial report The scheme, which is subject to the customary regulatory, Auswide shareholder and third-party approvals, is expected to become effective in mid-to-late December 2024. MyState and Auswide have quality loan books evidenced by their low arrears and loyal customer bases. The proposed merger will also further diversify loan balances by geography and support deposit generation. We expect significant cost synergies and revenue-enhancing opportunities from the merger, which we also expect to be earnings per share accretive for MyState shareholders from FY26 on a post synergies run rate basis. Directors’ report and remuneration report Our future MyState continues to pursue its growth strategy with prudent, sustainable, and profitable growth at its heart. Board of Directors and KMP Strategy 09 MyState Limited Annual Report 2024 Chief Executive Officer’s review MyState has responded to intense competition and cost of living challenges by delivering value, great service and an improved digital experience. Brett Morgan Managing Director and CEO 2024 has been a year of consolidation for MyState with growth balanced against returns, managing costs and delivering key strategic initiatives. I am proud to say the business has ended the year in very good shape with a strong foundation in place to support profitable growth. The new mobile app simplifies the process of moving money and bill payments and gives customers the tools to more easily manage their finances. Delivering for customers Delivering on our profitable growth strategy MyState customers continue to show resilience in the face of inflation, higher interest rates and cost of living challenges. More than 60% of mortgage customers are ahead in repayments, and arrears remain below industry averages at 44 bps for 90+ days. To ensure customers understand all available options, we continue to proactively contact every mortgage customer transitioning from low fixed rates to the prevailing interest rate. While customers are saving less as cost of living pressures bite, it is good to see many taking advantage of our award-winning bonus saver and higher term deposit rates. MyState has responded to intense competition and cost of living challenges by delivering competitive products, great service and an improved digital experience. A key measure of customer advocacy is the Net Promoter Score (NPS), which increased 23 points over the year. The NPS measures the number of customers who are willing to recommend MyState to their family and friends. MyState Bank also successfully delivered a new internet and mobile banking platform, with customers responding to the change very positively. 10 On the wealth side, MyState expanded TPT’s trustee services and improved our client and beneficiary experience. In a challenging and competitive environment, MyState managed the balance between growth and margin well, and our focus on extracting efficiencies and expense management delivered a reduction in operating costs in an inflationary environment. We attracted more than 14,100 new to bank customers and our home lending grew by 2% to $8 billion, with positive momentum running into FY25. Our Net interest margin (NIM) fell by 18 basis points to 1.45%, reflecting continued competition for deposits and mortgages. Despite this, we reported a net profit after tax (NPAT) of $35.3 million, down 8.3% on the previous year. Total operating costs were 1.6% lower at $101 million, while core earnings were down 10.9% to $51.4 million. TPT Wealth experienced a strong rebound in income and improved operating efficiency, contributing more than $15 million in fee revenue and income diversification to the Group. Delivering for the community Our approach to sustainability focuses on driving positive change across the business and the community. During the year we adopted new carbon accounting technology to measure and report on MyState’s carbon footprint. We also continued to encourage customers to adopt e-statements, with 68% of bank customers having done so, up from 62% in the prior year. The MyState Foundation supports the Tasmanian community by providing grants to charitable organisations focused on helping young people reach their full potential. In FY24, grants totalling $155,000 were made to 18 recipients including JCP Youth, Tassie Mums, Beacon Foundation and The Smith Family. In addition, the MyState Foundation is investing $56,800 over three years to deliver the JumpStart housing program with community partner Colony 47. MyState co-authored a Tasmanian Financial Wellbeing Index with Colony 47 to highlight areas of strength and opportunities in the community and better understand the pressure points and aspirations of our customers and the broader Tasmanian community. Investment in our community provides opportunities for our staff to connect with local initiatives. During the year MyState staff contributed over 320 volunteering hours to community organisations including Dress for Success, Ronald McDonald House and Tassie Mums. Our continuing partnership with the Tasmania JackJumpers is an example of MyState’s commitment to fostering a vibrant sports culture and inspiring future generations of athletes in Tasmania. The MyState Arena partnership gives us a platform to connect with customers and the community through events, concerts and sport. MyState Limited Annual Report 2024 Introduction and performance Chair’s review Chief Executive Officer’s review Home loan book New to bank customers increased Digital banking The delivery of a new internet and mobile banking platform reflects our understanding that customers expect more from their digital banking experience. The new app and internet banking platform make it easier for customers to pay bills, make payments and keep track of their finances. Providing a great place to work We all continue to be very concerned about cyber security risks and scams. Australians lost more than $2 billion during the year to scammers. While the amount of money being lost is declining due to ongoing investment in prevention, detection and response, everyone remains a potential target as the types of scams constantly evolve and become more sophisticated. 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. On 19 August 2024, we announced a proposed merger with Auswide Bank, which will combine two high-quality and complementary businesses with reach across the eastern seaboard, delivering significant scale advantages to the Group. The proposed merger is aligned to our profitable growth strategy, delivering value for our people, communities and shareholders. Brett Morgan Managing Director and CEO Shareholder information To help staff develop and perform to their potential, we continue to invest in learning and leadership, focusing on training and development. We launched a new leadership development program, Drive, to support leaders to drive change and apply their learning to business Protecting customers We are committed to profitably growing our business across our key portfolios of customer deposits, home lending, income funds and trustee services. Financial report We know that people want to work at places where they can connect with the organisation’s purpose. A key call out in our purpose is investing in our people, which continued to be a focus this year. MyState’s independently assessed engagement score for the year was 70%. Looking ahead Directors’ report and remuneration report Our new digital experience is just the start. The platform enables MyState to more easily and quickly make enhancements based on customer feedback and needs. Our continued investment in our people and our community contributes to our positive culture and engaged workforce. We are also working with industry, government and the Australian Financial Crimes Exchange to prevent, detect and respond to the constant threats. It takes a team approach, including the active involvement of our customers to shut down the scammers. Board of Directors and KMP More than 80% of MyState customers are registered for mobile and online banking. transformation projects that help the business grow and succeed. This investment in leadership supported 62 internal promotions over the year. Sustainability report +14,100 Our strategy and approach to risk $8.0b The delivery of a new internet and mobile banking platform reflects our understanding that customers expect more from their digital banking experience. 11 MyState Limited Annual Report 2024 Our strategy Our strategic ambition to grow our share in deposits, lending and funds under management has proven to be effective and remains unchanged. Three years into our growth strategy, our home lending book has grown by 46% per cent to $8.0 billion, with nearly two-thirds of our home loan customers now originating from mainland Australia. Customer deposits are up 33% 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. 12 For TPT Wealth, our key channels include digital and relationship managers. The proposed merger with Auswide Bank 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. While our strategy and vision remain the same, as we enter a new financial year we are excited to have signed a scheme implementation agreement (SIA) to merge with Auswide Bank, headquartered in Queensland. The combination of two high-quality and complementary businesses is consistent with our stated growth strategy and brings significant scale advantages to the Group. We expect significant cost synergies from the merger, which we also expect to be EPS accretive for MyState shareholders from FY26 on a post synergies run rate basis. The scheme, which is subject to the customary regulatory, Auswide shareholder and third-party approvals, is expected to become effective in mid-to-late December 2024. In FY24 we maintained our focus on growing profitably while delivering on a range of important strategic initiatives, including the launch of a new internet and mobile banking experience and an expanded trustee services offering. Along with efficiency initiatives delivered across the Group, which supported a reduction in total operating costs, we have set strong foundations, which will help to drive profitable growth into the future. MyState Limited Annual Report 2024 Introduction and performance Chair’s review Chief Executive Officer’s review Our strategy and approach to risk Significant value creation for both sets of shareholders The merged group is expected to have a pro forma loan book of $12.5 billion, net assets of $755 million and total deposits of $9.6 billion. The merged group will have a pro forma CET 1 capital ratio of 12.1% as at 30 June 2024 (relative to MyState’s standalone CET 1 capital ratio of 12.0% as at 30 June 2024). Implementation process Our focus Though the merger is exciting news, the external market remains highly competitive. Our focus therefore remains on our growth strategy and telling our unique story of making managing money easy, to help our customers and clients achieve what matters most, so together we can thrive. Shareholder information On current expected timing, the proposed merger is scheduled to complete in December 2024. However, this timing is subject to change as it is conditional upon Auswide shareholder and Court approval, and requires Auswide shareholders to approve the scheme by the requisite majorities in accordance with the Corporations Act. The proposed merger is also conditional on regulatory approval from the Treasurer under the Financial Sector Shareholdings Act as set out in the SIA. Within this environment, MyState remains well placed to continue to benefit from the willingness of Australians to switch banks, and following the merger our ambition is to continue to attract new customers and grow above system in both mortgages and deposits. Financial report MyState expects significant pre-tax cost synergies of between $20 million to $25 million and the merger is expected to be EPS accretive for MyState shareholders including full run rate synergies from FY26. MyState expects that operational integration will largely be achieved by the end of FY27, at which point the business will have realised the ongoing benefits of the merger. Profile of the merged group The proposed merger is being undertaken on a collaborative basis. Following its completion, the merged group’s Board and management will make key business decisions, ensuring minimisation of disruption to both businesses and their customers. Directors’ report and remuneration report MyState and Auswide have quality loan books evidenced by low arrears and loyal customer bases. The proposed merger will also further diversify loan balances by geography and support deposit generation. FY25 earnings will be impacted by upfront transaction and integration costs. Confidence in successful integration Board of Directors and KMP It is expected that the proposed merger will significantly enhance the scale and value proposition of the Group, providing it with the opportunity to accelerate its earnings and growth profile while benefiting from an enlarged balance sheet and increased funding flexibility. The main sources of synergies are expected to include the consolidation of technology platforms, the integration of shared services, a refined leadership and management structure, and consolidation of thirdparty providers. Sustainability report The opportunity to accelerate earnings and growth 13 MyState Limited Annual Report 2024 Approach to risk Management of financial and nonfinancial risks continues to be a key focus of our business, and an integral part of the platform on which our strategy is built. As it has been in previous years, our risk strategy continued to be founded on three pillars: Promote Risk Management Principles Fit for Purpose Risk Framework Digitised and Simplified Process Awareness and adoption of risk management principles/ practices that support a healthy risk culture. Business size and complexity are always front of mind while being aware of customer, regulatory and community expectations. Digitisation and simplification of risk management processes to support business growth and productivity. MyState’s risk management frameworks are designed to identify, mitigate and/or manage risks on a timely basis. We undertake regular reviews of these frameworks to meet customer and stakeholder expectations, as well as our regulatory obligations. while we also worked on further enhancement of our risk controls to manage our information security, cyber, data and fraud risks to support and protect our customers from scams. initiating timely raising and 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, 14 In FY24 we continued to focus on a strong culture of risk awareness and accountability across the organisation. 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, Throughout the year customers were supported via our customer contact centres branches and collection teams, and we remained conscious of our duty of care to customers who needed additional assistance. Introduction and performance Chair’s review Chief Executive Officer’s review Our risk strategy is integral in protecting the best interests of our employees, customers and shareholders. Annual Report 2024 MyState Limited Our strategy and approach to risk Sustainability report Board of Directors and KMP Directors’ report and remuneration report Financial report Shareholder information 15 MyState Limited Annual Report 2024 Sustainability report The three pillars of Environmental, Social and Governance (ESG) provide a structured framework for assessing how well a company manages risks and opportunities related to sustainability. In this section we review the pillars, with an aim to provide you with an update on MyState’s progress for the period 1 July 2023 to 30 June 2024. These six topics form the foundation of our ESG focus: 1. Environmental sustainability 2. Supporting customers 3. Helping our people be their best 4. Digital enablement and data security 5. Community investment 6. Governance, conduct and culture 16 By reading this Sustainability report we trust you’ll get a clear picture of our performance in these six areas. We know that progress on sustainability is an evolution, and we are proud to be taking steps to positively impact our customers and the communities withi