Announcement PDF ABN 26 133 623 962 Level 2, 137 Harrington Street Hobart 7000 Tasmania Australia 18 August 2023 The Manager Company Announcements Australian Securities Exchange 20 Bridge Street Sydney NSW 2000 MyState Limited – Preliminary Final Report (Appendix 4E) for the year ended 30 June 2023 The Directors of MyState Limited (the “Company”) are pleased to announce the audited results of the Company for the year ended 30 June 2023 as follows: RESULTS FOR ANNOUNCEMENT TO THE MARKET $’000 $’000 30 June 2022 30 June 2023 % Change Income from operations 140,168 160,378 14.4% Profit after tax attributable to members 32,026 38,502 20.2% 32,026 38,502 20.2% Extracted from the Financial Statements for the year ended Net profit after tax attributable to members Dividends for the current year are: Interim Dividend 2023 - fully franked at 30% Paid 21 March 2023 Amount per security Franked amount per security 11.5 cents 11. 5 cents 11.5 cents 11.5 cents Amount per security Franked amount per security 11.5 cents 11.5 cents Final Dividend 2023 - fully franked at 30% Payable 19 September 2023 Record Date for determining entitlements for final dividend – 24 August 2023 Dividend for the prior corresponding period: Final dividend 2022 Dividend Reinvestment Plan Last Date for Receipt of DRP Election The MyState Limited Dividend Reinvestment Plan is operational for this 2023 Final Dividend at a 1.5% discount to the Volume Weighted Average Price over the DRP pricing period from Monday 28 August 2023 to Friday 1 September 2023 inclusive. Net Tangible Assets per share 25 August 2023 2022 2023 317 cents 335 cents Details of entities over which control has been gained or lost during the period During the financial period the holding company MyState Limited gained control of the following entity: • Nil Subsequent events The remainder of the information requiring disclosure to comply with Listing Rule 4.3A is contained in the attached copy of the Financial Statements and comments on performance of the Company included in the Media and ASX Release dated 18 August 2023. Further information regarding MyState Limited and its business activities can be obtained by visiting the company’s website at www.mystatelimited.com.au. Yours faithfully, Scott Lukianenko Company Secretary MyState Limited Contents continued Consolidated Financial Report For the period ended 30 June 2023 Appendix 4E MyState Limited Contents continued Directors’ report Directors Company Secretary Principal Activities Dividends Operating and Financial Review Group net profit after tax ($m) MyState Bank TPT Wealth Remuneration report Our people and our company Our remuneration framework Company performance Short-term incentive (STI) payments Executive Long-Term Incentive Plan (ELTIP) Statutory tables Shareholdings of Key Management Personnel (KMP) Loans to Key Management Personnel Executive employment agreements MyState Limited consolidated financial statements 1 MyState Limited Directors’ report continued Your Directors' present their report for MyState Limited and its controlled entities (the Group) for the full year ended 30 June 2023. Directors’ Report Operating and Financial Review Your Directors present their report for MyState Limited and its controlled entities (the Group) for the year ended 30 June 2023. Financial performance Directors • Vaughn Richtor BA (Hons), MAICD Chairman and Independent Non-Executive Director. • Robert Gordon BSc, MIFA, MAICD, FAMI Deputy Chairman and Independent Non-Executive Director. • Brett Morgan BEc, MAppFin Managing Director and Chief Executive Officer - Executive Director. • Stephen Davy BSc (Hons) The Group delivered a record net profit after income tax for the year ended 30 June 2023 of $38.5m, an increase of 20.2% on the prior corresponding period (pcp) to 30 June 2022 of $32.0m. Earnings per share (EPS) was 35.5 cents per share (FY22: 30.3 cents per share), return on equity (ROE) was 8.7% (FY22: 7.7%) and the cost to income ratio (CTI) was 64.0% (FY22: 68.4%). These key metrics speak to the business momentum generated this financial year through the execution of the Group’s growth strategy and the resulting operating leverage, led by strong income growth and disciplined cost management. Group net profit after tax ($m) Independent Non-Executive Director. • Sibylle Krieger LLB (Hons), LLM, FAICD, MBA Independent Non-Executive Director. 38.5 36.3 32.0 • Warren Lee BCom, CA Independent Non-Executive Director. • Andrea Waters BCom, FCA, GAICD Independent Non-Executive Director. Company Secretary • Scott Lukianenko Ad Dip BMgmt, Grad Dip BA, GIA (Cert). FY21 FY22 FY23 Principal Activities MyState Limited (MyState) provides banking, trustee and managed fund products and services through its wholly-owned subsidiaries MyState Bank Limited (MyState Bank) and TPT Wealth Limited (TPT Wealth). MyState Bank delivers home lending, savings and transactional banking solutions through digital and branch channels, an Australian based contact centre, mobile lenders and mortgage brokers. TPT Wealth delivers asset management and trustee services through relationship managers, digital channels and an Australian based estate planning, trust administration and support team. There have been no significant changes in the nature of the principal activities of the Group during the year. Dividends Dividends paid in the full year ended 30 June 2023 were as follows: • For the year ended 30 June 2022, a fully franked dividend of 11.50 cents per share, amounting to $12.18m was paid on 7 September 2022. • For the half year ended 31 December 2023, a fully franked dividend of 11.50 cents per share, amounting to $12.54m was paid on 21 March 2023. The total loan book (excluding capitalised acquisition costs) grew $937m or 13.5% on June 2022. The home loan book grew $962m (14.1% or 2.9 times system growth) during the period. MyState maintains a disciplined approach to credit risk and a sustained focus on asset quality. Pre-provision operating profit of $57.7m increased 30.3% on pcp, largely driven by an increase in operating income of $20.2m or 14.4%, partly offset by expense growth of 7.1%. MyState’s strategy is to accelerate growth and create scale by growing market share in deposits, lending and funds under management (FUM), as evidenced by loan book and customer deposit growth, and a 33% uplift in new customers joining MyState in the past 12 months. In 2023, MyState’s award winning Bonus Saver account featured in the Finder Banking Awards 2023, celebrating Australia's best transaction, savings and term deposit accounts. Using 12 months' worth of data, Finder's experts have analysed the rates, fees and offer details for hundreds of everyday deposits accounts and recommended the Bonus Saver account in the ‘Best Savings account’ category. Despite a period of significant change and the challenges presented by the rising cost of living in recent times, MyState’s internally measured customer net promoter score was +35 at 30 June 2023 and reflects a high level of ongoing customer advocacy. The Directors have declared a fully franked final dividend of 11.5 cents per share. The dividend will be payable on 19 September 2023 to shareholders on the register at the record date of 24 August 2023, taking the dividend for the full year to 23.0 cents per share. 2 MyState Limited Directors’ report continued Home loan book – LVR profile ($m) MyState Bank Exceptional lending growth and credit quality was maintained in FY23. MyState Bank’s loan portfolio grew 13.5% from 30 June 2022, reaching $7,876m at 30 June 2023. 7,799 Total loan book composition ($m) 5,447 7,876 6,939 507 411 339 6,838 940 >90% 752 467 298 619 395 85% - 90% 5,845 <80% 80% - 85% 5,592 5,321 4,190 6,838 7,799 5,447 Jun 21 Jun 22 <80% LVR Jun 21 Jun 22 80-85% LVR Jun 23 85-90% LVR >90% LVR Jun 23 Housing Loans Other Loans (personal / business / overdrafts) Impairment expense was $3.3m higher than pcp, reflecting an increase in total collective provisions, consistent with an increase in arrears in a rising interest rate environment. MyState’s 30 and 90-day arrears remain below industry benchmarks at 0.81% and 0.34% respectively (30 June 2022: 0.41% and 0.20%). Net interest margin (NIM) trend Net interest income was up $22.3m or 20.3% on pcp as a result of a larger average balance sheet, partly offset by a fall in NIM. The fall in average NIM of 4 bps to 1.63% during the year reflects intense competition in the market for new home loans, higher funding costs and above-system loan book growth. 1.96% Arrears are higher than 12 months ago reflecting increases of 400bps in the official cash rate since May 2022 and the rising cost of living due to elevated levels of inflation. 1.67% 1.71% 1.55% 1.63% Central banks globally still have a fine balancing act ahead, to manage inflation down without stalling economic activity and pushing economies into recession. The Bank remains focused on low-risk, owner-occupied lending with a loan to valuation ratio (LVR) of less than 80%. Exposure to investor and interest-only lending remains relatively low compared to sector averages. The increase in loans with an LVR greater than 90% since June 2021 reflects the success of the Bank’s participation in the Federal Government’s First Home Loan Deposit Scheme (FHLDS) which is all owner-occupied lending. The FHLDS is an Australian Government initiative to support eligible customers purchase their first home sooner with as little as a 5% deposit. FY21 FY22 1H23 2H23 FY23 The National Housing Finance and Investment Corporation (NHFIC) provides a guarantee of up to a maximum amount of 15% of the value of a property (as assessed by MyState) purchased under the scheme. All non-FHLDS loans with an LVR >80% are mortgage insured. 3 MyState Limited Directors’ report continued Customer deposits ($m) TPT Wealth 6,236 Funds under management ($m) 3,374 TPT Wealth provided $14.3m in fee revenue and income diversification for the Group. 5,552 4,462 3,401 2,965 2,151 1,497 Jun 21 Jun 22 1,105 1,062 Jun-21 Jun-22 994 2,862 Jun 23 Customer deposits increased by 12.3% in the period driven by growth in term deposits with customers acquired evenly across the branch network, digital, online and third party channels. Jun-23 Income from wealth management activities decreased by $0.5m or 3.5% on pcp, with TPT Trustee Services income slightly lower over the year and Investment Services income lower due to a fall in average funds under management (FUM). The Bank’s online originated deposit portfolio grew an additional $229m to $1,130m (25.5%) from 30 June 2022. MyState welcomed a further 25,690 new to bank customers this financial year. FUM decreased $68m from 30 June 2022 with the Income Funds declining by $80m, partly offset by increases in the At Call Fund of $7m and the Growth Funds by $5m. Securitisation funding increased during the period and remains an important source of funding in conjunction with an increase in customer deposits. Capital position Non-interest income from banking activities decreased by $1.6m or 10.7% on pcp, as a result of lower transaction and loan fees. The Group’s total capital ratio increased to 15.43% at 30 June 2023 and the Group’s Common Equity Tier 1 ratio increased to 11.22%. Further capital flexibility was provided during the period by the inaugural issue of Additional Tier 1 capital and further securitisation. 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 strategy. On 1 January 2023, the Group transitioned to the Australian Prudential Regulation Authority’s (APRA) new bank capital framework and has met the new requirements at all times. Capital 1.43% 0.87% 0.47% 0.34% 0.48% 0.99% 12.41% 0.36% 15.43% 1.12% 1.89% 2.30% 2.32% 1.88% CET1 capital AT1 capital Tier 2 capital Increase Decrease 11.22% 10.53% Jun-22 Other Capital AT1 issuance initiatives Profit Dividends paid Capitalised intangibles Securitised assets Secured mortgage lending Basel 3 benefits Other asset growth Jun-23 4 MyState Limited Directors’ report continued Community Rounding of amounts MyState seeks to make a genuine difference to customers and the communities within which they operate. In accordance with applicable financial reporting regulations and current industry practices, amounts in this report have been roundedoff to the nearest one thousand dollars, unless otherwise stated. Any discrepancies between totals and sums of components in charts contained in this report are due to rounding. Since 2001, the MyState Foundation has awarded more than $2.6 million in grants to help not-for-profit organisations in Tasmania with a focus on helping young Tasmanians reach their full potential. In FY23, the MyState Foundation continued to support the Tasmanian community by providing grants of more than $175,000 to 20 recipients focused on providing greater opportunities for youth. Events subsequent to balance date In the opinion of the Directors, there has not arisen in the period between the year ended 30 June 2023 and the date of this report, any material item, transaction or event that is likely to significantly affect the operations of the Group. Outlook The Board-endorsed plan to accelerate growth in lending has gained momentum. In the medium term, the business is seeing the realisation of the benefits from its investment in digital capabilities, distribution and marketing to grow the customer base, while maintaining a strong risk culture to manage the risks associated with an uncertain economic environment. Environmental regulation The Group is not subject to any significant environmental regulation. A task force on Climate-Related Financial Disclosures (TCFD) Report outlining MyState’s baseline scope 1, 2 and 3 greenhouse gas (GHG) emissions associated with the activities and facilities that support the businesses’ everyday operations, will be included in MyState’s 2023 Annual Report. Lead auditor’s independence declaration under section 307C of the Corporations Act 2001 Directors’ meetings The number of meetings of Directors (including meetings of the Committees of Directors) held during the year and the number of meetings attended by each director are as indicated in the following table: The lead auditor’s independence declaration is set out on page 7 and forms part of the Directors’ Report for the year ended 30 June 2023. Directors’ meetings Group People, Remuneration & Nominations Committee* Group Digital and Marketing Committee MYS Board Meetings Group Audit Committee Group Risk Committee A B A B A B A B A B S Davy 15 15 7 7 5 5 4 4 n/a n/a R Gordon 15 15 n/a n/a 5 5 4 4 4 4 S Krieger 15 15 n/a n/a 5 5 4 4 n/a n/a W Lee 14 15 7 7 5 5 n/a n/a 3 4 B Morgan 15 15 n/a n/a n/a n/a n/a n/a n/a n/a V Richtor 14 15 6 7 5 5 4 4 4 4 A Waters 15 15 7 7 5 5 n/a n/a 4 4 MYS Directors A = Number of meetings attended. B = Number of meetings eligible to attend (Notes style) * The Group People and Remuneration Committee merged with the Group Nominations & Corporate Governance Committee on 1 June 2022 to become the Group People, Remuneration & Nominations Committee. (Notes style) 5 MyState Limited Directors’ report continued Indemnification and Insurance of Directors and Officers The Company has paid, or agreed to pay, a premium in relation to a contract insuring the Directors and Officers listed in this report against those liabilities for which insurance is permitted under Section 199B of the Corporations Act 2001. The Company has not otherwise, during or since the relevant period, indemnified or agreed to indemnify an Officer or Auditor of the Company or of any related body corporate against a liability incurred as such an Officer or Auditor. Non-Audit Services During the year, Wise Lord & Ferguson, the Company’s auditor has performed certain other services in addition to their statutory duties. Further details are set out in note 8.2 to the financial statements. The Board has considered the non-audit services provided during the year by the auditor and, in accordance with written advice provided by the Group Audit Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001, for the following reasons: • All non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Group Audit Committee, to ensure that they do not impact the integrity and objectivity of the auditor; and • The non-audit services provided do not undermine the general principles relating to auditor independence as they related to technical disclosure issues. 6 Auditor’s Independence Declaration to the Directors of MyState Limited In relation to our audit of the financial report of MyState Limited for the financial year ended 30 June 2023, 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. WISE LORD & FERGUSON NICK CARTER Partner Wise Lord & Ferguson Date: 18 August 2023 7 MyState Limited Remuneration report Letter from the Chair of the Group People, Remuneration and Nominations Committee Dear Shareholder, The 2023 financial year (FY23) marked a significant year of change for MyState Limited, the first full year with our new Mana ging Director and Chief Executive Officer Brett Morgan, a refresh of the executive team, and the second year of our growth strategy. On behalf of the Board, I present to you the Company’s Remuneration Report (Report) for FY23. In broad terms, the purpose of MyState’s executive remuneration framework has always been to facilitate long-term sustainable value creation for MyState’s shareholders. This includes ensuring levels of remuneration are market competitive to attract, motivate and ret ain suitably qualified individuals focused on MyState’s strategic priorities. The performance conditions and measurement timeframes are consistent with the objective of long-term sustainable growth, and our performance targets are designed to be challenging. The payment vehicles and ownership requirements are designed to align executive and shareholder interests, with the deferral and vesting periods designed for appropriate long range risk management, and to be consistent with the regulatory frameworks in which MyState con ducts business. The Report describes the Group’s Director and executive remuneration frameworks and how they contribute to the execution of our business strategy and support our values and desired culture. Our financial performance for FY23 was very strong in our banki ng business, while in comparison weaker performance in the wealth business resulted in gateway requirements for the payment of short-term incentives not being met. The Board has, however, exercised the discretion which it always holds and awarded cash bonuses to select Executives for their significant contribution to our record Group performance. FY23 Executive remuneration framework It may be helpful to recap the design principles that underlie the MyState executive remuneration framework, further details of which are set out in the Report: Executive remuneration arrangements should be fit-for-purpose for MyState’s overall business strategy and appropriate for the size and complexity of the business. Remuneration should be competitive in the market to ensure that MyState is able to attract, motiv ate and retain talented executive leaders. Remuneration, particularly MyState’s incentive arrangements, should be aligned to the interests o f MyState’s shareholders. Executive remuneration should drive appropriate behaviours and support the desired culture. Rem uneration frameworks should be simple, transparent and readily linked to MyState’s strategic objectives. Short-term incentive: STI performance is measured over a single financial year. STI payments are subject to financial and non-financial gateways and are also subject to overriding Board discretion. The performance measures for STI vary from executive to executive to take into account their spheres of control and influence, but also to encourage teamwork and collaboration. STI performance measures are a mixture of financial and non-financial measures including risk management. The Group People, Remuneration and Nominations Committee meets jointly with the Group Risk Committee each year to see that risk management is properly reflected in variable remuneration outcomes. Long-term incentive: MyState has a long-term incentive (LTI) arrangement that has been designed to align executives with long-term value creation for shareholders. The LTI design aims to provide executives with a simple, transparent and meaningful incentive. LTI performance is measured over three years with an additional holding lock of a further two years. LTI awards are subject to return on equity and relative total shareholder returns performance hurdles, and are also subject to overriding Board discretion. Minimum shareholding requirements: Consistent with ASX practice, MyState has minimum shareholding requirements for its Non-Executive Directors and Managing Director, such that each individual is required to build and maintain a minimum level of shareholding in MyState to align their interests with shareholders. The minimum shareholding requirement is determined by reference to base fees or fixed reward. External advice: From time to time we seek independent advice in respect of the structure and levels of our executive remuneration and NonExecutive Director fees to ensure that they remain competitive compared with the markets from which we recruit. In the course of FY23 we sought advice from Mercer which will be taken into account in setting Executive and Non-Executive remuneration for FY24. We hope that you find this brief overview helpful in understanding the context in which we think about executive and non -executive remuneration and in which the Report was prepared. We welcome your feedback. Please email any comments to secretariat@mystatelimited.com.au. Sibylle Krieger Chair – Group People, Remuneration and Nominations Committee 8 MyState Limited Our people and our company Key Management Personnel and Directors who served our company in the year ended 30 June 2023 were: Group, People, Remuneration and Nominations Committee Name Role Commenced Vaughn Richtor Chairman 1 September 2019 Stephen Davy Non-Executive Director 1 July 2021 Robert Gordon Non-Executive Director 12 February 2009    Sibylle Krieger Non-Executive Director 1 December 2016 Chair Warren Lee Non-Executive Director 19 October 2017 Andrea Waters Non-Executive Director 19 October 2017 Brett Morgan Managing Director, Chief Executive Officer 17 January 2022 Gary Dickson Chief Financial Officer 19 October 2019 Mandakini Khanna Chief Risk Officer 12 December 2015 Paul Moss Chief Operating Officer 13 May 2015 Tim Newman General Manager Lending 12 June 2023 Janelle Whittle General Manager People, Community and Public Affairs 22 January 2018 Claudio Mazzarella General Manager Everyday Banking and Marketing 29 May 2023 Name Role Ceased Heather McGovern General Manager Digital and Marketing 13 July 2022 Alan Logan General Manager Wealth Management 9 June 2023 Huw Bough General Manager Banking 2 October 2023 9 MyState Limited Our remuneration framework Philosophy and principles MyState Limited’s remuneration policy is founded on a company-wide commitment to transparency, ethical practices and the creation of long-term value. The framework is designed to encourage and reward actions by executives that deliver positive results for both customers and shareholders through good discipline and strong financial performance, prudent risk management, and the maintenance and enhancement of our company’s earned and valued reputation for trustworthiness in the market for financial services. The remuneration policy is designed to support these objectives through: • Appropriately structured performance-based pay for executives and other eligible employees, including short-term and long-term incentive plans. • Recognition and reward for strong performance linked to both favourable customer experiences and positive sustainable returns to shareholders. • A thoughtful balancing of the company’s capacity to pay and our need to attract and retain excellent staff at all levels. • Careful structuring of remuneration for our risk and financial control managers, including performance-based payments, to preserve their independence in carrying out their important roles. • Board discretion over variable remuneration generally, including discretion to apply malus (reduction or forfeiture) to executive incentives, when appropriate, to preserve the interests of shareholders and customers and avoid unexpected or unjust outcomes. • Enhancement of risk management and governance by maintaining separate structures for Non-Executive Director remuneration and Executive remuneration. Directors’ remuneration MyState’s Non-Executive Directors (NEDs) are paid annual fixed fees, including statutory superannuation, for their services. They are also entitled to reimbursement of reasonable expenses. Unlike executives, Non-Executive Directors do not receive short-term or long-term incentive payments. The Board determines the level of fees paid to non-executive directors according to two main criteria: • the level of skill and experience required to conduct their roles • the level of fees needed to attract and retain talented Non-Executive Directors. The Board has obtained independent advice from Mercer executive remuneration consultants to guide its deliberations on Director fees. The aggregate remuneration paid to all NEDs, including statutory superannuation, may not exceed the amount fixed by shareholders, which is currently $950,000 per year. This total amount has now remained unchanged for 11 years. Each NED currently receives a base fee of $110,000 per annum, and the Chairman receives $236,500 per annum. Chairs of Board Committees (other than the Board Chair) receive an additional $10,000 per annum, the TPT Wealth Limited Board Chair receives an additional $30 000 per annum and the Deputy Chair receives an additional $10,000 per annum. 10 MyState Limited Managing Director and executive remuneration Executive remuneration mix MyState Limited’s remuneration packages for the Managing Director and executives who report directly to the Managing Director are structured to support the company’s ability to attract and retain talented and experienced leaders, and to provide incentives and rewards for high performance and achievement of the company’s goals and objectives over the short, medium and long term. Executive remuneration packages comprise three elements: total fixed reward (TFR), cash-based short-term incentives (STI) and equity-based long-term incentives (ELTIP). 1. Total fixed reward TFR 2. Cash-based short-term incentives STI 3. Equity-based long-term incentives ELTIP Total fixed reward (TFR) for executives, including the Managing Director, comprises a fixed base salary, superannuation contributions and optional salary sacrifice. The level of payment is set with reference to: Cash-based short-term incentives (STI) provide appropriate rewards to executives for meeting or exceeding performance targets and achieving our core company goals – both financial and non-financial. To this end, STI performance measures and associated targets are set with reference to the drivers of annual company performance and the roles of individual executives in achieving positive business outcomes. The level of STI assigned to executives is calculated annually using an STI ‘scorecard’, which comprises multiple performance elements. These include financial, growth, cultural, risk and compliance, reputational, customer and stakeholder measures. Financial and nonfinancial gateways serve to balance reward with MyState’s profitability and to avoid rewarding conduct that is inconsistent with our values and risk framework. The STI is calculated as a percentage of TFR for each role, and the maximum percentage of TFR payable as an STI is determined by the Board. Long-term incentive payments to executives, in the form of company shares or performance rights, under the Executive Long-Term Incentive Plan (ELTIP) exist to encourage and culturally embed long-term thinking and risk management among our company leaders. Long-term planning plays an indispensable role in preparing the company to meet future challenges in an evolving financial services marketplace, and to take advantage of new opportunities as they arise. MyState’s ongoing transition to a national, digital business model exemplifies this approach – one designed to meet the ever-changing needs of customers and to sustain long-term value for shareholders. • the relative strategic value and importance of the role. • the complexity and breadth of the role. • experience and skills required. • external market considerations for comparable positions. Base salary rates are set with a view to attracting and retaining talented and culturally aligned executives, while delivering value to shareholders. Executive salaries are periodically reviewed to take into account external market conditions, the business-critical nature of the role, and individual performance. FY2024 Executive remuneration breakdow