Announcement PDF 18 August 2017 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 2017 The Directors of MyState Limited (the “Company”) are pleased to announce the audited results of the Company for the year ended 30 June 2017 as follows: RESULTS FOR ANNOUNCEMENT TO THE MARKET $’000 $’000 30 June 2017 30 June 2016 % Change Income from operations 124,616 123,422 0.97% Profit after tax attributable to members 30,080 28,334 6.16% 30,080 28,334 6.16% Extracted from the Financial Statements for the year ended Net profit after tax attributable to members Dividends for the current year are: Amount per security Franked amount per security 14.0 cents 14.0 cents 14.5 cents 14.5 cents Amount per security Franked amount per security 14.5 cents 14.5 cents Interim Dividend 2017 fully franked at 30% Paid 10 March 2017 Final Dividend 2017 fully franked at 30% Payable 13 September 2017 Record Date for determining entitlements for final dividend – 24 August 2017 Dividends for the previous year are: Final dividend – 2016 fully franked at 30% Paid 3 October 2016 Dividend Reinvestment Plan Last Date for Receipt of DRP Election The MyState Limited Dividend Reinvestment Plan is operational for this Final Dividend 2017 Net Tangible Assets per share 25 August 2017 2017 2016 247 cents 248 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 2017. 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 Directors’ Report MyState Limited ABN 26 133 623 962 Directors’ Report Your Directors present their report on MyState Limited for the financial year ended 30 June 2017. Directors  Miles L Hampton BEc (Hons), FCIS, FCPA, FAICD Chairman and independent non-executive Director.  Melos A Sulicich BBus, GAICD, SA FIN Managing Director – Executive Director.  Peter D Armstrong BEc (Hons), DipED, Dip FP, CPA, FAICD, FAMI Independent non-executive Director.  Brian V Bissaker BEc, FCA Independent non-executive Director. (Retired 18 May 2017).  Robert L Gordon BSc, MIFA, MAICD, FAMI Independent non-executive Director.  Colin M Hollingsworth CPA, MAICD, FAMI Independent non-executive Director.  Stephen Lonie BCom, MBA, FCA, FFin, FAICD, FIMCA Independent non-executive Director.  Sarah Merridew BEc, FCA, FAICD Independent non-executive Director. (Retired 18 May 2017).  Sibylle Krieger LLB (Hons), LLM, FAICD, MBA Independent non-executive Director. (Appointed 1 December 2016). Company Secretary  Scott A Lukianenko Ad Dip BMgmt, Grad Cert BA, GIA (Cert). 1 MyState Limited Directors’ Report Principal Activities Banking Services   Trustee Services Wealth Management Personal, residential and  Estate planning  Managed fund investments business banking  Estate and trust administration  Financial planning Transactional internet &  Power of attorney  Portfolio administration mobile banking  Corporate trustee services  Savings and investments  Portfolio advisory services  Insurance and other alliances  Private client services MyState Limited provides banking, trustee and wealth management products and services through its wholly-owned subsidiaries MyState Bank Limited and Tasmanian Perpetual Trustees Limited. There have been no significant changes in the nature of the principal activities of the Group during the financial year. Operating and Financial Review The Group posted a statutory profit after income tax for the year ended 30 June 2017 of $30.080 million (2016: $28.334 million). Dividends The Directors have declared a fully franked (at 30%) final dividend of 14.5 cents per share. The dividend will be payable on 13 September 2017 to shareholders on the register at 5pm EST on 24 August 2017. Dividends paid in the year ended 30 June 2017 were as follows:  In respect of the year ended 30 June 2016, a fully franked dividend of 14.5 cents per share, amounting to $12.740 million, was paid on 3 October 2016.  In respect of the half year ended 31 December 2016, a fully franked dividend of 14 cents per share, amounting to $12.302 million, was paid on 10 March 2017. 2 MyState Limited Directors’ Report Review and Results of Operations Financial Performance Net Profit after Tax 31.1 (i) 29.6 29.7(i) 30.1 28.5 2013 MyState Limited recorded a statutory net profit after income tax for the year ended 30 June 2017 of $30.080 million, an increase of 6.2% on the prior year of $28.334 million (or a 3.2% reduction 1 on the FY16 underlying result ). Earnings per share, on an underlying basis, decreased by 4.2% to 34.0 cents per share on the prior year and return on equity decreased 63bps to 10.0%. 2014 2015 2016 2017 (i) Underlying results exclude on a post-tax basis: FY16 - $1.8m M&A related costs, $1.0m write down of intangible software FY15 - $3.9m profit on sale of Cuscal shares , $1.1m restructuring costs Whilst the FY17 result has declined slightly on the prior year, MyState has grown its business and delivered a program of investment in digital technology platforms and capability to create a simpler, more customer-centric business, notwithstanding strong competition in the market and sectoral headwinds. Executing on business transformation FY17 was a year in which MyState made significant progress delivering a technology program to position MyState as a highly scalable, modern banking and wealth management business. The main components of this program are now in place. MyState recently consolidated its core banking systems, which has simplified its business, reduced risk, and enables the business to deliver better customer outcomes in a more efficient manner. MyState also launched a new internet and mobile banking platform during the year and completed its ‘Apply’ project, which enables online origination for deposit accounts and personal loans. MyState also became a leader in mobile payment offerings, successfully launching Apple Pay, Samsung Pay and Android Pay during the year. These initiatives are fundamentally important to MyState’s strategy to provide contemporary banking services to customers and to grow and simplify its business through digital offerings. MyState also consolidated data centres and implemented and enhanced its customer relationship management platform to understand and react to customers needs more effectively. A new contact centre system has also significantly improved MyState’s offering and enables improved customer service and operational productivity. 1 Unless otherwise indicated, all comparisons are to the prior full year ended 30 June 2016 which was reported on an ‘underlying basis’.FY2017 results are presented on a statutory reporting basis as no adjustments were made to report on an ‘underlying basis’. FY2016 underlying basis excludes $1.8m after tax M&A related costs and $1.0m after tax accelerated write down of intangible software assets 3 MyState Limited Directors’ Report As the dynamics of the banking sector continue to shift at a rapid pace, MyState has rapidly transformed and modernised its technology platforms and digital offerings to keep pace with changing customer needs and to grow its business beyond traditional distribution channels and geographies. Growth in high quality credit High quality asset growth and credit performance 3.54 The Banking division continued to increase market share, with the loan book growing $416m or 10.8%. Whilst this growth was well above national system (at 1.6x system), asset quality was again a highlight. 2015 Impairment charges remain at historic lows with 30 day arrears performance of 0.51% and 90 day arrears of 0.28%, well below benchmarks for both major and regional banks. Impairment expense decreased by $1.0m or 82.5% on the prior year, reflecting a quality loan portfolio growing in lower risk, lower loan to valuation ratio (LVR) home loans. 4.27 Loan Book ($B) 3.85 3.05 2014 2016 2017 Home loan book by LVR ($m) 420 323 433 2,195 June 15 <80% 392 316 446 2,509 312 296 416 3,052 With a strong focus on growing in lower LVR home loans, MyState grew its less than 80% LVR portfolio by 22% and reduced its portfolio of loans with greater than 80% LVR by 11%. Whilst this strategy has come at some expense to margin, MyState has grown prudently and has built in resilience to any potential changes in the economic and housing cycle. June 16 June 17 80% - 85% 85-90% >90% Modest income growth amidst strong competition and sectoral headwinds MyState’s total income increased by $1.2m or 1% during the year. Net interest income decreased by 0.9% as a result of heavy competition for home loans in MyState’s key market focus of lower risk, lower LVR, owner occupier home loans. Non-interest income grew by $1.97m or 5.7%. Net interest margin decreased to 1.93%, 20bps below the prior year, reflecting increased competition for owner-occupied home loan business and deposit funding. A focus on margin management enabled a flat NIM profile across the two halves of the year. MyState’s NIM remains above its regional peer group and margin management continues to be a key focus for the business. Deposits grew strongly through all channels, including for MyState’s ‘eSaver’ product, launched earlier in 2017. Customer deposits grew to nearly $3 billion, up 10% from $2.7 billion a year ago. NIM waterfall 0.13% 0.16% 0.19% 2.36% 0.36% 2.13% 0.03% 0.01% 0.22% 0.01% 1.93% FY 2015 FY 2016 Asset Price Origination Costs Asset Mix Funding Price Funding Mix FY 2017 Origination costs 4 MyState Limited Directors’ Report The Wealth management business benefited from record growth in funds under management and growth in financial planning. FUM and FUA ($m) $778 $782 $738 $1,017 $1,008 FY15 FY16 FY17 Funds Under Management Funds Under Advice $1,089 Returns to investors in the income funds outperformed their benchmarks and strong demand from retail and wholesale clients grew funds under management to $1.089 billion, an increase of 8% on the prior year. A strengthened financial planning team also supported an increase in funds under advice, which grew by 6% to $778 million. FY17 was a challenging year for the trustee business. The value of estates under administration were well below that of FY16 and revenue declined as a result. Trustee business income improved in the second half of FY17, with the business having stabilised on account of the prioritisation of generating new wills and revising existing wills over the past three years. Investments to deliver cost and productivity improvement over time The Group continues to manage its cost base prudently. Expense growth was contained to 1.3% on a statutory reporting basis and 3.7% on an underlying basis. The cost to income ratio increased from 64.3% to 65.9%. Whilst costs increased over the previous year, the increases reflect the investments in technology platforms and digital capability, which position MyState as a highly scalable modern banking business, able to deliver better customer outcomes in a more efficient manner. With most of the larger scale technology investments either complete or nearing completion, the business is now in a position to increase efficiency and reduce the cost to income ratio in the coming period. Strong capital position Total Capital Movements 1.90% 13.0% Tier 2 Tier 1 1.56% 0.57% 1.40% 1.96% 1.33% 0.29% 13.3% 1.61% 2.01% 11.43% 11.28% FY16 Capital initiatives Profit Dividends paid Capitalised intangibles Securitised assets Secured mortgage lending Other asset growth Tier 2 Tier 1 FY17 5 MyState Limited Directors’ Report The Group has maintained its balance sheet strength, with a capital ratio at 13.3%, a 25bps improvement on the prior year. MyState’s capital strategy was supported by multiple RMBS issuances in FY17, along with further issuance of subordinated notes. The more recent $400 million RMBS was our largest such transaction to date and was well supported by an increasingly broad investor base. MyState’s strong and efficient capital strategy also includes the use of the dividend reinvestment plan to support continued lending growth and digital banking platform investments. MyState is also well positioned to meet APRA’s unquestionably strong CET1 ratio requirements by 1 January 2020. Risk Management MyState has also invested in strengthening its risk management capability and has made significant progress in imbuing risk awareness into organisational culture. MyState’s approach to risk management is overseen by the Board and its Group Risk Committee and is supported by a well defined risk appetite statement, contemporary processes and systems and an industry standard three lines of defence model which supports the identification, assessment, evaluation and management of risk. Conduct risk is an area of risk that has attracted much attention within the sector and MyState’s long-standing commitment to delivering great customer outcomes has been re-affirmed by the appointment of a Customer Advocate during the year, a role independent from the bank’s existing complaints resolution process. The Board looks across the full risk profile of the business and currently has identified the following key risks including:     Market risk arising from intense competition for quality lending opportunities. Compliance risk in a highly regulated sector. Regulatory capital requirements that impact our capacity to grow. Cyber/digital security risk. We have established key actions to mitigate these risks. Outlook Economic conditions within Tasmania continue to trend positively, with the broader Australian economy also maintaining a healthy level of economic growth. Credit growth in the sector appears to be moderating, and coupled with regulator restrictions on investor and interest only lending, it is expected that intense competition for owner occupied lending will continue. Notwithstanding this outlook, MyState expects to continue to be able to achieve above-system lending growth and maintain a quality of loan book that performs favourably in comparison to the major banks and regional peers. MyState remains focused on the management of margins and as MyState’s net interest margin remains above that of regional peers and it continues to grow above system, it is expected that some margin decline will continue. The performance of the Trustee business has stabilised and more recent upward trends in key income drivers such as funds under management, funds under advice and estates under administration which indicate an improved outlook for the Wealth business. With the main elements of the technology transformation program nearing completion, MyState is poised for further growth and productivity improvement across the business. More customers are 6 MyState Limited Directors’ Report using MyState’s internet and mobile digital channels in preference to branches and the business will continue to leverage its technology platform, to ensure channels and points of presence are aligned with customer needs and products and services also keep pace with the changing landscape. MyState is participating in the launch of the New Payments Platform, which is intended to bring real time payment to customers in November 2017. As the dynamics of the banking landscape change, MyState remains focused on helping customers with simpler, more relevant and more accessible products. MyState also expects these investments to facilitate further revenue growth, deliver productivity and efficiency benefits and therefore, improved shareholder returns. MyState has a clear strategy of organic growth, responding to the changing needs of customers, whilst remaining true to its purpose of helping people achieve their dreams. MyState is well capitalised with sound credit and risk management processes and remains confident of future growth prospects. State of Affairs During the financial year, there was no significant change in the state of affairs of the Company other than referred to in the review and results of operation. Events Subsequent To Balance Date In the opinion of the Directors, there has not arisen, in the period between the end of the financial year and the date of this report, any material item, transactions or event that is likely to significantly affect the operations of the consolidated entity. Likely Developments and Expected Results Directors do not foresee any material changes in the likely developments in the operations or the expected results of those operations in future financial years. Directors consider that the disclosure of additional information in respect of likely developments in the operations or the expected results of those operations may unreasonably prejudice the Company. Accordingly, this information has not been disclosed in this report. Environmental Regulation The Company is not subject to significant environmental regulation. 7 MyState Limited Directors’ Report 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: MyState Limited Directors’ Meetings 2016/2017 Board Meetings Group Audit Committee Group Remuneration Committee Group Risk Committee Group Nominations & Corporate Governance Committee Group Technology Committee A B A B A B A B A B A B P Armstrong 15 18 n/a n/a 6 6 n/a n/a 4 4 n/a n/a B Bissaker (resigned 18/5/17) 15 17 4 5 n/a n/a 5 5 n/a n/a n/a n/a R Gordon 17 18 n/a n/a n/a n/a 5 5 4 4 5 5 M Hampton 18 18 6 6 6 6 n/a n/a 4 4 n/a n/a C Hollingsworth 18 18 6 6 n/a n/a 5 5 n/a n/a n/a n/a S Krieger (appt 1/12/17) 7 7 n/a n/a 2 2 1 1 n/a n/a 2 2 S Lonie 18 18 6 6 6 6 n/a n/a n/a n/a 5 5 S Merridew (resigned 18/5/17) 16 17 n/a n/a n/a n/a 5 5 n/a n/a 5 5 M Sulicich 18 18 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a A - Number of meetings attended B - Number of meetings eligible to attend 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 the auditor independence as they related to technical disclosure issues. 8 MyState Limited Directors’ Report Auditor’s Independence Declaration to the Directors The Directors received the following declaration from the auditor of the Company: “In relation to our audit of the financial report for the consolidated group for the financial year ended 30 June 2017, 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. This declaration is in respect of MyState Limited and the entities it controlled during the period. J Doyle Partner Wise Lord & Ferguson Hobart ” Dated 18 August 2017 9 MyState Limited Directors’ Report MyState Limited Remuneration Report This Remuneration Report forms part of the Directors’ Report and outlines the Director and Executive remuneration arrangements of MyState Limited (the Company or MYS) for the year ended 30 June 2017, in accordance with the requirements of the Corporations Act 2001 and its regulations. For the purposes of this report, Key Management Personnel (KMP) are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any Director (whether Executive or otherwise) of the Company. Contents 1. Group Remuneration Committee 2. Remuneration Philosophy 3. Consequences of Performance on Shareholder Wealth 4. Key Management Personnel 5. Non-Executive Director Remuneration 6. Managing Director and Executive Remuneration 6.1 Fixed Annual Remuneration 6.2 Short Term Incentive 6.3 Executive Long Term Incentive Plan 7. Remuneration of Key Management Personnel 8. Shareholdings of Key Management Personnel 9. Loans to Key Management Personnel 10. Contract Terms and Conditions 10 MyState Limited Directors’ Report 1. Group Remuneration Committee The Board has established a Group Remuneration Committee that assists the Directors in discharging the Board’s responsibilities in relation to remuneration and human resources by reviewing and making recommendations to the Board on:  Remuneration policy and arrangements for Directors, the Managing Director and other Executives, having regard to comparative remuneration in the financial services industry and independent advice, including assessment of the Remuneration Policy’s effectiveness and compliance with the requirements of APRA Prudential Standards;  Applicable Human Resource Policies, Practices and ratification of industrial instruments to ensure compliance with all legal and regulatory requirements;  Matters such as the Company's Employee Share Scheme or other incentive schemes for Executives and staff; and  Succession planning, to ensure the Company has sufficiently skilled staff to competently perform their roles. The Group Remuneration Committee monitors to ensure there is no conflict of interest, actual or perceived, regarding Executive Director involvement in Board decisions on remuneration packages and also in monitoring the involvement of Management generally in Committee discussions and deliberations regarding remuneration policy. No Executive is directly involved in deciding their own remuneration to ensure conflict of interest does not occur. 2. Remuneration Philosophy The objective of the Company's Remuneration Policy is to encourage behaviours that support the sustained financial performance and security of the Group and to reward Executive and Management efforts which increase shareholder and customer value. The Remuneration Policy is premised on:  Appropriately balanced measures of performance;  Variable performance based pay for Executives involving short and long-term incentive plans;  Recognition and reward for strong performance;  A considered balance between the capacity to pay and the need to pay to attract and retain capable staff at all levels;  The exercise of Board discretion as an ultimate means to mitigate unintended consequences of variable pay and to preserve the interests of the shareholders; and  Short-term and long-term incentive performance criteria being structured within the overall risk management framework of the Company. In accordance with best practice corporate governance, the structure of Non-Executive Director remuneration is separate and distinct from Executive remuneration. Composition of CEO and EMT Remuneration Packages The Company links the nature and amount of the remuneration of the Executive Management Team (EMT), comprising the Managing Director and Executives directly reporting to the Managing Director, to its financial and operational performance. The remuneration packages for the EMT are based on a notional Total Target Reward (TTR) which from time to time may comprise one or more of the following: 11 MyState Limited Directors’ Report  Total Fixed Reward (inclusive of superannuation and salary sacrifice) (TFR);  Cash based short term incentives (STI); and  Equity based long term incentives (LTI). 3. Consequences of Performance on Shareholder Wealth In considering the Company's performance and benefits for Shareholder wealth, the Group Remuneration Committee has regard to the following indices: Indicator 2013 2014 2015 2016 Underlying Profit after income tax ($'000) 28,457 29,571 29,719 31,062 30,080 Underlying Earnings per share (cents) 32.68 33.91 34.04 35.52 34.04 Dividends paid ($'000) 24,378 24,417 24,880 24,886 25,042 Share price (dollars) 4.24 4.64 4.83 4.13 4.85 10.2% 10.5% 10.4% 10.6% 10.0% Underlying Return on equity 2017 The performance measures for triggering both the Company’s cash based Short Term Incentive Plan (STI) and Executive Long Term Incentive Plan (ELTIP) have been tailored to align "at-risk" remuneration and performance hurdle thresholds to the delivery of financial and operational objectives and sustained shareholder value growth. STI, from time to time, includes financial and non-financial metrics. ELTIP performance measures are based on total shareholder return (TSR) for the "2013" offer. For the "2014" and "2015" offers, the measures are weighted equally between relative TSR performance and absolute return on equity (ROE). For the "2016" offer, the measures are weighted equally between relative TSR performance and absolute post tax underlying ROE. The relative TSR is a measure which incorporates both dividends paid and movements in share prices, whilst absolute ROE and absolute post tax underlying ROE are measures of corporate profitability. 12 MyState Limited Directors’ Report 4. Key Management Personnel The Key Management Personnel (KMP) of the Company in office during the year and up to the date of this report was as follows: NAME Non Executive Directors Miles Hampton Peter Armstrong Brian Bissaker Robert Gordon Colin Hollingsworth Sibylle Krieger Stephen Lonie Sarah Merridew Executive Directors Melos Sulicich Executives Huw Bough Katherine Dean David Harradine Colleen Harris Mandakini Khanna Jessica Kingston Paul Moss Aaron Pidgeon Andrew Polson Chris Thornton POSITION Non Executive Chairman Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director MOVEMENTS IN 2017 FINANCIAL YEAR Retired 18 May 2017 Appointed 1 December 2016 Retired 18 May 2017 Managing Director and Chief Executive Officer General Manager Mortgage Broker Distribution General Manager Sales and Distribution General Manager Retail Banking Sales and Service Chief Financial Officer General Manager, People Chief Risk Officer Acting General Manager Human Resources & Property General Manager Technology and Operations General Manager Human Resources & Property General Manager Wealth Management General Manager Product and Marketing New role 20 February 2017 Outgoing role 19 February 2017 Appointed 20 February 2017 Appointed 25 July 2017 Appointed 22 February 2017 Ceased 24 July 2017 Ceased 22 February 2017 13 MyState Limited Directors’ Report 5. Non-Executive Director Remuneration The Company’s Non-Executive Directors (NEDs) receive only fees, including statutory superannuation, for their services and the reimbursement of reasonable expenses. These fees may be taken as shares subject to prior shareholder approval. They do not receive any retirement benefits other than statutory superannuation. The Board reviews its fees to ensure the Company's NEDs are fairly remunerated for their services, recognising the level of skill and experience required to conduct the role and that the fee scale will enable the Company to attract and retain talented NEDs. The advice of independent remuneration consultants is taken to ensure that the Directors’ fees are in line with market standards. The aggregate remuneration paid to all the NEDs, inclusive of statutory superannuation, may not exceed the $950,000 amount fixed by Shareholders at the October 2012 Annual General Meeting of Shareholders. This “fee pool" is only available to NEDs. Each NED currently receives $85,000 per annum inclusive of statutory superannuation and the Chairman receives $212,500 per annum inclusive of statutory superannuation. The Chair of the Group Audit Committee receives an additional $15,000 per annum inclusive of statutory superannuation and all other Board Committee Chairs receive an additional $12,500 per annum inclusive of statutory superannuation. Additionally, Members of Board Committees who are not Chairs are paid $5,000 per annum per committee, inclusive of statutory superannuation. 6. Managing Director and Exe