Announcement PDF 21 August 2015 The Manager Company Announcements Australian Securities Exchange 20 Bridge Street Sydney NSW 2000 Dear Sir MyState Limited – Preliminary Final Report (Appendix 4E) for the year ended 30 June 2015 The Directors of MyState Limited (the “Company”) are pleased to announce the audited results of the Company for the year ended 30 June 2015 as follows: RESULTS FOR ANNOUNCEMENT TO THE MARKET $’000 $’000 30 June 2015 30 June 2014 % Change Income from operations 125,116 119,256 4.91% Profit after tax attributable to members 32,513 29,571 9.95% 32,513 29,571 9.95% 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 14.5 cents 14.5 cents 2015 2014 250 cents 238 cents Interim Dividend 2015 fully franked at 30% Paid 24 March 2015 Final Dividend 2015 fully franked at 30% Payable 2 October 2015 Record Date for determining entitlements for final dividend – 11 September 2015 Dividends previous year are: Final dividend – 2014, fully franked at 30% Paid 3 October 2014 No Dividend reinvestment plans are operational for the final dividend Net Tangible Assets per share 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 On the 14th of August 2015, the group issued $25 million of floating rate subordinated notes (“notes”). The issuer was MyState Bank Limited. The notes have a term of 10 years (maturing 14 August 2025) and will pay interest quarterly at a floating rate equal to the threemonth BBSW plus a margin of 5.00% per annum. The issuer has the option to redeem all or some of the notes on 14 August 2020 and each quarterly interest payment date thereafter, and for certain regulatory events (in each case subject to APRA’s prior written approval). If APRA notifies the issuer that a non-viability trigger event has occurred, the notes will be converted into ordinary shares of MyState Limited, or written-off. The amount included in the Level 2 Group’s regulatory capital is 75% of the face value of the notes on issue. MyState Bank Limited includes 100% at level 1. At both levels, the notes will be classified as Tier 2 Capital. If these notes were on issue at 30 June 2015, Total Capital Ratio for the Level 2 Regulatory Group would have been 13.94%. 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 21 August 2015. 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 Yours sincerely 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 (the Company) for the financial year ended 30 June 2015. Directors and Company Secretary The names and particulars of the Directors and Company Secretaries in office during the year and since the end of the year are: Directors  Miles L Hampton BEc(Hons), FCIS, FCPA, FAICD Chairman and independent non-executive Director  Melos A Sulicich BBus, GAICD Managing Director  Peter D Armstrong BEc(Hons), DipED, Dip FP, CPA, FAICD, FAMI Independent non-executive Director  Robert L Gordon BSc, MIFA, MAICD, FAMI Independent non-executive Director  Colin M Hollingsworth CPA, MAICD, FAMI Independent non-executive Director  Ross A Illingworth B Bus (HR), GAICD, CFP Independent non-executive Director (Appointed 17 December 2014, Resigned 12 June 2015)  Stephen Lonie BCom, MBA, FCA, Senior FFin, FAICD, FIMCA Independent non-executive Director  Ian G Mansbridge CPA, FCIS, FCIM, FGIA Independent non-executive Director  Sarah Merridew BEc, FCA, FAICD Independent non-executive Director Company Secretary  Scott A Lukianenko Ad Dip BMgmt, Grad Cert BA, GIA (Cert) Company Secretary MyState Limited Directors’ Report Principal Activities Banking Services Trustee Services Wealth Management  Transactional and internet  Estate planning  Financial planning banking  Estate and trust administration  Managed fund investments  Insurance and other alliances  Power of attorney  Portfolio administration  Savings and investments  Corporate and custodial trustee  Business banking  Portfolio advisory services  Agribusiness  Private client services  Personal, residential and services business lending MyState Limited, the listed diversified financial services group based in Tasmania, provides a range of financial products and services to existing and new customers through its whollyowned subsidiaries MyState Bank Limited and The Rock Building Society Limited, a bank and authorised deposit-taking institution respectively, and Tasmanian Perpetual Trustees Limited, the trustee and wealth management company. 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’s net profit after income tax for the year ended 30 June 2015 was $32.513 million (2014: $29.571 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 2 October 2015 to shareholders on the register at 5pm EST on 11 September 2015. Dividends paid in the year ended 30 June 2015 were as follows:  In respect of the year ended 30 June 2014, a fully franked dividend of 14.5 cents per share, amounting to $12.660 million, was paid on 3 October 2014.  In respect of the half year ended 31 December 2014, a fully franked dividend of 14 cents per share, amounting to $12.220 million, was paid on 24 March 2015. Total dividends to be paid from the 2015 financial year results amounts to 28.50 cents per share. The payout ratio of 77% remains in the Board’s policy range of 70% to 90%. MyState Limited Directors’ Report Review and Results of Operations Financial Performance MyState Limited posted a record statutory profit after income tax for the year ended 30 June 2015 of $32.513 million, an increase of 9.95% on the prior year. Underlying profit after tax was $29.7m, an increase of 0.3% on the prior year. The underlying result removes the impact of the profit on sale of Cuscal shares and costs associated with restructuring of executive and senior management positions within the Group. The board regards the underlying result as solid in a year when the business made significant changes which will benefit customers and shareholders in future years. Those changes included the revitalisation of the executive team, restoring growth in the loan portfolio, simplifying the business, as well as embedding a high staff performance culture and strengthened sales management. These changes will ensure that the business is well placed in its pursuit of becoming Australia’s number 1 regional bank. The strong growth in the loan book is a testament to the success of the new sales initiatives and enhanced sales culture. Initiatives included establishing a dedicated sales team, hiring experienced business development managers and improving systems to increase the speed of loan approvals. Further improvements are expected over the next 12 months that will support continued growth and MyState’s goal of assisting its customers to achieve their dreams. The businesses’ broker strategy has succeeded in generating growth in the loan book which increased by 16.3% to $3.5 billion, compared with a 1.3% contraction in the previous year. 2015 financial year settlements reached $1 billion, a milestone for the Group. Credit quality remains sound, with investor loans remaining well below industry levels at 13% of the home loan book, and geographic diversification continues to be built into the portfolio. Whilst Tasmanian-based assets grew over the year, their proportion of the total asset base declined by 6.9% to 60.2%. Tasmanian-based settlements comprised 37% of total settlements, with Queensland making up 19%. The shift in settlements from the core markets has moved largely to New South Wales and Victoria with nearly 2 out of every 10 settlements occurring in those two States. MyState Limited Directors’ Report Income Net Interest Income (NII) growth remained challenging during the year, largely due to RBA rate cuts. The RBA cut the cash rate by 0.25% on 4 February 2015 and then, by a further 0.25%, on 6 May 2015 leaving the official interest rate at a historic low of 2.0%. Overall, the banking division’s NII declined by $0.782m/ 0.93%. However, the Directors expect a reversal of this trend as the benefits of the strong loan growth, particularly in the second half will be realised in FY16 and beyond. The Net Interest Margin declined during the year by 15bps to 2.28%, predominantly due to pressures on asset yields. This was partly offset by funding cost benefits through strong management of the liability base. Banking non-interest income declined by $0.233m/ 2.1%, due to reductions in customer account transactions fees. This was offset by pleasing loan fee income growth, which was boosted by the strong settlement numbers. In the wealth management and trustee business, the 1.0% growth in Funds Under Management generated an additional $0.182m/ 2.0% on the prior year. Capital and income commissions from the Trustee Services arm grew by $0.263m/ 8.0%. This is on the back of a $12.0m/ 14.6% growth in open estates. Expenses Statutory operating expenditure increased by 2.0% driven by restructuring costs and investments in embedding the MyState brand through the broker and aggregator network. Underlying operating expenditure declined slightly by $0.154m/ 0.2%, reflecting the strong cost management by the business. Continued cost management during 2015 resulted in the underlying cost-to-income ratio falling slightly from 64.5% to 64.4%. The business is targeting further reductions in the costto-income ratio through continuing to simplify processes and significant investment in digital capability. MyState Limited Directors’ Report Active management of the cost base will also enable further reinvestment in the business to drive asset and revenue growth. Capital Position The Group maintains a strong balance sheet and capital position comfortably above regulatory requirements and is well positioned to continue to grow organically. The Group’s capital adequacy ratio as at 30 June 2015 was 12.68%. MyState Bank’s first issuance of Tier 2 subordinated notes in August as part of its approved Medium Term Note program will further support capital and continued growth. Outlook Looking forward, the strong growth in new home loan originations through mortgage brokers and aggregators is expected to continue into the 2016 financial year and support earnings growth. The banking division will continue to build upon the sales momentum through broker and aggregator distribution networks, in conjunction with improved sales management in the direct channel. The wealth management and trustee business will be supported through product development and rationalisation activities, as well as improving product penetration across the Group’s customer base, particularly in Tasmania and Queensland. 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 On the 14th of August 2015, the group issued $25 million of floating rate subordinated notes ("notes"). The issuer was MyState Bank Limited. The notes have a term of 10 years (maturing 14 August 2025) and will pay interest quarterly at a floating rate equal to the threemonth BBSW plus a margin of 5.00% per annum. The issuer has the option to redeem all or some of the notes on 14 August 2020 and each quarterly interest payment date thereafter, and for certain regulatory events (in each case subject to APRA's prior written approval). If APRA notifies the issuer that a non-viability trigger event has occurred, the notes will be converted into ordinary shares of MyState Limited, or written-off. The amount included in the Level 2 Group's regulatory capital is 75% of the face value of the notes on issue. MyState Bank Limited includes 100% at level 1 in its Tier 2 Capital. If these notes were on issue at 30 June 2015, Tier 2 Capital for the Level 2 Regulatory Group would have been 13.94%. MyState Limited Directors’ Report 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. 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 2014/2015 Director P Armstrong R Gordon M Hampton C Hollingsworth R Illingworth* S Lonie I Mansbridge S Merridew M Sulicich Board Meetings Group Audit Committee Group Remuneration Committee Group Risk Committee A 15 15 14 15 9 14 14 15 15 A 5 5 3 5 - A 7 7 7 - A 3 2 3 3 - B 15 15 15 15 9 15 15 15 15 B 5 5 3 5 - A - Number of meetings attended B - Number of meetings eligible to attend * R Illingworth attended all meetings during the term of his appointment B 7 7 7 - B 3 2 3 3 - Group Nominations & Corporate Governance Committee A 4 4 4 - B 4 4 4 - MyState Limited Directors’ Report Directors’ Interests Interest in the shares of the Company and Managed Investment Funds offered by a related Body Corporate as at the date of this report are set out in the following table. Director P D Armstrong Beneficially Non-beneficially Managed Managed Held Held Funds Direct Funds Indirect 987 3,934 - - 2,387 - - - - 600,000 - - 3,000 17,274 - - S E Lonie - 50,000 - - I G Mansbridge - 170,000 - - S Merridew 4,000 20,000 - - M A Sulicich - 28,750 - - R L Gordon M L Hampton C M Hollingsworth 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 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. 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 2015, 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. D McCarthy Partner Wise Lord & Ferguson Hobart ” Dated 20 August 2015 Remuneration 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 2015, 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 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 resource responsibilities 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 and 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.  Succession planning, to ensure the Company has sufficiently skilled staff to competently perform their roles. The Group Remuneration Committee monitors the potential for actual or perceived conflict of interest 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. 2. Remuneration Philosophy The fundamental objective of the Company's Remuneration Policy is to maintain behaviour that supports 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; Short-term and long-term incentive performance criteria being structured within the overall risk management framework of the Company; and  The exercise of Board discretion as an ultimate means to mitigate unintended consequences of variable pay and to preserve the interests of the Shareholders. In accordance with best practice corporate governance, the structure of Non-Executive Director remuneration is separate and distinct from Executive remuneration. 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 of the EMT is based on a package which from time to time may comprise one or more of the following:  Fixed annual reward (inclusive of superannuation and fringe benefits) (FAR);  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 Underlying Profit after 2011 2012 $'000 $'000 Change 2013 Change 22,020 25,483 15.73% 28,457 11.67% 29,571 3.9% 29,719 0.5% 32.65 29.91 (8.4%) 32.68 9.3% 33.91 3.8% 34.10 0.56% 16,523 19,564 18.4% 24,378 24.6% 24,417 0.2% 24,880 1.9% 3.51 3.05 (13.1%) 4.24 39.0% 4.64 9.4% 4.83 4.1% 10.9% 9.7% (1.2%) 10.4% 0.7% 10.5% 0.1% 10.2% (0.3%) $'000 2014 Change $'000 2015 Change $'000 income tax Underlying Earnings per share (cents) Dividends paid Share price (dollars) Underlying Return on equity The Company ultimately assesses its performance against earnings and relative share price movements. 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 includes financial and non-financial metrics. ELTIP performance measures are based on total shareholder return (TSR) for the "2012" and "2013" offers. For the "2014" offer, the measures are weighted equally between TSR and absolute return on equity (ROE). TSR is a measure which incorporates both dividends paid and movements in share prices, whilst absolute ROE is a measure of corporate profitability. 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 were as follows: NAME POSITION MOVEMENTS IN 2015 FINANCIAL YEAR Non Executive Directors Miles Hampton Non Executive Chairman Peter Armstrong Non Executive Director Robert Gordon Non Executive Director Colin Hollingsworth Non Executive Director Stephen Lonie Non Executive Director Ian Mansbridge Non Executive Director Sarah Merridew Non Executive Director Ross Illingworth Non Executive Director Appointed 17 December 2014; Ceased 12 June 2015 Executive Directors Melos Sulicich Managing Director and Chief Appointed 1 July 2014 Executive Officer Executives Huw Bough General Manager Sales and Appointed 13 August 2014 Distribution Miles Farrow Acting Chief Risk Officer Appointed as Acting CRO 21 April 2015 David Harradine Chief Financial Officer Appointed 16 March 2015 David Mills Head of Technology Ceased being a KMP on 12 May 2015 Paul Moss General Manager Technology and Appointed 13 May 2015 Operations Stephen Pender Head of Marketing, Communication Ceased employment 27 March 2015 and Products Aaron Pidgeon General Manager HR & Property Tim Rutherford Chief Operating Officer Ceased employment 10 October 2014 Tom Taylor Chief Financial Officer Fixed Term Contract finalised on 31 Chris Thornton General Manager Product and March 2015 Appointed 20 April 2015 Marketing Natasha Whish-Wilson Chief Risk Officer Ceased employment 20 April 2015 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 compulsory superannuation. The fees paid to the Company’s NEDs reflect the demands on and responsibilities of those Directors. 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 to have in place a fee scale which enables 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, as Board membership is taken into account in determining the remuneration paid to Executive Directors as part of their normal employment conditions. Each NED currently receives $85,000 per annum inclusive of statutory superannuation. The Chairman is paid an additional amount of $127,500 (2014 $85,000) per annum inclusive of statutory superannuation. Board Committee Chairs are paid an additional amount of: Group Audit, $15,000; Group Risk, $12,500; Group Technology, $12,500 and Group Remuneration, $12,500, per annum inclusive of statutory superannuation. Additionally, Members of Board Committees are paid $5,000 per annum per committee, inclusive of statutory superannuation. 6. Managing Director and Executive Remuneration 6.1 Fixed Annual Remuneration The Fixed Annual Remuneration (FAR) is paid by way of cash salary, superannuation and salary sacrificed fringe benefits and is reviewed annually by the Group Remuneration Committee. In addition, at times, external consultants provide analysis and advice to the Committee to ensure that Executives’ remuneration is competitive in the marketplace. It reflects the complexity of the role, individual responsibilities, individual performance, experience and skills. The total employment cost of the remuneration package, including fringe benefits tax, is taken into account in determining an employee’s FAR. 6.2 Short Term Incentive The STI is an annual "at risk" incentive payment. It rewards EMT members for their contribution towards the achievement of the Company's strategic goals. The maximum potential payment is calculated as a percentage of the FAR of each EMT member and is payable in cash and/or superannuation contributions. Payment is conditional upon the achievement, during the financial year under review, of financial and non-financial performance objectives. The measures are chosen and weighted to best align the individual’s contribution to the Key Performance Indicators (KPI’s) of the Company and its overall performance. There is no fixed minimum payment amount, and there may not be any payment made where appropriate. The KPI's are measures relating to Company and personal performance accountabilities and include financial, strategic, operational, cultural, compliance, risk management and customer/stakeholder engagement measures. Each year, the Group Remuneration Committee, in consultation with the Board, sets the KPI’s for the Managing Director who, in turn, sets KPI’s for Executives, subject to approval of the Board following a recommendation from the Group Remuneration Committee. The Group Remuneration Committee selects performance objectives which provide a robust link between Executive reward and the key drivers of long term shareholder value. At the end of the financial year, the Group Remuneration Committee assesses the performance of the Managing Director against the KPIs set at the beginning of the financial year. At the end of the financial year, the Managing Director assesses the performance of the Executives against their KPIs set at the beginning of the financial year. Based upon that assessment, a recommendation for each Executive is made to the Group Remuneration Committee as to the STI payment. The Group Remuneration Committee recommends the STI payments to be made to the Managing Director and Executives for approval by the Board. Approval and payment of a STI to the Managing Director or Executives is at the complete discretion of the Board. If the results on which any STI reward was based are subsequently found by the Board to have been the subject of deliberate management misstatement, the Board may require repayment of the relevant STI, in addition to any other disciplinary actions. Current STI Offers Details of STI that affect the calculation of KMP remuneration for the 2014/15 financial year are set out in the following tables. During the financial year, KMP were paid their STI entitlement, as assessed, in respect of the 2013/14 financial year. Assessment and payment of STI bonuses in respect of the 2014/15 financial year has been completed In August 2015. Details of the amounts paid and forfeited are set-out in the accompanying table. 2013/2014 STI KEY MANAGEMENT Max. % PERSONNEL (of FAR) Max Payable