MYSTATE LIMITED - Annual Report 2017

2017 Annual Report

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Making a genuine difference
to our customers and
communities every day
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CONTENTS
Group Performance	02
Chairman’s Report	03
Managing Director’s Report	04
Banking Division	07
Wealth Division	10
Technology	11
Risk Management	13
Our Communites	14
Board of Directors	16
Key Management Personnel	18
Directors’ Report	21

Annual General Meeting

Hadley’s Orient Hotel, 34 Murray St, Hobart on Thursday 19 October 2017 commencing at 10.30 a.m. (Australian Eastern Daylight Savings Time).

Corporate Governance

The Board of MyState Limited is committed to upholding the highest levels of corporate governance and subscribes to the Corporate Governance Principles and Recommendations 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 the bank. 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*.

The MyState Limited Corporate Governance Framework takes into account the ASX Corporate Governance Council Principles and Recommendations and the APRA’s Prudential Standard CPS 510 Governance.

MyState Limited’s Board approved Corporate Governance Statement is available on the Company’s website www.mystatelimited.com.au under the About-Us/Corporate-Governance section and is current as at 30 June 2017.

MyState Limited is the ASX Listed non-operating holding company of wholly owned subsidiaries MyState Bank Limited (including The Rock, a Division of MyState Bank) and Tasmanian Perpetual Trustees Limited.

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MyState Limited ABN 26 133 623 962

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HIGHLIGHTS OF THE YEAR

MyState’s business transformation is delivering for our shareholders, customers and community.

SHAREHOLDERS

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28.5c 64,212 full year dividends, shareholders fully franked

$30.1m net profit after tax

CUSTOMERS

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OVER 50% of home loan portfolio $4.3bn based outside loan portfolio of Tasmania

200,000 customers across Australia

IMPROVING THE BANKING EXPERIENCE

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New internet banking and mobile apps and Digital account new contact centre opening launched platform introduced

Apple, Android and Samsung Pay introduced

COMMUNITY

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$1.6m distributed through the MyState Community Foundation since 2001

1,000 students participated in the MyState Student Film Festival

$225,000 three-year commitment to The Smith Family

MyState Limited Annual Report 2017

GROUP PERFORMANCE

UNDERLYING NPAT ($ million) $30.1m

UNDERLYING EARNINGS PER SHARE (cents) 34.0c

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2013 2014 2015 2016 2017
29.6 31.1 30.1
28.5 29.7
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2013 2014 2015 2016 2017
32.7 33.9 34.1 35.5 34.0
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DIVIDENDS – FULLY FRANKED (cents) 1H 2H 14.5c

UNDERLYING RETURN ON AVERAGE EQUITY (%)

10.0%

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2013 2014 2015 2016 2017
14.0 14.5 14.5 14.5 14.5
14.0 14.0 14.0 14.0 14.0
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2013 2014 2015 2016 2017
10.2 10.5 10.4 10.6 10.0
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UNDERLYING COST TO INCOME RATIO (%) 65.9%

TOTAL REVENUE ($ million) $124.6m

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2013 2014 2015 2016 2017
65.7 64.5 64.3 63.2 65.9
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2013 2014 2015 2016 2017
122.3 119.3 119.5 123.4 124.6
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Underlying results exclude on a post-tax basis: FY16 – $1.8m M&A related costs, $1.0m writedown of intangible software FY15 – $3.9m profit on sales of non-core assets, $1.1m restructuring costs

MyState Limited Annual Report 2017

CHAIRMAN’S REPORT

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It is pleasing to report that statutory profit increased from $28.3 million to $30.1 million; however, underlying earnings per share fell from 35.5 cents to 34.0 cents.

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13.3%

Total capital ratio

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28.5c Full year dividend per share

10.8% Loan book growth

In the context of the significant transformation program to build a more modern, nimble and relevant financial services business the result was satisfactory.

As a small player, it was inevitable that the cost of the significant technology transformation our business has been undertaking would impact profitability in the short term. However, we are confident that the investments we have been making will deliver growth in earnings per share from both productivity gains and continued market share improvement. As a result, we are targeting reductions in the underlying cost to income ratio.

The Board determined to maintain the full year dividend at 28.5 cents per share, fully franked and allow shareholders to re-invest their dividends in the company by use of the Dividend Reinvestment Plan.

The banking business continued to perform strongly with loan book growth at 10.8%, 1.8 times national system.

Since 2012, the loan book has increased nearly 50% as we have sought to achieve a scale of operations that would enable us to be competitive. This has come at a cost but we are now much better positioned to deliver improved earnings.

The particularly pleasing aspect is that we have managed to secure exceptional loan book growth whilst maintaining industry leading credit quality.

Net interest margin (NIM) declined from 2.13% to 1.93%, reflecting heavy price competition in lending and deposits, particularly in the low loan to valuation ratio owner occupied sector we are targeting. It is encouraging to note that NIM in the second half was stable.

The overall contribution from our wealth management business declined, which reflected a reduction in open estates in the trustee business; however, it is pleasing to note that funds under both management and advice increased for the first time in many years.

We continue to maintain a strong capital position with the total capital ratio increasing from 13.0% to 13.3%.

As a very small player in a market dominated by much larger competitors, it is always going to be a challenge to continue to be relevant. But we have shown that we can grow market share and it is particularly pleasing to note that more than 50% of our loan book is now outside Tasmania. We have also shown that we can match the larger players in bringing technology to our business.

But we remain a minnow in a field with behemoths and in that regard it is encouraging to note that the Federal Government has taken some steps to level the playing field between the large and smaller banks.

We are hopeful that the government will consider further changes that will remove some of the particular challenges faced by smaller banks as a means to improve competition in the sector.

The year under review has seen significant changes in the Board. In December 2016, we welcomed Sibylle Krieger to the Board. Sibylle is an experienced company director and former partner in legal firm Clayton Utz.

In May 2017 directors Sarah Merridew and Brian Bissaker retired. I acknowledge the contribution of both Sarah and Brian, particularly Sarah who had been a director of MyState since its formation in 2009 and prior to that a director of Tasmanian Perpetual Trustees Limited.

Director Colin Hollingsworth will retire from the Board at the conclusion of the 2017 AGM. I acknowledge the significant contribution that Colin has made to MyState since its inception and prior to that as a long-standing director of some of our antecedent credit unions.

The Board expects to shortly announce the appointment of two new directors who will join the Board at the conclusion of the 2017 AGM.

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Miles Hampton Chairman

MyState Limited Annual Report 2017

MANAGING DIRECTOR’S REPORT

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We are operating in an incredibly fast-changing world, so continuing to adapt to the external environment in order to provide better services to customers is absolutely imperative. This is a driving force that underpins our strategy and our investment in building a highly scalable, modern banking and wealth management business. In the 2017 financial year we made solid progress with our strategy.

$3bn Customer deposits, up 10% on 2017

79% Increase in our loan book in NSW

TECHNOLOGY TRANSFORMATION DELIVERS NEW SERVICES

Our business is evolving to better use new channels, particularly digital banking services that allow customers easy access, anywhere and anytime.

Technology transformation is enabling MyState to become a much more customer-centric, contemporary banking group. Having combined our two core banking systems, we now have a single modern core system. This reduces operational risk in our business, provides a much stronger foundation for further innovation and simplifies processes to enable our customers easier, more convenient access to our products and services.

We are focused on delivering new and innovative digital offerings. Last year we launched new internet and mobile banking platforms and new MyState and The Rock apps. We became an early adopter of payment technology, enabling Apple Pay, Android Pay and Samsung Pay mobile payments services. We are amongst the few banks in Australia to offer this range and simplicity of transaction capabilities to customers.

Through digital innovation we can now provide services to new and existing customers anywhere in Australia, extending our reach from the traditional branch network. Customers can open savings and transaction accounts online and recently we launched a new digital offering for personal loans. The entire process from application online, verification, approval and electronically depositing funds in our customer’s account can now be completed online – by computer, tablet or phone. Continued process improvements have reduced the time from application to funding from weeks to days, or even hours.

Our new contact centre system provides a single view of a customer across all our brands, ensuring that staff have detailed knowledge of our customers when they ask for help or advice. A new customer relationship management system provides a deeper understanding of our customers, using predictive modelling to offer the products and services they may need. Skilled and experienced staff help customers when they want either by phone, email or web chat.

Increasingly, we are providing services to customers across Australia well outside our traditional network. Our nimble approach allows us to target aspirational customers who want to achieve their financial dreams.

The large elements of our technology transformation are now complete and are contributing to a more positive experience for our customers. However, there is still much work for us to do. We are continually changing, modernising and improving products and processes in order to provide an ever better customer experience.

SUSTAINED MOMENTUM IN THE BANKING DIVISION

We have maintained strong momentum in our banking division over the past few years. This was our third consecutive year of double-digit percentage growth in our loan book, which grew at 1.8 times national system to $4.3 billion. This represents significant market share growth in today’s competitive banking environment.

We have focused on broadening the geographic base of our loan book to reduce concentration risk and last year much of this growth was generated from Australia’s eastern seaboard. Our loan book in NSW, for example, increased 79% to $754 million from $421 million in a single year. This demonstrates the success of our channel strategy and service culture. Through innovation we have created new products that enable us to capitalise on the growing value of our brands, such as our new online eSaver product which has been very well received by customers. Our customer deposits grew 10% last year to $3 billion.

Technology is helping us to re-engineer our cost base, to refresh our offerings and create more contemporary, easier to understand products. Better data analytics has helped increase conversion of loan applications to settlement to 70%, up from 62% in the previous year.

Our relentless focus on maintaining high credit quality has ensured very low arrears and credit performance has again been exemplary, well below the benchmarks for major and regional banks.

MyState Limited Annual Report 2017

RECORD WEALTH MANAGEMENT FUM GROWTH

While the overall contribution from our wealth management business was slightly lower, we benefited from record growth in funds under management and our financial planning business also improved. However, the value of estates under administration reduced, affecting trustee income. Through a re-energised focus on referring customers to our financial planners and estate planners, we are now seeing an increase in the number of wills being written. This should stand the trustee business in good stead in the years ahead.

FINANCIAL RESULTS

Although profitability was slightly lower than the previous year’s underlying result, MyState has prudently built a sustainable platform for ongoing growth. Group total operating income increased by 1% to $124.6 million and total assets increased 11.2% to $4.9 billion.

The group’s cost to income ratio at 30 June 2017 was 65.9%, which was impacted by non-recurring M&A project costs. Reducing the cost to income ratio remains a key focus for the business and having now completed most of our major transformation projects, we are well positioned to benefit from cost reductions and efficiency gains in the period ahead.

We maintain a prudent approach to risk, with a sound risk management strategy and framework.

OUR PEOPLE

We have continued to strengthen and broaden the skills base of our team, adding more digital, analytical and leadership skills. This is driving a necessary capability change across our organisation. We have a strong pool of talent and I would like to take this opportunity to acknowledge the commitment of the leadership team and all our staff for their great work during the year. Thank you for contributing to MyState’s success.

SUMMARY

We are focused on helping our customers achieve their dreams and in supporting them by providing improved products and service capabilities. Our technology transformation program is progressing and we have a clear strategy for growth. While we expect the market will remain competitive, we are responding through innovation, creating low-cost, flexible, simple products that can be efficiently distributed through both traditional and digital distribution channels.

There is tremendous change taking place in the banking sector today and we are well positioned to take advantage of the new environment. What our customers want is changing and we are changing with them.

I would also like to thank my board for their passion, help, guidance and support during the year. Their wise council and continued drive for ensuring an ever improving business and delivering strategic outcomes has been unwavering.

$124.6m

Total operating income

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11.2% Increase in total assets to $4.9 billion

Technology is helping us re-engineer our cost base and improve customer experience

STRONG CAPITAL POSITION

Our capital adequacy ratio remains strong at 13.3%, slightly higher than last year. Capital initiatives during the year included a partially underwritten dividend reinvestment plan in February 2017. Common Equity Tier 1 capital at 30 June 2017 was 11.28%, above APRA’s ‘unquestionably strong’ CET 1 ratio average benchmark and a $10 million subordinated debt issue during the financial year increased Tier 2 capital to 2.01%.

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Melos Sulicich Managing Director and Chief Executive Officer

OUR VALUES

Our core purpose is to help people achieve their dreams and our values are integral to everything that we do. These values of integrity, innovation, courage, relationships and community , guide our actions and aim to bring out our best. This helps to differentiate us and underpins our passion for customers and for making financial services simple and trustworthy.

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MyState Limited Annual Report 2017

BANKING DIVISION

MyState’s banking division serves approximately 135,000 customers across Australia, through personal banking, business banking and agribusiness banking. We offer a product suite that includes home and personal loans, general and life insurance, credit and debit cards, savings and investment accounts.

The group’s services are available online through MyState Bank’s and The Rock’s websites and apps and a retail branch network.

SIMPLIFYING OUR SERVICES

MyState has focused on a strategy of simplifying banking products and services and supporting them with more efficient technology and great service. Our investment in innovation is benefiting customers through modern, agile, competitive services. Faster internet speeds, advances in technology and the availability of data are changing our business and we are transforming our business models and systems to provide customers with easier and more intuitive ways of banking.

Increasingly our customers engage with us through a range of channels, including mobile phones, contact centre, web chat, internet banking and full-service retail branches. We now offer contemporary systems that offer a great digital experience for our customers, including Apple, Android and Samsung Pay.

We are evolving, anticipating customers’ needs and positioning our services for the future. Digitisation through new apps, internet and mobile banking services offers convenience and faster transactions. Automated services simplify everyday tasks for our customers, such as paying bills and mortgage payments.

Information provided through our new contact centre and customer relationship management systems has empowered our staff, who have information at their fingertips. They are passionate about our customers and providing exceptional service.

BUILDING SCALE

The positive momentum of MyState’s banking division continued and our loan book grew at 1.8 times the growth rate of total Australian system credit to $4.3 billion. We are focused on loan book growth, particularly in the low risk, owner occupied, low loan-to-valuation ratio market and for the third consecutive year achieved annual home loan book growth exceeding 10%. We are becoming a more significant banking group, able to benefit from economies of scale and the lower cost structure provided through technology.

We are committed to our third-party channel and further modernised our services to mortgage brokers, improving our home loan origination platform. We offer some of the most competitive home loan products in the market, supported by dedicated broker relationship managers who are exceptional communicators, highly accessible and responsive.

TECHNOLOGY SUPPORTS NATIONAL GROWTH

The increasing strength of our network has helped the group achieve an important milestone as loans outside Tasmania increased to more than 50% for the first time. This change has been expedited by digital transformation allowing our team to make decisions faster and track progress efficiently, improving productivity. Technology has helped us to expand without a traditional branch structure, enabling growth in areas that were previously out of range. Reduced loan concentration also helps improve our risk profile.

In the past three years we have achieved strong growth in the eastern states of Australia, with a compound annual growth rate of nearly 50% in both NSW and Victoria. Our NSW home loan book grew 79% last year from $421 million to $754 million over the year, which demonstrates the success of MyState’s growth strategy and improved home loan origination platform.

Improved processes have helped increase our efficiency. Analytics allow better risk management and a more targeted sales approach, contributing to a higher conversion rate of applications to settlements.

Credit quality remains exceptional. 30 day arrears were a historically very low 0.51% and 90 day arrears 0.28%, well below the relevant index for both major and regional banks.

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+50%

Home loan portfolio outside Tasmania

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$1.68bn

Loan applications up from $1.42bn in 2016

+10%

Customer deposits increased

MyState Limited Annual Report 2017

BANKING DIVISION CONTINUED

CUSTOMER DEPOSITS GROW 10%

Customer deposits increased 10% over the year to nearly $3 billion. This was attributable to flexible, competitive at-call savings and term deposit products, as well as increased recognition of our brand through digital channels.

We continue to launch innovative products such as MyState’s online ‘eSaver’ saving account, ideal for customers who prefer digital convenience to branch and ATM transactions. This is also an example of a new, low-cost, low maintenance product that leverages our technology platform. We also recently extended our online offering to include personal loans.

NET INTEREST MARGIN

We continue to operate in a low interest rate environment and competition remains intense, impacting margins across the banking industry. While net interest margin decreased 0.20% to 1.93%, this

remained above our regional peers and a strong focus on margin management helped maintain net interest margin at a consistent level across the two halves of the year.

WELL-FUNDED, FINANCIALLY STRONG

The majority of the group’s funding is through customer deposits, which represented 65.7% of MyState’s funding mix at 30 June 2017. Wholesale funding represents 13.2% and the proportion of funding through securitisation rose 2.2% to 21.2% following two new Residential Mortgage Backed Security (RMBS) issuances during the year. In May 2017, MyState completed a $400 million RMBS transaction raising which was the group’s largest to date and well received by investors. This followed a $300 million RMBS transaction in November 2016, supporting MyState’s lending growth.

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MyState Limited Annual Report 2017

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MyState Limited Annual Report 2017
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WEALTH DIVISION

MyState’s wealth management business, Tasmanian Perpetual Trustees, has a wellrespected and trusted brand with a rich history dating from 1887. We provide managed investment solutions, financial advice, risk protection advice, private client services and trustee services including estate planning and administration of deceased estates and charitable trusts, to over 65,000 clients.

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$1,089m Funds under management

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130 years Serving the Tasmanian community

WEALTH MANAGEMENT

MyState’s wealth management business, Tasmanian Perpetual Trustees, has a well-respected and trusted brand with a rich history dating to 1887. We provide managed investment solutions, financial advice, risk protection advice, private client services and trustee services including estate planning and administration of deceased estates and charitable trusts, to over 65,000 clients.

STRONG FUNDS MANAGEMENT GROWTH

We offer cash, income and growth funds for investors. Our cash and income funds consistently outperformed their benchmarks and our growth funds continued to perform well. Our managed investment funds experienced strong growth over the year, driven by increased demand for income funds from both retail and wholesale customers in Tasmania. This was our best year for funds under management (FUM) growth for more than a decade, with FUM increasing by $81 million to $1,089 million at 30 June 2017.

FINANCIAL PLANNING REFERRALS INCREASE

Our strengthened financial planning team helped increase revenue from new statements of advice and risk advice and we aligned the business more closely with customers, increasing referrals. Funds under advice grew by $40 million over the year to $778 million.

FOCUS ON NEW WILLS

In recent years, we have focused on offering customers the opportunity to update their wills and the success of this strategy has strengthened client relationships, helping to build our network. Along with continuing to write wills for new clients, our focus on reviewing the wills of our existing clients is playing an important role in developing and maintaining our will bank.

Although trustee services’ revenue declined in the first half of the year as a result of fewer estates under administration, it recovered somewhat during the second half. We believe that this decline in our trustee business has stabilised and, with a concerted focus on writing new wills and an increasing open estate book, anticipate a return to growth over the medium term.

IMPROVING OUR BUSINESS

Going forward, our focus is on moving to a single, scalable advice and investment platform for our financial planning business with increased capabilities and improved administration. This will further strengthen the professionalism of our service, expediting response times.

PLANNING NEW OFFERINGS

Collaborating closely with the banking business, we will continue to leverage our customer relationship management and direct marketing capabilities to increase referrals.

We have refreshed our growth fund proposition and will use this development to enhance our financial planning business’ model portfolio proposition and our philanthropic investment offering.

MyState Limited Annual Report 2017

TECHNOLOGY

In recent years, MyState has invested significantly in a major technology transformation program to deepen customer relationships and enable organic growth. This investment has enabled MyState to re-engineer its model and align people, technology, processes and products more effectively.

TECHNOLOGY BUILDS SCALE FOR GROWTH

We are building a modern, data-driven business that understands our customers’ financial objectives, is aligned with what they want and is able to deliver services anywhere, anytime. Our goal is to provide outstanding customer experiences through simpler products, processes and systems that ensure we are easy to do business with.

CONSOLIDATED BANKING PLATFORM AND DATA CENTRE INCREASE SCALE Transition to a single core banking system has significantly reduced the group’s business risks and is enabling productivity improvements. Agility enables us to design new products and bring them to market faster, benefiting customers. Combining our data centres in a single location has improved how we store and organise information, contributing to better performance and risk management.

Technology is empowering our workplace, increasing the productivity of our branches and staff. It has expanded our footprint, so the group is no longer bound by regional or physical locations. We now are able to offer digital services anywhere in the nation, facilitating the introduction of new products and the responsiveness of our service.

We have exploited the capability of the new platform to launch online origination for deposit accounts and personal loans, extending our addressable markets. Our ability to create flexible, innovative products allows us to serve customers at low cost with a comprehensive, high quality digital solution.

SMART INTERNET AND MOBILE BANKING

Our digital offering is contributing to a more positive experience for our customers and supports a broader geography. The new internet and mobile banking platform allows banking from home and on the go, complementing our branch services.

Digital transformation is enabling us to enhance each customer’s experience and we were among the first in Australia to offer Apple, Android and Samsung Pay. Having the flexibility to adapt to changes in the way people can bank and transact will be important in tomorrow’s digital environment. Our world is changing and many customers simply want smart, efficient and fast electronic interactions and MyState is embracing this trend.

CONTACT CENTRE ENABLES FAST RESPONSE

We also updated our contact centre platform which provides a much better service for customers. A single system enables phone, email and web chat interaction that captures each request, so our staff, regardless of location, can work as a team to assist customers.

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Merged two banking systems into a single core

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New MyState and The Rock apps launched

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MyState Limited Annual Report 2017

TECHNOLOGY CONTINUED

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ACQUIRING CUSTOMERS THROUGH DIGITAL SERVICES

The first phase of our new CRM system has simplified the number of processes, forms, emails, spreadsheets and training required by our previous systems. It enables the management of multiple records across our brands and provides a single view of our customers. Analytics allow deep customer insights, facilitating relevant and targeted campaigns through customers’ preferred channels. Our products are highly competitive, based on data-driven analysis.

Predictive modelling enables the group to accurately target marketing campaigns, creating sales and cross-selling opportunities while reducing service time. This benefits our bank managers and staff who have local community knowledge and can engage in a more meaningful way with customers.

The new system is built on the foundation of a data warehouse which extends our data management capability. This has helped standardise our business data, establishing a framework for better data analytics and the introduction of future technologies related to data science.

INCREASING EFFICIENCY

We are managing a complex technology program successfully through a focused approach to governance, ensuring that the architecture of systems is carefully controlled. This collaborative approach has benefited both our staff and our business.

Our operations are increasingly scalable and we plan to leverage further efficiencies through new products, digital platforms and distribution to a larger audience. Analysing our processes is helping to improve productivity and we continue to change our business model to anticipate future changes.

Our technology platform ensures we provide great service and we expect that this will increase customer loyalty and market share.

The group’s new systems and processes are focused on providing what is best for our customers and making it easier for them to do business with us. But technology also helps our people to become more relationship-centric, makes our customers’ experience richer and increases the efficiency and productivity of our staff.

NEW PAYMENTS PLATFORM

We will soon be participating in the industry launch of the New Payments Platform (NPP) which will bring real time payments to customers.

MyState Limited Annual Report 2017

RISK MANAGEMENT

MyState adopts a prudent approach to risk management, which is guided by the Board‘s risk appetite, internal capabilities, the external environment, customer expectations and regulatory obligations.

Our risk management framework is based on the three lines of defence model separating roles, responsibilities and accountability for decision-making.

The first line of defence comprises all employees within individual business units. They are responsible for identifying, evaluating and managing all the risks in the day-to-day activities in which they are engaged, in accordance with our risk management framework.

The second line of defence comprises the risk management function which includes credit risk, operational risk, fraud prevention and compliance. The risk management function is the custodian of the risk management framework, which is backed by appropriate monitoring and oversight of the first line, consistent with the Board’s approved risk appetite. The risk management function is independent and is adequately resourced to identify any risks or actions that may sit outside of our risk appetite.

The third line of defence is internal audit which independently reviews and tests business unit compliance, regularly assessing the effectiveness of the risk management framework. Although external auditors are not formally part of the organisation’s three lines of defence, they play an important role in the overall governance and control structure.

BOARD RISK OVERSIGHT

The Group Risk Committee is responsible for recommending the risk management strategy and framework, including the risk appetite statement. Its role is to review management proposals and decisions on all material aspects of risk management and ensure appropriate controls are in place that are consistent with our strategic objectives and regulatory requirements.

RISK AWARE AND CUSTOMER CENTRIC CULTURE

Managing risk is an integral part of doing business and the better risk is managed, the more likely it is the group will achieve or exceed its business objectives. We promote a risk-aware culture; it is the responsibility of every employee to observe and manage risk and we seek to create a workplace where employees have the confidence to ask questions and to challenge assumptions about the way the business is conducted.

MyState takes employee conduct and feedback seriously and in support of the same has revitalised its whistle blowing program – “StandUp”.

To further embed a customer-centric culture, in March 2017, we appointed a Customer Advocate who provides a review option for our customers independent to our standard complaint review processes. Our Customer Advocate reports to the Chief Risk Officer.

The Board charges the Group Risk Committee with the responsibility of ensuring that adequate resources, processes and systems are in place to enable the our risk management strategy and framework to operate as intended.

MONITORING AND REVIEW

Monitoring and review are an important part of the risk management strategy. The risk management process aims to ensure:

Risk management strategies, frameworks and policies are regularly monitored and reviewed to ensure alignment with regulation.
Line 1 and Line 2 operational controls are regularly reviewed and tested as appropriate to ensure the control environment stays relevant and effective.
Emerging risks are identifying in time, discussed and addressed.
Lessons from external events (including near misses, trends, breaches, successes and failures) are analysed to further enhance the risk management and control framework.
A strong risk culture in reinforced by driving accountability across all levels of the organisation.

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MyState Limited Annual Report 2017
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COMMITTED TO THE COMMUNITY

MyState is an integral part of the communities that it serves. Our wellbeing depends on the health of our communities and we believe we have a responsibility to make a difference by using our resources to enrich future communities.

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$162,512 Provided by the MyState Community Foundation in 2017

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220,000 People visited the MyState Australian Wooden Boat Festival

THE MYSTATE COMMUNITY FOUNDATION

Over the past 17 years, the Foundation has awarded more than $1.6 million in grants to more than 80 charity and community organisations. In 2017, the Foundation provided $82,512 in grants to 11 not-for-profit organisations supporting Tasmanian youth. Recipients included the Brave Foundation, Bridgewater PCYC, Camp Quality, Christian Youth Centre, Clarence PCYC, Geeveston Community Centre, Hobart PCYC, Molenda Lodge, Reclink Australia, The Shepherd Centre and VisAbility.

The Foundation also supports The Smith Family through a $225,000, three-year commitment. These funds support 100 students in the Learning for Life program annually, two Work Inspiration Programs and staff supported activities such as iTrack mentoring. MyState and The Rock also support the Smith Family Toy and Book Appeal.

MYSTATE WOODEN BOAT FESTIVAL

The biennial MyState Australian Wooden Boat Festival celebrates Australia’s rich maritime culture and is one of the world’s most anticipated maritime events. In 2017, more than 220,000 visited Hobart’s waterfront, contributing more than $80 million to the Tasmanian community.

HOBART HURRICANES

MyState is proud to be a major sponsor of the Hobart Hurricanes Twenty20 cricket Big Bash League team. In the 2016-17 season each game was enjoyed by an average national television audience of almost 1 million people. Our involvement also includes engagement with local cricket clubs supporting both their youth and volunteers.

MYSTATE STUDENT FILM FESTIVAL

SALLY’S RIDE

Sally’s Ride is the Tamar Valley Cycle Challenge, which raises funds and supports initiatives to prevent youth suicide in Tasmania. MyState was a proud sponsor of the ride event.

CAPE HOPE FOUNDATION

In 2017, through the Cape Hope Foundation, Tasmanian Perpetual Trustees supported City Mission, Youth Mentoring Project, Cancer Council Seize the day awards, Starting Point Neighbourhood House Community Garden Project and RAW (Rural Alive and Well Tasmania) Project in conjunction with the Ian Potter Foundation.

LAUNCESTON CHAMBER OF COMMERCE BUSINESS EXCELLENCE AWARDS

Tasmanian Perpetual Trustees’ partnership with Launceston Chamber of Commerce aims to encourage all local businesses to achieve excellence. The Awards recognise the successful businesses and organisations of Northern Tasmania.

CHALLENGE THE MOUNTAIN

The Rock sponsored Challenge the Mountain, where runners and cyclists undertake a five kilometre race up Mt Archer in Rockhampton. All proceeds from the event contribute toward enhancing the mountain.

CENTRAL QUEENSLAND COMMUNITY EVENTS AND SPONSORSHIPS

Through volunteering and participation, the Rock supported a number of community events this year. This included the Gladstone Rainbow Run, Help Hats Help Heads, PCYC Emerald, Yeppoon Lions Tropical Pinefest and Thangool Cup Race Day.

In its 15th year, the premier MyState Student Film Festival is open to school and university students nationally. Through filmmaking, students develop key lifelong skills including teamwork, collaboration, preparation, planning and communication. In 2016 the Festival had a record 232 entries, with almost 1,000 students and 68 schools participating.

Captions: 1. Hobart Hurricanes, 2. MyState Australian Wooden Boat Festival, 3. Rockhampton SES, 4. Challenge the Mountain, 5. MyState Student Film Festival.

MyState Limited Annual Report 2017

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MyState Limited Annual Report 2017
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BOARD OF DIRECTORS

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Above from left: Miles Hampton, Melos Sulicich, Peter Armstrong, Robert Gordon, Colin Hollingsworth, Stephen Lonie and Sibylle Krieger.

MILES HAMPTON BEc (Hons), FCIS, FCPA, FAICD Independent non-executive Chairman

Appointed 12 February 2009

Mr Hampton was appointed a Director of MyState Limited on 12 February 2009 and became Chairman on 29 October 2013. He has been a Director of Tasmanian Perpetual Trustees Limited since July 2006. He was appointed a Director of MyState Bank Limited in September 2009.

Mr Hampton is a member of the MyState Limited Board’s Group Audit Committee, Group Remuneration Committee and Chair of the Group Nominations and Corporate Governance Committee.

Mr Hampton was Managing Director of ASX listed agribusiness and real estate public company, Roberts Limited from 1987 until 2006.

He is currently Chairman of TasWater and has previously been a Director of public companies Ruralco Holdings Ltd, Australian Pharmaceutical Industries, Wentworth Holdings Ltd, HMA Ltd and Gibsons Ltd and was a Director of Impact Fertilisers Pty Ltd, Chairman of Forestry Tasmania, Chairman of Hobart Water and Deputy Chairman of The Van Diemen’s Land Company.

MELOS SULICICH BBus, GAICD, SA FIN

Managing Director and Chief Executive Officer

Appointed 1 July 2014

Mr Sulicich is Managing Director and Chief Executive Officer of MyState Limited. He is also a Director of the MyState Community Foundation.

Mr Sulicich has extensive experience in a diverse range of businesses and industry sectors covering petrol retailing, financial services, industrial services, healthcare, transport and logistics.

From 2008 to 2013, he held the position of Chief Executive Officer of RAMS Financial Group, a subsidiary of Westpac. Prior to this, he spent eight years in General Management positions for companies including Mayne Group, Adsteam Marine and the Spotless Group.

From 1995 to 2000, Mr Sulicich worked in various General Management positions for Colonial Group Limited, including General Manager Marketing, Director Sales and Marketing for Colonial UK Limited and General Manager, Network Financial Services.

PETER ARMSTRONG BEc (Hons), Dip ED, Dip FP, CPA, FAICD, FAMI

Independent non-executive Director

Appointed 12 February 2009

Mr Armstrong is Chairman of the MyState Limited Board’s Group Remuneration Committee and a member of the Group Nominations and Corporate Governance Committee.

He is a former Chairman of connectfinancial and Teachers, Police and Nurses Credit Union. Mr Armstrong was appointed a Director of MyState Bank and subsidiary companies on 1 July 1998. He was appointed a Director of Tasmanian Perpetual Trustees Limited on 22 September 2009.

Mr Armstrong is a career educator at senior secondary and tertiary levels and is a Fellow of both the Australian Institute of Company Directors and Australasian Mutual’s Institute.

ROBERT GORDON BSc, MIFA, MAICD, FAMI

Independent non-executive Director

Appointed 12 February 2009

Mr Gordon is currently President of the Institute of Foresters of Australia (IFA) having previously held the position of Managing Director, Forestry Tasmania.

He has been a company director for seventeen years including six years as Chairman of connectfinancial. Mr Gordon has been a director of companies in the Tourism industry, Research and Development , Construction and infrastructure.

Mr Gordon was appointed as a Director of MyState Bank on 1 July 1998. He is Chairman of MyState Community Foundation Limited and was appointed a Director of Tasmanian Perpetual Trustees Limited on 22 September 2009.

MyState Limited Annual Report 2017

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He is the Chairman of MyState Limited Board’s Group Risk Committee and a member of the Group Nomination and Corporate Governance Committee and the Group Technology Committee.

COLIN HOLLINGSWORTH CPA, MAICD, FAMI Independent non-executive Director Appointed 12 February 2009

Mr Hollingsworth was formerly General Manager, Corporate Services, TAFE Tasmania having previously held senior positions with the Australian Government. He was Finance Director with the Australian Department of Finance in Tasmania and Washington DC in the United States of America.

Mr Hollingsworth is an experienced company director and former Chairman and Director of both CPS and Island State Credit Unions.

He has extensive experience in financial management, audit and banking operations both in Australia and the United States of America.

Mr Hollingsworth was appointed a Director of MyState Bank and subsidiary companies on 1 July 2007 and Tasmanian Perpetual Trustees Limited on 22 September 2009.

Mr Hollingsworth is Chairman of MyState Limited Board’s Group Audit Committee and a member of the Group Risk Committee.

STEPHEN LONIE BCom, MBA, FCA, FFin, FAICD, FIMCA Independent non-executive Director

Appointed 12 December 2011

Mr Lonie was a former Partner of the international accounting and consulting firm, KPMG and now practices as an independent management consultant.

Mr Lonie is a member of MyState Limited Board’s Group Audit Committee, Group Remuneration Committee and Chair of the Group Technology Committee.

In the past three years, Mr Lonie was formerly a non-Executive Director of Dart Energy Ltd (September 2013 to October 2014).

SIBYLLE KRIEGER LLB (Hons), LLM, FAICD, MBA

Independent non-executive Director

Appointed 1 December 2016

Ms Krieger has over 35 years of broad commercial experience as a lawyer, economic regulator, independent consultant and non-executive director, with particular focus on heavily regulated industries. She was a partner in two large commercial law firms for 22 years and has over 10 years’ experience as a non-executive Director.

She is currently the non-executive Chair of Xenith IP Group Limited (ASX:XIP). She is also a non-executive Director of the Australian Energy Market Operator Ltd (AEMO) and of TasWater.

Ms. Krieger is a trustee of the Sydney Grammar School and a non-executive Director of its Foundation. She was formerly a Director of Sydney Ports Corporation and Allconnex Water and a trustee of the Royal Botanic Gardens and Domain Trust.

In addition to her board roles, Ms Krieger has served as an independent consultant to private sector and government clients across diverse areas including risk management and energy security.

She is a member of the MyState Limited Board’s Group Risk Committee, Group Remuneration Committee and Group Technology Committee.

Currently, he is non-executive Chairman of Central Queensland mining group, Jellinbah Resources Pty Ltd and is also Chairman of Apollo Tourism and Leisure Ltd and a non-executive Director of Corporate Travel Management Ltd and Retail Food Group Ltd.

MyState Limited Annual Report 2017

KEY MANAGEMENT PERSONNEL

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Above from left: Huw Bough, Katherine Dean, David Harradine, Colleen Harris, Mandakini Khanna, Paul Moss, Chris Thornton and Andrew Polson.

HUW BOUGH DipFS(FP), DipF&MB, MAICD General Manager, Mortgage Broker Distribution

Huw is responsible for the leadership, performance of MyState Limited group’s Mortgage Broker division. He joined the company in August 2014.

Previously, Huw held national executive distribution roles in banking and financial services organisations including nine years at Westpac, where he was General Manager Franchise for RAMS Financial Group from October 2011 to July 2014 and General Manager Westpac Mortgage Broker Distribution from November 2008 to October 2011. Before that, he was Head of RAMS Home Loans’ broker sales from April 2005 to November 2008.

KATHERINE DEAN BA, GDipPR, GAICD, FAMI

General Manager, Banking Sales and Service

Katherine (Kate) is responsible for the leadership, operation, customer service and sales performance of MyState Limited group’s Retail Banking, Business Banking and Contact Centre divisions, which includes the Group’s retail branch networks in Tasmania and Central Queensland. She joined the company in February 2017.

Prior to joining MyState, Kate was Chief Sales and Marketing Officer with mutual financial institution B&E Personal Banking. She has more than 20 years’ experience in sales, marketing and communications across a diverse range of industry sectors including financial services, education, mining, transport and telecommunications.

DAVID HARRADINE BCom, CA, MIIA, CIA Chief Financial Officer

David is responsible for managing finance activities within the group through leadership of the Treasury and Finance teams. David commenced with MyState Limited in March 2015.

Prior to joining MyState David was an audit Partner with the accounting and advisory firm Deloitte. David is Chairman of the Board of CatholicCare Tasmania and a Board member of Affordable Community Housing Alliance Tasmania.

COLLEEN HARRIS BEd(Sci), FAHRI, MAICD

General Manager, People

Colleen has overall responsibility for the development and implementation of the group’s strategic, financial and operational planning as it relates to human resources. Colleen commenced with MyState in July 2017.

Colleen is a successful Human Resources senior executive with over twenty years’ experience across a variety of industries. Her employment history includes a specialist focus on design and implementation of talent, performance and reward frameworks that are linked to business and individual performance outcomes whilst leading human resources teams at the most senior level. Colleen is involved in a number of committees and has been a board member for various organisations. Her industry experience encompasses advertising, financial services, property, gaming, hospitality and entertainment.

MyState Limited Annual Report 2017

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MANDAKINI KHANNA Post DipBusAdm, Post DipBusFin, BCom Chief Risk Officer

Mandakini (Mandy) is responsible for Enterprise Risk Management throughout the MyState group and directly oversees the management and operations of the Legal and Compliance, Enterprise Risk Management, Fraud Risk and Credit Risk Teams.

Mandy was appointed in December 2015. She has 17 years’ experience in banking and finance with GE Capital across a range of commercial and retail lending products. Working across diverse geographies and products, her experience includes underwriting, account management, portfolio management, analytics and enterprise risk. Mandy is a trained and certified Six Sigma black belt.

PAUL MOSS BEng(Hons)

General Manager, Technology and Operations

Paul is responsible for the strategic direction and delivery of MyState Limited’s back office processing and technology.

He joined the company in May 2015 having previously been a Director of IT Advisory at KPMG. Prior, Paul spent 11 years at Betfair, in the UK and Australia, as Director of Information Systems and Operations, focusing on strategy development, global infrastructure deployments and customer experience. Before that he occupied technical leadership positions in UK-based investment banks.

CHRIS THORNTON BSc(Hons) General Manager, Product and Marketing

Chris is responsible for end-to-end product performance, customer and brand strategy. He joined MyState in April 2015 having held product and marketing leadership roles in Australia and the UK with RAMS Financial Group, Virgin, Dell, AAPT and 3M.

Chris has extensive experience in developing and implementing marketing strategy, brand building, product development and customer lifecycle management.

ANDREW POLSON BCom, MMgmt(Marketing)

General Manager, Wealth Management

Andrew was appointed General Manager, Wealth Management in February 2016. He is responsible for the strategic, financial and ongoing management of the group’s Wealth division, which includes Financial Planning, Investment Management and Trustee capabilities. Over his 20-year financial services career Andrew has fulfilled both executive and specialist roles across Wealth Management and Banking at ANZ, IOOF and NAB.

Andrew joined MyState from ANZ Banking Group, where he held senior roles across Private Banking, Investments and Trustees. His most recent role with ANZ was as Global Head of Investment Management and Implementation for their Wealth Division. Prior to that he was the General Manager Investments at ANZ Private Bank and ANZ Trustees, Head of Product at ANZ Private Bank and Head of Product, Retail Funds Management at IOOF.

MyState Limited Annual Report 2017

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MyState Limited Annual Report 2017
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DIRECTORS’ REPORT

for the year ended 30 June 2017

Your Directors present their report on MyState Limited (the Company) 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)

Principal Activities

Banking Services Trustee Services • Personal, residential and • Estate planning business lending • Estate and trust administration
• Transactional, internet & • Power of attorney mobile banking • Corporate trustee
• Savings and investments • Insurance and other alliances
Wealth Management • Managed fund investments • Financial planning • Portfolio administration services • Portfolio advisory services • 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.

REVIEW AND RESULTS OF OPERATIONS

Financial Performance

Net Profi t Aft er Tax

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35
31.1 [(i)] 30.1
29.6 29.7 [(i)]
30 28.5
25
20
15
10
5
0
FY2013 FY2014 FY2015 FY2016 FY2017
$ Millions
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(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

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

REVIEW OF OPERATIONS (CONTINUED)

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 on the FY16 underlying result[1] ).

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%.

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.

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Lendfast and Apply
Completed: April 2017
✔
Single core
Completed: May 2017
✔
CRM stage 1
Completed: April 2017 ✔
Contact centre system
Completed: June 2017 ✔
Internet mobile banking
(incl. Apple, Android & Samsung
✔
Pay). Completed: May 2017
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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.

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.

High quality asset growth and credit performance

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.

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.

Growth in high quality credit

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5.0
4.27
3.85
4.0
3.54
3.05
3.0
2.0
1.0
0
FY2014 FY2015 FY2016 FY2017
$ Billions
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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.

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.

MyState Limited Annual Report 2017

Home loan book by LVR

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312
296
392
416
420 316
323 446
433
3,052
2,509
2,195
FY2015 FY2016 FY2017
<80% 80% – 85% 85% – 90% >90%
$ Millions
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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 MyState ‘eSaver’ product, launched earlier in 2017. Customer deposits grew to nearly $3 billion, up 10% from $2.7 billion a year ago.

NIM waterfall

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Originati on costs
0.13%
0.16%
0.19%
0.01%
2.36% 0.36%
2.13% 0.03% 0.22%
0.01%
1.93%
FY 2015 FY 2016 Asset Price Originati on Asset Mix Funding Funding Mix FY 2017
Costs Price
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The Wealth Management business benefited from record growth in funds under management and growth in financial planning.

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.

FUM and FUA

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778
782 738
1,017 1,008 1,089
FY2015 FY2016 FY2017
Funds under Management Funds under Advice
$ Millions
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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.

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

REVIEW OF OPERATIONS (CONTINUED)

Strong capital position

Total Capital Movements

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1.56%
1.90% 0.57%
1.40%
1.96%
0.29%
13.04% 1.33% 13.29%
Tier 2 Tier 2
1.61% 2.01%
Tier 1 Tier 1
11.43% 11.28%
FY2016 Capital Profi t Dividends Capitalised Securiti sed Secured Other asset FY2017
initi ati ves Paid Intangibles Assets Mortgage growth
Lending
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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 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.

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 lending 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 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 the coming year. 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.

We have established key actions to mitigate these risks.

MyState Limited Annual Report 2017

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 2016/2017

									Group	Nominatons
					Group				& Corporate
Director	Board	Meetngs	Group Audit Commitee		Remuneraton Commitee		Group Risk Commitee		Governance Commitee		Group Technology Commitee
	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	15	17	4	5	n/a	n/a	5	5	n/a	n/a	n/a	n/a
(resigned 18/5/17)
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	7	7	n/a	n/a	2	2	1	1	n/a	n/a	2	2
(appointed 1/12/17)
S Lonie	18	18	6	6	6	6	n/a	n/a	n/a	n/a	5	5
S Merridew	16	17	n/a	n/a	n/a	n/a	5	5	n/a	n/a	5	5
(resigned 18/5/17)
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

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

REVIEW OF OPERATIONS (CONTINUED)

The non-audit services provided do not undermine the general principles relating to the auditor independence as they related to technical disclosure issues.

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.

==> picture [107 x 31] intentionally omitted <==

J Doyle Partner Wise Lord & Ferguson Hobart

Dated 18 August 2017

MyState Limited Annual Report 2017

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.

Group Remuneration Committee
Remuneration Philosophy
Consequences of Performance on Shareholder Wealth
Key Management Personnel
Non-Executive Director Remuneration
Managing Director and Executive Remuneration
6.1 Total Fixed Reward
6.2 Short Term Incentive
6.3 Executive Long Term Incentive Plan
Remuneration of Key Management Personnel
Shareholdings of Key Management Personnel
Loans to Key Management Personnel
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 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.

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,

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

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:

Total Fixed Reward (inclusive of superannuation and salary sacrifice) (TFR);
Cash based short term incentives (STI); and
Equity based long term incentives (LTI).

COMPOSITION OF CEO AND EMT REMUNERATION

CEO

Exec

==> picture [242 x 139] intentionally omitted <==

----- Start of picture text -----

ELTIP, Year 3 18.75%ELTIP, Year 3
25% At Risk
At Risk STI, Year 1
18.75%
STI, Year 1
25%
Fixed TFR, Year 1
Fixed TFR, Year 1 62.5%
50%
----- End of picture text -----

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:

following indices:
Indicator	2013	2014	2015	2016	2017
Underlying Proft afer 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
Underlying Return on equity	10.2%	10.5%	10.4%	10.6%	10.0%

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.

MyState Limited Annual Report 2017

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	Positon	Movements in 2017 Financial Year
Non-Executve Directors
Miles Hampton	Non Executve Chairman
Peter Armstrong	Non Executve Director
Brian Bissaker	Non Executve Director	Retred 18 May 2017
Robert Gordon	Non Executve Director
Colin Hollingsworth	Non Executve Director
Sibylle Krieger	Non Executve Director	Appointed 1 December 2016
Stephen Lonie	Non Executve Director
Sarah Merridew	Non Executve Director	Retred 18 May 2017
Executve Directors
Melos Sulicich	Managing Director and
	Chief Executve Ofcer
Executves
Huw Bough	General Manager Mortgage	New role 20 February 2017
	Broker Distributon
	General Manager Sales and Distributon	Outgoing role 19 February 2017
Katherine Dean	General Manager Retail Banking Sales	Appointed 20 February 2017
	and Service
David Harradine	Chief Financial Ofcer
Colleen Harris	General Manager People	Appointed 25 July 2017
Mandakini Khanna	Chief Risk Ofcer
Jessica Kingston	Actng General Manager Human Resources	Appointed 22 February 2017
	and Property	Ceased 24 July 2017
Paul Moss	General Manager Technology
	and Operatons
Aaron Pidgeon	General Manager Human Resources	Ceased 22 February 2017
	and Property
Andrew Polson	General Manager Wealth Management
Chris Thornton	General Manager Product and Marketng

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.

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

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 EXECUTIVE REMUNERATION

6.1 Fixed Annual Remuneration

The Total Fixed Reward (TFR) is paid by way of cash salary, superannuation and salary sacrificed fringe benefits and is reviewed annually by the Group Remuneration Committee. The Board appoints external consultants on a regular basis to provide analysis and advice to the Committee to ensure that Executive remuneration is competitive and appropriately structured.

The individual executive remuneration arrangements reflect the complexity of the role, individual responsibilities, individual performance, experience and skills.

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 TFR 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 reward to the Key Performance Indicators (KPI’s) of the Company and its overall long term performance. There is no fixed minimum payment amount. The KPI’s are measures relating to Company and personal performance accountabilities and include financial, strategic, operational, cultural, 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 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.

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.

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 the STI’s that affects the calculation of KMP remuneration for the 2016/17 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 2015/16 financial year. Assessment and payment of STI bonuses in respect of the 2016/17 financial year was completed in August 2017.

MyState Limited Annual Report 2017

Details of the amounts paid and forfeited are set-out in the accompanying table.

		2015/2016 STI
						% Which is not
	Max. %				Amount Paid	yet assessed
Key Management Personnel	(of TFR)	Max Payable	% Awarded	% Forfeited	$	for payment
Melos Sulicich	50%	$275,000	36.36%	63.64%	$100,000	0%
Huw Bough	30%	$96,000	52.08%	47.92%	$50,000	0%
David Harradine	30%	$106,500	56.34%	43.66%	$60,000	0%
Mandakini Khanna(1)	30%	$57,750	60.61%	39.39%	$35,000	0%
Paul Moss	30%	$87,000	33.60%	66.40%	$29,232	0%
Aaron Pidgeon	15%	$41,250	23.10%	76.90%	$9,529	0%
Andrew Polson(1)	30%	$41,250	32.60%	67.40%	$13,448	0%
Chris Thornton	30%	$96,000	41.67%	58.33%	$40,000	0%

(1) Pro-rata Max Payable based on commencement date.

2016/2017 STI

						% Which is not
	Max. %				Amount Paid	yet assessed
Key Management Personnel	(of TFR)	Max Payable	% Awarded	% Forfeited	$	for payment
Melos Sulicich	50%	$287,500	19.50%	80.50%	$56,063	0%
Huw Bough	30%	$99,000	19.63%	80.37%	$19,438	0%
Katherine Dean(1)	30%	$34,192	19.39%	51.83%	$6,680	0%
David Harradine	30%	$111,000	17.69%	82.31%	$19,635	0%
Mandakini Khanna	30%	$99,000	21.60%	78.40%	$21,384	0%
Jessica Kingston(1)	10%	$7,956	35.92%	64.08%	$5,298	0%
Paul Moss	30%	$99,000	21.60%	78.40%	$21,384	0%
Aaron Pidgeon(1)	15%	$27,142	31.32%	68.68%	$8,500	0%
Andrew Polson	30%	$99,000	18.10%	81.90%	$17,919	0%
Chris Thornton	30%	$96,000	18.23%	81.77%	$17,497	0%

(1) Pro-rata Max Payable based on commencement and cessation dates as applicable.

6.3 Executive Long Term Incentive Plan (ELTIP)

The ELTIP provides a long term “at risk” incentive, assessed over a three year performance period. It was established by the Board to reward the EMT, comprising the Managing Director and participating Executives, to have a greater involvement in the achievement of the Company’s objectives. To achieve this aim, the ELTIP provides for the issue to the participating Executives of fully paid ordinary shares in the Company if performance criteria specified by the Board are satisfied in a set performance period.

Under the ELTIP, an offer may be made to individual members of the EMT every year as determined by the Board. The maximum value of the offer is determined as a percentage of the TFR of each member of the EMT. As a general guide, noting that the Board has absolute discretion to vary, the maximum percentages used are 50% for the Managing Director and between 15% and 50% for participating Executives. The value of the offer is converted into fully paid ordinary shares based upon the weighted average price of the Company’s shares over a twenty trading day period from the 1st of July.

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

Where an Executive commences employment with the Company post 1 July in a given year, the following conditions will apply in respect of ELTIP:

Upon recommendation by the Managing Director, and if deemed eligible by the Board, the Executive shall receive a pro rata offer for that year, unless that person commences employment between 1 April and 30 June, in which case, they shall not be entitled to receive an offer for that financial year;
Calculations for ELTIP entitlements in terms of the 20 day VWAP, must be consistent with the offers for that year, irrespective of the date that an employee commences or to whom an offer to participate is made;
Where an ELTIP participant ceases employment with MyState during a performance period due to expiration of a fixed term contract, the offer shall be assessed at the end of the performance period, along with all other participants, subject to meeting the 12 month employment hurdle that applies to any ELTIP offer.

In order for the shares to vest, certain performance criteria must be satisfied within the predetermined performance period. Both the performance criteria and the performance period are set by the Board, at its absolute discretion. The Board has, for the time being, set the three financial years, commencing with the year in which an offer is made under the plan as the performance period with relative TSR and absolute ROE for the “2014” and “2015” offers or relative TSR and absolute post tax underlying ROE for the “2016” offer as the performance criteria.

The ELTIP provides for an independent Trustee to acquire and hold shares on behalf of the participating Executives. The Trustee is funded by the Company to acquire shares, as directed by the Board, either by way of purchase from other shareholders on market, or issue by the Company. Vesting of shares occurs once an assessment has been made after the performance period (currently 3 years) and once the Board resolves to notify the Trustee to issue entitlements under the relevant ELTIP Offer.

Where shares have vested, the Trustee will allocate those shares to each eligible member of the EMT in accordance with their entitlement. The Trustee will hold the shares which have been

allocated on behalf of the eligible EMT member. During the period that allocated shares are held by the Trustee, the eligible EMT member is entitled to receive the income arising from dividend payments on those shares and to have the Trustee exercise the voting rights on those shares in accordance with their instructions.

The participating EMT member cannot transfer or dispose of shares which have been allocated to them until the earlier of:

The seventh anniversary of the original offer date of the grant;
Upon leaving the employment of the Company;
Upon the Board giving permission for a transfer or sale to occur; or
Upon a specified event occurring, such as a change in control of the Company.

Upon request, the Board may exercise discretion to release vested shares to an Executive to the extent required to meet a taxation assessment directly related to the award of those shares.

On separation from the Company, ELTIP shares will be released only if the separation is due to a Qualifying Reason or is at the initiation of the Company without cause. Effective as of the 2014 ELTIP Offer, if this separation occurs within the three year performance period, shares will be allocated on a pro-rata basis, following the completion of each applicable performance period and applicable performance assessment.

A Qualifying Reason, as defined by the ELTIP Plan Rules, is death, total and permanent disability, retirement at normal retirement age, redundancy or other such reason as the Board, in its absolute discretion, may determine.

Vesting of shares to the Managing Director and eligible Executives is at the complete discretion of the Board. Any shares to be allocated to the Managing Director under this Plan require shareholder prior approval in accordance with ASX Listing Rules.

On accepting an ELTIP offer made by the Company, participating Executives are required not to hedge their economic exposure to any allocated non-vested entitlement. Failure to comply with this directive will constitute a breach of duty and may result in forfeiture of the offer and/or dismissal.

MyState Limited Annual Report 2017

Current ELTIP Offers

Details of offers made under the ELTIP to KMP that affect the calculation of their remuneration in this financial year are set out in the following table.

following table.
Ofer	"2014"	"2015"	"2016"
Performance Period	1 July 2014 to 30 June 2017	1 July 2015 to 30 June 2018	1 July 2016 to 30 June 2019
Performance Criteria
Measure	50% TSR 50% Absolute Post tax ROE		50% TSR 50% Absolute Post tax underlying ROE
The comparator group	Members of the S&P/ASX300

Calculation of the reward

Shares will vest in accordance with the following schedule

Calculaton of the reward Shares will vest in accordance with the following schedule	Calculaton of the reward Shares will vest in accordance with the following schedule	Calculaton of the reward Shares will vest in accordance with the following schedule	Calculaton of the reward Shares will vest in accordance with the following schedule
Share price baseline for TSR calculaton $4.67 $4.71 $4.00
Ofer Date – Managing Director – Other Eligible Executves	3 November 2014 Huw Bough(2) 20 April 2016 David Harradine(2)20 April 2016 Natasha Whish-Wilson3 Nov 2014	27 November 2015 Huw Bough 27 Nov 2015 David Harradine 27 Nov 2015 Mandakini Khanna(2)29 Apr 2016 Paul Moss 27 Nov 2015 Andrew Polson(2) 29 April 2016 Chris Thornton 27 Nov 2015	29 November 2016 Huw Bough 5 Sept 2016 Katherine Dean(2) 15 May 2017 David Harradine 5 Sept 2016 Mandakini Khanna 5 Sept 2016 Paul Moss 5 Sept 2016 Andrew Polson 5 Sept 2016 Chris Thornton 5 Sept 2016
Share Price Used in Calculatons	$4.72	$4.71	$4.11
Value of Ofer(1) – Managing Director – Other Eligible Executves	$275,000 $209,100	$274,998 $478,272	$287,500 $691,455

1) The value of the offer is the maximum value calculated as at the date of offer to the KMP(s) at that time. As such, it may include the value of offers made to individuals who are no longer KMP’s of the Company.

2) Pro-rata offer.

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

CALCULATION OF THE REWARD

TSR Component

For the 2014, 2015, 2016 and 2017 Offers, the ELTIP TSR component will vest on the following basis:

MYS TSR relatve to the ASX 300:	MYS TSR relatve to the ASX 300:	Percentage of the applicable reward that will vest:
•	Below the mid-point percentage:	0%
•	At the median ASX 300	50%
•	Between the median and 75th percentle	Opportunity vests pro rata on a straight line basis between 50%
		and 100%
•	Above the 75th percentle	100%

No reward will be payable if performance is negative irrespective of the benchmark group performance.

ROE Component

The performance period for the ROE component for the ELTIP reward will be based upon on the Company’s absolute post tax ROE (“2014” and “2015” offers) and on the company’s absolute post tax underlying ROE (for the “2016” and “2017” offers) and will be payable on the following basis:

MYS aggregate absolute post tax ROE for the three periods:	MYS aggregate absolute post tax ROE for the three periods:	Percentage of the applicable reward that will vest:
For	the 2014 and 2015 Ofers:
•	Below 32.22%	0%
•	32.22%	25%
•	32.22% to 33.25%	Increases on a straight line basis from 25% to 100%
•	33.25% or above	100%
MYS aggregate absolute post tax underlying ROE for the		Percentage of the applicable reward that will vest:
three periods:
For	the 2016 and 2017 Ofers:
•	Below 31.80%	0%
•	31.80%	25%
•	31.80% to 33.50%	Increases on a straight line basis from 25% to 100%
•	33.50% or above	100%

MyState Limited Annual Report 2017

Actual and Potential ELTIP Share Allocations

The following tables detail, for current and former KMP, the status of offers made under the ELTIP. The “2013” offer performance period was completed on 30 June 2016 and the “2014” offer performance period was completed on 30 June 2017.

				Vested in the	Not yet
				2016/17	assessed for
Name	Component	Maximum Ofer	Forfeited	Financial Year	Vestng
			Number of	Shares
"2013" Ofer
Tim Rutherford	TSR	24,951	24,951	–	–
Natasha Whish-Wilson	TSR	20,707	20,707	–	–
"2014" Ofer
Melos Sulicich(1)	TSR	29,132	13,634	15,498	–
	ROE	29,131	29,131	–	–
Huw Bough	TSR	8,411	3,936	4,475	–
	ROE	8,410	8,410	–	–
David Harradine	TSR	3,168	1,483	1,685	–
	ROE	3,167	3,167	–	–
Natasha Whish-Wilson	TSR	10,574	10,574	–	–
	ROE	10,572	10,572	–	–

1) 2017 share allocation for the Managing Director and Chief Executive Officer is subject to shareholder approval.

The “2015”, “2016” and “2017” offers have not been assessed for vesting and no shares have been forfeited. The following table shows the maximum number of shares available under each of these offers:

Name		“2015” Ofer	“2016” Ofer	“2017” Ofer
	Component		Number of Shares
Melos Sulicich(1)	TSR	29,193	34,976	29,307
	ROE	29,193	34,975	29,307
Huw Bough	TSR	10,191	12,044	10,092
	ROE	10,191	12,044	10,092
Katherine Dean	TSR	–	4,192	9,786
	ROE	–	4,191	9,786
David Harradine	TSR	11,306	13,504	11,315
	ROE	11,305	13,503	11,315
Colleen Harris	TSR	–	–	9,714
	ROE	–	–	9,714
Mandakini Khanna	TSR	6,116	12,044	10,551
	ROE	6,116	12,044	10,551
Paul Moss	TSR	9,235	12,044	10,092
	ROE	9,235	12,044	10,092
Andrew Polson	TSR	3,733	12,044	10,092
	ROE	3,733	12,044	10,092
Chris Thornton	TSR	10,191	11,679	10,245
	ROE	10,191	11,679	10,245

1) 2017 offer for the Managing Director and Chief Executive Officer is subject to shareholder approval.

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

7. REMUNERATION OF KEY MANAGEMENT PERSONNEL

					Post
		Salary and Fees	Cash Bonus	Non-Monetary Benefts(14)	Employment Super- annuaton	Terminaton Benefts	Share Based Payment(3)	Total(1), (2)
		$	$	$	$	$	$	$
Non-Executve Directors
Miles Hampton	2017	193,532	–	–	18,386	–	–	211,918
	2016	194,192	–	–	18,386	–	–	212,578
Peter Armstrong	2017	75,151	–	–	27,068	–	–	102,219
	2016	74,958	–	–	27,050	–	–	102,008
Brian Bissaker(4)	2017	76,870	–	–	7,303	–	–	84,173
	2016	14,309	–	–	948	–	–	15,257
Robert Gordon	2017	72,705	–	–	34,501	–	–	107,206
	2016	71,423	–	–	35,255	–	–	106,678
Colin Hollingsworth	2017	69,888	–	–	34,825	–	–	104,713
	2016	69,474	–	–	35,028	–	–	104,502
Sibylle Krieger(5)	2017	51,387	–	–	4,882	–	–	56,269
	2016	–	–	–	–	–	–	–
Stephen Lonie	2017	91,836	–	–	8,724	–	–	100,560
	2016	90,881	–	–	8,634	–	–	99,515
Ian Mansbridge(6)	2017	–	–	–	–	–	–	–
	2016	73,209	–	–	6,955	–	–	80,164
Sarah Merridew(7)	2017	72,939	–	–	17,879	–	–	90,818
	2016	85,958	–	–	18,850	–	–	104,808
Sub Total	2017	704,308	–	–	153,568	–	–	857,876
	2016	674,404	–	–	151,106	–	–	825,510

MyState Limited Annual Report 2017

					Post
		Salary and Fees	Cash Bonus	Non-Monetary Benefts(14)	Employment Super- annuaton	Terminaton Benefts	Share Based Payment(3)	Total(1), (2)
		$	$	$	$	$	$	$
Executves
Melos Sulicich	2017	540,288	56,063	–	34,600	–	101,992	732,943
	2016	515,000	100,000	3,849	34,999	–	47,297	701,145
Huw Bough	2017	300,246	19,438	24,663	32,861	–	33,427	410,635
	2016	290,250	50,000	31,226	27,508	–	13,604	412,588
Katherine Dean(8)	2017	104,531	6,680	101	9,930	–	9,453	130,695
	2016	–	–	–	–	–	–	–
Miles Farrow(9)	2017	–	–	–	–	–	–	–
	2016	112,839	–	–	18,296	–	–	131,135
David Harradine	2017	336,214	19,635	1,194	37,146	–	31,112	425,301
	2016	323,042	60,000	–	30,689	–	4,705	418,436
Mandakini Khanna(10)	2017	301,370	21,384	–	34,992	–	19,168	376,914
	2016	171,784	53,307	–	18,058	–	3,982	247,131
Jessica Kingston(11)	2017	79,566	5,298	–	6,903	–	–	91,767
	2016	–	–	–	–	–	–	–
Paul Moss	2017	296,874	21,384	1,194	28,203	–	30,741	378,396
	2016	265,632	29,232	–	25,160	–	6,988	327,012
Aaron Pidgeon(12)	2017	185,195	8,500	965	17,593	269,175	–	481,428
	2016	253,825	9,529	–	24,709	–	–	288,063
Andrew Polson(13)	2017	301,370	17,919	–	29,797	–	16,000	365,086
	2016	95,047	13,448	–	9,029	–	2,216	119,740
Chris Thornton	2017	289,281	17,497	52,052	30,952	–	32,514	422,296
	2016	292,237	40,000	20,533	27,762	–	7,711	388,243
Sub Total	2017	2,734,935	193,798	80,169	262,977	269,175	274,407	3,815,461
	2016	2,319,656	355,516	55,608	216,210	–	86,503	3,033,493
Total	2017	3,439,241	193,798	80,169	416,545	269,175	274,407	4,673,337
	2016	2,994,060	355,516	55,608	367,316	–	86,503	3,859,003

1) The amounts disclosed for the remuneration of KMP are the cost to the Company for these components, as recorded by it in the financial year. These amounts have been calculated in accordance with relevant accounting policies and Accounting Standards. As these figures are based on accrual accounting and not a reflection of actual cash paid or shares vested, negative figures can result in the event of accrual reversals being recorded. Amounts stated are in respect of the period that the individual held a role of a KMP.

2) Approximately 40% of the maximum amount, in respect of the 2016/17 financial year STI offers, has been accrued on the basis that it is probable that the KMP will partially meet this proportion of their respective KPI’s for the period. Any adjustments between the actual amounts to be paid, as determined by the Group Remuneration Committee and Board, and the amounts accrued will be disclosed in the Company’s Remuneration Report and financial statements for the 2018 financial year. In addition, the disclosed amounts include satisfaction of prior year STI obligations.

3) Share based payment amounts have been calculated in accordance with the relevant accounting policy and Accounting Standard. The fair value of the share grant is calculated at the date of grant and is allocated to each reporting period evenly over the period from grant date to vesting date. This fair value will generally be different to the value of shares at the time they vest. The value disclosed is the portion of the fair value of the share grant allocated to this reporting period. These amounts represent share grants which will only vest to the KMP when certain performance and service criteria are met. In some circumstances all, or a portion, of the shares may never vest to the KMP.

4) Brian Bissaker commenced as a KMP on 1 May 2016 and ceased as KMP on 18 May 2017.

5) Sibylle Krieger commenced as a KMP on 1 December 2016.
6) Ian Mansbridge ceased as a KMP on 30 April 2016.

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

7. REMUNERATION OF KEY MANAGEMENT PERSONNEL (CONTINUED)

7) Sarah Merridew ceased as a KMP on 18 May 2017
8) Katherine Dean commenced as a KMP on 20 February 2017
9) Miles Farrow ceased as a KMP on 30 November 2015.
10) Mandakini Khanna commenced as a KMP on 1 December 2015.
11) Jessica Kingston commenced as a KMP on 22 February 2017.
12) Aaron Pidgeon ceased as a KMP on 22 February 2017. The termination benefit amount shown includes annual and long service leave entitlements paid on cessation.
13) Mr Polson commenced as KMP on 22 February 2016.
14) Non-Monetary Benefits consist of car parking expense, travel & accommodation and entertainment.

8. SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL

Non Executive Director Minimum Shareholding Requirement

From 1 January 2015, a Minimum Shareholding Requirement (MSR) has been implemented for all Non Executive Directors.

Non Executive Directors, in the absence of approval from the Board to the contrary, are required to acquire and maintain, directly or indirectly, shares in MyState Limited to the equivalent of one year’s pre-tax base Director’s fee. The MSR must be achieved within four years of their appointment or the date of implementation of this policy, whichever is the latter.

Executive Minimum Shareholding Requirement

From 1 January 2015, in the absence of approval from the Board to the contrary, a Minimum Shareholding Requirement (MSR) will apply to Executives whom:

Receive a Total Fixed Reward(TFR) greater or equal to $250,000; and
Participate in ELTIP and STI programs.

The MSR will be 25% of TFR and must be achieved within 4 years of the date that the policy becomes applicable to the Executive.

The shares in MyState Limited (ASX code: MYS) may be held directly or indirectly, and may include shares obtained prior to 1 January 2015 and/or shares acquired through ELTIP or any other scheme, where this includes shares vested and allocated but still held in trust, but excludes any allocated shares which have not yet vested.

Details regarding the holdings by KMP and their related parties of ordinary shares in the Company are set out in the following table. Related parties include close members of the family of the KMP. It also includes entities under joint or several control or significant influence of the KMP and their close family members. No equity transactions with KMP, other than those arising as payment for compensation, have been entered into with the Company.

	Balance at				Balance at end of
	commencement of fnancial year	Granted as compensaton	Net change other	Balance at end of fnancial year	fnancial year held by ELTIP trustee
Non-Executve Directors
Miles Hampton	612,568	–	37,432	650,000	–
Peter Armstrong	8,028	–	2,685	10,713	–
Robert Gordon	14,387	–	6,000	20,387	–
Colin Hollingsworth	20,274	–	5,000	25,274	–
Sibylle Krieger(1)	–	–	5,000	5,000	–
Sarah Merridew	51,795	–	1,704	53,499	–
Sub Total	707,052	–	57,821	764,873	–

1) Appointed as KMP on 1 December 2016.

MyState Limited Annual Report 2017

	Balance at				Balance at end of
	commencement of fnancial year	Granted as compensaton	Net change other	Balance at end of fnancial year	fnancial year held by ELTIP trustee
Executves
Melos Sulicich	35,000	–	7,100	42,100	–
Huw Bough	–	–	–	–	–
Katherine Dean(1)	–	–	–	–	–
David Harradine	2,000	–	–	2,000	–
Mandakini Khanna	–	–	–	–	–
Paul Moss	–	–	–	–	–
Andrew Polson	–	–	–	–	–
Chris Thornton	–	–	–	–	–
Sub Total	37,000	–	7,100	44,100	–
Total	744,052	–	64,921	808,973	–

1) Appointed as KMP on 20 February 2017.

9. LOANS TO KEY MANAGEMENT PERSONNEL

There are no loans guaranteed or secured by the Company to KMP and their related parties in 2017.

Related parties include close members of the family of the KMP. It also includes entities under joint or several control or significant influence of the KMP and their close family members.

MyState Limited Annual Report 2017

DIRECTORS’ REPORT

for the year ended 30 June 2017

10. CONTRACT TERMS AND CONDITIONS

The Managing Director and Executives are employed under individual employment agreements.

						Terminaton Provisions
			Total Fixed			In the event of terminaton by
			Reward (TFR)	Short Term		the Company
	Commenced in		(per year and subject to market based	Incentve	ELTIP	(subject to shareholder approval in the event that they exceed the equivalent of
Incumbent	role	Contract term	review mechanisms)	(maximum)	(maximum)	1 year TFR in total)
Melos Sulicich	1 July 2014	4 Year term	$575,000	50% of TFR	50% of TFR	Notce:
	Share Ownership:	from 1 July 2014 Required to purchase and maintain		shares to the value	of 50% of	The contract may be terminated by the Company with 6 months notce or payment in lieu of notce.
	TFR by 30 June 2018.					Enttlement:

The contract may be terminated by the Company with 6 months notice or payment in lieu of notice. Entitlement:

Pro-rata STI payment applied, at the full discretion of the Board, as at the date of termination.
• Pro-rata ELTIP allocation, made following the completion of the applicable performance periods.
Notice:

						the full discreton of the Board, as at the date of terminaton. • Pro-rata ELTIP allocaton, made following the completon of the applicable performance periods.
Huw Bough	13 August	Ongoing	$330,000	30% of TFR	Between 15%	Notce:
Katherine Dean David	2014 22 February 2017 16 March	Ongoing Ongoing	$320,000 $370,000		and 30% of TFR upon invitaton to partcipate	The contract can be terminated by the Company upon provision of 3 months notce. Enttlement:
Harradine	2015					• Payment of the equivalent of
Colleen Harris	25 July 2017	Ongoing	$340,000			6 months TFR.
Paul Moss	13 May 2015	Ongoing	$330,000			• Pro-rata STI payment applied as at the date of terminaton.
Mandakini Khanna	1 December 2015	Ongoing	$345,000			• Payment of STI if the performance period is complete
Chris Thornton	20 April 2015	Ongoing	$335,000			but not yet paid.
Andrew Polson	22 February 2016	Ongoing	$330,000			• Pro-rata ELTIP allocaton, made following the completon of the
						applicable performance periods.
Jessica	22 February	Temporary/	$226,887	10%	N/A	The contract can be terminated by
Kingston(1)	2017	Actng	(includes			the Company, under the provisions
			Higher Dutes Allowance)			of the MyState Limited Enterprise Agreement 2014-2017, upon provision of 4 weeks notce plus redundancy enttlements (currently
						18 weeks).

Payment of STI if the performance period is complete but not yet paid.

Signed in accordance with a resolution of the Directors.

==> picture [113 x 35] intentionally omitted <==

M L Hampton Chairman Hobart Dated this 18 August 2017

==> picture [98 x 32] intentionally omitted <==

M A Sulicich Managing Director

MyState Limited Annual Report 2017

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Income Statement	Consolidated Income Statement	42
Consolidated Statement of Comprehensive Income		43
Consolidated Statement of Financial Positon		44
Consolidated Statement of Changes in Equity		45
Consolidated Statement of Cash Flows		46
Secton 1	Corporate informaton and basis of accountng
1.1	Reportng entty	47
1.2	Basis of accountng	47
1.3	Use of estmates and judgements	47
1.4	Provisions (other than for impairment of	47
	fnancial assets)
Secton 2	Financial performance
2.1	Income from banking actvites	48
2.2	Income from wealth management actvites	49
2.3	Income from other actvites	50
2.4	Expenses	51
2.5	Earnings per share	52
2.6	Dividends	52
2.7	Segment fnancial informaton	53
Secton 3	Capital and fnancial risk management
3.1	Capital management strategy	56
3.2	Financial risk management	58
3.3	Average balance sheet and source of net	64
	interest income
Secton 4	Financial assets and liabilites
4.1	Cash and liquid assets	65
4.2	Financial instruments	66
4.3	Loans and advances	67
4.4	Transfer of fnancial assets (securitsaton program)	68
4.5	Deposits and other borrowings including	69
	subordinated notes
4.6	Fair value of fnancial instruments	70

Secton	5	Non-fnancial assets, liabilites and equity
5.1		Property, plant and equipment	72
5.2		Intangible assets and goodwill	73
5.3		Employee beneft provisions	75
5.4		Share capital	76
Secton	6	Income tax expense, current and deferred
		tax balances
6.1		Income tax expense, current and deferred	77
		tax balances
Secton	7	Group structure and related partes
7.1		Parent entty informaton	79
7.2		Controlled enttes and principles of consolidaton	80
7.3		Related party disclosures	81
Secton	8	Other notes
8.1		Contngent liabilites and expenditure	82
		commitments
8.2		Remuneraton of auditors	83
8.3		Events subsequent to balance date	83
8.4		Other signifcant accountng policies and new accountng standards	84

MyState Limited Annual Report 2017

RESULTS FOR THE YEAR

for the year ended 30 June 2017

CONSOLIDATED INCOME STATEMENT

for the year ended 30 June 2017

for the year ended 30 June 2017
		30 June 2017 30 June 2016
	Notes	$’000 $’000
Interest income	2.1	182,220 183,351
Less: Interest expense	2.1	(94,088) (94,441)
Net interest income		88,132 88,910
Non-interest income from banking actvites	2.1	18,360 16,879
Net banking operatng income		106,492 105,789
Income from wealth management actvites	2.2	16,738 17,462
Income from sale of other investments	2.3	1,362 –
Income from other actvites	2.3	24 171
Total operatng income		124,616 123,422
Less: Expenses
Personnel costs		38,069 36,995
Administraton costs	2.4	18,874 17,887
Signifcant due dilligence project costs		1,279 1,752
Impairment – sofware		– 1,350
Technology costs	2.4	10,838 9,513
Occupancy costs	2.4	6,930 6,748
Marketng costs		3,542 4,056
Governance costs		2,633 2,810
Total operatng expenses		82,165 81,111
Proft before bad and doubtul debts and income tax expense		42,451 42,311
Less: Impairment expense on loans and advances	4.3	213 1,221
Proft before income tax		42,238 41,090
Income tax expense	6.1	12,158 12,756
Proft for the year		30,080 28,334
Proft atributable to the:
Equity holders of MyState Limited		30,080 28,334
Basic earnings per share (cents per share)	2.5	34.04 32.40
Diluted earnings per share (cents per share)	2.5	34.04 32.40

The accompanying notes form part of these financial statements.

MyState Limited Annual Report 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 June 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2017
		30 June 2017	30 June 2016
	Notes	$’000	$’000
Proft for the year		30,080	28,334
Other comprehensive income
Items that may be reclassifed subsequently to proft or loss
Cash fow hedges
Net gains/(losses) taken to equity		(289)	587
Change in fair value of fnancial assets at fair value through other comprehensive income		(619)	619
Income tax efect		272	(363)
Total other comprehensive income for the year		(636)	843
Total comprehensive income for the year		29,444	29,177
Total comprehensive income for the year is atributable to:
Equity holders of MyState Limited		29,444	29,177

The accompanying notes form part of these financial statements.

MyState Limited Annual Report 2017

RESULTS FOR THE YEAR

for the year ended 30 June 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2017

FINANCIAL POSITION as at 30 June 2017
		30 June 2017	30 June 2016
	Notes	$’000	$’000
Assets
Cash and liquid assets	4.1	64,226	80,126
Due from other fnancial insttutons		35,161	17,875
Other assets		6,577	5,819
Financial instruments	4.2	420,769	355,992
Loans and advances	4.3	4,282,525	3,863,133
Property, plant and equipment	5.1	8,296	9,812
Deferred tax assets	6.1	4,718	3,664
Intangible assets and goodwill	5.2	88,179	78,982
Total assets		4,910,451	4,415,403
Liabilites
Due to other fnancial insttutons		34,319	30,710
Other liabilites		6,801	6,961
Deposits and other borrowings including subordinated notes	4.5	4,548,966	4,068,182
Employee benefts provision	5.3	5,370	5,515
Tax liabilites	6.1	4,091	4,407
Total liabilites		4,599,547	4,115,775
Net assets		310,904	299,628
Equity
Share capital	5.4	141,349	134,756
Retained earnings		164,358	159,320
Reserves		5,197	5,552
Total equity		310,904	299,628

The accompanying notes form part of these financial statements.

MyState Limited Annual Report 2017

564 (394) – 293,140 – – – 28,334 – 410 433 843	– 410 433 29,177	– – – 99 (46) – – – – – – 1,941 157 – – 157 – – – (24,886)	675 16 433 299,628	675 16 433 299,628 – – – 30,080 – (203) (433) (636)	– (203) (433) 29,444	– – – 80 – – – – – – – 6,513 281 – – 281 – – – (25,042)	956 (187) – 310,904
4,428 – –	–	– – – – –	4,428	4,428 – –	–	– – – – –	4,428
155,872 28,334 –	28,334	– – – – (24,886)	159,320	159,320 30,080 –	30,080	– – – – (25,042)	164,358
132,670 – –	–	99 46 1,941 – –	134,756	134,756 – –	–	80 – 6,513 – –	141,349
At 1 July 2015 Proft for the year Other comprehensive income	Total comprehensive income for the year	Equity issued under employee share scheme 5.4 Equity issued under executve long term incentve plan 5.4 Equity issued under dividend reinvestment plan 5.4 Share based payment expense recognised Dividends paid 2.6	At 30 June 2016	At 1 July 2016 Proft for the year Other comprehensive income	Total comprehensive income for the year	Equity issued under employee share scheme 5.4 Equity issued under executve long term incentve plan 5.4 Equity issued under dividend reinvestment plan 5.4 Share based payment expense recognised Dividends paid 2.6	At 30 June 2017

MyState Limited Annual Report 2017

RESULTS FOR THE YEAR

for the year ended 30 June 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 June 2017

for the year ended 30 June 2017
		30 June 2017	30 June 2016
	Notes	$’000	$’000
Cash fows from operatng actvites
Interest received		190,677	189,242
Interest paid		(94,283)	(95,396)
Fees and commissions received		33,457	33,613
Dividends received		15	78
Other non-interest income received		774	2,066
Payments to suppliers and employees		(76,855)	(71,011)
Income tax paid		(13,157)	(16,429)
Net cash fows from/(used in) operatng actvites	4.1	40,628	42,163
Cash fows from investng actvites
Purchase of intangible assets		(12,166)	(4,116)
Proceeds from sale of property, plant and equipment		15	37
Purchase of property, plant and equipment		(714)	(499)
Net decrease/(increase) in loans to customers		(428,054)	(319,794)
Net increase/(decrease) in amounts due from other fnancial insttutons		(86,066)	(3,514)
Proceeds from sale of other investments		3,857	–
Payments for other investments		168	(3,470)
Net cash fows from/(used in) investng actvites		(522,960)	(331,356)
Cash fows from fnancing actvites
Employee share issue		80	99
Dividends paid net of dividend reinvestment plan	2.6	(18,629)	(22,945)
Net increased in subordinated notes		10,032	24,663
Net (decrease)/increase in deposits and other borrowings		289,769	225,979
Net increase/(decrease) in due to other fnancial insttutons		185,180	75,338
Net cash fows used in fnancing actvites		466,432	303,134
Net (decrease)/increase in cash held		(15,900)	13,941
Cash at beginning of fnancial year		80,126	66,185
Closing cash carried forward	4.1	64,226	80,126

The accompanying notes form part of these financial statements.

MyState Limited Annual Report 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

1.1 REPORTING ENTITY

MyState Limited (the Company) is incorporated and domiciled in Australia and is a company limited by shares that are publicly traded on the Australian Securities Exchange. The consolidated financial statements of MyState Limited and its subsidiaries (the Group) were authorised for issue by the Directors on 18 August 2017.

The following transactions are exceptions to these described methods of determining fair values:

Share-based payment transactions that are within the scope of AASB 2; and
Leasing transactions that are within the scope of AASB 117.

Rounding of amounts

1.2 BASIS OF ACCOUNTING

These consolidated financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and other requirements of the law. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (IFRS).

The financial statements comprise the consolidated financial statements of the Group. For the purpose of preparing the consolidated financial statements, the Company is a for-profit entity.

Where necessary, comparatives figures have been re-classified and re-positioned for consistency with current period disclosures.

Financial Early Adoption of AASB 9 Instruments (2010)

Under s.334(5) of the Corporations Act 2001, the Directors have elected to apply Accounting Standard AASB 9 ‘Financial Instruments’ for the financial year beginning 1 July 2014, even though the standard is not required to be applied until annual reporting periods beginning on or after 1 January 2017. In accordance with the transition requirements of these provisions, comparatives were restated in the 2015 financial statements.

The Held to Maturity (HTM) and Available for Sale (AFS) asset categories have been removed.
Financial assets previously classified as “Available for sale” are contained within “Financial instruments” and detailed in the note as each instrument type. These instruments, when classified as “available for sale”, were initially measured at cost and subsequently measured at fair value through other comprehensive income. They are now carried at amortised cost. This change has resulted in the reversal of the fair value gains related to these instruments that had been previously recognised in the Unrealised Gains Reserve in the Consolidated Statement of Comprehensive Income.

The company is a company of the kind referred to in Australian Securities and Investments Commission (ASIC) Class Order 2016/191, and, in accordance with that Class Order, amounts in the financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. All amounts are presented in Australian dollars.

1.3 USE OF ESTIMATES AND JUDGEMENT

The preparation of the financial report in conformity with Australian Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the accounting policies. The notes to the financial statements set out areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the financial report such as:

Recoverability of deferred tax assets, refer note 6.1;
Impairment losses on loans and advances, refer note 4.3;
Fair value of financial instruments, refer note 4.6; and
Impairment assessment of intangibles and goodwill, refer note 5.2.

1.4 PROVISIONS (OTHER THAN FOR

IMPAIRMENT OF FINANCIAL ASSETS)

Provisions are recognised when the Group has a legal, equitable or constructive obligation to make a future sacrifice of economic benefits to other entities as a result of past transactions or other past events and it is probable that a future sacrifice of economic benefits will be required and a reliable estimate can be made of the amount of the obligation.

The classification and measurement of other financial assets and liabilities is unchanged.

The consolidated financial statements have been prepared on the basis of historical cost, except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies.

MyState Limited Annual Report 2017

48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

2.1 INCOME FROM BANKING ACTIVITIES

2.1 INCOME FROM BANKING ACTIVITIES
30 June 2017	30 June 2016
$’000	$’000
Interest income Loans and advances 172,163	172,278
Investment securites 10,057	11,073
Total interest income 182,220	183,351
Interest expense At call deposits 11,161	12,405
Fixed term deposits 82,927	82,036
Total interest expense 94,088	94,441
Non-interest income from banking actvites Transacton fees 7,776	7,985
Loan fee income 5,100	4,552
Banking commissions 3,797	3,315
Other banking operatons income 1,687	1,027
Total non-interest income from banking actvites 18,360	16,879

Income accounting policy

Income is recognised to the extent that it is probable that the economic benefits will flow to the entity and the income can be reliably measured. The following specific recognition criteria must also be met before income is recognised.

Interest, fees and commissions

Control of a right to receive consideration for the provision of, or investment in, assets has been attained. Interest, fees and commission revenue is brought to account on an accrual basis.

Interest income is accrued using the effective interest rate method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument.

Loan origination fees

Loan origination fees are recognised as components of the calculation of the effective interest rate method in relation to originated loans. They, therefore, affect the interest recognised in relation to this portfolio of loans. The average life of loans in the relevant loan portfolios is reviewed annually to ensure the amortisation methodology for loan origination fees is appropriate.

MyState Limited Annual Report 2017

2.2 INCOME FROM WEALTH MANAGEMENT ACTIVITIES

2.2 INCOME FROM WEALTH MANAGEMENT ACTIVITIES
30 June 2017	30 June 2016
$’000	$’000
Funds management income 9,456 Other fees and commissions 7,282	9,272 8,190
Total Income from wealth management actvites 16,738	17,462

Funds management income and fiduciary activities

Tasmanian Perpetual Trustees Limited, a controlled entity of the Group, acts as Responsible Entity, Trustee and Funds Manager for ten managed investment schemes. The investment schemes place monies with external wholesale fund managers, direct mortgages and mortgaged backed securities, term deposits and other investments. The clients include individual, superannuation and corporate investors.

The assets and liabilities of these funds are not included in the Consolidated Financial Statements. Income earned by the Group in respect of these activities are included in the Consolidated Income Statement of the Group as “Funds management income”.

The following table shows the balance of the unconsolidated funds under management and funds under advice that gives rise to funds management and other fees and commissions income respectively:

	June 2017	30 June 2016
	$’M	$’M
Funds under management	1,089	1,008
Funds under advice	778	733

Other fees and commissions

Tasmanian Perpetual Trustees Pty Ltd provides financial planning, private client tax accounting services and acts as trustee and executor of estates. “Other fees and commissions income” is the income earned from these activities.

Income accounting policy

Funds management income and other fees and commissions income is brought to account on an accrual basis to the extent that:

It is probable that the economic benefits will flow to the entity;
The revenue can be reliably measured; and
Control of a right to receive consideration for the provision of, or investment in, assets has been attained.

MyState Limited Annual Report 2017

50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

2.3 INCOME FROM OTHER ACTIVITIES

2.3 INCOME FROM OTHER ACTIVITIES
	30 June 2017	30 June 2016
	$’000	$’000
Proft from sale of other investments	1,362		–
In 2017, Tasmanian Perpetual Trustees Limited disposed of its investment in listed shares.
The carrying value of these shares at the date of disposal was $3.84M.

30 June 2017 30 June 2016	30 June 2017 30 June 2016
$’000 $’000
Dividends from other corporatons 15	148
Proft on sale of property plant and equipment assets 9	23
Total income from other actvites 24	171

Dividend accounting policy

Dividends are recorded as income when the right to receive the dividend is established.

MyState Limited Annual Report 2017

2.4 EXPENSES

The following items are included within each item of specified expenses:

2.4 EXPENSES The following items are included within each item of specifed expenses:
	30 June 2017	30 June 2016
	$’000	$’000
Occupancy costs include:
Operatng lease payments	4,117	3,925
Depreciaton – leasehold improvements	1,548	1,591
Technology costs include:
Amortsaton – computer sofware	2,167	1,964
Administraton costs
Amortsaton – other intangibles	803	497
Depreciaton – furniture and equipment	675	737

Expense accounting policy

Operating lease expense

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement, to reflect the risks and benefits incidental to ownership. The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis in the Consolidated Income Statement over the life of the lease.

Depreciation and amortisation expense

The Group adopts the straight line method of depreciating property, plant and equipment and amortising intangible assets over the estimated useful lives commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired expected term of the lease or the estimated useful life of the improvements. Estimated useful lives are:

Buildings	40 years
Ofce furniture, ftngs & equipment	4 – 7 years
Building ft-out (owned buildings)	4 – 15 years
Computer hardware	3 years
Sofware	3 – 10 years

MyState Limited Annual Report 2017

52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

2.5 EARNINGS PER SHARE

2.5 EARNINGS PER SHARE
	30 June 2017	30 June 2016
	cents	cents
Basic earnings per share	34.04	32.40
Diluted earnings per share	34.04	32.40

Earnings per share accounting policy

Basic earnings per share is calculated by dividing the Group’s profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the financial year. Diluted earnings per share is calculated by dividing the Group’s profit attributable to ordinary equity holders by the weighted average number of ordinary shares that would be issued on the exchange of all the dilutive potential ordinary shares into ordinary shares.

The following table details the income and weighted average number of shares used in the calculation of basic and diluted earnings per share:

	30 June 2017	30 June 2016
	$’000	$’000
Proft for the year	30,080	28,334
	Number	Number
Weighted average number of ordinary shares used in calculatng basic and diluted earnings
per share	88,355,988	87,463,245

2.6 DIVIDENDS

2.6 DIVIDENDS
	Date of	30 June 2017	30 June 2016
	payment	$’000	$’000
Dividends paid
2015 Final dividend paid – 14.5 cents per share	2 Oct 2015	–	12,659
2016 Interim dividend paid – 14 cents per share	24 Mar 2016	–	12,227
2016 Final dividend paid – 14.5 cents per share	3 Oct 2016	12,740	–
2017 Interim dividend paid – 14.0 cents per share	10 Mar 2017	12,302	–
		25,042	24,886

The dividends paid during the year were fully franked at the 30% corporate tax rate.

	30 June 2017	30 June 2016
	$’000	$’000
Franking credit balance
The amount of franking credits available for the subsequent fnancial year are:
Franking account balance as at the end of the period at 30% (2016: 30%)	61,797	59,370
Franking credits that will arise from the payment of income tax payable at the end of
the period	837	1,839

Dividends not recognised at the end of the financial year

On 18 August 2017, the Directors resolved to pay a final dividend for the 2017 financial year of 14.5 cents per share or $12.97m total to be paid on the 13th of September 2017, fully franked at the 30 per cent corporate tax rate. This dividend has not been brought to account as the amount had not been determined at the reporting date. This dividend will reduce the balance of the franking account by $5.56m.

MyState Limited Annual Report 2017

2.7 SEGMENT FINANCIAL INFORMATION

Operations of reportable segments

The Group has identified two operating divisions and a corporate division which are its reportable segments. These divisions offer different products and services and are managed separately. The Group’s management committee review internal management reports for each of these divisions at least monthly.

Banking division

The banking division’s product offerings include lending; encompassing home loans, personal, overdraft, line of credit and commercial products, transactional savings accounts and fixed term deposits and insurance products. It delivers these products and services through its branch network, digital channels and third party channels. The banking division is conducted by the MyState Bank Group. Prior to 30 September 2015, the Rock Building Society Group formed part of this group and was a second ADI. On the 30th of September 2015, the rights and obligations of the Rock Building Society Group were transferred to MyState Bank Limited and, as a result, the banking group is now comprised of one ADI and its subsidiaries.

Wealth management division

The wealth management division is a provider of funds management, financial planning and trustee services. It operates predominantly within Tasmania. It holds $1 billion in funds under management on behalf of personal, business and wholesale investors as the responsible entity for 10 managed investment schemes. The wealth management division is conducted by Tasmanian Perpetual Trustees Limited. Tasmanian Perpetual Trustees Limited is a trustee company licensed within the meaning of Chapter 5D of the Corporations Act 2001 and is the only private trustee company with significant operations in Tasmania.

Corporate and consolidation division

The corporate cost centre is responsible for the governance of the Group. The corporate cost centre charges the operating divisions on a cost recovery basis for costs it has incurred. This division is also where eliminations are shown between the banking division and the wealth management division.

MyState Limited Annual Report 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

2.7 SEGMENT FINANCIAL INFORMATION (CONTINUED)

	Banking Wealth Management Corporate and Consolidaton	Banking Wealth Management Corporate and Consolidaton	Total
	$’000 $’000 $’000		$’000
Year ended 30 June 2017
Interest income	181,875 159	186	182,220
Interest expense	(94,088) –	–	(94,088)
Other income
Transacton fees	7,776 –	–	7,776
Loan fee income	5,100 –	–	5,100
Banking commissions	3,797 –	–	3,797
Other banking operatons income	1,821 –	(134)	1,687
Funds management income	– 9,456	–	9,456
Other wealth management fees and commissions	– 7,282	–	7,282
Proft from sale of other investments	– 1,387	–	1,387
Income from other actvites	24 –	(25)	(1)
Total operatng income	106,305 18,284	27	124,616
Expenses
Personnel costs	25,565 7,336 5,168		38,069
Administraton costs	23,158 4,022 (7,027)		20,153
Technology costs	10,325 430	83	10,838
Occupancy costs	5,990 805	135	6,930
Marketng costs	3,255 182	105	3,542
Governance costs	492 70 2,071		2,633
Impairment expense on loans and advances	213 –	–	213
Income tax expense	11,038 1,624	(504)	12,158
Segment proft for the year	26,269 3,815	(4)	30,080
Segment balance sheet informaton
Segment assets	4,834,688 25,385 50,378		4,910,451
Segment liabilites	4,596,089 2,652	806	4,599,547

MyState Limited Annual Report 2017

	Banking	Wealth Management	Corporate and Consolidaton	Corporate and Consolidaton	Total
	$’000	$’000	$’000		$’000
Year ended 30 June 2016
Interest income	182,914	204		233	183,351
Interest expense	(94,441)	–		–	(94,441)
Other income
Transacton fees	7,985	–		–	7,985
Loan fee income	4,552	–		–	4,552
Banking commissions	3,315	–		–	3,315
Other banking operatons income	1,159	17		(149)	1,027
Funds management income	–	9,272		–	9,272
Other wealth management fees and commissions	–	8,190		–	8,190
Income from other actvites	173	–		(2)	171
Total operatng income	105,657	17,683		82	123,422
Expenses
Personnel costs	25,990	6,925	4,080		36,995
Administraton costs	23,403	3,926	(6,340)		20,989
Technology costs	8,875	548		90	9,513
Occupancy costs	5,897	797		54	6,748
Marketng costs	3,763	240		53	4,056
Governance costs	582	80	2,148		2,810
Impairment expense on loans and advances	1,221	–		–	1,221
Income tax expense	10,644	1,390		722	12,756
Segment proft for the year	25,282	3,777		(725)	28,334
Segment balance sheet informaton
Segment assets	4,335,161	28,036	52,206		4,415,403
Segment liabilites	4,110,774	2,378	2,623		4,115,775

MyState Limited Annual Report 2017

56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

3.1 CAPITAL MANAGEMENT STRATEGY

The Group’s capital management strategy is to adhere to regulatory requirements and maximise shareholder value through optimising the level and use of capital resources, whilst also providing the flexibility to take advantage of opportunities as they may arise.

The Group’s capital management objectives are to:

Continue to support MyState Bank Limited’s credit ratings;
Ensure sufficient capital resource to support the Group’s business and operational requirements;
Maintain sufficient capital to exceed prudential capital requirements; and
Safeguard the Group’s ability to continue as a going concern.

The Group’s capital management policy covers both internal and external capital threshold requirements.

Regulatory capital requirements are measured at two levels:

Level 1 : The authorised deposit taking institution (ADI’s), MyState Bank Limited.

These two regulatory levels exclude certain securitisation vehicles and also exclude Tasmanian Perpetual Trustees Limited.

The Australian Prudential Regulatory Authority (APRA) requires ADI’s to have a minimum ratio of capital to risk weighted assets of 8 percent at both level 1 and level 2, with at least 4.5 percent of this capital in the form of tier 1 capital. In addition, APRA imposes ADI specific minimum capital ratios which may be higher than these levels. The Group has complied with the regulatory minimum capital requirements at all times during the year. The Group’s capital management policy, set by the Board, requires capital floors above this regulatory required level.

The Group has developed a detailed Internal Capital Adequacy Assessment Plan (ICAAP). This plan covers the capital requirements of the Regulated Groups (level 1 and level 2 as described previously) and Tasmanian Perpetual Trustees.

The ICAAP aims to ensure that adequate planning activities take place so that the Group is efficiently capitalised to a level also satisfactory to regulators. The ICAAP caters for all known financial events, dividend policy, capital raisings and securitisation.

Level 2 : The wider MyState Limited prudential group which comprises MyState Limited (non-operating holding company), MyState Bank and Connect Asset Management (the Securitisation program Manager).

MyState Limited Annual Report 2017

The Board has currently set a minimum total capital adequacy ratio of 12.5%. Capital adequacy, at year end, of the level 2 regulatory group, which includes MyState Limited, MyState Bank Limited and Connect Asset Management Pty Ltd is detailed in the following table:

30 June 2017	30 June 2016
$’000	$’000
Qualifying capital Common equity ter 1 capital Paid-up ordinary share capital 141,349	134,756
Retained earnings 177,819	172,298
Reserves excluding general reserve for credit losses 956	675
Total common equity ter 1 capital 320,124	307,729
Regulatory adjustments Deferred expenditure including deferred tax assets 24,270	26,622
Goodwill and intangibles 49,760	49,760
Other deductons 53,141	47,730
Total regulatory adjustments 127,171	124,112
Net common equity ter 1 capital 192,953	183,617
Tier 2 capital Subordinated notes(1) 29,944	21,467
General reserve for credit losses 4,428	4,428
Total capital 227,325	209,512
Risk weighted assets 1,710,329	1,606,911
Capital adequacy rato 13.29%	13.04%

(1) On the 14th 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 pay interest quarterly at a floating rate equal to the three-month BBSW plus a margin of 5% 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).

On the 28th September 2016, the Group issued $10 million of floating rate subordinated notes (“notes”). The issuer was MyState Bank Limited. The notes have a term of 10 years, maturing 26 September 2026, and pay interest quarterly at a floating rate equal to the three-month BBSW plus a margin of 4.25% per annum. The issuer has the option to redeem all or some of the notes on 28 September 2021 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 a percentage equal to that of external interest in the Group’s regulatory capital. MyState Bank Limited includes 100% at level 1 in its Tier 2 Capital.

MyState Limited Annual Report 2017

58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

3.2 FINANCIAL RISK MANAGEMENT

Risk management is an integral part of the Group’s business processes. The Board sets policy to mitigate risks and ensure the risk management framework is appropriate, to direct the way in which the Group conducts business. Promulgated Board approved policies ensure compliance throughout the business, which are monitored by way of a dedicated compliance system. Risk management plans exist for all documented risks within the Group and these plans are reviewed regularly by the Executive Management Team, the Group Risk Committee and the Board. Business units are accountable for risks in their area and are responsible for ensuring the appropriate assessment and management of these risks.

Risk exposure profile

The Group actively monitors a range of risks, which are not limited to, but include the following:

Credit risk,
Market risk; and
Liquidity risk.

3.2.1 Credit risk

Approach to credit risk management

Credit risk arises within the Group’s lending and treasury investment activities and is the risk that a counterparty may fail to complete its contractual obligations when they fall due.

The Group’s approach to managing this risk is to separate prudential control from operational management by assigning responsibility for approval of credit exposures to specific individuals and management committees. The Group Risk Committee has oversight of credit risk exposures and the Risk and Credit Committee monitors credit related activities through regular reporting processes, including monitoring large exposure to single groups and counterparties. The roles of funding and oversight of credit are separate.

Board approved lending policies guide the processes for all loan approvals by subsidiary operations. All loans over a designated amount, whether within delegated limits or not, are reported to the Group Risk Committee on a regular basis. Any loan outside of delegated limits must be approved by the Board prior to funding.

Maximum exposure to credit risk

The amounts disclosed in the following table are the maximum exposure to credit risk, before taking account of any collateral held or other credit enhancements. For financial assets recognised on the Balance Sheet, the exposure to credit risk equals their carrying amount. For customer commitments, the maximum exposure to credit risk is the full amount of the committed facility as at the reporting date.

	30 June 2017	30 June 2016
	$’000	$’000
Cash and liquid assets	64,226	80,126
Due from other fnancial insttutons	35,161	17,875
Other assets	6,577	5,819
Financial instruments	420,769	355,992
	526,733	459,812
Loans and advances	4,282,525	3,863,133
Customer commitments(1)	117,472	127,651
Maximum exposure to credit risk	4,926,730	4,450,596

(1) For further information regarding these commitments, refer to note 8.1.

MyState Limited Annual Report 2017

The credit quality of financial assets has been determined based on Standard and Poor’s credit ratings for financial assets other than loans and advances at amortised cost. For loans and advances at amortised cost, the assets identified as being “closely monitored” are those assets that are greater than 30 days past due.

30 June 2017	30 June 2016
$’000	$’000
Credit quality of fnancial assets Financial assets other than loans and advances at amortsed cost Equivalent S&P ratng A+ and above 263,302	246,394
Equivalent S&P ratng A- and below 263,431	213,935
Loans and advances at amortsed cost New Facilites – not closely monitored 1,271,704	993,586
New Facilites – closely monitored 730	2,416
Contnuing facilites – not closely monitored 2,990,147	2,845,401
Contnuing facilites – closely monitored 19,944	21,730
Total on balance sheet exposure to credit risk 4,809,258	4,323,462
New facilites are loans that have been funded within the fnancial year.
Neither past due or impaired 4,260,413	3,839,166
Past due but not impaired – loans and advances at amortsed cost 31 to 60 days 5,402	10,438
61 to 90 days 4,560	2,526
More than 90 days 10,577	7,912
Total past due but not impaired 20,539	20,876
Impaired – loans and advances at amortsed cost 1,573	3,091
Maximum exposure to credit risk 4,282,525	3,863,133
Estmate of collateral held against past due but not impaired assets 35,119	38,260
Estmate of collateral held against impaired assets 2,360	2,294

Estimate of collateral held

The Group holds collateral against loans and advances to customers in the form of a mortgage charge over property. To mitigate credit risk, the bank (ADI) can take possession of the security held against the loans and advances as a result of customer default. The collateral shown above is an estimate of the value of collateral held, it is not practicable to determine the fair value.

MyState Limited Annual Report 2017

60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

3.2 FINANCIAL RISK MANAGEMENT (CONTINUED)

Credit quality is impacted by concentration risk created by the ensuing vulnerability of assets to similar conditions such as economic or political factors. The Group monitors the geographical diversification of its loans and advances. An analysis of this concentration of credit risk at the reporting date is shown in the following table:

30 June 2017	30 June 2016
$’000	$’000
Tasmania 2,181,829	2,215,395
Victoria 556,010	443,442
New South Wales 762,536	426,812
Queensland 614,823	603,366
Western Australia 84,366	93,839
Australian Capital Territory 39,869	34,958
Northern Territory 2,434	3,064
South Australia 41,615	43,315
Gross loans and advances at amortsed cost 4,283,482	3,864,191

There are no loans that individually represent 10% or more of shareholders’ equity.

3.2.2 Market risk

Managing market risk

Market risk is the exposure to adverse changes in the value of the Group’s portfolio as a result of changes in market prices or volatility. The Group is exposed primarily to interest rate risk.

Interest rate risk exposure

The operations of the ADI is subject to the risk of interest rate fluctuations as a result of mismatches in the timing of the repricing of interest rate on their assets and liabilities.

Value at Risk (VaR)

The following table indicates the VaR based on historical data. The Group estimates VaR as the potential loss in earnings from adverse market movements over a 20 day holding period to a 99% confidence level. VaR takes account of all material market variables that may cause a change in the value of the loan portfolio. Although an important tool for the measurement of market risk, the assumptions underlying the model are limited to reliance on historical data.

	Net proft	afer tax
	higher/(lower)
	30 June 2017	30 June	2016
	$’000	$’000
Value at risk based on historic data
Average	2,326		2,120
Minimum	1,455		1,370
Maximum	3,444		3,110

Derivatives

The Group is exposed to changes in interest rates. The only derivative instruments currently entered into by the Group are interest rate swaps. The Group protects its portfolio of fixed rate loans, and exposure to variable rate debt obligations, by paying fixed rates to swap providers and receiving variable rates in return. The variable receipts mitigate the exposure to interest rate changes that will impact on the Group’s variable rate payment obligations.

MyState Limited Annual Report 2017

Derivatives accounting policy

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequently remeasured to their fair value. Fair values are obtained from quoted market prices in active markets. Movements in the carrying amounts of derivatives are recognised in the Consolidated Income Statement, unless the derivative meets the requirements for hedge accounting.

The Group documents the relationship between the hedging instruments and hedged items at inception of the transaction, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment of whether the derivatives used in hedging transactions have been or will continue to be, highly effective in offsetting changes in the fair values or cash flows of hedged items. This assessment is carried out both at inception and on a monthly basis.

Cash flow hedges

The Group has cash flow hedges that are used to hedge the variability of interest rates in relation to certain liabilities. These derivative instruments are established with terms that exactly match the terms of the liability designated as the hedged item and therefore form highly effective relationships. The portion of the liability designated in the hedging relationship is determined by reference to specific fixed rate assets within the loan portfolio. Sources of ineffectiveness are limited to credit risk of parties to the relationship. The Group tests for ineffectiveness each month. The variability in fair values attributable to an item designated as a cash flow hedge is recognised in Other Comprehensive Income to the extent of the hedges effectiveness. Any ineffective portion of the change in the fair value of a derivative is recognised immediately in the Consolidated Income Statement.

Derivatives that do not qualify for hedge accounting

If a derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for hedge accounting, or the designation is revoked, then hedge accounting is discontinued and the amount recognised in Other Comprehensive Income remains in Other Comprehensive Income until the forecast transaction affects the Consolidated Income Statement. If the forecast transaction is no longer expected to occur, it is reclassified to the Consolidated Income Statement as a reclassification adjustment.

3.2.3 Liquidity risk

Managing liquidity risk

Liquidity risk is the risk that the Group is unable to meet its financial and statutory obligations as they fall due, which could arise due to mismatches in cash flows.

The Group’s objective is to manage its funds in a way that will facilitate growth in core business under a wide range of market conditions. The Group maintains, and adheres to, an Internal Liquidity Adequacy Assessment Plan (ILAAP). This process includes acknowledgements of liquidity risks within the Group and justification of the amount of liquidity that is being held based on the liquidity risk profile of the organisation.

Group Treasury is responsible for implementing liquidity risk management strategies in accordance with the ILAAP. The Group’s Assets and Liabilities Committee (ALCO) assists the Board with oversight of asset and liability management including liquidity risk management. The Group’s liquidity policies are approved by the Board after endorsement by the Group Risk Committee and the Banking Group’s ALCO.

The Group maintains a portfolio of highly marketable assets that can be liquidated in the event of an unforeseen interruption of cash flows. The Group also has committed lines of credit that it can access to meet its liquidity needs. Liquidity scenarios are calculated under stressed and normal operating conditions, to assist in anticipating cash requirements providing adequate reserves.

Liquidity risk exposure

The Group is exposed to liquidity risk primarily through its banking activities.

The Group’s contractual cash flows associated with its financial liabilities and hedging derivatives, within relevant maturity groupings is as follows. These are presented on an undiscounted basis and, therefore, will not agree to amounts presented on the Consolidated Statement of Financial Position as they incorporate principal and associated future interest payments.

When a derivative is not designated in a qualifying relationship, all changes in its fair value are recognised immediately in the Consolidated Income Statement, as a component of net income from other financial instruments carried at fair value.

MyState Limited Annual Report 2017

62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

3.2 FINANCIAL RISK MANAGEMENT (CONTINUED)

			3 months to
	On demand	< 3 months	1 year	1 to 5 years	> 5 years	Total
	$’000	$’000	$’000	$’000	$’000	$’000
2017
At call deposits	1,460,758	–	–	–	–	1,460,758
Due to other fnancial insttutons	–	34,319	–	–	–	34,319
Term deposits	–	825,776	819,453	34,743	–	1,679,972
Negotable certfcates of deposit	–	376,200	69,500	–	–	445,700
Subordinated notes	–	570	1,710	9,120	40,318	51,718
Securitsaton liabilites	–	49,997	149,991	799,950	111,104	1,111,042
Contractual amounts payable	1,460,758	1,286,862	1,040,654	843,813	151,422	4,783,509
Derivatve liability	–	209	1,308	9,734	–	11,251
2016
At call deposits	1,318,370	–	–	–	–	1,318,370
Due to other fnancial insttutons	–	30,710	–	–	–	30,710
Term deposits	–	861,467	514,322	32,903	–	1,408,692
Negotable certfcates of deposit	–	311,472	66,504	–	–	377,976
Subordinated notes		445	1,335	7,120	33,900	42,800
Securitsaton liabilites	–	34,707	104,120	555,308	231,378	925,513
Contractual amounts payable	1,318,370	1,238,801	686,281	595,331	265,278	4,104,061
Derivatve liability	5	83	1,780	4,971	–	6,839

MyState Limited Annual Report 2017

Contractual maturity of assets and liabilities

The contractual maturities of the Group’s financial assets and liabilities as at the reporting date are contained in the following table. The Group expects that certain assets and liabilities will be recovered or settled at maturities which are different to their contractual maturities.

	30 June 2017		30 June 2016
	Less than More than	Less than	More than
	12 months 12 months Total	12 months	12 months	Total
	$’000 $’000 $’000	$’000	$’000	$’000
Financial assets
Cash and liquid assets	64,226 – 64,226	80,126	–	80,126
Due from other fnancial insttutons	35,161 – 35,161	17,875	–	17,875
Other assets	6,577 – 6,577	5,819	–	5,819
Financial instruments	257,322 163,447 420,769	187,833	168,159	355,992
Loans and advances	105,727 4,176,798 4,282,525	290,305	3,572,828	3,863,133
Total fnancial assets	469,013 4,340,245 4,809,258	581,958	3,740,987	4,322,945
Financial liabilites
Due to other fnancial insttutons	(34,319) – (34,319)	(30,710)	–	(30,710)
Other liabilites	(6,801) – (6,801)	(6,961)	–	(6,961)
Deposits	(3,519,810) (32,336) (3,552,146)	(3,231,740)	(30,637)	(3,262,377)
Subordinated notes	– (34,695) (34,695)	–	(24,663)	(24,663)
Securisaton liabilites	(173,183) (788,942) (962,125)	(117,171)	(663,971)	(781,142)
Total fnancial liabilites	(3,734,113) (855,973) (4,590,086)	(3,386,582)	(719,271)	(4,105,853)
Net contractual amounts
receivable/(payable)	(3,265,100) 3,484,272 219,172	(2,804,624)	3,021,716	217,092

MyState Limited Annual Report 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

3.3 AVERAGE BALANCE SHEET AND SOURCE OF NET INTEREST INCOME

The following table shows the major categories of interest-earning assets and interest-bearing liabilities, together with their respective interest earned or paid by the Group and the average interest rates. Averages are calculated based on the balance at each month end.

		30 June 2017	30 June 2016
	Average balance	Interest Average rate Average balance	Interest	Average rate
	$’000	$’000 % $’000	$’000	%
Average interest earning assets and
interest income
Interest-earning assets
Cash and liquid assets	78,636	567 0.72% 76,351	809	1.06%
Financial instruments	380,293	9,490 2.50% 357,276	10,264	2.87%
Loans and advances	4,100,642	172,163 4.20% 3,756,712	172,278	4.59%
Total average interest-earning assets	4,559,571	182,220 4.00% 4,190,339	183,351	4.38%
Non-interest earning assets	126,301	– – 124,711	–	–
Total average assets	4,685,872	182,220 3.89% 4,315,050	183,351	4.25%
Average liabilites and interest expense
Interest-bearing liabilites
Deposits and derivatves	3,442,306	65,742 1.91% 3,199,496	68,513	2.14%
Notes and bonds on issue	903,172	28,346 3.14% 776,070	25,928	3.34%
Total average interest-bearing liabilites	4,345,478	94,088 2.17% 3,975,566	94,441	2.38%
Non-interest bearing liabilites	34,923	– – 45,959	–	–
Total average liabilites	4,380,401	94,088 2.15% 4,021,525	94,441	2.35%
Reserves	285,200	– – 277,665	–	–
Total average liabilites and reserves	4,665,601	94,088 2.02% 4,299,190	94,441	2.20%

MyState Limited Annual Report 2017

4.1 CASH AND LIQUID ASSETS

4.1 CASH AND LIQUID ASSETS
	30 June 2017	30 June 2016
	$’000	$’000
Notes, coins and cash at bank	62,125	64,429
Other short term liquid assets	2,101	15,697
Total cash and liquid assets	64,226	80,126
Notes to the statements of cash fows
Reconciliaton of proft for the year to net cash provided by operatng actvites
Proft for the year	30,080	28,334
Add/(less) items classifed as investng/fnancing actvites or non-cash items:
Depreciaton of property, plant and equipment	2,223	2,328
Amortsaton of intangible assets	2,970	2,461
Impairment of property, plant and equipment	–	1,350
Net (gain)/ loss on sale of investments	(1,362)	(23)
Net (gain)/loss on sale of equipment	(9)	–
Bad and doubtul debts expense net of recoveries	213	1,221
Deferred upfront lending costs	8,476	6,373
Employee equity benefts reserve	281	157
Tax movement within reserves	272	(363)
Changes in assets and liabilites
Decrease/(increase) in due from other fnancial insttutons	215	6,372
Decrease/(increase) in other assets	(758)	1,296
Decrease/(increase) in deferred tax assets	(1,054)	659
Increase/(decrease) in due to other fnancial insttutons	(298)	(4,690)
Increase/(decrease) in other liabilites	(160)	561
Increase/(decrease) in employee beneft provisions	(145)	97
Increase/(decrease) in tax liabilites	(316)	(3,970)
Net cash fows used in operatng actvites	40,628	42,163

Accounting policies

Cash and liquid assets

Cash and liquid assets in the Consolidated Statement of Financial Position and for the purposes of the Consolidated Statement of Cash Flows comprise cash at bank and in hand and short-term deposits with an original maturity of less then three months, net of outstanding bank overdrafts. Cash flows arising from deposits, share capital, investments, loans to subsidiaries and investments in associates are presented on a net basis in the Statement of Cash Flows.

Cash Flow statement

Cash flows arising from the following activities are presented on a net basis in the Statement of Cash Flows:

Customer deposits and withdrawals from savings and fixed-term deposit accounts;
Movements in investments;
Amounts due to and from other financial institutions;
Customer loans and advances; and
Dividends paid.

MyState Limited Annual Report 2017

66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

4.2 FINANCIAL INSTRUMENTS

4.2 FINANCIAL INSTRUMENTS
	30 June 2017	30 June 2016
	$’000	$’000
Financial instruments at amortsed cost
Negotable certfcates of deposits	221,703	183,420
Floatng rate notes	196,181	165,970
Short-term deposits	1,504	1,819
Total other fnancial instruments at amortsed cost	419,388	351,209
Financial instruments at fair value
Derivatves	(267)	23
Other fnancial instruments at fair value	1,648	4,760
Total fnancial assets	420,769	355,992

Accounting policies

Financial instruments at amortised cost

Financial instruments at amortised cost are those non-derivative financial assets that the Company has acquired with the objective of holding in order to collect contractual cash flows. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial instruments at fair value

Financial instruments other than those carried at amortised cost, are carried at their fair value at the reporting date. Note 4.6 contains information on how the group determines fair values. Fair value gains and losses are recognised in comprehensive income until the derecognition date, at which point the net gains and losses are transferred to profit or loss for that instrument.

Derecognition of financial assets and liabilities

Financial assets are derecognised when the contractual rights to receive cash flows from the assets have expired, or where the Bank has transferred its contractual rights to receive the cash flows of the financial assets and substantially all the risks and rewards of ownership. Financial liabilities are derecognised when they are extinguished, i.e. when the obligation is discharged, cancelled or expired.

MyState Limited Annual Report 2017

4.3 LOANS AND ADVANCES

4.3 LOANS AND ADVANCES
	30 June 2017	30 June 2016
	$’000	$’000
Classifcaton of loans and advances at amortsed cost
Residental loans secured by mortgage	4,090,546	3,674,988
Personal loans and unsecured overdrafs	77,249	79,565
Overdrafs secured by mortgage	52,261	59,308
Commercial loans	63,426	50,330
Total loans and advances at amortsed cost	4,283,482	3,864,191
Specifc provision for impairment	620	567
Collectve provision for impairment	337	491
Total loans and advances at amortsed cost net of provision for impairment	4,282,525	3,863,133

Loans and advances at amortised cost accounting policy

Loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as “loans and advances”. Loans and advances are recognised on trade date and are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

Provision for impairment

Provision for impairment
Specifc provision for impairment Opening balance 567	115
Charge/(credit) against proft 94	452
Write-of of previously provisioned facilites (41)	–
Closing balance of specifc provision for impairment 620	567
Collectve provision for impairment Opening balance 491	547
Charge/(credit) against proft 322	396
Write-of of previously provisioned facilites (476)	(452)
Closing balance of collectve provision for impairment 337	491
Charge to proft for impairment on loans and advances Increase/(decrease) in specifc provision for impairment 53	452
Increase/(decrease) in collectve provision for impairment (154)	(56)
Bad debts recovered (1,131)	(1,221)
Bad debts writen of directly 1,445	2,046
Total impairment expense on loans and advances 213	1,221

MyState Limited Annual Report 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

4.3 LOANS AND ADVANCES (CONTINUED)

Impairment of financial assets accounting policy

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. The primary source of credit risk for the Group arises on its loan portfolio. In relation to this portfolio, the Group maintains an individually assessed provision and a collective provision.

Specific provisions for impairment are made against individual risk rated credit facilities where a loss is expected. The provisions are measured as the difference between a financial asset’s carrying amount and the expected future cash flows. All other loans and advances that do not have an individually assessed provision are assessed collectively for impairment. The evaluation process is undertaken by categorising all loans in to a credit risk hierarchy based on a series of estimates and judgements based on APRA Prudential Standard APS 220 – Credit Quality.

4.4 TRANSFER OF FINANCIAL ASSETS (SECURITISATION PROGRAM)

Loans and advances to customers are sold by the Group to securitisation vehicles. The transfer takes the form of the Group assuming an obligation to pass cash flows from the underlying assets to investors in the notes. The Group utilises its securitisation program to provide regulatory capital relief and funding diversification.

The following table sets out the values at the transaction date of financial assets transferred during the financial year in this manner to vehicles that provide regulatory capital relief during the year and the value of the associated liabilities issued from the vehicles. This table does not include transfer of assets to the securitisation vehicle in which the Group is the bond holder.

	Carrying value at transacton date	Carrying value at transacton date
	30 June 2017	30 June 2016
	$’000	$’000
Transferred fnancial assets:
Loans and advances	420,232	195,819
Associated fnancial liabilites
Securitsaton liabilites to external investors	400,692	150,000

Transfer of financial assets accounting policy

Once assets are transferred to a securitisation vehicle, the Group does not have the ability to use the transferred assets during the term of the arrangement. The Group does not have any loans transferred to unconsolidated securitisation vehicles.

The consolidated securitisation vehicles generally transfer all the risks and rewards of ownership of the assets to the investors in the notes. However, derecognition of the transferred assets from the Group is prohibited because the cash flows that the securitisation vehicles collect from the transferred assets on behalf of the investors are not passed to them without material delay. In these cases, the consideration received from the investors in the notes in the form of cash is recognised as a financial asset and a corresponding financial liability is recognised. The investors in the notes have recourse only to the cash flows from the transferred financial assets.

Interest in Joint Operations accounting policy

Securitised positions are held through a number of Special Purpose Entities (SPE’s). These entities are classified as joint operations, as the parties that have joint control of the arrangement, have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities requires unanimous consent of the parties sharing control.

The Group recognises its interest in a joint operation:

Its assets, including its share of any assets held jointly;
Its liabilities, including its share of any liabilities incurred jointly;
Its revenue from the sale of its share of the output arising from the joint operation;
Its share of the revenue from the sale of the output by the joint operation; and
Its expenses, including its share of any expenses incurred jointly.

The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the AASBs applicable to the particular assets, liabilities, revenues and expenses.

MyState Limited Annual Report 2017

When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognised in the Group’s consolidated financial statements only to the extent of other parties’ interests in the joint operation. When a Group entity transacts with a joint operation in which a group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it re-sells those assets to a third party.

4.5 DEPOSITS AND OTHER BORROWINGS INCLUDING SUBORDINATED NOTES

4.5 DEPOSITS AND OTHER BORROWINGS INCLUDING SUBORDINATED NOTES
30 June 2017	30 June 2016
$’000	$’000
Deposits At call deposits 1,460,758	1,318,371
Term deposits 1,648,766	1,569,299
Negotable certfcates of deposit 442,622	374,707
Total deposits 3,552,146	3,262,377
Other borrowings Subordinated notes(1) 34,695	24,663
Securitsaton liabilites 962,125	781,142
Total deposits and other borrowings including subordinated notes 4,548,966	4,068,182
Concentraton of deposits: Customer deposits 2,988,057	2,714,858
Wholesale deposits 564,089	547,519
Subordinated notes(1) 34,695	24,663
Securitsaton liabilites 962,125	781,142
Total deposits 4,548,966	4,068,182

There are no customers who individually have deposits which represent 10% or more of total liabilities.

(1) Refer to note 3.1 (1) for details regarding the Subordinated Note issue.

Deposits and other borrowings accounting policy

Deposits and other borrowings are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The Group does not currently hold any financial liabilities at fair value.

MyState Limited Annual Report 2017

70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

4.6 FAIR VALUE OF FINANCIAL INSTRUMENTS

Classification of financial instruments

Cash and liquid assets, amounts due to financial institutions and amounts due from financial institutions are carried at cost. As these assets are short term assets, their cost is considered to approximate their fair value.

The following financial assets and liabilities are also carried at amortised cost:

Financial instruments;
Loans and advances;
Deposits; and
Other borrowings.

The aggregate net fair values of financial assets and financial liabilities which are carried at amortised cost is:

	30 June	2017	30 June	2016
	Carrying value	Net fair value	Carrying value	Net fair value
	$’000	$’000	$’000	$’000
Financial assets
Financial instruments	419,388	419,023	351,174	351,007
Loans and advances	4,282,525	4,275,447	3,863,133	3,862,014
Total fnancial assets	4,701,913	4,694,470	4,214,307	4,213,021
Financial liabilites
Deposits	3,552,146	3,544,954	3,262,377	3,262,826
Other borrowings including subordinated notes	996,820	996,820	805,805	805,805
Total fnancial liabilites	4,548,966	4,541,774	4,068,182	4,068,631

MyState Limited Annual Report 2017

Fair value hierarchy

The level in the fair value hierarchy of the inputs used in determining the fair values is shown below. The fair value of these assets is:

Level 1 – inputs that are prices quoted for identical instruments in active markets;

Level 2 – inputs based on observable market data other than those in level 1; and

Level 3 – inputs for which there is no observable market data.

Where the expected maturity is in excess of 12 months, the fair value is discounted to its present value. During the year, there have been no material transfers between levels of the fair value hierarchy.

material transfers between levels of the fair value hierarchy.
	Level 1 value	Level 2 value	Level 3 value	Total value
	$’000	$’000	$’000	$’000
2017
Financial assets
Financial instruments	–	419,023	–	419,023
Loans and advances	–	–	4,275,447	4,275,447
Financial liabilites
Deposits	–	3,544,954	–	3,544,954
Other borrowings including subordinated notes	–	996,820	–	996,820
2016
Financial assets
Financial instruments	–	351,007	–	351,007
Loans and advances	–	–	3,862,014	3,862,014
Financial liabilites
Deposits	–	3,262,826	–	3,262,826
Other borrowings including subordinated notes	–	805,805	–	805,805

The Group has performed a VaR analysis at section 3.2, Market risk. VaR takes account of all material market variables that may cause a change in the value of the loan portfolio, being 100% of Level 3 inputs.

MyState Limited Annual Report 2017

72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

5.1 PROPERTY, PLANT AND EQUIPMENT

5.1 PROPERTY, PLANT AND EQUIPMENT
	30 June 2017	30 June 2016
	$’000	$’000
Land and buildings
At revalued amount	13,648	13,212
Accumulated depreciaton	(6,711)	(5,163)
	6,937	8,049
Plant and equipment
At cost	4,171	3,943
Accumulated depreciaton	(2,812)	(2,180)
	1,359	1,763
Total property, plant and equipment	8,296	9,812

Property, plant and equipment accounting policy

Plant and equipment

Plant and equipment, including leasehold improvements, are measured at cost less accumulated depreciation and any impairment in value.

Land and buildings

Following initial recognition at cost, land and buildings are carried at a revalued amount, being their fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses. Independent valuations are performed with sufficient regularity to ensure the carrying amount does not differ materially from the asset’s fair value at the Consolidated Statement of Financial Position date. Fair value, is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and seller in an arm’s length transaction as at valuation date.

Any revaluation surplus is credited to the asset revaluation reserve included in the equity section of the Consolidated Statement of Financial Position, unless it reverses a revaluation decrease of the same asset previously recognised in the Consolidated Income Statement. Any revaluation deficit is recognised in the Consolidated Income Statement unless it directly offsets a previous surplus of the same asset in the asset revaluation reserve. Accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Impairment of property, plant and equipment

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Derecognition of property, plant and equipment

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Consolidated Income Statement in the year the item is derecognised.

MyState Limited Annual Report 2017

5.2 INTANGIBLE ASSETS AND GOODWILL

5.2 INTANGIBLE ASSETS AND GOODWILL
	Goodwill	Sofware	Other	Total
	$’000	$’000	$’000	$’000
Year ended 30 June 2017:
At 1 July 2016, net of accumulated amortsaton	65,978	11,016	1,988	78,982
Additons	–	9,189	2,978	12,167
Disposals	–	–	–	–
Impairment	–	–	–	–
Amortsaton	–	(2,167)	(803)	(2,970)
At 30 June 2017, net of accumulated amortsaton	65,978	18,038	4,163	88,179
At 30 June 2017
Cost (gross carrying amount less impairment)	65,978	27,766	5,556	99,300
Accumulated amortsaton	–	(9,728)	(1,393)	(11,121)
Net carrying amount	65,978	18,038	4,163	88,179
Year ended 30 June 2016:
At 1 July 2015, net of accumulated amortsaton	65,978	10,806	1,893	78,677
Additons	–	3,524	592	4,116
Disposal	–	–	–	–
Impairment	–	(1,350)	–	(1,350)
Amortsaton	–	(1,964)	(497)	(2,461)
At 30 June 2016, net of accumulated amortsaton	65,978	11,016	1,988	78,982
At 30 June 2016
Cost (gross carrying amount less impairment)	65,978	22,596	2,578	91,152
Accumulated amortsaton	–	(11,580)	(590)	(12,170)
Net carrying amount	65,978	11,016	1,988	78,982

Intangibles accounting policy

Intangible assets acquired separately are capitalised at cost and from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite or infinite. Where amortisation is charged on assets with finite lives, this expense is taken to the Consolidated Income Statement. Certain costs directly incurred in acquiring and developing software are capitalised and amortised over the estimated useful life.

Intangible assets are tested for impairment where an indicator of impairment exists and, in the case of indefinite life intangibles, annually, either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Goodwill is treated as an indefinite life intangible, software and other intangibles are finite life intangibles. Refer to note 2.4 Expenses for the useful life of tangible and intangible assets.

MyState Limited Annual Report 2017

74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

5.2 INTANGIBLE ASSETS AND GOODWILL (CONTINUED)

Impairment testing of Goodwill

For the purpose of impairment testing, goodwill has been allocated to the Group’s two cash-generating units (CGU’s) the Banking Business and the Wealth Management Business. These CGU’s represent the lowest level within the Group at which the goodwill is monitored for internal management purposes. The aggregate carrying amounts of goodwill allocated to each CGU for the purpose of impairment testing is as follows:

30 June 2017	30 June 2016
$’000	$’000
Banking Business 40,189 Wealth Management Business 25,789	40,189 25,789
Total goodwill 65,978	65,978

The recoverable amounts for the relevant CGU’s have been assessed based on value-in-use calculations using cash flow projections. The Company’s assessment of goodwill value-in-use exceeds the carrying value allocated to the CGU’s and included in the financial statements.

Each CGU’s value-in-use was determined using cash flow projections from Board approved financial budgets for the year ending 30 June 2018. Growth rates have been applied from year two through to year twenty. Cash flows are projected by undertaking detailed calculations for each income and expense category over the twenty year period. Certain income categories are modelled by projecting growth in relevant portfolio balances and the resulting income derived there-from. Other non-portfolio related income streams and expense categories are modelled by projecting real rates of growth (above inflation) for each category. Terminal value is determined at year twenty using the assumption that the CGU achieves no real growth above inflation into perpetuity. The growth rates applied do not exceed the long-term average growth rate for the business which the CGU operates. The discount rate used of 10% reflects the Group’s post-tax nominal weighted average cost of capital, in which has been reviewed by externally engaged advisers and approved by the Board. Average inflation is projected to be 2.5%. The method for determining value-in-use is consistent with that adopted in the comparative period.

The key assumptions adopted in assessing Banking’s value-in-use are the rate of growth in the balance of the housing loan portfolio and the outlook for net interest margin (NIM). Taking into account management’s past experiences and external evidence, the assumptions that have been adopted for both of these components are considered to be conservative. NIM is projected to be consistent with the budget outlook, which reflects the current low interest rate environment, this depresses this figure. Management expects that, over time, these assumptions will be positively exceeded and that any reasonably possible change to assumptions used in Management’s assessment will not result in impairment.

and external evidence, the assumption adopted is considered reasonable and conservative. Management’s assessment of Wealth Management’s value-in-use exceeds its carrying value. Any reasonably possible change to assumptions used in Management’s assessment will not result in impairment.

Goodwill accounting policy

Goodwill on the acquisition of businesses is carried at cost as established at the date of the acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash generating units (or groups of CGU’s) that is expected to benefit from the synergies of the combination.

A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the unit pro rata based on the carrying amount of each asset in the CGU. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Impairment of subsidiaries accounting policy

Investments in subsidiaries are tested annually for impairment or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the investments carrying amount exceeds its recoverable amount (which is the higher of fair value less costs to sell and value in use). At each balance sheet date, the investments in subsidiaries that have been impaired are reviewed for possible reversal of the impairment.

The key assumption adopted in assessing Wealth Management’s value-in-use is the rate of growth in income derived from management fee (MF) income. MF income is derived from its activities as the responsible entity for various Managed Investment Schemes (MIS). MF income derived is directly related to the portfolio balances of the MIS. Other sources of income for the Wealth Management Business is its Financial Planning and Trustee Services divisions. Taking into account Management’s past experiences

MyState Limited Annual Report 2017

5.3 EMPLOYEE BENEFITS PROVISION

5.3 EMPLOYEE BENEFITS PROVISION
	30 June 2017	30 June 2016
	$’000	$’000
Balances
Provision for annual leave	2,015	2,156
Provision for long service leave	3,355	3,359
Total employee benefts provisions	5,370	5,515
Due to be setled within 12 months	4,230	4,219
Due to be setled more than 12 months	1,140	1,296
Total employee benefts provisions	5,370	5,515

Employee benefits accounting policy

Liabilities for salaries, wages and annual leave are recognised in respect of the employees service up to the reporting date. Where settlement is expected to occur within twelve months of the reporting date, the liabilities are measured at their nominal amounts based on the remuneration rates which are expected to be paid when the liability is settled. Where settlement is expected to occur later than twelve months from reporting date, the liabilities are measured at the present value of payments which are expected to be paid when the liability is settled.

A liability for long service leave is recognised and measured at the present value of expected future payments to be made in respect of services provided up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

Contributions are made by the Group to employee superannuation funds and are charged as expenses when incurred.

MyState Limited Annual Report 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

5.4 SHARE CAPITAL

5.4 SHARE CAPITAL
				30 June 2017	30 June 2016
				$’000	$’000
Issued and paid up ordinary shares				141,349	134,756
	30	June	2017	30 June	2016
	Number of		Amount	Number of	Amount
	shares		$’000	shares	$’000
Movements in ordinary share capital
Opening balance	87,854,255		134,756 87,283,417		132,670
Shares issued pursuant to the
– employee share scheme of the Group	18,729			80 21,054	99
– executve long term incentve plan		–		– 27,901	46
– dividend reinvestment plan	1,572,411		6,513 521,883		1,941
Closing balance	89,445,395		141,349 87,854,255		134,756

Terms and conditions

Ordinary shares have the right to receive dividends as declared from time to time and, in the event of a winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of shares and amounts paid up on the shares held. Ordinary shares entitle their holder to one vote per share, either in person or by proxy at meetings of the Company.

The Company does not have authorised capital or par value in respect of its issued shares.

The Group offers share based remuneration, refer to note 7.3 and the Remuneration Report for further information regarding these arrangements.

MyState Limited Annual Report 2017

6.1 INCOME TAX EXPENSE, CURRENT AND DEFERRED TAX BALANCES

6.1 INCOME TAX EXPENSE, CURRENT AND DEFERRED TAX BALANCES
	30 June 2017	30 June 2016
	$’000	$’000
The major components of income tax expense/(beneft) are:
Income tax expense
Current income tax charge	12,037	12,298
Adjustment in respect of current income tax of previous years	62	(220)
Adjustments in respect of deferred income tax of previous years	(563)	221
Relatng to originaton and reversal of temporary diferences	622	457
Total Income tax expense	12,158	12,756
A reconciliaton between tax expense and accountng proft before income tax multplied by the Group’s applicable income tax rate is as follows:
Income tax expense atributable to:
Accountng proft before tax	42,238	41,090
The income tax expense comprises amounts set aside as:
Provision atributable to the current year at the statutory rate of 30%, being:
– Prima facie tax on accountng proft before tax	12,671	12,327
– Under/(over) provision in prior year	(500)	–
Expenditure not allowable for income tax purposes	42	536
Tax efect of tax credits and adjustments	(55)	(107)
Other	–	–
Income tax expense reported in the consolidated income statement	12,158	12,756
Weighted average efectve tax rates	28.8%	31.0%
Deferred income tax relates to the following:
Deferred tax assets
Employee enttlements	1,611	1,655
Provisions	158	123
Doubtul debts	101	299
Other	2,848	1,587
Carried forward losses	–	–
Total deferred tax assets	4,718	3,664

MyState Limited Annual Report 2017

78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

6.1 INCOME TAX EXPENSE, CURRENT AND DEFERRED TAX BALANCES (CONTINUED)

	30 June 2017	30 June 2016
	$’000	$’000
Deferred tax liabilites
Available for sale fnancial assets	70	87
Property, plant and equipment	1,460	1,112
Other	1,776	1,363
Total deferred tax liabilites	3,306	2,562
Current tax payable	785	1,845
Total tax liabilites	4,091	4,407

Movements in deferred tax balances

Movements in deferred tax balances
	Deferred	tax assets		Deferred tax liabilites
	30 June 2017	30 June	2016	30 June 2017	30 June 2016
	$’000	$’000		$’000	$’000
Opening balance	3,664		4,323	2,562	2,195
(Charged)/credited to income statement	550		(158)	1,172	299
Credited/(charged) to equity	99		(348)	(270)	–
Adjustments for deferred tax of prior years	405		(153)	(158)	68
Closing balance	4,718		3,664	3,306	2,562

Taxation accounting policy

Income tax expense is recognised in the Consolidated Income Statement, except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the Consolidated Statement of Comprehensive Income. Income tax expense on the profit or loss of the period comprises current tax and deferred tax.

Current tax payable

Current tax payable is the expected tax payable on the taxable income for the financial year using tax rates that have been enacted, and any adjustment to tax payable in respect of previous years.

Deferred tax

Deferred income tax is provided on all temporary differences at the Consolidated Statement of Financial Position date. Temporary differences are calculated at each reporting date as the difference between the carrying amount of assets and liabilities for financial reporting purposes and their tax base.

Deferred income tax liabilities are recognised for all taxable temporary differences except:

Where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
When the taxable temporary differences associated with the investments in subsidiaries and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax assets and unused tax losses can be utilised except:

When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affect neither the accounting profit nor the taxable profit and loss; and
When the deductible temporary differences are associated with investments in subsidiaries, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxable authority.

MyState Limited Annual Report 2017

The Group undertakes transactions in the ordinary course of business where the income tax treatment requires the exercise of judgement. The Group estimates its tax liability based on its understanding of the tax law.

Tax consolidation

The Group has elected to be taxed as a single entity under the tax consolidation regime. The head company is MyState Limited. The members of the group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities among the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote.

The Company and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Company has applied the separate tax payer within group approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group.

In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

7.1 PARENT ENTITY INFORMATION

The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Refer to note 1 and policy notes within the financial statements for a summary of the significant accounting policies relating to the Group.

signifcant accountng policies relatng to the Group.
	30 June 2017	30 June 2016
Statement of fnancial positon	$’000	$’000
Assets
Cash and liquid assets	1,214	3,026
Other receivables	102	100
Related party receivables	1,810	2,337
Investments in subsidiaries	249,811	243,364
Deferred tax assets	1,236	833
Total assets	254,173	249,660
Liabilites
Other liabilites	786	2,181
Related party payables	443	518
Tax liabilites	1,246	1,840
Employee beneft provisions	195	392
Total liabilites	2,670	4,931
Net assets	251,503	244,729
Equity
Share capital	247,176	240,684
Retained earnings	3,370	3,370
Reserves	957	675
Total equity	251,503	244,729
Financial positon
Proft afer income tax for the year	25,041	24,155
Other comprehensive income	–	–
Total comprehensive income	25,041	24,155

MyState Limited Annual Report 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

7.1 PARENT ENTITY INFORMATION (CONTINUED)

The parent entity has not entered in to any guarantees and does not have any contingent liabilities as at 30 June 2017 (30 June 2016: nil).

Transactions between the Company and the consolidated entities principally arise from the provision of management and governance services. All transactions with subsidiaries are in accordance with regulatory requirements, the majority of which are on commercial terms. All transactions undertaken during the financial year with the consolidated entities are eliminated in the Consolidated Financial Statements. Amounts due from and due to entities are presented separately in the Statement of Financial Position of the Company except where offsetting reflects the substance of the transaction or event.

7.2 CONTROLLED ENTITIES AND PRINCIPLES OF CONSOLIDATION

Details of the Group’s material subsidiaries at the end of the reporting period are as follows.

Signifcant subsidiaries	Principal actvites	Country of Incorporaton	Ownership Interest
MyState Bank Limited	Banking	Australia	100%
Tasmanian Perpetual Trustees Limited	Wealth Management	Australia	100%
Connect Asset Management Pty Ltd	Manager of Securitsaton	Australia	100%
	Vehicles

On 30 September 2015, the Rock Building Society Limited ceased operating as an ADI and is no longer a significant subsidiary. The operations were transferred to MyState Bank Limited.

Basis of consolidation accounting policy

The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:

Has power over the investee;
Is exposed, or has rights, to variable returns from its involvement with the investee; and
Has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of these three elements of control.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

The size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
Potential voting rights held by the Company, other vote holders or other parties;
Rights arising from other contractual arrangements; and
Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patters at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Income Statement and Other Comprehensive Income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of Other Comprehensive Income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

MyState Limited Annual Report 2017

7.3 RELATED PARTY DISCLOSURES

The ultimate parent entity and controlling entity is MyState Limited. Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed in the following paragraphs.

Managed Investment Schemes

Within the Group, Tasmanian Perpetual Trustees Limited (TPT) is a Responsible Entity for Managed Investment Schemes (Funds) and, accordingly, has significant influence over their activities. TPT receives management fees from these Funds. TPT also pays expenses of the Funds for which it is reimbursed. TPT and the Company have also invested in these Funds and receives distributions on these investments. These investments are made on the same terms and conditions that apply to all investors in these Funds. Details of these transactions and balances are as follows:

balances are as follows:
	Consolidated			TPT
	30 June 2017	30 June	2016	30 June 2017	30 June 2016
	$’000	$’000		$’000	$’000
Management fees received	9,456		9,272	9,456	9,272
Balance of investment held at year end	7,216		9,663	3,863	2,334
Distributons received from managed funds	275		357	129	168

The Funds have:

Accepted money on deposit from Directors and Executives or entities associated with Directors and Executives at prevailing Fund rates and conditions;
Loaned money to MSB, in the form of term deposits, totalling $30.75 million (2016: $29.75 million); and
Loaned money to Trusts within the ConQuest Trusts Residential Mortgage Backed Securities Program in the form of Class A and B notes totalling $38.07 million (2016: $56.35 million).

These deposits are made on the same terms and conditions that apply to all similar transactions.

Key Management Personnel

Individual Directors and Executive compensation disclosures

Information regarding individual Directors, Executive compensation, and equity instruments disclosures, as required by the Corporations Regulation 2M.2.03, is provided in the Remuneration Report section of the Directors’ report. Disclosure of the compensation and other transactions with key management personnel (KMP) is required pursuant to the requirements of Australian Accounting Standard AASB 124 Related Party Disclosures. The KMP of the Group is comprised of the non Executive Directors, Managing Director and Chief Executive Officer and certain Executives.

and certain Executves.
	30 June 2017	30 June 2016
	$’000	$’000
Key management personnel compensaton
The key management personnel compensaton comprised:
Short-term employee benefts	3,713	3,405
Post employment benefts	417	367
Share-Based payment(i)	274	87
Terminaton benefts	269	–

(i) These amounts are estimates of compensation and include a portion that will only vest to the Managing Director or Executive when certain performance criteria are met or a ‘Capital Event’ occurs. The fair value of shares is calculated at the date of grant and is allocated to each reporting period over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the shares allocated to this reporting period.

MyState Limited Annual Report 2017

82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

8.1 CONTINGENT LIABILITIES AND EXPENDITURE COMMITMENTS

	30 June 2017	30 June 2016
	$’000	$’000
Operatng lease expenditure commitments
not later than 1 year	3,726	3,861
later than 1 and not later than 5 years	9,498	10,618
later than 5 years	8,199	10,475
Total lease expenditure contracted for at balance date	21,423	24,954

The Group occupies a number of properties which house its branch network. The leases for these properties are on normal commercial terms and conditions. The usual initial term for these leases is five years.

In the 2012 period, MyState Bank Limited (MSB) commenced leasing its Headquarters building located in Hobart. The term of the lease is fifteen years, with an option for a further ten year term. Rental increases over the term of the lease are determined by reference to movements in the consumer price index. The Group also entered into a lease of a property situated in Launceston, which is principally used to house elements of the Tasmanian Perpetual Trustees Limited (TPT) business. The term of the lease is five years, with an option for two further five year terms. Rental increases over the term of the lease are determined by reference to movements in the consumer price index. If the options for further terms are exercised, the rental is to be determined by market appraisal at that time.

Other operating leases have an average term of 3 to 5 years for property and are non-cancellable. Assets that are the subject of operating leases are computer equipment and property.

MSB has provided guarantees to third-parties in order to secure the obligations of customers. The range of situations in which guarantees are given include:

Local Government Authorities, to secure the obligations of property and sub-divisional developers to complete infrastructure developments;
Local Government Authorities, Schools and other building owners, to secure the obligations of building contractors to complete building works;
Landlords, to secure the obligations of tenants to pay rent; and
CUSCAL, to secure payroll and direct debit payments processed by CUSCAL on behalf of customers.

building works; • Landlords, to secure the obligatons of tenants to pay rent; and • CUSCAL, to secure payroll and direct debit payments processed by CUSCAL on behalf of customers.
Customer commitments
Loans approved but not advanced to borrowers	42,520	49,360
Undrawn contnuing lines of credit	72,952	76,415
Performance guarantees	2,000	1,876
Total customer commitments	117,472	127,651

Guarantees are issued in accordance with approved Board policy. Those guarantees over $10,000 are required to be secured. In the event that a payment is made under a guarantee, the customer’s obligation to MSB is crystallised in the form of an overdraft or loan.

Bank Guarantee 1,000 1,000

The Group is a non-broker participant in the Clearing House Electronic Sub Register System operated by the Australian Securities Exchange and has provided a guarantee and indemnity for the settlement account from Bendigo and Adelaide Bank Limited (BABL). The Group maintains a deposit with BABL for $1,000,000 (2016: $1,000,000) as collateral for the guarantee.

Loan Guarantees – 180

MyState Limited Annual Report 2017

TPT has given guarantees to Local Government Authorities to secure the obligations of property and sub-divisional developers to complete infrastructure developments required of them. The developers are borrowers from managed funds for which TPT is the Responsible Entity. The developers provide cash or real property as security for the Group providing the loan guarantee.

Estate Administration

The Group acts as executor and trustee for a significant number of trusts and estates. In this capacity, the Group has incurred liabilities for which it has a right of indemnity out of the assets of those trusts and estates. Accordingly, these liabilities are not reflected in the financial statements.

Other contracted commitments for expenditure on plant and equipment as at the reporting date are for only minimal amounts.

8.2 REMUNERATION OF AUDITORS

During the financial year, the following fees were paid or payable for services provided by the auditor of the Group, Wise Lord & Ferguson:

	30 June 2017	30 June 2016
	$’000	$’000
Audit services
Audit of the fnancial statements of the consolidated enttes	372	373
Total remuneraton for audit services	372	373
Audit related services
Assurance related services	89	7
Audit of loans and other services to the securitsaton program	51	59
Total remuneraton for audit related services	140	66
Other non-external audit related services
Other services	32	41
Total remuneraton for non-audit related services	32	41
Total remuneraton for services provided	544	480

8.3 EVENTS SUBSEQUENT TO BALANCE DATE

There were no matters or circumstances that have arisen since the end of the year which significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods.

MyState Limited Annual Report 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2017

8.4 OTHER SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

The principal accounting policies, which are consistent with those applied in the comparative period unless otherwise stated, that have been adopted in the preparation of the financial report are set out in this section and the preceding sections.

Other assets

Other assets comprise accounts receivable, accrued income and prepayments. Accounts receivable are initially recorded at the fair value of the amounts to be received and are subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment loss.

Other liabilities

Other liabilities comprise accounts payable and accrued expenses and represent liabilities for goods and services received by the Group that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 30 days of the recognition of the liability.

New and revised accounting standards

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application for reporting periods beginning on or after 1 July 2016. The adoption of these accounting standards have not resulted in any significant changes to the financial statements:

AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interests in Joint Operations (AASB 1 & AASB 11) .

AASB 2014-4 Clarification of Acceptable Methods of Depreciation and Amortisation ( Amendments to AASB 116 & 138 ).

AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements.

AASB 9 Financial Instruments is effective for periods beginning on 1 July 2018. This standard introduces changes in the classification and measurement of financial assets and liabilities, including a new expected loss model for impairment and simplifications to hedge accounting. The impairment requirements are based on an expected credit loss model (ECL) that replaces the incurred loss model under the current accounting standard. AASB 9 will change the Group’s current methodology for calculating the provision for doubtful debts, in particular for collective provisioning.

The Group has not yet concluded the initial impact assessment, as the impact the new standard could have on the financial results will change as the circumstances of the Group change, up to the point of initial adoption. As such, it is not yet practical to reliably estimate the financial impact on the financial statements.

AASB 15 Revenue from contracts with customers is effective for periods beginning on 1 July 2018. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The model features a contract based five-step analysis of transactions to determine whether, how much and when revenue is recognised. The Group is currently undertaking an assessment of the potential impact of this standard. The potential impacts of this standard are yet to be determined.

AASB 16 Leases is effective for periods beginning on 1 July 2019. AASB 16 requires lessees to recognise most leases on balance sheets as lease liabilities, with the corresponding right-of-use assets. Lessees must apply a single model for all recognised leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets. The Group is currently undertaking an assessment of the potential impact of this standard. The potential impacts of this standard are yet to be determined. Refer to note 8.1 for the Group’s operating lease expenditure commitments.

AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.

AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses.

AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107 .

AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions.

AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016 Cycles.

The following standards have been identified as accounting standards which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2017, but have not been applied in preparing this financial report. The Group will adopt these standards on their effective dates:

MyState Limited Annual Report 2017

DIRECTORS’ DECLARATION

for the year ended 30 June 2017

In accordance with a resolution of the Directors of MyState Limited, we state that:

In the opinion of the Directors:
(a) The financial statements and notes of the Group set out on pages 41 to 84 are in accordance with the Corporations Act 2001, including:
- (i) Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the year ended on that date; and
- (ii) Complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
(b) There are reasonable grounds to believe that MyState Limited will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 by the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2017.
The financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1.2.

This declaration is made in accordance with a resolution of the Directors.

On behalf of the Board

==> picture [146 x 34] intentionally omitted <==

M L Hampton Chairman Hobart Dated this 18 August 2017

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C M Hollingsworth Director

MyState Limited Annual Report 2017

INDEPENDENT AUDITOR’S REPORT

for the year ended 30 June 2017

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       

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MyState Limited Annual Report 2017

 

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   

     

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 



 

   




     
 
      
    


  

MyState Limited Annual Report 2017

INDEPENDENT AUDITOR’S REPORT

for the year ended 30 June 2017

 





    

          

 



  

 
   
   
 
 

 





  

   

  



  


 
  
 
   
 



  

MyState Limited Annual Report 2017

 

    



     

   



     

 

    
  
 
      

MyState Limited Annual Report 2017

INDEPENDENT AUDITOR’S REPORT

for the year ended 30 June 2017

  
   

  

  

     

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

 (pages 27 to 40)  

 

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   

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   



MyState Limited Annual Report 2017

INFORMATION RELATING TO SHAREHOLDERS

for the year ended 30 June 2017

Range of Units Snapshot

Range of Units Snapshot
			% of Issued
Range	Total holders	Units	Capital
1 – 1,000	59,321	23,471,787	26.24
1,001 – 5,000	2,893	7,891,825	8.82
5,001 – 10,000	1,060	7,895,141	8.83
10,001 – 100,000	894	20,495,809	22.91
100,001 Over	44	29,690,833	33.19
Rounding			0.01
Total	64,212	89,445,395	100.00
UNMARKETABLE PARCELS
	Minimum Parcel
	Size	Holders	Units
Minimum $500.00 parcel at $4.8200 per unit	104	296	10,921

MyState Limited Annual Report 2017

INFORMATION RELATING TO SHAREHOLDERS

for the year ended 30 June 2017

Top Holders Snapshot as at 28 August 2017

Top	Holders Snapshot as at 28 August 2017
Rank	Name	Units	% of Units
1.	CITICORP NOMINEES PTY LIMITED	5,153,879	5.76
2.	J P MORGAN NOMINEES AUSTRALIA LIMITED	4,839,638	5.41
3.	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	3,414,851	3.82
4.	NATIONAL NOMINEES LIMITED	3,231,764	3.61
5.	BNP PARIBAS NOMINEES PTY LTD	2,645,620	2.96
6.	SELECT MANAGED FUNDS LTD	1,225,960	1.37
7.	MR BRIAN DAVID FAULKNER	750,000	0.84
8.	BNP PARIBAS NOMS PTY LTD	716,449	0.80
9.	BEECHWORTH HOLDINGS PTY LTD	650,000	0.73
10.	IOOF INVESTMENT MANAGEMENT LIMITED	535,866	0.60
11.	MILTON CORPORATION LIMITED	444,992	0.50
12.	MR IAN GREGORY GRIFFITHS + MRS SUSAN JANE GRIFFITHS	413,741	0.46
13.	MRS WENDY JEAN FAULKNER	405,000	0.45
14.	PRESTIGE FURNITURE PTY LTD	405,000	0.45
15.	MRS JOAN ELIZABETH EVERSHED	312,547	0.35
16.	GARMARAL PTY LTD	253,011	0.28
17.	LYMAL PTY LTD	244,140	0.27
18.	DONETTA PTY LIMITED	230,000	0.26
19.	NEALE EDWARDS PTY LTD	225,161	0.25
20.	NAVIGATOR AUSTRALIA LTD	206,377	0.23
Totals: Top 20 holders of Ordinary Fully Paid Shares (Total)		26,303,996	29.41
Total	Remaining Holders Balance	63,141,399	70.59

MyState Limited Annual Report 2017

CORPORATE DIRECTORY

for the year ended 30 June 2017

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Registered Office:

MyState Limited ABN: 26 133 623 962 Level 2, 137 Harrington Street Hobart TAS 7000 Telephone: 138 001 Facsimile: (03) 6215 9760 Website: mystatelimited.com.au Email: [email protected]

DIRECTORS

Miles Hampton (Chairman – non-executive) Melos Sulicich (Managing Director and Chief Executive Officer) Peter Armstrong (non-executive Director) Robert Gordon (non-executive Director) Colin Hollingsworth (non-executive Director) Sibylle Krieger (non-executive Director) Stephen Lonie (non-executive Director)

COMPANY SECRETARY

Scott Lukianenko

SHARE REGISTRY

Computershare Investor Services GPO Box 2975EE Melbourne VIC 3000 Telephone: 1300 538 803 Overseas callers: +61 3 9415 4660 Website: computershare.com.au

MYSTATE BANK

ABN: 89 067 729 195 Telephone: 138 001 Website: mystate.com.au Email: [email protected]

THE ROCK

A division of MyState Bank Limited Telephone: 1800 806 645 Website: therock.com.au Email: [email protected]

TASMANIAN PERPETUAL TRUSTEES

ABN: 97 009 475 629 Telephone: 1300 138 044 Website: tasmanianperpetual.com.au Email: [email protected]

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AUDITORS

Wise Lord and Ferguson 1st Floor, 160 Collins Street Hobart TAS 7000

AUSTRALIAN SECURITIES EXCHANGE

LISTING

MyState Limited is listed on the Australian Securities Exchange under the code MYS.

Designed and produced by FCR fcr.com.au

MyState Limited Annual Report 2017

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mystatelimited.com.au

AI assistant

MYSTATE LIMITED — Annual Report 2017

65395_rns_2017-09-14_764d3aed-d268-4dda-983c-334e6daead77.pdf

2017 Annual Report

CONTENTS

Annual General Meeting

Corporate Governance

HIGHLIGHTS OF THE YEAR

SHAREHOLDERS

CUSTOMERS

IMPROVING THE BANKING EXPERIENCE

COMMUNITY

GROUP PERFORMANCE

10.0%

CHAIRMAN’S REPORT

MANAGING DIRECTOR’S REPORT

TECHNOLOGY TRANSFORMATION DELIVERS NEW SERVICES

SUSTAINED MOMENTUM IN THE BANKING DIVISION

RECORD WEALTH MANAGEMENT FUM GROWTH

FINANCIAL RESULTS

OUR PEOPLE

SUMMARY

$124.6m

STRONG CAPITAL POSITION

OUR VALUES

BANKING DIVISION

SIMPLIFYING OUR SERVICES

BUILDING SCALE

TECHNOLOGY SUPPORTS NATIONAL GROWTH

$1.68bn

+10%

BANKING DIVISION CONTINUED

CUSTOMER DEPOSITS GROW 10%

NET INTEREST MARGIN

WELL-FUNDED, FINANCIALLY STRONG

WEALTH DIVISION

WEALTH MANAGEMENT

STRONG FUNDS MANAGEMENT GROWTH

FINANCIAL PLANNING REFERRALS INCREASE

FOCUS ON NEW WILLS

IMPROVING OUR BUSINESS

PLANNING NEW OFFERINGS

TECHNOLOGY BUILDS SCALE FOR GROWTH

SMART INTERNET AND MOBILE BANKING

CONTACT CENTRE ENABLES FAST RESPONSE

TECHNOLOGY CONTINUED

ACQUIRING CUSTOMERS THROUGH DIGITAL SERVICES

INCREASING EFFICIENCY

NEW PAYMENTS PLATFORM

RISK MANAGEMENT

BOARD RISK OVERSIGHT

RISK AWARE AND CUSTOMER CENTRIC CULTURE

MONITORING AND REVIEW

COMMITTED TO THE COMMUNITY

THE MYSTATE COMMUNITY FOUNDATION

MYSTATE WOODEN BOAT FESTIVAL

HOBART HURRICANES

MYSTATE STUDENT FILM FESTIVAL

SALLY’S RIDE

CAPE HOPE FOUNDATION

LAUNCESTON CHAMBER OF COMMERCE BUSINESS EXCELLENCE AWARDS

CHALLENGE THE MOUNTAIN

CENTRAL QUEENSLAND COMMUNITY EVENTS AND SPONSORSHIPS

BOARD OF DIRECTORS

MILES HAMPTON BEc (Hons), FCIS, FCPA, FAICD Independent non-executive Chairman

Appointed 12 February 2009

MELOS SULICICH BBus, GAICD, SA FIN

Managing Director and Chief Executive Officer

Appointed 1 July 2014

PETER ARMSTRONG BEc (Hons), Dip ED, Dip FP, CPA, FAICD, FAMI

Independent non-executive Director

Appointed 12 February 2009

ROBERT GORDON BSc, MIFA, MAICD, FAMI

Independent non-executive Director

Appointed 12 February 2009

COLIN HOLLINGSWORTH CPA, MAICD, FAMI Independent non-executive Director Appointed 12 February 2009

STEPHEN LONIE BCom, MBA, FCA, FFin, FAICD, FIMCA Independent non-executive Director

SIBYLLE KRIEGER LLB (Hons), LLM, FAICD, MBA

Independent non-executive Director

Appointed 1 December 2016

MYSTATE LIMITED Annual Report 2017