2 0 Annual Report 2 1 The human way to bank.

==> picture [454 x 410] intentionally omitted <==

==> picture [206 x 260] intentionally omitted <==

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

|||
|---|---|
|MyState Values|5|
|Highlights|6|
|Group Performance|7|
|Chairman’s Report|8|
|Managing Director’s Report|10|
|Our Strategy|14|
|MyState Bank|16|
|Approach to Risk|20|
|TPT Wealth|21|
|2021 ESG Snapshot|22|
|Board of Directors|28|
|Key Management Personnel|30|
|Directors’ Report|32|
|Financial Report|62|
|Information Relating to Shareholders|110|
|Corporate Directory|111|

----- End of picture text -----

Annual General Meeting

Virtual (online) AGM – Wednesday 20 October 2021 at 10.30am (AEDST). Due to the continuing uncertainty created by the COVID-19 pandemic, the Board has determined to hold an online Annual General Meeting (AGM) again this year. This approach will provide a safe environment for shareholders to participate in the meeting.

In response to COVID-19, the Australian Government has passed the Treasury Law Amendments (2021 Measure No. 1) Act 2021 which allow notices of meeting and other information regarding the AGM to be provided to shareholders electronically and also released to the ASX where it can be viewed and downloaded.

This year our Notice of AGM will be published online at mystatelimited.com.au and released to the ASX on Friday 17 September 2021.

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 nonoperating 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.

MyState Limited’s Board-approved Corporate Governance Statement is available on the Company’s website at mystatelimited.com.au

MyState Limited - Annual Report 2021

MyState Values

Create Customer ‘WOW’

We walk in our customers’ shoes and appreciate their perspectives.

›
› We think and act in the best interest of our customers.
› We are clear, concise and trustworthy in our customer interactions.
› We design and deliver exceptional customer experiences, with a human touch.
› We make things simpler and easier for our customers.
› We are bold in our ambition.
› We seek out and embrace the change that is required to succeed.

Chase the Better

› We have the courage to try new things and grow from our failures.
› We simplify (and digitise) to deliver exceptional customer experiences, with a human touch.
› We seek industry-leading productivity and always drive for better outcomes.
› We care for each other, our customers, partners and community.
› We give our best, do the right thing, and trust our colleagues to do the same.

Collaborate to Win

› We hold each other to account.
› We openly share information so that everyone can make informed decisions.
› We reach out across teams to rapidly solve problems – and celebrate our successes and learnings!

MyState Limited - Annual Report 2021

Key Highlights

==> picture [51 x 205] intentionally omitted <==

Net profit after tax

+20.9%

==> picture [39 x 135] intentionally omitted <==

from FY20

$36.3m

NPAT was supported by increased net interest income and active cost management.

Customer deposits

+13.2%

from FY20 $4.5b

==> picture [58 x 125] intentionally omitted <==

==> picture [44 x 52] intentionally omitted <==

Growth in customer deposits has been driven by the award-winning MyState Bank Bonus Saver Account. Home lending growth of 6.8% to $5.5b, equivalent to 1.3 times system growth.

==> picture [165 x 164] intentionally omitted <==

Return on equity

+116bps from FY20 10.3%

Significant growth in return on equity which compared favourably to other banks and is above regional bank peers.

Earnings per share

+19.2% from FY20

39.2cps A positive increase in EPS in line with NPAT growth.

Final dividend

13.0cps

The Directors have declared a fully franked final dividend of 13 cents per share. The dividend will be payable on 21 September 2021 to shareholders on the register at the record date of 26 August 2021.

Net promoter score

+47

MyState continues to record a high customer NPS, driving the strongest period of organic customer growth we have experienced.

Group Performance

==> picture [488 x 178] intentionally omitted <==

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

2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
14.0 14.25 14.25 13.0 2nd half
1st half
30.1 31.5 31.0 30.1 36.3 34.0 35.0 34.2 32.9 39.2 14.5 14.5 14.5 14.5 12.5
----- End of picture text -----

NPAT Earnings per share

==> picture [480 x 248] intentionally omitted <==

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

NPAT Earnings per share Dividends – fully
($ million) (cents) franked per share
(cents)
2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
10.0 10.1 9.7 9.2 10.3 65.9 62.7 64.8 62.8 61.3 88.1 89.5 89.4 99.5 112.0
----- End of picture text -----

Cost-to-income ratio[1 ] (%)

Net interest income ($ million)

Return on average equity (%)

(1) 2021 excludes restructure costs

MyState Limited - Annual Report 2021

“Our evolution as a digital bank that services a more geographically diverse customer base has continued and MyState Bank is well placed for further growth over the next few years.”

Statutory net profit after tax for the 2021 financial year was up

20.9% to $36.3 million and earnings per share increased

19.2% to 39.2 cents

The 2021 financial year was full of challenges but every step along the way the professionalism of our team has delivered appropriate and measured responses, effectively navigating the COVID operating conditions.

from a revised assessment of the potential impact of COVID-19 on our customers and the consequent release to profit of a proportion of the provisioning put in place in the 2020 financial year.

Our evolution as a digital bank that services a more geographically diverse customer base has continued and MyState Bank is well placed for further growth over the next few years.

The total loan book grew 6.0% to $5.6 billion, and the home loan book enjoyed an above-system 6.8% increase. Customer deposits grew 13.2% over the prior year to reach $4.5 billion.

The comprehensive re-working of its products, services and processes means that TPT Wealth is also well positioned for growth.

The contribution from TPT Wealth fell, in part reflecting reduced management fee income but also investments in the business to re-position for growth, but pleasingly funds under management (FUM) increased 3.4% for the full year to a total of $1.105 billion as at 30 June 2021.

Operating performance

Dividend and capital

Statutory net profit after tax for the 2021 financial year was up 20.9% to $36.3 million and earnings per share increased 19.2% to 39.2 cents.

In the 2020 financial year, the Board determined to not pay a final dividend to ensure a strong capital position given the challenges and uncertainties we faced due to COVID-19. It was pleasing that the Board was comfortable to resume dividend payments in March 2021 with an interim dividend of 12.5 cents per share and we have declared a final dividend of 13 cents per share payable in September 2021.

Core earnings (operating profit before restructure costs, bad and doubtful debts expense and income tax) increased 11.9% to $53.6 million.

The cost to income ratio (excluding restructure costs) fell by 153bps to 61.3% for the full year supported by gains from technology investments and careful management of operating expenses.

The dividend payout ratio at 69.3% remains comfortably inside the targeted range of 60-80%.

The contribution from MyState Bank was significantly improved, benefiting from lower cost of funds and also

Growth strategy

Over the past few years, we have moved to position MyState Bank as a trusted and respected digital challenger brand with demonstrated capability in making financial things simpler for our customers. Since 30 June 2016, the MyState bank loan book has increased by a very commendable 45%.

And at TPT Wealth, we are part way through a repositioning of the business to improve the customer experience and in the process target significant growth in FUM.

As part of a comprehensive review of our competitive position, the Board and Executive determined that there was an opportunity to accelerate the growth trajectory in both businesses. This will ensure that we will continue to be competitive and provide the services our customers expect while improving shareholder value.

Capital raise

It was in this context that the Board determined to undertake a significant capital raise that will facilitate growth while maintaining a strong capital position.

In May 2021, MyState raised $55.5m through a $24.2 million partially underwritten Entitlement Offer to eligible retail investors and a $31.3 million Placement and Entitlement Offer to existing and new institutional investors.

The support for the capital raise reflected investors endorsement of the growth strategy.

Looking forward

We have sought to position both MyState Bank, and more recently TPT Wealth, with market-leading products and services that reflect an increasingly digital world.

That focus will continue with ongoing refinements planned in the 2022 financial year.

The increased number of shares on issue will result in a modest decline in earnings per share in the 2022 financial year, but we expect that growth in earnings per share will resume in 2023 and beyond as we deliver the planned growth in both the MyState loan book and TPT Wealth FUM.

Retirement of Managing Director & CEO

In August 2021 Managing Director & CEO Melos Sulicich advised the Board of his intention to retire at the end of 2021. Mr Sulicich has been an inspirational leader, transforming the business, sharpening its focus, and creating a platform for sustained growth. The Board has commenced the process to find a new Managing Director.

Board changes

In June, the Board appointed Mr Stephen Davy as a Non-Executive Director, effective 1 July 2021. Formerly Chief Executive Officer and Managing Director of Hydro Tasmania, Mr Davy has also held senior executive roles at Hydro Tasmania, Eraring Energy, Societe Generale and Bankers Trust and started his banking career at Macquarie Bank.

Acknowledgements

It has been an extraordinary effort from everyone in the MyState team in the last 12 months. Through challenging times, we have shown our resilience and ability to quickly pivot to continue servicing our customers under evolving conditions.

I particularly acknowledge the role of our Managing Director and CEO, Melos Sulicich, and the Executive who have provided exemplary leadership, not only ensuring we help our customers with their essential financial needs – in what for many were challenging circumstances, but also furthering the transition that has set the business so that we have the confidence to embark on a significantly sharper growth trajectory.

To my fellow directors, thank you for your commitment and wise counsel.

Finally, I’d like to thank you, our shareholders. The last financial year has seen us set up the base we need to truly become a digitally enabled multi-channel bank and wealth management business and I hope you’ll stay with us for the journey.

Miles Hampton Chairman

MyState Limited - Annual Report 2021

MyState Limited - Annual Report 2021

Managing Director’s Report

==> picture [143 x 133] intentionally omitted <==

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

Total loan book
$5.6 billion
Return on equity (ROE)
10.3%
Net interest income grew 12.5% to
$112 million
----- End of picture text -----

financial position, demonstrated execution capability and leading customer net promoter score (NPS) to access growth opportunities from a geographically diverse customer base via an excellent digital offering.

The year in review was a pivotal year for MyState. While operating conditions were volatile, we performed strongly. We supported and grew our customer base, increased our loan book, deposits and funds under management, and finalised our 2025 strategy that will see us targeting rapidly increasing customer numbers, deposits and lending at MyState Bank and funds under management at TPT Wealth.

Financial overview

The financial results for FY21 are very good – among the best for MyState.

It is the right strategy. The industry is in a very low growth environment and is still dealing with the challenges of significantly increased regulation. Key to succeeding in this environment is ensuring you are a trusted brand, being customer-centric and agile enough to service changing customer needs, being digitally enabled to scale appropriately, and having a strong balance sheet.

Core earnings (operating profit before restructure costs, bad and doubtful debts expense and income tax) increased 11.9%. As the Chairman mentioned, our NPAT and EPS both enjoyed around 20% growth.

For the year to 30 June 2021, MyState achieved a return on equity (ROE) of 10.3%, up an impressive 116bps on 2020.

Our FY21 results show we are on the right track. We are investing in marketing and distribution to drive increased customer acquisition, increasing investment in digital innovation and managing operating expenses while maintaining a culture focused on delivering positive and intuitive customer experiences.

The growth in our total loan book to $5.6 billion, as well as our lower funding costs enabled our net interest income to grow 12.5% to $112 million. MyState also improved its net interest margin (NIM) by 10bps over 2020 to 196bps.

The higher NIM was underpinned by increasing customer deposits, favourable deposit interest rates and lower wholesale funding costs reflective of current liquidity conditions.

This focus, together with our recent capital raising, enables us to build on our current momentum and rapidly accelerate growth, creating value for shareholders. Our strategy will build on our strong

“Our FY21 results show we are on the right track. We are investing in marketing and distribution to drive increased customer acquisition, increasing investment in digital innovation and managing operating expenses while maintaining a culture focused on delivering positive and intuitive customer experiences.“

TPT Wealth transformation now allows scale

Our accelerated home loan and retail deposit growth will continue, while maintaining a focus on asset quality. In 2021 our cost to income ratio (excluding restructure costs) fell by 153bps to 61.3%, and operating leverage will further improve as operational efficiencies flow through.

TPT Wealth has seen huge change over the last two years. It is a longstanding institution that is trusted by a range of investors including charitable trusts, trustees of institutions and corporates and has good investor retention. Recently we moved from a face-to-face business model to a more typical funds management model with a greater focus on delivering services online.

Accelerating home loan and retail deposit growth

In FY21, home loan applications increased 13% while settlements were up 23%. These results have delivered strong lending growth, despite an increasingly competitive home lending environment.

Extensive investment in new fund and wealth management technology systems will enable the business to scale and support significant growth in funds under management. Easier application processes and smoother interactions enabled by digital enhancements are making it easier for customers to engage with TPT Wealth.

Our customer funding ratio increased from 69.1% to 73.4% in the last 12 months, allowing us to reduce wholesale and securitised funding from 30.9% to 26.6%, providing increased funding flexibility for the future.

Customer experience

Customer deposits grew 13.2% in the 12 months to June 2021. We now have a simpler business model and products. A good example is our award-winning MyState Bank Bonus Saver Account which achieved 319% growth during the year, driven by an active digital acquisition campaign.

We remain very pleased with our customer engagement. In short, our customers trust us to assist them and be aligned with what they need. MyState staff seek to build relationships with customers, delivering a human way to bank, enabled by technology.

Growth in these areas in 2021 has been led by customer acquisition – particularly younger customers.

Our customer NPS, which finished the year at +47, is among the highest in the sector. It reflects our efforts to empower customers through digital services and care with a human touch.

MyState Limited - Annual Report 2021

Managing Director’s Report

Culture and community

Our culture has been driving these results. The Tasmanian community is an integral part of MyState’s DNA, defining who MyState is, what we stand for, our attitude, tone and style.

While we have always been very customer-focused, we now have a culture of continuous improvement with the capacity to adapt to new challenges and meet our customers’ evolving needs.

Community-wise it has been a big year. We continue our sponsorship of Football Tasmania, the MyState Bank Student Film Festival and we have just gained the naming rights for the biggest indoor entertainment and sporting facility in Tasmania – MyState Bank Arena.

I would like to thank our team for the way they adapted to continue to service our customers through the pandemic. Our ability to create a seamless work from home/office environment allowed us to provide flexibility and choice. And of course, our frontline staff who ensured we managed to keep our branches open at all times.

Looking ahead

While the banking environment is becoming even more competitive and will operate under increased regulation, MyState’s 2025 strategy builds on our strong financial position and high NPS to scale via a strong digital and AI-enabled offering across all states from our heartland in Tasmania.

Building on the trust our customers place in us, we are well placed to continue to simplify financial services and make them more intuitive to use. We have built a culture that continually innovates and improves services to deliver accelerated growth, while maintaining current asset quality, targeting ROE and EPS increases over the medium term as capital is deployed, and creating value for shareholders and all our stakeholders.

This marks my final report to MyState shareholders as I retire at the end of December, after what will be seven and a half years with the organisation. I have thoroughly enjoyed my time at MyState and working with our wonderful staff, our fantastic customers and all the other stakeholders that bring the company together. The business is in a wonderful position to drive significant organic growth and I wish the company all the very best of success for the future.

Melos Sulicich

Managing Director and Chief Executive Officer

MyState Limited - Annual Report 2021

Our Strategy

Our ambition is to grow our share in deposits, lending and funds under management.

Our growth strategy is focused and bold. It builds on our strong financial position and high customer NPS to access specific growth opportunities in eastern seaboard markets, via a strong digital and AI-enabled offering.

Culture and capability

Drive a culture of customer centricity and execution excellence.

Customer experience and acquisition Deliver a digital and intuitive customer experience by providing easy access banking and wealth services.

Operations

Our PURPOSE

Simplify, digitise and automate processes and create value through productivity improvements.

is to help people achieve their dreams

Our MISSION

is to create simple and trustworthy digital experiences for our customers

Distribution

A simple core product set distribution through expanded digital and third-party channels.

Continuous improvements program driving innovation and process Enablers automation.

Create customer ‘WOW’

Values

Chase the better

A strong and flexible capital position with robust risk culture.

Collaborate to win

We are executing the boldest strategy in our history with an overarching ambition to significantly accelerate growth in customer numbers, deposits, lending, and funds under management. The strategy will see us seeking to take advantage of our position as a respected and established digital challenger brand with demonstrated capability in making financial things simpler for our customers. Enhanced by the capital raise announced in May 2021 and completed in June 2021, our strategy focuses on

› Culture and capability
› Customer experience and acquisition › Enhanced distribution; and › Operations productivity

Culture and capability

Having the right culture and capability is fundamental. We have invested in working with our people to develop three core values to position ourselves to execute the 2025 strategy:

Enhanced by the capital raise announced in May 2021 and completed in June 2021, our strategy focuses on four main areas that underpin the whole business and for which you will see examples in the rest of this report: 14

‘Create customer wow’ where we are designing and delivering exceptional customer experiences with a human touch. We can do this because we think and act in the best interests of our customers, appreciate their perspectives and are clear and trustworthy.

‘Chase the better’ is being bold so we can embrace the change that is continually required to succeed and always drive better outcomes. We are simplifying and digitising to deliver things faster and more accurately.

‘Collaborate to win’ is about openly sharing information so we can collectively make informed decisions, caring for each other, our customers, and other stakeholders.

We have reduced the number of administration and process-oriented roles and increased staff numbers in customer facing, servicing, and marketing roles to cater for increasing customer numbers at the service levels they want – in order to create this ‘customer wow’ .

We are undertaking several programs to train and upskill staff, develop team capabilities and grow a company-wide culture of continuous improvement and innovation – ‘chase the better’ . This will attract new talent that promotes our growth objectives and enhances operational excellence focused on the value of ‘collaborate to win’ .

Our strategy is supported by a strong risk culture that is embedded into the values of MyState employees, with all employees now undertaking risk management training.

This allows us to stay true to our human approach to banking and wealth management, backed by a strong digital capability and enhanced by our customer-facing digital proposition.

Customer experience and acquisition

Our streamlined processes, developed from the outset to serve the needs of our customers, and data analytics are now helping us anticipate what customers want, allowing us to personalise our marketing more effectively.

Our new digital and intuitive customer experience provides easy and convenient access to all our banking and wealth services which we can now dramatically grow. And we are investing to replace our internet and mobile banking platform during the second half of FY22.

We are focused on increasing our national footprint through digital acquisition strategies aimed at sections

of mainland Australia where we are seeing an influx of new customers. The success of our campaigns is becoming apparent and can be seen in the increasing geographic dispersion of our loan book.

However, we also back up these increased digital options with convenience for our customers through alternative channels such as phone banking and a traditional core branch network in Tasmania. That way we provide the human touch we’re renowned for, which is represented by our excellent customer NPS and which separates us from most in the industry.

Enhanced distribution

This is where we provide additional ways to scale and support customer acquisition. We will continue to refine and simplify our core product set to ensure it remains relevant and meets the evolving needs of customers. We also ensure this product set is more efficiently distributed through expanded digital and third-party channels such as mortgage brokers, where trusted relationships and ability to service leads quickly are paramount.

By building on the technology platforms and associated infrastructure now in place and implementing strategies across these four main areas, we will continue to innovate to attract and retain the best staff and customers, ensuring access to simple, intuitive financial services.

Our transition to a digitally enabled bank and wealth management business is now seeing the investment of prior years to deliver improvements in customer growth, customer deposits, core earnings, and ROE and EPS increases over the medium term.

Our continued investments will ensure a world-class user experience, incorporating robotics functionality to develop efficiencies and scalability in our processes that will support the growth of the bank well into the future.

Operations productivity

This is the engine room. We are investing heavily in digital capabilities to automate and digitise back-end processes to make banking more convenient and seamless for customers, and faster and more efficient for us. We’re continually simplifying the business, products, and systems, allowing us to streamline operations and automate processes, which also allows us to increase

We’re continually simplifying the business, products, and systems, allowing us to streamline operations and automate processes, which also allows us to increase productivity, manage costs efficiently and invest savings into our growth.

MyState Limited - Annual Report 2021

MyState Bank

The way we service our customers is almost unrecognisable from five years ago. Work over the last 12 months has seen us continue to transform into a digitally enabled bank built on a modern, scalable technology platform. We are on par with the best in the Australian market, providing our customers with the options of online, phone, internet, mobile or face-to-face banking, with a human touch.

This is backed up by upgraded systems and simpler, more agile processes that allow a high calibre team to dramatically improve our customer experience through greater efficiency, quality, and speed.

Geared for growth

We focus on delivering a consistently speedy time from application to approval for our customers and mortgage broker partners and have optimised back-end processes so we can deal with an increasing number of home loan applications.

We’ve delivered a platform that will allow us to scale. This year we started leveraging the platform to grow quickly through our focus on home loans and customer deposits.

This allows our staff to focus on the needs of customers rather than needing to devote time on the more administrative tasks.

During the year 17,000 new customers called MyState their bank – a 30% increase in one year. Tellingly, 93% of these new customers came through digital channels.

During the year, 93% of our new customers were acquired digitally. Our e-statement levels have risen 24% in the last two years to 53% of all customers opting to receive their statements electronically – saving us time and money, being more convenient and allowing customers to receive their statements quicker, and doing our part to help save the environment.

We continued to focus on low-risk, owner-occupied lending with a loan to valuation ratio of less than 80%, while also being a strong supporter of the First Home Loan Deposit Scheme.

Technology innovation and efficiency gains

Upgrades in infrastructure are now starting to pay off, with many customers enjoying the option of face-to-face, our customer care team and internet or mobile banking.

MyState has invested heavily in digital banking capabilities to automate and digitise back-end processes to accelerate the processing of loan applications and provide a more seamless customer banking experience.

The restructure of our retail banking business led to significant savings. The closure of six branches and a re-organisation of the TPT Wealth business in the last financial year led to a $2.6 million restructure charge. The remaining seven branches located in Tasmania will support the longstanding loyal customer base. Savings from these initiatives are being reinvested into increased marketing and distribution capability to grow the business.

We have also introduced artificial intelligence (AI) in our back office to predict customer behaviour in our home loan book that is particular to a customer’s circumstances. We now have over 30 robotics processes at work in our back office which together have improved customer wait times and accuracy and provide a platform for us to scale our operations.

“MyState has invested heavily in digital banking capabilities to automate and digitise back-end processes to accelerate applications and provide a more seamless customer banking experience.“

Supporting our customers through the pandemic

MyState Bank app

MyState’s mobile app is another example of our marketleading AI which now allows customers to gain insight into spending and saving habits, helping optimise costs and payments to help achieve their financial goals.

While operating conditions throughout 2020 were uncertain, challenging times often bring out the best in people. The whole team at MyState came through the crisis well and focused on supporting customers to help them through the economic impact of the pandemic. We set up systems to help customers in need, including the ability to service individual cases appropriately.

We’re now investing in a new internet and mobile banking platform which is due for delivery in FY22.

Home loan diversification

We’re also proud that all our branches remained open right through the pandemic and that we ensured all our staff could operate safely.

As our loan book becomes more nationally representative, it reduces concentration risk, and we expect this trend to continue. We enhanced our distribution capability and capacity and increased our business development resourcing.

As at 30 June 2021, there were 35 customers remaining on some form of assistance (representing 0.2% of the total home loan portfolio – down from a peak of 10.9% a year before). With these improving conditions and more positive economic outlook, the forward-looking credit loss overlay has been reduced from $2.5 million as at 30 June 2020 to $1.5 million.

This transformation to be more digitally available through alternative channels, such as mobile apps and online allows us to fuel growth outside our traditional core branch network. Our reduction of physical branches has freed up resources, allowing us to focus on the branches we retained as well as building out the loan book nationally with new customer acquisitions.

Following the more recent delta outbreak and subsequent lock-downs across mainland Australia, a total of 87 customers (representing 0.73% of the portfolio) had sought some form of assistance as at 31 August 2021. The majority of these customers are based in New South Wales and Victoria. We will continue to support impacted customers over the coming months.

MyState Limited - Annual Report 2021

MyState Bank

“We are on par with the best in the Australian market, providing our customers with the options of online, phone, internet, mobile or face-to-face banking, with a human touch.”

Brokers

The broker channel remains important for MyState to grow and scale as part of the 2025 strategy. We have created valuable relationship-based partnerships with brokers, building on the trust in our brand and our products.

Meeting evolving customer needs through multiple channels

Customers are becoming more digitally enabled. But what they really want is the convenience to deal with us when and how they choose. We have responded to these changing needs by redesigning customer journeys, using digital as an enabler, and refining products to focus on the things our customers want.

Marketing to the mainland from our strength in our heartland

Our commitment to increasing digital capabilities and use of automation has paid off as we have continued to build momentum in our marketing driven growth strategy with 93% of new customers now coming through digital channels. This has come from continued investment in capability, partnerships and building our brand.

Despite the significant growth, we have not lost sight of the importance of deepening our relationships with our customers. While we have strong brand presence in our home state of Tasmania, we have significantly expanded our marketing activities across Australia. This is all possible because of our trusted brand, award-winning products, and human touch.

Our customers are moving to many digital channels. More than 50% of customers now use e-statements and over 71% of customers are now using internet and mobile banking.

However, our customer care team, based in Tasmania, is also key for those customers who still want or need to speak to people. A major system upgrade has allowed MyState to construct a leading support operation for customers when they call and allows for more efficient use of resources and intuitive and quicker outcomes for customers so they can get off the phone and on with their lives.

We received top customer satisfaction awards from Mozo and Canstar for our MyState Bank Bonus Saver Account and our MyState Bank Glide Account, which we use to drive deposit volume.

MyState has one of the highest net promoter scores (NPS) in the industry concluding the year at +47, demonstrating the bank’s ability to empower customers through digital services and care with a human touch.

MyState Limited - Annual Report 2021

Approach to Risk

This year new risk management processes and systems were introduced, including use of robotics and automation to complete previously manual tasks, increasing scalability while improving risk management – this area is evolving, so agility is key. We also commenced initiatives in privacy, information safety, fraud detection and customer advocacy to support and protect our customers.

Appropriate management of financial and nonfinancial risks is a key focus throughout the business and part of the platform upon which we’ve built our 2025 growth strategy.

We continue to invest in embedding risk awarness and management culture into the business. This year saw an improvement in our training programs, educating and alerting our staff to indicators of risk and potential threats to customers.

The Risk team upgraded reporting and analytics to provide insight into events that may impact the Group’s risk appetite and ability to deliver strategic outcomes. This includes enhanced reporting and accountability through the introduction of Divisional Risk Management Committees. Using these insights, MyState is continually optimising processes and looking to refine and remain on top of risks to the bank and our customers.

New and enhanced frameworks are ensuring risk is identified, managed, and mitigated quickly. We conduct regular reviews of risk frameworks to ensure we continue to meet our regulatory obligations, including the recommendations from the Royal Commission into Banking and Financial Services, and our purpose and mission to deliver the best outcomes for customers.

MyState’s risk profiling has been key to maintaining the quality of the loan portfolio growth of the last 12 months. The Bank’s prudent lending practices helped us deliver an arrears outcome considerably below the benchmark of regional peers and the major banks.

We believe this means aligning with the spirit of the law and how it affects people, rather than just ticking a compliance box. This approach has also been central to our coordinated COVID-19 response where we examine risk through a customer and employee perspective –ensuring the human service element remains central.

“This year new risk management processes and systems were introduced, including use of robotics and automation to complete previously manual tasks, increasing scalability while improving risk management – which is always evolving, so this agility is key.”

TPT Wealth

We received our first independently rated, high investment grade four star ‘superior’ rating from SQM Research for the TPT Fixed Term Fund. TPT Wealth is pursuing new ratings for the Long Term Fund and Select Mortgage Fund to allow further access to third-party distributors and wholesale markets and grow FUM.

Our TPT Wealth business is replicating the transformational success of MyState Bank.

In FY21, we outsourced some investment functions, launched a new trustee services platform and changed our legacy commercial lending system.

These initiatives have enabled more synergies, allowing us to scale and support growth in funds under management as part of the 2025 strategy.

Like the Bank, TPT Wealth is also increasing reach outside the heartland of Tasmania. The new technology platforms greatly enhance our distribution capability and capacity. This year we have begun to harness this by increasing our business development resourcing with new managers on the eastern seaboard, complementing our established operations now led by two corporate offices in Hobart and Launceston.

This year we have undertaken a shift to combine face-to-face transactional operations with a modern digital offering to our funds management business, with almost a third of our investors using our new digital portal.

With funds under management increasing during the year to $1.105 billion, driven by growth in our range of income funds, we began the task of updating our products to ensure we remain relevant for customers who seek regular income.

“We have undertaken a shift to combine face-to-face transactional operations with a modern digital offering to our funds management business, with almost a third of our investors now using our digital portal.”

MyState Limited - Annual Report 2021

Communities

Government and Regulators Suppliers

2021 ESG Snapshot

› Communications with our community partners
› Meetings with regulators and government
› Regular meetings with suppliers › Established supplier code of conduct and human rights statement

==> picture [503 x 167] intentionally omitted <==

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

+47 customer $2.4m of Compliance
Net trust
net promotor community grants with Modern
score 86%
score since 2001 Slavery Act
Helped new home
Over 1,900
46% women in 53% of customers buyers through the
customers assisted
leadership on e-statements First Home Loan
during COVID
Deposit Scheme
----- End of picture text -----

› MyState Foundation grant program
› Participation in policy development through statement submissions to inquiries › Contract renewals, risk and reviews assessments and joint agreements
› Fundraising initiatives
› Partnerships for pathways to employment

What matters the most

Our materiality assessment represents the ESG issues that matter the most to our organisation. Six key materiality issues using the Global Reporting Initiative as a guide were identified, validated and prioritised by MyState’s ESG project group.

==> picture [211 x 76] intentionally omitted <==

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

Helping our people to
be their best
----- End of picture text -----

Our approach

Supporting customers

As a proud Tasmanian company, we understand firsthand the importance of managing and balancing our environmental, social and governance impacts.

==> picture [211 x 76] intentionally omitted <==

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

Community investment
----- End of picture text -----

During FY21, as part of our updated 2025 strategy, the Board and Executive team reviewed and developed MyState’s ESG roadmap. While we have previously reported aspects of our ESG practices, this year we revised our approach, which is now guided by evolving best practices and feedback from our stakeholders.

Digital enablement and data security

We conducted a materiality issues workshop where we identified key sustainability issues for MyState, captured stakeholder perspectives and prioritised a set of material topics that have guided our FY21 sustainability reporting.

Supporting customers

Our policies and charters which support our ESG agenda can be found on the corporate governance page of the MyState Limited website at mystatelimited.com.au and include: Customer Charter, Code of Conduct, Diversity Policy, Human Rights Statement, Modern Slavery Statement and Supplier Code of Conduct.

Our mission is to create simple and trustworthy digital experiences for our customers. We care for our customers and continue to be there to assist them during COVID. We are one of the customer advocacy leaders in the sector with an NPS of +47.

Why is this important?

How we listen

We can help customers achieve their dreams by making things easier, helping customers make good choices and putting things right if they go wrong.

MyState’s stakeholder groups include customers, investors, our people, communities, regulators, government and suppliers. In FY21, we captured the voice of our stakeholders through a number of formal and informal feedback methods.

We know customers are expecting more functionality from online and mobile banking. Our online banking system and AI-driven insights make it easy for customers to gain a better understanding of their spending and saving habits, helping them optimise costs and payments to achieve their financial goals.

==> picture [505 x 278] intentionally omitted <==

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

Employees
› Internal communications NPS Helped 17,000
channels – email, town hall +47 new home new
meetings and face to face
buyers customers
conversations
through the
› Senior leadership forums
FHLDS
› Employee experience survey
› Workplace culture survey
› Employee consultation
committees
› Annual risk culture survey
----- End of picture text -----

Shareholders, Analysis and Rating Agencies

Customers

› Face-to-face interaction in our branches
› Regular briefings and meetings with investors and analysts
› Financial results and market presentations
› Credit rating agency reviews › Annual General Meeting
› Locally operated contact centre

Our trusted brand and high level of customer advocacy has seen 17,000 new customers join MyState in FY21.

› Online through our website, app, email

In 2021 we participated in the federal government’s First Home Loan Deposit Scheme (FHLDS), helping many new customers into their first home.

› Real time feedback from our customer advocacy survey
› Customer Advocate Office and external dispute resolution bodies
› Third party brokers

MyState Limited - Annual Report 2021

==> picture [559 x 315] intentionally omitted <==

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

2021 ESG Snapshot
----- End of picture text -----

Governance, conduct & culture

We uphold the highest levels of corporate governance and subscribe to the Corporate Governance Principles and Recommendations published by the ASX Corporate Governance Council. Our Corporate Governance Statement can be found on the MyState Limited website mystatelimited.com.au

Why are these important?

They are the foundations of conducting our business in an ethical, responsible and transparent way including driving the right behaviours that put the needs of stakeholders first.

In 2020, we conducted a self-assessment of our governance, culture, remuneration and accountability (GCRA) practices. This identified several strengths that we have developed and embedded in our operations and culture. Commensurate with the size and complexity of the Group, the GCRA assessment also identified some opportunities. As a result, in 2021 we continue to refine and improve our risk management practices and frameworks in the areas of accountability and remuneration with a focus on risk culture.

Modern Slavery Statement

Our support for human rights begins with doing business in a way that respects the rights of people and prevents human rights abuses. In February 2021 we submitted our first Modern Slavery Statement which outlines the steps we are taking to minimise the risk of slavery and human trafficking in our supply chain. Our Modern Slavery Statement can be found on the MyState Limited website at mystatelimited.com.au

We regularly review our remuneration framework against the changing regulatory environment and market practice to attract and retain appropriately skilled staff and adhere to prudential standards. External advice is obtained as required.

The oversight of our remuneration framework is provided by the Board’s Group People and Remuneration Committee.

==> picture [575 x 315] intentionally omitted <==

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

2021 ESG Snapshot
----- End of picture text -----

Helping our people to be their best

We have a clear purpose and mission. In 2021, with the input of a cross section of people across our organisation, we refreshed our values – Create customer ‘wow’, Chase the better and Collaborate to win.

Why is this important?

To drive a culture of customer centricity and execution excellence we rely on our people being at their best.

Create customer ‘wow’ is about walking in our customers’ shoes and understanding their perspective. Chase the better is about being bold about our ambition and embracing the change required to succeed. Collaborate to win is giving our best and doing the right thing by each other, our customers, partners and the community.

Workplace diversity

We continue to place a strong focus on increasing our diversity and inclusivity to provide equal opportunities and create a workplace that is fair, values differences, and promotes a sense of belonging. We have a three-year Board-approved Diversity Plan, with success monitored against Board-approved targets. In 2021, our programs focused on employee wellbeing and women in the workplace, with our flagship event celebrating International Women’s Day featuring Layne Beachley. In 2021, 46% of all leadership roles were filled by women, 29% of the Board Directors are female, and 44% of the Executive team (direct reports to the CEO) are women.

We capture the voice of our people through culture and engagement surveys. We also hold our Belong forum which is our diversity and inclusion cooperative. Our workplace health and safety committee meets regularly to review how we work. We want to understand how our people are feeling, what has worked well and what areas can be improved.

During the 2020 COVID-19 lockdown, all our office and our customer care team staff worked remotely, communicating digitally with customers and colleagues with no loss in productivity and even some advancements. This has continued in 2021 with many of our people choosing flexible work arrangements.

We also provide a wellbeing program for our people so that they are engaged, productive and able to help us grow by assisting our customers through positive experiences.

MyState Limited - Annual Report 2021

2021 ESG Snapshot

==> picture [559 x 396] intentionally omitted <==

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

2021 ESG Snapshot
----- End of picture text -----

Digital enablement and data security

MyState’s ‘human way to bank’ is supported by our strong digital capability and enhanced customerfacing digital proposition.

Why are these important?

As a national digital bank, we must, change and evolve our systems and products to meet our customers’ increasing expectations, keep their money safe and protect their data.

We continue to evolve and develop our digital capabilities and use of automation. We have simplified our processes through the increasing use of robotics and were early adopters of the new payments platform (NPP) and digital wallets.

MyState’s digital transformation has simplified our business and improved customer experience through greater efficiency, quality and speed.

94% of $809m in transactions online customer complete digitally deposits

We have responded to the changing needs of our customers by rationalising product portfolios and redesigning customer journeys and by using digital technologies we’ve industrialised core processes from end to end.

The improved resilience of our operations includes enhanced oversight of the services provided by our third-party providers as well as the continued enhancement of our cyber and information security.

Environmental sustainability

Why is this important?

It will help us transition to a low carbon economy.

==> picture [279 x 186] intentionally omitted <==

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

84% of our Hobart head
fleet are hybrid office NABERS
vehicles four star rated
----- End of picture text -----

Community investment

Why is this important?

It will enable us to make a difference and support our communities.

MyState Bank Arena

When we set big goals we follow up with big actions, and in 2021 we announced our three year naming rights sponsorship of the Derwent Entertainment Centre which will be named the MyState Bank Arena. Once the upgrade is completed, it will become the heart of Tasmanian entertainment and sport, hosting major concerts and live performances, as well as becoming the home of the JackJumpers that will see the State re-enter the National Basketball League after a 25-year hiatus.

As a Tasmanian founded and headquartered company, we are proud to have 90% of our operations in a state that is now 100% self-sufficient in renewable energy.

MyState acknowledges the increased dialogue from governments, policymakers and community about climate change. As part of the financial services sector, MyState has a role to play in assisting the transition to a lower carbon economy, through both the resources we utilise directly and through our financing activities.

To reduce MyState’s carbon footprint, in 2020 we started replacing our fleet with hybrid vehicles as leases expired. In 2021, 84% of our fleet are now hybrid vehicles. Our head office in Hobart is a National Australian Built Environment Rating System (NABERS) four star rated property and more than 53% of our customers have opted for e-statements.

Through the MyState Foundation, which celebrates 20 years of giving in 2021, we help young people in Tasmania access opportunities by supporting a range of charitable programs and activities. Each year, grants of up to $10,000 are distributed to a number of eligible organisations. Since 2001 the MyState Foundation has granted over $2.4 million supporting close to 300 initiatives. These are a rich, diverse group of organisations and charities that are engaged in education or development projects for young people.

This year, with the added pressures from the COVID-19 pandemic, the MyState Foundation provided extra assistance to help charitable organisations meet day-to-day expenses and keep them operating. Through our internal giving program, staff also regularly donate to designated local charities and programs.

As an extension of our Football Tasmania sponsorship, MyState Bank has been announced as the new naming rights sponsor for Tasmania’s Women’s Super League and sponsorship of all of Tasmania’s referees. With Tasmania boasting the highest female participation in the sport across Australia, MyState Bank’s sponsorship will help grow football in Tasmania even further and contribute to reducing the gender divide in sport, enabling communities across the state to continue to enjoy football’s vast array of health and social benefits.

MyState Limited - Annual Report 2021

Board of Directors

==> picture [181 x 116] intentionally omitted <==

Group Nominations and Corporate Governance Committee (Chair), Group Risk Committee, Group Digital and Marketing Committee, Group Audit Committee, Group People and Remuneration Committee

MyState Bank Limited (Chair), TPT Wealth Ltd (Chair), MyState Community Foundation Limited

Miles has been a Non-Executive Director since February 2009 and became Chairman in October 2013, and prior, a Director of Tasmanian Perpetual Trustees Limited (now TPT Wealth Ltd) from July 2006. He is the former Managing Director of ASX-listed Roberts Limited, a position he held from 1987 until 2006. He is the former Chairman of Forestry Tasmania, Hobart Water and TasWater and former Deputy Chairman of the Van Diemen’s Land Company. Miles has served on the Boards of Ruralco Holdings Ltd, Australian Pharmaceutical Industries Ltd, Wentworth Holdings Ltd, Money3 Corporation Ltd, HMA Ltd, Gibsons Ltd and Impact Fertilisers Pty Ltd.

Miles Hampton Chairman and Independent Non-Executive Director BEc (Hons), FCPA, FAICD

==> picture [181 x 116] intentionally omitted <==

MyState Bank Limited, TPT Wealth Ltd, MyState Community Foundation Limited, Connect Asset Management Pty Ltd

Melos was appointed Managing Director and Chief Executive Officer in July 2014. He has extensive experience in a diverse range of businesses and industry sectors covering petrol retailing, financial services, industrial services, health care, transport and logistics. He is currently a Non-Executive Director of the Australian Banking Association Limited. From 2008 to 2013, he held the position of Chief Executive Officer of RAMS Financial Group, a subsidiary of Westpac. Prior to this, he held general management positions for companies including Spotless Group, Adsteam Marine, Mayne Group, Colonial Group Limited, Colonial UK Limited and the Shell Company of Australia.

Melos Sulicich Managing Director and Chief Executive Officer BBus, GAICD, SA FIN

==> picture [181 x 115] intentionally omitted <==

MyState Bank Limited, TPT Wealth Ltd

Group Risk Committee

Stephen was appointed as a Non-Executive Director in July 2021. He was formerly Chief Executive Officer and Director of Hydro Tasmania, a position he held from 2013 to 2020. Prior to that role he held senior executive roles at Hydro Tasmania, Eraring Energy, Societe General and Bankers Trust and started his banking career at Macquarie Bank. Stephen is also a Director at Shaw Contracting and at Volunteering Tasmania and has a senior role at UPC/AC Renewables Australia.

Stephen Davy Independent Non-Executive Director BSc (Hons)

==> picture [181 x 116] intentionally omitted <==

Group Risk Committee (Chair), Group Nomination and Corporate Governance Committee, Group Digital and Marketing Committee

MyState Bank Limited, TPT Wealth Ltd, MyState Community Foundation Limited (Chair)

Robert has been a Non-Executive Director since February 2009 and prior, a Director of MyState Bank Limited, (previously connectfinancial), from July 1998. He is the current President of the Institute of Foresters of Australia (IFA) and Football Federation Tasmania and Chair of the Supported Affordable Accommodation Trust.

Robert Gordon

He is the former Managing Director of Forestry Tasmania and has previously served on the Board of a number of companies in the tourism, research and development, construction and infrastructure industries.

Independent Non-Executive Director BSc, MIFA, MAICD, FAMI

Sibylle Krieger Independent Non-Executive Director LLB (Hons), LLM, FAICD, MBA

Warren Lee Independent Non-Executive Director BCom, CA

Vaughn Richtor Independent Non-Executive Director BA (Hons), MAICD

Andrea Waters Independent Non-Executive Director BCom, FCA, GAICD

MyState Bank Limited, TPT Wealth Ltd

Group People and Remuneration Committee (Chair), Group Risk Committee, Group Nominations and Corporate Governance Committee

Sibylle has been a Non-Executive Director since December 2016 and has over 35 years of broad commercial experience as a lawyer, economic regulator, company director and independent consultant with focus on heavily regulated sectors.

She was a partner in two large commercial law firms for 22 years and has over 15 years’ experience as a Non-Executive Director. Sibylle is currently a Non-Executive Director of Openpay Group Limited (ASX:OPY) and AEMO Services Limited and has previously served as Chair of Xenith IP Group Limited (ASX:XIP) and as a Director of Sydney Ports Corporation, Allconnex Water, TasWater, Vector Limited (NZX:VCT), Alarcon Limited, the Australian Energy Market Operator Ltd, and a trustee of the Royal Botanic Gardens and Domain Trust and Sydney Grammar School.

MyState Bank Limited, TPT Wealth Ltd

Group Digital and Marketing Committee (Chair), Group Audit Committee, Group Risk Committee

Warren was appointed as a Non-Executive Director in October 2017. He has extensive experience in the international financial services industry, including 15 years at AXA in senior management positions within the company’s Australian and Asian businesses.

Warren was previously the Chief Executive Officer of the Victorian Funds Management Corporation and Chief Executive Officer, Australia and New Zealand for AXA Asia Pacific Holdings Limited. He is currently a Non-Executive Director of Tower Limited, Go Hold Limited and MetLife Limited, and is a member of Chartered Accountants Australia and New Zealand.

MyState Bank Limited, TPT Wealth Ltd

Group Audit Committee, Group Risk Committee, Group People and Remuneration Committee, Group Digital and Marketing Committee

Vaughn was appointed as a Non-Executive Director in September 2019. He has held CEO roles in Asia and is the former CEO of ING DIRECT Australia and CEO Challenger and Growth Countries – Asia, ING Group after joining ING in London in 1991 as Deputy General Manager UK and Ireland. Vaughn is a Non-Executive Director of Rest Super and also a current adviser to both Rhizome and Spriggy. He is a prior Board member of TMB Bank in Thailand, ING Vysya Bank in India, Kookmin Group in Korea, and a Non-Executive Director, and later Chairman, of Ratesetter Australia. In addition, he writes and speaks extensively on leadership, corporate culture, customer centricity and digital banking.

Group Audit Committee (Chair), Group Risk Committee

MyState Bank Limited, TPT Wealth Ltd

Andrea has been a Non-Executive Director since October 2017. She is an experienced NonExecutive Director, auditor and accountant with over 35 years’ experience in financial services. She is a Fellow of Chartered Accountants Australia & New Zealand, and both a member and accredited facilitator of the Australian Institute of Company Directors.

She is a former partner with KPMG, specialising in financial services audit. Andrea is the Interim Chairman of Grant Thornton Australia Ltd and Director of Bennelong Funds Management Group, Citywide Service Solutions Pty Ltd, Colonial Foundation and Genworth Mortgage Insurance Australia Limited (ASX:GMA). Prior, she was a Director of The Lord Mayor’s Charitable Foundation, Chartered Accountants Australia & New Zealand, Cancer Council Victoria, CareSuper and CashConverters International Limited (ASX:CCV).

MyState Limited - Annual Report 2021

Key Management Personnel

Mandakini (Mandy) Khanna

Chief Risk Officer Appointed December 2015 BCom, GAICD, FGIA

Mandy is responsible for the management of the financial and non-financial risks of the MyState Limited Group. Mandy and her team are responsible for strengthening risk culture and risk frameworks, building a culture of accountability and sharpening the focus on customer outcomes at MyState.

Mandy has over 20 years’ experience in banking and retail financial and has held senior risk management positions in GE Capital across Asia Pacific. Prior to joining MyState, Mandy was the Chief Credit Officer for GE Capital in Asia Pacific.

General Manager, Banking Appointed June 2021 DipFS(FP), DipF&MB, MAICD

Huw Bough

Huw is the General Manager, Banking and has responsibility for the banking division which includes retail branches, call centre, business banking and the mortgage broker channel.

Huw has recently returned to MyState after two years having previously served for four years as the Group’s General Manager Retail Banking, Business Banking and Broker. Most recently he consulted to Avant, helping establish a specialist JV for medical professionals. His prior roles include various general management positions at RAMS Financial Group and Westpac.

Chief Financial Officer Appointed October 2019 BCom, MBA (Executive), FCA

Gary Dickson

As Chief Financial Officer, Gary is responsible for managing the finance, treasury, regulatory reporting, strategy and property functions for MyState. Gary is also a Director of Connect Asset Management Pty Ltd.

Gary has over 25 years of experience in a variety of financial roles, with 12 years of CFO experience. His most recent position was at ME Bank as CFO, where he drove strong growth in key financial metrics during his six-year tenure. Prior to this, Gary held the position of CFO for AXA Australia for five years. His prior financial services roles include senior positions with the Colonial First State Group, the Investments & Insurance Services division at Commonwealth Bank and Portfolio Partners Limited.

Alan Logan

General Manager, Wealth Management Appointed August 2021 MBA, GAICD, AdDipFS

Alan is responsible for the strategic, financial and ongoing management of the MyState Limited Group’s Wealth Management division, TPT Wealth Limited, which specialises in Asset Management and Trustee Services.

With over 25 years’ experience in the financial services sector, Alan was previously the General Manager for Godfrey Pembroke and MLC Connect and prior to this, General Manager of ANZ Advice and Distribution and ANZ Financial Planning. He has also held roles with BT Funds Management, Sealcorp and National Mutual. Alan is also a Non-Executive Director for the Prior Family Foundation and Director, Royal Botanic Gardens Victoria Foundation.

General Manager, Digital and Marketing Appointed March 2019 BA Comms

Heather McGovern

Heather is the General Manager, Digital and Marketing and has responsibility for the Group’s digital, innovation, customer experience, brand and marketing divisions.

Heather has over 20 years’ experience in digital and marketing roles within the financial services sector having worked with American Express, the Royal Bank of Canada, National Australia Bank and AIA Australia. Prior to joining MyState, Heather held the role of Chief Product & Marketing Officer with BankVic where she played a key role in the expansion of its digital offering. Her rich international career includes roles based in Italy and Canada as well as in Australia.

General Manager, Technology, Operations and Product Appointed May 2015 BEng (Hons)

Paul Moss

As General Manager, Technology, Operations and Product, Paul is responsible for the strategic direction and delivery of MyState Limited Group’s back office processing, technology and products.

Paul was previously a Director of IT Advisory at KPMG, following 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. Prior, Paul occupied technical leadership positions in UK-based investment banks.

Janelle Whittle

General Manager, People and Culture Appointed January 2018 BCom, MHRM

Janelle has overall responsibility for MyState Limited Group’s human resources function, including remuneration and benefits, health and safety, recruitment and employee relations.

People and Culture leads internal communications and has a key role in developing and fostering organisational culture and capability to support MyState’s growth aspirations. Janelle has over 20 years’ experience in human resource management across a number of industries including aquaculture, utilities and higher education. Her previous senior leadership positions in human resources include General Manager People and Culture at Aurora Energy, and Director Organisational Design and Change at the University of Tasmania.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

Directors’ Report

Your Directors present their report on MyState Limited for the year ended 30 June 2021.

Principal activities

Directors

› Miles Hampton BEc (Hons), FCPA, FAICD Chairman and independent Non-Executive Director.

Banking Services

› Melos Sulicich BBus, GAICD, SA FIN Managing Director and Chief Executive Officer - Executive Director.

› Personal, residential and business banking › Transactional, internet & mobile banking

› Savings and investments › Insurance and other alliances

› Stephen Davy BSc (Hons) Independent Non-Executive Director. (commenced 1 July 2021)
› Robert Gordon BSc, MIFA, MAICD, FAMI Independent Non-Executive Director.

Trustee Services

› Sibylle Krieger LLB (Hons), LLM, FAICD, MBA Independent Non-Executive Director.

› Estate planning

› Estate and trust administration
› Warren Lee BCom, CA Independent Non-Executive Director.
› Power of attorney

› Corporate trustee

› Vaughn Richtor BA (Hons), MAICD Independent Non-Executive Director.
› Andrea Waters BCom, FCA, GAICD Independent Non-Executive Director.

Funds Management

› Managed fund investments

Company Secretary

› Scott Lukianenko Ad Dip BMgmt, Grad Dip BA, GIA (Cert).

Dividends

In respect of the half year ended 31 December 2020, a fully franked dividend of 12.5 cents per share, amounting to $11.508m was paid on 16 March 2021.

MyState Limited (MyState) provides banking, trustee and managed fund products and services through its wholly-owned subsidiaries MyState Bank Limited (MyState Bank) and TPT Wealth Limited (TPT Wealth).

The Directors have declared a fully franked final dividend of 13.0 cents per share. The dividend will be payable on 21 September 2021 to shareholders on the register at the record date of 26 August 2021, taking the final dividend for the full year to 25.5 cents per share.

There have been no significant changes in the nature of the principal activities of the Group during the year.

Operating and financial review

Financial performance

The Group recorded a net profit after income tax for the year ended 30 June 2021 of $36.34m, an increase of 20.9% on the prior corresponding period (pcp) to 30 June 2020 of $30.06m.

Earnings per share increased by 19.2% to 39.18 cents per share (FY20: 32.86 cents per share) and return on equity increased 116bps to 10.32%, which compares favourably to other banks recently reported results and is well above regional bank peers.

Pre-provision operating profit of $53.6m[*] increased 11.9% on pcp, driven by improved net interest income, up 12.5% to $112.0m, reflecting growth in lending assets and improved net interest margin (NIM), which increased 10bps on the pcp. The increase in NIM reflected significantly lower funding costs, driven by lower retail deposit and wholesale interest rates.

The loan book grew $320m or 6% during FY21 compared with $237m or 4.7% in FY20. The market for owner-occupied home loans remained very competitive during the period. Despite this, the home loan book grew $349m (6.8% or 1.3 times system) over the year.

With increasing numbers of customers choosing to transition to digital transactions both the banking and wealth businesses reduced their physical footprint through the closure of six branches (two in Tasmania and the remaining four in Central Queensland) and a consolidation of some properties across Tasmania. The cost of this restructure was approximately $2.6m with the resulting cost savings reinvested into growthrelated initiatives.

Operating costs, excluding restructure costs, increased $3.9m or 4.9% driven by increased investment in capability, digitisation and marketing.

Group net profit after tax ($M)

==> picture [210 x 139] intentionally omitted <==

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

36.34
30.99
30.06
FY FY FY
19 20 21
----- End of picture text -----

Despite a period of significant change and the challenges presented by COVID-19, MyState’s customer net promoter score was +47 at 30 June 2021. MyState’s score remains among the leading financial services providers, and is significantly above most banking peers and reflects the close relationship we have with our existing customers.

TPT Wealth’s earnings were well below the pcp. This in part reflected investment decisions as we reposition the business, but also reflected persistently low interest rates and the decision to reduce the management fee on the At Call Fund in order to support investor returns. Funds under management were marginally ahead of the previous year.

High credit quality maintained in FY21

MyState Bank remains focused on low risk, owner occupied lending with a loan to valuation ratio of less than 80%.

The banking loan portfolio grew 6% on pcp, reaching $5,592 million at 30 June 2021.

Impairment expense was $5.9m lower with the prior period expense reflecting in part the increase in 90+ days arrears at 30 June 2020, but principally a significant increase in the forward looking economic overlay in response to the uncertainty created by the COVID-19 pandemic. The current period write-back was a result of reduced arrears due to the improved economic outlook, in particular for unemployment and house prices.

Thirty and 90 day arrears remain below industry benchmarks at 0.55% and 0.24% respectively (30 June 2020: 0.61% and 0.35%).

==> picture [234 x 237] intentionally omitted <==

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

Total book composition ($M)
5,592
5,276
5,037
4,549 36
42 68
51 71 41
69 61
65
55
72
64
Jun Jun Jun Jun
18 19 20 21
Housing Loans Personal Loans
Business/ Agri / Commercial Overdrafts
1 Excludes capitalised origination costs
5,447
5,102
4,852
4,358
----- End of picture text -----

*Pre-provision operating profit is defined as profit before impairment expense / (recovery), restructure costs and income tax expense.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

Exposure to investor and interest only lending remains low.

The increase in loans with a loan-to-valuation (LVR) greater than 90% since FY19 reflects the success of the Bank’s participation in the Federal Government’s First Home Loan Deposit Scheme (FHLDS), which is all owner occupied. The FHLDS is an Australian Government initiative to support eligible customers to purchase their first home sooner with as little as a 5% deposit. The National Housing Finance and Investment Corporation provides a guarantee of up to a maximum amount of 15% of the value of a property (as assessed by MyState) purchased under the scheme.

==> picture [144 x 11] intentionally omitted <==

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

Home loan book - LVR profile ($M)
----- End of picture text -----

==> picture [234 x 168] intentionally omitted <==

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

90%
85% - 90% 25%
80% - 85%
507
411
354
339
197 372
302 343
370 <80% 75%
Jun Jun Jun
19 20 21
4,190
4,033
3,983
----- End of picture text -----

Net interest margin expansion

Net interest income benefited from significantly lower funding costs, with total interest expense falling 41.4% on the pcp, while interest income fell by just 12.7%. Net interest margin (NIM) increased 10bps on the pcp to 1.96%.

==> picture [268 x 175] intentionally omitted <==

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

NIM trend
+10bps
1.97% 1.96%
1.94%
1.86%
1.80%
FY FY 1H 2H FY
34
19 20 21 21 21
Directors’ Report
----- End of picture text -----

Customer deposits increased by 13% in the period driven by significant growth in the award-winning Bonus Saver Account with the majority of customers acquired via digital and online channels. Importantly, our online originated deposit portfolio grew from $274m to $809m (195%) during the year. MyState Bank’s reliance on securitisation funding reduced during the year as a result of the increase in customer deposits.

Customer deposits ($M)

==> picture [234 x 179] intentionally omitted <==

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

4,462
3,942
3,662
2,965
1,987
1,593
2,069 1,955
1,497
Jun Jun Jun
19 20 21
Customer deposit at call Customer deposit at term
----- End of picture text -----

Non-interest income from banking activities

Non-interest income from banking activities continued to trend lower (by $0.75m or 5.5% on the pcp) reflecting the increased uptake of digital products and preferences for lower cost self-serve functionality.

TPT Wealth

==> picture [483 x 153] intentionally omitted <==

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

From a financial perspective, TPT Wealth had a Funds under management ($M)
disappointing year. Income from wealth management
activities was $2.21m or 14% lower than the pcp,
driven by lower fees from trustee-related services and
management fees.
Significant restructuring initiatives were undertaken
in TPT Wealth over the past 18 months with fund
administration and fund accounting outsourced,
investment management for TPT Wealth’s growth funds
outsourced, and TPT Wealth’s core lending and trustee
systems replaced. Jun Jun Jun Dec Jun
18 19 20 20 21
1,153
1,103 1,105
1,170
1,069
----- End of picture text -----

In June 2021, the Fixed Term Fund was awarded a 4 star rating from SQM Research, which is expected to help increase inflows into the fund from retail investors.

Strong capital position

The Group has maintained a strong capital position with all capital ratios comfortably above regulatory minimums. The Group’s total capital ratio increased 183bps in the period to 14.84% at 30 June 2021 and the Group’s Common Equity Tier 1 ratio improved by 201bps.

The strong capital position was bolstered by the raising of $55.5 million in June through the issue of 12,903,075 shares at $4.30 each to existing retail and existing and new institutional shareholders.

==> picture [522 x 221] intentionally omitted <==

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

0.59%
1.72%
1.80%
0.16%
14.84%
0.00% 0.43%
13.01% 2.77%
1.76%
1.94%
13.08%
11.07%
Jun Capital Securitised Profit Dividends Secured Capitalised Other assets Jun 35
20 Initiatives assets Paid mortgage intangibles growth 21
lending
Directors’ Report
----- End of picture text -----

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

COVID-19 assistance to customers

Following the onset of the COVID-19 global pandemic, MyState Bank has supported over 1,900 customers through a range of measures including loan deferrals, moving customers to interest only loans or by reducing minimum monthly repayments. At 30 June 2021, approximately 35 customers remain on some form of assistance representing 0.2% of total home loan balances (down from a peak of 10.9% in June 2020).

While the Australian economy has performed more strongly than expected over the past year, with strong house price growth and declining unemployment levels, the ongoing disruption caused by the pandemic is expected to continue to impact on economic activity. The fiscal support provided by both state and federal governments is welcomed and MyState Bank will continue to support impacted customers over the coming months. MyState did not receive any direct support such as JobKeeper during the period.

Total loans with assistance (facilities, no.)

==> picture [251 x 142] intentionally omitted <==

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

1,739
209
301
1,530
77 76
35
48 20
224 28 15
Jun 20 Dec 20 Apr 21 Jun 21
Defer Repayments Reduce Repayments/Change to Interest Only
----- End of picture text -----

Total loans with assistance (balances, $M)

==> picture [244 x 131] intentionally omitted <==

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

$575m
71
$126m
503 30 $28m $11m
19 6
96 10 5
Jun 20 Dec 20 Apr 21 Jun 21
Defer Repayments Reduce Repayments/Change to Interest Only
----- End of picture text -----

Home lending assistance

==> picture [245 x 123] intentionally omitted <==

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

10.9%
7.2%
2.4%
1.3%
0.5%
0.3% 0.2%
0.1%
Jun 20 Dec 20 Apr 21 Jun 21
% of total home loan facilities % of total home loan balances
----- End of picture text -----

Community

MyState seeks to make a genuine difference to our customers and the communities within which we operate. Since 2001, the MyState Foundation has awarded more than $2.4 million in grants to help more than 90 notfor-profit organisations in Tasmania with a focus on empowering youth.

Retirement of Managing Director

In early August 2021, we announced that Managing Director and CEO Melos Sulicich had advised the Board that he intended to retire on 31 December 2021.

Melos had resigned in January 2020, but subsequently withdrew his resignation at the request of the Board and agreed to stay on until at least September 2021 to guide the company through the impact of COVID-19 on the business.

Melos has done a great job transforming MyState into a highly scalable, modern challenger bank and wealth management business and we acknowledge the leadership that he has provided.

We are sorry to lose him and have greatly appreciated his preparedness to stay on and see us through the impacts of COVID-19.

The Board has commenced the process to find a new Managing Director and CEO.

Outlook

The Board has endorsed a plan to accelerate the growth in lending at MyState Bank and non-bank lending at TPT Wealth.

The economy, and in particular employment, is proving resilient and the Board remain comfortable with the level of credit loss provisioning, even with the recent disruptions to parts of the economy caused by recent COVID-19 outbreaks and consequent lockdowns in parts of the economy.

At MyState Bank, we expect to achieve strong growth in lending assets while maintaining a high level of credit quality and cost discipline. The business also expects to

realise the benefits from recent restructuring activity and investment in its digital capabilities, distribution and marketing to grow the customer base nationally, while maintaining a strong risk culture to manage the risks associated with an uncertain, but improving economic environment.

At TPT Wealth we expect to grow FUM and non-bank lending and to also benefit from the transformation of the business over recent years.

The recent capital raise will likely dilute earnings per share growth in the short term but in the medium term we expect to see gains in both EPS and ROE.

Lead auditor’s independence declaration under section 307C of the Corporations Act 2001

The lead auditor’s independence declaration is set out on page 39 and forms part of the Directors’ Report for the year ended 30 June 2021.

Rounding of amounts

In accordance with applicable financial reporting regulations and current industry practices, amounts in this report have been rounded-off to the nearest one thousand dollars, unless otherwise stated. Any discrepancies between totals and sums of components in charts contained in this report are due to rounding.

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 other material item, transaction or event that is likely to significantly affect the operations of the Group.

Environmental regulation

The Company is not subject to significant environmental regulation.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

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:

A – Number of meetings attended.

B – Number of meetings eligible to attend.

MYS Directors	MYS Board Meetings	MYS Board Meetings	Group Audit Commitee	Group Audit Commitee	Group People & Remuneration Committee	Group People & Remuneration Committee	Group Risk Committee	Group Risk Committee	Group Nominations & Corporate Governance Committee	Group Nominations & Corporate Governance Committee	Group Digital & Marketing Committee	Group Digital & Marketing Committee
	A	B	A	B	A	B	A	B	A	B	A	B
R Gordon	11	11	n/a	n/a	n/a	n/a	6	6	5	5	4	4
M Hampton	11	11	4	4	5	5	6	6	5	5	4	4
S Krieger	11	11	n/a	n/a	5	5	6	6	5	5	n/a	n/a
W Lee	11	11	4	4	n/a	n/a	6	6	n/a	n/a	4	4
V Richtor	11	11	4	4	5	5	6	6	n/a	n/a	4	4
M Sulicich	11	11	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a
A Waters	11	11	4	4	n/a	n/a	6	6	n/a	n/a	n/a	n/a

Indemnification and insurance of Directors and Officers

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:

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 .

› All non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Group Audit Committee, to ensure that they do not impact the integrity and objectivity of the auditor; and

The 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.

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

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.

Auditor’s independence declaration to the Directors

Auditor’s Independence Declaration to the Directors of MyState Limited

In relation to our audit of the financial report of MyState Limited for the financial year ended 30 June 2021, 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.

DANNY MCCARTHY

Partner

Wise Lord & Ferguson Date: 20 August 2021

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

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 2021, in accordance with the requirements of the Corporations Act 2001 and its regulations.

Key Management Personnel
Remuneration Strategy
2.1 Remuneration Philosophy
2.2 Consequences of Performance on Shareholder Wealth
2.3 Remuneration Governance

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.

Non-Executive Director Remuneration
Managing Director and Executive Remuneration
4.1 Total Fixed Reward
4.2 Short Term Incentive
4.3 Executive Long Term Incentive Plan
4.4 Banking Executive Accountability Regime
4.5 Review of Executive Remuneration
Statutory Tables
Shareholdings of Key Management Personnel
Loans to Key Management Personnel
Executive Employment Agreements

1. 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| Title
Non-Executive Directors
Miles Hampton| Chairman|Movements in the 2021
Financial Year|
|---|---|---|
||Stephen Davy|Appointed 24 June 2021
Commenced role 1 July2021|
||Robert Gordon||
||Sibylle Krieger
Warren Lee||
||Vaughn Richtor
Andrea Waters
Executive Director
Melos Sulicich| Managing Director and Chief Executive Officer
Executives
Gary Dickson| Chief Financial Officer||
||Mandakini Khanna| Chief Risk Officer||
||Alan Logan| General Manager Wealth Management|Due to commence 30 August 2021|
||Paul Moss| General Manager Technology, Operations and Product||
||Heather McGovern| General Manager Digital and Marketing||
||Anthony MacRae| General Manager Banking|Ceased 30 June 2021|
||Huw Bough| General Manager Banking|Appointed 1 June 2021
Commenced role 30 June 2021|
||Craig Mowll| General Manager Wealth Management|Ceased 18 June 2021|
||Janelle Whittle| General Manager People and Culture||

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

2. Remuneration Strategy

2.1 Remuneration Philosophy

The objective of MyState Limited’s Remuneration Policy is to promote personal and collective behaviours that deliver good customer outcomes, sustained financial performance, appropriate risk management and maintain the good reputation of the Group.

› Structuring of the remuneration of risk and financial control personnel, including performance based components, so not to compromise the independence of these personnel in carrying out their functions;
› Board discretion in the assessment and application of malus or clawback of Executive incentives (whether vested or unvested) as an ultimate means to mitigate unintended consequences of variable pay and to preserve the interests of shareholders and customers; and

The MyState Limited Remuneration Policy is designed to achieve this objective by having:

› Appropriately balanced measures of employee performance that inform variable performance based pay for Executives and other eligible employees, including short and long term incentive plans;
› Short term and long term incentive performance criteria integrated within the overall risk management of the Group.
› Recognition and reward for strong performance linked to favourable customer outcomes and sustainable shareholder returns;

In accordance with best practice corporate governance, the structure of Non-Executive Director remuneration is separate and distinct from Executive remuneration.

› A considered balance between the capacity to pay and the need to attract and retain capable staff at all levels;

2.2 Consequences of Performance on Shareholder Wealth

In considering the Company’s performance and benefits for Shareholder wealth, the Group People and Remuneration Committee has regard to the following metrics:

Indicator	2017	2018	2019	2020	2021
Statutory profit after income tax ($'000)	30,080	31,461	30,987	30,060	36,341
Statutory earnings per share (cents)	34.04	34.97	34.17	32.86	39.18
Dividends paid ($'000)	25,042	25,794	26,016	26,241	11,508
Share price (dollars)	4.85	5.01	4.49	3.93	4.68
Statutory average return on equity (%)	10.0	10.1	9.7	9.2	10.31
Statutory cost to income ratio (%)	65.9	64.0	64.8	62.8	63.1

2.3 Remuneration Governance

The Group People and Remuneration Committee assists the Directors in discharging the Board’s responsibilities in relation to remuneration governance and provides oversight to support the Company in achieving its culture and capability ambitions. The Committee reviews and makes recommendations to the Board on:

› Remuneration arrangements for Directors, the Managing Director and other Senior Executives, having regard to comparative remuneration data, independent advice and compliance with the requirements of APRA Prudential Standards and the Banking Executive Accountability Regime (BEAR);
Human Resource policies and practices, ratification of industrial instruments and oversight of compliance with legal and regulatory requirements; and
›
› Oversight of the Group capability to deliver on strategic objectives and to support the Group’s business operations and culture, including succession planning and other matters such as the Company’s Employee Share Scheme and other incentive schemes for Executives and Employees.

The Group People and Remuneration Committee aims to ensure that there is no conflict of interest regarding Executive Director involvement in Board decisions on remuneration packages and also in monitoring the involvement of Management generally in Committee discussions and deliberations regarding remuneration policy. No Executive is directly involved in deciding their own remuneration.

3. 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. They do not receive any retirement benefits other than statutory superannuation.

The aggregate remuneration paid to all the NEDs, inclusive of statutory superannuation, may not exceed the amount fixed by Shareholders which is currently $950,000.

Each NED currently receives $110,000 per annum, inclusive of statutory superannuation, and the Chairman receives $236,500 per annum, inclusive of statutory superannuation.

The Board determines the fees paid to NEDs taking into account 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 Chairs of committees (other than the Board Chair if he or she chairs a committee) receive an additional $10,000, per annum, inclusive of statutory superannuation.

The Board obtains independent advice from remuneration consultants on a regular basis.

The performance measures for triggering both the Group’s Short Term Incentive Plan (STI) and Executive Long Term Incentive Plan (ELTIP) have been tailored to align “at-risk” remuneration performance hurdle thresholds to the delivery of financial and operational objectives and sustained growth in shareholder value.

STI includes both financial and non-financial metrics.

ELTIP performance measures for all offers are weighted equally between relative total shareholder return (TSR) performance and return on equity (ROE). The relative TSR is a measure which incorporates both dividends paid and movements in share prices, while the ROE is a measure of corporate profitability.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

4. Managing Director and Executive Remuneration

4.2 Short Term Incentive

MyState Limited structures its remuneration framework for the Managing Director and each Executive directly reporting to the Managing Director (Executive) to:

The STI is an incentive with possible reward for Executive members dependent on their contribution towards the company’s short and medium term goals.

› Support MyState Limited’s purpose and mission
› Reflect the company’s values, and

Each year, the Group People and Remuneration Committee recommends to the Board the KPI’s for the Managing Director.

› Allow the Executive to drive our strategy

Total remuneration packages offered to the Executive are based on a notional Total Target Reward which can comprise three elements:

The Managing Director recommends KPIs for Executives to the Group People and Remuneration Committee who subsequently make a recommendation to the Board.

› Total Fixed Reward (TFR) , which includes cash salary, superannuation contributions and any salary sacrifice.

At the end of the financial year, the Managing Director assesses the performance of the Executives against their KPIs and makes a recommendation for each Executive to the Group People and Remuneration Committee as to the STI payment.

› Cash based short term incentives (STI) which provides appropriate short-term rewards for our focus on driving strong customer acquisition, increasing investment in digital innovation and managing operating expenses, while maintaining a culture centred on delivery with positive customer experiences; and

At the end of the financial year, the Group People and Remuneration Committee assesses the performance of the Managing Director against the KPIs for the financial year.

› Equity based long term incentives (ELTIP) which reinforce the focus on achieving longer term strategic objectives for our multi-year transformation journey and embedding the fundamental structures that will allow us to take advantage of evolving market conditions and meet customer needs quickly, and therefore create long-term value for shareholders.

After consultation with the Chair of the Group Audit Committee, and the Chair of the Group Risk Committee, the Group People and Remuneration Committee recommends the STI payments to be made to the Managing Director and Executives for approval by the Board. Approval of an STI to the Managing Director or Executives is at the complete discretion of the Board. The Board discretion may result in a reduction or forfeiture of payment. In addition, the annual STI component awarded may be reduced for forfeited if the Company and the individual Executive does not meet ‘gateways’ approved by the Board at the start of the financial year.

4.1 Total Fixed Reward

The Group People and Remuneration Committee annually reviews Executive remuneration taking into account responsibilities, performance, qualifications and experience. External remuneration consultants are appointed on a regular basis to provide advice to the Committee on structure and market comparison.

The following key performance measures for the STI component and the level of achievement were assessed by the Board in respect to the FY21 financial year.

==> picture [482 x 297] intentionally omitted <==

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

Drivers Measures Performance
Earnings Increasing earnings per share
Net interest
Managed in accordance with Board expectations
margin
Financial Funds under Growing funds under management (TPT)
management
Optimising operational efficiencies to improve the ratio
Cost to income of total operating costs (excluding bad and doubtful debt
ratio charges) to total income (the sum of net interest and non-
interest income).
Positive employee experience scores
People People
Positive leadership and workplace culture development
Net customer growth
Customer Customer
NPS scores significantly above the sector average
Risks in the business have been managed in accordance
Risk and Risk management with the Risk Management Framework and the Board-
Compliance and reputation approved risk appetite. There are no outstanding
regulatory matters.
Successful implementation of individual strategic projects
Strategic
Strategic projects that contribute to the ongoing development and efficiency
Projects of the organisation.
Exceeded or met target Partially met target Below target
----- End of picture text -----

The three gateways for FY21 are summarised below:

Gateway Assessment measures Group Risk If MyState Limited does not meet compliance and risk management obligations, its reputation is materially damaged, capital adequacy and liquidity fall below prudential range(s), or if an accountable person does not meet their personal accountability BEAR obligations, STI may be reduced or forfeited at Board discretion. Profit before Tax and exclusive of If PBT and Incentives is below FY21 budget, STI may be reduced Executive Management STI and or forfeited. Company Performance Bonus (PBT Before Incentives) Values and Behaviours (Individual) Executives must live the MyState Limited values and meet or exceed expectations as assessed against the values by their manager. If not, STI may be reduced or forfeited. The Board may also exercise discretion.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

The Board has determined that all the FY21 gateways had been met. The Board notes that MyState Limited did not receive any JobKeeper benefits. Performance against three joint performance measures, earnings per share, net interest margin and cost to income ratio have been wholly met.

It was particularly pleasing that the key non-financial measures, customer NPS and net customer growth, was higher than the previous year.

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, error, misrepresentation or act or omission, which the Group People and Remuneration Committee or the Board

(acting reasonably) considers would have resulted in the KPIs not being satisfied, or there is otherwise a reward decision incorrectly made, the Board may require repayment of the whole or part of the relevant STI, in addition to taking any other disciplinary actions.

Payment of a STI to the Managing Director or Executive, who are accountable persons, is subject to the Board being satisfied that the payment may be made under the BEAR.

Current STI Offers

Details of the STI payments for the 2020/2021 financial year and the 2019/2020 financial year are set out in the following tables.

Key Management Personnel	% Max. (of TFR)	Max. Payable	% Awarded	% Forfeited	$ Amount Paid	% Which is not yet Assessed for Payment
2020/2021 Melos Sulicich	50%	$312,500	89.30%	10.70%	$279,063	0%
Gary Dickson	30%	$120,000	90.65%	9.35%	$108,780	0%
Mandakini Khanna	30%	$117,000	94.90%	5.10%	$111,033	0%
Heather McGovern	30%	$99,000	86.40%	13.60%	$85,536	0%
Anthony MacRae	30%	$117,000	0%	100%	$0	0%
Craig Mowll(1)	30%	$113,153	0%	100%	$0	0%
Paul Moss	30%	$109,500	92.45%	7.55%	$101,233	0%
Janelle Whittle 2019/2020*	30%	$90,750	88.65%	11.35%	$80,450	0%
Melos Sulicich	50%	$312,500	0%	100%	$0	0%
Gary Dickson(1)	30%	$88,110	0%	100%	$0	0%
David Harradine(1)	30%	$37,504	0%	100%	$0	0%
Mandakini Khanna	30%	$117,000	0%	100%	$0	0%
Heather McGovern	30%	$99,000	0%	100%	$0	0%
Anthony MacRae	30%	$117,000	0%	100%	$0	0%
Craig Mowll Paul Moss Janelle Whittle	30% 30% 30%	$117,000 $109,500 $87,000	0% 0% 0%	100% 100% 100%	$0 $0 $0	0% 0% 0%

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

For the 2019 / 2020 financial year in response to COVID-19 the Managing Director and Executives agreed to forfeit any STI.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

4.3 Executive Long Term Incentive Plan

The ELTIP provides a long term “at risk” incentive, assessed over a three year performance period. It was established by the Board to encourage and motivate the Executive, comprising the Managing Director and participating Executives, by rewarding them with shares for helping to create long term value for the Company’s shareholders. Participating Executives are allocated fully paid ordinary shares in the Company without payment on their part if performance criteria specified by the Board are satisfied in a set performance period. Until 30 June 2021 the offers were in the form of shares; however, beyond that date offers will be in the form of performance rights that, on vesting would deliver to participants one Share for each vested performance right.

Each year, an offer may be made to individual members of the Executive as determined by the Board. The maximum value of the offer is determined as a percentage of the TFR of each member of the Executive. As a general guide, noting that the Board has absolute discretion to vary, the current percentages used are 70% for the Managing Director and 30% for participating Executives. The maximum value of the offer is converted into a number of fully paid ordinary shares or performance rights based upon the volume weighted average price (VWAP) of shares calculated over the period of twenty (20) trading days to 30 June immediately prior to the commencement of the performance period for the relevant offer. The number of shares or performance rights that may deliver shares is then nominally fixed.

In order for the shares or performance rights 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 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 post-tax underlying ROE for the “2018” and “2019” offers. Relative TSR and statutory ROE have been set as the performance criteria for the “2020” offers and “2021” offers. The Board may adjust the statutory ROE performance criteria for one-off items for the 2020 and subsequent offers.

At the end of the performance period, or as soon as possible thereafter, the Board will determine, at its complete discretion, the number of shares or performance rights that have vested and the number of shares in which the Managing Director and participating

Executive may become entitled under the terms of the relevant offer and ELTIP rules.

The Board has set a period of five years from commencement of the performance period before an allocation of shares to an Executive can be made, creating a deferral period of a further two years between the conclusion of the performance period and the allocation of shares.

Any ELTIP reward payment to the Managing Director and participating Executives on satisfaction of the performance criteria under any ELTIP offer is subject to reassessment and possible reduction or forfeiture, during the deferral period (or earlier in the performance period), if the Board considers an adjustment event has occurred (as described in the ELTIP). This enables the Board to adjust variable remuneration (potentially to zero) if such adjustments are necessary to, among other things, protect the financial soundness of the Company or respond to significant unexpected or unintended consequences that were not foreseen by the Board. In addition, where a participating Executive is also an accountable person under the BEAR, the delivery of shares to the Executive (and/or any associated payment) will be subject to the Board’s positive assessment that their accountability obligations have been met. The number of shares that may be allocated (and/or value of any associated payment) may be reduced or cancelled to the extent that the Board determines that the accountability obligations have not been met.

Allocation of shares to the Managing Director and eligible Executives is ultimately at the complete discretion of the Board. The ELTIP rules provide for an independent Trustee to act at the direction of the Company, and the trustee may acquire and hold shares on behalf of Executives that have received an allocation of shares. The participating Executive cannot transfer or dispose of shares before they have been allocated to them, which will not occur until the end of the deferral period specified in the ELTIP rules or relevant offer. A direction to the Trustee to allocate shares to each eligible Executive will be made in accordance with their entitlement under the relevant offer and ELTIP rules.

Any shares or performance rights to be allocated to the Managing Director under this Plan require shareholder approval in accordance with ASX Listing Rules.

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

Commencement of employment during a financial year

Where an ELTIP participant ceases employment with MyState Limited during a performance period, the offer will be assessed by the Board 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.

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; and

The allocation of shares to any ELTIP participant where the Executive is an accountable person, is subject to the BEAR. Shares will not be delivered to ELTIP participants, or any payment made, to the extent it would cause the Company to contravene its obligations under the BEAR.

› 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.

Entitlement to dividend income on shares

During the period that allocated shares for a participating Executive are held by the Trustee, the participating Executive 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.

Cessation of employment

On separation from the Company, participants will be eligible to receive shares only if the separation is due to a Qualifying Reason.

For the avoidance of doubt, for ELTIP offers made after 1 July 2018, the Company will not direct the Trustee to allocate the shares to the participating Executive’s account during the specified two year deferral period. The two year deferral period commences after the end of the relevant performance period. During this period, such participants have no entitlement to any dividends or voting rights in respect of the shares.

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.

Details of offers made under the ELTIP are set out in the following table.

Offer	“2018” “2019” “2020”
Performance period	1 July 2018 to 30 June 2021 1 July 2019 to 30 June 2022 1 July 2020 to 30 June 2023
The comparator group	Members of the S&P/ASX300
Fair value of shares on offer date(1)	Managing Director $2.52 Other Executives $2.17 Managing Director $2.49 Other Executives $2.49 Managing Director $3.36 Other Executives $3.36
Offer date - Managing Director - Other Executives(3)	18 October 2018 7 January 2019 28 October 2019 28 October 2019 16 November 2020 16 November 2020
Value of offer(2) - Managing Director - Other eligible Executives	$312,500 $651,727 $312,500 $787,664 $312,500 $649,500

1) The fair value of offers that are assessed and awarded on market based conditions is determined on the grant date in accordance with AASB 2. The fair value is used by the Group to recognise an expense over the performance period for the TSR component of offers.
2) 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.
3) In respect of the “2018” Offer, a pro-rata offer made to Anthony MacRae and Heather McGovern on the 25th of February 2019 and 18th of March 2019 respectively. Pro-rata offer made in respect of the “2019” Offer to Gary Dickson on the 16th of March 2020.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

Calculation of the Reward

TSR Component

The ELTIP Offers TSR components will vest on the following basis:

ROE Component

The performance period for the ROE component for the ELTIP reward will be based upon on the Company’s post-tax ROE and will be payable on the following basis:

For the 2018 and 2019 offers:

MYS TSR Relative to the ASX 300	Percentage of the Applicable Reward that will Vest:
Below the mid-point percentage	0%
At the median ASX300	50%
Between the median and 75thpercentile	Straight line basis between 50% and 100%
Above the 75thpercentile	100%

For the 2020 offers:

MYS TSR Relative to the ASX 300	Percentage of the Applicable Reward that will Vest:
Below the 25thpercentile	0
At the 25thpercentile	25%
Between the 25thand 75thpercentile	Straight line basis between 25% and 100%
Above the 75thpercentile	100%

MYS Aggregate Absolute Post Tax Underlying ROE for Percentage of the Applicable Reward that will Vest: the Performance Period:

the Performance Period:
Below 30.00%	0%
30.00%	50%
30.00% to 31.50%	Straight line basis from 50% to 100%
31.50% or above	100%

For the 2020 offers:

MYS Aggregate Statutory ROE, which may be adjusted Percentage of the Applicable Reward that will Vest: for one-off items at the discretion of the board, for the Performance Period:

Performance Period:
Below 27.00%	0%
27.00%	25%
27.00% to 30.00%	Straight line from 25% to 100%
30.00% or above	100%

For the 2021 offers:

MYS TSR Relative to the ASX 300	Percentage of the Applicable Reward that will Vest:
Below the 50th percentile	0%
At the 50th perenctile	50%
Between the 50th percentile and the 75th percentile	Straight line basis between 50% and 100%
At or above the 75th percentile	100%

For the 2021 offers:

Statutory ROE with Board discretion to adjust for onePercentage of the Applicable Reward that will Vest: off items:

off items:
Below 30%	0%
30%	50%
30% to 31.50%	Straight line basis from 50% to 100%
31.5% or above	100%

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

Actual and Potential ELTIP Share Allocations

The following tables detail, for current and former KMP, the status of offers made under the ELTIP. The “2017” offer performance period was completed on 30 June 2020. The “2018” offer performance period was completed on 30 June 2021.

Offer	Name	Component Maximum Offer Forfeited/ Lapsed Vested in the 2020/21 Financial Year Not yet Assessed for Vesting Number of Shares
“2018” Offer	Melos Sulicich(1)	TSR 32,188 - 16,126 -
		ROE 32,187 32,187 - -
	Anthony MacRae	TSR 4,590 2,300 - -
		ROE 4,589 4,589 - -
	Heather McGovern	TSR 2,934 - 1,470 -
		ROE 2,933 2,933 - -
	David Harradine	TSR 11,742 5,833 - -
		ROE 11,742 11,742 - -
	Mandakini Khanna	TSR 11,124 - 5,573 -
		ROE 11,124 11,124 - -
	Paul Moss	TSR 10,506 - 5,264 -
		ROE 10,506 10,506 - -
	Craig Mowll	TSR 11,556 5,790 - -
		ROE 11,555 11,555 - -
	Janelle Whittle	TSR 8,961 - 4,489 -
		ROE 8,961 8,961 - -
Offer	Name	Component Maximum Offer Forfeited/ Lapsed Vested in the 2019/20 Financial Year Not yet Assessed for Vesting Number of Shares
“2017” Offer	Melos Sulicich	TSR 29,307 12,485 16,822 -
		ROE 29,307 29,307 - -
	Huw Bough	TSR 10,092 10,092 - -
		ROE 10,092 10,092 - -
	Katherine Dean	TSR 9,786 9,786 - -
		ROE 9,786 9,786 - -
	David Harradine	TSR 11,315 11,315 - -
		ROE 11,315 11,315 - -
	Mandakini Khanna	TSR 10,551 4,495 6,056 -
		ROE 10,550 10,550 - -
	Paul Moss	TSR 10,092 4,299 5,793 -
		ROE 10,092 10,092 - -
	Andrew Polson	TSR 10,092 10,092 - -
		ROE 10,092 10,092 - -
	Chris Thornton	TSR 10,245 10,245 - -
		ROE 10,245 10,245 - -
	Janelle Whittle(2)	TSR 3,888 1,656 2,232 -
		ROE 3,887 3,887 - -

The “2019”, “2020” and “2021” offers have not been assessed for vesting. The following table shows the maximum number of shares available under each of these offers:

==> picture [484 x 29] intentionally omitted <==

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

“2019” Offer “2020” Offer “2021” Offer
Name Component
Number of Shares
----- End of picture text -----

Melos Sulicich	TSR 34,036 38,676 -
	ROE 34,035 38,675 -
Gary Dickson(1)	TSR 9,570 14,852 12,500
	ROE 9,570 14,851 12,500
David Harradine(2)	TSR - - -
	ROE - - -
Mandakini Khanna	TSR 12,743 14,480 12,188
	ROE 12,743 14,480 12,187
Heather McGovern	TSR 10,783 12,252 10,313
	ROE 10,782 12,252 10,312
Anthony MacRae	TSR 12,743 14,480 -
	ROE 12,743 14,480 -
Paul Moss	TSR 11,926 13,552 11,407
	ROE 11,926 13,552 11,406
Craig Mowll	TSR 12,743 14,480 -
	ROE 12,743 14,480 -
Janelle Whittle	TSR 9,476 10,767 9,844
	ROE 9,475 10,767 9,844
Huw Bough	TSR - - 12,188
	ROE - - 12,187
Alan Logan(3)	TSR - - -
	ROE - - -

1) Pro-rata offer made for “2019”.

2) The “2019” Offer extended to David Harradine was forfeited due to less than 12 months of the performance period having been served.

3) Pro-rata “2021” offer to be determined post commencement.
1) The awarding of the 2018 offer is subject to shareholder approval subsequent to the publishing of this report.
2) Pro-rata Max Payable based on commencement dates as applicable.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

4.4 Banking Executive Accountability Regime

by the Board and approved by APRA. At the end of the applicable deferral period, any entitlement to deferred variable remuneration will be assessed against each individual meeting their accountable person obligations. If an accountable person fails to comply with his or her accountability obligations, their deferred variable remuneration will be reduced by an amount that is proportionate to the failure or may be cancelled, as determined by the Board.

MyState accountable persons are registered with APRA. Each accountable person has an agreed accountability statement that sets out the accountabilities relevant to their role in relation to BEAR. Any entitlement to variable remuneration may be subject to deferral, reduction or forfeiture under the BEAR even if performance criteria have been met.

4.5 Review of Executive Remuneration

The BEAR requires authorised deposit-taking institutions (including the Company) to defer payment of a prescribed minimum amount of variable remuneration for a minimum period of four years. The requirement for variable remuneration to be deferred does not apply if the amount that would be deferred is less than $50,000.

During FY21 the Group People and Remuneration Committee commissioned independent advice in respect of the structure and performance criteria for executive variable remuneration. With the benefit of that advice the Board decided to make a number of changes which take effect from 1 July 2021.

The deferral period is subject to extension, as determined by the Board, or reduction, as determined

5. Statutory Tables

==> picture [484 x 320] intentionally omitted <==

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

Salary & Fees Bonus Cash [(1)] Short Term Other Monetary Non- ment Superan-Post-Employ- Termi-nation Share-based Total
Benefits Benefits nuation Benefits Payment [(3)]
Non-Executive Directors
Miles 2021 209,004 - - 393 19,855 - - 229,252
Hampton 2020 201,922 - - - 19,183 - - 221,105
Robert 2021 89,849 - - - 26,275 - - 116,124
Gordon 2020 87,449 - - - 25,390 - - 112,839
Vaughn 2021 97,211 - - - 9,235 - - 106,446
Richtor 2020 76,042 - - - 7,224 - - 83,266
Sibylle 2021 106,049 - - - 10,075 - - 116,124
Krieger 2020 101,875 - - - 9,678 - - 111,553
Warren 2021 106,049 - - - 10,075 - - 116,124
Lee 2020 98,933 - - - 9,399 - - 108,332
Stephen 2021 - - - - - - - -
Lonie 2020 42,731 - - - 4,059 - - 46,790
Andrea 2021 116,124 - - - - - - 116,124
Waters 2020 100,702 - - - 9,567 - - 110,269
2021 724,286 - - 393 75,515 - - 800,194
Total NED
2020 709,654 - - - 84,500 - - 794,154
----- End of picture text -----

==> picture [484 x 501] intentionally omitted <==

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

Salary & Fees Bonus Cash [(1)] Short Term Other Monetary Non- ment Superan-Post-Employ- Termi-nation Share-based Total
Benefits Benefits nuation Benefits Payment [(3)]
Executive
Melos 2021 623,077 279,063 - 1,095 25,961 - 156,698 1,085,894
Sulicich 2020 600,000 - - 1,788 25,000 - 80,956 707,744
Huw 2021 36,986 - - - 3,514 - - 40,500
Bough 2020 - - - - - - 3,075 3,075
Katherine 2021 - - - - - - - -
Dean 2020 - - - - - - 2,895 2,895
David 2021 - - - - - - 4,046 4,046
Harradine 2020 149,678 - - - 8,365 - (3,225) 154,818
Mandakini 2021 369,863 111,033 - - 35,137 - 56,434 572,467
Khanna 2020 355,954 - - - 36,409 - 28,010 420,373
Anthony 2021 372,019 - - - 25,481 - 50,573 448,073
MacRae
2020 365,000 - - - 25,000 - 17,469 407,469
Heather 2021 312,961 85,536 - - 29,731 - 42,132 470,360
McGovern 2020 301,370 - - - 28,630 - 14,316 344,316
2021 353,077 101,233 - 1,302 25,961 - 52,892 534,465
Paul Moss
2020 339,806 - - - 25,001 - 26,399 391,206
Craig 2021 383,075 - - - 20,295 - 24,390 427,760
Mowll 2020 369,469 - - - 20,531 - 21,743 411,743
Janelle 2021 276,519 80,450 - 1,302 27,245 - 42,505 428,021
Whittle 2020 264,840 - - - 25,160 - 18,299 308,299
Gary 2021 389,423 108,780 - - 25,961 - 43,532 567,696
Dickson 2020 264,219 - - - 20,716 - 10,005 294,940
Total 2021 3,117,000 766,095 - 3,699 219,286 - 473,202 4,579,282
Executive 2020 3,010,336 - - 1,788 214,812 - 219,942 3,446,878
2021 766,095 - 4,092 294,801 - 473,202 5,379,476
Total KMP 3,841,286
2020 3,719,990 - - 1,788 299,312 - 219,942 4,241,032
----- End of picture text -----

1) The cash bonus shown is the actual amount awarded in respect of each financial year’s STI offers.
2) Non-Monetary Benefits consist of car parking expense, travel & accommodation and entertainment.
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. 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.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

==> picture [596 x 842] intentionally omitted <==

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

56
MyState Limited - Annual Report 2021
Remuneration Report
----- End of picture text -----

6. Shareholdings of Key Management Personnel

Any shares subject to deferral (including shares which may be allocated in respect of vest performance rights), from the 2018 ELTIP offer onwards, will be recognised for the purposes of MD MSR. The shares in MyState Limited (ASX code: MYS) may be held directly or indirectly, and may include shares obtained prior to commencement of employment and/or Shares acquired through ELTIP or any other scheme.

Non-Executive Director Minimum Shareholding Requirement

A minimum shareholding requirement has been implemented for all Non-Executive Directors (NED MSR).

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 NED MSR must be achieved within four years of their appointment.

Related Parties of KMP Shareholdings

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.

Managing Director Minimum Shareholding Requirement (MD MSR)

In the absence of approval from the Board to the contrary, the MD MSR will apply to the Managing Director.

The MD MSR will be 50% of TFR and must be achieved within four years of appointment.

MyState Limited - Annual Report 2021

Directors’ Report (continued) for the year ended 30 June 2021

Director’s Report (continued) for the year ended 30 June 2021

8. Executive Employment Agreements

Key Management Personnel Number of Shares at Commence- ment of Finan- cial Year Non-Executive Directors Miles Hampton 750,000	Key Management Personnel Number of Shares at Commence- ment of Finan- cial Year Non-Executive Directors Miles Hampton 750,000	Granted as Compensation to be held by ELTIP trustee(1) -	Net Change Other 148,362	Number of Shares at End of Financial Year 898,362	Number of Shares at End of Financial Year Held by ELTIP Trustee (2) -
Robert Gordon	26,587	-	7,138	33,725	-
Sibylle Krieger	26,132	-	718	26,850	-
Warren Lee	24,004	-	3,637	27,641	-
Vaughn Richtor	2,500	-	9,331	11,831	-
Andrea Waters	22,093	-	9,963	32,056	-
Sub Total Executives	851,316	-	179,149	1,030,465	-
Melos Sulicich	119,086	16,126	23,804	159,016	79,911
Gary Dickson	-	-	-	-	-
Heather McGovern	-	1,470	-	1,470	1,470
Mandakini Khanna	12,564	5,573	1,545	19,682	19,682
Paul Moss	12,301	5,264	338	17,903	17,903
Janelle Whittle	6,946	4,489	715	12,150	6,721
Huw Bough	5,000	-	758	5,758	-
Sub Total	155,897	32,922	27,160	215,979	125,687

1) These amounts are the shares awarded for the “2018 Offer”. The awarding of these shares was approved on 20 August 2021 with the exception of those relating to Melos Sulicich whose shares are subject to shareholder approval. These shares have not yet been issued to the Trustee to hold on behalf of the Executives.
2) The shares that are held in trust are also shown in the balance at the end of the financial year totals and include those shares yet to be issued to the Trustee under the “2018 Offer”.

7. Loans to Key Management Personnel

There are no loans made by MyState subsidiaries to KMP or their related parties in 2021.

The Managing Director and Executives are employed under individual open ended employment contracts that set out the terms of their employment.

==> picture [484 x 48] intentionally omitted <==

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

Com- Con- Short Term Termination Provisions in the
ELTIP
Incumbent menced tract TFR Incentive Event of Termination by the
(maximum)
in Role Term (maximum) Company
Melos 1 July 2014 Ongoing $625,000 50% of TFR in 50% of TFR in Notice:
----- End of picture text -----

Incumbent Melos	Com- menced in Role 1 July 2014	Con- tract Term Ongoing	TFR $625,000	Short Term Incentive (maximum) 50% of TFR in	ELTIP (maximum) 50% of TFR in	Termination Provisions in the Event of Termination by the Company Notice:
Sulicich(1)				2021 financial	2021 financial	The contract may be terminated by
				year	year	the Company with 26 weeks notice or
				60% of TFR in	70% of TFR in	payment in lieu of notice. Entitlement:
				2022 financial	2022 financial	› Pro-rata STI payment applied as at
				year	year	the date of termination.
						› Payment of STI if the performance
						period is complete but not yet paid.
						› Pro-rata ELTIP allocation, made
						following the completion of the
						applicableperformanceperiods.
Huw	1 June 2021	Ongoing	$390,000	30% TFR	30% of TFR	Notice:
Bough					upon invitation	Each contract can be terminated by the
					to participate	Company upon provision of three months notice.
						Entitlement:
						› Pro-rata STI payment applied as at
						the date of termination.
						› Payment of STI if the performance
Alan Logan	30 August 2021	Ongoing	$370,000			period is complete but not yet paid. › Pro-rata ELTIP allocation, made
						following the completion of the
						applicableperformanceperiods.
Gary Dickson	19 October 2019	Ongoing	$400,000	30% TFR	30% of TFR upon	Notice: Each contract can be terminated by the
Mandakini Khanna	1 December 2015	Ongoing	$390,000		invitation to participate	Company upon provision of three months notice. Entitlement:
Anthony MacRae	12 February 2019	Ongoing	$390,000			› Payment of the equivalent of six months TFR (inclusive of the provision of three months notice).
Heather McGovern	18 March 2019	Ongoing	$330,000			› Pro-rata STI payment applied as at the date of termination.
Paul Moss Craig Mowll Janelle Whittle	13 May 2015 16 July 2018 22 January 2018	Ongoing Ongoing Ongoing	$365,000 $390,000 $315,000			› Payment of STI if the performance period is complete but not yet paid. › Pro-rata ELTIP allocation, made following the completion of the applicable performance periods.

1) Required to hold shares to the value of 50% of TFR.

Signed in accordance with a resolution of the Directors.

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

Miles Hampton Chairman Hobart, dated this 20 August 2021

Melos Sulicich Managing Director and Chief Executive Officer

MyState Limited - Annual Report 2021

==> picture [775 x 842] intentionally omitted <==

Financial Report

MyState Limited - Annual Report 2021

Financial Report (continued) for the year ended 30 June 2021

Chairman ReportResults for the year

	irman Report lts for the year
	Consolidated Income Statement 63
	Consolidated Statement of Comprehensive Income 64 Consolidated Statement of Financial Position 64 Consolidated Statement of Changes in Equity 65 Consolidated Statement of Cash Flows 66
	Section 1 Corporate information and basis of accounting
	1.1 Reporting entity 67 1.2 Basis of accounting 67
	1.3 Use of estimates and judgement 67 1.4 Provisions (other than for impairment of financial assets) 67
	Section 2 Financialperformance
	2.1 Net banking operating income 68 2.2 Income from wealth management activities 69 2.3 Income from other activities 69 2.4 Expenses 70 2.5 Earnings per share 70 2.6 Dividends 71 2.7 Segment financial information 71
	Section 3 Capital and financial risk management
	3.1 Capital management strategy 74 3.2 Financial risk management 76 3.3 Average balance sheet and sources of net interest income 82
	Section 4 Financial assets and liabilities
	4.1 Cash and liquid assets 83 4.2 Financial instruments 85 4.3 Loans and advances 86 4.4 Transfer of financial assets (securitisation program) 88 4.5 Deposits and other borrowings including subordinated notes 89 4.6 Other liabilities 89 4.7 Fair value of financial instruments 90
	Section 5 Non-financial assets, liabilities and equity
	5.1 Property, plant and equipment and right-of-use assets 91 5.2 Investment property 92 5.3 Intangible assets and goodwill 93 5.4 Employee benefits provisions 95 5.5 Share capital 96
	Section 6 Income tax expense, current and deferred tax balances
	6.1 Income tax expense,current and deferred tax balances 96
	Section 7 Group structure and relatedparties
	7.1 Parent entity information 99 7.2 Controlled entities and principles of consolidation 100 7.3 Relatedpartydisclosures 101
	Section 8 Other notes
	8.1 Contingent liabilities and expenditure commitments 102 8.2 Remuneration of auditors 103 8.3 Events subsequent to balance date 103 8.4 Other significant accounting policies and new accounting standards and disclosures 103

Consolidated Income Statement

	Notes	30 June 2021 $’000	30 June 2020 $’000
Interest income	2.1	164,336	188,330
Interest expense	2.1	(52,385)	(88,808)
Net interest income		111,951	99,522
Non-interest income from banking activities	2.1	12,951	13,699
Net banking operating income		124,902	113,221
Income from wealth management activities	2.2	13,618	15,636
Income from other activities	2.3	-	3
Total operating income		138,520	128,860
Less: Expenses
Personnel costs	2.4	39,615	37,417
Administration costs	2.4	15,346	15,518
Technology costs	2.4	16,200	14,751
Occupancy costs		4,763	5,461
Marketing costs		6,394	5,250
Governance costs	2.4	2,580	2,556
Restructure costs		2,559	-
Total operating expenses		87,457	80,953
Profit before impairment and tax expense		51,063	47,907
Impairment expense / (recovery) on loans and advances	4.3	(995)	4,921
Profit before tax		52,058	42,986
Income tax expense	6.1	15,717	12,926
Profit for the year		36,341	30,060
Profit attributable to the:
Equity holders of MyState Limited		36,341	30,060
Basic earnings per share (cents per share)	2.5	39.18	32.86
Diluted earnings per share (cents per share)	2.5	39.18	32.86

The accompanying notes form part of these financial statements.

My State Limited Annual Report 2021 MyState Limited - Annual Report 2021

MyState Limited - Annual Report 2021

Financial Report (continued) for the year ended 30 June 2021

Consolidated Statement of Comprehensive Income

	30 June 2021 $’000	30 June 2020 $’000
Profit for the year	36,341	30,060
Other comprehensive income / (expense)
Items that may be reclassified subsequently to profit or loss
Cash flow hedges - Net gains / (losses) taken to equity	434	(184)
Income tax effect	(130)	55
Items that will not be reclassified subsequently to profit or loss
Changes in the fair value of equity investments at fair value through other comprehensive income	-	(1000)
Total other comprehensive income / (expense) for theyear	304	(1,129)
Total comprehensive income for the year	36,645	28,931
Total comprehensive income for theyear is attributable to:
Equity holders of MyState Limited	36,645	28,931

Consolidated Statement of Financial Position

	30 June 2021	30 June 2020
	Notes $’000	$’000
Assets
Cash and liquid assets	4.1 80,266	116,502
Due from other financial institutions	31,859	34,615
Other assets	7,032	6,762
Financial instruments	4.2 707,166	542,565
Loans and advances	4.3 5,607,300	5,286,114
Property, plant and equipment and right-of-use assets	5.1 11,678	19,491
Investment property	5.2 3,801	-
Current and deferred tax assets	6.1 9,896	5,286
Intangible assets andgoodwill	5.3 83,478	84,471
Total assets	6,542,476	6,095,806
Liabilities
Due to other financial institutions	18,821	25,617
Deposits and other borrowings including subordinated notes	4.5 6,079,794	5,704,778
Employee benefits provisions	5.4 5,240	5,674
Other liabilities	4.6 20,605	21,165
Tax liabilities	6.1 2,802	4,250
Total liabilities	6,127,262	5,761,484
Net assets	415,214	334,322
Equity
Share capital	5.5 208,196	152,775
Retained earnings	207,282	182,449
Reserves	(264)	(902)
Total equity	415,214	334,322

Consolidated Statement of Changes in Equity

				Employee
				equity
		Share	Retained	benefits	Hedging	Other
		capital	earnings	reserve	reserve	reserve	Total
	Note	$’000	$’000	$’000	$’000	$’000	$’000
At 1 July 2019		148,707	178,629	640	(477)	-	327,499
Profit for the year		-	30,060	-	-	-	30,060
Other comprehensive income / (expense)		-	-	-	(129)	(1,000)	(1,129)
Total comprehensive income for theyear		-	30,060	-	(129)	(1,000)	28,931
Equity issued under employee share scheme	5.5	88	-	-	-	-	88
Equity issued under executive long term incentive plan	5.5	170	-	(170)	-	-	-
Equity issued under dividend reinvestment plan	5.5	3,810	-	-	-	-	3,810
Share based payment expense recognised		-	-	234	-	-	234
Dividendspaid	2.6	-	(26,240)	-	-	-	(26,240)
At 30 June 2020		152,775	182,449	704	(606)	(1,000)	334,322
At 1 July 2020		152,775	182,449	704	(606)	(1,000)	334,322
Profit for the year		-	36,341	-	-	-	36,341
Other comprehensive income / (expense)		-	-	-	304	-	304
Total comprehensive income for theyear		-	36,341	-	304	-	36,645
Equity issued under employee share scheme	5.5	84	-	-	-	-	84
Equity issued under executive long term incentive plan	5.5	167	-	(167)	-	-	-
Equity issued under dividend reinvestment plan	5.5	1,397	-	-	-	-	1,397
Equity issued under
institutional placement and	5.5	31,280	-	-	-	-	31,280
entitlement offer
Equity issued under retail entitlement offer	5.5	24,203	-	-	-	-	24,203
Share based payment expense recognised	5.5	-	-	501	-	-	501
Entitlement offer share issuance costs, net of tax		(1,710)	-	-	-	-	(1,710)
Dividendspaid	2.6	-	(11,508)	-	-	-	(11,508)
At 30 June 2021		208,196	207,282	1,038	(302)	(1,000)	415,214

The accompanying notes form part of these financial statements.

MyState Limited - Annual Report 2021

Financial Report (continued) for the year ended 30 June 2021

Consolidated Statement of Cash Flows

	Notes	30 June 2021 $’000	30 June 2020 $’000
Cash flows from operating activities
Interest received		178,286	202,671
Interest paid		(54,343)	(96,054)
Fees and commissions received		25,777	26,893
Other non-interest income received		2,027	3,400
Payments to suppliers and employees (i)		(76,756)	(73,597)
Income taxpaid		(21,905)	(12,989)
(Increase)/decrease in operating assets:
Due from other financial institutions		3,336	(8,581)
Financial instruments		(163,814)	(93,615)
Loans and advances		(334,763)	(251,207)
Increase/(decrease) in operating liabilities:
Due to other financial institutions		(3,868)	(2,022)
Deposits and other borrowings		323,729	371,464
Net cash flows from / (used in) operating activities	4.1	(122,294)	66,363
Cash flows from investing activities
Purchase of intangible assets		(4,282)	(4,425)
Proceeds from sale of property, plant and equipment		-	11
Purchase ofproperty,plant and equipment		(499)	(637)
Net cash flows from / (used in) investing activities		(4,781)	(5,051)
Cash flows from financing activities
Employee share issue		84	88
Entitlement and placement offer share issue		55,339	-
(Receipts)/payments for lease liabilities		(2,757)	(2,565)
Subordinated notes		(146)	110
Floating rate notes issue		49,976	-
Dividendspaid net of dividend reinvestmentplan	2.6	(11,657)	(22,437)
Net cash flows from / (used in) financing activities		90,839	(24,804)
Net increase / (decrease) in cash held		(36,236)	36,508
Cash at beginningof financialyear		116,502	79,994
Closing cash carried forward	4.1	80,266	116,502

(i) Excludes payments of lease liabilities following the application of AASB 16 Leases. Comparatives have been restated to disclose outflows from lease liabilities separately.

Notes to the Consolidated Financial Statements

for the year ended 30 June 2021

1.1 Reporting entity

1.3 Use of estimates and judgements

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 address of its registered office and principal place of business is 137 Harrington Street, Hobart Tasmania 7000. The consolidated financial statements of MyState Limited and its subsidiaries (the Group) were authorised for issue by the Directors on 20 August 2021.

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:

1.2 Basis of accounting

› Loan origination cost amortisation, refer note 2.1;
› Impairment losses on loans and advances, refer note 4.3;

These consolidated financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001 , Australian Accounting Standards and Interpretations, and other requirements of the law. The financial report complies with Australian equivalents to International Financial Reporting Standards (“AIFRS”).

Fair value of financial instruments, refer note 4.7;
›
› Impairment assessment of intangibles and goodwill, refer note 5.3;
› Recoverability of deferred tax assets, refer note 6.1; and
› Assessment of right-of-use assets and lease liabilities, refer notes 4.6 and 5.1.

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.

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.

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

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.

Rounding of amounts

The accompanying notes form part of these financial statements.

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.

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

2.1 Net banking operating income

2.1 Net banking operating income
30 June 2021	30 June 2020
$’000	$’000
Interest income Loans and advances 160,912 Investment securities 3,424	180,914 7,416
Total interest income 164,336	188,330
Interest expense At call deposits 12,851 Fixed term deposits 38,217 Financingcost - leases 1,317	11,450 76,150 1,208
Total interest expense 52,385	88,808
Non-interest income from banking activities Transaction fees 3,918 Loan fees 4,674 Banking commissions 2,984 Other bankingoperations income 1,375	4,513 4,462 3,018 1,706
Total non-interest income from banking activities 12,951	13,699

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

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 are recognised as components of the calculation of the effective interest rate method in relation to originated loans, and therefore effect 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.

Interest expense is calculated on an accruals basis using the effective interest rate method. The effective interest rate method is the rate that exactly discounts future payments through the expected life of the financial instrument.

Non-interest income from banking activities

Refer to the “income accounting policy” in note 2.2.

2.2 Income from wealth management activities

2.2 Income from wealth management activities
	30 June 2021	30 June 2020
	$’000	$’000
Funds management income	9,412	10,315
Other fees and commissions	4,206	5,321
Total income from wealth management activities	13,618	15,636

Funds management income and fiduciary activities

TPT Wealth Limited, a controlled entity of the Group, acts as Responsible Entity, Trustee and Funds Manager for eight 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 individuals, superannuation funds 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 is 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	2021	June 2020
	$’M		$’M
Funds under management	1,105		1,069
Funds under advice		487	402

Other fees and commissions

TPT Wealth Limited provides 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

The Group earns three main types of fees and commissions under contracts with customers. The first income type is single performance obligation contracts, such as transaction services, where the performance obligation is performed and consideration received in quick succession. Income from these contracts is recorded as the performance obligations are satisfied. The second income type is where contracts with the customer are for the performance of multiple obligations over time and the customer only benefits from delivery of all those obligations together over time, for example the provision of trustee services and services to funds under management. For these contracts, income is recognised over the service period. The third type of income is insurance intermediary income where the performance obligations are satisfied substantially at the time of referring the customer and economic benefits flow to the Group over time. The Group has estimated that nil income will be brought forward as a contract asset under these contracts due to the insufficient probability of the timing and amount of future income that will flow from these contracts. This income is therefore recorded when received.

2.3 Income from other activities

2.3 Income from other activities
	30	June 2021	30 June 2020
		$’000	$’000
Profit on sale ofproperty,plant and equipment assets		-	3

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

2.4 Expenses

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

	30 June 2021	30 June 2020
	$’000	$’000
Occupancy costs include:
Operating lease payments	(114)	379
Depreciation - right of use lease assets	2,934	3,254
Depreciation - buildings and leasehold improvements	362	482
Technology costs include:
Amortisation - computer software	5,275	4,874
Administration costs include:
Depreciation - furniture, equipment and computer hardware	276	322
Restructure costs include (i):
Depreciation - early termination of right-of-use lease assets	1,215	-
Termination payments	952	-
Loss on disposal of fit out costs	248	-
Other	144	-
Total restructure costs	2,559	-

(i) During the period, branches in Queensland were closed and properties in Northern Tasmania were consolidated. The restructure costs include the cost to early terminate leases and redundancy costs related to impacted staff.

Expense accounting policy

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 and right-of-use assets 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	40years
Office furniture, fittings & equipment	4-7years
Buildingfit-out	4-15years
Computer hardware	3years
Software	3-10years
Right-of-use assets	2-15years

Each year the useful life of assets are evaluated. The remaining useful life of select core banking systems has been revised and extended in the current year as the Group has implemented significant increased functionality and, in turn, longevity of these sytems over their initial capacity. The revised remaining useful life is within the above stated parameters however the total life since original core system implementation is in excess of the above stated lives in some instances.

2.5 Earnings per share

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 weighted average number of shares used in the calculation of basic and diluted earnings per share:

		Number	Number
Weighted average number of ordinary shares used in calculating basic and diluted earningsper share		92,761,685	91,491,358
2.6 Dividends
	Date of	30 June 2021	30 June 2020
	payment	$’000	$’000
Dividends paid
2019 Final dividend paid - 14.5 cents per share	1 Oct 2019	-	13,204
2020 Interim dividend paid - 14.25 cents per share	2 Apr 2020	-	13,036
2020 Final dividend paid - 0 cents per share	N/A	-	-
2021 Interim dividendpaid - 12.5 centsper share	16 Mar 2021	11,508	-
Total dividendspaid		11,508	26,240
The dividends paid during the year were fully franked at the 30 per cent corporate tax rate.

	30 June 2021	30 June 2020
	$’000	$’000
Franking credit balance
The amount of franking credits available for the subsequent financial year are:
Franking account balance as at the end of the period at 30%	82,890	67,568
Franking credits that will arise from the payment of income tax payable at
the end of theperiod	4,049	2,314

Dividends not recognised at the end of the financial year

On 20 August 2021, the Directors resolved to pay a final dividend for the 2021 financial year of 13.0 cents per share or $13.686m total to be paid on 21 September 2021, 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 $5.865m.

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.

2.5 Earnings per share
	30 June 2021	30 June 2020
	cents	cents
Basic earnings per share from continuing operations	39.18	32.86
Diluted earningsper share from continuingoperations	39.18	32.86

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

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 Limited Group.

Wealth Management division

The Wealth Management division is a provider of funds management and trustee services. It operates predominantly within Tasmania. It holds $1.105 billion (2020: $1.069 billion) in funds under management on behalf of personal, business and wholesale investors as the responsible entity for eight managed investment schemes. The Wealth Management division is conducted by TPT Wealth Limited which 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 division is responsible for the governance of the Group. The corporate division charges the operating divisions on a cost recovery basis for costs it has incurred. This division is also where eliminations are allocated between the Banking division and the Wealth Management division.

	Corporate
Wealth	and
Banking Management	Consolidation	Total
$’000 $’000	$’000	$’000
Year ended 30 June 2021 Interest income 164,358 (12) Interest expense (52,370) (2) Other income Transaction fees 3,918 - Loan fee income 4,674 - Banking commissions 2,984 - Other banking operations income 1,695 - Funds management income - 9,412 Other wealth management fees and commissions - 4,206 Income from other activities - -	(10) (13) - - - (320) - - -	164,336 (52,385) 3,918 4,674 2,984 1,375 9,412 4,206 -
Total operating income 125,259 13,604	(343)	138,520
Expenses Personnel costs 27,241 6,338 Administration costs 20,999 2,964 Technology costs 14,893 1,017 Occupancy costs 4,532 144 Marketing costs 6,042 344 Governance costs 549 181 Impairment expense / (recovery) (1,180) 185 Restructure costs(i) 2,277 282 Income tax expense 15,002 646	6,036 (8,617) 290 87 8 1,850 - - 69	39,615 15,346 16,200 4,763 6,394 2,580 (995) 2,559 15,717
Segment profit for the year 34,904 1,503 Segment balance sheet information Segment assets 6,467,120 24,307 Segment liabilities 6,123,366 1,426	(66) 51,049 2,470	36,341 6,542,476 6,127,262

		Wealth	Corporate and
	Banking	Management	Consolidation	Total
	$’000	$’000	$’000	$’000
Year ended 30 June 2020
Interest income	188,105	182	43	188,330
Interest expense	(88,800)	(1)	(7)	(88,808)
Other income(i)
Transaction fees	4,513	-	-	4,513
Loan fee income	4,462	-	-	4,462
Banking commissions	3,018	-	-	3,018
Other banking operations income	1,914	-	(208)	1,706
Funds management income	-	10,315	-	10,315
Other Wealth Management fees and commissions	-	5,321	-	5,321
Income from other activities	515	-	(512)	3
Total operating income	113,727	15,817	(684)	128,860
Expenses
Personnel costs	27,267	6,107	4,043	37,417
Administration costs	19,272	2,951	(6,705)	15,518
Technology costs	14,067	563	121	14,751
Occupancy costs	5,070	359	32	5,461
Marketing costs	4,878	349	23	5,250
Governance costs	604	104	1,848	2,556
Impairment expense /(recovery)	4,888	33	-	4,921
Income tax expense	11,335	1,610	(19)	12,926
Segmentprofit for theyear	26,346	3,741	(27)	30,060
Segment balance sheet information
Segment assets	6,056,509	25,195	14,102	6,095,806
Segment liabilities	5,795,422	2,183	(36,121)	5,761,484

(i) Costs related to the restructure for the Banking Division are $2.277M and for the Wealth Management division are $0.282M. Refer to note 2.4 for further information.

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

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:

› Comply with internal and regulatory capital requirements;
› Ensure sufficient capital resource is available to support the Group’s business, operational and investment activities;
› Maintain balance sheet resilience to safeguard the Group’s ability to continue as a going concern; and › Support MyState Limited’s and MyState Bank Limited’s credit rating.

The Group’s capital management policy considers each of internal, regulatory and rating agency capital requirements. Under APS 110 Capital Adequacy, the ultimate responsibility for the prudent management of capital resides with the Board of Directors. The Board must ensure that an appropriate level and quality of capital is maintained, commensurate with the type, amount and concentration of risk exposures.

The Group’s regulatory capital requirements are measured on a Level 1 and Level 2 basis.

Level 1 is comprised of MyState Bank Limited (the ADI) and ConQuest 2010-1R.

Level 2 is comprised of the wider MyState Limited prudential group. This group includes MyState Limited (the non-operating holding company), MyState Bank Limited, Connect Asset Management Limited (the Securitisation programme Manager) and ConQuest 2010-1R.

All entities that are consolidated for accounting purposes are included within the Level 2 regulatory capital calculation except for certain securitisation vehicles and TPT Wealth Limited.

The Group has developed a detailed Internal Capital Adequacy Assessment Plan (ICAAP). This plan covers the capital requirements of the Group on a Level 1 and Level 2 basis (as previously described) as well as TPT Wealth Limited. The Group’s capital position is monitored on a frequent basis and is reported to the Board monthly. The ICAAP also includes a three year forecast of capital adequacy which is prepared and submitted to the Board at least annually.

The ICAAP aims to ensure that adequate planning activities take place so that the Group is effectively capitalised. The ICAAP encompasses known financial events, dividend policy, capital raisings, securitisation and stress testing.

The Board has currently set a minimum total capital adequacy ratio of 12.5% for the Group. Capital adequacy of the Group on a level 2 basis is detailed in the following table:

30 June 2021	30 June 2020
$’000	$’000
Qualifying capital Common equity tier 1 capital Paid-up ordinary share capital(i) 208,197	152,775
Retained earnings 219,127	197,231
Reserves excluding general reserve for credit losses 44	(310)
Total common equity tier 1 capital 427,368	349,696
Less: Regulatory adjustments Deferred expenditure including deferred tax assets 24,818	20,728
Goodwill and intangibles 68,913	72,006
Other deductions 41,733	42,297
Total regulatory adjustments 135,464	135,031
Net common equity tier 1 capital 291,904	214,665
Tier 2 capital Subordinated notes(ii) 32,706	30,769
General reserve for credit losses 6,380	6,826
Total capital 330,990	252,260
Risk weighted assets 2,231,100	1,939,372
Capital adequacyratio 14.84%	13.01%

(i) On the 24th June 2021, the Group raised $24.2 million (5,628,573 shares at $4.30 each) under a retail entitlement offer. This followed an institutional entitlement offer and fully underwritten institutional placement (Placement) which raised $11.3 million and $20 million respectively (7,274,502 ordinary shares at $4.30 each) from existing and new institutional investors, on the 2nd June 2021.

(ii) On the 14th August 2015, the Group issued $25 million of floating rate subordinated notes (“notes”). The issuer was MyState Bank Limited. The notes had a term of 10 years to 14th August 2025, and paid interest quarterly at a floating rate equal to the three-month BBSW plus a margin of 5% per annum. The issuer redeemed these notes on 14 August 2020 having obtained APRA’s prior written approval.

On the 10th July 2020, the Group issued $25 million of floating rate subordinated notes (“notes”). The issuer was MyState Limited. The notes have a term of 10 years, maturing 10 July 2030, and pay interest quarterly at a floating rate equal to the three-month BBSW plus a margin of 4.35% per annum. The issuer has the option to redeem these notes on 10 July 2025 and each quarterly interest payment date thereafter, and for certain regulatory events (in each case subject to APRA’s prior written approval). On the same date, and with the same terms, MyState Bank Limited issued $25 million of floating rate subordinated notes to MyState Limited with terms identical to those issued by MyState Limited.

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 28th 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 28th 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. For the notes issued on the 28th September 2016, the amount included in the Group’s Level 2 Tier 2 regulatory capital is a percentage equal to that of the external interest in the Group’s regulatory capital. The amount included in the Group’s Level 1 Tier 2 regulatory capital is 100%. For the notes issued on the 10th July 2020, the amount included in the Group’s Level 1 and Level 2 Tier 2 regulatory capital is 100%.

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

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 Enterprise Risk 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 in the Statement of Financial Position, 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 2021	30 June 2020
	$’000	$’000
Cash and liquid assets	80,266	116,502
Due from other financial institutions	31,859	34,615
Other assets	7,032	6,762
Financial instruments	707,166	542,565
	826,323	700,444
Loans and advances	5,607,300	5,286,114
Customer commitments(i)	200,392	145,870
Maximum exposure to credit risk	6,634,015	6,132,428

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

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. New facilities are loans that have been funded within the financial year.

	30 June 2021	30 June 2020
	$’000	$’000
	Credit quality of financial assets Financial assets other than loans and advances at amortised cost Equivalent S&P rating A+ and above 476,364	382,699
	Equivalent S&P rating A and below 349,959	317,745
	Loans and advances at amortised cost New Facilities - not closely monitored 1,544,649	1,304,934
	New Facilities - closely monitored 364	591
	Continuing facilities - not closely monitored 4,036,862	3,954,565
	Continuingfacilities - closelymonitored 25,425	26,024
	Total on balance sheet exposure to credit risk 6,433,623	5,986,558

	Loans and advances at amortised costpast due analysis
	Not past due 5,576,675	5,254,085
	Past due days: 31 to 60 days 11,492	8,889
	61 to 90 days 5,760	4,750
	More than 90 days 13,373	18,390
	Total loans and advances at amortised cost 5,607,300	5,286,114
	Estimate of collateral held againstpast due assets 45,588	45,027

Estimate of collateral held

To mitigate credit risk, the bank (ADI) holds collateral against select loans and advances in the form of a mortgage charge over property. The bank 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.

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 2021	30 June 2020
$’000	$’000
Tasmania 2,223,256	2,131,726
Victoria 981,390	918,936
New South Wales 1,122,964	1,105,970
Queensland 1,106,049	962,515
Western Australia 77,467	76,999
Australian Capital Territory 50,601	50,149
South Australia 43,897	41,088
Northern Territory 7,094	5,668
Gross loans and advances at amortised cost 5,612,718	5,293,051

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

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

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 are subject to the risk of interest rate fluctuations as a result of mismatches in the timing of the repricing of interest rates on their assets and liabilities.

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.

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.

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.

	30 June 2021	30 June 2020
	$’000	$’000
Value at risk (post-tax) based on historic data
Average	1,531	1,533
Minimum	980	1,076
Maximum	2,999	2,111

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.

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.

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 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.

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 Risk Management Framework (LRMF). 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 LRMF. 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.

On the 19th of March 2020 the RBA established a Term Funding Facility (TFF) that offered ADI’s three-year funding at a rate of 0.25% per annum to support the Australian economy through COVID-19. MyState Bank, the Group’s ADI, was granted an allowance of $109.032 million which was fully drawn ahead of the 30 September 2020 deadline.

On the 1st September 2020, the RBA announced changes to the TFF, including a Supplementary Allowance that provided ADI’s additional three year funding at a rate of 0.10%. MyState Bank was granted an allowance of $75.650 million which was fully drawn ahead of the 30 June 2021 deadline.

The combined drawn amount as at the reporting date of $184.682 million is reported within “term deposits”. Funding obtained under the TFF has been secured by $219.350 million of eligible asset backed selfsecuritisation. The funding was drawn down progressively and will therefore be able to be repaid progressively at the end of each respective three year term.

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 hedge’s effectiveness. Any ineffective portion of the change in the fair value of a derivative is recognised immediately in the Consolidated Income Statement.

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

Liquidity risk exposures

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.

interest payments.
			3 months to	1 year to
	On demand	< 3 months	1 year	5 years	> 5 years	Total
	$’000	$’000	$’000	$’000	$’000	$’000
2021
At call deposits	2,965,447	-	-	-	-	2,965,447
Due to other financial
institutions	-	18,821	-	-	-	18,821
Term deposits	-	632,137	807,082	242,796	-	1,682,015
Negotiable certificates of
deposit	-	281,279	-	-	-	281,279
Subordinated notes	-	380	1,141	6,087	50,335	57,943
Floating rate notes	-	253	1,013	55,065	-	56,331
Securitisation liabilities	-	82,541	247,622	808,855	-	1,139,018
Contractual amountspayable	2,965,447	1,015,411	1,056,858	1,112,803	50,335	6,200,854
Derivative liability	-	163	1,922	13,775	-	15,860
2020
At call deposits	1,986,905	-	-	-	-	1,986,905
Due to other financial
institutions	-	25,617	-	-	-	25,617
Term deposits	-	1,025,116	920,749	38,756	-	1,984,621
Negotiable certificates of
deposit	-	219,096	9,965	-	-	229,061
Subordinated notes	-	427	1,281	6,830	35,710	44,248
Securitisation liabilities	-	92,130	276,391	1,206,010	-	1,574,531
Contractual amountspayable	1,986,905	1,362,386	1,208,386	1,251,596	35,710	5,844,983
Derivative liability	-	122	1,410	8,753	-	10,285

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 2021	30 June 2020
	< 12 months $’000 > 12 months $’000 Total $’000	< 12 months $’000 > 12 months $’000 Total $’000
Financial assets Cash and liquid assets Due from other financial institutions Other assets Financial instruments Loans and advances(i)		116,502 - 116,502 34,615 - 34,615 6,762 - 6,762 313,261 229,304 542,565 69,741 5,216,373 5,286,114
	80,266 - 80,266
	31,859 - 31,859
	7,032 - 7,032
	351,018 356,148 707,166
	66,042 5,541,258 5,607,300
Total financial assets	536,217 5,897,406 6,433,623	540,881 5,445,677 5,986,558
Financial liabilities Due to other financial institutions (18,821) - (18,821) Other liabilities (20,605) - (20,605) Deposits (4,685,945) (242,796) (4,928,741) Subordinated notes - (34,662) (34,662) Floating rate notes - (49,976) (49,976) Securitisation liabilities (267,457) (798,958) (1,066,415)		(25,617) - (25,617) (21,165) - (21,165) (3,895,668) (304,919) (4,200,587) - (34,808) (34,808) - - - (368,521) (1,100,862) (1,469,383)
Total financial liabilities (4,992,828) (1,126,392) (6,119,220)		(4,310,971) (1,440,589) (5,751,560)
Net contractual amounts receivable/ (payable) (4,456,611) 4,771,014 314,403		(3,770,090) 4,005,088 234,998

(i) Contractual recovery is subject to evolving regulatory and industry support for counterparties requesting such support, as at the reporting date, the primary support provided to borrowers is repayment deferral periods.

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

3.3 Average balance sheet and sources 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 2021	30 June 2020
	Average balance $’000 Interest $’000 Average rate %	Average balance $’000 Interest $’000 Average rate %
Average assets and interest income Interest-earning assets Cash and liquid assets Financial instruments Loans and advances(i)		94,219 241 0.26%

	102,751 21 0.02%
	608,672 3,403 0.56%	494,983 7,175 1.45%
	5,173,127 160,912 3.11%	4,873,672 180,914 3.71%
Total average interest-earning assets 5,884,550 164,336 2.79%		5,462,874 188,330 3.45%
Non-interest earningassets 141,968 - -		145,239 - -
Total average assets 6,026,518 164,336 2.73%		5,608,113 188,330 3.36%
Average liabilities and interest expense Interest-bearing liabilities Deposits and derivatives 4,563,415 30,861 0.68% Notes and bonds on issue 1,300,339 20,206 1.55%		4,033,629 54,751 1.36% 1,457,203 32,849 2.25%
Total average interest-bearing liabilities 5,863,754 51,067 0.87%		5,490,832 87,600 1.60%
Non-interest bearingliabilities 42,846 - -		53,338 - -
Total average liabilities 5,906,600 51,067 0.86%		5,544,170 87,600 1.58%
Reserves 332,453 - -		310,388 - -
Total average liabilities and reserves 6,239,053 51,067 0.82%		5,854,559 87,600 1.50%

4.1 Cash and liquid assets

4.1 Cash and liquid assets
	30 June 2021	30 June 2020
	$’000	$’000
Notes, coins and cash at bank	75,469	110,831
Other short term liquid assets	4,797	5,671
Total cash and liquid assets	80,266	116,502
Reconciliation of profit for the year to net cash provided by operating
activities
Profit for the year	36,341	30,060
Add / (less) items classified as investing / financing activities or non-cash items:
Depreciation of property, plant and equipment	638	804
Depreciation of right of use assets	3,626	3,254
Amortisation of intangible assets	5,275	4,874
Loss / (gain) on sale of equipment	248	143
Bad and doubtful debts expense net of recoveries	(995)	4,921
Share based payment	501	234
Tax movement within reserves	(130)	55
Changes in assets and liabilities:
Decrease / (increase) in due from other financial institutions	2,756	(43,070)
Decrease / (increase) in loans and advances	(320,192)	(237,944)
Decrease / (increase) in financial instruments	(164,167)	(93,416)
Decrease / (increase) in other assets	(270)	642
Decrease / (increase) in deferred tax assets	(614)	(1,153)
Increase / (decrease) in due to other financial institutions	(4,619)	(13,138)
Increase / (decrease) in deposits and other borrowings	325,186	408,772
Increase / (decrease) in employee benefits provisions	(434)	291
Increase/ (decrease)in tax liabilities	(5,444)	1,034
Net cash flows used in operating activities	(122,294)	66,363

(i) The offset account average balance included in Loans and advances is $232.382 million (2020: $264.109 million).

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

Cash and liquid assets 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 than 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.

Where operational income and expense accruals and prepayments are included in the above line items, the movements will differ between the statement of financial position and the disclosure in this note.

4.2 Financial instruments

	4.2 Financial instruments
	30 June 2021	30 June 2020
	$’000	$’000
	Financial instruments at amortised cost Negotiable certificates of deposits 317,703	298,616
	Term deposits 35,700	35,700
	Floating rate notes 353,258	207,178
	Other deposits 1,068	2,117
	Total financial instruments at amortised cost 707,729	543,611
	Financial instruments at fair value Derivatives (563)	(1,046)
	Other financial instruments at fair value -	-
	Total financial instruments 707,166	542,565

Financial instruments accounting policies

Financial instruments at amortised cost

Financial instruments at amortised cost are those non-derivative financial assets that the Group 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 4.7 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 Group 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 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

4.3 Loans and advances

4.3 Loans and advances
	30 June 2021	30 June 2020
	$’000	$’000
Classification of loans and advances at amortised cost
Residential loans secured by mortgage	5,468,427	5,119,511
Personal loans and unsecured overdrafts	46,989	67,351
Overdrafts secured by mortgage	29,200	35,398
Commercial loans	68,102	70,791
Total loans and advances at amortised cost	5,612,718	5,293,051
Specific provision for impairment	50	305
Collective provision for impairment	5,368	6,632
Total loans and advances at amortised cost net of provision for impairment	5,607,300	5,286,114

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	30 June 2021 $’000	30 June 2020 $’000
Provision for impairment
Specific provision for impairment
Opening balance	305	266
Net specific provision funding	(255)	39
Write-off ofpreviously provisioned facilities	-	-
Closing balance of specificprovision for impairment	50	305
Collective provision for impairment
Opening balance	6,632	2,098
Net collective provision funding	(1,037)	4,595
Write-off ofpreviously provisioned facilities	(227)	(61)
Closing balance of collectiveprovision for impairment	5,368	6,632
Charge to profit for impairment on loans and advances
Increase / (decrease) in specific provision for impairment	(255)	39
Increase / (decrease) in collective provision for impairment	(1,037)	4,595
Bad debts recovered	(675)	(831)
Bad debts written off directly	972	1,118
Less charge related to discontinued operation	-	-
Total impairment(recovery) / expense on loans and advances	(995)	4,921

The Group has undertaken a review of the expected credit loss of its lending portfolios against relevant specific economic conditions under varying scenarios. The review considered the macroeconomic outlook, customer credit quality, the quality of collateral held and exposure at default as at the reporting date. These model inputs including forward-looking information have been revised in recognition that COVID-19 is a key driver of the estimates therein. The modelled expected credit loss (ECL) is sensitive to the speed and resilience of post-COVID-19 economic normalisation, and the longevity of any monetary and fiscal intervention, as these influence both the probability of default, and the value of collateral that may be utilised. Whilst the inputs have been revised, the underlying methodology for calculating the ECL is consistently applied in the current and comparative period as described in the ‘Impairment of financial assets accounting policy’ presented below.

In arriving at the reported ECL, the following assumptions have been considered the more probable outcome as at the reporting date:

› Australian unemployment rates to return to pre-COVID-19 levels of approximately 5% in the 2022 financial year and remaining stable as economic activity returns gradually towards normalised levels.
› Australian house prices increase by approximately 6% in the 2022 financial year and 5% in 2023 calendar year.
› The Reserve Bank of Australia maintaining the cash rate at historic lows until 2023 to continue to support economic activity in this COVID-19 environment.

Given the more recent COVID-19 outbreaks and resulting lock downs in mainland Australia, future economic conditions that result in outcomes that differ from the current estimate are possible and will be accounted for in future periods.

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 a specific 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 collective provisions are calculated using an Expected Credit Loss (ECL) model. This model is forward looking and does not require evidence of an actual loss event for impairment provisions to be recognised.

The Group applies a three-stage approach to measuring the ECL based on credit risk since origination. The Group estimates ECL through modelling the probability of default, loss given default and exposure at default, as follows:

Stage 1 - Performing - This category includes financial assets that have not experienced a significant increase in credit risk since their origination. For these financial assets an allowance equivalent to 12 month’s ECL is recognised, which represents the credit losses expected to arise from defaults occurring over the next 12 months.

Stage 2 - Under-performing - This category includes financial assets that have experienced a significant increase in credit risk since their origination and are not credit impaired. For these financial assets an allowance equivalent to lifetime ECL is recognised. Lifetime ECL is the credit losses expected to arise from defaults occurring over the remaining life of the financial assets.

Stage 3 - Non-performing (impaired) - This category includes financial assets that are credit impaired. The provision is also equivalent to the lifetime ECL. The difference to the provision calculated on stage 2 loans is that the stage 3 loan calculation is not discounted over a future period, but rather the provision is calculated at nominal value.

Financial assets in stage 1 and stage 2 are assessed for impairment collectively, whilst those assets in stage 3 are subject to either collective or specific impairment assessment.

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

Significant changes in credit risk

Significant increases in credit risk for financial assets are assessed by comparing the risk of a default occurring over the expected life of a financial asset at the reporting date compared to the corresponding risk of default at origination. In determining what constitutes a significant increase in credit risk, the Group considers qualitative and quantitative information. The judgement to determine this is primarily based on changes in internal customer risk grades since origination of the facility. For all of the Group’s loan portfolios, in addition to the primary indicator, a mathematical model has been developed to identify where a facility’s recent behaviour has deteriorated significantly from its original behaviour.

Key judgements and estimates made by the Group include the following:

Forward looking information

The measurement of expected credit losses needs to reflect an unbiased probability-weighted range of possible future outcomes. AASB 9 provides limited guidance on how to meet this requirement and consequently, the Group has developed an approach considered appropriate for its credit portfolio, informed by emerging market practices.

In applying forward looking information in its AASB 9 credit models, the Group considered three alternate economic scenarios (base case, strong recovery and moderate recession), to ensure a sufficient unbiased representative sample is included in estimating ECL. At 30 June 2021, the forward looking component of the collective provision for doubtful debts is $1.473m (2020: $2.510M).

4.4 Transfer of financial assets (securitisation program)

Some 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 carrying values at the transaction date of financial assets transferred during the financial year in this manner to vehicles that provide regulatory capital relief 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.

	30 June 2021	30 June 2020
	$’000	$’000
Transferred financial assets:
Loans and advances	-	541,940
Associated financial liabilities
Securitisation liabilities to external investors	-	528,081

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.

4.5 Deposits and other borrowings including subordinated notes

30 June 2021	30 June 2020
$’000	$’000
Deposits At call deposits 2,965,447	1,986,905
Term deposits 1,682,015	1,984,621
Negotiable certificates of deposit 281,279	229,061
Total deposits 4,928,741	4,200,587
Other borrowings Subordinated notes(i) 34,662	34,808
Floating rate notes(ii) 49,976	-
Securitisation liabilities 1,066,415	1,469,383
Total deposits and other borrowings including subordinated notes 6,079,794	5,704,778
Concentration of deposits: Customer deposits 4,462,773	3,941,537
Wholesale deposits 465,968	259,050
Subordinated notes(i) 34,662	34,808
Floating rate notes(ii) 49,976	-
Securitisation liabilities 1,066,415	1,469,383
Total deposits 6,079,794	5,704,778

(i) Refer to note 3.1 (ii) for details regarding the subordinated notes issue.

(ii) On the 16th June 2021, floating rate notes with a face value of $50m and term of 4 years were issued to MyState Limited. There are no customers who individually have deposits which represent 10% or more of total liabilities.

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.

4.6 Other liabilities

4.6 Other liabilities
	30 June 2021	30 June 2020
	$’000	$’000
Trade payables and related accruals	8,699	6,502
Lease liabilities	11,906	14,663
Total other liabilities	20,605	21,165

Lease liabilities

Lease liabilities are initially measured at the present value of the future lease payments at the commencement date, discounted using the interest rate implicit in the lease (or if that rate cannot be readily determined, the lessee’s incremental borrowing rate).

Lease payments are allocated between principal and interest expense. Interest expense is recognised as a financing cost within interest expense (refer note 2.1) in the income statement over the lease period. Any variable lease payments not included in the measurement of the lease liability are also recognised in the income statement in the period in which the event or condition that triggers those payments occurs. Lease liabilities are remeasured when there is a change in future lease payments arising from a change in lease term, an assessment of an option to purchase the underlying asset, an index or rate, or a change in the estimated amount payable under a residual value guarantee. When the lease liability is remeasured, a corresponding adjustment is made to the carrying value of the Right-of-use (ROU) asset, or, in the income statement, where the carrying value of the ROU asset has been fully written down. The ROU asset is recorded in property, plant and equipment and right-of-use assets (refer to note 5.1).

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

4.7 Fair value of financial instruments

Classification of financial instruments

Cash and liquid assets 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 value of financial assets and financial liabilities which are carried at amortised cost is:

	30 June 2021	30 June 2020
	Carrying value $’000 Net fair value $’000	Carrying value $’000 Net fair value $’000
Financial assets Financial instruments Loans and advances		543,611 543,339 5,286,114 5,295,507
	707,729 725,199
	5,607,300 5,613,341
Total financial assets	6,315,029 6,338,540	5,829,725 5,838,846
Financial liabilities Deposits Other borrowings includingsubordinated notes		4,200,587 4,203,504 1,504,191 1,504,191
	4,928,741 4,928,719
	1,151,053 1,150,973
Total financial liabilities	6,079,794 6,079,692	5,704,778 5,707,695

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.

	Level 1	Level 2	Level 3	Total
	value	value	value	value
	$’000	$’000	$’000	$’000
2021
Financial assets
Financial instruments	-	725,199	-	725,199
Loans and advances	-	-	5,613,341	5,613,341
Financial liabilities
Deposits	-	4,928,719	-	4,928,719
Other borrowings includingsubordinated notes	-	1,150,973	-	1,150,973
2020
Financial assets
Financial instruments	-	543,339	-	543,339
Loans and advances	-	-	5,295,507	5,295,507
Financial liabilities
Deposits	-	4,203,504	-	4,203,504
Other borrowings includingsubordinated notes	-	1,504,191	-	1,504,191

The Group has performed a VaR analysis at note 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.

5.1 Property, plant and equipment and right-of-use assets

	30 June 2021	30 June 2020
	$’000	$’000
Land and buildings
At revalued amount	7,351	12,890
Accumulated depreciation	(6,629)	(8,202)
	722	4,688
Plant and equipment
At cost	5,433	5,395
Accumulated depreciation	(4,826)	(4,567)
	607	828
Right-of-use assets - land and buildings
At cost	14,938	16,429
Accumulated depreciation	(4,589)	(2,454)
	10,349	13,975
Totalproperty, plant and equipment	11,678	19,491

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

Property, plant and equipment accounting policy

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.

Investment property accounting policy

Land and buildings

Plant and equipment and right-of-use (ROU) assets

Plant and equipment and right-of-use assets, including leasehold improvements, are measured at cost less accumulated depreciation and any impairment in value. The cost of ROU assets correspond to the amount recognised for the lease liability on initial recognition together with any lease payments made at or before the commencement date net of any lease incentives received and initial direct costs.

Impairment of property, plant and equipment and right-of-use assets

The carrying values of property, plant and equipment and right-of-use assets 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 and right of use assets

An item of property, plant and equipment or right-of-use asset 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.

5.2 Investment property

	30 June 2021	30 June 2020	30 June 2020
	$’000	$’000
Land and buildings
At revalued amount	5,293		-
Accumulated depreciation	(1,492)		-
	3,801		-
Total investmentproperty	3,801		--

5.3 Intangible assets and goodwill

5.3 Intangible assets and goodwill
	Goodwill	Software	Total
	$’000	$’000	$’000
Year ended 30 June 2021
At 1 July 2020, net of accumulated amortisation	65,152	19,319	84,471
Additions	-	4,282	4,282
Disposals	-	-	-
Amortisation	-	(5,275)	(5,275)
At 30 June 2021, net of accumulated amortisation	65,152	18,326	83,478
At 30 June 2021
Cost (gross carrying amount less impairment)	65,152	19,319	84,471
Accumulated amortisation	-	(993)	(993)
Net carrying amount	65,152	18,326	83,478
Year ended 30 June 2020
At 1 July 2019, net of accumulated amortisation	65,152	19,827	84,979
Additions	-	4,425	4,425
Disposal	-	(59)	(59)
Amortisation	-	(4,874)	(4,874)
At 30 June 2020, net of accumulated amortisation	65,152	19,319	84,471
At 30 June 2020
Cost (gross carrying amount less impairment)	65,152	36,784	101,936
Accumulated amortisation	-	(17,465)	(17,465)
Net carrying amount	65,152	19,319	84,471

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

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 (limited to Goodwill), 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. Refer to note 2.4 Expenses for the useful life of tangible and intangible assets.

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 2021	30 June 2020
	$’000	$’000
Banking Business	40,189	40,189
Wealth Management Business	24,963	24,963
Totalgoodwill	65,152	65,152

The Group’s assessment of goodwill value-in-use exceeds the carrying value allocated to the CGU’s and included in the financial statements.

The recoverable amounts for each CGU’s value-in-use was determined using cash flow projections from Board approved financial budgets for the year ending 30 June 2022. Growth rates have been applied from year two through to year ten. Cash flows are projected by undertaking detailed calculations for each income and expense category over a five year period and are then extrapolated off the 5th year, which is the lowest point of growth. An exit value is calculated at the end of 10 years, based on an implied terminal value earnings multiple of 9.7 and 12.0 for the Banking Business and the Wealth Management Business respectively, and a long-term growth rate not exceeding industry. A post-tax discount rate of 9.9% (14.1% pre-tax) and 8.0% (11.4% pre tax) was used for the Banking Business and the Wealth Management Business respectively. 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 ten 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 9.9% reflects the Group’s post-tax nominal weighted average cost of capital, which has been reviewed by externally engaged advisers and approved by the Board. Average inflation is projected to be 2.2%. 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 projections reflect the current low interest rate environment. 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.

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 are its Trustee Services divisions. Taking into account Management’s past experiences and external evidence, the assumptions adopted are 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 investment’s 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.

5.4 Employee benefits provisions

5.4 Employee benefits provisions
	30 June 2021	30 June 2020
	$’000	$’000
Balances
Provision for annual leave	2,006	2,194
Provision for longservice leave	3,234	3,480
Total employee benefitsprovisions	5,240	5,674
Due to be settled within 12 months	3,879	4,304
Due to be settled in more than 12 months	1,361	1,370
Total employee benefitsprovisions	5,240	5,674

Employee benefits accounting policy

Liabilities for salaries, wages and annual leave are recognised in respect of 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 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

5.5 Share capital

5.5 Share capital
	30 June 2021 $’000 30 June 2020 $’000
Issued andpaid up ordinary shares	208,196 152,775

	30 June 2021	30 June 2020
	Number of shares Amount $’000	Number of shares Amount $’000
Movements in ordinary share capital Opening balance Shares issued pursuant to the - Group employee share scheme - Executive long term incentive plan - Dividend reinvestment plan - Institutional placement and entitlement offer - Retail entitlement offer - Less: Share issue transaction costs, net of tax		91,040,545 148,707 18,885 88 41,310 170 908,122 3,810 - - - - - -
	92,008,862 152,775

	21,853 84
	34,063 167
	307,239 1,397
	7,274,502 31,280
	5,628,573 24,203
	- (1,710)
Closing balance	105,275,092 208,196	92,008,862 152,775

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.

	30 June 2021	30 June 2020
	$’000	$’000
Provision attributable to the current year at the statutory rate of 30%,
being:
- Prima facie tax on accounting profit before tax	15,617	12,896
- Under / (over) provision in prior year	63	(24)
Expenditure not allowable for income tax purposes	36	31
Other	1	23
Income tax expense reported in the consolidated income statement	15,717	12,926
Total income tax expense	15,717	12,926
Weighted average effective tax rates	30.2%	30.1%
Deferred income tax relates to the following:
Deferred tax assets
Employee entitlements	1,572	1,702
Provisions	221	227
Doubtful debts	1,662	1,990
Other	2,445	1,367
Total deferred tax assets	5,900	5,286
Current tax receivable	3,996	-
Total tax assets	9,896	5,286
Deferred tax liabilities
Financial assets at fair value	68	68
Property, plant and equipment	2,387	1,342
Other	347	534
Total deferred tax liabilities	2,802	1,944
Current taxpayable	-	2,306
Total tax liabilities	2,802	4,250

Movements in deferred tax balances

6.1 Income tax expense, current and deferred tax balances

6.1 Income tax expense, current and deferred tax balances
30 June 2021	30 June 2020
$’000	$’000
The major components of income tax expense /(benefit) are:
Income tax expense Current income tax charge 14,794	14,343
Adjustment in respect of current income tax of previous years 78	117
Adjustments in respect of deferred income tax of previous years (10)	(141)
Adjustments in respect of equity / goodwill 611	50
Relatingto origination and reversal of temporarydifferences 244	(1,443)
Total income tax expense 15,717	12,926
A reconciliation between tax expense and accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Income tax expense attributable to: Accounting profit before income tax 52,058 The income tax expense comprises amounts set aside as:	42,986

Movements in deferred tax balances
	Deferred tax assets	Deferred tax liabilities
	30 June 2021 $’000 30 June 2020 $’000	30 June 2021 $’000 30 June 2020 $’000
Opening balance (Charged)/credited to income statement Credited/(charged) to equity Adjustments for deferred tax ofprioryears	5,286 4,133 13 1,092 611 61 (10) -	1,944 2,367 858 (564) - - - 141
Closing balance	5,900 5,286	2,802 1,944

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

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 reporting 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.

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.

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.

Statement of Financial Position	30 June 2021 $’000	30 June 2020 $’000
Assets
Cash and liquid assets	318	1,040
Other receivables	965	690
Related party receivables	25,000	3,465
Investments in subsidiaries	321,392	262,613
Current and deferred tax assets	5,510	661
Total assets	353,385	268,469
Liabilities
Other liabilities	2,536	565
Other borrowings	25,000	-
Related party payables	2,921	11
Tax liabilities	32	2,368
Employee benefitsprovisions	457	394
Total liabilities	30,946	3,338
Net assets	322,239	265,131
Equity
Share capital	314,124	258,702
Retained earnings	7,071	5,738
Reserves	1,044	691
Total equity	322,239	265,131
Financialperformance
Profit after income tax for theyear	12,841	28,130
Other comprehensive income	-	-
Total comprehensive income	12,841	28,130

The parent entity has not entered into any guarantees and does not have any contingent liabilities as at 30 June 2021 (30 June 2020: nil).

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.

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.

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.

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

101

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.

		Country of	Ownership
Significant subsidiaries	Principal activities	Incorporation	Interest
MyState Bank Limited	Banking	Australia	100%
TPT Wealth Limited	Wealth Management	Australia	100%
Connect Asset Management PtyLtd	Manager of Securitisation Vehicles	Australia	100%

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 patterns 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 in 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.

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, TPT Wealth 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 receive 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:

	Consolidated	TPT
	30 June 2021 $’000 30 June 2020 $’000	30 June 2021 $’000 30 June 2020 $’000
Management fees received Balance of investment held at year end Distributions received from managed funds	9,412 10,315 2,553 2,297 (35) 190	9,412 10,315 2,509 316 (23) 161

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 MyState Bank, in the form of term deposits and negotiable certificates of deposit, totalling $2.55M (2020: $2.30M); and
› Invested in the ConQuest Trusts Residential Mortgage Backed Securities Program in the form of Class A and B notes totalling $28.94M (2020: $35.59M).

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.

	30 June 2021	30 June 2020
	$’000	$’000
Key management personnel compensation
The key management personnel compensation comprised:
Short-term employee benefits	4,611	3,722
Post employment benefits	295	299
Share-Based payment(i)	473	220
Termination benefits	-	-

(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.

100

MyState Limited - Annual Report 2021

Notes to the Consolidated Financial Statements (continued) for the year ended 30 June 2021

8.1 Contingent liabilities and expenditure commitments

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.

	30 June 2021	30 June 2020
	$’000	$’000
Customer commitments
Loans approved but not advanced to borrowers	134,076	77,755
Undrawn continuing lines of credit	62,458	63,443
Performanceguarantees	3,858	4,672
Total customer commitments	200,392	145,870

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.

TPT Wealth Limited ceased being a non-broker participant in the Clearing House Electronic Sub Register System operated by the Australian Securities Exchange during the 2021 financial year. As such, this company no longer maintains a deposit with Bendigo and Adelaide Bank Limited (2020: $1,000,000) as collateral for the guarantee on the settlement account.

Estate Administration

TPT Wealth Limited acts as executor and trustee for a significant number of trusts and estates. In this capacity, this company 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 which are shown exclusive of GST claimed were paid or payable for services provided by the auditor of the Group, Wise Lord & Ferguson:

	30 June 2021	30 June 2020
	$’000	$’000
Audit services
Audit of the financial statements of the consolidated entities	401	390
Total remuneration for audit services	401	390
Audit related services
Assurance related services	50	46
Audit of loans and other services to the securitisationprogram	6	8
Total remuneration for audit related services	56	54
Other non-external audit related services
Other services	10	64
Total remuneration for non-audit related services	10	64
Total remuneration for servicesprovided	467	508

8.3 Events subsequent to balance date

On 9 August 2021, MyState Limited announced that Managing Director and Chief Executive Officer, Melos Sulicich, will be retiring on 31 December 2021. The Company has commenced the process to appoint a successor. There were no other 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.

8.4 Other significant accounting policies, new accounting standards and disclosures

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.

(i) 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.

(ii) 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.

(iii) New and revised accounting standards

The Group has adopted the following new standards and amendments to standards:

› AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material
› AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework
› AASB 2019-2 Amendments to Australian Accounting Standards
› AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform

Adoption of the above has not resulted in any changes in how the Group currently applies accounting standards.

102

103

MyState Limited - Annual Report 2021

105

Directors’ Declaration

Independent Auditor’s Report

==> picture [69 x 53] intentionally omitted <==

for the year ended 30 June 2021

Independent Auditor’s Report

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 63 to 103 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 2021 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 2021.

To the Shareholders of MyState Limited

Report on the Audit of the Financial Report

Opinion

We have audited the financial report of MyState Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the Directors’ declaration of the Company.

In our opinion the accompanying financial report of the Group is 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 2021 and of its financial performance for the year then ended; and
II. complying with Australian Accounting Standards and the Corporations Regulations 2001.
The financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1.2.

Basis for Opinion

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

On behalf of the Board

==> picture [131 x 43] intentionally omitted <==

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

Miles Hampton Chairman

Melos Sulicich Managing Director and Chief Executive Officer

Hobart, dated 20 August 2021.

We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the Code.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying Financial Report.

104

MyState Limited - Annual Report 2021

Independent Auditor’s Report (continued) for the year ended 30 June 2021

1. Operation of IT systems and Controls

Key audit matter How our audit addressed the matter

This is a key audit matter because a significant part of We focus our audit on those IT systems and controls that are the Group’s financial reporting process is heavily reliant significant to the Group’s financial reporting process. on IT systems with automated processes and controls We assessed and tested the design and operating effectiveness for the capture, processing, storage and extraction of of the Group’s IT controls, including those over user access and information.

We assessed and tested the design and operating effectiveness of the Group’s IT controls, including those over user access and change management as well as data reliability and integrity.

There have been substantial changes to the Group’s IT landscape in the 2021 financial year and it has been essential to ensure appropriate user access and change management protocols exist and are being observed. These protocols are important because they ensure that access and changes to IT systems and related data are made and authorised in an appropriate manner.

This involved assessing:

Technology control environment and governance;
• Change management processes for software applications;
Access controls designed to enforce segregation of duties;
System development, reviewing the appropriateness of management’s testing and implementation controls;

These key controls mitigate potential fraud or error because of change to an application or underlying data.

We carried out direct tests of the operation of key programs to establish the accuracy of calculations, the correct generation of reports, and to assess the correct operation of automated controls and technologydependent manual controls; and

MyState has outsourced arrangements for a number of key IT processes.

Third party reports on IT systems and controls.

For outsourced providers, we obtain assurance from third party auditors on the design and operating effectiveness of controls.

2. Recognition and Measurement – Intangible Assets

Refer to Note 5.2 ‘Intangible assets and goodwill’

Key audit matter

How our audit addressed the matter

The recognition and measurement of intangible assets To address the risk of material misstatement and obtain is a key audit matter because of the Group’s ongoing sufficient audit evidence, we performed the following investment in new systems and the judgement required procedures over intangible assets: to:

We evaluated and tested the Group’s processes for recognising intangible assets;
Recognise when costs incurred transition from research to development; and
• Assess the useful life of IT assets.
We reviewed amounts capitalised for significant projects currently being completed by the group. This included a retrospective assessment of amounts capitalised in early stages of significant projects;
• We reviewed the Group’s processes for considering the completion of projects and commencement of amortisation;

The Group continues to enhance its IT systems and online servicing capability. During the financial year, a number of strategic projects were developed and implemented. New systems were researched, designed, projects commenced and completed. A review of the useful life of IT systems was undertaken.

We ensured intangible assets made redundant through new projects were written off;

There is also a high level of judgement required in the Group’s annual testing of impairment of goodwill with significant forward looking assumptions used in the valuation models.

We reviewed the useful lives applied to IT systems to ensure they are reasonable; and
We reviewed the goodwill valuation model and forward looking assumptions applied to each CGU of the Group.

3. Provision for Impairment on Loans and Advances Refer to Note 4.3 ‘Loans and advances’

Key audit matters

How our audit addressed the matter

The provision for impairment on loans and advances is To address the risk of material misstatement and obtain a key audit matter because the loans and advances sufficient audit evidence, we performed the following balance is significant to the Group and the significant procedures over the provisions for impairment on loans and judgement inherent in the provisioning model. The advances: provisioning model is determined in accordance with • Assessed the governance oversight; the requirements of AASB 9 Financial Instruments .

. • Reviewed and tested the calculation of the expected
Provision for impairment of loans and advances that credit loss model, including the specific provision, exceed specific thresholds are individually assessed by collective provision for impairment and management management with reference to future cash repayments overlays; and proceeds from the realisation of security. • Considered the assumptions within the management overlays;
Other loans that do not have an individually assessed • Ensured the methodology for write off of debt was
provision are assessed on a portfolio basis with loans consistent with prior periods;
with similar risk characteristics.
Tested the accuracy of the data used to calculate the provision;

Key areas of judgement included:

The design of the expected credit loss model • Reviewed a sample of current arrears balances and reviewed follow up procedures, including whether
used;
• The selection of assumptions adopted such as specific financial assets in arrears had been appropriately provided for; and
the probability of default, loss given default, • Reviewed management assessments of provision for
exposure at default and forward looking loans that exceed specific thresholds.
information, and the impact of COVID-19 on these assumptions;
The design of the management overlays applied in response to significant economic events; and
• The stress test modelling undertaken to verify provisioning levels.

Other Information

The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2021, but does not include the financial report and our auditor’s report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any

form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial Report

The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

106

107

MyState Limited - Annual Report 2021

Independent Auditor’s Report (continued) for the year ended 30 June 2021

109

In preparing the financial report, the Directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and

maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in the Directors' Report (pages 40 to 59 of this Annual Report) for the year ended 30 June 2021.

In our opinion, the Remuneration Report of MyState Limited, for the year ended 30 June 2021 complies with section 300A of the Corporations Act 2001.

Responsibilities

The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

==> picture [115 x 78] intentionally omitted <==

DANNY MCCARTHY Partner

Wise Lord & Ferguson Chartered Accountants

Date: 20 August 2021

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the

108

MyState Limited - Annual Report 2021

Information relating to shareholders

Range of Units (Snapshot) as at 23 August 2021

Range	Total holders	Units	% Units
1 - 1,000	55,778	22,964,462	21.81
1,001 - 5,000 5,001 - 10,000	3,198 1,161	8,065,271 8,212,094	7.66 7.80
10,001 - 100,000	1,161	25,351,017	24.08
100,001 Over Rounding	52	40,694,832	38.65 0.00
Total	61,350	105,287,676	100.00
Unmarketable Parcels	Minimum Parcel Size	Holders	Units
Minimum$500.00parcel at$5.4000per unit	93	397	9,699

Selection Criteria: Hide Unmarketable Parcels: Shown Control Account: Included

Top Holders (Grouped) as at 23 August 2021

Rank	Range	Total holders	Units


1	CITICORP NOMINEES PTY LIMITED	10,160,780	9.65
2	J P MORGAN NOMINEES AUSTRALIA PTY LIMITED	7,952,430	7.55
3	HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	7,105,096	6.75
4	SELECT MANAGED FUNDS LTD	1,225,960	1.16
5	MR BRIAN DAVID FAULKNER	984,000	0.93
6 7	MR KENNETH JOSEPH HALL BEECHWORTH HOLDINGS PTY LTD	908,273 886,846	0.86 0.84
8	NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT>	781,213	0.74
9 10	NATIONAL NOMINEES LIMITED MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED	684,353 581,660	0.65 0.55
11	PRESTIGE FURNITURE PTY LTD	525,000	0.50
12	BNP PARIBAS NOMINEES PTY LTD	508,339	0.48

13	STANBOX NO 2 PTY LTD	506,000	0.48
14 15 16 17 18 19 20	AUSTRALIAN EXECUTOR TRUSTEES LIMITED SUPER A/C> MRS WENDY JEAN FAULKNER BNP PARIBAS NOMS PTY LTD HORRIE PTY LTD BNP PARIBAS NOMINEES PTY LTD BARCLAYS MRS JOAN ELIZABETH EVERSHED DONETTA PTY LIMITED Totals: Top 20 holders of ORDINARY FULLY PAID SHARES(Total) Total Remaining Holders Balance	490,431 411,864 400,242 375,000 331,744 312,547 305,152 35,436,930 69,850,746	0.47 0.39 0.38 0.36 0.32 0.30 0.29 33.66 66.34

Registered Office

MyState Limited ABN 26 133 623 962 Level 2, 137 Harrington Street Hobart TAS 7000 Phone: 138 001 Website: mystatelimited.com.au Email: [email protected]

Company Secretary

Scott Lukianenko

Share Registry

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

Auditors

Wise Lord & Ferguson Level 1, 160 Collins Street Hobart TAS 7000

Australian Securities Exchange Listing

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

MyState Bank

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

TPT Wealth

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

110

111

MyState Limited - Annual Report 2021

mystatelimited.com.au

AI assistant

MYSTATE LIMITED — Annual Report 2021

65395_rns_2021-09-16_39a97d24-fb08-48f9-a4d6-65c6759071e1.pdf

Contents

Annual General Meeting

Corporate Governance

MyState Values

Key Highlights

Return on equity

Earnings per share

Final dividend

Net promoter score

Group Performance

“Our evolution as a digital bank that services a more geographically diverse customer base has continued and MyState Bank is well placed for further growth over the next few years.”

Operating performance

Dividend and capital

Growth strategy

Capital raise

Looking forward

Retirement of Managing Director & CEO

Board changes

Acknowledgements

Managing Director’s Report

Financial overview

TPT Wealth transformation now allows scale

Accelerating home loan and retail deposit growth

Customer experience

Culture and community

Looking ahead

Our Strategy

Culture and capability

Operations

Our MISSION

Distribution

Create customer ‘WOW’

Values

Culture and capability

Customer experience and acquisition

Enhanced distribution

Operations productivity

MyState Bank

Geared for growth

Technology innovation and efficiency gains

Supporting our customers through the pandemic

MyState Bank app

Home loan diversification

“We are on par with the best in the Australian market, providing our customers with the options of online, phone, internet, mobile or face-to-face banking, with a human touch.”

Brokers

Meeting evolving customer needs through multiple channels

Marketing to the mainland from our strength in our heartland

Approach to Risk

TPT Wealth

Communities

Government and Regulators Suppliers

2021 ESG Snapshot

What matters the most

Our approach

Supporting customers

Why is this important?

How we listen

Shareholders, Analysis and Rating Agencies

Customers

Governance, conduct & culture

Why are these important?

Modern Slavery Statement

Helping our people to be their best

Why is this important?

Workplace diversity

Digital enablement and data security

Why are these important?

Environmental sustainability

Why is this important?

Community investment

Why is this important?

MyState Bank Arena

Board of Directors

Key Management Personnel

Mandakini (Mandy) Khanna

Huw Bough

Gary Dickson

MYSTATE LIMITED Annual Report 2021