MYSTATE LIMITED — Earnings Release 2012

Aug 28, 2012

==> picture [213 x 97] intentionally omitted <==

ASX Media Release 29 August 2012

MyState (ASX Code: MYS) announces underlying profit of $25.9 million

HIGHLIGHTS FOR THE FULL YEAR ENDED 30 JUNE 2012

• Underlying Net Profit After Tax up 11.4% to $25.9m in challenging market conditions

• MYS one-off merger costs with The Rock of $2.1m after tax (1)

• Reported Net Profit After Tax up 6.2% to a record $23.4m

• Solid performance from The Rock post acquisition

• Ongoing above system home loan book growth of 10.9% in MyState Financial

• Continuing low arrears in both MyState Financial and The Rock loan books

• Stable contribution from wealth management business

• Underlying earnings per share stable at 33.1 cents on expanded share register following The Rock acquisition

• Final fully franked dividend declared of 14 cents per share for a total of 28 cents for the year. This represents a 3.7% increase over the 27 cents per share for the 2011 financial year.

(1) Underlying adjustments table over page

Hobart, 29 August 2012: MyState Limited (ASX:MYS), a diversified financial services group (the Group), reported its audited Net Profit after Tax (NPAT) for the period ended 30 June 2012 for the period was $23.4 million, which is a $1.4 million or 6.2% increase on the prior corresponding period. The Group results include a seven month contribution from The Rock Building Society Limited (The Rock) from 1 December 2011. Reported earnings per share of 29.9 cents declined by 8.4% with a higher number of shares on issue post the scrip based acquisition of The Rock and with only 7 months trading for The Rock and absorption of one-off $2.1 million in post-tax The Rock merger costs.

Underlying NPAT increased 11.4%, to $25.9 million with underlying Earnings Per Share of 33.1 cents being slightly lower than the previous financial year’s 34.4 cents per share. A full analysis of underlying earnings adjustments follows:

Underlying Earnings Analysis Reported NPAT Adjustments(post tax) Loan origination costs capitalisation ROK acquisition costs Loss on sale of properties Restructuring Costs/Termination payments Underlying NPAT		$M 30 June 2012 23.383 (0.961) 2.071 0.604 0.764 25.862		$M 30 June 2011 22.020 1.200
				23.220

A final fully franked dividend of 14 cents was declared on 29 August 2012, bringing the dividends for the year to 28 cents, a 3.7% increase on the previous year.

Reported Return on Equity for the year was distorted by the full consolidation of The Rock’s balance sheet post the merger, while its earnings contribution was for only seven months of the year. Underlying Return on Equity excluding The Rock (equity and profit) was 11.1%, slightly down from the 11.35% recorded in the pcp.

Group capital adequacy (Tier 1 capital) at balance date was 14.1%, including the consolidation of The Rock, highlighting the strength of the Group’s balance sheet.

Commenting on the result, Managing Director John Gilbert said “I am very pleased with the performance of the Group. This year presented challenges for us in successfully executing the merger with The Rock. In addition, we had to deal with slowing demand for credit in our core markets and managing pressure on margins, driven by declining interest rates and competition for retail deposits, particularly in the second half of the year. In light of these challenges, the results confirm the strength of the Group’s brands; the quality of our team; and, our ability to win new business and maintain strong customer loyalty.”

MyState Financial Limited

In Tasmania, the MyState Financial business continues to perform well. Overall, national system home lending growth slowed to 5.0% for the year, which is low in comparison to the years prior to 2007. However, MyState Financial’s home lending book grew by 10.9% to $1.8 billion for the year with no material increase in nonperforming assets. This performance demonstrates the Group’s ability to continue to out-perform its peers while maintaining rigorous credit assessment standards. The credit quality of the lending portfolio remains high, with 30 day secured loan arrears remaining below 1% of the portfolio.

The Group’s initiative to increase its presence in SME and agri-business lending has been slower than anticipated due to strict credit assessment criteria. The Group continues to actively seek new business in these market segments, but maintains a cautious approach in the current challenging economic environment in Tasmania.

Household deposits grew 12.4% to $1.5 billion, above system growth of 11.6% which reflected the ongoing strength of the MyState brand in its core markets and the security of its deposit product offerings in an uncertain economic environment.

Net Interest Margin in the MyState Financial business declined slightly to 2.9%. Industry wide, net interest margins have been under pressure due to falling interest rates, particularly in the second half of the year. Loan re-pricing was swifter than repricing of deposits, reflecting the highly competitive market for funding. MyState Financial continues to enjoy net interest margins above industry averages due to its high level of retail deposit funding.

The Rock Building Society

The acquisition of The Rock was approved by The Rock’s shareholders on 28 November 2011 and settlement took place effective 1 December 2011. Approximately 19.5m new MyState Limited shares were issued to The Rock shareholders in consideration for the business.

As previously advised, The Rock experienced difficult trading conditions around the time of the acquisition. The falling interest rate environment and concentrated funding mix resulted in a contraction in net interest margin. Concerted efforts by The Rock’s Retail and Treasury Teams to address these issues led to an improvement in net interest margin in the second half. Going into the new financial year, The Rock’s net interest margin is approximately 1.7%.

The reported net profit from The Rock of $3.3m for the seven months included a positive non-cash contribution from fixed rate loan book interest rate management activity undertaken by The Rock prior to the merger, the benefit of which accrues to MyState over the life of the swap contracts. This arrangement will continue to contribute to Group earnings as the swaps amortise going forward.

Having owned The Rock for seven months at balance date, merger synergies are starting to be captured. Cost synergies have already been realised in accordance with the acquisition plan. Revenue synergies are starting to flow, with term deposit and general and consumer credit insurance sales ahead of expectations. The Board remains confident of achieving between $7.5m and $8.5m per annum of cost and revenue synergies previously identified by the end of the 3 year extraction target period (noting approximately $3.5m of one-off pre tax integration costs may be incurred over the first three years).

Commenting on The Rock, Managing Director John Gilbert said “The merger with The Rock presented some short term challenges to the Group, which had to be addressed immediately. I am pleased to say that, after a significant amount of work from both The Rock staff and the Group’s management team, The Rock is in a solid position to achieve the aspirations which underpinned the rationale for the merger.”

Tasmanian Perpetual Trustees

The performance of Tasmanian Perpetual Trustees Limited (TPTL) was stable compared to the prior period, reflecting an uncertain investment environment and stagnant asset values. TPTL managed funds (FUM) grew modestly to $931m. Inflows into TPTL’s cash and income funds, which represent approximately 90% of FUM, were strong, as these funds are offering highly competitive yields with capital stability which is attractive to many investors in today’s environment. However, this growth was broadly offset by outflows from TPTL’s equity linked funds. Funds under advice in the wealth management business were relatively stable at $700m.

Financial Performance

Key Shareholder Performance Metrics	30 June 2012	Prior Year*	June 12 v June 11
Reported Net profit after tax attributable to members	$23.38 m	$22.02 m	6.2%
Reported Earnings per share	29.9 cents	32.6 cents	8.4%
Return on Equity	8.5%	10.8 %	2.3
Dividend per share – fully franked	28 cents	27 cents	3.7%
Dividend payout ratio	92%	83%	9
Other Key Performance Metrics	30 June 2012	Prior Year*	June 12 v June 11
Group Net Tangible Assets	**$203.0 m **	$155.8 m	30.3%
Group Capital adequacy – Tier 1	14.1%	15.00%	0.9
Net Interest Margin – NIM (%) – MSF	2.99%	3.23%	0.24
Group Revenues	$241.45 m	$187.36 m	28.9%
Cost to Income Ratio (%) -MSF	67.1%	67.1%	unchanged
Cost to Income Ratio (%) –MYS Group	72.08%	70.60%	1.48

DIVIDEND

Directors have today announced a final fully franked final dividend of 14 cents per share which brings the full year dividend to 28 cents and is consistent with the Board’s policy of generally paying between 70 and 90 percent of after tax profit as dividends to shareholders. The record date for entitlement to the final dividend will be 6 September 2012 and the dividend will be paid on 4 October 2012.

OUTLOOK

Directors consider the coming financial year will be another challenging one for the banking and wealth management industries. However, despite the difficult financial services environment, the MyState Financial and The Rock businesses should continue to grow assets and profitability through 2012/13. Directors consider that growth in the TPT wealth management business will be dependent on a more favourable investment climate, particularly in equity markets.

ENDS

About MyState Limited

MyState Limited (MYS) is a listed diversified financial Group formed in September 2009 to effect the merger of MyState Financial (MSF), an authorised deposit-taking institution and Tasmanian Perpetual Trustees (TPT), a trustee and wealth management company. In December 2011, MYS merged with The Rockhampton Building Society Limited (The Rock).

MyState Limited, MSF and The Rock are regulated by APRA and MyState Limited was enabled under Tasmanian legislation to own the authorised trustee company TPT. MSF, The Rock and TPT hold Australian Financial Services Licences issued by ASIC.

==> picture [445 x 53] intentionally omitted <==

Registered Office 23 Paterson Street Launceston 7250

Investor/Media Enquiries

Paul Viney

Chief Financial Officer/Company Secretary +61 3 63481170, 0418 398 096, or

Slade Investor Relations

Level 2, 11-19 Bank House Melbourne, Victoria +61 3 9670 3006 0488 917 882

==> picture [445 x 39] intentionally omitted <==

29 August 2012