MYSTATE LIMITED — Earnings Release 2013

Aug 27, 2013

==> picture [218 x 76] intentionally omitted <==

.

ASX/media release 28 August 2013

MyState NPAT $28.5 million

• Up 11.8% on normalised* FY2012 NPAT

• Up 21.7% on statutory FY2012 NPAT

• Earnings per share up 9.3% to 32.7 cents

• Final dividend steady at 14cps fully franked

MyState Limited, the banking and wealth management group, today announced an after-tax profit of $28.5 million for the year to 30 June 2013. This result was 11.8% above the normalised after-tax profit of $25.5 million in FY2012, after adding back costs of $2.1 million related to the acquisition of The Rock Building Society in December 2011, and 21.7% above the statutory after-tax profit of $23.4 million in FY2012.

Directors have declared an unchanged fully franked final dividend of 14 cents per share, payable on 4 October 2013 to shareholders on the register at 13 September 2013. This decision brings dividends for the year to 28 cents per share fully franked, unchanged from FY2012.

Return on equity improved to 10.2%.

Group capital adequacy (Tier 1 capital) at 30 June 2013 was 13.7%, well above industry peers and highlighting the strength of the Group’s balance sheet.

The Group’s cost-to-income ratio declined to 68.3%, compared with 70.3% in FY2012 after adjusting for The Rock acquisition costs.

Results summary for the year	FY2013 ($ million)	FY2012 ($ million)	Change %
Group revenue	248.1	241.1	2.8
Net Profit after tax (normalised*)	28.5	25.5	11.8
Earnings per share (cents)	32.7	29.9	9.3
Final dividend – fully franked (cents)	14.0	14.0	-
Total dividends for the year – fully franked (cents)	28	28	-
*Normalised profit after tax for FY2012 is after adding back acquisition costs of $2.1 million for The Rock Building Society.
	30/6/13 ($ million)	30/6/12 ($ million)	Change %
Group total assets	3629.7	3,658.6	-0.8
Group net assets	279.7	273.9	2.2

1

‘We are delighted to report a strong result despite a challenging business environment, which featured low business confidence and the lowest rate of credit growth for nearly 35 years,’ said Mr John Gilbert, Managing Director. ‘The high credit quality of our loan portfolio was maintained, with MyState and The Rock arrears both well below industry norms, and we achieved a significant reduction in our cost-to-income ratio. Meanwhile, good progress was made with the upgrade of our core banking system, which will become operational later this year, providing the platform to further increase productivity and reduce costs.

‘The Rock’s integration with MyState is now complete, providing further merger benefits, and there has been a pleasing improvement in business revenue from its refurbished branch network. The acquisition has enabled us to diversify our banking business through exposure to two different economies: Tasmania with low growth and Central Queensland, which is continuing to grow rapidly.

‘Slowing demand for credit and pressure on margins, driven by declining interest rates and competition for new business, resulted in a very challenging year. Despite credit growth in Tasmania, mainly in the first half, the Group’s overall loan portfolio was flat due to reduced business from brokers and aggregators. This issue is being addressed through strengthening relationships with brokers, offering very competitive products, including fixed rate products, and ensuring that we provide high standards of service.

‘This was the Group’s first full year in our new head office, where we consolidated operations in March 2012. While this has led to higher occupancy costs in the short term, it has enabled us to integrate the Group’s corporate services, including treasury, human resources, marketing, property, risk and compliance. It has also improved teamwork, culture and productivity and will result in considerable benefits as we continue to build the Group,’ said Mr Gilbert.

MyState Financial

MyState Financial
	FY2013	FY2012	Change %
After-tax profit ($ million)	22.3	20.6	8.5

MyState Financial, which provides banking and other financial services in Tasmania, performed well with the loan portfolio increasing by 4% to $2.1 billion. The already low level of non-performing assets continued to fall, demonstrating the Group’s ability to achieve solid growth while maintaining rigorous credit assessment standards. The portfolio’s credit quality remains high with 30-day secured loan arrears well below 1%.

Household deposits grew by 12.4% to $1.5 billion, above banking system growth in Tasmania of 11.6%, reflecting the strength of the MyState brand and the perceived security of its deposit products in an uncertain economic environment.

Net interest margin declined slightly to 2.78% (FY2012 : 2.99%), caused partly by a lag in re-pricing term deposits as interest rates fell, and partly by industry-wide competition, especially in the consumer sector.

2

The Rock Building Society

The Rock Building Society
	FY2013*	FY2012**	Change %
After-tax profit ($ million)	2.9	3.3	-10.7
The Rock contributed $1.6 million to Group overheads; there was no contribution in FY2012. *The Rock was acquired on 1 December 2011.

The Rock, headquartered in Rockhampton, provides financial and insurance services in Central Queensland and other States. This was its first full year contribution to MyState Limited’s result, and it also made its first contribution ($1.6 million) to Group overheads.

The Rock’s profit was impacted by a significant reduction in new business from the third party broker channel due to price and product competition, which resulted in a 9.7% reduction in the loan portfolio, to $0.9 billion. Initiatives to reverse this decline and correct the situation were taken in the latter part of the year. The Rock’s direct branch channel is developing well, with loan originations up 32% from the previous year, and there has been excellent progress with cross-selling other products such as insurance.

Net interest margin declined slightly to 1.78% (FY2012:1.86%) following extensive efforts to increase the proportion of retail deposits in The Rock’s funding base.

Cost efficiencies have been achieved though centralising banking, document processing, collections management and corporate functions in MyState Limited’s head office.

Tasmanian Perpetual Trustees

Tasmanian Perpetual Trustees
	FY2013	FY2012	Change %
After-tax profit ($ million)	3.135	1.504	108.4

Tasmanian Perpetual Trustees (TPT), which provides wealth management and trustee services, performed strongly, benefiting from both higher revenue and lower costs, which resulted from centralisation of functions in the Group’s head office.

Revenue grew by 3.3%, reflecting 2.2% growth in funds under management to $0.952 billion and higher commission income from estates under administration. TPT continues to offer products combining highly competitive yields with capital stability, which are attractive to many investors in today’s low interest rate environment.

Outlook

The Directors consider that the coming financial year will be another challenging one for the banking and wealth management industries. Signals from Australian businesses and the Reserve Bank’s interest rate reductions over the past two years infer lack of confidence in the economy’s growth. Despite this challenging environment, MyState Limited’s diversified businesses, MyState Financial, The Rock and TPT should continue to grow their assets and profitability modestly in FY2014.

About MyState Limited

MyState Limited, based in Tasmania, was formed in September 2009 to effect the merger of MyState Financial (MSF), an authorised deposittaking institution, and Tasmanian Perpetual Trustees (TPT), a trustee and wealth management company. In December 2011, MyState merged with The Rock Building Society Limited (The Rock). MyState Limited, MSF and The Rock are regulated by the Australian Prudential Regulatory Authority (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 the Australian Securities and Investments Commission (ASIC).

Media enquiries: Ashley Rambukwella, Financial & Corporate Relations, +61 2 8264 1004, 0407 231 282 or a.rambukwella@fcr.com.au Investor enquiries: Greg Slade, 0488 917 882, greg@sladeir.com

3