More annual reports from MyState Limited:
2023 Report2018
Annual Report
Contents
Group Performance
Chairman’s Report
02
03
Managing Director’s Report 04
Banking Operations
Wealth Management
Digital Services
Risk Management
Corporate Social
Responsibility
Board of Directors
06
08
09
10
12
16
Key Management Personnel 18
Directors’ Report
Results for the Year
21
44
Annual General Meeting
Best Western Hotel,
156 Bathurst Street, Hobart
on Thursday 18 October 2018
commencing at 10.30 a.m. (Hobart Time).
Corporate Governance
The Board of MyState Limited is committed to upholding the highest levels of
corporate governance and subscribes to the Corporate Governance Principles
and Recommendations published by the ASX Corporate Governance Council
in order to promote investor confidence in the company and within the
broader market. In addition the Australian Prudential Regulation Authority
(APRA) requires MyState Limited, as the non-operating holding company of
a bank, to comply with the prudential obligations that apply directly to the
bank. To this end the Board of MyState Limited has a governance framework
whereby the appropriate Board policies, meeting the APRA prudential
requirements, apply across the Group.
MyState Limited’s Board approved Corporate Governance Statement is
available on the Company’s website
www.mystatelimited.com.au/About-Us/Corporate-Governance section and is
current as at 17 August 2018.
MyState Limited
ABN 26 133 623 962
MyState Limited Annual Report 2018
Highlights of the Year
MyState’s business transformation is delivering for our shareholders, customers and community.
Shareholders
Improving customer
banking experience
$31.5m
net profit after tax
28.75c
Full year dividends,
fully franked
63,400
shareholders
Over 400,000 New Payments
Platform (NPP) transactions
since February 2018 launch
Contact Centre wait times
reduced by 80%
Customer Net Promoter Score
(NPS) for MyState group
of +27
Customers
Community
200,000
customers across Australia
55%
of home loan portfolio
based outside of Tasmania
$4.6b
loan portfolio
$2.0m
invested through the
MyState Community
Foundation since 2001
135
Smith Family Learning for
Life Scholarships supported
nationally
257
film entries in the MyState
Student Film Festival
MyState Limited Annual Report 2018 | 01
Group
Performance
Underlying NPAT
($ million)
Underlying earnings
per share (cents)
Dividends – fully franked
per share (cents)
1H 2H
6
.
9
2
7
.
9
2
1
.
1
3
1
.
0
3
5
.
1
3
9
.
3
3
1
.
4
3
5
.
5
3
0
.
5
3
0
.
4
3
0
.
4
1
0
.
4
1
0
.
4
1
0
.
4
1
5
2
.
4
1
5
.
4
1
5
.
4
1
5
.
4
1
5
.
4
1
5
.
4
1
2014
2015
2016
2017 2018
2014
2015
2016
2017 2018
2014
2015 2016 2017 2018
Underlying return on
average equity (%)
Underlying cost to
income ratio (%)
Net Interest Income
($ million)
.
5
0
1
4
.
0
1
.
6
0
1
.
0
0
1
.
1
0
1
.
5
4
6
.
3
4
6
.
2
3
6
9
.
5
6
.
0
4
6
.
9
8
8
.
1
8
8
8
.
0
9
.
4
4
8
.
4
3
8
2014
2015
2016
2017 2018
2014
2015
2016
2017 2018
2014
2015
2016
2017 2018
02 | MyState Limited Annual Report 2018
Chairman’s
Report
Operating performance
It is pleasing to report on a year of sound
improvement across all key performance
metrics. Net profit after tax increased
4.6% from $30.1 million in FY17 to
$31.5 million in FY18, whilst earnings
per share increased 2.7% from 34.0 cps
to 35.0 cps.
We have embraced technological
leadership and competitiveness at a
time when digitisation and financial
technology services are changing the
external environment.
Our modern platform ensures that
MyState is agile and can take advantage
of digital channels for growth.
The group’s cost-to-income ratio
improved 190 basis points from 65.9%
to 64.0% as revenue grew and costs
remained stable.
MyState’s loan book continued to
grow at a rate well above system
growth, albeit regulatory requirements
caused the rate of growth to be below
previous years.
Our wealth management business had a
strong year. We experienced growth in
funds under management and trustee
services also improved.
MyState’s capital adequacy ratio
increased during the year to 13.5%,
assisted by improved profitability
and the group’s largest residential
mortgage-backed security issue to date,
which was well supported by domestic
and international investors.
The strong financial position and
growth in profitability, together with
an increasing confidence that the
investments made over recent years
are starting to deliver the results we
expected, have encouraged the Board
to increase the full year dividend from
28.5 cps to 28.75 cps.
Becoming a digital bank
We continued to invest in
strengthening our digital platform to
meet customers’ changing expectations
by offering simpler processes and
expanded services.
MyState was among the earliest banks
ready to transact on the New Payments
Platform which enables consumers to
benefit from real-time transactions.
The Banking Royal Commission
In the past year consumers’ trust in large
banks has received unprecedented
focus, with their lending practices
scrutinised by the Royal Commission
into misconduct in Banking,
Superannuation and the Financial
Services Industry and other inquiries.
Our history as both a mutual and a
trustee gives us a heritage of dealing
fairly with our customers.
Whilst confident this is embedded
in how we do business, we continue
to review our products and services,
fees,transparency and remuneration
frameworks to ensure that our
expectations in terms of conduct are
being met. We have deep relationships
with our customers, helping them
to build wealth and enabling our
communities to thrive. Making banking
simple and trustworthy remains an
important part of our DNA.
The regulatory regime
We have previously expressed a concern
that the regulatory regime is weighted
against smaller players. We believe that
one of the most effective ways that
the government can promote better
outcomes for consumers will be through
adding the promotion of effective
competition as a key consideration of
the regulatory framework.
The banking industry operates on an
uneven playing field that favours larger
competitors and removing some of the
challenges will assist smaller banks such
as MyState, which has demonstrated
that it has the capacity to innovate
and grow.
While new regulations arising from the
Royal Commission recommendations
will rightly aim to enforce greater
industry accountability, consideration
should be given to ensuring that any
changes to the regulatory regime do
not disproportionately impact smaller
players and in the process constrain our
ability to compete.
Board changes
During the year non-executive director
Colin Hollingsworth retired from the
Board, following a distinguished career
which included serving as chairman
and director of some of our formational
credit unions. Sadly, Colin passed away
in early 2018 and we acknowledge his
contribution to our business and express
our condolences to his family.
We welcomed Andrea Waters
and Warren Lee to the Board as
non-executive directors in October 2017.
Andrea is a former partner of KPMG
specialising in financial services audit.
Warren’s experience includes roles as
chief executive officer of the Victorian
Funds Management Corporation and
chief executive officer, Australia and
New Zealand for AXA Asia Pacific.
I would like to acknowledge the
contribution of my fellow board
members, the focus of the executive
team on implementing the business
strategy and the hard work and
dedication of our people who each and
every day strive to improve service to
our customers.
Miles Hampton
Chairman
MyState Limited Annual Report 2018 | 03
Managing
Director’s Report
During the year in review, we continued to focus on and improve our
customers’ experience through simplifying services and delivering them in the
way that they want. We are capitalising on the unprecedented changes taking
place in the financial services industry by refining our business model, improving
our digital proposition and increasing efficiencies.
Increasingly, we are adapting what we
do and the way we do it, to anticipate
customers’ needs with convenient,
always-available transactional services
and products which can be used on any
device. We have invested in technology
to consolidate our core banking system,
improve internet and mobile banking
and strengthen our digital services.
This capability positions us today as
a modern, highly scalable business
with agile, cost effective and customer
friendly processes.
Supporting the focus of our mission
to make financial services simple and
trustworthy was recognised this year by
a significant improvement in the group’s
net promoter score (NPS). This provides
an independent assessment of customer
loyalty and MyState’s group score
increased to +27, reflecting the progress
we have made to provide outstanding
customer experiences.
Achieving operational excellence across
our business is a key component of our
strategy. Digital innovation has opened
opportunities to serve new markets
and we are continually upgrading our
services to place customers at the centre
of everything that we do.
As we transform the business with
digital services we remain very much
a customer-focused organisation. We
are building our people skills with
greater emphasis on digital and analytic
capabilities and embracing new,
lower-cost operating models, whilst
never forgetting those customers who
prefer to deal with us face-to-face or
over the phone.
Financial overview
While markets remained highly
competitive, our focus on improving
customer experience and increasing
efficiency contributed to further growth.
Total income increased
1.4% to $126.3 million
from $124.6 million in
the previous year. Net
profit after tax was up
4.6% to $31.5 million.
We maintained the strong momentum
in our banking business and despite
sustained competition we successfully
grew our home loan book at about
twice the rate of system growth
during the second half. Home loan
settlements were $1.1 billion for the
year as we maintained focus on quality
loan book growth in the key low-risk,
owner-occupied, low loan-to-valuation
market. Our total loan book exceeds
$4.5 billion, up approximately 50% from
four years ago.
The geographic shift of our loan book
continued with substantial growth across
Australia’s eastern seaboard. Home
loans for customers in NSW, Queensland
and Victoria now represent more than
half of our loan book; Tasmanian home
loans now represent around 45% of the
loan book, compared to over 68% four
years ago. This diversification helps to
reduce operating risk and demonstrates
our achievements in delivering faster,
more competitive services, leveraging
the distribution capability of our network
and improving the experience of
our customers.
04 | MyState Limited Annual Report 2018
Over the year, net interest margin
declined slightly to 1.89% in a market
which remains highly competitive.
Significantly, we continued to maintain
exceptional credit quality with 30 and 90
day arrears remaining well below peers
and industry benchmarks. Impairments
also remain at historic lows.
The Group’s return
on average equity
remained high
compared to peers
at 10.1%.
The net profit after tax contribution
from our wealth management business
improved 21% to $4.6 million with
positive funds under management
momentum and an increase in
operating revenue from $16.7 million to
$18.5 million. Funds under management
grew $64 million to $1,153 million
and funds under advice rose 4.0% to
$809 million.
The changing landscape
We anticipate that new regulation to
protect consumers will emerge as a
result of the Royal Commission and
other banking sector reviews. We are
very well positioned to comply with
regulatory changes. However, we
believe the increase in regulation is
disproportionately impacting smaller
banks and adding additional costs. We
hope that the federal government will
take further steps to remove some of
the inequitable challenges faced by the
smaller banks.
We are currently reviewing all our
processes and products to achieve
complete consistency with the Australian
Banking Association’s Banking Code of
Practice which aims to restore trust in
the banking industry.
We support the Banking Industry
Conduct Background Check Protocol
which promotes good conduct and
ethical behaviour and are committed
to implementing the recommendations
from the ABA-initiated Sedgwick Review
into retail bank staff remuneration and
mortgage broking.
In 2017, we appointed a customer
advocate who provides an independent
review for customer feedback and have
strengthened protection for whistle
blowers, which encourages staff to
speak up about issues or conduct that
concern them.
Looking ahead
We have a clear strategy, a skilled
team and a powerful, highly scalable
and cost-effective platform which
provides competitive advantages in
the rapidly changing banking and
wealth management environment.
We continue to invest in digital
services and innovation, capitalising
on the changing dynamics of the
financial services industry to improve
customers’ experiences.
The business of banking and wealth
management is built on trust and
confidence. While some parts of the
industry have had issues in recent times,
MyState continues to ensure that we
have the interests of our customers front
and centre in everything that we do.
This is due in large part to our dedicated
people that have a passion for ensuring
that our customers benefit from doing
business with us.
I would like to thank our hard working
and committed team for their
outstanding effort and enthusiasm
for providing a better outcome for
customers during the year. Together,
we expect to continue to make
further progress.
Melos Sulicich
Managing Director and
Chief Executive Officer
MyState Limited Annual Report 2018 | 05
Banking Operations
During the year, we continued to invest in our digital platform to make it easier
for customers to do business with us. This reflects how the world is changing
as increasingly people use cards and online and mobile transactions instead of
cash. We are well progressed in creating a fully functioning digital bank.
Our customers’ expectations about what
they want from banking are increasingly
shaped by their interactions with other
service providers. This is causing us to
think deeply about how to provide our
services in a different and differentiated
way. We have invested in technology to
deliver better services through digital
innovation, and in capability in order to
re-engineer our processes. The outcome
is that we can consistently deliver better
customer experiences.
Our strategic direction
is empowered by
increased use of
customer research
panels, which help
us to initiate new
products and services
in a timely and
effective manner.
In the 2018 financial year, we experienced
a 280% growth in bank accounts opened
online following the introduction of a
range of new accounts for customers,
including an Everyday and eSaver
account. During the year, customer
deposits increased to $3.3 billion.
The introduction of online origination for
personal loans, transaction accounts and
term deposits now allows customers to
apply for products in real-time, online.
We continue to refine our offering and
soon will launch new services including
online origination for home loans and new
deposit products including a monthly
fee-free transaction account as well as a
bonus saver account.
Our platform has enabled us to extend
services beyond the traditional branch
network and we have focused on building
scale across Australia’s eastern seaboard.
We are passionate about helping
customers and supporting them with
outstanding service, including through
our new contact centre system which
has expedited services and significantly
reduced customer contact centre call
waiting times by 80%.
We continued to build scale and our
home loan book grew from $4,076 million
to $4,358 million during FY18.
Despite vigorous competition in the
low-risk, owner-occupied, low loan-to-
valuation lending market, we achieved
strong net interest income growth
through disciplined cost management
and increased efficiencies, particularly in
the second half.
MyState also issued a $400 million
residential mortgage backed security, the
seventh in the ConQuest series and its
largest to date, attracting a broad range
of domestic and international investors.
Securitisation provides around 23% of the
group’s funding.
MyState Bank receives an investment
grade rating from Moody’s of Baa1,
which is a testament to our strategy of
growing in high-quality, low-risk lending
markets, our modern risk management
systems and the strength of our capital
management strategy.
At 30 June 2018, MyState maintained
11.5% Common Equity Tier 1 (CET1)
capital. MyState is also well positioned to
meet APRA’s CET1 ratio requirements by
1 January 2020.
$1.79b
Loan applications increased
from $1.68b in 2017
06 | MyState Limited Annual Report 2018
MyState Limited Annual Report 2018 | 07
Wealth Management
Our wealth management business established new momentum in
FY18, achieving strong growth. Funds under management grew
significantly. Cash and income funds continued to outperform
benchmarks and growth funds also provided consistent high returns.
Our funds have grown about 15% over
the past two years, attracting new retail
and wholesale investors. We continue to
refine our portfolio to deliver ongoing
performance and protection from
market volatility.
Trustee services benefited from
increased estate planning revenue from
a higher number of high-value estates
and probate applications.
We have an established a more detailed
will review process and using the
expertise of senior estate planners, this
has led to a 20% increase in the number
of wills written in recent years. This
contributed to trustee services’ revenue
growth and helped to build knowledge
across our team and relationships with
our customers.
The strengthening of our team at the
beginning of the year helped financial
planning services report their best result
in more than five years. We improved
the quality of our statements of advice,
providing a fuller, more co-ordinated
service and introduced new services
for the aged care sector. As services
grow, we have increased marketing
and anticipate further business
development activity.
Looking ahead to FY19, we plan to
introduce a new digital model which will
deliver significant client benefits. This
will improve our systems, products and
distribution capabilities, making services
more accessible. We are committed
to helping our customers achieve their
personal wealth objectives and our goal
remains to deliver outstanding value.
$1.153b
Funds under management
08 | MyState Limited Annual Report 2018
Digital Services
Globally, Australia has the fourth highest number
of non-cash payments per person. Digital channels
are displacing cash and cheques as high-speed data
connections enable faster transactions.
Our future roadmap includes exciting
new products and services. We will
strengthen our portfolio with online
home loan origination, monthly
fee-free online accounts tailored
to what our customers want from
banking services. Over recent years,
MyState has been at the forefront of
introducing payment solutions such as
Apple, Google and Samsung Pay and
in the coming year, we will offer both
Fitbit Pay and Garmin Pay.
In February 2018, we were amongst the
first banks to initiate and administer
transaction accounts online with
real-time payments through the New
Payments Platform.
Customers can make real-time
payments using a simple PayID such
as a mobile phone number instead of
a BSB and account number. In the first
few months of the platform going ‘live’,
MyState processed approximately 4%
of Australian payments across the New
Payments Platform, significantly above
our market share.
Our strategy has reduced our cost to
serve customers and we are taking
advantage of predictive modelling and
customer relationship management
analytics to provide better and more
convenient services.
400,000
NPP transactions since
launch in February 2018
280%
growth in bank accounts
opened online
Contact centre wait
times reduced by
80%
Predictive modelling improving
customer outcomes and
tailored offerings
Stable credit quality
increasingly complemented by
credit automation
Significant productivity
benefits
MyState Limited Annual Report 2018 | 09
Risk Management
A robust risk and customer centric culture is at the heart of
everything we do.
The group’s strategy and risk appetite are developed together
to support our mission while delivering the best outcomes for
MyState and our customers. Employee conduct and feedback
is taken very seriously in the discharge of our obligations and
to achieve good customer outcomes.
MyState has adopted the three lines of defence risk
framework. The first line provides for robust processes and
infrastructure. The second line develops risk management
strategies and policies; and challenges the effectiveness of
the risk framework. The third line provides the Board with
assurance regarding the framework’s effectiveness.
Risks are identified, managed and mitigated using our
risk management plan. We consider that effective risk
management can provide strategic differentiation including:
■ A prudent approach to risk management and a strong risk
culture that helps us deliver our strategic intent;
■ A robust control framework which is our cornerstone
making sure risks are identified, managed and mitigated
effectively; and
■ Enhanced risk accountability that ensures business units
in the first line of defence are accountable for risk and
supported by strong oversight and challenge from the
second line of defence.
10 | MyState Limited Annual Report 2018
MyState Limited Annual Report 2018 | 11
Corporate Social
Responsibility
MyState’s vision is to make a genuine difference to our customers and
communities every day. We believe that our success should be reflected in the
community’s wellbeing and particularly focus on supporting young people, who
we consider to be the future custodians of our communities.
MyState Student Film Festival
The MyState Student Film Festival received the highest
number of entries in its history after the program was opened
to national entrants for the first time. The Festival received a
record 257 entries including 30 from interstate and more than
1,000 students participated across age groups ranging from
junior to high school, college and university levels.
During the year the MyState Group also supported the Hardie
Fellowship, International Women’s Day, the Cape Hope
Foundation and the Toosey Foundation in Tasmania and the
Challenge the Mountain event in Rockhampton.
The MyState Foundation
Over 18 years the MyState Foundation has awarded more
than $2 million in grants to help more than 90 not-for-profit
organisations with a focus on empowering Tasmanian youth.
Recipients in 2018 included Bridgewater PCYC, Camp Quality,
Geeveston Community Centre, Glenhaven Family Care,
Holyoake Tasmania, Centrecare Evolve Housing, Rural Health
Tasmania, RYLA Christian Youth Centre, Scout Association of
Tasmania – Howrah Branch and The Link Youth Health Service.
The Smith Family partnership
MyState supports The Smith Family by funding 100 students
in the Learning for Life program for disadvantaged school
children across Tasmania and 35 in Central Queensland.
In addition, MyState provides support for two work inspiration
programs annually.
Hobart Hurricanes
MyState Bank has proudly supported the Hobart Hurricanes
for three seasons, and recently signed for another two years as
the principal partner of the women’s Hurricanes team and as
a sponsor of the men’s team. In the 2017/2018 season MyState
Bank was a co-major partner and attended every game with
‘match day’ volunteers. The MyState Community Blitz also
enabled Hurricanes players to visit community organisations
across Tasmania.
12 | MyState Limited Annual Report 2018
Diversity and inclusion
MyState fosters an inclusive culture where everyone is treated
with respect and has an opportunity to develop through
inclusive recruitment practices, life stage and flexibility
initiatives which include:
■ 50% representation of women in leadership positions
■ Continued development of women leaders
■ Progression towards 10% of workforce from diverse
cultural backgrounds
■ Flexible workplaces that support each employee’s life stage.
The environment in our business decisions
MyState considers the environmental outcomes of the
business decisions we make. Some examples of how we are
reducing the resources we use are through:
eStatements
MyState Bank offers customers an option to receive
their statements electronically in a fast, secure and
environmentally-friendly way. Since the launch of the service
in 2016, approximately 20% of banking customers now receive
their statements electronically.
Shareholder eCommunications
MyState encourages shareholders to register for
electronic communications, including receiving this
Annual Report electronically. More than 37% percent of
shareholders are now receiving annual reports, notices and
announcements electronically.
Community
We are passionate about making a contribution to the
community and support many local events and projects. Our
targets include to:
■ Increase our employee volunteering to 400 days
■ Provide $2.2 million in community grants to over
300 programs by 2020
■ Support 135 Smith Family Learning for Life scholarships in
Tasmania and Central Queensland.
MyState Limited Annual Report 2018 | 13
14 | MyState Limited Annual Report 2018
MyState Limited Annual Report 2018 | 15
Board of Directors
Miles Hampton – Independent non-executive Chairman
Appointed 12 February 2009
BEc (Hons), FCPA,
FAICD
Mr Hampton was appointed a Director of MyState
Limited on 12 February 2009 and became Chairman
on 29 October 2013. He has been a Director
of Tasmanian Perpetual Trustees Limited since
July 2006. He was appointed a Director of MyState
Bank Limited in September 2009.
Mr Hampton is a member of the MyState
Limited Board’s Group Audit Committee,
Group Remuneration Committee and Chair
of the Group Nominations and Corporate
Governance Committee.
Mr Hampton was Managing Director of ASX listed
agribusiness and real estate public company,
Roberts Limited from 1987 until 2006.
He is currently Chairman of TasWater and has
previously been a Director of public companies
Ruralco Holdings Ltd, Australian Pharmaceutical
Industries, Wentworth Holdings Ltd, Money3
Corporation Ltd, HMA Ltd and Gibsons Ltd and was
a Director of Impact Fertilisers Pty Ltd, Chairman
of Forestry Tasmania, Chairman of Hobart Water
and Deputy Chairman of The Van Diemen’s
Land Company.
Melos Sulicich – Managing Director and Chief Executive Officer
Appointed 1 July 2014
BBus, GAICD, SA FIN
Mr Sulicich is Managing Director and Chief
Executive Officer of MyState Limited. He is also a
Director of the MyState Community Foundation.
Mr Sulicich has extensive experience in a diverse
range of businesses and industry sectors covering
petrol retailing, financial services, industrial
services, healthcare, transport and logistics.
From 2008 to 2013, he held the position of Chief
Executive Officer of RAMS Financial Group, a
subsidiary of Westpac. Prior to this, he spent
eight years in general management positions for
companies including Mayne Group, Adsteam
Marine and the Spotless Group.
From 1995 to 2000, Mr Sulicich worked in various
General Management positions for Colonial
Group Limited, including General Manager
Marketing, Director Sales and Marketing for
Colonial UK Limited and General Manager,
Network Financial Services.
Peter Armstrong – Independent non-executive Director
Appointed 12 February 2009
Mr Armstrong is Chairman of the MyState Limited
Board’s Group Remuneration Committee and a
member of the Group Nominations and Corporate
Governance Committee.
He is a former Chairman of connectfinancial and
Teachers, Police and Nurses Credit Union. Mr
Armstrong was appointed a Director of MyState
Bank and subsidiary companies on 1 July 1998.
BEc (Hons), Dip ED,
Dip FP, CPA, FAICD,
FAMI
He was appointed a Director of Tasmanian
Perpetual Trustees Limited on 22 September 2009.
Mr Armstrong is a former Director of Tennis
Australia and President of Tennis Tasmania.
He is a career educator at senior secondary and
tertiary levels and is a Fellow of both the Australian
Institute of Company Directors and Australasian
Mutuals Institute.
Robert Gordon – Independent non-executive Director
Appointed 12 February 2009
BSc, MIFA, MAICD,
FAMI
Mr Gordon is current President of the Institute
of Foresters of Australia ( IFA) and President of
Football Federation Tasmania having previously
held the position of Managing Director,
Forestry Tasmania.
He has been a company director for seventeen
years including six years as Chairman of
connectfinancial. Mr Gordon has been a director
of companies in the Tourism industry, Research &
Development, Construction and infrastructure.
16 | MyState Limited Annual Report 2018
Mr Gordon was appointed as a Director of MyState
Bank on 1 July 1998. He is Chairman of MyState
Financial Community Foundation Limited and
was appointed a Director of Tasmanian Perpetual
Trustees Limited on 22 September 2009.
He is the Chairman of the MyState Limited Board’s
Group Risk Committee and a member of the Group
Nomination & Corporate Governance Committee
and the Group Technology Committee.
Stephen Lonie – Independent non-executive Director
Appointed 12 December 2011
Mr Lonie was a former Partner of the
international accounting and consulting firm,
KPMG, and now practices as an independent
management consultant.
BCom, MBA, FCA,
FFin, FAICD, FIMCA
Currently, he is non-executive Chairman of Central
Queensland mining group, Jellinbah Resources
Pty Ltd and is also Chairman of Apollo Tourism
& Leisure Ltd and a non-executive Director of
Corporate Travel Management Ltd and Retail Food
Group Ltd.
Mr Lonie is a member of the MyState Limited
Board’s Group Audit Committee, Group
Remuneration Committee and Chair of the Group
Technology Committee.
Sibylle Krieger – Independent non-executive Director
Appointed 1 December 2016
LLB (Hons), LLM,
FAICD, MBA
Ms Krieger has over 35 years of broad commercial
experience as a lawyer, economic regulator,
independent consultant and non-executive
director, with particular focus on heavily regulated
industries. She was a partner in two large
commercial law firms for 22 years and has over
12 years’ experience as a non-executive director.
She is currently the non-executive chair of Xenith
IP Group Limited (ASX:XIP) and a non-executive
director of the Australian Energy Market Operator
Ltd (AEMO) and a non-executive director of Vector
Limited (NZX:VCT).
Ms Krieger was formerly a director of Sydney Ports
Corporation, Allconnex Water and TasWater and
was a trustee of the Royal Botanic Gardens and
Domain Trust and of Sydney Grammar School.
In addition to her board roles, Ms Krieger has
served as an independent consultant to private
sector and government clients across diverse areas
including risk management and energy security.
She is a member of the MyState Limited Board’s
Group Risk Committee, Group Remuneration
Committee and Group Technology Committee.
Andrea Waters – Independent non-executive Director
Appointed 19 October 2017
BCom, FCA, GAICD
Ms Waters is an experienced auditor, accountant and
non-executive director with over 30 years experience
in Financial Services.
She is a Fellow of Chartered Accountants Australia &
New Zealand and a member and accredited facilitator
of the Australian Institute of Company Directors.
She is a former partner with KPMG (until 2012)
specialising in Financial Services audit. For
the past six years she has been a professional
non-executive director and is currently a Director of
Cash Converters International Limited (ASX:CCV),
Care Super, Bennelong Funds Management
Group, Citywide Service Solutions Pty Ltd and
Colonial Foundation.
She was previously a Director of The Lord Mayors
Charitable Foundation, Chartered Accountants
Australia New Zealand and Cancer Council Victoria.
Ms Waters is the Chair of the MyState Limited
Board’s Group Audit Committee and a member of
the Group Risk Committee.
Warren Lee – Independent non-executive Director
Appointed 19 October 2017
Mr Lee has extensive experience and a long
record of leadership in the international financial
services industry, including 15 years at AXA in
senior management positions within the company’s
Australian and Asian businesses.
BCom, CA
Officer, Australia and New Zealand for AXA Asia
Pacific Holdings Limited.
Mr Lee is currently a non-executive director of Tower
Limited. He has a Bachelor of Commerce from
the University of Melbourne and is a member of
Chartered Accountants Australia and New Zealand.
Mr Lee’s two most recent executive positions were
Chief Executive Officer of the Victorian Funds
Management Corporation and Chief Executive
Mr Lee is a member of the MyState Limited Board’s
Group Audit Committee, Group Risk Committee
and Group Technology Committee.
Vale – Colin Maxwell Hollingsworth 19 April 1949 – 10 March 2018
It is with great sadness that the Directors, Executive and Staff of MyState Limited mourn the loss of our friend and respected former colleague,
Colin Hollingsworth (Col).
Col had a long and rich history with MyState and its antecedent organisations. He was appointed to the Board of the Commonwealth Public
Service Credit Union (CPSCU) in 1976 and became Chairman in 2000 when it merged with Island State Credit Union. When Island State merged
with Connect Financial in 2007 to create MyState Financial he continued as a director. Col was appointed a director of MyState Limited in 2009
following the merger of MyState Financial with Tasmanian Perpetual Trustees. Col’s contribution to the finance sector in Tasmania was very
significant. He was a proud Tasmanian and his commitment, contribution and sense of humour will be sorely missed.
The Directors, Executive and Staff of MyState extend their deepest sympathy to Col’s wife Robyn, daughter Carmen and son Carl.
MyState Limited Annual Report 2018 | 17
Key Management
Personnel
Huw Bough – General Manager Mortgage Broker, Business and Agri Banking
Huw is responsible for the leadership and
performance of MyState Limited Group’s Mortgage
Broker, Business and Agri Banking divisions. He
joined the company in August 2014.
Manager Westpac Mortgage Broker Distribution
from November 2008 to October 2011. Before that,
he was Head of RAMS Home Loans’ broker sales
from April 2005 to November 2008.
DipFS(FP), DipF&MB,
MAICD
Previously, Huw held national executive distribution
roles in banking and financial services organisations
including nine years at Westpac, where he was
General Manager Franchise for RAMS Financial
Group from October 2011 to July 2014 and General
Katherine Dean – General Manager, Banking Sales and Service
Katherine (Kate) is responsible for the leadership,
operation, customer service and sales performance
of MyState Limited Group’s Retail Banking and
Contact Centre divisions, which includes the
Group’s retail branch networks in Tasmania and
Central Queensland. She is also responsible for the
Group’s Marketing & Insights division. She joined
the company in February 2017.
Prior to joining MyState, Kate was Chief Sales and
Marketing Officer with mutual financial institution
B&E Personal Banking. She has more than 20 years’
experience in sales, marketing and communications
across a diverse range of industry sectors including
financial services, education, mining, transport
and telecommunications.
GDipPR, GAICD,
FAMI
David Harradine – Chief Financial Officer
David is a Chartered Accountant with over
20 years’ experience working within the financial
services industry.
Having worked for over 16 years with Deloitte
as a partner within the chartered accounting
and advisory firm, David joined MyState in 2015
as CFO. David is responsible for managing the
finance, treasury, regulatory reporting, strategy and
property functions for MyState.
Mandakini Khanna – Chief Risk Officer
Mandakini (Mandy) is responsible for the
Management of the financial and non-financial risks
for the MyState Limited Group.
Mandy and her team have worked on strengthening
risk culture and risk frameworks within MyState.
BCom, CA, MIIA, CIA
Post DipBusAdm,
Post DipBusFin, Bcom
David contributes to the Tasmanian community
through his board appointments to the
not-for-profit community sector organisations
CatholicCare and Centacare Evolve Housing.
Mandy has over 20 years’ experience in banking
and retail financial and has held senior risk
management positions in GE Capital across
Asia Pacific.
18 | MyState Limited Annual Report 2018
Paul Moss – 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.
global infrastructure deployments and
customer experience.
Before that he occupied technical leadership
positions in UK-based investment banks.
BEng(Hons)
He joined the company in May 2015 having
previously been a Director of IT Advisory at KPMG.
Prior, Paul spent 11 years at Betfair, in the UK and
Australia, as Director of Information Systems and
Operations, focusing on strategy development,
Craig Mowll – General Manager, Wealth Management
Craig was appointed General Manager, Wealth
Management in July 2018 and is responsible for
the strategic, financial and ongoing management
of the MyState Limited Group’s Wealth division.
The division itself includes Financial Planning,
Investment Management and Trustee capabilities.
the Chief Executive Officer of Certitude Global
Investments. At Credit Suisse, he was the Director
of Distribution, Product and Marketing (AUS/NZ)
responsible for $34b of assets; and St. George Bank
as General Manager of Australian Distribution,
Technical and Customer Service for three divisions
including; Asset Management, Margin Lending and
Online Trading responsible $24B of assets.
MBA, MBSc
Craig was previously the head of Managing Director
of Aura Group’s funds and wealth management
business. Prior to this, he spent five years as
Janelle Whittle – General Manager, People and Culture
Janelle has overall responsibility for the MyState
Limited Group’s human resources, communications
and community partnerships and has a key role in
developing and nurturing organisational culture
and capability.
industries including aquaculture, utilities and higher
education. Her previous senior leadership positions
in human resources includie General Manager
People and Culture at Aurora Energy Pty Ltd, and
Director of Organisational Design and Change at
the University of Tasmania.
BCom, MHRM,
GAICD
Janelle has over twenty years’ experience in
human resource management, across a number of
MyState Limited Annual Report 2018 | 19
20 | MyState Limited Annual Report 2018
Directors’ Report
for the year ended 30 June 2018
Your Directors present their report on MyState Limited (the Company) for the financial year ended 30 June 2018.
Directors
• Miles Hampton BEc (Hons), FCPA, FAICD
• Sibylle Krieger LLB (Hons), LLM, FAICD, MBA
Chairman and independent non-executive Director.
Independent non-executive Director
• Melos Sulicich BBus, GAICD, SA FIN
Managing Director – Executive Director.
• Peter Armstrong BEc (Hons), DipED, DipFP, CPA,
• Warren Lee BCom, CA
(Commenced 19 October 2017)
Independent non-executive Director.
• Stephen Lonie BCom, MBA, FCA, FFin, FAICD, FIMCA
Independent non-executive Director.
• Andrea Waters BCom, FCA, GAICD
(Commenced 19 October 2017)
Independent non-executive Director.
FAICD, FAMI
Independent non-executive Director.
• Robert Gordon BSc, MIFA, MAICD, FAMI
Independent non-executive Director.
• Colin Hollingsworth CPA, MAICD, FAMI
(Retired 19 October 2017)
Independent non-executive Director.
Company Secretary
• Scott Lukianenko Ad Dip BMgmt, Grad Cert BA, GIA (Cert)
Principal Activities
Banking Services
Trustee Services
Wealth Management
• Personal, residential and
• Estate planning
• Managed fund investments
business lending
• Transactional, internet and
mobile banking
• Savings and investments
•
Insurance and other alliances
• Estate and trust administration
• Financial planning
• Power of attorney
• Corporate trustee
• Portfolio administration services
• Portfolio advisory services
• Private client services
MyState Limited provides banking, trustee and wealth
management products and services through its wholly-owned
subsidiaries MyState Bank Limited and Tasmanian Perpetual
Trustees Limited.
There have been no significant changes in the nature of the
principal activities of the Group during the financial year.
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.
Operating and Financial Review
The Group recorded a statutory profit after income tax for the
year ended 30 June 2018 of $31.461m (2017: $30.080m).
Dividends
The Directors have declared a fully franked (at 30%) final
dividend of 14.5 cents per share. The dividend will be payable
on 25 September 2018 to shareholders on the register at the
Record Date of 24 August 2018.
Dividends paid in the year ended 30 June 2018 were as follows:
•
•
In respect of the year ended 30 June 2017, a fully franked
dividend of 14.5 cents per share, amounting to $12.970m,
was paid on 13 September 2017.
In respect of the half year ended 31 December 2017, a fully
franked dividend of 14.25 cents per share, amounting to
$12.824m, was paid on 29 March 2018.
MyState Limited Annual Report 2018 | 21
Review and Results of Operations
Net Profi t After Tax
29.6
29.7(i)
31.1(i)
30.1
31.5
s
n
o
i
l
l
i
M
$
35
30
25
20
15
10
5
0
FY14
FY15
FY16
FY17
FY18
(i) Underlying results exclude on a post-tax basis:
FY16 – $1.8m M&A related costs, $1.0m write down of intangible software
FY15 – $3.9m profit on sale of Cuscal shares, $1.1m restructuring costs
Financial Performance
MyState Limited recorded a net profit after income tax for the
year ended 30 June 2018 of $31.5m, an increase of 4.6% on the
prior corresponding period (pcp) 30 June 2017 of $30.080m.
Earnings per share increased by 2.7% to 34.97 cents per share
on the pcp and return on equity increased 9 basis points (bps)
to 10.05%.
The Group is realising the benefit of the investment over
recent years in enhanced digital technology platforms and
capabilities and the efficiency in the business continues to
improve. The Group’s principal measure of efficiency – its
cost to income ratio – fell 190bps on the pcp to 64.0% as we
acquired more customers and continued to invest in creating a
simpler operating model.
In a highly competitive market for low-risk owner occupied
housing loans, the banking business has maintained a
disciplined Net Interest Margin (NIM), whilst growing its loan
book, expanding its geographic footprint and maintaining
high credit quality standards.
The wealth management business has delivered strong
growth in revenue and profit, underpinned by growth in funds
under management (FUM) and a strong improvement in the
trustee business.
Delivering on strategic priorities
FY18 was a year characterised by increasing customer
advocacy, disciplined strategy execution and increasing
uptake of MyState’s enhanced digital capabilities.
The banking business has significantly transformed and
modernised its banking technology platforms and digital
offerings, keeping pace with changing customer needs and
22 | MyState Limited Annual Report 2018
enabling growth beyond traditional distribution channels
and geographies.
The banking business is continuing to innovate in its digital
customer acquisition with the successful implementation of
online application processes and paperless signatures.
During the year, MyState was amongst the very first cohort of
banks to go live with both inward and outward payments on
the New Payments Platform (NPP), offering simpler, smarter
payments for customers. MyState’s customers have been early
adopters and its share of NPP transactions is greater than the
relative share of MyState in the system.
The banking business is benefiting from these transformative
projects through reduced costs and increasing customer
self-service, as customers are provided with an attractive
digital offering, which makes products more accessible
through online processes.
High quality asset growth and credit performance
The banking loan portfolio grew $281.062m (6.5%) during the
year. While this growth was more subdued relative to recent
periods – reflective of regulatory restrictions and disciplined
margin management – it still remained ahead of national
system growth.
Growth in loan book
4.55
4.27
3.85
3.54
s
n
o
i
l
l
i
B
$
5.0
4.0
3.0
2.0
1.0
0
FY15
FY16
FY17
FY18
A further highlight is the increasing geographical spread of the
loan portfolio. During the year, the Group continued to grow
its customer base across the eastern seaboard of Australia,
with the proportion of loans outside of Tasmania increasing
from 50.5% to 54.5%.
Asset quality again remained strong in spite of heightened
competition for owner occupier lending.
Impairment charges remain very low, with 30 day arrears
performance of 0.47% and 90 day arrears of 0.19%, well below
benchmarks for both major and regional banks.
Importantly, growth in the less than 80% LVR portfolio was
15% and MyState reduced its portfolio of loans with greater
than 80% LVR by 17%. Investor and interest only lending
Directors’ Reportfor the year ended 30 June 2018
MyState’s deposit strategy has included taking advantage
of the new digital channels to source less costly customer
funding. Through a combination of customer centric products
and the use of the recently implemented ‘ApplyOnline’ system,
the Group has increased customer deposits by $278.675m
and increased the proportion of customer deposit funding to
68.0% over the financial year (prior year 65.7%).
A diversified funding mix continues to give MyState
the necessary flexibility to adapt should the economic
environment change.
Funding mix
19.0%
14.1%
21.2%
23.8%
13.2%
8.2%
66.9%
65.7%
68.0%
FY16
FY17
FY18
Customer deposits
Wholesale funding
Securitisation
Non-interest income from banking activities
Non-interest income from banking activities declined by
$1.372m (7.5%) on the prior year. This result was driven by
comparably lower lending volumes, competitive loan fees
waivers, and changing customer behaviour. Banking insurance
commissions and other income from banking activities have
remained steady.
continue to be well below that of peers and well within
regulatory guidelines.
Home loan book by LVR
s
n
o
i
l
l
i
B
$
0.31
0.30
0.42
3.05
0.20
0.26
0.39
3.51
0.39
0.32
0.45
2.51
FY16
FY17
FY18
0% – 79.99%
80% – 84.99%
85% – 89.99%
90%+
Net Interest Margin
Net interest margin decreased 4bps to 1.89%, reflecting the
competitive environment for owner-occupied home loan
business and deposit funding.
Funding costs steadily increased during the second half of
the year, primarily due to external forces. The Bank Bill Swap
Rate (BBSW) short term benchmark has risen due to strong
competition for wholesale deposits. An elevated BBSW,
coupled with the Reserve Bank of Australia (RBA) cash rate
remaining at historic lows, translates into a greater interest
rate spread.
2.13%
1.93% 1.94%
1.84% 1.89%
NIM trend
2.50%
2.00%
1.50%
1.00%
0.50%
0%
FY16
FY17
1H18
2H18
FY18
MyState has selectively repriced some lending products, which
has indirectly offset some of the margin erosion.
MyState Limited Annual Report 2018 | 23
Wealth business revenue growth underpinned by
strong growth in FUM and FUA
FUM and FUA
s
n
o
i
l
l
i
M
$
778
809
740
1,008
1,089
1,153
FY16
FY17
FY18
Funds under Management
Funds under Advice
MyState’s Wealth management business continues to provide
diversity in revenue for the Group and, during the year, it
experienced strong growth across all business lines, with total
income increasing $1.778m (10.6%), excluding the one-off gain
relating to the disposal of investment and one-off costs in the
prior year. Wealth NPAT increased to $4.565m from $2.429m,
excluding the one-off gain on disposal of investment and
one-off costs in the prior year.
The Wealth business’ cash, income and growth funds
have performed favourably against their benchmarks. The
funds continued to grow on the back of a strong 18 months
of performance and supported an increase of $0.67m in
management fee income on the prior year.
FUM recorded growth of $63.963m (5.9%) over the year,
although remained relatively steady on 1H18.
Pleasingly, the improved returns have seen a growth in
new investors.
Financial planning and trustee services also returned solid
results, with total other fees and commissions increasing
$1.112m (15.3%). A strengthened financial planning team
supported an increase in funds under advice, which grew by
4% to $808.841m. Trustee services recorded a $0.939m (25%)
increase in revenue. This result was achieved through an
increase in the number of probate applications and the value
of estates under administration during the year.
The Wealth business is now starting to reap the benefits of the
sustained focus on generating new wills and revising existing
wills that has been made over the past three years.
24 | MyState Limited Annual Report 2018
Targeting cost to income reductions and
productivity improvement
The banking business continues to target reductions in its cost
to income ratio through leveraging technological advances
that position MyState as a scalable modern banking business,
able to deliver better customer outcomes in a more efficient
manner. In the current period, the cost to income ratio reduced
190 bps to 64.0%. Operating expenditure was prudently
managed with cost reductions of $1.270m (1.55%), which was a
combination of both ongoing cost improvements and one off
cost savings in the year.
Due to the significant improvement in our online and mobile
banking applications and the resulting improvement in the
ability of customers to self-serve, during the year, we closed
our Central Queensland mini-branch network and the Emerald
and Biloela full service branches. The cost benefit of these
closures is already being realised. The Group additionally
conducted a productivity review in the early part of the year.
This review has positively influenced process and productivity
improvements throughout the business and should ultimately
lead to further improvements in the cost to income ratio in the
years ahead.
Healthy capital position
Total Capital Movements
1.74%
1.51%
13.29% 0.13%
1.39%
1.46% 0.08% 0.02%
13.47%
Tier 2
2.01%
Tier 1
11.28%
Tier 2
1.96%
Tier 1
11.51%
FY17
Capital
initiatives
Secu-
ritised
assets
Profi t
Dividends
Paid
Secured
Mortgage
Lending
Capital-
ised intan-
gibles
Other
asset
growth
FY18
The Group has maintained its balance sheet strength, with
a capital ratio at 13.47%, an 18bps increase on the prior year.
MyState’s capital strategy was supported by a $400m RMBS
issuance that was its largest such transaction to date and was
well supported by an increasingly broad investor base.
MyState is also well positioned to meet APRA’s
“unquestionably strong” CET1 ratio requirements by
1 January 2020.
Directors’ Reportfor the year ended 30 June 2018Review of Operations (continued)
Risk Management
MyState has continued to invest in strengthening its risk
management capability and embedding a strong risk
culture. By ensuring that risk related accountabilities and
responsibilities are well understood, we are able to deliver
better customer outcomes and minimise conduct risk.
Conduct risk is an area of risk that has attracted much attention
within the sector and MyState’s long-standing commitment
to delivering great customer outcomes has been re-affirmed
by the appointment of a Customer Advocate during the
year, a role independent from the bank’s existing complaints
resolution process. In addition, our commitment to our Code
of Conduct has been reaffirmed by strengthening our whistle
blower program. Additionally, MyState is well down the path of
compliance with the new Code of Banking Practice.
MyState’s approach to risk management is overseen by the
Board and its Group Risk Committee and is supported by a
well-defined risk appetite statement, contemporary processes
and systems and an industry standard three lines of defence
model, which supports the identification, assessment,
evaluation and management of risk. The three lines of defence
model has been further augmented during the year with the
formation of executive level divisional risk committees, which
strengthen line one risk management.
The Board is committed to further enhancing risk
management practices and has invested in new AML/CTF
systems, adopting comprehensive credit reporting standards
and supporting further investment in MyState’s Enterprise Risk
Management system.
Outlook
The Tasmanian economy has experienced strong economic
growth and is well positioned for this to continue. State
Final Demand has been at an all-time high, tourism growth
continues to be a stand-out and Hobart has led the nation in
housing price growth over the last 12 months. While overall
housing sector credit growth appears to be moderating,
continued regulator restrictions on investor and interest only
lending mean that intense competition for owner occupied
lending looks set to continue.
The banking business expects to continue to be able to
achieve above-system lending growth and maintain a quality
of loan book that performs favourably in comparison to the
major banks and regional peers. We expect interest rates to
remain low for some time and, whilst having to adapt to market
conditions, we will continue our focus on management of the
net interest margin.
With the main elements of the banking technology
transformation program now complete, MyState is poised
for further growth and productivity improvements across the
business. More customers are using MyState’s internet and
mobile digital channels in preference to branches and the
business will continue to leverage its technology platform,
to ensure channels and points of presence are aligned with
customer needs and that the Group’s products and services
also keep pace with the changing landscape.
We expect to deliver further gains in the contribution of our
wealth business. We anticipate that a planned investment in a
new technology platform for the wealth business will provide a
strong foundation for further growth.
MyState has a clear strategy of organic growth, responding
to the changing needs of customers, while remaining true to
its purpose of helping people achieve their dreams. MyState
is well capitalised with sound credit and risk management
processes and remains confident of future growth prospects.
State of Affairs
During the financial year, there was no significant change in the
state of affairs of the Company other than referred to in the
review and results of operation.
Events Subsequent To Balance Date
In the opinion of the Directors, there has not arisen, in the
period between the end of the financial year and the date of
this report, any material item, transactions or event that is likely
to significantly affect the operations of the consolidated entity.
Likely Developments and Expected Results
Directors do not foresee any material changes in the likely
developments in the operations or the expected results of
those operations in future financial years.
Directors consider that the disclosure of additional information
in respect of likely developments in the operations or the
expected results of those operations may unreasonably
prejudice the Company. Accordingly, this information has not
been disclosed in this report.
Environmental Regulation
The Company is not subject to significant
environmental regulation.
MyState Limited Annual Report 2018 | 25
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:
Director
Board
Meetings
Group Audit
Committee
Group
Remuneration
Committee
Group Risk
Committee
Peter Armstrong
Robert Gordon
Miles Hampton
Colin
Hollingsworth
(ret 19/10/17)
Sybille Krieger
Warren Lee
(appt 19/10/17)
Stephen Lonie
Melos Sulicich
Andrea Waters
(appt 19/10/17)
A
12
12
12
2
12
8
12
11
7
B
12
12
12
4
12
8
12
12
8
A
n/a
n/a
6
2
B
n/a
n/a
6
2
n/a
n/a
4
6
n/a
4
4
6
n/a
4
A
4
n/a
4
n/a
4
n/a
4
n/a
n/a
B
4
n/a
4
n/a
4
n/a
4
n/a
n/a
A
n/a
5
n/a
1
5
3
n/a
n/a
3
B
n/a
5
n/a
2
5
3
n/a
n/a
3
A – Number of meetings attended
B – Number of meetings eligible to attend
Group
Nominations
& Corporate
Governance
Committee
A
5
5
5
B
5
5
5
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Group
Technology
Committee
A
n/a
4
n/a
n/a
4
3
4
n/a
n/a
B
n/a
4
n/a
n/a
4
3
4
n/a
n/a
Indemnification and insurance of directors and officers
The Company has paid, or agreed to pay, a premium in relation to a contract insuring the Directors and Officers listed in this
report against those liabilities for which insurance is permitted under Section 199B of the Corporations Act 2001.
The Company has not otherwise, during or since the relevant period, indemnified or agreed to indemnify an Officer or Auditor of
the Company or of any related body corporate against a liability incurred as such an Officer or Auditor.
Non-Audit Services
During the year, Wise Lord & Ferguson, the Company’s auditor has performed certain other services in addition to their statutory
duties. Further details are set out in note 8.2 to the financial statements.
The Board has considered the non-audit services provided during the year by the auditor and, in accordance with written advice
provided by the Group Audit Committee, is satisfied that the provision of those non-audit services during the year by the auditor
is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001, for the
following reasons:
• All non-audit services were subject to the corporate governance procedures adopted by the Company and have been
reviewed by the Group Audit Committee, to ensure that they do not impact the integrity and objectivity of the auditor; and
• The non-audit services provided do not undermine the general principles relating to the auditor independence as they related
to technical disclosure issues.
26 | MyState Limited Annual Report 2018
Directors’ Reportfor the year ended 30 June 2018Review of Operations (continued) Auditor’s Independence Declaration to the Directors
The Directors received the following declaration from the
auditor of the Company:
In relation to our audit of the financial report for the
consolidated group for the financial year ended 30 June 2018,
to the best of my knowledge and belief, there have been no
contraventions of the auditor independence requirements
of the Corporations Act 2001 or any applicable code of
professional conduct.
This declaration is in respect of MyState Limited and the
entities it controlled during the period.
J Doyle
Partner
Wise Lord & Ferguson
Hobart
Dated 17 August 2018
MyState Limited Annual Report 2018 | 27
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 2018, in accordance with the
requirements of the Corporations Act 2001 and its regulations.
For the purposes of this report, Key Management Personnel
(KMP) are defined as those persons having authority and
responsibility for planning, directing and controlling the major
activities of the Company, directly or indirectly, including any
Director (whether Executive or otherwise) of the Company.
Contents
1. Group People and Remuneration Committee
2. Remuneration Philosophy
3. Consequences of Performance on Shareholder Wealth
4. Key Management Personnel
5. Non-Executive Director Remuneration
6. Managing Director and Executive Remuneration
6.1 Total Fixed Reward
6.2 Short Term Incentive
6.3 Executive Long Term Incentive Plan
7. Remuneration of Key Management Personnel
8. Shareholdings of Key Management Personnel
9. Loans to Key Management Personnel
10. Contract Terms and Conditions
1. Group People and Remuneration Committee
The Group People and Remuneration Committee assists
the Directors in discharging the Board’s responsibilities in
relation to remuneration governance and to provide oversight
to support the Company in achieving its human resource
goals. This outcome is achieved by reviewing and making
recommendations to the Board on:
• Remuneration arrangements for Directors, the Managing
Director and other senior Executives, having regard to
comparative remuneration data in the financial services
industry, independent advice and compliance with the
requirements of APRA Prudential Standards;
• Human Resource policies and practices, ratification of
industrial instruments and oversight of compliance with
legal and regulatory requirements; and
• Oversight to ensure that the Group builds capability for
strategic execution and to support the Group’s business
operations and culture, including succession planning and
matters such as the Company’s Employee Share Scheme
and other incentive schemes for Executives and staff.
The Group People and Remuneration Committee aims
to ensure that there is no conflict of interest, actual or
perceived, regarding Executive Director involvement in Board
decisions on remuneration packages and also in monitoring
the involvement of Management generally in Committee
discussions and deliberations regarding remuneration
policy. No Executive is directly involved in deciding their own
remuneration, and as such, no conflict is deemed to exist.
2. Remuneration Philosophy
The objective of MyState Limited’s remuneration policy is to
maintain personal and collective behaviour that supports the
sustained financial performance, good reputation of the Group
and good customer outcomes.
The MYS Remuneration Policy is designed to achieve this
objective by having:
• Appropriately balanced measures of employee
performance that inform variable performance based
pay for Executives, including short and long term
incentive plans;
• Recognition and reward linked to favourable customer and
shareholder outcomes;
• A considered balance between the capacity to pay and the
need to attract and retain capable staff at all levels;
• Ensuring that the structure of the remuneration of risk and
financial control personnel, including performance based
components, does not compromise the independence of
these personnel in carrying out their functions;
• Short term and long term incentive performance criteria
being structured within the overall risk management of the
Company; and
28 | MyState Limited Annual Report 2018
Directors’ Reportfor the year ended 30 June 2018 • The exercise of Board discretion in the assessment and
clawback of incentives as an ultimate means to mitigate
unintended consequences of variable pay and to preserve
interests of shareholders and customers.
In accordance with best practice corporate governance, the
structure of Non-Executive Director remuneration is separate
and distinct from Executive remuneration.
The Company links the nature and quantum of the
remuneration of the Executive Management Team (EMT),
comprising the Managing Director and Executives directly
reporting to the Managing Director, to its financial and
operational performance. The remuneration packages for the
EMT are based on a notional Total Target Reward which from
time to time may comprise one or more of the following:
• Total fixed reward (inclusive of superannuation and salary
sacrifice) (TFR);
• Cash based short term incentives (STI); and
• Equity based long term incentives (ELTIP).
COMPOSITION OF REMUNERATION
Managing Director
Executive
At
Risk
ELTIP,
25%
STI,
25%
At
Risk
Year 3
Year 1
ELTIP,
18.75%
STI,
18.75%
Year 3
Year 1
Fixed
TFR,
50%
Fixed
Year 1
TFR,
62.5%
Year 1
3. 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 indices:
Indicator
Underlying Profit after income tax ($'000)
Underlying Earnings per share (cents)
Dividends paid ($'000)
Share price (dollars)
Underlying Return on equity (%)
Underlying Cost to Income Ratio (%)
2014
29,571
33.91
2015
2016
2017
2018
29,719
31,062
30,080
31,461
34.04
35.52
34.04
34.97
24,417
24,880
24,886
25,042
25,794
4.64
10.5
64.5
4.83
10.4
64.3
4.13
10.6
63.2
4.85
10.0
65.9
5.01
10.1
64.0
The performance measures for triggering both the Group’s cash based Short Term Incentive Plan (STI) and Executive Long Term
Incentive Plan (ELTIP) have been tailored to align “at-risk” remuneration and performance hurdle thresholds to the delivery of
financial and operational objectives and sustained shareholder value growth.
STI, from time to time, includes financial and non-financial metrics.
ELTIP performance measures for the “2014” and “2015” offers are weighted equally based on relative total shareholder
return (TSR) performance and absolute post tax return on equity (ROE). For the “2016” and “2017” offer, the measures are
weighted equally between relative TSR performance and absolute post tax underlying ROE. The relative TSR is a measure
which incorporates both dividends paid and movements in share prices, whilst the post tax underlying ROE are measures of
corporate profitability.
MyState Limited Annual Report 2018 | 29
4. Key Management Personnel
The Key Management Personnel (KMP) of the Company in office during the year and up to the date of this report was as follows:
Name
Position
Movements in 2018 Financial Year
Non-Executive Directors
Miles Hampton
Peter Armstrong
Robert Gordon
Non Executive Chairman
Non Executive Director
Non Executive Director
Colin Hollingsworth
Non Executive Director
Retired 19 October 2017
Sibylle Krieger
Warren Lee
Stephen Lonie
Andrea Waters
Executive Directors
Melos Sulicich
Executives
Huw Bough
Katherine Dean
David Harradine
Colleen Harris
Mandakini Khanna
Jessica Kingston
Paul Moss
Craig Mowll
Andrew Polson
Chris Thornton
Non Executive Director
Non Executive Director
Appointed 19 October 2017
Non Executive Director
Non Executive Director
Appointed 19 October 2017
Managing Director and
Chief Executive Officer
General Manager Mortgage Broker,
Business and Agri Banking
General Manager Retail Banking Sales
and Service
Chief Financial Officer
General Manager People
Appointed 25 July 2017
Ceased 15 December 2017
Ceased 24 July 2017
Chief Risk Officer
Acting General Manager Human
Resources & Property
General Manager Technology,
Operations and Product
General Manager Wealth Management
Appointed 16 July 2018
General Manager Wealth Management
Ceased 11 May 2018
General Manager Product
and Marketing
Ceased 15 December 2017
Janelle Whittle
General Manager People and Culture
Appointed 22 January 2018
30 | MyState Limited Annual Report 2018
Directors’ Reportfor the year ended 30 June 2018 5. Non-Executive Director Remuneration
The Company’s Non-Executive Directors (NEDs) receive
only fees, including statutory superannuation, for their services
and the reimbursement of reasonable expenses. They do
not receive any retirement benefits other than statutory
superannuation.
The Board reviews its fees to ensure the Company’s NEDs
are fairly remunerated for their services, recognising the level
of skill and experience required to conduct the role and that
the fee scale will enable the Company to attract and retain
talented NEDs.
The advice of independent remuneration consultants is
taken to ensure that the Directors’ fees are in line with
market standards.
The aggregate remuneration paid to all the NEDs, inclusive
of statutory superannuation, may not exceed the $950,000
amount fixed by Shareholders at the October 2012 Annual
General Meeting of Shareholders. This “fee pool” is only
available to NEDs.
Each NED currently receives $88,400 per annum, inclusive of
statutory superannuation, and the Chairman receives $221,000
per annum, inclusive of statutory superannuation.
The Chairs of the Groups Audit Committee and Risk
Committee receive an additional $15,000 per annum,
inclusive of statutory superannuation. The Chairs of the
Group Technology Committee and the Group People and
Remuneration Committee receive an additional $12,500, per
annum inclusive of statutory superannuation.
Additionally, Members of Board Committees who are not
Chairs are paid $5,000 per annum per committee, inclusive of
statutory superannuation. The Chairman’s fee is inclusive of
Chairing the Group Nominations and Corporate Governance
Committee, membership of the Group Audit Committee and
membership of Group People and Remuneration Committee.
6. Managing Director and Executive
Remuneration
6.1 Total Fixed Reward
The Total Fixed Reward (TFR) is paid by way of cash salary,
superannuation and salary sacrificed other benefits and is
reviewed annually by the Group People and Remuneration
Committee. The Board appoints external consultants on a
regular basis to provide analysis and advice to the Committee
to ensure that Executive remuneration is competitive and
appropriately structured.
The individual Executive remuneration arrangements reflect
the complexity of the role, individual responsibilities, individual
performance, experience and skills.
6.2 Short Term Incentive
The STI is an annual “at risk” incentive payment. It rewards
EMT members for their contribution towards the achievement
of the Group’s goals. The maximum potential payment is
calculated as a percentage of the TFR of each EMT member
and is payable in cash and/or superannuation contributions.
Payment is conditional upon the achievement, during the
financial year under review, of financial and non-financial
performance objectives. The measures are chosen and
weighted to best align the individual’s reward to the Key
Performance Indicators (KPI’s) of the Group and its overall
long term performance. There is no fixed minimum payment
amount. The KPI’s are measures relating to Group and
personal performance accountabilities and include financial,
operational, cultural, risk, compliance, customer and
stakeholder measures.
Each year, the Group People and Remuneration Committee,
in consultation with the Board, sets the KPI’s for the Managing
Director who, in turn sets KPI’s for Executives, subject to
approval of the Board following a recommendation from the
Group People and Remuneration Committee. The Group
People and Remuneration Committee selects performance
objectives which provide a robust link between Executive
reward and the key drivers of long term shareholder and
customer value.
At the end of the financial year, the Managing Director
assesses the performance of the Executives against their
KPIs set at the beginning of the financial year. Based upon
that assessment, a recommendation for each Executive is
made to the Group People and Remuneration Committee as
to the STI payment.
At the end of the financial year, the Group People and
Remuneration Committee assesses the performance of the
Managing Director against the KPIs set at the beginning of the
financial year.
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
and payment of a STI to the Managing Director or Executives
is at the complete discretion of the Board. If the results on
which any STI reward was based are subsequently found by
the Board to have been the subject of deliberate management
misstatement, the Board may require repayment of the
relevant STI, in addition to any other disciplinary actions.
MyState Limited Annual Report 2018 | 31
Current STI Offers
Details of the STI that affects the calculation of KMP remuneration for the 2017/18 financial year are set out in the following tables.
In assessing the STI payments, the Group People and Remuneration Committee has considered risk and reputational matters in
determining the payment amount.
Details of the amounts paid and forfeited are set-out in the accompanying table.
Key Management
Personnel
Melos Sulicich
Huw Bough
Katherine Dean
David Harradine
Mandakini Khanna
Paul Moss
Andrew Polson(1)
Chris Thornton(1)
Janelle Whittle(1)
FY18 STI
Max. %
(of TFR) Max Payable % Awarded % Forfeited
Amount Paid
$
% Which is not
yet assessed
for payment
50%
30%
30%
30%
30%
30%
30%
30%
30%
$287 500
$99,000
$96,000
$111,000
$103,500
$99,000
$85,483
$46,258
$38,137
55.00%
72.22%
42.75%
72.52%
75.07%
72.73%
0.00%
0.00%
45.00%
$158,125
27.78%
57.25%
27.48%
24.93%
27.27%
100.00%
100.00%
$71,500
$41,040
$80,500
$77,700
$72,000
$0
$0
43.33%
56.67%
$16,525
0%
0%
0%
0%
0%
0%
0%
0%
0%
1) Pro-rata Max Payable based on commencement and cessation dates as applicable.
2) Colleen Harris and Jessica Kingston were KMP during the financial year, however, were not assessed as eligible for a short term incentive and, as such,
are excluded from the table.
During the financial year, KMP were paid their STI entitlement, as assessed, in respect of the 2016/17 financial year. Assessment
and payment of STI bonuses in respect of the 2016/17 financial year was completed in August 2017. Details of the amounts paid
and forfeited are set-out in the accompanying table.
Key Management
Personnel
Melos Sulicich
Huw Bough
Katherine Dean(1)
David Harradine
Mandakini Khanna
Jessica Kingston(1)
Paul Moss
Aaron Pidgeon(1)
Andrew Polson
Chris Thornton
FY17 STI
Max. %
(of TFR) Max Payable % Awarded % Forfeited
Amount Paid
$
% Which is not
yet assessed
for payment
50%
30%
30%
30%
30%
10%
30%
15%
30%
30%
$287,500
$99,000
$34,192
$111,000
$99,000
$7,956
$99,000
$27,142
$99,000
$96,000
19.50%
19.63%
19.39%
17.69%
21.60%
35.92%
21.60%
31.32%
18.10%
18.23%
80.50%
80.37%
51.83%
82.31%
78.40%
64.08%
78.40%
68.68%
81.90%
81.77%
$56,063
$19,438
$6,680
$19,635
$21,384
$5,298
$21,384
$8,500
$17,919
$17,497
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
(1) Pro-rata Max Payable based on commencement and cessation dates as applicable.
32 | MyState Limited Annual Report 2018
Directors’ Reportfor the year ended 30 June 2018 6.3 Executive Long Term Incentive Plan (ELTIP)
The ELTIP provides a long term “at risk” incentive, assessed
over a three year performance period. It was established by
the Board to encourage the EMT, comprising the Managing
Director and participating Executives, to have a greater
involvement in the achievement of the Company’s objectives.
To achieve this aim, the ELTIP provides for the issue to the
participating Executives of fully paid ordinary shares in the
Company if performance criteria specified by the Board are
satisfied in a set performance period.
Under the ELTIP, an offer may be made to individual members
of the EMT every year as determined by the Board. The
maximum value of the offer is determined as a percentage
of the TFR of each member of the EMT. As a general guide,
noting that the Board has absolute discretion to vary, the
maximum percentages used are 50% for the Managing
Director and between 15% and 50% for participating
Executives. The value of the offer is converted into fully paid
ordinary shares based upon the weighted average price of the
Company’s shares over a twenty trading day period from the
1st of July in the financial year in which the offer is made.
Where an Executive commences employment with the
Company post 1 July in a given year, the following conditions
will apply in respect of ELTIP:
• Upon recommendation by the Managing Director, and, if
deemed eligible by the Board, the Executive shall receive a
pro rata offer for that year, unless that person commences
employment between 1 April and 30 June, in which
case, they shall not be entitled to receive an offer for that
financial year;
• Calculations for ELTIP entitlements in terms of the 20 day
VWAP, must be consistent with the offers for that year,
irrespective of the date that an employee commences or to
whom an offer to participate is made; and
• Where an ELTIP participant ceases employment with
MyState during a performance period, the offer shall be
assessed at the end of the performance period, along with
all other participants, subject to meeting the 12 month
employment hurdle that applies to any ELTIP offer.
In order for the shares to vest, certain performance criteria
must be satisfied within the predetermined performance
period. Both the performance criteria and the performance
period are set by the Board, at its absolute discretion. The
Board has, for the time being, set the three financial years,
commencing with the year in which an offer is made under
the plan, as the performance period, with relative TSR and
absolute ROE for the “2015” offer or relative TSR and absolute
post tax underlying ROE for the “2016” and “2017” offers as
the performance criteria.
of shares, up to and including the “2017” Offer, occurs once
an assessment has been made after the performance period
(currently 3 years) and once the Board resolves to notify the
Trustee to issue entitlements under the relevant ELTIP Offer.
Where shares have vested, the Trustee will allocate those
shares to each eligible member of the EMT in accordance
with their entitlement. The Trustee will hold the shares which
have been allocated on behalf of the eligible EMT member.
During the period that allocated shares are held by the
Trustee, the eligible EMT member is entitled to receive the
income arising from dividend payments on those shares and to
have the Trustee exercise the voting rights on those shares in
accordance with their instructions.
The participating EMT member cannot transfer or dispose of
shares which have been allocated to them until the earlier of:
• The seventh anniversary of the original offer date of
the grant;
• Upon leaving the employment of the Company;
• Upon the Board giving permission for a transfer or sale to
occur; or
• Upon a specified event occurring, such as a change in
control of the Company.
Upon request, the Board may exercise discretion to release
vested shares to an Executive to the extent required to
meet a taxation assessment directly related to the award of
those shares.
On separation from the Company, ELTIP shares will be
released only if the separation is due to a Qualifying Reason
or is at the initiation of the Company without cause. If this
separation occurs within the three year performance period,
shares will be allocated on a pro-rata basis, following the
completion of each applicable performance period and
applicable performance assessment.
A Qualifying Reason, as defined by the ELTIP Plan Rules, is
death, total and permanent disability, retirement at normal
retirement age, redundancy or other such reason as the Board,
in its absolute discretion, may determine.
Vesting of shares to the Managing Director and eligible
Executive is at the complete discretion of the Board. Any
shares to be allocated to the Managing Director under this
Plan require shareholder prior approval, in accordance with
ASX Listing Rules.
On accepting an ELTIP offer made by the Company,
participating Executives cannot hedge their economic
exposure to any allocated non-vested entitlement. Failure to
comply with this directive will constitute a breach of duty and
may result in forfeiture of the offer and/or dismissal.
Current Offers (Up to and including the “2017” Offer)
Future Offers (2018 offers onwards)
The ELTIP provides for an independent Trustee to acquire
and hold shares on behalf of the participating Executives.
The Trustee is funded by the Company to acquire shares, as
directed by the Board, either by way of purchase from other
shareholders on market, or issue by the Company. Vesting
In respect of offers made on or after 1 July 2018, the ELTIP
will give effect to new requirements imposed under the
Banking Executive Accountability Regime (BEAR) as it
applies to prudentially regulated Authorised Deposit-taking
Institutions (ADIs) and their related bodies corporate. The
MyState Limited Annual Report 2018 | 33
BEAR commences on 1 July 2018 and imposes a heightened accountability regime on ADIs and people with significant influence
over conduct and behaviour in the ADI (referred to as an ‘accountable person’). Subject to new accountability obligations, those
persons are required to conduct themselves with honesty and integrity, as well as effectively carry out the business activities for
which they are responsible.
In accordance with the BEAR, with respect to the 2018 Offer and future offers, the Company must ensure that the payment of
a portion of the variable remuneration (that is, remuneration conditional on the achievement of pre-determined objectives)
of accountable persons is deferred for the minimum period prescribed by the BEAR. In the event an accountable person fails
to comply with his or her accountability obligations, his or her variable remuneration must be reduced by an amount that is
proportionate to the failure and not paid to the person.
Details of offers made under the ELTIP to KMP that affect the calculation of their remuneration are set out in the following table.
Offer
"2015"
"2016"
"2017"
Performance Period
1 July 2015 to 30 June 2018
1 July 2016 to 30 June 2019
1 July 2017 to 30 June 2020
Performance Criteria
Measure
The comparator group
50% TSR
50% TSR
50% Absolute Post tax ROE
50% Absolute Post tax underlying ROE
Members of the S&P/ASX300
Calculation of the reward
Shares will vest in accordance with the following schedule
Share value on offer date
Fair value of shares used for
TSR calculation
Offer Date
$4.71
$2.27
$4.11
$1.96
$4.90
Managing Director $2.57
Other eligible Executives $2.44
– Managing Director
27 November 2015
29 November 2016
8 November 2017
– Other Eligible Executives
Huw Bough
27 Nov 2015
Huw Bough
5 Sept 2016
Huw Bough
11 Sept 2017
David Harradine 27 Nov 2015
Katherine Dean(2) 15 May 2017
Katherine Dean 11 Sept 2017
Mandakini Khanna(2)
29 Apr
2016
Paul Moss
27 Nov 2015
Andrew Polson(2) 29 Apr 2016
Chris Thornton 27 Nov 2015
David Harradine 5 Sept 2016
David Harradine 11 Sept 2017
Mandakini Khanna 5 Sep 2016
Mandakini Khanna 11 Sept 2017
Paul Moss
5 Sept 2016
Paul Moss
11 Sept 2017
Andrew Polson
5 Sept 2016
Andrew Polson
11 Sept 2017
Chris Thornton
5 Sept 2016
Chris Thornton
11 Sept 2017
Janelle Whittle(2) 13 Feb 2018
Value of Offer(1)
– Managing Director
– Other Eligible Executives
$274,998
$478,272
$287,500
$691,455
$287,500
$800,136
1) The value of the offer is the maximum value calculated as at the date of offer to the KMP(s) at that time. As such, it may include the value of offers
made to individuals who are no longer KMP’s of the Company.
2) Pro-rata offer.
34 | MyState Limited Annual Report 2018
Directors’ Reportfor the year ended 30 June 2018 Calculation of the Reward
TSR Component
For the 2015, 2016, 2017 and 2018 Offers, the ELTIP TSR component will vest on the following basis:
MYS TSR relative to the ASX 300:
Percentage of the applicable reward that will vest:
• Below the mid-point percentage:
• At the median ASX 300
• Between the median and 75th percentile
0%
50%
Opportunity vests pro rata on a straight line basis between
50% and 100%
• Above the 75th percentile
100%
No reward will be payable if performance is negative irrespective of the benchmark group performance.
ROE Component
The performance period for the ROE component for the ELTIP reward will be based upon the Company’s post tax ROE and will
be payable on the following basis:
For the 2015 Offers:
MYS aggregate absolute post tax ROE for the
three periods:
• Below 31.30%
• 31.30%
• 31.30% to 33.00%
Percentage of the applicable reward that will vest:
0%
25%
Opportunity vests pro-rata on a straight line basis from
25% to 100%
• 33.00% or above
For the 2016 and 2017 Offers:
100%
MYS aggregate absolute post tax underlying ROE for the
three periods:
Percentage of the applicable reward that will vest:
• Below 31.80%
• 31.80%
• 31.80% to 33.50%
• 33.50% or above
For the 2018 Offer:
0%
25%
Opportunity vests pro-rata on a straight line basis from
25% to 100%
100%
MYS aggregate absolute post tax underlying ROE for the
three periods:
Percentage of the applicable reward that will vest:
• Below 30.00%
• 30.00%
• 30.00% to 31.50%
0%
25%
Opportunity vests pro-rata on a straight line basis from
25% to 100%
• 31.50% or above
100%
MyState Limited Annual Report 2018 | 35
Actual and Potential ELTIP Share Allocations
The following tables detail, for current and former KMP, the status of offers made under the ELTIP. The “2014” offer performance
period was completed on 30 June 2017. The “2015” offer performance period was completed on 30 June 2018.
Name
Component
Maximum
Offer
Forfeited
Vested in the
2016/17
Financial Year
Not yet
assessed for
Vesting
Number of Shares
"2014" Offer
Melos Sulicich
Huw Bough (1)
David Harradine (1)
Natasha Whish-Wilson
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
29,132
29,131
8,411
8,410
3,168
3,167
10,574
10,572
13,634
29,131
3,936
8,410
1,483
3,167
10,574
10,572
15,498
–
4,475
–
1,685
–
–
–
–
–
–
–
–
–
–
–
Name
Component
Maximum
Offer
Forfeited
Vested in the
2017/18
Financial Year
Not yet
assessed for
Vesting
Number of Shares
"2015" Offer
Melos Sulicich
Huw Bough
David Harradine
Mandakini Khanna
Paul Moss
Andrew Polson
Chris Thornton
1) “2014” Offer revised 20 April 2016.
36 | MyState Limited Annual Report 2018
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
29,193
29,193
10,191
10,191
11,306
11,305
6,116
6,116
9,235
9,235
3,733
3,733
10,191
10,191
29,193
29,193
10,191
10,191
11,306
11,305
6,116
6,116
9,235
9,235
3,733
3,733
10,191
10,191
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Directors’ Reportfor the year ended 30 June 2018 The “2016”, “2017” and “2018” offers have not been assessed for vesting and no shares have been forfeited. The following table
shows the maximum number of shares available under each of these offers:
Name
Melos Sulicich
Huw Bough
Katherine Dean
David Harradine
Colleen Harris(1)
Mandakini Khanna
Paul Moss
Craig Mowll(3)
Andrew Polson
Chris Thornton
Janelle Whittle(2)
1) Offer made in 2017 but not accepted.
2) Pro-rata offer made for “2017”.
3) Pro-rata offer made for “2018”.
“2016” Offer
“2017” Offer
“2018” Offer
Component
Number of Shares
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
TSR
ROE
34,976
34,975
12,044
12,044
4,192
4,191
13,504
13,503
–
–
12,044
12,044
12,044
12,044
–
–
12,044
12,044
11,679
11,679
–
–
29,307
29,307
10,092
10,092
9,786
9,786
11,315
11,315
9,714
9,714
10,551
10,551
10,092
10,092
–
–
10,092
10,092
10,245
10,245
3,888
3,887
32,188
32,187
–
–
9,888
9,888
11,742
11,742
–
–
11,124
11,124
10,506
10,506
11,556
11,555
–
–
–
–
8,961
8,961
MyState Limited Annual Report 2018 | 37
7. Remuneration of Key Management Personnel
Salary and
Fees
$
Cash
Bonus(1)
$
Non-
Monetary
Benefits(2)
$
Post
Employment
Super-
annuation
$
Termination
Benefits
$
Share Based
Payment(3)
$
Total
$
Non-Executive Directors
Miles Hampton
2018
193,532
2017
193,532
Peter Armstrong
2018
75,151
Brian Bissaker (4)
2017
2018
2017
75,151
–
76,870
Robert Gordon
2018
82,305
2017
72,705
Colin Hollingsworth(5) 2018
8,064
2017
69,888
Sibylle Krieger(6)
2018
91,074
2017
51,387
Warren Lee(7)
2018
63,051
2017
–
Stephen Lonie
2018
97,905
2017
91,836
Andrea Waters(7)
2018
66,204
Sarah Merridew (4)
2017
2018
2017
–
–
72,939
Total NED
2018
677,286
2017
704,308
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,386
18,386
27,068
27,068
–
7,303
24,901
34,501
5,085
24,558
–
–
–
–
–
–
–
–
–
–
–
34,825
8,652
4,882
5,990
–
9,301
8,724
6,289
–
–
17,879
5,085
125,145
–
153,568
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
211,918
211,918
102,219
102,219
–
84,173
107,206
107,206
37,707
104,713
99,726
56,269
69,041
–
107,206
100,560
72,493
–
–
90,818
807,516
857,876
38 | MyState Limited Annual Report 2018
Directors’ Reportfor the year ended 30 June 2018
Salary and
Fees
$
Cash
Bonus(1)
$
Non-
Monetary
Benefits(2)
$
Post
Employment
Super-
annuation
$
Termination
Benefits
$
Share Based
Payment(3)
$
Total
$
Executives
Melos Sulicich
2018
550,385
158,125
2,892
24,631
2017
540,288
56,063
Huw Bough
2018
305,303
71,500
–
–
34,600
24,697
2017
300,246
19,438
24,663
32,861
Katherine Dean (8)
2018
292,237
41,040
6,325
28,342
2017
104,531
6,680
David Harradine
2018
345,546
80,500
101
–
9,930
24,454
2017
336,214
19,635
1,194
37,146
Colleen Harris(9)
2018
117,099
2017
–
–
–
Mandakini Khanna
2018
314,963
77,700
2017
301,370
21,384
Jessica Kingston(10)
2018
14,990
–
2017
79,566
5,298
Paul Moss
2018
301,370
72,000
–
–
–
–
–
–
–
10,341
–
31,354
34,992
1,590
6,903
28,630
2017
296,874
21,384
1,194
28,203
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
55,088
791,121
101,992
732,943
19,270
420,770
33,427
410,635
17,837
385,781
9,453
130,695
24,214
474,714
31,112
425,301
–
–
127,440
–
26,281
450,298
19,168
376,914
–
–
16,580
91,767
19,755
421,755
30,741
378,396
–
–
–
481,428
Aaron Pidgeon (11)
2018
–
–
2017
185,195
8,500
Andrew Polson (12)
2018
272,957
–
2017
301,370
17,919
–
965
–
–
–
17,593
269,175
23,032
29,797
–
–
2,871
298,860
16,000
365,086
Chris Thornton
2018
143,449
–
42,753
15,146
194,670
(6,145)
389,873
2017
289,281
17,497
52,052
30,952
Janelle Whittle(13)
2018
115,104
16,525
2017
–
–
–
–
10,935
–
–
–
–
32,514
422,296
2,806
145,370
–
–
Total Executive
2018 2,773,403
517,390
51,970
223,152
194,670
161,977
3,922,562
2017
2,734,935
193,798
80,169
262,977
269,175
274,407
3,815,461
Total KMP
2018 3,450,689
517,390
57,055
348,297
194,670
161,977
4,730,078
2017
3,439,243
193,798
80,169
416,545
269,175
274,407
4,673,337
1) The cash bonus shown is the actual amount awarded in respect of the 2017/18 financial year 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.
4) Brian Bissaker and Sarah Merridew ceased as KMP on 18 May 2017.
MyState Limited Annual Report 2018 | 39
5) Colin Hollingsworth ceased as a KMP on 19 October 2017.
6) Sibylle Krieger commenced as a KMP on 1 December 2016.
7) Warren Lee and Andrea Waters commenced as KMP on 19 October 2017.
8) Katherine Dean commenced as a KMP on 20 February 2017.
9) Colleen Harris commenced as a KMP on 25 July 2017 and ceased as a KMP on 15 December 2017.
10) Jessica Kingston commenced as a KMP on 22 February 2017 and ceased as a KMP on 24 July 2017.
11) Aaron Pidgeon ceased as a KMP on 22 February 2017. The termination benefit amount shown Includes annual and long service leave entitlements
paid on cessation.
12) Andrew Polson ceased as a KMP on 11 May 2018.
13) Janelle Whittle commenced as a KMP on 22 January 2018.
8. Shareholdings of Key Management Personnel
Non Executive Director Minimum Shareholding Requirement
From 1 January 2015, a Minimum Shareholding Requirement (MSR) has been implemented for all Non Executive Directors.
Non Executive Directors, in the absence of approval from the Board to the contrary, are required to acquire and maintain, directly
or indirectly, shares in MyState Limited to the equivalent of one year’s pre-tax base Director’s fee. The MSR must be achieved
within four years of their appointment or the date of implementation of this policy, whichever is the latter.
Executive Minimum Shareholding Requirement
From 1 January 2015, in the absence of approval from the Board to the contrary, a Minimum Shareholding Requirement (MSR) will
apply to Executives whom:
1. Receive a TFR greater or equal to $250,000; and
2. Participate in ELTIP and STI programs.
The MSR will be 25% of TFR and must be achieved within 4 years of the date that the policy becomes applicable to the Executive.
The shares in MyState Limited (ASX code: MYS) may be held directly or indirectly, and may include shares obtained prior to
1 January 2015 and/or shares acquired through ELTIP or any other scheme, which includes shares vested and allocated but still
held in trust, but excludes any allocated shares which have not yet vested.
Details regarding the holdings by KMP and their related parties of ordinary shares in the Company are set out in the following
table. Related parties include close members of the family of the KMP. It also includes entities under joint or several control or
significant influence of the KMP and their close family members. No equity transactions with KMP, other than those arising as
payment for compensation, have been entered into with the Company.
40 | MyState Limited Annual Report 2018
Directors’ Reportfor the year ended 30 June 2018 Key Management
Personnel
Non-Executive Directors
Balance at
commencement
of financial year
Granted as
compensation Net change other
Balance at end of
financial year
Balance at end of
financial year held
by ELTIP trustee
Miles Hampton
Peter Armstrong
Robert Gordon
Sibylle Krieger
Warren Lee(1)
Stephen Lonie
Andrea Waters(1)
Sub Total
Executives
Melos Sulicich
Huw Bough
Katherine Dean
David Harradine
Mandakini Khanna
Paul Moss
Janelle Whittle(2)
Craig Mowll(3)
Sub Total
650,000
10,713
20,387
5,000
–
53,499
–
739,599
42,100
–
–
2,000
–
–
1,404
–
45,504
–
–
–
–
–
–
–
–
15,498
4,475
–
1,685
–
–
–
–
50,000
700,000
360
–
311
–
3,330
–
11,073
20,387
5,311
–
56,829
–
54,001
793,600
10,472
–
–
–
–
–
–
–
68,070
4,475
–
3,685
–
–
1,404
–
76,634
–
–
–
–
–
–
–
–
15,498
4,475
–
1,685
–
–
–
–
–
21,658
10,472
1) Appointed as KMP on 19 October 2017.
2) Appointed as KMP on 22 January 2018.
3) Appointed as KMP on 16 July 2018.
9. Loans to Key Management Personnel
There are no loans guaranteed or secured by the Company to KMP and their related parties in 2018.
Related parties include close members of the family of the KMP. It also includes entities under joint or several control or significant
influence of the KMP and their close family members.
MyState Limited Annual Report 2018 | 41
10. Contract Terms and Conditions
The Managing Director and Executives are employed under individual employment agreements.
Incumbent
Commenced
in role
Contract
term
Short Term
Incentive
ELTIP
TFR(1)
(maximum)
(maximum)
Termination Provisions
In the event of termination by
the Company(2)
Melos Sulicich
1 July 2014 Ongoing
$625,000
50% of TFR
50% of TFR Notice:
Share Ownership: Required to purchase and maintain shares to the value of
50% of TFR by 30 June 2018.
Huw Bough
Katherine
Dean
David
Harradine
13 August
2014
22 February
2017
16 March
2015
Ongoing
$340,000
30% of
TFR
Ongoing
$320,000
Between
15% and 30%
of TFR upon
invitation to
participate
Ongoing
$380,000
Mandakini
Khanna
1 December
2015
Ongoing
$360,000
Paul Moss
13 May 2015 Ongoing
Craig Mowll
16 July 2018 Ongoing
Janelle Whittle
22 January
2018
Ongoing
$340,000
$390,000
$290,000
(1) TFR is per year and subject to market based review mechanisms.
(2) Subject to shareholder approval in the event that they exceed the equivalent of 1 year TFR in total.
42 | MyState Limited Annual Report 2018
The contract may be
terminated by the Company with
26 weeks notice or payment in
lieu of notice.
Entitlement:
• Pro-rata STI payment applied
as at 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 applicable
performance periods.
Other:
Required to purchase and
maintain shares to the value of
50% of TFR.
Notice:
The contract can be terminated
by the Company upon provision
of 3 months notice.
Entitlement:
• Payment of the equivalent of
6 months TFR (inclusive of the
provision of 3 months notice).
• Pro-rata STI payment applied
as at 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 applicable
performance periods.
Other
• Required to purchase and
maintain shares to the value
of 25% of TFR.
Directors’ Reportfor the year ended 30 June 2018 Signed in accordance with a resolution of the Directors.
M L Hampton
Chairman
Hobart
Dated this 17 August 2018
M A Sulicich
Managing Director
MyState Limited Annual Report 2018 | 43
Section 5 Non-financial assets, liabilities
and equity
5.1
5.2
5.3
5.4
Property, plant and equipment
Intangible assets and goodwill
Employee benefit provisions
Share capital
Section 6 Income tax expense, current and
deferred tax balances
6.1
Income tax expense, current and deferred
tax balances
Section 7 Group structure and related parties
7.1
7.2
7.3
Parent entity information
Controlled entities and principles
of consolidation
Related party disclosures
Section 8 Other notes
8.1
8.2
8.3
8.4
Contingent liabilities and expenditure
commitments
Remuneration of auditors
Events subsequent to balance date
Other significant accounting policies and
new accounting standards
74
75
77
78
79
81
82
83
84
85
85
86
Table of Contents
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Section 1 Corporate information and basis
1.1
1.2
1.3
1.4
of accounting
Reporting entity
Basis of accounting
Use of estimates and judgements
Provisions (other than for impairment of
financial assets)
Section 2 Financial performance
2.1
2.2
2.3
2.4
2.5
2.6
2.7
Net banking operating income
Income from wealth management activities
Income from other activities
Expenses
Earnings per share
Dividends
Segment financial information
Section 3 Capital and financial risk management
3.1
3.2
3.3
Capital management strategy
Financial risk management
Average balance sheet and sources of net
interest income
Section 4 Financial assets and liabilities
4.1
4.2
4.3
4.4
4.5
4.6
Cash and liquid assets
Financial instruments
Loans and advances
Transfer of financial assets
(securitisation program)
Deposits and other borrowings including
subordinated notes
Fair value of financial instruments
44 | MyState Limited Annual Report 2018
45
46
47
48
49
50
50
50
50
51
52
52
53
54
54
55
58
60
66
67
68
69
70
71
72
Results for the yearfor the year ended 30 June 2018 Consolidated Income Statement
for the year ended 30 June 2018
Notes
30 June 2018
$’000
30 June 2017
$’000
Interest income
Less: Interest expense
Net interest income
Non-interest income from banking activities
Net banking operating income
Income from wealth management activities
Profit from sale of other investments
Income from other activities
Total operating income
Less: Expenses
Personnel costs
Administration costs
Significant due dilligence project costs
Technology costs
Occupancy costs
Marketing costs
Governance costs
Total operating expenses
Profit before bad and doubtful debts and income tax expense
Less: Impairment expense on loans and advances
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to the:
Equity holders of MyState Limited
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
The accompanying notes form part of these financial statements.
2.1
2.1
2.1
2.2
2.3
2.3
2.4
2.4
2.4
4.3
6.1
2.5
2.5
188,264
182,220
(97,435)
(94,088)
90,829
88,132
16,988
18,360
107,817
106,492
18,516
16,738
–
6
1,362
24
126,339
124,616
38,196
38,069
18,027
18,874
–
1,279
12,071
10,838
6,287
3,768
2,546
6,930
3,542
2,633
80,895
82,165
45,444
42,451
455
213
44,989
42,238
13,528
12,158
31,461
30,080
31,461
30,080
34.97
34.97
34.04
34.04
MyState Limited Annual Report 2018 | 45
Consolidated Statement of
Comprehensive Income
for the year ended 30 June 2018
Profit for the year
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit or loss
Cash flow hedges – net gains/(losses) taken to equity
Change in fair value of financial assets at fair value through other
comprehensive income
Income tax effect
Total other comprehensive income/(expense) for the year
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Notes
30 June 2018
$’000
30 June 2017
$’000
31,461
30,080
(14)
(289)
–
4
(10)
(619)
272
(636)
31,451
29,444
Equity holders of MyState Limited
31,451
29,444
The accompanying notes form part of these financial statements.
46 | MyState Limited Annual Report 2018
Results for the yearfor the year ended 30 June 2018 Consolidated Statement of
Financial Position
as at 30 June 2018
Assets
Cash and liquid assets
Due from other financial institutions
Other assets
Financial instruments
Loans and advances
Property, plant and equipment
Deferred tax assets
Intangible assets and goodwill
Total assets
Liabilities
Due to other financial institutions
Other liabilities
Deposits and other borrowings including subordinated notes
Employee benefits provision
Tax liabilities
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Reserves
Total equity
The accompanying notes form part of these financial statements.
Notes
30 June 2018
$’000
30 June 2017
$’000
4.1
67,876
64,226
4.2
4.3
5.1
6.1
5.2
4.5
5.3
6.1
25,826
6,950
35,161
6,577
406,864
420,769
4,565,256
4,282,525
7,034
3,948
8,296
4,718
89,577
88,179
5,173,331
4,910,451
33,334
34,319
7,666
6,801
4,801,404
4,548,966
5,341
4,924
5,370
4,091
4,852,669
4,599,547
320,662
310,904
5.4
145,380
141,349
170,568
164,358
4,714
5,197
320,662
310,904
MyState Limited Annual Report 2018 | 47
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48 | MyState Limited Annual Report 2018
Results for the yearfor the year ended 30 June 2018
Consolidated Statement of Cash Flows
for the financial year ended 30 June 2018
Notes
30 June 2018
$’000
30 June 2017
$’000
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Dividends received
Other non-interest income received
Payments to suppliers and employees
Income tax paid
198,704
190,677
(98,573)
(94,283)
33,861
33,457
–
1,836
15
774
(74,223)
(76,855)
(11,924)
(13,157)
Net cash flows from/(used in) operating activities
4.1
49,681
40,628
Cash flows from investing activities
Purchase of intangible assets
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Net (increase) in loans to customers
Net increase/(decrease) in amounts due from other financial institutions
Proceeds from sale of other investments
Proceeds from/(payments for) other investments
Net cash flows from/(used in) investing activities
Cash flows from financing activities
Employee share issue
(5,952)
(12,166)
7
(313)
15
(714)
(293,196)
(428,054)
22,507
(86,066)
648
3,857
–
168
(276,299)
(522,960)
82
80
Dividends paid net of dividend reinvestment plan
2.6
(21,953)
(18,629)
Net increase/(decrease) in subordinated notes
Net increase in deposits and other borrowings
Net increase/(decrease) in due to other financial institutions
Net cash flows from (used in) financing activities
Net increase/(decrease) in cash held
Cash at beginning of financial year
Closing cash carried forward
The accompanying notes form part of these financial statements.
(50)
10,032
72,808
289,769
179,381
185,180
230,268
466,432
3,650
(15,900)
64,226
80,126
4.1
67,876
64,226
MyState Limited Annual Report 2018 | 49
1.1 Reporting entity
MyState Limited (the Company) is incorporated and domiciled
in Australia and is a company limited by shares that are
publicly traded on the Australian Securities Exchange. The
consolidated financial statements of MyState Limited and
its subsidiaries (the Group) were authorised for issue by the
Directors on 17 August 2018.
Rounding of amounts
The Company is a company of the kind referred to in Australian
Securities and Investments Commission (ASIC) Class Order
2016/191, and, in accordance with that Class Order, amounts
in the financial report are rounded off to the nearest thousand
dollars, unless otherwise indicated. All amounts are presented
in Australian dollars.
1.3 Use of estimates and judgement
The preparation of the financial report in conformity with
Australian Accounting Standards requires the use of certain
critical accounting estimates. It also requires management to
exercise judgment in the process of applying the accounting
policies. The notes to the financial statements set out areas
involving a higher degree of judgment or complexity, or
areas where assumptions are significant to the financial report
such as:
• Recoverability of deferred tax assets, refer note 6.1;
•
Impairment losses on loans and advances, refer note 4.3;
• Fair value of financial instruments, refer note 4.6; and
•
Impairment assessment of intangibles and goodwill, refer
note 5.2.
1.4 Provisions (other than for impairment of
financial assets)
Provisions are recognised when the Group has a legal,
equitable or constructive obligation to make a future sacrifice
of economic benefits to other entities as a result of past
transactions or other past events and it is probable that a
future sacrifice of economic benefits will be required and a
reliable estimate can be made of the amount of the obligation.
1.2 Basis of accounting
These consolidated financial statements are general purpose
financial statements which have been prepared in accordance
with the Corporations Act 2001, Accounting Standards and
Interpretations, and other requirements of the law. Compliance
with Australian Accounting Standards ensures that the financial
statements and notes of the Company and the Group comply
with International Financial Reporting Standards (IFRS).
The financial statements comprise the consolidated financial
statements of the Group. For the purpose of preparing
the consolidated financial statements, the Company is a
for-profit entity.
Where necessary, comparatives figures have been
re-classified and re-positioned for consistency with current
period disclosures.
Early Adoption of AASB 9 Financial
Instruments (2010)
Under s. 334(5) of the Corporations Act 2001, the Directors
have elected to apply Accounting Standard AASB 9 (2010)
Financial Instruments (with the exception of impairment
requirements) for the financial year beginning 1 July 2014, even
though the standard is not required to be applied until annual
reporting periods beginning on or after 1 January 2018.
The classification and measurement of other financial assets
and liabilities is unchanged.
The consolidated financial statements have been prepared on
the basis of historical cost, except for certain properties and
financial instruments that are measured at revalued amounts or
fair values at the end of each reporting period, as explained in
the accounting policies.
The following transactions are exceptions to these described
methods of determining fair values:
• Share-based payment transactions that are within the
scope of AASB 2; and
• Leasing transactions that are within the scope of AASB 117.
50 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 2.1 Net banking operating Income
Interest income
Loans and advances
Investment securities
Total interest income
Interest expense
At call deposits
Fixed term deposits
Total interest expense
Non-interest income from banking activities
Transaction fees
Loan fee income
Banking commissions
Other banking operations income
30 June 2018
$’000
30 June 2017
$’000
177,869
172,163
10,395
10,057
188,264
182,220
14,281
11,161
83,154
82,927
97,435
94,088
7,224
4,725
3,665
1,374
7,776
5,100
3,797
1,687
Total non-interest income from banking activities
16,988
18,360
Income accounting policy
Income is recognised to the extent that it is probable that the economic benefits will flow to the entity and the income can be
reliably measured. The following specific recognition criteria must also be met before income is recognised.
Interest, fees and commissions
Control of a right to receive consideration for the provision of, or investment in, assets has been attained. Interest, fees and
commission revenue is brought to account on an accrual basis.
Interest income is accrued using the effective interest rate method, which is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial instrument. Loan origination fees are recognised as components of the
calculation of the effective interest rate method in relation to originated loans. They, therefore, affect the interest recognised
in relation to this portfolio of loans. The average life of loans in the relevant loan portfolios is reviewed annually to ensure the
amortisation methodology for loan origination fees is appropriate.
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.
MyState Limited Annual Report 2018 | 51
2.2
Income from wealth management activities
Funds management income
Other fees and commissions
Total Income from wealth management activities
Funds management income and fiduciary activities
30 June 2018
$’000
30 June 2017
$’000
10,122
8,394
9,456
7,282
18,516
16,738
Tasmanian Perpetual Trustees Limited, a controlled entity of the Group, acts as Responsible Entity, Trustee and Funds Manager
for ten managed investment schemes. The investment schemes place monies with external wholesale fund managers,
direct mortgages and mortgaged backed securities, term deposits and other investments. The clients include individual,
superannuation and corporate investors.
The assets and liabilities of these funds are not included in the Consolidated Financial Statements. Income earned by the Group
in respect of these activities are included in the Consolidated Income Statement of the Group as “Funds management income”.
The following table shows the balance of the unconsolidated funds under management and funds under advice that gives rise to
funds management and other fees and commissions income respectively:
Funds under management
Funds under advice
Other fees and commissions
30 June 2018
$’M
30 June 2017
$’M
1,153
1,089
809
778
Tasmanian Perpetual Trustees Pty Ltd provides financial planning, private client tax accounting services and acts as trustee and
executor of estates. “Other fees and commissions income” is the income earned from these activities.
Income accounting policy
Funds management income and other fees and commissions income is brought to account on an accrual basis to the extent that:
•
It is probable that the economic benefits will flow to the entity;
• The revenue can be reliably measured; and
• Control of a right to receive consideration for the provision of, or investment in, assets has been attained.
2.3
Income from other activities
Profit from sale of other investments
In 2017, Tasmanian Perpetual Trustees Limited disposed of its investment in listed
shares. The carrying value of these shares at the date of disposal was $3.84m.
Dividends from other corporations
Profit on sale of property plant and equipment assets
Total income from other activities
Dividend accounting policy
Dividends are recorded as income when the right to receive the dividend is established.
52 | MyState Limited Annual Report 2018
30 June 2018
$’000
30 June 2017
$’000
–
1,362
–
6
6
15
9
24
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 2.4 Expenses
The following items are included within each item of specified expenses:
Occupancy costs include:
Operating lease payments
Depreciation – buildings and leasehold improvements
Technology costs include:
Amortisation – computer software
Administration costs include:
Amortisation – other intangibles
Depreciation – furniture and equipment
Expense accounting policy
Operating lease expense
30 June 2018
$’000
30 June 2017
$’000
4,060
1,014
4,117
1,548
3,236
2,167
1,318
427
803
675
Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement,
to reflect the risks and benefits incidental to ownership. The minimum lease payments of operating leases, where the lessor
effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a
straight-line basis in the Consolidated Income Statement over the life of the lease.
Depreciation and amortisation expense
The Group adopts the straight line method of depreciating property, plant and equipment and amortising intangible assets over
the estimated useful lives commencing from the time the asset is held ready for use. Leasehold improvements are depreciated
over the shorter of either the unexpired expected term of the lease or the estimated useful life of the improvements. Estimated
useful lives are:
Buildings
Office furniture, fittings & equipment
Building fit-out (owned buildings)
Computer hardware
Software
40 years
4 – 7 years
4 – 15 years
3 years
3 – 10 years
MyState Limited Annual Report 2018 | 53
2.5 Earnings per share
Basic earnings per share
Diluted earnings per share
30 June 2018
cents
30 June 2017
cents
34.97
34.97
34.04
34.04
Earnings per share accounting policy
Basic earnings per share is calculated by dividing the Group’s profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the financial year. Diluted earnings per share is calculated by dividing the
Group’s profit attributable to ordinary equity holders by the weighted average number of ordinary shares that would be issued on
the exchange of all the dilutive potential ordinary shares into ordinary shares.
The following table details the income and weighted average number of shares used in the calculation of basic and diluted
earnings per share:
Profit for the year
Weighted average number of ordinary shares used in calculating basic and diluted
earnings per share
2.6 Dividends
Dividends paid
2016 Final dividend paid – 14.5 cents per share
2017 Interim dividend paid – 14.0 cents per share
2017 Final dividend paid – 14.5 cents per share
2018 Interim dividend paid – 14.25 cents per share
The dividends paid during the year were fully franked at the 30% corporate tax rate.
30 June 2018
$’000
30 June 2017
$’000
31,461
30,080
Number
Number
89,959,758
88,355,988
Date of
payment
30 June 2018
$’000
30 June 2017
$’000
3 Oct 2016
10 Mar 2017
–
–
12,740
12,302
13 Sep 2017
12,970
29 Mar 2018
12,824
–
–
25,794
25,042
30 June 2018
$’000
30 June 2017
$’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%
63,933
61,797
Franking credits that will arise from the payment of income tax payable at the end of
the period
2,561
837
54 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 Dividends not recognised at the end of the financial year
On 17 August 2018, the Directors resolved to pay a final dividend for the 2018 financial year of 14.5 cents per share or $13.10m total
to be paid on the 25th of September 2018, 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 $5.61m.
2.7 Segment financial information
Operations of reportable segments
The Group has identified two operating divisions and a corporate division, which are its reportable segments. These divisions
offer different products and services and are managed separately. The Group’s management committee review internal
management reports for each of these divisions at least monthly.
Banking division
The banking division’s product offerings include lending; encompassing home loans, personal, overdraft, line of credit and
commercial products, transactional savings accounts and fixed term deposits and insurance products. It delivers these products
and services through its branch network, digital channels and third party channels. The banking division is conducted by the
MyState Bank Group.
Wealth management division
The wealth management division is a provider of funds management, financial planning and trustee services. It operates
predominantly within Tasmania. It holds $1.15 billion in funds under management on behalf of personal, business and wholesale
investors as the responsible entity for 10 managed investment schemes. The wealth management division is conducted by
Tasmanian Perpetual Trustees Limited. Tasmanian Perpetual Trustees Limited is a trustee company licensed within the meaning of
Chapter 5D of the Corporations Act 2001 and is the only private trustee company with significant operations in Tasmania.
Corporate and consolidation division
The corporate cost centre is responsible for the governance of the Group. The corporate cost centre charges the operating
divisions on a cost recovery basis for costs it has incurred. This division is also where eliminations are allocated between the
banking division and the wealth management division.
MyState Limited Annual Report 2018 | 55
Wealth
Management
$’000
Corporate
and
Consolidation
$’000
Total
$’000
Banking
$’000
187,999
184
81
188,264
(97,435)
7,224
4,725
3,665
1,615
–
–
–
–
–
–
–
–
6
10,122
8,394
–
–
–
(97,435)
–
–
–
7,224
4,725
3,665
(241)
1,374
–
–
–
–
10,122
8,394
–
6
107,799
18,700
(160)
126,339
25,475
7,476
5,245
38,196
22,325
3,210
(7,508)
18,027
–
11,599
5,403
3,501
655
441
–
410
741
230
68
14
11,495
1,986
26,905
4,565
–
62
143
37
–
12,071
6,287
3,768
1,823
2,546
–
47
(9)
455
13,528
31,461
5,094,131
27,646
51,554
5,173,331
4,847,633
3,291
1,745
4,852,669
Year ended 30 June 2018
Interest income
Interest expense
Other income
Transaction fees
Loan fee income
Banking commissions
Other banking operations income
Funds management income
Other wealth management fees and commissions
Profit from sale of other investments
Income from other activities
Total operating income
Expenses
Personnel costs
Administration costs
Significant due diligence project costs
Technology costs
Occupancy costs
Marketing costs
Governance costs
Impairment expense on loans and advances
Income tax expense
Segment profit for the year
Segment balance sheet information
Segment assets
Segment liabilities
56 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 20182.7 Segment financial information (continued) Year ended 30 June 2017
Interest income
Interest expense
Other income
Transaction fees
Loan fee income
Banking commissions
Other banking operations income
Funds management income
Other wealth management fees and commissions
Profit from sale of other investments
Income from other activities
Total operating income
Expenses
Personnel costs
Administration costs
Significant due diligence project costs
Technology costs
Occupancy costs
Marketing costs
Governance costs
Impairment expense on loans and advances
Income tax expense
Segment profit for the year
Segment balance sheet information
Segment assets
Segment liabilities
Wealth
Management
$’000
Corporate
and
Consolidation
$’000
Total
$’000
Banking
$’000
181,875
(94,088)
7,776
5,100
3,797
1,821
–
–
–
24
159
–
–
–
–
–
9,456
7,282
1,387
–
106,305
18,284
25,565
21,879
1,279
10,325
5,990
3,255
492
213
11,038
26,269
7,336
4,022
–
430
805
182
70
–
1,624
3,815
186
–
–
–
–
(134)
–
–
–
(25)
27
5,168
(7,027)
–
83
135
105
2,071
–
(504)
182,220
(94,088)
7,776
5,100
3,797
1,687
9,456
7,282
1,387
(1)
124,616
38,069
18,874
1,279
10,838
6,930
3,542
2,633
213
12,158
(4)
30,080
4,834,688
25,385
50,378
4,910,451
4,596,089
2,652
806
4,599,547
MyState Limited Annual Report 2018 | 57
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 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).
Level 2 is comprised of the wider MyState Limited
prudential group. This group includes MyState Limited (the
non-operating holding company), MyState Bank Limited
and Connect Asset Management (the Securitisation
programme Manager).
All entities that are consolidated for accounting purposes
are included within the Level 2 regulatory capital calculation
except for certain securitisation vehicles and Tasmanian
Perpetual Trustees 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 Tasmanian Perpetual
Trustees. 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 and also
includes a three year forecast of capital adequacy which is
prepared and submitted to the Board at least annually. The
ICAAP encompasses known financial events, dividend policy,
capital raisings, securitisation and stress testing.
58 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 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 as at 30 June 2018 is detailed in the following table:
Qualifying capital
Common equity tier 1 capital
Paid-up ordinary share capital
Retained earnings(2)
Reserves excluding general reserve for credit losses
Total common equity tier 1 capital
Regulatory adjustments
Deferred expenditure including deferred tax assets
Goodwill and intangibles
Other deductions
Total regulatory adjustments
Net common equity tier 1 capital
Tier 2 capital
Subordinated notes(1)
General reserve for credit losses
Total capital
Risk weighted assets
Capital adequacy ratio
30 June 2018
$’000
30 June 2017
$’000
145,400
141,349
182,262
177,819
483
956
328,145
320,124
25,950
24,270
49,800
49,760
54,065
53,141
129,815
127,171
198,330
192,953
29,323
29,944
4,400
4,428
232,053
227,325
1,722,248
1,710,329
13.47%
13.29%
(1) On the 14th August 2015, the Group issued $25 million of floating rate subordinated notes (“notes”). The issuer was MyState Bank Limited. The notes
have a term of 10 years, maturing 14th August 2025, and pay interest quarterly at a floating rate equal to the three-month BBSW plus a margin of 5%
per annum. The issuer has the option to redeem all or some of the notes on 14th August 2020 and each quarterly interest payment date thereafter,
and for certain regulatory events (in each case subject to APRA’s prior written approval).
On the 28th September 2016, the Group issued $10 million of floating rate subordinated notes (“notes”). The issuer was MyState Bank Limited. The
notes have a term of 10 years, maturing 26th 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. The amount included in the Group’s Level 2 Tier 2 regulatory capital is a percentage equal to that of external interest in the Group’s
regulatory capital. The amount included in the Group’ Level 1 Tier 2 regulatory capital is 100%.
(2) The impact of AASB 9 Financial Instruments (2010), specifically impairment requirements, on capital is discussed further in note 8.4.
MyState Limited Annual Report 2018 | 59
3.2 Financial risk management
Risk management is an integral part of the Group’s business processes. The Board sets policy to mitigate risks and ensure
the risk management framework is appropriate, to direct the way in which the Group conducts business. Promulgated Board
approved policies ensure compliance throughout the business, which are monitored by way of a dedicated compliance system.
Risk management plans exist for all documented risks within the Group and these plans are reviewed regularly by the Executive
Management Team, the Group Risk Committee and the Board. Business units are accountable for risks in their area and are
responsible for ensuring the appropriate assessment and management of these risks.
Risk exposure profile
The Group actively monitors a range of risks, which are not limited to, but include the following:
• Credit risk,
• Market risk; and
• Liquidity risk.
3.2.1 Credit risk
Approach to credit risk management
Credit risk arises within the Group’s lending and treasury investment activities and is the risk that a counterparty may fail to
complete its contractual obligations when they fall due.
The Group’s approach to managing this risk is to separate prudential control from operational management by assigning
responsibility for approval of credit exposures to specific individuals and management committees. The Group Risk Committee
has oversight of credit risk exposures and the Risk and Credit Committee monitors credit related activities through regular
reporting processes, including monitoring large exposure to single groups and counterparties. The roles of funding and oversight
of credit are separate.
Board approved lending policies guide the processes for all loan approvals by subsidiary operations. All loans over a designated
amount, whether within delegated limits or not, are reported to the Group Risk Committee on a regular basis. Any loan outside of
delegated limits must be approved by the Board prior to funding.
Maximum exposure to credit risk
The amounts disclosed in the following table are the maximum exposure to credit risk, before taking account of any collateral
held or other credit enhancements. For financial assets recognised on the Balance Sheet, the exposure to credit risk equals their
carrying amount. For customer commitments, the maximum exposure to credit risk is the full amount of the committed facility as
at the reporting date.
Cash and liquid assets
Due from other financial institutions
Other assets
Financial instruments
Loans and advances
Customer commitments(1)
Maximum exposure to credit risk
(1) For further information regarding these commitments, refer to note 8.1.
60 | MyState Limited Annual Report 2018
30 June 2018
$’000
30 June 2017
$’000
67,876
64,226
25,826
35,161
6,950
6,577
406,864
420,769
507,516
526,733
4,565,256
4,282,525
142,924
117,472
5,215,696
4,926,730
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 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.
Credit quality of financial assets
Financial assets other than loans and advances at amortised cost
Equivalent S&P rating A+ and above
Equivalent S&P rating A- and below
Loans and advances at amortised cost
New Facilities – not closely monitored
New Facilities – closely monitored
Continuing facilities – not closely monitored
Continuing facilities – closely monitored
Total on balance sheet exposure to credit risk
30 June 2018
$’000
30 June 2017
$’000
251,611
263,302
256,053
263,431
1,153,123
1,271,704
1,769
730
3,391,212
2,990,147
19,152
19,944
5,072,920
4,809,258
New facilities are loans that have been funded within the financial year.
Neither past due or impaired
4,543,568
4,260,413
Past due but not impaired – loans and advances at amortised cost
31 to 60 days
61 to 90 days
More than 90 days
Total past due but not impaired
Impaired – loans and advances at amortised cost
Maximum exposure to credit risk
Estimate of collateral held against past due but not impaired assets
Estimate of collateral held against impaired assets
9,736
3,645
5,402
4,560
7,420
10,577
20,801
20,539
887
1,573
4,565,256
4,282,525
31,640
35,119
420
2,360
Estimate of collateral held
The Group holds collateral against loans and advances to customers in the form of a mortgage charge over property. To mitigate
credit risk, the bank (ADI) can take possession of the security held against the loans and advances as a result of customer default.
The collateral shown above is an estimate of the value of collateral held, it is not practicable to determine the fair value.
MyState Limited Annual Report 2018 | 61
3.2 Financial risk management (continued)
Credit quality is impacted by concentration risk created by the ensuing vulnerability of assets to similar conditions such as
economic or political factors. The Group monitors the geographical diversification of its loans and advances. An analysis of this
concentration of credit risk at the reporting date is shown in the following table:
Tasmania
Victoria
New South Wales
Queensland
Western Australia
Australian Capital Territory
Northern Territory
South Australia
Gross loans and advances at amortised cost
There are no loans that individually represent 10% or more of shareholders’ equity.
3.2.2 Market risk
Managing market risk
30 June 2018
$’000
30 June 2017
$’000
2,135,169
2,181,829
698,673
556,010
950,419
762,536
630,015
614,823
76,106
84,366
34,551
39,869
37,691
41,615
3,213
2,434
4,565,837
4,283,482
Market risk is the exposure to adverse changes in the value of the Group’s portfolio as a result of changes in market prices or
volatility. The Group is exposed primarily to interest rate risk.
Interest rate risk exposure
The operations of the ADI is subject to the risk of interest rate fluctuations as a result of mismatches in the timing of the repricing
of interest rate on their assets and liabilities.
Value at Risk (VaR)
The following table indicates the VaR based on historical data. The Group estimates VaR as the potential loss in earnings from
adverse market movements over a 20 day holding period to a 99% confidence level. VaR takes account of all material market
variables that may cause a change in the value of the loan portfolio. Although an important tool for the measurement of market
risk, the assumptions underlying the model are limited to reliance on historical data.
Value at risk (post-tax) based on historic data
Average
Minimum
Maximum
Derivatives
30 June 2018
$’000
30 June 2017
$’000
1,437
818
2,019
2,326
1,455
3,444
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.
62 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 Derivatives accounting policy
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and subsequently
remeasured to their fair value. Fair values are obtained
from quoted market prices in active markets. Movements
in the carrying amounts of derivatives are recognised in the
Consolidated Income Statement, unless the derivative meets
the requirements for hedge accounting.
The Group documents the relationship between the hedging
instruments and hedged items at inception of the transaction,
as well as its risk management objective and strategy for
undertaking various hedge transactions. The Group also
documents its assessment of whether the derivatives used in
hedging transactions have been or will continue to be, highly
effective in offsetting changes in the fair values or cash flows of
hedged items. This assessment is carried out both at inception
and on a monthly basis.
Cash flow hedges
The Group has cash flow hedges that are used to hedge
the variability of interest rates in relation to certain liabilities.
These derivative instruments are established with terms that
exactly match the terms of the liability designated as the
hedged item and therefore form highly effective relationships.
The portion of the liability designated in the hedging
relationship is determined by reference to specific fixed rate
assets within the loan portfolio. Sources of ineffectiveness
are limited to credit risk of parties to the relationship. The
Group tests for ineffectiveness each month. The variability in
fair values attributable to an item designated as a cash flow
hedge is recognised in Other Comprehensive Income to the
extent of the hedges effectiveness. Any ineffective portion
of the change in the fair value of a derivative is recognised
immediately in the Consolidated Income Statement.
Derivatives that do not qualify for hedge accounting
If a derivative expires or is sold, terminated, or exercised, or
no longer meets the criteria for hedge accounting, or the
designation is revoked, then hedge accounting is discontinued
and the amount recognised in Other Comprehensive Income
remains in Other Comprehensive Income until the forecast
transaction affects the Consolidated Income Statement. If
the forecast transaction is no longer expected to occur, it
is reclassified to the Consolidated Income Statement as a
reclassification adjustment.
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.
3.2.3 Liquidity risk
Managing liquidity risk
Liquidity risk is the risk that the Group is unable to meet its
financial and statutory obligations as they fall due, which could
arise due to mismatches in cash flows.
The Group’s objective is to manage its funds in a way that will
facilitate growth in core business under a wide range of market
conditions. The Group maintains, and adheres to, an Internal
Liquidity Adequacy Assessment Plan (ILAAP). This process
includes acknowledgements of liquidity risks within the Group
and justification of the amount of liquidity that is being held
based on the liquidity risk profile of the organisation.
Group Treasury is responsible for implementing liquidity risk
management strategies in accordance with the ILAAP. The
Group’s Assets and Liabilities Committee (ALCO) assists
the Board with oversight of asset and liability management
including liquidity risk management. The Group’s liquidity
policies are approved by the Board after endorsement by the
Group Risk Committee and the Banking Group’s ALCO.
The Group maintains a portfolio of highly marketable
assets that can be liquidated in the event of an unforeseen
interruption of cash flows. The Group also has committed lines
of credit that it can access to meet its liquidity needs. Liquidity
scenarios are calculated under stressed and normal operating
conditions, to assist in anticipating cash requirements
providing adequate reserves.
Liquidity risk exposure
The Group is exposed to liquidity risk primarily through its
banking activities.
The Group’s contractual cash flows associated with its
financial liabilities and hedging derivatives, within relevant
maturity groupings is as follows. These are presented on an
undiscounted basis and, therefore, will not agree to amounts
presented on the Consolidated Statement of Financial
Position as they incorporate principal and associated future
interest payments.
MyState Limited Annual Report 2018 | 63
3.2 Financial risk management (continued)
On demand
$’000
< 3 months
$’000
3 months to
1 year
$’000
1 year to
5 years
$’000
> 5 years
$’000
Total
$’000
2018
At call deposits
Due to other financial institutions
Term deposits
Negotiable certificates of deposit
Subordinated notes
Securitisation liabilities
Derivative liability
2017
At call deposits
Due to other financial institutions
Term deposits
Negotiable certificates of deposit
Subordinated notes
Securitisation liabilities
1,564,556
–
33,334
–
–
–
–
688,696
980,795
21,984
330,950
72,000
–
–
1,564,556
–
–
–
33,334
1,691,475
402,950
591
1,773
9,456
42,624
54,444
75,314
225,943
1,034,104
–
1,335,361
1,460,758
–
34,319
–
–
–
–
825,776
819,453
34,743
376,200
69,500
–
–
–
–
–
1,460,758
34,319
1,679,972
445,700
570
1,710
9,120
40,318
51,718
49,997
149,991
799,950
111,104
1,111,042
–
–
–
–
–
–
–
–
–
Contractual amounts payable
1,564,556
1,128,885
1,280,511
1,065,544
42,624
5,082,120
–
1,573
2,635
4,622
–
8,830
Contractual amounts payable
1,460,758
1,286,862
1,040,654
843,813
151,422
4,783,509
Derivative liability
–
209
1,308
9,734
–
11,251
64 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 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 2018
30 June 2017
Less than
12 months
$’000
More than
12 months
$’000
Total
$’000
Less than
12 months
$’000
More than
12 months
$’000
Total
$’000
Financial assets
Cash and liquid assets
Due from other financial institutions
Other assets
67,876
25,826
6,950
–
–
–
67,876
64,226
25,826
35,161
6,950
6,577
–
–
–
64,226
35,161
6,577
Financial instruments
245,023
161,841
406,864
257,322
163,447
420,769
Loans and advances
Total financial assets
Financial liabilities
Due to other financial institutions
Other liabilities
Deposits
Subordinated notes
Securisation liabilities
92,773
4,472,483
4,565,256
105,727
4,176,798
4,282,525
438,448
4,634,324
5,072,772
469,013
4,340,245
4,809,258
(33,334)
(7,666)
–
–
(33,334)
(34,319)
(7,666)
(6,801)
–
–
(34,319)
(6,801)
(3,604,154)
(20,751)
(3,624,905)
(3,519,810)
(32,336)
(3,552,146)
–
(34,745)
(34,745)
–
(34,695)
(34,695)
(257,580)
(884,174)
(1,141,754)
(173,183)
(788,942)
(962,125)
Total financial liabilities
(3,902,734)
(939,670)
(4,842,404)
(3,734,113)
(855,973)
(4,590,086)
Net contractual amounts
receivable/(payable)
(3,464,286)
3,694,654
230,368
(3,265,100)
3,484,272
219,172
MyState Limited Annual Report 2018 | 65
3.3 Average balance sheet and source of net interest income
The following table shows the major categories of interest-earning assets and interest-bearing liabilities, together with their
respective interest earned or paid by the Group and the average interest rates. Averages are calculated based on the balance at
each month end.
30 June 2018
30 June 2017
Average
balance
$’000
Interest
$’000
Average rate
%
Average
balance
$’000
Interest
$’000
Average rate
%
Average interest earning assets and
interest income
Interest-earning assets
Cash and liquid assets
Financial instruments
Loans and advances
61,418
279
0.45%
78,636
408,321
10,116
2.48%
380,293
567
9,490
4,337,717
177,869
4.10%
4,100,642
172,163
0.72%
2.50%
4.20%
Total average interest-earning assets
4,807,456
188,264
3.92% 4,559,571
182,220
4.00%
Non-interest earning assets
107,074
–
–
126,301
–
–
Total average assets
4,914,530
188,264
3.83% 4,685,872
182,220
3.89%
Average liabilities and interest expense
Interest-bearing liabilities
Deposits and derivatives
3,533,281
64,106
1.81%
3,442,306
65,742
Notes and bonds on issue
1,058,130
33,329
3.15%
903,172
28,346
1.91%
3.14%
Total average interest-bearing liabilities
4,591,411
97,435
2.12% 4,345,478
94,088
2.17%
Non-interest bearing liabilities
49,657
–
–
34,923
–
–
Total average liabilities
4,641,068
97,435
2.10% 4,380,401
94,088
2.15%
Reserves
295,266
–
–
285,200
–
–
Total average liabilities and reserves
4,936,334
97,435
1.97% 4,665,601
94,088
2.02%
66 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018
4.1 Cash and liquid assets
Notes, coins and cash at bank
Other short term liquid assets
Total cash and liquid assets
Notes to the statements of cash flows
30 June 2018
$’000
30 June 2017
$’000
62,452
62,125
5,424
2,101
67,876
64,226
Reconciliation of profit for the year to net cash provided by operating activities
Profit for the year
31,461
30,080
Add/(less) items classified as investing/financing activities or non-cash items:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Gain on sale of investment
Loss on disposal of equipment
Gain on sale of equipment
Bad and doubtful debts expense net of recoveries
Deferred upfront lending costs
Share based payment
Tax movement within reserves
Changes in assets and liabilities
Decrease/(increase) in due from other financial institutions
Decrease/(increase) in other assets
Decrease/(increase) in deferred tax assets
Increase/(decrease) in due to other financial institutions
Increase/(decrease) in other liabilities
Increase/(decrease) in employee benefit provisions
Increase/(decrease) in tax liabilities
Net cash flows used in operating activities
Accounting policies
Cash and liquid assets
1,441
4,554
162
(6)
455
9,959
174
4
449
(373)
770
(1,038)
865
(29)
833
2,223
2,970
(1,362)
–
(9)
213
8,476
281
272
215
(758)
(1,054)
(298)
(160)
(145)
(316)
49,681
40,628
Cash and liquid assets in the Consolidated Statement of Financial Position and for the purposes of the Consolidated Statement of
Cash Flows comprise cash at bank and in hand and short-term deposits with an original maturity of less then three months, net of
outstanding bank overdrafts. Cash flows arising from deposits, share capital, investments, loans to subsidiaries and investments in
associates are presented on a net basis in the Statement of Cash Flows.
MyState Limited Annual Report 2018 | 67
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.
4.2 Financial instruments
Financial instruments at amortised cost
Negotiable certificates of deposits
Term deposits
Floating rate notes
Other deposits
Total financial instruments at amortised cost
Financial instruments at fair value
Derivatives
Other financial instruments at fair value
Total financial assets
Accounting policies
Financial instruments at amortised cost
30 June 2018
$’000
30 June 2017
$’000
177,022
186,003
35,700
35,700
191,542
196,181
2,028
1,504
406,292
419,388
(428)
(267)
1,000
1,648
406,864
420,769
Financial instruments at amortised cost are those non-derivative financial assets that the Company has acquired with the
objective of holding in order to collect contractual cash flows. The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial instruments at fair value
Financial instruments other than those carried at amortised cost, are carried at their fair value at the reporting date. Note 4.6
contains information on how the group determines fair values. Fair value gains and losses are recognised in comprehensive
income until the derecognition date, at which point the net gains and losses are transferred to profit or loss for that instrument.
Derecognition of financial assets and liabilities
Financial assets are derecognised when the contractual rights to receive cash flows from the assets have expired, or where
the Bank has transferred its contractual rights to receive the cash flows of the financial assets and substantially all the risks and
rewards of ownership. Financial liabilities are derecognised when they are extinguished, i.e. when the obligation is discharged,
cancelled or expired.
68 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 20184.1 Cash and liquid assets (continued) 4.3 Loans and advances
Classification of loans and advances at amortised cost
Residential loans secured by mortgage
Personal loans and unsecured overdrafts
Overdrafts secured by mortgage
Commercial loans
Total loans and advances at amortised cost
Specific provision for impairment
Collective provision for impairment
30 June 2018
$’000
30 June 2017
$’000
4,374,002
4,090,546
74,450
77,249
44,915
52,261
72,470
63,426
4,565,837
4,283,482
222
359
620
337
Total loans and advances at amortised cost net of provision for impairment
4,565,256
4,282,525
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
Specific provision for impairment
Opening balance
Charge/(credit) against profit
Write-off of previously provisioned facilities
Closing balance of specific provision for impairment
Collective provision for impairment
Opening balance
Charge/(credit) against profit
Write-off of previously provisioned facilities
Closing balance of collective provision for impairment
Charge to profit for impairment on loans and advances
Increase/(decrease) in specific provision for impairment
Increase/(decrease) in collective provision for impairment
Bad debts recovered
Bad debts written off directly
Total impairment expense on loans and advances
Impairment of financial assets accounting policy
620
39
(437)
222
337
685
(663)
359
(398)
22
(988)
1,819
455
567
94
(41)
620
491
322
(476)
337
53
(154)
(1,131)
1,445
213
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
MyState Limited Annual Report 2018 | 69
of the financial asset, the estimated future cash flows of the investment have been affected. The primary source of credit risk for
the Group arises on its loan portfolio. In relation to this portfolio, the Group maintains an individually assessed provision and a
collective provision.
Specific provisions for impairment are made against individual risk rated credit facilities where a loss is expected. The provisions
are measured as the difference between a financial asset’s carrying amount and the expected future cash flows. All other loans
and advances that do not have an individually assessed provision are assessed collectively for impairment. The evaluation process
is undertaken by categorising all loans in to a credit risk hierarchy based on a series of estimates and judgements based on APRA
Prudential Standard APS 220 – Credit Quality.
4.4 Transfer of financial assets (securitisation program)
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 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.
Transferred financial assets:
Loans and advances
Associated financial liabilities
Carrying value at
transaction date
30 June 2018
$’000
30 June 2017
$’000
449,344
420,232
Securitisation liabilities to external investors
440,490
400,692
Transfer of financial assets accounting policy
Once assets are transferred to a securitisation vehicle, the Group does not have the ability to use the transferred assets during the
term of the arrangement. The Group does not have any loans transferred to unconsolidated securitisation vehicles.
The consolidated securitisation vehicles generally transfer all the risks and rewards of ownership of the assets to the investors
in the notes. However, derecognition of the transferred assets from the Group is prohibited because the cash flows that the
securitisation vehicles collect from the transferred assets on behalf of the investors are not passed to them without material delay.
In these cases, the consideration received from the investors in the notes in the form of cash is recognised as a financial asset
and a corresponding financial liability is recognised. The investors in the notes have recourse only to the cash flows from the
transferred financial assets.
Interest in Joint Operations accounting policy
Securitised positions are held through a number of Special Purpose Entities (SPE’s). These entities are classified as joint
operations, as the parties that have joint control of the arrangement, have rights to the assets, and obligations for the liabilities,
relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement which exists only when
decisions about the relevant activities requires unanimous consent of the parties sharing control.
The Group recognises its interest in a joint operation:
•
•
•
•
Its assets, including its share of any assets held jointly;
Its liabilities, including its share of any liabilities incurred jointly;
Its share of the revenue from the sale of the output by the joint operation; and
Its expenses, including its share of any expenses incurred jointly.
The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with
the AASBs applicable to the particular assets, liabilities, revenues and expenses.
70 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 20184.3 Loans and advances (continued) When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a sale or contribution of
assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and
losses resulting from the transactions are recognised in the Group’s consolidated financial statements only to the extent of other
parties’ interests in the joint operation. When a Group entity transacts with a joint operation in which a group entity is a joint
operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it re-sells those assets
to a third party.
4.5 Deposits and other borrowings including subordinated notes
Deposits
At call deposits
Term deposits
Negotiable certificates of deposit
Total deposits
Other borrowings
Subordinated notes(1)
Securitisation liabilities
Total deposits and other borrowings including subordinated notes
Concentration of deposits:
Customer deposits
Wholesale deposits
Subordinated notes(1)
Securitisation liabilities
Total deposits
30 June 2018
$’000
30 June 2017
$’000
1,564,556
1,460,758
1,660,665
1,648,766
399,684
442,622
3,624,905
3,552,146
34,745
34,695
1,141,754
962,125
4,801,404
4,548,966
3,266,732
2,988,057
358,173
564,089
34,745
34,695
1,141,754
962,125
4,801,404
4,548,966
There are no customers who individually have deposits which represent 10% or more of total liabilities.
(1) Refer to note 3.1 (1) for details regarding the Subordinated Note issue.
Deposits and other borrowings accounting policy
Deposits and other borrowings are initially measured at fair value, net of transaction costs and are subsequently measured at
amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The Group does not currently hold any financial liabilities at fair value.
MyState Limited Annual Report 2018 | 71
4.6 Fair value of financial instruments
Classification of financial instruments
Cash and liquid assets, amounts due to financial institutions and amounts due from financial institutions are carried at cost. As
these assets are short term assets, their cost is considered to approximate their fair value.
The following financial assets and liabilities are also carried at amortised cost:
• Financial instruments;
• Loans and advances;
• Deposits; and
• Other borrowings.
The aggregate net fair values of financial assets and financial liabilities which are carried at amortised cost is:
Financial assets
Financial instruments
Loans and advances
Total financial assets
Financial liabilities
Deposits
30 June 2018
30 June 2017
Carrying
value
$’000
Net fair value
$’000
Carrying
value
$’000
Net fair value
$’000
406,292
404,923
419,388
419,023
4,565,256
4,558,478
4,282,525
4,275,447
4,971,548
4,963,401
4,701,913
4,694,470
3,624,905
3,623,058
3,552,146
3,544,954
Other borrowings including subordinated notes
1,176,499
1,176,499
996,820
996,820
Total financial liabilities
4,801,404
4,799,557
4,548,966
4,541,774
72 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 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 value
$’000
Level 2 value
$’000
Level 3 value
$’000
Total value
$’000
2018
Financial assets
Financial instruments
Loans and advances
Financial liabilities
Deposits
–
–
404,923
–
404,923
–
4,558,478
4,558,478
–
3,623,058
–
3,623,058
Other borrowings including subordinated notes
–
1,176,499
–
1,176,499
2017
Financial assets
Financial instruments
Loans and advances
Financial liabilities
Deposits
Other borrowings including subordinated notes
–
–
–
–
419,023
–
419,023
–
4,275,447
4,275,447
3,544,954
996,820
–
–
3,544,954
996,820
The Group has performed a VaR analysis at section 3.2, Market risk. VaR takes account of all material market variables that may
cause a change in the value of the loan portfolio, being 100% of Level 3 inputs.
MyState Limited Annual Report 2018 | 73
5.1 Property, plant and equipment
Land and buildings
At revalued amount
Accumulated depreciation
Plant and equipment
At cost
Accumulated depreciation
Total property, plant and equipment
Property, plant and equipment accounting policy
Plant and equipment
30 June 2018
$’000
30 June 2017
$’000
12,895
13,648
(7,115)
5,780
(6,711)
6,937
4,387
4,171
(3,133)
(2,812)
1,254
7,034
1,359
8,296
Plant and equipment, including leasehold improvements, are measured at cost less accumulated depreciation and any
impairment in value.
Land and buildings
Following initial recognition at cost, land and buildings are carried at a revalued amount, being their fair value at the date of
the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses. Independent
valuations are performed with sufficient regularity to ensure the carrying amount does not differ materially from the asset’s fair
value at the Consolidated Statement of Financial Position date. Fair value, is determined by reference to market-based evidence,
which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and seller in an arm’s
length transaction as at valuation date.
Any revaluation surplus is credited to the asset revaluation reserve included in the equity section of the Consolidated Statement
of Financial Position, unless it reverses a revaluation decrease of the same asset previously recognised in the Consolidated Income
Statement. Any revaluation deficit is recognised in the Consolidated Income Statement unless it directly offsets a previous surplus
of the same asset in the asset revaluation reserve. Accumulated depreciation is eliminated against the gross carrying amount of
the asset and the net amount is restated to the revalued amount of the asset.
Impairment of property, plant and equipment
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash flows, the
recoverable amount is determined for the cash-generating unit to which the asset belongs.
Derecognition of property, plant and equipment
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the item) is included in the Consolidated Income Statement in the
year the item is derecognised.
74 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 5.2
Intangible assets and goodwill
Year ended 30 June 2017:
Goodwill
$’000
Software
$’000
Other
$’000
Total
$’000
At 1 July 2017, net of accumulated amortisation
65,978
18,038
4,163
88,179
Additions
Disposals
Impairment
Amortisation
–
–
–
–
3,771
2,181
5,952
–
–
–
–
–
–
(3,236)
(1,318)
(4,554)
At 30 June 2018, net of accumulated amortisation
65,978
18,573
5,026
89,577
At 30 June 2018
Cost (gross carrying amount less impairment)
65,978
31,537
7,737
105,252
Accumulated amortisation
Net carrying amount
Year ended 30 June 2017:
–
(12,964)
(2,711)
(15,675)
65,978
18,573
5,026
89,577
At 1 July 2016, net of accumulated amortisation
65,978
11,016
Additions
Disposal
Impairment
Amortisation
–
–
–
–
9,189
–
–
1,988
2,978
–
–
78,982
12,167
–
–
(2,167)
(803)
(2,970)
At 30 June 2017, net of accumulated amortisation
65,978
18,038
4,163
88,179
At 30 June 2017
Cost (gross carrying amount less impairment)
65,978
27,766
5,556
99,300
Accumulated amortisation
Net carrying amount
Intangibles accounting policy
–
(9,728)
(1,393)
(11,121)
65,978
18,038
4,163
88,179
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 are finite life intangibles. Refer to note 2.4
Expenses for the useful life of tangible and intangible assets.
MyState Limited Annual Report 2018 | 75
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:
Banking Business
Wealth Management Business
Total goodwill
The Company’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 2018. Growth
rates have been applied from year two through to year
twenty. Cash flows are projected by undertaking detailed
calculations for each income and expense category over 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 20 years, based on an implied terminal value
earnings multiple of 12.8 for both CGU’s and a long-term
growth rate not exceeding industry. A post-tax discount rate
of 10% and a pre-tax discount rate of 14.3% was used. Certain
income categories are modelled by projecting growth in
relevant portfolio balances and the resulting income derived
there-from. Other non-portfolio related income streams and
expense categories are modelled by projecting real rates of
growth (above inflation) for each category. Terminal value is
determined at year twenty using the assumption that the CGU
achieves no real growth above inflation into perpetuity. The
growth rates applied do not exceed the long-term average
growth rate for the business which the CGU operates. The
discount rate used of 10% reflects the Group’s post-tax
nominal weighted average cost of capital, in which has been
reviewed by externally engaged advisers and approved by the
Board. Average inflation is projected to be 2.0%. The method
for determining value-in-use is consistent with that adopted in
the comparative period.
The key assumptions adopted in assessing Banking’s
value-in-use are the rate of growth in the balance of the
housing loan portfolio and the outlook for net interest margin
(NIM). Taking into account management’s past experiences
and external evidence, the assumptions that have been
adopted for both of these components are considered to
be conservative. NIM is projected to be consistent with
the budget outlook, which reflects the current low interest
rate environment. Management expects that, over time,
these assumptions will be positively exceeded and that
76 | MyState Limited Annual Report 2018
30 June 2018
$’000
30 June 2017
$’000
40,189
40,189
25,789
25,789
65,978
65,978
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 is
its Financial Planning and Trustee Services divisions. Taking
into account Management’s past experiences and external
evidence, the assumption adopted is considered reasonable
and conservative. Management’s assessment of Wealth
Management’s value-in-use exceeds its carrying value.
Any reasonably possible change to assumptions used in
Management’s assessment will not result in impairment.
Goodwill accounting policy
Goodwill on the acquisition of businesses is carried at cost as
established at the date of the acquisition of the business less
accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated
to each of the Group’s cash generating units (or groups of
CGU’s) that is expected to benefit from the synergies of
the combination.
A CGU to which goodwill has been allocated is tested for
impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable
amount of the CGU is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the CGU and then to the
other assets of the unit pro rata based on the carrying amount
of each asset in the CGU. Any impairment loss for goodwill
is recognised directly in profit or loss. An impairment loss
recognised for goodwill is not reversed in subsequent periods.
On disposal of the relevant CGU, the attributable amount of
goodwill is included in the determination of the profit or loss
on disposal.
Notes to the Consolidated Financial Statementsfor the year ended 30 June 20185.2 Intangible assets and goodwill (continued) Impairment of subsidiaries accounting policy
Investments in subsidiaries are tested annually for impairment or more frequently if events or changes in circumstances indicate
that the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the investments’
carrying amount exceeds its recoverable amount (which is the higher of fair value less costs to sell and value in use). At each
balance sheet date, the investments in subsidiaries that have been impaired are reviewed for possible reversal of the impairment.
5.3 Employee benefits provision
Balances
Provision for annual leave
Provision for long service leave
Total employee benefits provisions
Due to be settled within 12 months
Due to be settled more than 12 months
Total employee benefits provisions
Employee benefits accounting policy
30 June 2018
$’000
30 June 2017
$’000
2,130
3,211
5,341
3,319
2,022
5,341
2,015
3,355
5,370
4,230
1,140
5,370
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 2018 | 77
5.4 Share capital
Issued and paid up ordinary shares
Movements in ordinary share capital
Opening balance
Shares issued pursuant to the
– employee share scheme of the Group
– executive long term incentive plan
30 June 2018
$’000
30 June 2017
$’000
145,380
141,349
30 June 2018
30 June 2017
Number of
shares
Amount
$’000
Number of
shares
Amount
$’000
89,445,395
141,349
87,854,255
134,756
16,727
21,658
82
104
18,729
–
80
–
– dividend reinvestment plan
824,337
3,845
1,572,411
6,513
Closing balance
Terms and conditions
90,308,117
145,380
89,445,395
141,349
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.
78 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 6.1
Income tax expense, current and deferred tax balances
The major components of income tax expense/(benefit) are:
Income tax expense
Current income tax charge
Adjustment in respect of current income tax of previous years
Adjustments in respect of deferred income tax of previous years
Relating to origination and reversal of temporary differences
Total Income tax expense
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 tax
The income tax expense comprises amounts set aside as:
Provision attributable to the current year at the statutory rate of 30%, being:
30 June 2018
$’000
30 June 2017
$’000
13,665
12,037
58
(37)
(158)
62
(563)
622
13,528
12,158
44,989
42,238
– Prima facie tax on accounting profit before tax
13,497
12,671
– Under/(over) provision in prior year
Expenditure not allowable for income tax purposes
Tax effect of tax credits and adjustments
Other
Income tax expense reported in the consolidated income statement
Weighted average effective tax rates
Deferred income tax relates to the following:
Deferred tax assets
Employee entitlements
Provisions
Doubtful debts
Other
Total deferred tax assets
Deferred tax liabilities
Financial assets at fair value
Property, plant and equipment
Other
Total deferred tax liabilities
Current tax payable
Total tax liabilities
21
27
–
(17)
(500)
42
(55)
–
13,528
12,158
30.1%
28.8%
1,602
1,611
184
108
2,054
3,948
69
1,263
1,026
2,358
2,566
4,924
158
101
2,848
4,718
70
1,460
1,776
3,306
785
4,091
MyState Limited Annual Report 2018 | 79
Movements in deferred tax balances
Opening balance
(Charged)/credited to income statement
Credited/(charged) to equity
Adjustments for deferred tax of prior years
Closing balance
Deferred tax assets
Deferred tax liabilities
30 June 2018
$’000
30 June 2017
$’000
30 June 2018
$’000
30 June 2017
$’000
4,718
3,664
3,306
(262)
84
(592)
550
99
405
(399)
80
(629)
2,562
1,172
(270)
(158)
3,948
4,718
2,358
3,306
Taxation accounting policy
Income tax expense is recognised in the Consolidated
Income Statement, except to the extent that it relates to
items recognised directly in other comprehensive income, in
which case it is recognised in the Consolidated Statement of
Comprehensive Income. Income tax expense on the profit or
loss of the period comprises current tax and deferred tax.
Current tax payable
Current tax payable is the expected tax payable on the taxable
income for the financial year using tax rates that have been
enacted, and any adjustment to tax payable in respect of
previous years.
Deferred tax
Deferred income tax is provided on all temporary differences
at the Consolidated Statement of Financial Position date.
Temporary differences are calculated at each reporting date
as the difference between the carrying amount of assets and
liabilities for financial reporting purposes and their tax base.
Deferred income tax liabilities are recognised for all taxable
temporary differences except:
• 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.
• Where the deferred income tax liability arises from the
Tax consolidation
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:
The Group has elected to be taxed as a single entity under
the tax consolidation regime. The head company is MyState
Limited. The members of the group have entered into a tax
sharing agreement that provides for the allocation of income
tax liabilities among the entities should the head entity
default on its tax payment obligations. No amounts have
been recognised in the financial statements in respect of this
agreement on the basis that the possibility of default is remote.
The Company and the controlled entities in the tax
consolidated group continue to account for their own current
and deferred tax amounts. The Company has applied the
separate tax payer within group approach in determining the
appropriate amount of current taxes and deferred taxes to
allocate to members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the
Company also recognises the current tax liabilities (or assets)
80 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 20186.1 Income tax expense, current and deferred tax balances (continued) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax
consolidated group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are
recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.
7.1 Parent Entity Information
The accounting policies of the parent entity, which have been applied in determining the financial information shown below,
are the same as those applied in the consolidated financial statements. Refer to note 1 and policy notes within the financial
statements for a summary of the significant accounting policies relating to the Group.
Statement of Financial Position
Assets
Cash and liquid assets
Other receivables
Related party receivables
Investments in subsidiaries
Deferred tax assets
Total assets
Liabilities
Other liabilities
Related party payables
Tax liabilities
Employee benefit provisions
Total liabilities
Net assets
Equity
Share capital
Retained earnings
Reserves
Total equity
Financial performance
Profit after income tax for the year
Other comprehensive income
Total comprehensive income
30 June 2018
$’000
30 June 2017
$’000
2,705
176
1,749
1,214
102
1,810
253,674
249,811
1,312
1,236
259,616
254,173
1,044
36
2,561
283
3,924
786
443
1,246
195
2,670
255,692
251,503
251,308
247,176
3,901
483
3,370
957
255,692
251,503
25,785
25,041
–
–
25,785
25,041
The parent entity has not entered in to any guarantees and does not have any contingent liabilities as at 30 June 2018
(30 June 2017: nil).
Transactions between the Company and the consolidated entities principally arise from the provision of management and
governance services. All transactions with subsidiaries are in accordance with regulatory requirements, the majority of which are
on commercial terms. All transactions undertaken during the financial year with the consolidated entities are eliminated in the
Consolidated Financial Statements. Amounts due from and due to entities are presented separately in the Statement of Financial
Position of the Company except where offsetting reflects the substance of the transaction or event.
MyState Limited Annual Report 2018 | 81
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.
Significant subsidiaries
MyState Bank Limited
Tasmanian Perpetual Trustees Limited
Wealth Management
Australia
Connect Asset Management Pty Ltd
Manager of Securitisation
Vehicles
Australia
Principal activities
Country of
Incorporation
Ownership
Interest
Banking
Australia
100%
100%
100%
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.
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.
82 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 7.3 Related party disclosures
The ultimate parent entity and controlling entity is MyState Limited. Balances and transactions between the Company and its
subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.
Details of transactions between the Group and other related parties are disclosed in the following paragraphs.
Managed Investment Schemes
Within the Group, Tasmanian Perpetual Trustees Limited (TPT) is a Responsible Entity for Managed Investment Schemes (Funds)
and, accordingly, has significant influence over their activities. TPT receives management fees from these Funds. TPT also
pays expenses of the Funds for which it is reimbursed. TPT and the Company have also invested in these Funds and 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 2018
$’000
30 June 2017
$’000
30 June 2018
$’000
30 June 2017
$’000
Management fees received
Balance of investment held at year end
10,122
9,456
10,122
9,867
7,216
5,120
Distributions received from managed funds
205
275
152
9,456
3,863
129
The Funds have:
• Accepted money on deposit from Directors and Executives or entities associated with Directors and Executives at prevailing
Fund rates and conditions;
• Loaned money to MSB , in the form of term deposits, totalling $20.25 million (2017: $30.75 million); and
•
Invested in the ConQuest Trusts Residential Mortgage Backed Securities Program in the form of Class A and B notes totalling
$33.16 million (2017: $38.07 million).
These deposits are made on the same terms and conditions that apply to all similar transactions.
Key Management Personnel
Individual Directors and Executive compensation disclosures
Information regarding individual Directors, Executive compensation, and equity instruments disclosures, as required by the
Corporations Regulation 2M.2.03, is provided in the Remuneration Report section of the Directors’ report. Disclosure of the
compensation and other transactions with key management personnel (KMP) is required pursuant to the requirements of
Australian Accounting Standard AASB 124 Related Party Disclosures. The KMP of the Group is comprised of the Non Executive
Directors, Managing Director and Chief Executive Officer and certain Executives.
Key management personnel compensation
The key management personnel compensation comprised:
Short-term employee benefits
Post employment benefits
Share-Based payment(i)
Termination benefits
30 June 2018
$’000
30 June 2017
$’000
4,025
3,713
342
162
195
417
274
269
(i) These amounts are estimates of compensation and include a portion that will only vest to the Managing Director or Executive when certain
performance criteria are met or a ‘Capital Event’ occurs. The fair value of shares is calculated at the date of grant and is allocated to each
reporting period over the period from grant date to vesting date. The value disclosed is the portion of the fair value of the shares allocated to this
reporting period.
MyState Limited Annual Report 2018 | 83
8.1 Contingent liabilities and expenditure commitments
Operating lease expenditure commitments
not later than 1 year
later than 1 and not later than 5 years
later than 5 years
Total lease expenditure contracted for at balance date
30 June 2018
$’000
30 June 2017
$’000
3,793
10,973
8,423
3,726
9,498
8,199
23,189
21,423
The Group occupies a number of properties which house its branch network. The leases for these properties are on normal
commercial terms and conditions. The usual initial term for these leases is five years.
In the 2012 period, MyState Bank Limited (MSB) commenced leasing its Headquarters building located in Hobart. The term of
the lease is fifteen years, with an option for a further ten year term. Rental increases over the term of the lease are determined
by reference to movements in the consumer price index. In the 2015 period, the Group also entered into a lease of a property
situated in Launceston, which is principally used to house elements of the Tasmanian Perpetual Trustees Limited (TPT) business.
The term of the lease is five years, with an option for two further five year terms. Rental increases over the term of the lease are
determined by reference to movements in the consumer price index. If the options for further terms are exercised, the rental is to
be determined by market appraisal at that time.
Other operating leases have an average term of 3 to 5 years for property and are non-cancellable. Assets that are the subject of
operating leases are computer equipment and property.
MSB has provided guarantees to third-parties in order to secure the obligations of customers. The range of situations in which
guarantees are given include:
• Local Government Authorities, to secure the obligations of property and sub-divisional developers to complete
infrastructure developments;
• Local Government Authorities, Schools and other building owners, to secure the obligations of building contractors to
complete building works;
• Landlords, to secure the obligations of tenants to pay rent; and
• CUSCAL, to secure payroll and direct debit payments processed by CUSCAL on behalf of customers.
Customer commitments
Loans approved but not advanced to borrowers
Undrawn continuing lines of credit
Performance guarantees
Total customer commitments
76,319
42,520
63,658
72,952
2,947
2,000
142,924
117,472
Guarantees are issued in accordance with approved Board policy. Those guarantees over $10,000 are required to be secured. In
the event that a payment is made under a guarantee, the customer’s obligation to MSB is crystallised in the form of an overdraft
or loan.
Bank Guarantee
1,000
1,000
The Group is a non-broker participant in the Clearing House Electronic Sub Register System operated by the Australian Securities
Exchange and has provided a guarantee and indemnity for the settlement account from Bendigo and Adelaide Bank Limited
(BABL). The Group maintains a deposit with BABL for $1,000,000 (2017: $1,000,000) as collateral for the guarantee.
84 | MyState Limited Annual Report 2018
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 Estate Administration
The Group acts as executor and trustee for a significant number of trusts and estates. In this capacity, the Group has incurred
liabilities for which it has a right of indemnity out of the assets of those trusts and estates. Accordingly, these liabilities are not
reflected in the financial statements.
Other contracted commitments for expenditure on plant and equipment as at the reporting date are for only minimal amounts.
8.2 Remuneration of Auditors
During the financial year, the following fees were paid or payable for services provided by the auditor of the Group, Wise Lord
& Ferguson:
Audit services
Audit of the financial statements of the consolidated entities
Total remuneration for audit services
Audit related services
Assurance related services
Audit of loans and other services to the securitisation program
Total remuneration for audit related services
Other non-external audit related services
Other services
Total remuneration for non-audit related services
Total remuneration for services provided
30 June 2018
$’000
30 June 2017
$’000
380
380
45
21
66
51
51
497
372
372
89
51
140
32
32
544
8.3 Events subsequent to balance date
There were no matters or circumstances that have arisen since the end of the year which significantly affected or may significantly
affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial periods.
MyState Limited Annual Report 2018 | 85
8.4 Other significant accounting policies and new accounting standards
The principal accounting policies, which are consistent with
those applied in the comparative period unless otherwise
stated, that have been adopted in the preparation of
the financial report are set out in this section and the
preceding sections.
Other assets
Other assets comprise accounts receivable, accrued income
and prepayments. Accounts receivable are initially recorded
at the fair value of the amounts to be received and are
subsequently measured at amortised cost using the effective
interest rate method, less any provision for impairment loss.
Other liabilities
Other liabilities comprise accounts payable and accrued
expenses and represent liabilities for goods and services
received by the Group that remain unpaid at the end of the
reporting period. The balance is recognised as a current
liability with the amounts normally paid within 30 days of the
recognition of the liability.
New and revised accounting standards
The Group has adopted the following new standards and
amendments to standards, including any consequential
amendments to other standards, with a date of initial
application for reporting periods beginning on or after
1 July 2017 that have been issued by the Australian Accounting
Standards Board (AASB). The adoption of these accounting
standards have not resulted in any significant changes to the
financial statements:
• AASB 2017-6 Amendments to Australian
Accounting Standards – Prepayment Features with
Negative Compensation.
• AASB 2017-7 Amendments to Australian Accounting
Standards – Long-term Interests in Associates and
Joint Ventures.
• AASB 2018-1 Amendments to Australian
Accounting Standards – Further Annual Improvements
2016-2017 Cycles.
The following standards have been identified as accounting
standards which may impact the entity in the period of
initial application. They are available for early adoption at
30 June 2018, but have not been applied in preparing this
financial report. The Group will adopt these standards on their
effective dates.
AASB 9 Financial Instruments
In December 2014, the AASB issued AASB 9 Financial
Instruments which replaces AASB 139 Financial Instruments:
Recognition and Measurement. The standard covers four
broad topics: Impairment, Classification, Measurement and
Hedging. AASB 9 Financial Instruments is effective for periods
beginning on or after 1 January 2018. This standard introduces
changes in the classification and measurement of financial
assets and liabilities and simplifications to hedge accounting
all of which the Group early adopted in 2014 (refer note 1.2)
and also includes a new expected loss model for impairment.
The Group is implementing the expected loss model for
impairment on 1 July 2018.
• AASB 2014-3 Amendments to Australian Accounting
Impairment
Standards – Accounting for Acquisitions of Interests in Joint
Operations [AASB 1 & AASB 11].
• AASB 2014-4 Clarification of Acceptable Methods of
Depreciation and Amortisation (Amendments to AASB 116
& 138).
• AASB 2014-9 Amendments to Australian
Accounting Standards – Equity Method in Separate
Financial Statements.
• AASB 2014-10 Amendments to Australian Accounting
Standards – Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture.
• AASB 2016-1 Amendments to Australian Accounting
Standards – Recognition of Deferred Tax Assets for
Unrealised Losses.
• AASB 2016-2 Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to AASB 107.
• AASB 2016-5 Amendments to Australian Accounting
Standards – Classification and Measurement of Share-
based Payment Transactions.
• AASB 2017-5 Amendments to Australian Accounting
Standards – Effective Date of Amendments to AASB 10
and AASB 128 and Editorial Corrections.
86 | MyState Limited Annual Report 2018
The impairment requirements are based on an expected credit
loss model (ECL) that is forward looking and replaces the
incurred loss model under the current accounting standard.
AASB 9 will change the Group’s current methodology for
calculating the provision for doubtful debts, in particular for
collective provisioning. The Group has undertaken impact
assessments of the financial impact on adopting the new
provision methodology. Whilst the Group is not anticipating
any material impact on the financial statements on adoption of
the new standard, it is expected that the collective provision
will increase as is the expectation for financial institutions
due to incorporating lifetime expected credit losses into
the impairment assessment. Any increase in impairment
provisions on transition to AASB 9 is not reflective of a change
in underlying portfolio credit quality.
Impact of AASB 9
Any increase in the provision for doubtful debts on adoption
of the standard will be taken through opening retained
earnings at 1 July 2018 with no impact on the income
statement but there will be a consequential impact on the
Group’s capital adequacy ratio. The Group will not restate
prior period comparative balances on adoption of the new
standard. The Group’s current estimate of the opening
balance sheet adjustment based on the economic conditions,
Notes to the Consolidated Financial Statementsfor the year ended 30 June 2018 forecast economic scenarios, management judgements and
assumptions as at 1 July 2018, is an increase in impairment
provisions of approximately $1.98M before tax. This would
result in a corresponding decrease in shareholders’ equity of
approximately $1.39M after tax. The increase in impairment
provisions under AASB 9 is mainly driven by the requirement
to hold provisions equivalent to lifetime expected losses for all
loans that have experienced a significant increase in credit risk
since origination and the impact of forward looking factors on
expected credit losses estimates. Under AASB 139, provisions
are only held for incurred losses on the portfolio and forward
looking factors are not considered.
AASB 15 Revenue from contracts
AASB 15 Revenue from contracts with customers will replace
AASB 118 Revenue and is effective for periods beginning
on 1 July 2018. The core principle of AASB 15 is that an
entity recognises revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. The model features a
contract based five-step analysis of transactions to determine
whether, how much and when revenue is recognised. The
Group has undertaken impact assessments of the financial
impact on adopting the new revenue methodology and
this has not resulted in identifying a change to the timing of
recognition of income. The impact that the Group expects
is that certain income, where the group acts as principal in
a settlement arrangement, will be shown net of the related
costs as opposed to those costs forming part of administration
expenses. The Group has estimated that there would not be
an opening balance sheet adjustment, if the standard had
been applied on 1 July 2017. The Group will be adopting the
standard using the modified retrospective approach.
AASB 16 Leases
AASB 16 Leases will replace AASB 117 Leases and is effective
for periods beginning on or after 1 January 2019. AASB 16
requires lessees to recognise most leases on balance sheets
as lease liabilities, with the corresponding right-of-use assets.
Lessees must apply a single model for all recognised leases,
but will have the option not to recognise ‘short-term’ leases
and leases of ‘low-value’ assets. The Group is currently
undertaking an assessment of the potential impact of this
standard. The potential impacts of this standard are yet to be
determined. Refer to note 8.1 for the Group’s operating lease
expenditure commitments.
MyState Limited Annual Report 2018 | 87
In accordance with a resolution of the Directors of MyState Limited, we state that:
1. In the opinion of the Directors:
(a) The financial statements and notes of the Group set out on pages 44 – 88 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 2018 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.
2. 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 2018.
3. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1.2.
This declaration is made in accordance with a resolution of the Directors.
On behalf of the Board
Miles Hampton
Chairman
Hobart
Dated this 17 August 2018
Melos Sulicich
Managing Director and Chief Executive Officer
88 | MyState Limited Annual Report 2018
Directors’ Declarationfor the year ended 30 June 2018
Independent Auditor’s Report
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) including its subsidiaries (the Group),
which comprises the consolidated statement of financial position as at 30 June 2018, 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 2018 and of its financial
performance for the year then ended; and
ii. complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
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.
Liability limited by a scheme approved under Professional Standards Legislation.
1st Floor 160 Collins Street, Hobart TAS 7000
GPO Box 1083 Hobart TAS 7000
03 6223 6155
Move Forward
email@wlf.com.au
www.wlf.com.au
MyState Limited Annual Report 2018 | 89
Independent Auditor’s Reportfor the year ended 30 June 2018
1. Operation of IT systems and Controls
Key audit matter
A significant part of the Group’s financial reporting
IT systems with
process
automated processes and controls for the capture,
processing, storage and extraction of information.
is heavily reliant on
An essential part of IT system is ensuring 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.
These key controls mitigate potential fraud or error
because of change to an application or underlying
data.
MyState has outsourced arrangements for a number
of key IT processes.
How our audit addressed the matter
We focus our audit on those IT systems and controls that are
significant to the Group’s financial reporting process.
tested
the design and operating
We assessed and
effectiveness of the Group’s IT controls, including those over
user access and change management as well as data
reliability.
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
implementation
testing and
of managements
controls;
• 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
technology-dependent manual controls; and
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 Group is in the process of enhancing its IT
systems. During the financial year, a number of
strategic transformative projects were developed and
New systems were researched,
implemented.
designed, projects commenced and completed.
This increased the amount of costs capitalised as
intangible assets in relation to significant projects.
The recognition and measurement of these costs
requires
internally
generated intangible assets as to when the costs
incurred on projects transition from research to
development.
judgement, particularly
for
To address the risk of material misstatement and obtain
sufficient audit evidence, we performed the following
procedures over intangible assets:
• We evaluated and tested the Group’s processes for
recognising intangible 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 ensured that at the completion of projects that
amortisation of the capitalised costs commenced;
and
• We ensured
intangible assets made redundant
through new projects were written off.
90 | MyState Limited Annual Report 2018
Independent Auditor’s Reportfor the year ended 30 June 2018
3. Provision for Doubtful Debts
Refer to Note 4.3 ‘Loans and advances’
Why significant
How our audit addressed the matter
We focus on this area because of the judgement
involved in determining the provision for doubtful
debts.
To address the risk of material misstatement and obtain
sufficient audit evidence, we performed the following
procedures over the provisions for doubtful debts:
Provision for impairment of loans that exceed specific
thresholds are individually assessed by management
with reference to future cash repayments and
proceeds from the realisation of security.
Other
loans below the specific threshold are
assessed on a portfolio basis with loans with similar
risk characteristics.
• Assessed the governance oversight;
• Reviewed and tested the calculation of the specific
provision and collective provision for impairment;
• Ensured the calculation methodology is consistently
applied between accounting periods, including the
write off of debt and the calculation of the provision;
Tested the accuracy of the data used to calculate the
provision;
•
• Reviewed a sample of current arrears balances and
reviewed follow up procedures, including whether
in arrears had been
specific
appropriately provided; and
financial assets
• Reviewed management assessments for provision for
loans that exceed specific thresholds.
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 2018, 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.
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.
MyState Limited Annual Report 2018 | 91
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.
• 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 adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
92 | MyState Limited Annual Report 2018
Independent Auditor’s Reportfor the year ended 30 June 2018
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 28 to 43 of the Directors’ report for the year
ended 30 June 2018.
In our opinion, the Remuneration Report of MyState Limited, for the year ended 30 June 2018 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.
JOANNE DOYLE
Partner
Wise Lord & Ferguson
Chartered Accountants
Date: 17 August 2018
MyState Limited Annual Report 2018 | 93
Range of Units (Snapshot) as at 20 August 2018
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Rounding
Total
Unmarketable Parcels
Total holders
Units
% of Issued
Capital
58,297
23,249,153
25.74
3,032
8,299,608
1,111
8,267,325
919
21,111,483
41
29,380,548
9.19
9.15
23.38
32.53
0.01
63,400
90,308,117
100.00
Minimum
Parcel Size
Holders
Units
Minimum $500.00 parcel at $4.90 per unit
103
330
12,079
94 | MyState Limited Annual Report 2018
Information relating to shareholders Top Holders (Snapshot) as at 20 August 2018
Rank Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD
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