MyState Limited (MYS) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen, and welcome to the 2022 Annual General Meeting of MyState Limited. My name is Vaughn Richtor, and I'm the Chairman of the Board. On behalf of the Board, I would like to acknowledge the traditional owners of the lands we are meeting on today. We're joining you from Muwinina land, and we have people joining us, because we are virtual, also from all over the country from many different locations today. So I would like to acknowledge the traditional owners of the many lands and pay my respects to elders past, present and emerging. This year, our AGM is again using online technology, which allows shareholders, proxies and guests, who are not able to be with us here in person today, to attend the meeting to actually participate and ask questions and submit votes. I'll explain how this is done shortly. If for any reason, there should be a break in the broadcast, we'd ask you to please remain online, and we will overcome the issue and resume as soon as possible. So to start, I note that there is a quorum of not less than 25 members present in person or by proxy and, therefore, declare this Annual General Meeting of MyState Limited open. Present in person in Hobart are the following Board members: Managing Director and Chief Executive Officer, Mr. Brett Morgan; Stephen Davy; Bob Gordon; Sibylle Krieger; Warren Lee; and Andrea Waters. I'd also like to acknowledge our former Chairman, Miles Hampton, who is in attendance here in Hobart today; and also our former MD and CEO, Melos Sulicich, who has, I believe, joined us online. I can't see Melos, but Hi. We also have present in Hobart, Mr. Danny McCarthy, the signing partner for our external audit which has been conducted by Wise Lord & Ferguson. The company's secretary has received no apologies. The notice of meeting governing this meeting was distributed in accordance with the Corporations Act and also published on the ASX and NYS websites. In accordance with the usual practice, it has been determined to take the notice of meeting as read. Before we commence the presentations and items of business, I'd like to take a quick moment to provide an explanation of how questions and writing will be managed during the meeting -- sorry, questions and voting will be managed during the meeting. Voting. In accordance with the company's constitution, Section 43, it has been determined by voting on all business before today's meeting will be conducted by poll, which will be opened shortly. Christina Piccolo from Computershare Investor Services has been appointed the returning officer. Proxies, which have been lodged by shareholders prior to the proxy submission deadline of 48 hours before the meeting, will be displayed on the screen for each item of business and will be incorporated in poll on each resolution. Any undirected proxies given to the Chairman will be voted in favor of the relevant resolutions. You can cast your vote on any resolution at any time during the meeting until the poll is declared closed. You can also change your vote on any resolution during the meeting regardless of whether your vote was initially cast at this meeting, or cast before the meeting. There will be provided at the end of the meeting to finalize -- sorry time will be provided at the end of the meeting to finalize votes before the poll is closed. To cast your vote, click the Vote icon, which is highlighted on the screen. This icon will appear on your screen once the poll is formally opened. When you click on the Vote icon, the resolutions will be displayed. Simply select your choice of for, against or abstain for each resolution. There is no need to submit your vote as the system will automatically update. With those voting shareholders physically in the room with me today, you would have received a voting card upon registration. Please either scan the QR code with your own mobile device and vote electronically or complete the reverse of the voting card. Should you require assistance to do this, we have Computershare staff available to assist you. When the poll is closed, your final selection will be recorded. Now the online meeting question process -- put can put the slide up, thank you. Questions that we received from shareholders prior to the meeting have either been addressed in the presentation from Brett or myself or will be addressed later in the meeting. Questions may be asked during the meeting in writing or verbally and will be addressed during the relevant item of business to which they relate. At each item of business, I'll respond to questions from the floor first, and then will address written and real questions from the meeting platform. Please note that written questions may be submitted through the meeting platform at any time. and we encourage early submission of questions. I will shortly explain how to ask questions through the meeting platform. Now depending upon the volume of questions raised during the meeting, we may not be able to answer each question individually. However, time will be given at the end of the meeting allocated prior to the poll being closed to answer any questions that are raised. Written questions. To ask a question in writing on the meeting platform, select the Q&A icon, then select the topic your question relates to, type your questions into the chat box at the bottom of the screen and press Send. To help facilitate the orderly running of the meeting, if you have a written question, we encourage you to lodge it now or as soon as possible. There is no need to wait until that particular item of business is being considered to lodge a written question. For those shareholders who wish to ask a verbal question, an audio question facility is available. To use this service, please pause the broadcast on the meeting platform and dial in via phone using the dial-in number as displayed under the broadcast window. You'll be granted access where you will listen to the meeting until you are introduced to ask your question. I will now declare the poll open for all resolutions. Voting may commence once the Voting icon appears on your screen. Ladies and gentlemen, I am pleased and proud to present my first AGM address as Chairman of MyState Limited. During financial year 2022, our company continued to meet, and in many cases, exceed key goals and objectives, both financially and in terms of service and needs of our growing customer base. We completed the 2022 financial year in a strong position with increased market share and sound underlying profitability. The company delivered a statutory net profit after tax of $32 million for the financial year, which is the second highest on record, surpassed only by the previous financial year's record of $36.3 million. The reduction was largely due to higher operating costs associated with our strategic investment in distribution capacity, marketing and brand building to support our national growth strategy. This investment is in line with our successful transformation to become a modern financial services company with a strong home base in Tasmania, a digital online focus and expanding national customer base. Brett will address the specific financial metrics for the financial year, but the results indicate our approach with the changes made so far, making MyState among the fastest growing banks in Australia, measured by home loan book growth. For FY '22, we paid a final dividend of $0.115 per share, fully franked, taking total dividends paid for the year to $0.24 per share, equivalent to a payout ratio of 79.2%, which is at the top end of the Board's target range. Now we believe this struck the right balance at this time between pursuing our growth strategy and rewarding shareholders with dividends. The Board also elected to fully underwrite any shortfall in the dividend reinvestment plan to help support the next phase of balance sheet growth. Further, as part of our active management of the bank's capital and to support growth, in August, we issued $65 million of mandatorily convertible subordinated perpetual debt securities, which is eligible to be recognized as additional Tier 1 regulatory capital. We increased new-to-bank customers by 14.8% in the past financial year. Pleasingly, this included 12,827 new customers in the 3 Eastern Seaboard mainland states, testament to the success of our growth strategy in a highly competitive banking landscape. Key to this growth has been our ability to build partnerships, including with the independent mortgage brokers. In addition, we achieved consistently fast loan approval turnaround times and enhanced our digital banking platforms, while maintaining a highly visible and accessible network across Tasmania. Our wealth business, TPT Wealth, is also well placed for growth, following completion of a major brand and strategy review to take the 135-year-old wealth management business into the future. We are proud of the outstanding efforts of all our employees in our call center and branch networks and our friendly customer support teams and, indeed, all our staff across the whole business. Largely through their efforts, we've maintained a high level of customer advocacy. And in FY '22 with an internal measured Net Promoter Score of plus 43, among the highest in the banking sector. We also received many industry acknowledgments of our recent achievements in the banking market, including awards for our competitive range of banking products and lending teams. In March, MyState's previous Chairman, Miles Hampton, retired from his role, having served the Board with distinction for 13 years, including 9 of those as Chair. Melos Sulicich also retired as Managing Direct and CEO in December 2021, after 7 years in the role. Together, both Miles and Melos played a pivotal role in MyState Limited's successful transition to a modern, digitally enabled business without comprising the high-quality customer service that has made us such a trusted and successful brand over so many years. They left us with solid foundations to continue growing this great business. And I want to say personal thanks to Miles for his friendship, guidance and support in my new role as Chair and also thank Melos for the key role he played in driving the evolution of MyState to becoming a digital bank with a human touch. Our new Managing Director and CEO, Brett Morgan, who assumed his role in January of this year, has a distinguished and successful history in banking, including international banking and fintech experience. Brett is an experienced digital banker and brings exactly the type of background and experience to help drive our growth agenda. I know from personal experience that Brett also stands for what he believes in, challenges the status quo, and puts the customer at the center of his decisions, and by doing this, seeks to deliver strong returns to shareholders. MyState has the foundations in place to execute an ambitious growth program, where we provide the services that customers expect, career opportunities for our people and acceptable shareholder returns, which can be maintained over the longer term. Our investment in brand, customers, digital capabilities and simple straightforward customer focus process has put us in a solid position to continue to increase market share in a competitive financial services landscape. I would also like to say special thanks to my fellow directors for their commitment, contribution and support as we continue to implement our ambitious growth strategy. I'd also like to say a big thank you to you, our shareholders, for your continued support. I'll now invite our Managing Director and CEO, Mr. Brett Morgan, to address the Annual General Meeting.

Thanks, Vaughn. And good morning, everyone. I'm very pleased to present my first AGM address as Managing Director and CEO of MyState from my new hometown of Hobart. It's been a little over 12 months since MyState announced it was embarking on this 2025 growth strategy. And today, I will provide more detail on how it's coming to life. Turning to Slide 10. The overarching ambition of our 2025 strategy is to grow our share of deposits, lending and funds under management. Our banking business, MyState Bank, is focused on growing retail deposits and residential lending across both our Tasmanian Heartland and also the East Coast of Australia. On the Mainland, MyState Bank offers products through digital channels and mortgage brokers. Our customer service is provided by our Australian-based contact center located here in Hobart. In Tasmania, our customers also have access to our branch network and a team of mobile lenders. Our wealth business, TPT Wealth, is focused on growing funds under management and continuing to deliver trustee services through our Tasmanian-based team as it is done since 1887. To support execution of the growth strategy, we will continue to invest in our digital and human channels across both MyState Bank and TPT Wealth, as well as continuing to simplify our products, services, processes and systems. And given the importance of a positive culture, which is critical to the success of our growth strategy, we will continue to live by our three culture values, creating customer wow, collaborating to win and chasing the better. With the support of our shareholders, we embarked on the growth strategy after raising $55 million of ordinary share capital in June 2021. And I'm happy to share that we have had a successful first year. Turning to Slide 11. The results for FY '22 illustrate that our investment in the growth strategy is delivering. Our investment in distribution capability and capacity provided the catalyst to accelerate growth across both MyState Bank and TPT Wealth lending books. MyState Bank home loan book grew by 25.5% or 3x the system, with loan settlements up 93% over the prior year. Our 30-day home loan arrears were and remain below industry benchmarks, a reflection of our conservative approach to lending. And our growth in Home Lending was broadly matched by our growth in customer deposits, which increased 25% for the year. Increased investment in marketing accelerated growth in customers and customer deposits. As Vaughn mentioned, we achieved a 14.8% increase in new-to-bank customers. TPT Wealth -- sorry, in TPT Wealth lending growth of 33.9% in our commercial loan book directly contributed to a 0.51% uplift in investor returns. And while our funds under management declined by 3.9% over the year, our efforts to increase the returns in conjunction with increased market engagement are showing some promising signs. The other part of our TPT Wealth business, trustee services managed 40% more estates in FY '22 than the prior year. In financial year '22, to support execution of the growth strategy, we increased investment in distribution capacity and capability, brand and marketing. And whilst we invested, we also delivered the second highest net profit after tax on record at $32 million. At MyState Bank and TPT Wealth, we are very focused on continually improving customer experience. Our Net Promoter Score of plus 43 reflects our commitment to our customers and demonstrates the strength of our customer proposition. And the many awards that we won in FY '22 reflect the quality products and services we offer, and the value we deliver to our customers and partners. During the year, we further embedded our new culture values, and this is to support a significant increase in employee engagement, up from 64% to 71%, in the last financial year. Turning to Slide 12. For MyState, sustainability across our operation is about how we create further value for all stakeholders over the long term. We are integrating tangible changes to the way we operate our business across 6 key segments: governance; conduct and culture; environmental sustainability; digital enablement and data security; supporting customers, helping our people be their best; and community investment. Taking environmental sustainability, in FY '22, we calculated our baseline Scope 1, 2 and 3 greenhouse gas emission footprint and identified and prioritized MyState's climate change risks and opportunities in the short, medium and long term. This financial year, we will calculate the financed emission from our loan book. Once we understand the combined operational and finance emissions impact, we'll explore appropriate emission reduction targets and initiatives. During the reporting period, TPT Wealth became a signatory to the United Nations supported principles of responsible investment. As a new signatory, TPT Wealth is fully committed to the adoption of the principles and we expect to increase transparency in our use of ESG data over the next few years. Turning to Slide 13. We've had a positive start to this financial year. Unaudited net profit after tax for the first quarter in FY '23 was $9.7 million, up 41% from the previous corresponding period with net interest income up 24%. Net interest margin, or NIM, was 1.78% for the quarter, an increase in 21 basis points on FY '22 exit NIM. The increase in net interest income was driven by balance sheet growth, the rising rate environment, and benefits from hedging. Return on equity increased by 235 basis points from the prior corresponding period to 9%, and annualized earnings per share increased to $0.365 per share, up nearly 40% from the prior corresponding period and 6% above our 5-year average of $0.343 per share. Over the same period, cost to income improved by 698 basis points to 65%. And over the quarter, we continue to grow our balance sheet. For the quarter, customer deposits were up 10.1% to $6.1 billion, and our home loan book grew by 6.9% to $7.3 billion. Our home loan book continued to perform with 30-day arrears -- loan arrears steady at 0.41%. Funds under management declined by 1.7% over the quarter to $1.044 billion. Overall, these results are pleasing and show that our growth strategy is on track. And in response to a shareholder question received in advance of the meeting, the recent inaugural issue of $65 million of floating rate capital notes issued at the end of August are eligible to be recognized as additional Tier 1 regulatory capital. MyState didn't previously have this type of capital as part of its regulatory capital mix. The distributions paid on the capital notes are fully franked and their cost, net of franking credits, is approximately -- is currently approximately 5.5%, making this form of capital significantly more cost-effective than ordinary share capital, and will support future home loan growth. The total capital ratios at 30 September was 14.1%, and we remain on track to meet APRA's new capital requirements that are effective 1 January 2023. Turning to Slide 14. Our 2025 growth strategy is targeting to achieve a number of objectives. Based on current conditions, over the next 3 years, we are targeting to grow lending at more than 2x system, and continue to grow customer deposit base so that represents more than 65% of total funding needs. We're also targeting cumulative earnings per share growth of 30% and cumulative return on equity growth of 30% over the next 3 years between now and FY '25. And finally, we will balance investment to support execution of the growth strategy with delivering operating leverage. And as we deliver the growth strategy, we are targeting a cost-to-income ratio below 60% in FY '24 and '25. We appreciate we're in uncertain times and the sector is competitive, but that plays to our strengths. We're a unique proven business with a strong brand and position in Tasmania, which has consistently delivered in the past, and we are delivering on the early stages of our 2025 growth strategy. I'll now hand back to the Chairman.

Thank you, Brett. Before we move on to commence the formal items of business, I would like to invite questions to either myself or Brett arising from our addresses. Firstly, are there any questions from the floor? And there's a mic available.

Mr. Chairman, this is a shareholder, Mr. John Rogers.

Thank you.

I am speaking here today because I have been sent a letter from this bank telling me they will not discuss my issues any further. I have worked at the Royal Hobart Hospital for 25 years, and I'm sure no patient or family member has ever been sent a letter like this. We have now had the Royal Commission into the banks. So it is time to stop the deception and to show some transparency when dealing with your customers for a positive outcome for both the bank and the customer. And also consider the stress you are causing your staff and your customers due to the lack of training for your staff down at the lower levels. Thank you.

Thank you for your comment. Obviously, we don't discuss any individual customer issues publicly. But could I ask Brett to talk to you at the end of the meeting, and then we'll have a look at that issue. Is that okay with you? Thank you. Thank you very much, and thanks for your comment. Thanks. And by the way, thank you for your feedback. It's important that we get that. Thank you. Any other questions from the floor? No? Are there any written questions from the meeting platform, Scott? There's no written questions at this stage. Are there verbal questions from the meeting platform? Thank you very much. Okay. Now the notice of meeting invited shareholders to submit questions prior to the meeting. Now we received some questions about the capital raising, EPS and loan growth, which I believe we've addressed in the earlier presentations. Now in addition, we received 2 questions from the Australian Shareholders' Association, represented at this meeting here today by Mr. Ian Day, who's in the audience. Thank you, Ian. Welcome. Those questions relate to the distribution of hard copy of meeting materials, particularly proxy forms and also the split of shareholders by region in Tasmania in the context of the geographic location of the AGM. And I will now ask the company secretary, Scott Lukianenko, to respond.

Thank you, Vaughn. Regarding the inclusion of hard copy proxy forms, the federal government changes to legislation now allow companies to conditionally issue meeting materials electronically, one benefit of which is a reduction in cost, which is ultimately borne by shareholders. Contemporary practice is to issue a notice and access letter to shareholders, advising how meeting materials, including proxy forms, can be obtained. Shareholders also have the option to lodge proxies electronically but also retain the right to explicitly request a hard copy proxy form. And MyState has in excess of 57,500 shareholders, and this year, approximately 2,800 shareholders elected to receive a hard copy proxy form. In terms of the AGM location, the ASA has asked about the split of MYS' shareholders in the Tasmania by region, certainly in the context of where the AGM is held. So MyState has approximately 48,000 Tasmanian shareholders who hold approximately 34 million shares. 60% of these Tasmanian shareholders are based in the South, 22% are based in the north and 18% are based in the Northwest. The split by shareholding is similar. From a national perspective, 83% of shareholders by number and 31% by shareholding are based in Tasmania. The COVID-19 pandemic has forced companies to embrace virtual meeting technology over the last couple of years, and MyState is no exception, having held virtual meetings in 2020 and 2021. This year is our first hybrid meeting, and we're pleased that it allows us to -- allow our shareholders across the country to participate in the AGM.

Thank you very much, Scott. Okay. We'll now move to the formal items of business, and we'll also address any questions in respect of each item which have been submitted during the meeting. The first item of business to receive and consider the financial statements and reports and no resolution is required on this item. Directors had prepared and had approved the financial statements included in your 2022 annual report. The auditor's report is unqualified. Questions are now invited related to the annual accounts, the director statements and reports or about the conduct of the audit and the preparation and content of the auditor's report. Questions may be directed to the company or to the external auditor, Mr. Danny McCarthy. Are there any questions from the floor? No questions from the floor. Scott, any questions from the meeting platform in writing?

No questions from the platform, Chair.

Are there any verbal questions from meeting platform?

No questions verbally.

Thank you, Scott. Okay. We'll now move to item 2, which is the reelection of myself, Vaughn Richtor. And as it relates to my reelection, I'll now hand over to our Deputy Chairman, Mr. Bob Gordon, who will temporarily assume the chair.

Thank you, Vaughn. Item 2 is for the meeting to consider and if thought fit, pass the following ordinary resolution, that Vaughn Richtor, who retires from the office of Director by rotation, in accordance with Clause 62 of the Constitution and ASX Listing Rule 14.4, being eligible and offering himself for reelection, be reelected as a director of the company. I note that the Board, in the absence of Mr. Richtor, has voted unanimously to endorse Mr. Richtor's reelection. I'll now ask Mr. Richtor to present this to the meeting.

Thank you, Bob. Well, good morning, again, shareholders, and thank you for the opportunity to share with you my background before considering whether to reelect me to the Board. I've been on the Board of MyState since September 2019, and succeeded Miles Hampton as Chair upon his retirement in April of this year, and would welcome your support. I've worked in banking and financial markets for over 40 years in the U.K. and Ireland, India, across Asia, and for more than 20 of those years here in Australia. I have been involved mainly in starting up and transforming and growing businesses. I was the founding CEO of ING Direct here in Australia and was in that role for more than 15 years until my retirement in 2016, building it from start-up to a balance sheet of over $50 billion with 1.7 million customers. I served on the Council of Australian Bankers Association from 2012 to 2016. And I was named the Australian Banking and Finance CEO of the Year in 2016. I've also previously held nonexecutive director roles with listed banks across India, Thailand and Korea, and was the Chairman of a fintech here in Australia. I'm currently also a Trustee Director of [ RES ] Superannuation where I Chair the member and Employer Services Committee, a member of the People & Remuneration Committee and the Audit and Finance Committees. I'm also an adviser to 4 early-stage companies. I have written and presented on customer centricity, digital transformation, corporate culture business strategy. I'm passionate about providing value-for-money products, making it simple and easy for customers to deal with us, developing skills and capabilities of our staff and being a responsible and contributing member of the communities in which we operate. By doing this, I believe that we will deliver strong returns to our shareholders. I am excited by the plans of MyState and have watched the business develop its capability during my time on the board. I would like to thank our shareholders for supporting our growth strategy. And with your support, I look forward to contributing to the continued momentum of the MyState Bank and TPT business over the next 3 years. Thank you.

Thank you, Vaughn. Are there any questions from the floor? So no questions from the floor. Scott, are there any questions -- written questions from meeting platform?

No questions.

Are there any questions -- verbal questions from the meeting platform?

No questions.

The proxy votes received prior to the meeting are now displayed on the screen. I shall now relinquish the chair and Mr. Richtor will now resume as Chair for the remainder of the meeting. Thank you.

Thank you, Bob, and thank you, shareholders. We'll now turn to item #3, which is the reelection of Sibylle Krieger. And I ask the meeting to consider and, if thought fit, pass the following ordinary resolution that Sibylle Krieger, who retires from the office of Director by rotation in accordance with Clause 62 of the constitution and ASX Listing Rule 14.4, being eligible and offering herself for reelection, be reelected as a Director of the company. I note that the Board, in the absence of Ms. Krieger, has voted unanimously to endorse Ms. Krieger's election. I will now ask her to address the meeting.

Thank you, Chairman. Good morning, MyState shareholders, and thank you for participating in this year's AGM. My name is Sibylle Krieger, and I've been a Director of MyState since December 2016. In addition to my role as an independent Non-executive Director, I'm Chair of the Group People & Remuneration and Nominations Committee of the Board and a long-term member of the Risk Committee. I'm up for reelection at this AGM. And I would welcome your support. In total, I have 16 years' experience as a nonexecutive director and chair across listed and unlisted companies in multiple sectors. I'm currently a director on 3 ASX-listed Boards, the largest is an essential infrastructure service provider with 16,000 employees, Ventia services. And the smallest is a fintech, OpenPay. In the past, I've served on 2 other listed company boards, Vector, an NZX top 50 company in energy distribution; and Xenith IP, an ASX-listed company in professional services. On all of my current listed Boards, I'm the Chair of People & Remuneration and I benefit from that cross sector experience and insights. In addition to my listed Boards, I'm a Non-executive Director on the entity, which is at the center of the New South Wales electricity infrastructure reforms whose task is to facilitate the transition to renewables in an orderly fashion at lowest cost to consumers. My original training and first career was as a commercial lawyer. I was a partner in a global law firm and also a first-tier Australian national firm. I gained broad commercial experience, including in areas of direct relevance to MyState, corporate law, directors duties, governance, regulatory frameworks and managing constructive interactions with regulators. I also spent 6 years as an economic regulator, and so I have a good understanding of how regulators approach issues and interact with their sector. I fully support the MyState growth strategy and the rapid digitization of MyState's processes and service delivery. MyState Bank and TPT have evolved a good deal in the 6 years that I've been on the MyState Board. With your support, I look forward to contributing thoughtfully to growth and change momentum for a further 3 years. Thank you.

Thank you, Sibylle. Are there any questions on this item from the floor? No? Scott, are there any written questions from the meeting platform?

No questions.

And are there any verbal questions from the meeting platform?