MyState’s after-tax profit of A$38.5 million for the year ended June 2023 was a sweet result for CEO Brett Morgan, presenting his first MyState full year results since stepping into the role from January 2022.
The bank's home loan portfolio was up by $961 million (or 14.1 per cent) on FY22 to $7.8 billion (at 2.9 times system), while home loan settlements dropped by 13.8 per cent on pcp, reflecting slower credit growth and a competitive lending environment.
Income: Total operating income rose 14.4 per cent to $160.4 million. Net interest income was up by 20.3 per cent over pcp, to $22.3 million, as a result of a larger average balance sheet, partially offset by a moderate fall in the net interest margin. Lower lending and transaction fees pushed other banking income down by 10.8 per cent, on pcp.
Wealth management income was also down, although by just 3.5 per cent due to lower management fees from a decline in funds under management. The Group's funds management arm, TPT Wealth provided $14.3 million in fee revenue and income diversification for the group.
Expenses and cost to income: The group cost-to-income ratio was 64.0 per cent, a drop of 440 basis points on the previous year. Driving this decline was a sharp fall in the bank’s cost-to-income ratio, down 641 bps from FY22 to 60.8 per cent as income growth outpaced cost increases.
Operating costs increased by $6.8m (up 7.1 per cent on pcp) due primarily to: higher salary costs (up 3.5 per cent on FY22); a bump in technology costs of $1.4m (up 7.8 per cent on pcp) from higher software maintenance fees and SaaS system amortisation; and a large increase in other income.
Credit quality: Home loans in arrears (past due by 90 days or more) remained relatively low at 0.34 per cent compared to 0.20 per cent FY22; similarly, 30+ days arrears were 0.81 per cent in June 2023, compared to 0.41 per cent at June 2022. The rise in arrears resulted in an increase in impairment expenses of $3.3 million.
Margin: The bank’s net interest margin decreased 4 bps over FY22 to 1.63 per cent, reflecting intense competition in the market for new home loans, higher funding costs and above-system loan book growth.
Return on equity: ROE increased by 100 bps over pcp to 8.7 per cent, keeping the bank in line with regional peers.
Earnings per share: Earnings per share were up 16.8 per cent to 35.5 cents per share
Dividend: The bank declared a final dividend of 11.5 cents per share, in line with the interim dividend and the dividend declared for the first half, ie, a total 23 of cents per share for the year. The dividend payout ratio of 65 per cent is within the bank’s target ratio, but at the low end.
The divisions: The group’s major division, banking services, made a cash profit of $145.9 million – an increase of $20.2 million over the previous corresponding period. The group's wealth management division dipped from $14.8 in FY22 to $14.4 million in FY23.
Capital: The group's total capital ratio of 15.4 per cent was up 302 bps over FY22 (12.4 per cent). Its Common Equity Tier 1 ratio increased to 11.22 per cent. On 1 January 2023, the Group transitioned to APRA’s new bank capital framework. CFO Gary Dickson said that under the revised framework, the bank's total capital ratio benefitted by 112 bps from the application of new credit risk weights and the new methodology for calculating operational risk. MyState's countercyclical buffer was increased by 1 per cent at the same time.
Funding and liquidity: The bank's major source of funding, customer deposits, were up 12.3 per cent on FY22 to $6.2 billion – and up by a total of 39.7 per cent since June 2021. These represent 73 per cent of the bank's current funding mix, in line with the previous two years. Securitisation, which delivered 25.8 per cent of MyState's funding in FY20, had fallen to 14.4 per cent of the funding mix by FY22. In FY23, securitisation provided 16.3 per cent of MyState's funding mix, up 1.9 per cent on pcp.