DRAFT 7.0 31 JAN 2019 – 11:30am February 2019 February 2019 INVESTOR PRESENTATION HALF YEAR FY2019 1. Highlights & strategy Melos Sulicich - Managing Director & CEO 2. Financial results David Harradine - Chief Financial Officer 3. Strategy & outlook Melos Sulicich - Managing Director & CEO
AGENDA 1H19 INVESTOR PRESENTATION 1. Highlights & strategy Melos Sulicich - Managing Director & CEO 2. Financial results David Harradine - Chief Financial Officer 3. Strategy & outlook Melos Sulicich - Managing Director & CEO FY19 HALF YEAR INVESTOR PRESENTATION | 2
HIGHLIGHTS & STRATEGY Melos Sulicich FY19 HALF YEAR INVESTOR PRESENTATION | 3
KEY HIGHLIGHTS CORE STRATEGY DISCIPLINED EXECUTION CONTINUED INVESTMENT • Tight cost management • Digital bank • Wealth products + systems • Record online origination • Flat operating expenses • New online products • Brand • Appropriately capitalised • Single bank brand • Service proposition • Loan book growth • Full suite of ‘Pays’ • Digital • Record settlements • All bank products now • Superior customer with fully digital outcomes origination • NPS +39 • Enhanced digital experience Softer than expected 1H19 result driven by external factors including sector funding costs. Expecting 2H19 similar to 2H18 FY19 HALF YEAR INVESTOR PRESENTATION | 4
KEY METRICS AND PERFORMANCE DRIVERS Home loan book: $4.6b +10.3% 2x SYSTEM LENDING GROWTH 2.1x system driven by superior customer service proposition and advocacy Customer deposits: +10.6% $3.4b STRONG CUSTOMER DEPOSIT GROWTH supported by digital platform Total capital ratio: -34bps and product innovation 13.05% WELL CAPITALISED Net profit after tax: -9.0% $14.4m to support growth initiatives and shareholder returns Earnings per share: External environment impacting -1.69cps 15.87 cps FUNDING COSTS and margins Fully franked dividend : Steady 14.25 cps 1 Change on 1H18 results except where otherwise stated 1. Final dividend of 14.25cps payable to shareholders on the register at the record date of 4 March 2019 FY19 HALF YEAR INVESTOR PRESENTATION | 5
FINANCIAL RESULTS David Harradine FY19 HALF YEAR INVESTOR PRESENTATION | 6
RESULTS SUMMARY Change 1H19 1H18 Softer 1H19 result given challenging (v 1H18) external environment Total operating income ($m) 60.73 62.67 -3.1% Strong lending growth supported Total expenses (excl. BDD) ($m) 40.57 40.01 +1.4% interest earned despite competitive market pricing Net profit after tax ($m) 14.37 15.79 -9.0% 15.87 17.56 -1.69cps Earnings per share (cps) Elevated spreads in funding markets placing downward NIM pressure Net interest margin (%) 1 1.82 2.03 -21bps Superior lending quality maintained Cost to income ratio (%) 66.80 63.85 +294bps continuing to outperform peers Total capital ratio (%) 2 13.05 13.39 -34bps Disciplined cost control and FTE Return on average equity (%) 3 9.03 10.15 -112bps management - Dividend – fully franked (cps) 4 14.25 14.25 - Well capitalised to support growth initiatives Credit performance – 30 day arrears (%) 0.52 0.58 -6bps 1. During the half a change was made to the way NIM is reported by MyState Bank (MSB). Offset accounts are now a component of Total Assets and Interest Expense now includes bond issuance costs which had previously been included in Depreciation and Amortisation. Please refer to the appendix in this document for further information. 2. 11.09% CET1 (1HFY18: 11.28%) 3. Annualised FYTD 4. Final dividend of 14.25cps payable to shareholders on the register at the record date of 4 March 2019 FY19 HALF YEAR INVESTOR PRESENTATION | 7
MARGIN COMPRESSION DUE TO INCREASED FUNDING COSTS BBSW changes Elevated wholesale funding spreads continued in 2.0% 1H19 at c. 27bp above 1 month BBSW pcp 1.97% Average over 6 month period 1.93% 1.89% Heightened front book pricing competition 1.9% limited scope for asset repricing in 1H19, with 1.80% subsequent loan book repricing in January 2019 1.8% 1.72% These extended market factors have placed 1.7% downward NIM pressure, falling -21bp on pcp 1.62% Margin outlook in the short term is more stable, 1.6% 1H18 2H18 1H19 noting wholesale funding spreads have continued into 2H19 at elevated levels 1M BBSW 3M BBSW NIM trend NIM waterfall 2.30% Origination costs Increase Decrease 2.03% 1.97% 1.97% 1.91% 0.21% 1.82% 2.10% 0.06% 0.04% 0.02% 0.08% 0.24% 1.90% 0.02% 2.03% 1.70% 1.82% 1.50% 1H17 2H17 1H18 2H18 1H19 1H18 Asset Price Origination Asset Mix Funding Funding 1H19 Costs Price Mix FY19 HALF YEAR INVESTOR PRESENTATION | 8
DISCIPLINED COST CONTROL Flat cost profile maintained for 1H19, with costs increasing+1.4% on pcp Technology and digital platform investment related depreciation and amortisation were drivers of the increase on pcp Several one off costs were absorbed during 1H19, including a brand refresh and the rebranding of The Rock to MyState Bank Personnel costs and FTEs have been carefully managed Total expenditure Operating expense breakdown ($m) 41 38 38 38 38 36 $ Millions 0.24 0.47 40 4 4 5 5 0.40 0.25 5 3 3 3 3 3 39 4 5 5 5 4 8 6 7 7 38 6 $40.57 $40.01 37 20 19 19 19 19 +1.4% 36 growth 35 1H17 2H17 1H18 2H18 1H19 1H18 Personnel Technology Depn & Amort. Other 1H19 Personnel Costs Admin and Governance Technology Occupancy Other FY19 HALF YEAR INVESTOR PRESENTATION | 9
NPAT BRIDGE Net interest income fell below the pcp and was adversely impacted by external funding markets and competitive market pricing for home loans Interest earned grew $4.9m (+5.2%) on pcp Interest expense rose $6.5m (+13.4%) on account of elevated wholesale funding spread, up c.27bp on the pcp Wealth income steady on pcp Operating expenditure tightly managed on pcp Net BDD lower due to continued improvement in credit quality Net Profit After Tax 25 $ Millions 20 4.94 6.50 15 0.22 0.64 0.15 0.56 0.43 10 15.79 14.36 5 -9% growth 0 1H18 NPAT Interest income Interest expense Other income Wealth income Operating Net bad and Tax expense 1H19 NPAT and Banking non expenditure doubtfuls interest income FY19 HALF YEAR INVESTOR PRESENTATION | 10
STRONG 1H LENDING GROWTH Home loan book – applications and settlements ($b) 2.00 Loan book grew approximately 2x system during 1.79 Applications 1.80 1.68 1H19 with record applications and settlements 1.60 Settlements 1.42 (+33% ; +42% on pcp). Strong pipeline for 2H19 1.40 1.19 1.20 1.11 1.05 1.00 0.88 Growth targeted to Australian eastern seaboard; 2H 0.80 0.65 focus on lower LVR loans with high asset quality 2H 0.60 0.40 0.20 1H 1H ‐ FY16 FY17 FY18 FY19 Geographic home loan book spread Total book – composition ($m) +4% $3,853 $4,269 $4,315 $4,550 $4,739 NT 100% $54 $55 QLD $63 $62 $71 0.1% $68 98% $72 $63 $63 14.7% $50 WA SA $66 $64 $65 $66 96% $68 1.6% 0.9% NSW 94% 21.7% 92% VIC $3,663 $4,076 $4,124 $4,358 $4,551 TAS 90% 16.6% FY16 FY17 1H18 2H18 1H19 43.7% Housing Loans Personal Loans Lower concentration Higher concentration Business / Agri / Commercial Overdrafts FY19 HALF YEAR INVESTOR PRESENTATION | 11
CONTINUED STRONG CREDIT QUALITY Impairments remain at historic lows 30+ Days S & P Arrears Data 3.00% 30 and 90 day arrears below peers and stable 2.50% No signs of stress across the loan book 2.00% 1.50% AASB 9 has been adopted with an increase in 1.00% provisions 0.50% Home loan book LVR profile 0.00% Year on year $5.0 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 $4.55 growth $4.36 $4.5 >90% LVR 0.17 $4.12 Group SPIN Majors SPIN Regionals 0.20 0.27 85%-90% LVR -15% 0.26 $4.0 0.25 0.36 80%-85% LVR 0.27 0.39 $3.5 90+ Days S & P Arrears Data 0.42 $ Billions 1.60% $3.0 1.40% 1.20% $2.5 1.00% $2.0 0.80% 3.76 +18% 3.51 0.60% <80% LVR 3.19 $1.5 0.40% 0.20% $1.0 0.00% Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 $0.5 $0.0 Group SPIN Majors SPIN Regionals 1H18 2H18 1H19 FY19 HALF YEAR INVESTOR PRESENTATION | 12
IMPROVED FUNDING MIX Customer deposits ($m) $3,443 $3,267 $3,113 Stable funding mix enhanced by growth in customer deposits 1,858 1,717 1,571 Customer deposit growth supported by introduction of Bonus Saver, Glide 1,542 1,550 1,585 transaction account and online TDs 1H18 2H18 1H19 Programmatic RMBS issuance continues At call At term to be well supported by broad investor- base Funding mix (%) Moody’s Baa1/P2 stable investment grade rating 20.3% 23.8% 22.7% 11.5% 8.5% 8.2% 68.7% 68.2% 68.0% 1H18 2H18 1H19 Customer deposits Wholesale funding Securitisation FY19 HALF YEAR INVESTOR PRESENTATION | 13
WELL CAPITALISED TO SUPPORT GROWTH Robust capital position supporting peer leading ROE Capital base underpinning growth and investment in digital Well positioned to meet regulatory changes Total capital movements (FY18 – 1H19) 13.47% 0.91% 13.05% 0.84% 0.76% 0.46% 0.03% 0.02% 1.96% Tier 2 1.96% Tier 1 / 11.51% 11.09% CET 1 FY18 Securitised assets Profit Dividends paid Secured Capitalised Other 1H19 mortgage intangibles lending FY19 HALF YEAR INVESTOR PRESENTATION | 14
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