Thanks, Darcy, and good morning, and thanks for joining us today. I'm Brett Morgan, MyState's Managing Director and CEO, and with me is Gary Dixon, our CFO. Today's investor presentation was lodged with the ASX earlier this morning and is also available on our website. This morning, we have announced a significant development for MyState with the proposed merger with Auswide Bank. But before I go through the detail of this proposed transaction, including the strategic rationale and benefits for MyState shareholders, Gary and I will first run through the key achievements and results from FY 2024. We welcome questions at the end of the presentation. Turning to Slide 4. The operating environment has been challenging.
Competition across both the home loan and retail deposit markets challenged net interest margin, the inflationary environment challenged operating costs, and cost of living pressures meant, rightfully, we continued to invest into supporting our customers. In the first half of FY 2024, we took the considered decision to temper growth aspirations and closely manage costs to optimize financial outcomes. I'm proud of how the team managed through the challenges and proud of the results we delivered in FY 2024. It is within this context that MyState delivered a net profit after-tax result of AUD 35.3 million, welcomed over 14,000 UniBank customers, increased home lending by over AUD 160 million to AUD 8 billion, and importantly, reduced operating costs by 1.6% to AUD 101 million.
Despite the cost of living challenges faced by our customers, our bank's credit quality remains sound, with arrears rates continuing to sit below industry average. Our capital position also strengthened over the year by 100 basis points to 16.4%, in part due to our prudent management of growth, and this provides us with capacity for future investment and growth. Pleasingly, through the period, we witnessed a significant increase in our customers' Net Promoter Score of + 58, a record level of customer advocacy for the group, reflective of the service provided by our team. MyState ends FY 2024 in a strong position, and the board has declared a stable, fully franked final dividend of AUD 0.115 per share, taking the total full-year dividend to AUD 0.23 per share, representing a full-year payout ratio of 72%. Moving to Slide 5 .
As my previous comments demonstrate, the underlying strength and operational efficiency of MyState has provided us with a significant opportunity to invest in several important strategic priorities. At our half-year results, we talked about the important investment we were making into a new contemporary internet and mobile banking platform. I'm pleased to report that we have successfully launched, delivering a significant upgrade to our customers' digital experience. In the first month since launch, a large proportion of digitally active customers transitioned to the new platform. It's a great step forward for MyState, and most importantly, the new platform allows us to continue to improve the digital experience, as well as supporting MyState to become more efficient. During the year, we also enhanced our online account opening process, making it easier and quicker to join MyState, as well as investing into cybersecurity capability and scam prevention, detection, and response.
Moving to TPT Wealth. In FY2024 , we focused on a program to optimize our trustee services business, which has resulted in better service for our clients, a more efficient trustee services business, and an increased contribution to MyState's results. We have also had some early success in acquiring clients with our expanded trustee service offering. Finally, while we invested in key strategic initiatives, we also managed our operating costs carefully, as Gary will share with you shortly. I'll now hand it over to Gary for an overview of our financial results.
Thanks, Brett, and good morning, everyone. Slide 7 contains a snapshot of the financial performance of MyState in FY 2024. As Brett noted previously, the results reflect the challenging backdrop of economic headwinds, intense competition, the inflationary environment, and the highest level of interest rates in over 10 years. We focused on a deliberate strategy that optimized growth and returns. Top-line revenue fell 5% but was slightly higher half-on-half. The decline was largely driven by an 18 basis point compression in NIM over the period. Encouragingly, NIM was stable half-on-half as conditions normalized. We continued to proactively manage our operating expenses, which fell 1.6% to AUD 101 million. This was a pleasing result, given the higher inflation Australia experienced over the period.
Our core earnings eased 10.9% to 51.4 million, and due to the decline in revenue, the group's cost-to-income ratio rose to 66.3%. In terms of MyState's balance sheet, total capital continued to increase as the year progressed, ending at 16.4% at 30 June, some 100 basis points higher than June 2023. Driving this uplift were contributions from profit and capital relief securitization. At 7.7%, return on equity declined from FY 2023, but was stable half-on-half. Our board has declared a final dividend of AUD 0.115 per share, which is in line with the interim dividend.
As a result, the total dividend for FY 2024 is AUD 0.23 per share, equivalent to a payout ratio of 72% of after-tax earnings and is in line with our current dividend guidance range of 60%-80%... Moving to Slide 8, which shows the key drivers of full-year net profit after tax. Net interest income eased 6.1% over the year, primarily due to the fall in net interest margin. Other banking income declined 7.3% or AUD 1 million, reflecting reduced loan and transaction fee income on lower overall volumes. Wealth management income rose by 7.7%, with a strong positive contribution by trustee services, offsetting lower investment services income. Operating costs were tightly managed, falling 1.6% from FY 2023.
While bad and doubtful debt expense was lower than last year, provision coverage ratios improved, as set out in the additional results information section of the pack. Slide 9 provides a more granular breakdown of operating costs for the full- year, which declined 1.6%. The 3.3% increase in personnel costs in FY 2024 reflects the impact of underlying salary inflation, partly offset by a small reduction in FTE. We reduced our marketing spend in the year, which was a deliberate management decision, reflecting the reduced need for retail deposit growth as loan book growth slowed, and the deferral of spend ahead of the new internet banking and mobile app launch to maximize marketing ROI.
Technology investment increased as we continued to spend on key customer, risk, and regulatory initiatives, while other expenses declined, in large part due to previously disclosed non-recurring expenses in FY 2023. Pleasingly, the increased scale in the bank has improved the operating efficiency ratio by 19% since June 2021. Turning to Slide 10 and the bank's net interest margin. As we have consistently noted, we constantly seek to optimize the trade-off between growth and margin. While we deliberately slowed growth, NIM, which was stable half-on-half, fell eighteen basis points from FY 2023, impacted by home loan and retail deposit price competition, customers switching from transaction and lower rate savings products, an increase in securitization, and a higher level of liquid assets. NIM reached its low point in October 2023, and the exit NIM in June was in line with average NIM for the second half.
We will continue to carefully manage growth to optimize capital and returns. Moving to Slide 11, maintaining sound credit quality remains a key focus and underpins our balance sheet strength. The MyState home loan portfolio increased from AUD 160 million to AUD 8 billion, and our focus remains on low-risk, owner-occupied lending, where loans with an LVR of less than 80% increased by AUD 270 million and make up 77% of the total book. Both applications and settlements were lower in FY 2024, reflecting the competitive lending environment. Second half applications were 29% higher than the first half, and quarter four settlements were the strongest for the year, reflecting our decision to accelerate lending growth. Importantly, our relationships with key brokers remain strong, and our home loan approval times reflect the investment we have made in underwriting capacity and capability.
While runoff remains a sector-wide challenge relative to long-run averages, it improved from approximately 26% in the first half to 24% in the second half. Home loan customers continue to show remarkable resilience, partly a consequence of the stable employment markets across Australia. Pleasingly, our 90-day arrears at 44 basis points remain below industry average, reflecting our prudent approach to lending. Moving to wealth management on Slide 12, TPT Wealth delivered stronger revenue off a lower cost base, contributing AUD 15.4 million in fee revenue to the group. Driving the better performance of TPT was the contribution from trustee services, which benefited from higher estate volumes and fee changes. Investment services income was impacted by a reduction in the management fee across our growth fund product range to better align with key competitors.
Pleasingly, TPT's underlying expenses were 16% lower than FY 2023, and this improvement in operating efficiency helped drive the solid uplift in net profit after tax. TPT remains focused on providing trustee services and increasing FUM across our range of cash and income funds. I'll now hand you back to Brett to talk about our proposed merger with Auswide Bank.
Thanks, Gary. I'll now take you through the proposed merger with Auswide Bank, which we are incredibly excited about and believe will deliver significant benefits for both organizations and strong returns for all shareholders. Turning to Slide 14. Today, MyState signed a scheme implementation agreement to merge with Auswide Bank. Consideration for the proposed merger will be equity, where Auswide shareholders will receive 1.112 MyState shares for each Auswide share. We are targeting a scheme implementation in December 2024, subject to a number of conditions being satisfied, including regulatory approvals, Auswide shareholder approval, court approval, third party consents, independent expert conclusions, and other customary conditions. The proposed merger stacks up well financially.
We estimate that there are between 20 million and 25 million worth of run rate synergies to be achieved by the end of FY 2027, and the potential for revenue from new growth and cross-sell opportunities. The proposed merger is expected to be strongly earnings accretive in FY 2026 on a post synergies run rate basis. FY 2025 earnings will be impacted due to the front-loaded nature of transaction and integration costs. The board will comprise four non-executive directors from MyState and three from Auswide. I will be the CEO, Sandra Birkensleigh from Auswide will become the chair of MergeCo, and Warren Lee from MyState will continue as chair of TPT Wealth. Moving to Slide 15. This slide demonstrates the strong strategic rationale for the proposed merger. The merger combines complementary customer-focused businesses with strong operating histories and quality loan books.
The business will have a significantly enhanced scale, a larger loan book, funded by close to AUD 10 billion of customer deposits. The business will also have additional capacity to invest in key initiatives that support business growth, customer experience, risk management, and efficiency. The merger will increase our ability to invest in capability across people, processes, and systems. As previously discussed, significant shareholder value will also be created through post-tax cost synergies. The proposed merger would also reaffirm our inclusion in the ASX 300 . Turning to Slide 16. There is no doubt in our mind that the combination of MyState and Auswide makes strategic and economic sense and will benefit all MergeCo stakeholders. As a result of the proposed merger, our business will gain a larger footprint across the eastern seaboard, have more than 272,000 customers, and greater access to the larger Queensland market.
MergeCo will consist of 23 branches spread across Tasmania and Queensland, and we don't anticipate changes to the branch footprint. We will also expand our reach across the country through digital touchpoints, Australian-based contact centers, mobile lenders, and mortgage brokers. Moving to Slide 17. As you can see, MergeCo has significantly broader geographic diversification and is more representative of the residential lending market when compared to the two standalone businesses. Turning to Slide 18. On Slide 18, we have provided a pro forma snapshot of key financial metrics across the two organizations and how the merged entity will look. It is important to note, this excludes the impact of synergies, integration costs, and any purchase price accounting adjustments. The combined entity will have significantly increased scale, a larger capital base, and a more diversified home loan and deposit portfolio.
As a result, we will be a more resilient business with increased funding flexibility, greater operating leverage, and growth opportunities. Moving to Slide 19. This slide provides some more detail on the main sources of synergies, which will include the consolidation of the technology platforms, running a refined board and leadership team, integrating shared services, and consolidating third-party providers. More than 50% of the full run rate synergies are expected to emerge in the first 18 months post-completion. We also believe there is further potential upside as we execute on profitable growth and look for cross-sell opportunities across the combined customer base. Pre-tax integration costs of around AUD 29 million are anticipated, with the majority expected to be incurred in the first two years post-completion. Turning to Slide 20.
Finally, we will shortly be lodging the relevant regulatory applications, and you can see from the timetable, subject to various approvals, we plan to implement the proposed merger in December. So there's a lot of work to do, but we believe this timetable is achievable, and the proposed merger is in the best interest of MyState and Auswide customers, employees, and shareholders. Thank you. Gary and I will now answer any questions you may have. Over to you, Darcy, to moderate.
Thank you. If you wish to ask a question, please press Star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Nathan Zaia from Morningstar. Please go ahead.
Morning, all. How are you?
Hey, Nathan.
I have a couple of questions. One on, like, given, so margins seem to have steadied now. Given where pricing is now, where would you anticipate your sort of lending growth will be, the system over the next 12 months, if the sort of pricing that we've got in the market now holds?
Yeah. Hi, Nathan, it's Gary. So we're projecting system growth over the next 12 months of around 4% per annum. So we would expect to grow quicker than that as your highlight. So it'll be around 1.25x system, is what we're thinking at the moment, so around 5% balance sheet growth. And then your question around margin, yeah, we've certainly seen a stabilization of margin in the second half. You know, I think obviously the repayment of the TFF by the thirtieth of June saw some pretty intense competition for retail deposits in that second half of FY 2024.
You know, we're sort of optimistic that we will see a little bit of NIM accretion as well over the next 12 months.
Is there any sort of more commentary you can give around what the expense picture might look like? Like, if you've got a pick-up in loans, I assume the marketing spend will pick up as well, as you roll out those new digital offerings.
Yeah, I mean, I think given you know, given the challenges with inflation, I mean, we're still thinking about expense growth in the context of, say, relative to the second half of FY 2024, you know, expense growth would be around that sort of 7%-7.5% range.
Great. And, just on the proposed merger, I think Brett made the comment around, not expecting a change to the branch network. Is that just a short-term sort of comment, or is there something different between, say, MyState and Auswide? Because I just look at, so Auswide, much smaller loan book and deposit book. MyState's strategy has to be to shrink the footprint and focus on digital and brokers. But is there a reason why that would not be applicable to what you would have with Auswide?
So there's no overlap of branches between MyState and Auswide. MyState has seven branches in Tasmania, and Auswide, 16 in Queensland. Firstly, there's no overlap. We didn't consider that. As part of our synergy assessment, we didn't consider closing any. We think it's important that, you know, as a customer touchpoint, if customers are using the branches and they make sense, they remain open. So as a starting point, we have not considered that we would shut any branches. Obviously, appreciate over time, we'll make sure that customers still want to use branches as time evolves.
But some of the opportunities we see are our TPT business, TPT Wealth business, the opportunity to distribute that through Queensland, rolling out some of our digital investments through the Auswide customer base, and delivering a better experience for all customers. So. But in terms of the branch network, we haven't considered the possibility of any benefits coming from that from a cost synergy perspective. We've more considered the revenue side.
Okay. And with those cost synergies, so is the plan to migrate all the customers to one banking system, like, in terms of the technology consolidation?
Yeah, very much so. MyState has been involved in acquisition before and merged, combined to one core. So yeah, definitely would go to one core. And we expect that to happen over the first 18 to 24 months.
With a multi-brand strategy, is that the current plan as well?
Yeah, we'll consider that once we get together. We'll continue to operate as Auswide and MyState in the period up until we consider whether we go a multi-brand or single brand. But that will be considered, yeah, post-completion.
Okay. All right, that was all for me. Thank you.
Thanks, Nathan.
Thank you. Once again, if you wish to ask a question, press Star one on your telephone and wait for your name to be announced. Your next question comes from Alistair Hunter from Ord Minnett. Please go ahead.
Thank you. Morning, Brett and Gary. Can I just seek confirmation that in the merged business, the dividend sort of payout policy, the 60%-80% range you currently have is retained?
That, Alistair, it's Brett. That'll be considered by the new board, obviously, but my expectation is that would be a reasonable assumption.
And just on the recent, I mean, the CBA results, I think they were talking to a restarting of some of the mortgage competition again in pricing. Are you seeing the same tensions coming through again in your pricing and getting applications? Obviously, a good pick-up in Q4, but is it pressured by that competition return?
Yeah, not. We're not seeing extreme levels like we were before. So I'd say it's been relatively stable on that side. I mean, the biggest change for us is the launch of our digital experience and improving the onboarding of customers on the deposit side, which, for us means we'll have better deposit customer experience and be able to grow our customer funding in a more cost-effective way. So that's one of the key changes. But on the mortgage side, it- I'd call it similar, as opposed to getting more competitive again.
The Auswide announcement, the sort of Selfco SME leasing business acquisition, today, how do you view that in terms of opportunity for MyState, in terms of growing out your sort of SME activities?
Yeah. So, the first point is I know the operator of that business, the MD, and he's a good operator. So that's the first point. The second one is, we see this as an opportunity, both within banking, but also on our wealth funds management side, the opportunity to potentially use this mechanism to support returns in our funds management business as well. So it provides some optionality for us as part of the broader group, and we see that as a positive.
Yep, and one final one from me at the moment. Just looking at the strength of the trustee business in the, particularly in the second half of the 2024 result, can you sort of unpack it a little bit? I know the operating efficiencies, but the revenue side seemed materially up second half. What was driving that?
So we have a new GM come on board in September, who was from that background, trustee services background, and he's been instrumental in helping us modernize our business, become more efficient, charge the services we provide, so adjusting the charges, the fees associated with that business. So it's really been driven by our new GM and adjusting our efficiencies and the fees we charge for our service. So it's been a very positive outcome.
So a sustainable bump that we saw in the second half-
Right, yeah.
-that's a sort of growth expectation going forward?
Yeah, I was just going to say, I'd caution you from extrapolating the growth that you've seen second half versus first half, but certainly, yeah, sort of more on a sustainable footing moving forward.
Thank you.
Thanks, Alistair.
Thank you. Once again, if you wish to ask a question, please press Star one on your telephone keypad. We'll now pause a moment to allow for any final questions to register. There are no further questions at this time. I'll now head back to Mr. Morgan for closing remarks.
Thanks, Darcy, and thanks everyone for joining us on the call today, and Gary and I look forward to catching up with some of you over the coming months.