MyState Bank expanding its Queensland base with $755m Auswide Bank merger

The merger, the latest in a raft of consolidations for the Australian banking sector, is expected to be earnings accretive for the group from FY26 after a challenging year for MyState Bank’s owner, the diversified financial services group MyState Ltd (ASX: MYS), which posted an 8.3 per cent fall in net profit after tax to $35.3 million in FY24.

MyState says the merger will increase its loan footprint across Tasmania, Victoria and NSW, while strengthening its presence in the fast-growing Queensland market.

The merger is expected to deliver the group “significant scale and contribute to improved operating efficiency from a larger balance sheet and increased funding flexibility”.

The merged entity will have total assets of $14.4 billion, customer deposits of $9.6 billion and total operating income of $223.3 million.

Auswide Bank shareholders are being offered 1.112 new MyState shares for every Auswide share they own, which gives MyState’s existing shareholders a 65.9 per cent pro-forma interest in the combined group.

Auswide Bank, which was founded as Wide Bay Capricorn Building Society in 1979, largely operates in Queensland with a network of 16 branches.

MyState, which absorbed the Queensland-based The Rock Building Society in 2011 and controversially closed down branches several years later, has seven branches across Tasmania. However, its customer base totals 180,000 compared with Auswide’s 92,000.

MyState says there will be no change to the branch footprint following the merger.

“The combination of two high-quality and complementary businesses is consistent with our stated growth strategy and brings significant scale advantages to the group,” says MyState CEO Brett Morgan who will head the merged entity.

“We expect significant cost synergies from the merger, which we also expect to be EPS (earnings per share) accretive for MyState shareholders from FY26 on a post synergies run rate basis.”

MyState is targeting pre-tax cost synergies of between $20 million and $25 million from the merger, but the deal is expected to dilute earnings in the current year due to “front-loaded transaction and integration costs”.

The merger, which is subject to regulatory and Auswide shareholder approvals, is expected to settle in mid-to-late December 2024.

The latest consolidation in the banking industry comes on the heels of ANZ Banking Group’s (ASX: ANZ) $4.9 billion takeover of Suncorp’s (ASX: SUN) banking division which settled in July.

MyState’s announcement also follows a challenging FY24 in which the group suffered a 5 per cent dip in operating income to $152.4 million, although this was offset by a 1.6 per cent cut in operating expenses to $101 million.

Despite a fall in net profit for the year, MyState managed to boost its loan portfolio by 1.8 per cent to $8 billion as customer deposits dipped 4.9 per cent to $5.9 billion.

“MyState Limited managed the balance between growth and margin well in FY24 and our focus on extracting efficiencies and expense management delivered a reduction in operating costs in an inflationary environment,” says Morgan.

“We have maintained our focus on growing profitably while delivering on a range of important strategic initiatives including the launch of a new internet and mobile banking experience and an expanded Trustee Services offering.

“Along with efficiency initiatives delivered across the group which supported a reduction in total operating costs, we have set strong foundations which will help to drive profitable growth into the future.”

Morgan notes that the group attracted more than 14,000 new bank customers in FY24.

“We are also happy to report that credit quality remains sound,” he says. “Bank arrears rates continue to be below industry average, and we continued to work closely with customers experiencing financial hardship.”

MyState Bank focuses on lower risk owner-occupied principal and interest lending with a conservative loan-to-valuation ratio of 80 per cent.

The company’s loan book is primarily generated in Tasmania, comprising 38 per cent of the total, followed by NSW and Queensland, each with a 20 per cent share.