This morning, Tasmania-based Mystate Limited (ASX: MYS) revealed its annual result for the 12 months to 30 June 2018.
The financial company revealed 1.4% growth of total operating income to $126.3 million compared to the prior corresponding period (pcp). Mystate's home loan book grew to $4.4 billion, which was an increase of 6.9%.
However, the key net interest margin (NIM) decreased by 0.04% to 1.89% reflecting the competitive environment for home loans and deposits. The second half saw the NIM fall to 1.84% – Mystate has been affected by the recent significant increase of the bank bill swap rate (BBSW) like many other banks.
The wealth division performed well with revenue growth of 10.6%. Funds under management (FUM) grew by 5.9% to $1.15 billion and funds under advice (FUA) grew by 4% to $809 million. Mystate plans to invest additional money to grow the wealth business.
Operating expenses, excluding bad debt, decreased by 1.5%. The increase of income and decrease of expenses resulted in the cost to income ratio falling by 190 basis points to 64%.
Net profit after tax (NPAT) grew by 4.6% to $31.5 million and earnings per share (EPS) went up by 2.7% to 34.97 cents.
The profit growth allowed Mystate to increase the annual dividends per share by around 1% to 28.75 cents whilst also decreasing the payout ratio to 83%, in FY17 the payout ratio was 84%.
Other profit metrics were also pleasing with return on tangible equity improving to 13.7% compared to 13.4% in the pcp.
Some of Mystate's major competitors are reporting rising credit arrears. Thankfully the 30 day arrears percentage of loans for Mystate decreased to 0.47% compared to 0.51% in the year before. This may have been helped by the fact that Hobart's housing market saw dwelling values rise by 12.7% in FY18. Around 45.5% of Mystate's home loan book is based in Tasmania.
Mystate improved its capital buffer ratio, called the CET1 ratio, to 11.51% from 11.28%. Net assets increased by 3.1% to $320.7 million.
The CEO of Mystate, Melos Sulicich, expects the banking business can continue to achieve above-system loan book growth as it focuses on increasing scale and offering better digital services. He believes the wealth management division also has a positive future.
With an annual payout of 28.75 cents per share Mystate is trading with a grossed-up dividend yield of around 8.3%.
Foolish takeaway
Mystate seems to be one of the few banking businesses that is achieving solid growth. If Tasmania's housing market remains strong then Mystate could be one to watch in the financial sector.
Although Mystate may not be a growth share, I think it's a better option than the mainland-based banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Bank of Queensland Limited (ASX: BOQ).
