Tasmania’s MyState proposes $755m merger with Queensland’s Auswide Bank

Tasmania’s biggest bank MyState (ASX: MYS) has entered into a $755 million merger agreement with Queensland-based Auswide Bank (ASX: ABA), in a move expected to benefit customers and shareholders.

Under the terms of the proposal, MyState will issue 1.112 new shares for every one share held by Auswide shareholders, implying a 65.9% pro forma ownership of the combined group for existing MyState investors.

The proposed merger is expected to yield pre-tax cost synergies of between $20m and $25m and be earnings-per-share accretive from the financial year 2026 on a post-synergies run-rate basis.

Complementary businesses

Upon completion, the merged group is expected to have a pro forma loan book of $12.5 billion and total deposits of $9.6b.

MyState chief executive officer Brett Morgan said the combination of two complementary businesses would deliver significant scale, contributing to improved operating efficiency from a larger balance sheet and increased funding flexibility.

He added that there would be no change to the MyState branch footprint when the deal settles before the year-end.

Auswide chair Sandra Birkensleigh said it would be a “step-change event” that would unlock a range of efficiencies, synergies and growth opportunities for shareholders.

Ms Birkensleigh said the Auswide board had unanimously recommended shareholders vote in favour of the merger.

Partner search

Formed in 2009 following the merger of MyState Financial and wealth management company TPT Wealth, MyState has a customer base of 180,000 across seven branches in Tasmania supported by $8.4b in assets.

More than 14,000 of those customers were signed up in the 2024 financial year.

MyState is slightly larger than Auswide, which has around $6b in assets and 92,000 customers.

Both banks are believed to have spent the past few years scouting for suitable merger partners.

Challenging period

MyState’s merger announcement follows the release of its annual results, which painted a challenging period for the bank with an 8.3% reduction in net profit after tax from $38.5m to $35.3m and a 5% reduction in total operating income from $160.4m to $152.4m.

Year-on-year margins were impacted by home loan and deposit price competition, deposit switching, increases in securitisation funding and higher liquid holdings.

On the upside, MyState’s operating costs in the high-inflationary environment were reported to be well-managed and down 1.6% to $101m, with home lending up 2% as well.

‘Strong foundations’

“We managed the balance between growth and margin during the year and our focus on extracting efficiencies and expense management delivered a reduction in operating costs in an inflationary environment,” Mr Morgan said.

“We have maintained our focus on growing profitably while delivering on a range of important strategic and efficiency initiatives which supported a reduction in total operating costs.”

“We have set strong foundations which will help drive profitable growth into the future.”

Market pressures

Auswide also reeled from market pressures in the 12 months to end June, reporting a 55.2% reduction in net profit after tax to $11.23m.

Statutory return on investment fell from 8.7% in the previous period to 3.9% but was offset by a conservative and risk-based approach to growth, resulting in a steady loan book across the year of $4.42b.

Customer deposits increased 8% to $3.68b and continue to be the bank’s largest source of funding.

Selfco acquisition

Auswide has also announced the $6.5m strategic acquisition of established non-bank lender Selfco, giving it an entry point into the small-to-medium enterprise (SME) funding market.

The deal is expected to provide portfolio diversification for the Auswide-MyState merged entity and drive scale by expanding the service offering into the large and addressable SME market.

Consideration will comprise an initial $5m scrip plus performance-based contingent earn-out payments of as much as $1.5m.

The acquisition will be funded by a $12m placement and a $3m share purchase plan launched today to eligible shareholders.