It isn’t about being the biggest... CONCISE ANNUAL REPORT 2001 ...it’s about being the best. Table of Contents Tribute to Ed O’Neal 2 Executive Chairman’s Report 4 Best Bank Achievements and Outcomes 8 Customer Service Solutions 12 Wealth Creation and Innovation 16 Financial Services Expertise 20 Community Relations and Social Charter 24 tribute to Financial Review 27 Five Year Financial Summary 31 Executive Directory 32 Board of Directors 34 Corporate Governance 36 Ed O’Neal Risk Analysis 38 Contents of Financial Statements 40 Directors’ Report 41 Discussion and Analysis 46 The sudden death of St.George Bank’s Profit and Loss 46 Managing Director and Chief Executive Balance Sheet 47 Officer, Edward Asbury O’Neal, in September Statement of Cash Flows 48 2001, shocked and saddened us all. Notes to Financial Statements 49 Directors’ Declaration 54 An inspirational leader, Ed was admired Supplementary Financial Information 55 by everyone who had the privilege of Shareholder Information 59 meeting him. He stood apart through History of Share Issues and Dividends 60 his charisma, congeniality, honesty, Graphical Data commitment and passion. He was an Dividends and EPS 7 easy man to like and respect. Return on Average Equity 7 Ed was extremely popular with staff. Expense to Income Ratio 7 Operational Profit/Underlying Profit 7 He often remarked on their energy Non-Accrual Loans (Net) 11 and motivation, skills, dedication and Interest Margin 15 discipline. He introduced the Star Awards Managed Funds 19 for employees who excelled in customer Other Income to Total Income 23 service. He actively joined staff activities Annual General Meeting and let them know he was just another The Annual General Meeting of St.George Bank Limited part of the team. ABN 92055 513 070 will be held at the Tumbalong Auditorium (Level 2), Sydney Convention and Exhibition Centre (South), Darling Harbour, Sydney on Friday 14 December 2001, commencing at 10.00am. 2 Ed O’Neal 1944 – 2001 Passionate about St.George customers, After 23 years with Chemical Bank, he Ed wrote the following words for the Ed was committed to deepening went on to become Vice Chairman at annual report. We know he would have relationships with them. He genuinely the Bank of Boston. wished them to be communicated believed that St.George was better placed He was the driving force behind to shareholders: than any Australian bank to provide St.George’s structural and financial ‘Our ownership restrictions – which have customers with valuable lifestyle solutions. achievements over the past few years. made us difficult to takeover, become easier to He was also committed to creating He devoted his last years to making change in July next year. the best bank St.George could be for St.George Bank stand out as a genuine ‘I welcome this change. I believe we need to shareholders, particularly the 110,000 or so alternative in Australian banking. be seen as standing on our own feet – without small investors who rely on the Bank’s solid Ed’s popularity was clearly evidenced regulation – as a viable and independent returns to make a difference in their lives. by the enormous number of tributes that financial institution offering a real alternative. Most of all, Ed was a devoted family flowed in from staff, friends and business ‘I welcome the change because we’re a man. He and his wife Dianne had recently leaders in Australia and from around the robust company with strong growth potential. completed extensive renovations to their world. His family has taken great comfort We’re entering the new year with our best- Sydney home. Together they spent from these messages. ever financial performance. We’ve built a real weekends on their country property in The results of Ed’s efforts to improve momentum in our results. Our credit quality the NSW Southern Highlands. As often as St.George’s operations and share price is strong. Our customer satisfaction is superior possible they would spend time with their are reflected strongly in the market place. to that of our competitors. only child, Edward, who is completing his Our sadness is that he didn’t live to ‘The St.George brand is extremely strong. schooling in the United States. enjoy all the fruits of his endeavours. We stand for something different. And that’s our A career banker, Ed was appointed We are confident his positive contribution goal. Not to be the biggest, but to be the best. CEO and Managing Director of St.George will continue to shine through. ‘St.George is delivering on its promises. in May 1998 after enjoying a distinguished We still have major challenges ahead, but banking career in the United States. I believe we’re extremely well positioned for our shareholders to reap the rewards of our passion for customers and our commitment to achieving results.’ 3 ...it’s about achieving goals. ‘We believe that our best course of action is to remain focused on continuing to improve our performance for shareholders, thereby strengthening our position in the market place.’ St.George is strongly positioned for a He was an energetic leader and St.George’s result to 30 September 2001 solid independent future, well beyond contributed immensely to the Bank’s – the best in the Bank’s history – comes July 2002. The Bank has achieved position. He will be greatly missed. from the dedicated efforts of all genuine organic growth, robust The Board has authorised an executive employees to make St.George a powerful earnings and a solid performance. search to find an appropriate and alternative in Australian banking. This is the result of the untiring focus committed leader for St.George in the The profit available to ordinary and dedication of our late Managing future. In the interim, the Board has shareholders was $336 million, an increase Director, Ed O’Neal, his executive team appointed me Executive Chairman. I have of 17.5 per cent on the previous year’s and the staff of St.George. On behalf of appointed BankSA Managing Director, record. The 2001 result was adversely the Board, I wish to thank them for their Lou Morris, as St.George’s Acting Chief impacted by significant items of $50 million excellent contribution in bringing the Operating Officer to assist me. I should like ($40 million after tax). These items comprise Bank to such a healthy position. to thank everyone for their support during write-downs of certain investments of The Board and staff were deeply this difficult time. $58 million ($46 million after tax) and saddened by the sudden loss of Ed O’Neal. write-backs of excess provisions of Frank J Conroy Executive Chairman 4 $8 million ($6 million after tax). loans in both absolute and relative terms. Merger talks Earnings per share, before significant St.George is in a strong position at this During the year, St.George explored the items and goodwill amortisation, grew by point in the credit cycle due, in part, opportunity to merge with BankWest. 22.8 per cent to 101.9 cents. The return to our relatively small exposure to The advantages for us would have on average ordinary equity was a problematic loans to large corporations. included increasing our customer base commendable 16.56 per cent, against Our net impaired assets at year end and geographic spread. It would have 13.86 per cent in 2000. This was amounted to just 0.10 per cent of strengthened our national position with achieved through profit improvements total assets. market leadership in both the South across key areas of the organisation, Capital management initiatives Australian and West Australian markets. combined with major capital We recognised, however, that it was During the year, the Group’s total assets management initiatives undertaken not a strategic imperative for St.George’s increased to $50.8 billion from $49.6 in the first part of the year. independent future. We ceased billion at 30 September 2000. This was Shareholders will receive a final fully negotiations in late August when we after taking into account two successful franked dividend of 34 cents per were unable to structure a deal that mortgage-backed securitisations, issued ordinary share, taking the total ordinary was sufficiently attractive to both sets to the offshore and domestic markets in dividend for the year to 65 cents, an of shareholders. increase of 10 cents or 18.2 per cent on February and September, totalling last year. $3.28 billion. Ownership restrictions The Board is pleased to announce that We also introduced a number of From 1 July 2002, the Bank’s ownership the Dividend Reinvestment Plan (DRP) capital management initiatives. This was restriction that limits single shareholders will operate for the final dividend. There to maintain appropriate capital levels to to no more than 10 per cent of the Bank’s will be a discount of 2.5 per cent and support the Bank’s operations, generally shares will be able to be changed by participation will be from a minimum lowering the overall cost of capital and shareholders special resolution. At that of 100 shares with no cap. The DRP enhancing earnings per share. time, we will effectively assume a similar has been underwritten to ensure at least In March, the Bank converted $360 status to other companies with open $120 million of the 2001 final dividend is million of convertible preference shares share registers. reinvested in St.George. into 28.2 million ordinary shares. Holders We believe that our best course The expense to income ratio, of these securities were paid a pro-rata of action is to remain focused on calculated after excluding goodwill and dividend of 44.8 cents for the period to continuing to improve our performance significant items, improved substantially.