Australian Finance Group Limited (AFG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Australian Finance Group Limited Investor Briefing for AFG 2023 Half Year Results Announcement. I'd now like to pass the conference over to Mr. David Bailey, CEO. Please go ahead.

Thank you, and good morning, everyone, and thanks for joining us. I'm joined with our CFO, Luca Pietropiccolo. And you'll hear from Luca very shortly. But thanks for the opportunity to talk. And look, I'm going to just do a spin through the investor presentation and highlights and key points, which we think are worth mentioning and then, obviously, open up for questions. So if I just start on Page 3. I just want to recap on the AFG business model. So we do operate in deep markets, deep financial markets. And the business we started in residential is transitioning through into commercial mortgages and, obviously, more recently, a greater focus on asset and equipment finance. And we, obviously, offer personal loan broking services as well. The aggregation services is a business, which predominantly was the business that we listed and floated back in 2015, moving into -- with some level of loan distribution and some -- a small aspect of loan manufacturing. Over time, we've seen that business model grow and evolve to cover off most areas of asset finance, whether be through aggregation, loan distribution or loan manufacturing. We have a broad customer base, 1 in 10 mortgages now written through our AFG brokers. So it's a significant footprint on the Australian mortgage market. And that's done with the support of about 3,700-plus brokers across the marketplace, and they use our lender panel which comprises about 70 lenders across the country. So our blueprint -- I'm having trouble with that word. Our blueprint is fairly clear. The idea of the business model is really around building distribution and then accessing that distribution with opportunities to distribute additional margin products, be it white label and then, obviously, into loan manufacturing. And over time, you've seen a step through this blueprint and drive an area where at the time of listing in 2015, where roughly around 7% of that profit was coming from -- so 93% of our profit was coming from the residential mortgage and commercial aggregation space, such now that the business has diversified further, where we move into higher-margin product and 66% of the earnings driven from the higher margin product across the business. Underpinning all of that is obviously broker market share. So we talk about the use and importance of broker in the Australian mortgage market and something we've talked about for a long time. Brokers are the preeminent channel for distribution across the country now for residential home loans, and that represents 72% market share across the marketplace. And what we'd also see is AFG's share of all mortgages is that 1 in 10 sitting in the marketplace. Highlights for the FY first half 2023, first half is really underpinned by that mortgage -- sorry, earnings diversification. We have AFG Securities loan book of $4.9 billion, which is up 22% on the prior comparative period, and we maintained a NIM of 145 basis points and it's purely in this market, really driven from a strict and intensive desire to maintain -- to write basically -- to write business which makes sense for us. The balance sheet, which helps drive the overall business model is strong. You can see there, over 60% of our cash earnings come from annuity style income, be it our trail book or our loan book overall. We are a capital-light business with $200 million worth of liquid assets and investment. And we're investing for growth. We're investing in technology, and we'll continue to invest in technology. Our broader proposition is that we think that brokers will become busier in the marketplace. And so our technology and our focus is on about how do we take time out of the brokers day to enable them to be higher levels of product -- drive higher level of productivities. The other point probably since listing and primarily since about 2017, we've taken more of a strategic view around investments and I'm very pleased to say today that they are exceeding our expectations as we currently speak. In terms of the financials, we do have -- and was something we've talked about a fair bit is this competitive advantage we have in terms of our unique position in the marketplace. We sit between lenders and our brokers, and have access to a significant level of data, which enables us to drive a better level of insights across the mortgage market, which really does help us in terms of our distribution and manufacture of new products. Our underlying NPATA of $25.6 million is a testament to the strategy, which is driving through. And I talked about earlier about our contribution from investments of -- that's actually achieved $5.9 million in our earnings results. So we're very pleased with Thinktank, our investment in Thinktank, Fintelligence, and obviously, BrokerEngine as well in terms of how it's moving and shaping our future direction. Cash realization, Luca will talk to that in a little while, but operating cash -- a cash flow of $26.9 million. You can see the conversion. There is a little bit of noise around that, but it's a very, very high cash realization rate. And we've had unrestricted cash of $65 million available for protection of the business, but to also help fund and identify new future opportunities. The capital-light business model, which I talked about previously, so excluding the cash, we have about $180 million worth of investments in liquid assets. Our dividend -- all that comes up to a dividend -- interim dividend of $0.066 per share, which is a dividend payout ratio of 70%, which is consistent with what we've done in the past for the half year. And based on more recent share prices, that's a dividend yield of 8% fully franked. I just might pass it through to -- now to the actual operations update and a little touch on really where the market is at the moment, and then some of these slides that have been well documented and discussed by some of our peers and economic commentators. But if you look at the RBA cash rate, we've gone through an extraordinary period of increased interest rates from the RBA, which is obviously driven through to home lending rates and impacting the overall level of activity within the mortgage market. And I do stress that we are coming off a period of extraordinary level of activity. My comments to most investors over the journey have been, this period is one out of the box. And what we're seeing now is a real normalization of flow and also a normal -- what the reserve bank trying to do is obviously normalize the marketplace. But what that's driving is an interesting aspect. Our credit growth is obviously slowing on the back of that. And importantly, what we're also seeing is more customers -- importantly, more customers are actually selecting brokers to help offset what is their biggest monthly household expense. Against that backdrop, we've had the TFF, which -- when I was speaking around about this time last year and also in August, we are anticipating in reality that the level of competition in the marketplace would become a bit more balanced with the TFF requiring repayment. But what we have seen is that this drive and sudden rise in interest rate has translated to a funding -- an additional funding advantage for the ADIs in particular, the major banks, where the speed at which they are passing on interest rate deposit rates to customers is slow and therefore, they create an arbitrage environment for funding into the home loan market. That, ultimately, we see as slowing, but we suspect there's a little bit to walk through on that pace at this point in time. You can see there what that has driven is that the ADI market share has softened on the back of the higher level of competitiveness of the major ADIs in particular. And you can see what's happened there in terms of market share. Pleasingly, from an AFG perspective, whilst volumes are slow -- have slowed and softened, we still remain #6 on our lending panel, which on the back of the level of competition is quite a significant -- in my mind is quite a significant achievement. So the aggregation business, if I'll move to Page 10, really just talks about -- the slide on the right is that our experience in rate rise cycles, and we can go back to 2001 through to 2007 is that our business is relatively resilient to rate rise cycles because it's kind of self-fulfilling, is that when customers are experiencing an opportunity or a desire to move home loaners to find a better rate or a better proposition, they will go to broker. And it's probably been accelerated even further through the pandemic is that customers that have -- an increased number of customers have gone to broker and those customers have been well looked after during that process and those customers become customers for life. And so our brokers are reporting a steady level of inquiry and interest from customers. So we suspect that part of our business, particularly as we work through the level of refinance of fixed rates, we expect that our brokers will -- our good brokers will continue to be busy. It's clearly the channel preferred by customers now. And the other important thing is that we're also starting to see signs of it becoming increasingly important for customers SME-type customers. And that will be one of our focuses as we move forward. In terms of our loan manufacturing, we do have 100% variable interest rates, and we don't have that fixed rate area where we're going to have a sudden write-off. But we also have an opportunity when traditionally around 90% of all customers select a variable rate. As markets steady and competition returns to a more usual level, we would expect our products to start resonating with our customers and more importantly, our brokers as well over time. In terms of the book itself, it's something that's always performed very, very well over the journey. I think we've been writing business since 2007. Our total losses on that program is around about $260,000, and it's driven from our competitive advantage, our ability to analyze data, understand the loan products, which suit our credit appetite, but also take best practice from a number of those 70 lenders across the industry. So in terms of the arrears, you can see that they are higher than they were at prior reporting periods, but still significantly below our peers and below the spend across the market. So the total loss provision, which Luca will probably touch on shortly, talks about 2.9 -- a provision around $2.9 million. And right at the moment, even at December and also moving into January and February, whilst we are seeing like most lenders an increased level of activity in the arrears department, we aren't seeing anything, which is flagging a significant change or change of view in terms of that overall structure. Moving to Slide 11. Our diversification strategy is proven, and it does provide a growth platform. So broker numbers are growing. We've had our best recruitment -- we continue to have a very strong recruitment period. And that trail book asset has continued to grow over the period. And you can see that how much that has grown since the time of listing, but also post-COVID. The other important part is that commercial trail book. I touched earlier on commercial -- on commercial being an increasing area of focus for brokers and for customers seeking -- SME customers seeking finance. And you can see what's happening there through COVID, but obviously since listing, we are seeing an increased level of appetite from brokers to not only consider how to write commercial business, but obviously, customers who fit within the criteria of a true SME trying to find solutions for their business. So on to Slide 12. We talk about that growth platform. AFG Securities have provided a strong level of growth. The level of activity in this marketplace, again, on the backdrop of being quite studious around what our required return on capital has been, has really driven a quieter period in terms of securities, but it does provide a strong base and strong base for earnings in the future, and it is obviously a key platform for our growth moving forward. The gross profit, we have a record gross profit for the half. And that combined with the securities book and the other parts of our businesses are driving a strong return on equity. And you can see our return on equity of above 25% represents a 12% CAGR since the time of listing. Our business segments are well placed to continue to deliver shareholder returns. There's a slide there which talks about the net -- aggregate net commission. Again, that purple patch that I talked about during the pandemic has come off. But more importantly, you can see the overall growth is evident in the trend in that growth. It is consistent. Our home loans margin, you can see that in terms of the contribution of the earnings, of the net interest and white label trail commission, continues to evolve and grow for us. Our aggregation business, I touched on that earlier. We talked about the 72% market share, increasing input or footprint in commercial mortgages and asset finance. You can see the impact the Fintelligence business has done -- has had on volumes written through those joint platforms. We talk about the future, $30 billion roughly of remaining fixed rate mortgages to mature, and the demand for brokers continues to increase and we're seeing that, obviously, in the market share. And we do talk about that similar opportunity for brokers to start transitioning into the commercial market. So we estimate, if brokers on residential market is around 72%, we estimate that the numbers aren't quite clear depending on your definition of commercial and SME. Around about 20% to 30% are currently fulfilled by a broker. However, the trend that we're starting to see is that increasingly embracing of brokers, have an increased appetite to write commercial business to help become more of a holistic service provider to their SME clients, but also the acceptance of lenders to embrace broker through the commercial sector. Home loans, I talked about us being ranked 6th for home loans. And we've also highlighted and you've probably seen through our mortgage index, the emphasis around the competitive advantage. The market is -- I've never seen a market like this at the moment in terms of level of competition for prime business. So we have -- to that point, we are seeing a softening in -- or have experienced a softening in our securities business. And again, against that backdrop, there's no point writing business with sub-marginal returns for us at the moment. We are investing in a new lending platform. We expect that to be finalized by first quarter of FY '24. And through that, it just provides a greater level, high level of efficiency and process completion to enable better customer spirits, be it from a broker or a broker's customer, but also enable us -- when the time comes and the time will come, where we can start stepping up volumes at a better leverage. Funding -- and I will talk about that again. We have had a -- the year -- the half year is probably emphasized by the $1 billion term transaction, which we completed during October is the largest transaction we've done. The appetite for investors in the RMBS market remains strong. Pricing remains somewhat elevated, but we expect over time that, that will also normalize once investors get comfortable that we aren't facing a cliff in terms of arrears and losses across home loan book. So we are seeing regular issuers in the market come back. A number of our peers have already undertaken a term transaction at prices, which are jaw-dropping in terms of cost of trusts funds. And the important part is that $1 billion provides us with capacity -- $1 billion term deal provides us with capacity moving forward as we anticipate the market starting to open up and opportunities are created for us. On that note, I might pass across to Luca, and he can run you through some financial information.

Thanks, David, and good morning, everyone. I'm on Slide 18. So as David mentioned, it's been a very solid start to the year despite a range of headwinds, and it's pleasing to be able to report an underlying impact that's broadly in line with last year. That profit reflects 3 key things. Firstly, the continued growth of our securities book. That volume growth added $8 million of gross profit, which was partially offset by the NIM compression, which contracted by $6 million. Secondly, the strength of our strategic investments, which contributed $6 million for the half, adding $3 million year-on-year. And thirdly, offsetting this growth was our higher OpEx, which had a number of moving parts, and I'll cover that off in more detail shortly. The reported NPAT that you can see on that slide was $21.9 million, which was down on the $30 million last half. There is a detailed reconciliation between our reported and underlying number contained on Slide 33 of the pack. As most would probably expect, while last year benefited from a growing net trail book asset, this half, it has had a negative impact as our run-off rate increase given the level of market activity we are seeing, and Dave has spoken about this early on. In this environment, the cash-generating nature of AFG is a real differentiator. And this half, we delivered an operating cash result of $27 million. This is a record operating cash generation for a half. I will, however, highlight that as we outlined last year, the first half FY '22 operating cash flow was negatively affected by the timing of payments. So while the table indicates significant growth from last year, it's more moderated if we adjust for that. The annuity-style cash flows we have and the strength of our balance sheet gives us the confidence to declare a fully franked interim dividend of $0.066 per share. This represents a payout ratio of 70%, and as David mentioned, an annualized yield of just over 8%. The dividend record date is 7 March. The dividend payment date is 23 March. Slide 19, I won't talk to this slide in detail. It outlines the movement in our underlying profit before tax. I trust that the slide is fairly self-explanatory, and outlines the themes I spoke to on the previous slide. I will move to Slide 20. And David's mentioned the strategic importance of these strategic investments, and are critical to the delivery of our strategy and they have performed very well in the half. The first of those investments was Thinktank, an investment made in 2018, of which AFG owns 32%. Thinktank is on the lending platform of leading aggregators and operates in both the commercial and residential space. It closed the half of the loan book of just under $5 billion, the same size as AFG Securities. Thinktank had a very successful half and its earnings grew just over 30% year-on-year. AFG's share of those earnings was $3.5 million. In relation to Fintelligence and BrokerEngine, these acquisitions were made at the end of last year and therefore, weren't included in our first half results last year. Fintelligence, which is a leading asset finance aggregator, had a strong half, with the performance of that business exceeding the acquisition case. AFG's share of its pre-tax earnings for the half were $2.8 million. BrokerEngine also had a solid start, doubling the number of subscribers in just 12 months and benefiting from plugging into AFG's broker network. You'll see that the earnings contribution was negative for the half. This reflects the impact of the way we now recognize revenue from an accounting perspective for that business. Combined, these strategic investments contributed $5.9 million in profit, while we have a carrying value of just over $90 million for those investments. On Slide 21. And as I mentioned at the onset, one of the key drivers of our half result was the deliberate investment in our business, which in turn has led to higher operating costs. Overall, our operating costs increased by $14 million year-on-year. However, there are several moving parts within that. Adjusting for those, our like-for-like costs increased by $4 million year-on-year. So to break the $14 million increase down, there are 4 key areas. As I mentioned, Fintelligence and BrokerEngine are included for the first time, and that represents a $4 million increase. Secondly, as COVID restrictions have lifted, we've reintroduced the face-to-face broker education and engagement program. While we are required to report these costs as operating costs, there is an offset in other income, so net neutral to our P&L. Thirdly, our investment in improving our technology platforms as well as higher costs associated with uplifting our data capabilities and cybersecurity has resulted in a combined IT-related spend increase of $4 million. Half of that is employee and contractor costs. A portion is amortization as we've increased our level of investment, and a portion is associated with general uplift in IT spend as most businesses are experiencing. Finally, it's the investment and growth of our securitization business, which resulted in higher OpEx. There are a couple of elements to that increase. Firstly, as we've grown the size of the book, turnout costs have increased. That represents about $1 million increase year-on-year. Those costs will step down over the next 3 years. Elsewhere, we've had a tale of 2 halves within AFG Securities within the past 6 months. As our settlement volumes remained elevated in the first quarter, that quickly transition to a high level of refinance and new business associated with the unprecedented levels of cash backs being offered by major lenders. We've met that activity with higher FTE numbers to provide the level of service that's expected from our brokers. As we deliver our new lending platform later this year, we expect to realize a number of efficiencies in that part of the business. So if I recap, of that $14 million increase, $4 million relates to higher costs from our strategic investments, which we should expect to continue. $3 million relates to our broker engagement program, which has offset the sponsorship income, $3 million relates to higher turnout costs and non-cash amortization. That leaves us with $4 million, and that's about a 9% increase half-on-half. And that really relates to higher employee costs, both super and wage inflation and higher level FTEs to provide the level of service that our brokers expect. I'll move to Slide 22. And if I turn now from the P&L to our balance sheet, the balance sheet and cash flow generating nature of AFG is a real strength. It's particularly pleasing to have a stable annuity style cash flow business as we work through the current market cycle. It's a real point of differentiation. It gives us an advantage to respond to market opportunities as they arise. If I focus on the chart in the middle, which shows the cash that we hold in the business, in total, that's $272 million in unrestricted and restricted cash. As David mentioned, that's complemented by a further $182 million in high-performing investments and other liquid assets. That includes our trail asset of $103 million, which are annuity style cash flows. In total, $454 million in cash, high-performing investments and liquid assets. Those liquid assets are complemented by $47 million in debt, while generating about the same year -- same each year in operating cash flows. It would be remiss of me not to mention our ECL provision when I discuss the balance sheet. On our ECL provision, the assumptions that we've used are holding. We take a very balanced view to avoid volatility in our P&L. We tested in January, and the ECL provision remains sound. As David mentioned, we've got a wealth of data that supports our credit decisions, and that's proven with only $260,000 of write-offs over our time. We will proactively manage it. And as you would expect, we've resourced up in that section of the business. We'll continue our vigilance in that area. Our return on equity remains a healthy 25%, and reflects the disciplined approach that we have within AFG to writing business. With that, I'll leave it there and hand back to Dave to provide an update on our outlook.

Thanks, Luca. If I move to Slide 24, I think the flavor coming through here in January is really replicated by the fact that on the basis of the last 2 years where brokers were effectively tied to the desk due to COVID restrictions and due to customer demand, what we saw in January was some very soft numbers coming through. And the general feedback is like most people across Australia, brokers took holidays and customers also took holidays. So they took the opportunity to take some holidays. And the January numbers are probably more consistent in terms of levels of activity of what we achieved and what we experienced in the years leading into the pandemic. So from that perspective, we're starting to see some things normalize. The Securities numbers are probably well discussed previously and highlighted by our mortgage index are soft, and that's primarily around competition again in the marketplace. But we do -- as we turn forward, we do expect some of these headwinds to begin to slow. We're starting to see, obviously, the paydown of the TFF. We talked about the bank deposit margin. It's interesting to see the ACCC becoming involved in that process. Their report is due out in December. My gut feel is, as they start rolling up their sleeves and getting into that program, I would expect there'd be a number of lenders turning around or banks turning around and saying, well, there's nothing to see here, look at our rates. So there's going to be a higher level of margin compression for the majors as we move through this interest rate cycle. And it would appear whilst there might be a couple to come, we're probably nearing the end of that process. And that means cost of funds, and we start to return to a normal rhythm around margins and so forth moving forward. And so that structural disadvantage that we've seen probably prominent over the last 9 months, we expect it to fall away. Against that, we turn to Page 26. We see some other things, which sort of highlight the importance of broker market share. We expect to continue to be strong. Most lenders I speak to these days are saying we accept that brokers -- where customers want to access our products and we start seeing that in broker share and also reflected in the fact that bank closures continued -- bank branch closures continue across the marketplace. So our expectation is that brokers will be busy and that margin will be normalized over time. But we also suspect that, that might still take the 6 months leading in to start being realistic. We've already started to see signs of those margins or prices to customers coming back. One major bank has reduced the level of discounts, which this time I've seen in a number of probably sort of 12 months. The size of the discount available to consumers of the standard variable rates seems to have softened in various LVR bands. So we do start -- we do expect and continue to see some level of tightening across that. The other underpinning piece is net overseas migration, which has always been a good supporter of our business and also within. So people moving into Australia need somewhere to live. We are seeing -- starting to see based on the last 6 months, the level of investment, whilst it's flat quarter-to-quarter, we are starting to see a high level of inquiry around investor. These customers -- these migrants are looking somewhere to live. Rental properties are at a premium, and we expect over time that, that might drive a higher level of activity in that subsector of the marketplace. So moving to Page 27. Our strategy to build scale and expand into higher-margin lending services is working, and we are experiencing areas of diversification, which helps supplement other parts of the business where the market may be softer. The residential and commercial trail book, we can't underestimate the value of that for the business in terms of the cash flow and actuarially assessed cash flow that washes through the business of $200 billion. Our Securities business is $5 billion. On top of that, we have another AFG Home Loans loan book of about $9 billion, which also drives additional margin into the business. So the strong cash flow generation ability of the business remains strong. Our credit quality, we feel comfortable around our credit quality in terms of our loss provisions. And over the journey, we've returned around $200 million to shareholders, demonstrating -- reflecting the strong cash flow capability of the business. And we've grown our broker market share -- or sorry, the number of brokers on the business. And that -- we are seeing signs of that continuing with some good broking groups in the pipeline looking to join ASG. And we're very, very pleased with our strategic investments and how they are proving up in terms of the broader proposition around the ASG stable. So finally, we want to talk about -- I want to talk about re-emphasization of the earnings diversification. The next phase for us is we want to double down on our data and the data that we have available to us to develop and create further insights and identify customers which fit our criteria. We'll continue to support our brokers to take share. And the fixed or variable element washing through is an important platform for us. The cash flow generation capability underpins our ability to grow and provide an opportunity for us to look at other opportunities in the marketplace as some businesses may become more challenged. The disciplined approach to margin management and credit quality, I won't move away or apologize for that. That's something we are fastidious about because it underpins our position in the marketplace, but also our ability to attract investors in the longer term from an RMBS perspective. So all in all, the technology investment will continue. We'll continue to endeavor to deliver efficiencies to our brokers, particularly as the broker share starts to grow. And the asset finance and commercial markets is the next phase of our ability and desire to grow into other sectors and other platforms. With that in mind, I might just pause. We've gone for -- oh my goodness, we've gone for 50 minutes. So I'll now open up for questions.

[Operator Instructions] Your first question comes from Minh Pham from Barrenjoey.

It's been very clear. 2 questions, if I may. On Page 15, you've put in a pretty interesting chart on the funding cost rates versus the lending rates of the majors. You've spoken a lot about it on the call about the structural disadvantage that you and your non-bank peers have in a higher interest rate environment. Understanding that you are expecting the competition to ease, but does it make sense to continue writing prime loans when the disadvantage is so large? And similar to that point, how do you make sure you're not facing adverse selection, particularly when your higher-margin products are relatively new to market?

Look, yes, I'm probably clear or hopefully, I'm relatively clear that we are writing some prime business, but it's prime business that is not stuff which fits the normal box that an ADI might look for. So it's still prime, but it requires some work around. And through that, Minh, we're able to charge some additional points because the loan itself in terms of how it's structured and what the customer is trying to achieve, means that we can charge a premium on prime rates. So that's the type of business where we're probably accepting at the moment into that space. We are a business, which is about delivering solutions to our brokers. So the brokers can deliver solutions to the customers. So not every one -- not every customer is a teacher or a police person who has a life or a partner with 2 kids living in the suburbs of Sydney or across the country. So that's probably the first response on that. And in terms of credit quality and self-selection, I guess one of the things I'd like to call out is that we are in a rather envious position in terms of -- we do see a lot coming through our system. We do see a lot coming through from our lenders and through our compliance division, which provides us an insight we do. We are able to monitor and review our brokers activities at a different level compared to any other lender in the marketplace. And that is a nice contrast to a self-selection dilemma.

Great. And maybe just moving to Slide 31 on the upfront payout ratio, that's continued to increase, up 80 basis points year-on-year, which is basically equivalent to 12% revenue hit over the past 12 months. It's obviously a function of competitive pressures. Are you expecting these trends to ease or at least not go up as quickly? And maybe you can touch on how effective the other income line and potentially the Fintelligence acquisition can offset this?

Yes. I'm happy to have a go at that, Minh. I think in terms of the upfront payout ratio, there's probably 2 elements to that. One, David's talked about the competitive nature. And obviously, that's something that weighs, we need to face into. And whilst we're investing in our tech, we're definitely seeing us having to forgo some ratio there. In terms of the other income, the quality of that continues to strengthen. Our fee income is strong. BrokerEngine fee income is also strong, notwithstanding the accounting adjustment that you've seen in the half, so definitely provides some support to other income and that's continued to strengthen over the past few years.

I think at the risk of stepping into a CFO area, where I haven't been a CFO for a while, there is a little bit of a noise in our commissions income around the fact that we're -- in terms of mix. So there's been a period where AFG Home Loans -- obviously, with AFG Home Loans, we receive a higher level of commission because it's a white label. Then when the mix of that reduces, so we write more through the broader lender panel. Obviously, the take-home component of that commission changes.

[Operator Instructions] Your next question comes from Tim Lawson from Macquarie.

Just a couple. So obviously, we can see the book growth at the period end and the trends in sort of runoff and settlements over the half. But can you talk sort of what you're seeing sort of later in the half and where sort of run-off rates may be stabilized to, if you've seen that and just on the sort of amount going into the bucket in terms of settlements as well?

So I think it's fair to say the full half is, you can probably split between 2 halves, if that makes sense. The level of activity and level of competition probably started really peaking in September, October, which therefore means that settlements through that period were softer than the first half of the half, if that makes sense. And what we're seeing right now is, particularly on the back of that softer Christmas period, we're seeing a soft start to the second half of this financial year, primarily on the back of a lack of pipeline. And the types of loans that we're seeing coming through is the ones I've just mentioned to Minh. So the volume is softer. As things start to normalize and the expectation is over the next 6 months, we'll start seeing those things normalize and we'll start seeing those volumes start returning with some new product initiatives we're also considering. So it's reasonable to say the most -- one of the busiest departments in AFG Securities at the moment is in the retention team and in the discharges. So the runoff is elevated half-on-half, and we'd expect that to be maintained over the period from -- for the next 3 months to 6 months.

Is it fair to say that the second quarter is a higher runoff than the first quarter?

Yes. And I think, if I look at some of our peers who've already reported their results, what we're seeing is not dissimilar.

Yes. Maybe just on margins. Maybe just how much sort of repricing you've done over the half and what you're sort of seeing? I know you don't like the core exit rates, but the trend into the next half would be helpful.

Yes. Yes. Look, in terms of margins, there's always this monthly margin noise around which we've talked about previously, Tim, and others just around -- we have -- we've had like 9 months' worth of interest rate rises, which generally only happens in a normal world, maybe once every almost 3 times or 4 times a year. So we had seen -- so that does create noise in terms of our NIM on a month-to-month basis, which is why I don't really want to talk. We like talking about NIM from that perspective and exit rate. But what we're seeing is that the exit -- sorry, the NIM that we're achieving at the moment, if you take out the noise of those monthly increases promulgated by the RBA is something similar to what we're seeing as what we've reported. In terms of rate rises out of cycle to customers, we did that one. I think it was in June, and we haven't done another one. So we just followed the RBA since that time.

Yes. Yes. Okay. And just with the -- obviously, a slight change in business mix with the Fintelligence acquisition. Can you just talk a little bit about the sort of outlook and disaggregate the trends you're seeing in the aggregation margin?

Yes, yes. Sure. I'm just sort of trying -- so the Fintelligence business is obviously asset finance. The asset finance business works on the basis that the broker who introduces the loans gets a commission upfront from the lender. And then there's basically volume-based incentives from the lenders based on what you're writing and how you sharing that. And that, depending on the lender chosen can move from 70 basis points to around 250 basis points. An element of that is sometimes shared with the broker. So it does -- and we're not talking 90 odd percent. We're talking, on average, roughly around 50% to 60%, somewhere in that mark is what shared in terms of the volume bonus with the broker. So the economics of a -- over time, as we grow this space will help modify the payout ratio at a high level, but there's also fee services which are charged to the broker to use the platform.

Your next question comes from Tom Strong from Citi.

Just had a question on the Securities business. I mean, just given in light of your comments made earlier that the runoff is likely to stay elevated or difficult in the second half across probably both the Securities and the white label business. To what extent is that runoff going to keep pressuring your payout ratio and the commissions, given this is a higher margin flow?

I'm not sure it impacts the payout ratio, Tom, in terms of -- the broker gets 65 basis points upfront or AFG receives 65 basis points upfront irrespective of the deal and where it comes from. And then the payout ratio is I think it's -- the average is around about -- the weighted average is around about 94%, 95%. So the amount we pay away to a broker is -- and this makes sense because under best interest -- so the amount the broker receives is not different in respect to the lender. So I'm not quite sure I might understand the question.

Is there a difference then in terms of the average commission receipt in terms of different products?

Yes. Clearly, yes. So the white label commission -- and just probably going to an earlier question, the white label commission has an extra amount upfront and obviously, an extra trail, but none of that gets shared with the broker. So if we're writing less of the AFG Home Loans business, clearly, what that means, it translates into is that we are paying the mix. We're actually paying more of the revenue that we're receiving.

Yes. Okay. No, that's understood. And just in terms of your NIM, as we said in the results back at 145 basis points returning to more normalized levels. I think you sort of inferred that the monthly NIM is sort of not too far from that. Is there any benefit from, I guess, the normalizing BBSW cash that we sort of saw through the half? Just noting that one of your peers had quite substantially higher x NIM calling out that sort of tailwinds.

Yes. Look, I mean that's been factored in. And we're using some of that, to be honest, Tom, in terms of the retention. So we're probably different to some of our peers in that. We made the strategic decision to -- from a credit appetite focus predominantly on prime, and that's probably where we're seeing, obviously, most of the runoff rate. But as we look at each of those customers, that normalization on BBSW or cash-to-bills differential, we're utilizing for, I don't know a better term, to retain from [ current one ]. Does that make sense?

Yes. No, that's good.

Okay. Doesn't seem to be any more questions. So I might wrap this up. I really appreciate, everyone, making the time. I know it's a busy day for all analysts in the marketplace today. And look forward to catching up with you on the road over the next week or so. Thanks very much, everyone.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.