Thank you for standing by, and welcome to the Judo Capital Holdings Limited trading update. Today's call will be hosted by Judo CEO Chris Bayliss, and CFO Andrew Leslie. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Chris Bayliss. Please go ahead.
Thank you, and good afternoon, everyone. Thank you for dialing into our trading update, which we launched on the ASX a few hours ago. In terms of format, we anticipate this presentation will take no more than about 10 or 15 minutes, and it will allow plenty of time for Q&A. I'll kick off and provide some color on Judo's overall performance in the financial year to date, then I'll hand to Andrew Leslie, our CFO, who'll cover the financials. I'll come back and provide an update on our FY2025 guidance and comment briefly on our FY2026 expectations. As I said, hopefully we'll have plenty of time for questions and answers. On to our performance.
In the last quarter, since our half-year update back in February, our team at Judo continues to execute our clear and simple strategy of being a pure-play specialist SME lender. It will be of no surprise that in the short term, the operating environment has become increasingly volatile, and our focus has been to proactively balance growth and economics while progressing towards our at-scale ROE in the low to mid-teens, which we remain very confident of achieving. Pleasingly, there continues to be very strong support for our unique customer value proposition. Our NPS remains market-leading at +51, significantly higher than any of the incumbent banks. In fact, our origination NPS over the last quarter since we last spoke has never been higher at 88 for the quarter.
Our SME lending franchise is very strong, and in particular, the growth we're achieving with our regional expansion is excellent. In fact, I couldn't be more happy with it. We now have 158 highly experienced relationship bankers in 27 locations, and we're bang on track to achieve our target of 31 locations nationally by the end of June. Also, as planned, our deposit franchise is also expanding, reaching over AUD 9 billion at the end of March. Pleasingly, during this third quarter, we completed the migration to a new core deposit platform, Temenos, which is what our lending core bank is on as well, and that provides us with significantly greater flexibility to broaden our deposit product suite and also optimize margins. It does mark a major milestone for us. It's 12 months of dedicated effort delivering transformative results.
Pleasingly now, all of Judo's core technology systems now operate on modern enterprise-grade, scalable platforms. The CapEx with regards to moving now to our future scalable platforms is complete. This, of course, is the benchmark that other incumbent banks are investing heavily to try and achieve. On that note, as I said, this was a relatively brief update. I'll hand over to Andrew now to just update on some of the financials for the last quarter, and then I'll come back afterwards to discuss our outlook for the last two months of this year, and then we'll touch very briefly on how we're seeing FY26. Andrew, over to you.
Thanks, Chris, and afternoon, everyone. Turning now to our financial performance for the third quarter of FY2025, gross loans and advances were AUD 11.7 billion at the end of March. Net growth in the third quarter was subdued, reflecting normal seasonality in January and February when many of our customers and professional services firms we use were still coming back from holidays. Our book, however, continues to amortize, and we also experienced some residual impacts of proactive portfolio management that we undertook in the first half of 2025. Margins on new lending remained strong at 4.6%, and this contributed to an improved blended lending margin of 4.3% in Q3. Our AAA pipeline has grown significantly since December to now stand at AUD 1.6 billion, with an average margin in the mid 400s over swap. This positions us well for a strong fourth quarter.
On funds, as Chris just mentioned, our term deposit balance grew to over AUD 9 billion in the quarter. The blended cost of deposits in Q3 was consistent with our expected through-the-cycle range of 80-90 basis points over swap. Q3 NIM was within the targeted range for second half 2025 of 2.9-3%, supported by blended lending and funding margins together with tight liquidity management. In the past few weeks, we have, however, seen an increase in the cost of new deposits. As folks are aware, our deposit margins are the function of headline rates and the swap rate. Swap rates have been very volatile given the changing expectations for the cash rate of late. Our headline rates, in contrast, are more stable, with term deposit customers typically expecting that headline rate to move with the cash rate.
The effect of this is a temporary disconnect between the headline TD rates and the swap rate, with margins for new deposits having been above our through-the-cycle range. We're confident this situation will normalize, and our margins will return to our long-run expected range of 80-90 basis points as the interest rate stabilizes. Overall, despite some moving pieces, we reaffirm our NIM target for second half 2025 of 2.9-3%. Onto operating expenses. We continue to prudently manage our cost base, and pleasingly, cost growth has slowed since the first half. Looking forward to next year, with our major investments in core systems and operations now complete, expense growth is expected to be largely driven by wage inflation, with, I'll note, some heightened competition for frontline employees, as well as amortization of intangible assets and some incremental growth-related investments. Turning to credit quality.
Cost of risk in Q3 was impacted by an increase in specific provisioning for a small number of exposures in vulnerable sectors, which we've previously called out, including manufacturing, services to construction, and discretionary retail. At the end of March, our key metric of 90- plus days past due and impaired loans was 2.46% of GLA, a moderate increase compared to 2.3% in December 2024. We continue to watch credit quality closely. Lastly, we continue to maintain a strong capital position with a CET1 ratio of 13.8% as of 31 March. Back to you, Chris.
Okay, thanks, Andrew. Now on to FY25 outlook, which, as I said earlier, is, of course, only two months away from our June close. On GLAs, we now expect to land June 2025 somewhere between AUD 12.4 billion and AUD 12.6 billion in light of current market conditions. This is lower than our guidance at the first half for a number of reasons. Firstly, as Andrew said, runoff has remained elevated as we've continued to proactively manage our existing book to maintain NIM, particularly loans that were funded during the term funding facility period. We're also seeing general customers being a little bit more cautious, delaying loan settlements. We've also experienced a slightly slower ramp-up in warehouse lending.
Importantly, I want to stress that with regards to the short-term volatility, particularly with regards to the cost of our deposits, we are proactively balancing growth and economics to achieve appropriate margins with an appropriate return on risk. Just to put this into context, we were guiding to between 12.7 and 13. This is a reduction of about AUD 315 million on a close to AUD 13 billion book. We draw down about AUD 100-150 million per week. You can reconcile that to the AUD 1.6 billion pipeline, which is generally about three months' worth of drawdowns. It is about a two to three-week slippage that we are seeing with regards to where we were previously guiding the market to the end of June. FY2025 NIM target is unchanged.
We're targeting second half NIM at the upper end of the 2.9-3% guidance that we've given previously, and we're continuing to target an exit NIM of 3%. I do want to note that any further reductions of the cash rate, particularly before the end of June, will impact the exit NIM, although the impact will be temporary as our lending and deposit books will reprice over time. Operating expenses for FY2025 have been well managed, and as a result, we now expect the FY2025 cost-to-income ratio to be lower than FY2024. In terms of cost of risk, as a result of the increase in specific provisions that Andrew mentioned earlier, we now expect a slightly higher cost of risk in FY2025 compared to FY2024.
Importantly, overall, Judo continues to target FY2025 profit before tax growth of 15%, which is the guidance we've held now for well over a year, actually. We firstly gave that guidance back in January 2024. Now, I'll briefly touch on our FY2026 expectations. As mentioned earlier, the completion of our major investments in core systems and operations is now complete. This, together with strong lending growth, will enable Judo to deliver the significant operating leverage that we have flagged previously. Now, assuming market conditions normalize and operating leverage inherits our model, it will be evident for the second half of 2025, and we aim to deliver profit before tax growth of 50% next year. To close, we remain confident in the outlook for our business, and we remain confident in our metrics at scale and our ability to achieve a sector-leading ROE in the low to mid-teens.
On that, I'll bring the presentation to a close, and myself and Andrew will welcome any questions that you have.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Jonathan Mott from Barrenjoey. Please go ahead.
Chris, when you were previously talking about lending growth, you kind of had this expectation of around AUD 3 billion in loan growth in GLA per annum. I can understand the moving past 15 in this past with delayed growth given some of the issues around the world and elections and also elevated runoff. Is that AUD 3 billion per annum growth in total loans still a viable target?
Yes. I mean, somewhere between two and three is very viable. If you break it down into we have 160 bankers now, and if you sort of break it down, John, into sort of a monthly origination rate per banker, it works out at about AUD 2.5 million-AUD 3 million per banker per month. Now, that is also our average loan size. So it really is no more than one loan per banker per month. Now, runoff is something that we manage carefully as well. As you know, structural runoff in terms of capital and interest is about 8%. We have always guided the market to assume runoff of about 20%. Simple maths is we originate about AUD 5 billion, and we see about AUD 2 billion-AUD 2.5 billion come off the back through runoff. I would see no reason why that should not continue.
We think of growth around about that AUD 2 billion to AUD 2.5 billion because we are very focused on protecting the economics of the book. There is no doubt about it. Competition has increased significantly. We are seeing runoff elevated a little bit higher than what we had originally assumed at rates which do not make sense for us. In simple maths, 160 bankers originating sort of AUD 400 million-AUD 500 million per month with gross originations of sort of AUD 5 billion with runoff at 20% of a AUD 12 billion book, you sort of get to that AUD 2.5 billion of growth mark.
Okay. If we're thinking this, obviously, a bit more elevated runoff, just given competition, still growing the flow of new loans at a pretty good clip, but a bit more runoff and a bit more competition comes along, it means it's going to take longer to get to the scale economics than you probably originally intended or expected. Given that you've got inflation coming through and cost growth continuing to come through as you called out, does that mean the scale metrics of cost-to-income approaching 30% is going to be, let's be brutally honest, very, very difficult to achieve, which means that low to mid-teen ROE metrics at scale is going to be very challenging given that you've probably going to land at a higher cost-to-income?
I think it largely depends on your assumption around other operating income as well. There are products that we intend to have, John, that we haven't brought to market yet. I think we think there's still upside on the NIM as well with regards to the more sophistication being brought to our deposit franchise. In that regard, we mentioned the investment that we've made and have now concluded in the new tech stack on Temenos, which gives us a lot more optionality around deposits. There's no doubt about it. I mean, the IPO, at time of IPO, we've probably pushed the metrics at scale out a year, maybe 18 months. Some of that's inflation. Some of that is a higher runoff. Overall, we still remain very late. We have a lot of levers at our disposal.
Thank you.
Thank you. Your next question comes from Matthew Wilson from UBS. Please go ahead.
Yeah, good morning, team. Hopefully, you can hear me. I'm stuck in a storm in Wellington.
Oh, yeah, that's unusual for the second windiest city in the world.
Yes. Well, it's unusual for that to happen for me anyway. At December, we had 159 bankers, and we were hoping to add 15. And today, you've just disclosed you had 158. Has there been a change in the ability to attract relationship bankers to the bank?
No, no. In terms of our regional expansion, some of it has been a little bit slower. We've always said on regional expansion, we will only go to a new region where we can get the best banker in town because that's where our secret sauce around relationship banking really kicks in. That has been a little bit harder than we imagined to find bankers of the caliber that we want. That has been a little bit slower. No, I mean, I think our employment franchise and our employment brand is as strong as it's ever been. We certainly don't have any problem attracting bankers. We have lost a few back to the broking industry. We've lost a few in the last month. That's a double-edged sword for us.
On the one hand, we never want to lose bankers from Judo, particularly those that have got established relationships with our customers. Equally, they become advocates of Judo when they're brokers. We get a disproportionate amount of flow from them. It is not something that I stress too much about. What we do not do is lose bankers back to the main banks, importantly.
Are you still confident in attracting 15 more bankers this year?
We've got about, yeah. I mean, it might be 10-15, exact number on the landing spot, but yeah, roughly there.
Yeah. We've got a number of men in the pipeline. Depending on where people finish up, it depends on timing of when people come on board. As Chris said, the brand is very strong.
Yep. Just to sort of add some color to your 2026 guidance, I think consensus was looking at sort of 60% PPT growth. You've come out with 50%. Why? We're still only in, it's the 1st of May, and you've come out and given guidance on 2026. You're due to give an investment update on the 3rd of June. It looks like a slight downgrade to 2026?
Yeah. I mean, we haven't provided formal guidance around that matter. I think in the context of today, we wanted to just come out and provide where we see that coming out for the market. We think that's helpful.
The big point is that the operating leverage of next year is there. That's been a big part of our story, as folks will know. We wanted to provide that as part of today. It's driven by there's obviously a couple of things on that with where we land with the loan book for this year is going to impact, obviously, next year. We're looking at our investment plans for next year as well. We've called out a little bit in terms of wage inflation amongst bankers. We've got some visibility there in terms of some investments we'll make in frontline and growth opportunities. We wanted to flag those things. Importantly, it's about that operating leverage that's very real for us.
That is rather mechanical just as we have the wash through of continued top-line growth, improvement in that NIM, which we are reaffirming today, that 2.9-3%, the exit NIM at 3%. That sets us up really well for next year as well as, obviously, the operating leverage in terms of the underlying cost versus revenue growth.
Thanks, guys.
Thank you. Your next question comes from Jason Sheel from Macquarie. Please go ahead.
Hi, guys. Thanks for taking my question. Just on your cost of risk, you noted it was higher. Are you able to give any sort of guidance around the sort of magnitude when you mentioned it's higher? You sort of outlined that it's driven by more specific provisions. Which sectors or segments are you sort of allocating those provisions to? Which single-name exposures? Yeah.
Thanks, Jason. I mean, look, it is a volatile item as we've been calling out for a little while now. We have seen a bit of that come through as we've called out today in terms of a small number of specific provisions come through. We're obviously watching that book very carefully in this environment.
In terms of sectors, look, they're really the ones that we've been carrying an overlay for, which is the whole reason why we have an overlay, I guess. They're the sectors we've been calling out for a while where we've been a little bit more cautious. That's discretionary retail. It's manufacturing, which for the SME customer base is a very broad definition. About a third of our manufacturing, the subset, is in food and beverage subsectors. So it's quite diversified in manufacturing. It's not big heavy industry manufacturing. This is SME manufacturing. There is and has been some stress there. Then construction services, which is asset finance and associated services too. We've got a small asset finance book that has some exposure there.
It is really those same sectors where we're seeing the same levels of heightened stress in the book and where we have seen some of those specific provisions come through.
Are you able to give any sort of color around the magnitude of IBDD?
No. Look, what we've said today is that, and the guidance we're providing is that, looking at kind of last year's, the FY24, we're expecting to be higher than that in terms of the dollar cost of risk. The key there is just that there's been some volatility in that number.
Yeah. Thanks a lot for that. Just on deposits, you mentioned you might be able to take deposit repricing action to offset some of the swap rate pressures. How much scope do you think you have to do that given that you sort of need deposits to fund your growth pathway? Is it largely dependent on competitive dynamics?
Look, I think on deposits, it's kind of quite interesting because it clearly is a component of NIM. We've had a number of moving pieces in NIM, and we're holding the NIM guidance. Where we've seen deposit volatility in terms of that deposit come through has really been over the last really over the last kind of couple of weeks where the swap speculation in terms of the rates has been quite volatile. That has caused us to have cost of deposits kind of above that 80-90 long-term through the cycle range that we've called out in terms of new deposits of late.
If you actually look at our performance for year to date, for the year to date to March, we're kind of bang on where we need to be in terms of that blended cost of deposits for the nine months to end of March. There is a bit of volatility there. There are also other things that are rolling off out of that book that means that the actual number that's hitting NIM is less volatile than perhaps some of the front book dynamics that we've been calling out. I think in terms of this, what we've called out previously as part of how we're managing our deposit book, we play the full set of tenors and channels here. We do price and can price quite dynamically. We don't like to move the headline rate too sporadically because of the consistency that we like to bring to our customers.
We have had some success actually in bringing that headline TD rate down. That has been consistent with market movements as well. It is a lever that we have in terms of managing that dynamic. I think the other piece too, and we called this out at the first half result, is that we are looking at investments that we can make in our deposit franchise. This is something that is actually quite exciting for us. We are now on our new core deposit platform, as Chris mentioned. That is a real unlock for us in terms of what we can do with investing in the TD product itself, but also in terms of looking at high-interest online savings accounts such as a business online savings account and a high-interest online savings account for retail.
We are quite excited about that because we think that our proposition that we have had in the TD product, we can also bring to that market. It will actually give us some more flexibility and diversity in terms of the deposit funding capability, but also some benefit in terms of actually the cost of that deposit book overall. That is something that we are looking at, investments that we are looking to make in FY26. It is one of those levers that Chris said we have available to us as we think about the overall NIM and the overall economics that we can achieve through the NIM.
Thanks a lot.
Thank you. Your next question comes from Andrew Triggs from JP Morgan. Please go ahead.
Thank you. Firstly, just a question with respect to the unchanged FI25 PPT guidance. Just struggling to see where the offset comes from, Andrew, to the higher cost of risk expectation. It does not look like NIM expectations have changed. And my rough map suggests you would need negative cost growth in the second half to offset that cost of risk, that higher cost of risk. Could you just maybe comment on those aspects, please?
No. Look, thanks for the question, Andrew. Look, you've done some good maths there. We did call out at the first half that we're expecting that dollar costs in the second half to be broadly stable. I think we're expecting to come in a little bit better than that. Hence, your maths around it in terms of cost growth is right. We called out also that in that first half, we had some unusual items that we kind of were carrying in there as well, which we banked in the first half. They're not necessarily things we're expecting in this second half. We have done a little bit better there. We have been prudent with how we're looking at investments for the second half.
The simple kind of offset on a higher cost of risk is where we are kind of seeing that second half dollar cost come through.
Okay. Thank you. That's helpful. Just on the sort of the broad FI26 guidance, I mean, I think you sort of referred to assuming stable economic conditions. What does that assuming with respect to cost of risk versus the normalized assumption, normalization of sort of activity in the SME economy and deposit spreads, etc., just in broad terms?
In terms of, yeah, the stabilizing economy. Look, for us, maybe taking the cost of risk piece, which you mentioned first, look, there's an element there, I guess, of what we're seeing through some elevated 90 days past due and just the time that it takes for some of those things to wash through and resolve. That is a number that can be a bit volatile, as we've called out before. Assuming that we're not seeing any change in rates and actually probably some improvement, I guess, in terms of how we're seeing rate of specific provision raisings through FY2026, we've said we're not out of the woods yet. Over the course of 2026, over the 12 months, we'd expect to see some of that kind of work through.
I think in terms of deposit costs, we're expecting the volatility in terms of that swap curve to be a short-term impact, if you like. A lot of this is speculation around the next couple of rate reductions. We've had election through this rate reduction speculation period. We've had tariffs, etc. That swap rate has front-run expectations for falling rates. That is a timing piece in our view. Ultimately, the deposit costs kind of catch up. We're expecting that will occur. I think on deposits, reiterating the earlier point that I made, what we can do and what is in our control there is those investments in the TD, in the deposit business, in the TD book on the new platform, but also the new deposit products we want to bring.
That will give us a funding benefit that is a new thing for us. We are doing what we can in our control there. There are some assumptions there around that cost of risk and also I think just some stability. That is what volatility with the headline rates in terms of term deposits is, kind of catching up to that swap front-running of rate cuts.
I'm sorry. Just to go back to the cost of risk, would you expect it still to be meaningfully above that 50 basis point assumption for the long term?
The 50 basis points is the ultimate kind of actual loss or actual write-offs. Now, our impairment expense, as people can see from the disclosures, because of the accounting standards where we need to book all of that provision in the year of writing, that has been a little bit volatile. I think folks noticed that in our last half. I mean, the impairment expense was 57 basis points in the first half 2024. It went up to 87 basis points in the second half 2024. It went down to 51 basis points in the first half 2025. It is going to be up a little bit, obviously, with what we have said today in terms of the second half. That is an output, I guess, of what we are writing and bringing through the book and the accounting treatment.
The actual expectations in terms of losses for the SME economy, which is really what our assumptions are based on, is that that 50 basis point ultimate kind of loss through the cycle assumption is still valid.
The best way of thinking about this is if our book was flat and not growing, and so the only charge to your P&L was what you were actually writing off, then that would be the that's the 50 basis points benchmark. We haven't hit that.
Okay. Thank you.
Thank you. Your next question comes from Nathan Leed from Morgans Financial. Please go ahead.
Yeah. Thank you, Chris and Andrew. Just a couple of questions for me. First off, you talked about how the operating leverage is there and will be coming through. You mentioned or you provided sort of qualitative steer in terms of the expense growth. Could you put a bit more sort of quantification around it for us in terms of either the CTI or the absolute growth coming through?
In terms of the trajectory, I guess, as we look through kind of this year and then into next year, I mean, the cost growth is obviously part of the story in terms of operating leverage. The bigger piece in terms of operating leverage is obviously what's happening with the NIM and the expectations for NIM expansion. As we look at, I guess, costs and that trajectory, I mean, previously, Triggs called out the fact that we're going to see some lower expenses in the second half of this year for the second half 2025. The CTI will come down, obviously, for that second half 2025. For first half 2026, and as we look into second half 2026, we're working through kind of some of the phasing of some of those investments, the deposits, etc.
Operating leverage there and the CTI we see through that year being supportive of this story around operating leverage. Hence, I think, Nathan, and why we wanted to put that metric in for today in terms of that profit growth in terms of 2026. A lot of that is really the outputs of this operating leverage.
Yep. Got it. Just interested on the term deposit side of things. Can you just give us where you're at at the moment in terms of average remaining term of the backbook of the term deposit books? At the moment, just where you're typically writing or issuing new deposits in terms of the front book. I suppose that sort of allows us to sort of think about how that volatility and that spreads passes through the NIM over time.
Yep. Yeah, yeah, yeah. No, I mean, kind of the tenors, etc., are still pretty consistent in terms of remaining terms. It is still sitting, remaining terms sitting at about that kind of eight-odd month level. Because we have got a backbook and deposits as well, obviously, versus what we are kind of putting on the front. In terms of the levels of pricing, we are still, as I called out in my notes, we are seeing at the moment TD rates, if we look at, say, the six or the 12-month, we are seeing those rates above that 80-90 range for new deposits, which I have called out. That is still a little bit elevated above where we expect through the cycle.
Now, that'll be a little bit offset, obviously, with what's in the backbook or the existing deposit book where we are for the nine months to March still sitting in that kind of 80-90 range. Some of the new stuff that we're tipping in will be a bit offset by what's already in the book. It's a bit of a dynamic market. There's repricing that different players are doing through in terms of that branchless bank segment. We're kind of managing that across the tenors and channels that we have and our other sources of funding as well, obviously.
Yep. The remaining term of the backbook is eight months. What are you typically getting there with your front book?
Oh, in terms of.
Is it typically 12 months or?
Front book down.
Currency average.
Oh, look, I mean, we have a bias for longer-dated TDs. We have built a really good brand in those longer-dated TDs because the industry tends to favor the shorter tenor. We have obviously brought that longer tenor to market and built a good brand there. What typically happens in a falling rate environment is that the market, and this is the overall market, TD market, tends to move shorter because those headline rates for shorter tenor tend to have higher rates. That ignores the ultimate cost and the swap, etc. The typical retail customer looks at that higher headline rate, and they might take a shorter tenor with a higher headline rate rather than locking in the certainty of having a longer tenor, which might have a lower headline rate.
The industry does actually tend to take a shorter or move towards a shorter tenor in a falling rate environment because of that dynamic. We've seen that as well. We've probably seen an uptick a little bit more in that six-month and even some of that three-month than we had before. I think also this is there for a good reason why it's good to have the flexibility of product with a high-interest online savings account, which is something, obviously, that we're looking at. We benefit of that in this kind of environment.
We have considerably more flexibility on this now. The book's AUD 9 billion. As you can imagine, in the early years of Judo, when the book was AUD 1 billion, AUD 2 billion, AUD 3 billion, we would not take any risks on the liability side of the balance sheet. We really were quite dogmatic about getting very long-dated TDs. Now that the book is at AUD 9 billion, we have more flexibility to pull the shorter tenure lever if the rates are attractive there. As Andrew said, it is only three or four years ago that we would not have entertained doing a six-month TD for liquidity reasons. Now we are in a different place. With the shape of the yield curve and consumer preferences, it makes absolute sense for us to open up those sort of tenures and be competitive there.
VITO, sort of high-interest savings accounts, call accounts, notice accounts where you can get much better margins. Again, with a bigger balance sheet, we have far more optionality there now than we did in the early years.
Are you still targeting that 70% of funding coming through the TDs by the end of the financial year?
Yes, absolutely. Yeah. I mean, for us, it's the story of or part of the story around that funding cost is more deposits. That is a focus for us in driving that. The real metric for us is getting that to 75%. We could potentially do more, but that's the journey that we're on. I think, again, introducing new product there just gives us a bit more flexibility about how we manage towards that.
I mean, the only disruption to that would be if for some strange reason swap rates stayed where they are and TDs became more expensive than your warehouse lines. Because our warehouses now, they're about 120-130 over swap because we've matured significantly as a bank since they were originally put in place. And when you think of the non-utilization fees that are attached to some of those as well, the marginal cost of using those, if it was significantly below deposits, we might do a short-term pivot there. Structurally, you're absolutely right. We want to fund the balance sheet 70-75% deposits.
We have done a bit of that, Nathan, just for that very reason. In the last couple of weeks, we've seen that dislocation. We might do a little bit more from warehouse. It's the benefit of having flexibility across the funding stack.
Yep. Great. Okay. Thank you.
Thank you.
Thank you. Your next question comes from Richard Wiles from Morgan Stanley. Please go ahead.
Good afternoon. Just wanted to ask you a couple of questions about the lending rates. I think the lending rate was 4. The new lending rate was 4.6 in the third quarter. Do you think it will fall from these current levels? How should we be thinking about the blended lending rate? The new rates are going 4.5% or above in, I think, five of the past six or seven quarters. Does that mean the blended lending rate should be heading above 4.5% in the first half of 2026?
On the front book in terms of new originations, yeah, 4.6, 4.5, it's very strong. It's where our customer value proposition really excels. We're faster than the competition. We structure better. We bring a better relationship proposition to those transactions. We do get a significant premium to the major banks. I'm not seeing any real pressure on that rate. The pressure, I think, is more when the customer's been with us for two or three years, maybe the risk profile has normalized a little bit closer to where the major banks are. With the increase in competition and the fact that the major banks have all fallen back in love with SME lending, there's downward pressure there. That will always mean that the overall blended margin will be lower. I mean, that was always the thesis, right?
That the blended margin will be lower than your origination margin because at point of origination, you're generally overcoming. We have a much, much higher superior customer value proposition than the major banks. I don't think that dynamic is going to change materially. I mean, to get to the NIM of over 3%, it's as much about the liability side of the balance sheet as it is about the lending side. Of course, our job is to make sure that the spread between the two is optimized.
Thanks, Chris. Can I ask about the term deposit rates? You've spent some time talking about the recent trends with the margins above the top end of that 80-90 basis point range that you're targeting. Why is this happening? Which banks or which cohort of banks are behaving more aggressively in the TD market and pushing these rates to these levels? We're in an environment where deposit growth has been strong. The wholesale funding markets have been well-behaved. Why are industry participants competing aggressively and pushing these rates above what you would expect them to be?
Yeah. I mean, the segment is the branchless bank segment, as we've talked about before. That is our segment. That is the segment that we compete in. It is a segment with lots of names in it, some big, some middle, and some small. Typically, the top part of that, the league tables here change weekly in terms of who's at the top. I mean, if I look at the one year to date, it's G&C Mutual Bank, it's Unity Bank, it's Southern Cross Credit Union, it's Heartland Bank, it's Qudos Bank, it's Australian Military Bank. Then there's about another 10 names before you get to us. They are quite kind of bunched in a band there. It does change. Who do we really compete with?
I think, Richard, is increasingly the names that we anchor towards are the ING and the AMP, less so Macquarie than we probably used to. They've been less competitive. It is typically the bigger branchless banks that we compete with. It is a market where when you're a branchless bank customer, you do go to these rate comparison sites. We're competitively priced, but we're not at the top of the league tables. We're sitting probably about 30 basis points off at the moment in terms of that one year, as an example. To your question, kind of who is and a bit of why, look, this is, I think, the nature of certainly some of the smaller banks and the newer banks competing for flow. They come in, they take it, and they drop out.
The consistency there of the proposition, the roll rates are much lower. For us, we want to be consistent. We want to be good enough. We want to be competitive enough. We are finding that balance. That is something that, as our brand value strengthens, we are further exploring and refining. It is why we have got roll-over rates of 70%. I think that the thing for us is that all of those banks are typically homeland banks with a very competitive market. The sustainability of one bank to be a consistent competitor is lower than us because of our asset yield. That big focus for us is not going to be schizophrenic with those headline rates so that we can continue to earn the trust of customers and maintain those really high roll rates.
Andrew, it sounds like the branchless banks have got more competitive. That cohort has moved up on pricing. It's not the whole market overall.
Yeah. Probably some of them haven't moved down, I think, with the market is how I would put it. Because when we've looked, if we look over a period of time, and I think we've put some disclosure in the previous half year and full year results on this, that branchless bank segment has typically been above the rest of the market. And the upper quartile or the top names in that have typically been above that 80- 90 basis points. The benefit for us is that, as we've established ourselves in the market, we haven't had to necessarily go to the top to get the flow that we need. What we've seen, I think, of late in particular, in this particular pricing environment that we're in right now, we have seen some movement. I think we have done about two moves in the last month.
Some haven't moved that much, but the market is kind of moving down. I would expect that as we get closer to the makeup and the eventual, if we do see a cut there, the market is expecting that in terms of market consensus expectations. If we do get that rate cut, that gives a lot of this segment an opportunity to move those headline rates. I think we'll see and start to see that some of that delta between the swap and the headline rates reduce.
Thank you. Your next question comes from Tom Strong from Citi. Please go ahead.
Oh, hi. Thanks for taking my question. If I was just to follow on just from your last answer, when you talk about the wider TD spreads in the current environment, sort of being a short-term impact from the volatility in swaps, I mean, if the cash rate plays out as market pricing is implying, how long do you think it will take to restore that sort of 80 to 90 basis point spread?
Oh, look, I mean, it's hard to be too specific on it because it does depend on how people move. The typical behavior here is that the retail customer doesn't expect that headline rate to move unless the cash rate moves. If there is a cash rate move, that can be a bit of a trigger for people moving. That's the typical behavior. Will some that need a bit more flow stick around a bit higher before they move, potentially? We call this out as a somewhat temporary set of conditions. How long it takes is hard to say. The real trigger here is actually seeing what the swap rate is predicting, which is a rate cut, actually come to fruition.
That then becomes the reset for what is a segment where there is a lot of retail customer behavior and expectation of movements with the cash rate.
All right. Fantastic. Just to clarify on the new lending spreads, I mean, I think they were 470 in the December quarter and now mid 400s in the pipeline. Is this a function of competition or mix of pipeline or a bit of both?
Mix, really. There is not a lot on competition. As I said, we generally our value proposition at point of origination is very strong. It will be mixed in terms of average loan size. Just, yeah, it will just, yeah, I mean, it is deal-specific. It oscillates a little bit around. As long as we are sort of above that 4.5, I am happy.
Got it. Fantastic. Thank you.
Thank you. Your next question comes from Olivier Coulon from UBS. Please go ahead.
Hi, guys. Thanks for taking my question. You may have answered it. I missed it because I got kicked off the phone. Can you comment on April and what GLA did over that month? Obviously, UpperEarth stats aren't updated for that, but I would assume that you've got a pretty good idea as to what you did and therefore what the implicit kind of number that you're guiding it to for May and June is. Further to that, I suppose, what are your expectations that are kind of built into your FY2026 aspiration for growth?
Oh, I mean, yeah, Jonathan Mott asked that question really around FY2026. And we sort of, we're comfortable sort of guiding to that sort of 2-2.5 billion of growth. In terms of April, actually, we haven't—I mean, I actually haven't seen the numbers myself yet. You have a—we have, as you'd expect, we have a lot of drawdowns that occur in the last couple of days of the month and then accumulated interest and what have you that goes through. But we're—no, I don't have a—I don't have that number to hand. I think the guidance that we've given in terms of—and what's important, I think, is that guidance we've given in terms of the end of June because May and June in particular are the busiest months of the calendar, of the financial year.
June in particular, because of obviously the end of the tax year as well, is by far our largest origination month. As I said, I just want to reiterate and put into context the fact that we've downgraded the June landing position by about AUD 350 million. We normally settle about AUD 150 million a week. We are literally just talking about a couple of weeks' worth of originations and trying to guess as big, even though it's only eight weeks out, you could easily say, "Guys, Chris, you should be able to know now what's going to happen in eight weeks' time." If something falls the wrong side of a two-week window—and these are complex transactions, right? They're not just—they're not home loans. They don't just fall off the end of a conveyor belt. There's properties that are being acquired.
are conditions precedent that have to be met. There might be other funders involved in terms of being ready on the discharge side. One of the things that has always been really difficult for our business is predicting the exact day when something is going to settle. It is very difficult. Again, I sort of, on one hand, feel a little bit uncomfortable giving a range and not an actual number for the end of June. It is just not the nature of our business and the types of transactions that we do.
I mean, just to add, Ollie, the pipeline is a big part of just to your earlier part of the question in terms of confidence for where we go for this year and AUD 1.6 billion as we called out with the margin where that needs to be. That is a good confidence point for us. I guess just to put things a little bit into perspective, as Chris said, it is the run into June that is the big one for us. If we look at net book growth last year, just to give you—because it is a bit seasonal—net book growth in Q3 was AUD 140-odd million, so pretty, pretty, pretty smallish in comparison to the overall book. It is Q4 that is the big—it is the final quarter, a bit like a competitive footy game.
Because that is where we did over AUD 860 million of net growth for last year. It is quite cyclical, as I called out, though. That start of the year is always a bit subdued. I think that's part of where we get to in terms of how we look at our loan book trajectory over the next little while.
Thank you. Your next question, it comes from James Eyers from the Australian Financial Review. Please go ahead.
Hi, Chris. Hi, Andrew. I was just going to ask about the process for getting this update out today. Street Talk, the Fin, Andrew's just sort of talking about a presentation you did at one of the investment banks in Melbourne on Tuesday. There are a few notes in the market pointing to an update you're going to be doing at Macquarie next week. We had this 6.5% fall in the stock price this morning, a one-hour hold, an update, and the stock sort of finishing 17% down. It sort of looks pretty messy. I was just wondering if you could explain whether or not you think these updates to some investors have had anything to do with where the shares have ended today.
No, I don't think it's had anything to do with those updates. I mean, you're right. We're at the Macquarie conference next week. We always plan on doing a trading update. Our board was scheduled for today, and that's been in the calendar for the last 12 months, which is when we were taking the board through the latest landing position for the end of June. I think, James, the APRA stats came out yesterday, or the day before yesterday. That's when obviously we are a bank that only lends money effectively. The APRA stats give the market an insight into what happened to the book in March.
I think there was perhaps some anticipation that when you do the maths between what those stats were showing at the end of March and where we were guiding the market to sort of between AUD 12.7 billion and AUD 13 billion, that there was probably some expectation that that was going to come off slightly. No, we'd always planned to give a trading update as soon as our team meets again.
Had you planned to sort of do that in the middle of the trading day today? I mean, should that have not been done pre-market? Why the sort of halt before that came out?
No. We were planning on doing it tomorrow morning, but we had our board meeting this afternoon. We just decided to get it out this afternoon.
Sure. Okay. Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Bayliss for closing remarks.
Thank you. We always enjoy the depth of the questions that we get. We appreciated everyone dialing on this afternoon to hear our trading update. Again, thank you for your attendance. We'll chat soon. For those of you that are at the conference next week, we'll see you there.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.