Thank you for standing by, and welcome to the Resimac FY24 I nvestor Call. 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 will 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 Susan Hansen, Interim CEO of Resimac Group. Please go ahead.
Thank you, Harmony. Good morning, everyone, and welcome to Resimac Group's results briefing for the period ending thirty June, 2024. I am Susan Hansen, the Interim Chief Executive Officer, and I will commence by providing a business update before I h.nd over to James Spurway, our Chief Financial Officer. James joined Resimac in May this year, and he will walk us through our financial performance. There'll be an opportunity to ask questions at the end, once I've provided some closing remarks in relation to Resimac's key focus areas for FY 25 and beyond. We have other executives available for questions, such as Andrew Marsden, our Chief Treasury Officer, who can provide insights into our funding program and NIM. In early July, Scott McWilliam resigned as CEO of Resimac Group, and I stepped in as Interim CEO.
Firstly, I would like to acknowledge the contribution Scott made to Resimac since the merger with Homel oans in 2016. Scott served as co-CEO and CEO for both Homel oans and Resimac Group. He navigated the company through the difficult period of COVID. He saw tremendous growth in AUM over his tenure and the establishment of our asset finance business. He has left a lasting legacy. Most of all, everyone liked Scott. His personal disposition and pleasant nature made Resimac a great place for people to thrive, find opportunity, and have a good sense of belonging. I'm sure many of you join me in thanking Scott and wishing him and his family all the very best in his new endeavors. Consistent with our desire to keep stakeholders informed, we disclosed an early view of our FY 24 financial performance approximately four weeks ago on the second of August.
As part of this release, we were pleased to announce that the group has posted eight consecutive months of AUM growth since November 2023. We are confident these are positive signs that our home loans portfolio has turned a corner and returned to growth trajectory. We also provided a normalized NPAT range of AUD 42-44 million. You have most likely been provided a slide deck, and if you turn to Slide 4, for the FY 24 highlights, you can see the group's final FY 24 normalized NPAT was AUD 43.1 million, excluding the impact of fair value gains and losses on derivatives, and the board has declared a fully franked dividend of 3.5 cents per share. This, together with the interim dividend, is 7 cents per share for the financial year.
If I can turn you to Slide 5, the group experienced several highlights during the financial year. Firstly, the AUM of our asset finance business reached AUD 1 billion. After intense competition, our home loans portfolio returned to growth, with eight consecutive months of growth. Our digitalization transformation journey continues with the launching of our mobile application. The group repositioned its strategy to focus on growth whilst remaining disciplined in the areas of credit and cost control. We are committed to continued improvement on our client broker partners' experience. In the second half of 2024, we delivered quicker assessment decisions and several automation and digitalization improvements. On the home loan side, we are delivering a fast assessment experience and automating document generation.
In asset finance, we're delivering enhancements in our new origination platform, giving brokers a better experience, such as instant credit decisioning on our auto product. The next aspect I would like to address is Resimac's decision to cease originating in the New Zealand market. After some challenging years with material AUM outflow, limited loan origination, and reduced profitability, it was decided that the group would undertake a strategic review of the business. The outcome of this review was to cease origination and put the portfolio into run-off, while the group remained committed to servicing its customers and other stakeholders in New Zealand. As the portfolio runs off, capital will be repatriated to the group, which will then be redeployed into growth opportunities that meet Resimac's return on capital hurdles.
Before I hand you over to James to talk us through the financial performance of the group for FY 24, I would like to thank everyone at Resimac for their warmth and the support I've been offered in this interim role. I'm truly grateful. Now, may I pass you over to James.
Thank you, Susan. So turning to slides seven and eight. As Susan mentioned, the group reported normalized NPAT of AUD 43.1 million for FY 24, and the board have approved a fully franked final dividend of AUD 0.035 per share, representing the FY 24 dividend of AUD 0.07 and a normalized dividend payout ratio of 65%. Our cost income ratio for FY 24 was 53.1%, an increase from 43.6% reported in FY 23, primarily due to net interest income headwinds from lower AUM and tighter margins. Despite an increase in the cost income ratio, disciplined cost control in FY 24, with a 3.3% or AUD 2.8 million dollar reduction in operating expenses. This expense reduction was largely attributed to prior investments in technology, enabling operational efficiencies.
The continued investment and adoption of technology and automation remain front and center of Resimac's growth strategy to building a scalable business, and this will be an ongoing focus for the group in FY 25. Loan impairment expenses have increased significantly year-on-year, primarily reflecting the ongoing build and seasoning of our asset finance portfolio. Our collective provision for the asset finance portfolio has been aligned with overall loss expectations for the asset class and is in line with industry peers and benchmarks. Turning to Slide 9. We've also included a normalized NPAT walk from FY 24 to FY 23, identifying the major drivers net of tax. As I said before, the FY 24 normalized NPAT, excluding the fair value movement of derivatives, was AUD 43.1 million.
In comparison to prior year, NPAT is down AUD 30 million, primarily attributed to average home loan AUM, being AUD 1.8 billion lower in FY 24. In FY 22 and FY 23, competition among the major lenders was intense, with customers offered enticing cashback incentives and low interest rates. Many of these major lenders had access to cheap funding, financed by the Term Funding Facility offered by the RBA as part of the federal government's economic stimulus policy during the COVID-19 pandemic. During this time, competition was intense, margins were low, and the group elected not to compete on price and prioritize NIM preservation, which resulted in significant refinancing activity and a slowing in home loan applications and settlements, which was reflected in the group's FY 24 opening AUM.
With the first tranche of the Term Funding Facility maturing in September 2023 and the second in June 2024, access to cheap funding has reduced and competition has eased. As a matter of correlation, in October 2023, Resimac's home loan AUM balances bottomed out and returned to positive AUM growth in November 2023, with growth being recorded for eight consecutive months. The other major factor that has contributed to a reduction in profitability has been a contraction in NIM. Turning to Slide 10, group NIM was down 12 basis points during the year, driven by higher home loan cost of funds that were partially offset by shifting AUM mix towards asset finance. Home loan NIM was down 22 basis points, primarily driven by higher cost of funds and lower new business margins.
The gap between our backbook rates and frontbook rates have closed, reducing the potential impact of repricing risk in future periods. Our exit NIM for the home loans portfolio at 30 June 2024 was 134 basis points, compared to our exit NIM of 140 basis points at 31 December 2023. NIM contracted due to higher cost of funds, and we're optimistic that the cost of funds will reduce going into FY 25. As to the asset finance portfolio, NIM increased by 70 basis points over the period, driven by higher new business margins and run off of lower NIM loans. During the period, the asset finance business experienced a 72 basis point increase in the dollar-weighted average interest rate charged to customers, with this rate closing at nearly 10%.
Our exit NIM for our asset finance portfolio, 30 June 2024, was 375 basis points, and management anticipate that NIM will decrease as the portfolio mix changes, as more asset and auto deals are written and new products introduced. Now, moving to Slide 11. Investor appetite remains strong for our RMBS issuances. RMBS deals in the second half were priced at a lower cost of funds than in the first half of 2024, which will have a positive impact on FY 25 NIM and NPAT. There is broad and diverse support from domestic and offshore banks for our warehouse facilities, with more than sufficient appetite to meet our AUM growth objectives. Our debt and working capital buffers continue to be well positioned to support portfolio growth opportunities.
Last week, we announced our fourth public bond issuance for the 2024 calendar year, a AUD 1 billion non-conforming RMBS, with the two senior tranches being priced at margins of 95 basis points and 135 basis points over respective base rates accordingly. The market is anticipating underlying base rates to reduce in 2025 as well, which will also provide upside on our funding costs and NIM. Now turning to Slide 12. Resimac's new business initiatives, coupled with the progress we continue to make on our digital transformation roadmap, are having a positive effect on the underlying health of our homel oan distribution network. Resimac remains committed to enhancing the broker experience with a focus on ease, speed, consistency and relevance. We see these components as a necessity to compete in the market segments we operate.
I'm pleased to report the number of brokers that submitted home loan applications in FY24 increased significantly compared to FY 23, with broker application volumes increasing by 28%. The increase in applications have translated into settlement volumes of AUD 4.3 billion, an increase of AUD 500 million in FY 23, and we expect this positive momentum to be maintained in FY 25. As for the composition, FY24 experienced a shift back to Prime home loans, with AUD 1.9 billion being settled in the financial year, a reflection that the intense competition in the prime space amongst the major lenders somewhat eased. The group is not averse to pursuing the Prime home loan product, knowing that it generates a lower NIM.
But for a non-bank lender like Resimac, it also requires significantly less capital, and therefore it generates a very attractive return on capital. Over the past few years, we've been on a journey of strategically diversifying our portfolio, and it's now having a meaningful impact on our overall numbers. In FY 24, we settled AUD 800 million in asset finance, up 50% versus FY 23, and we grew the book by 77% over the last twelve months. The number of broker applications also increased significantly, with applications increasing by 37% on FY 23. The composition of the portfolio is becoming well diversified, with a balanced split of settlements between auto, asset, and secured business lines being written during the period. Moving to Slide 13. The group has reported FY 24 AUM of AUD 14 billion, an increase of nearly 4% on December 2023.
The growth in our home loan settlements has translated into positive AUM growth, with the portfolio growing 3.5% in second half 2024. Our home loans AUM bottomed out in October 2023, and has since posted eight consecutive periods of growth, and continues to show strong momentum into FY 25. Our asset finance offering continues to make steady progress, with AUM achieving the AUD 1 billion target set back in FY 22. The growth in settlements of AUD 800 million in 2024 has resulted in a closing AUM of AUD 1.1 billion, and the group remains committed and focused on sustainably growing this portfolio. Moving to Slide 14. The arrears performance for our home loans portfolio has improved during the financial year.
90-plus day arrears have reduced as a percentage of the portfolio, with our prime products outperforming our ADI peers and our Specialist products also improving. For the asset finance portfolio, arrears increased in FY24 to 46 basis points, reflecting the ongoing seasoning of the book, accompanying with the acquisition of a portfolio from the Thorn Group. The 30-plus day arrears for our asset finance ABS issuance also outperformed the Fitch Dinkum Index during the period. As to the broader market and outlook, the persistent high cost of living continues to exert pressure on household incomes, leading to increased hardships and higher arrears levels across the Australian lending market. To support this, ASIC's Moneysmart released research finding that 47% of the Australian adults with debt have struggled to make repayments in the last twelve months, primarily due to cost of living pressure.
In the commercial space, ASIC reported a 39% increase in companies entering external administration, clearly indicating the slowing of the economy and flow-on impact to households and commercial activities. As a result of this, ASIC has shifted its focus to credit providers, including non-bank lenders, in anticipation of these challenges, which is evident from their hardship review, published in May this year. The longer interest rates remain high, more and more consumers will experience financial hardship, and the group continues to remain committed to supporting its customers through this uncertainty. Now, moving to Slide 15. The overall expected credit loss provisioning for the group has increased from AUD 45.9 million- AUD 50 million in FY 24, with a corresponding increase in the coverage ratio from 33 basis points to 36 basis points.
The composition of the expected credit loss provisioning has been impacted by the underlying product mix, with the asset finance business increasing its contribution to Group AUM. We continue to remain prudently provisioned on our home loan portfolio, with a coverage ratio of 28 basis points. We are confident in the resilience of our portfolio against the deterioration in the macroeconomic environment. House prices have continued to rise, both in capital cities and regional areas, continuing to add to the resilience of our portfolio against macroeconomic adverse conditions. As of 30 June 2024, the average dynamic loan-to-value ratio for the portfolio was 61.2%. The portfolio also had less than AUD 20 million of loan exposure, with arrears greater than 31+ days, an LVR greater than 90%, and no LMI.
This is a testament to the sound lending practice undertaken by the group over the years. The asset finance portfolio has grown significantly in FY 24. As part of this growth profile, accompanied with the seasoning of the portfolio, the collective provisioning coverage has increased to 86 basis points, up from 42 basis points in FY 23. This coverage ratio brings the portfolio in line with internal loss expectations, industry benchmarks, and peer performance. In summary, FY 24 NPAT is reflective of where the balance sheet was twelve months ago. Today, the group's balance sheet has returned to growth and remains well positioned to capitalize upon growth opportunities. Our financial and human capital will be deployed accordingly to support these opportunities as and when they arise. I will now hand you back to Susan to take you through the outlook and priorities for FY25 .
Thank you, James. So 2025 marks the fortieth anniversary of Resimac. This, as some of you may know, is an important milestone.
I think everyone's excited about the new premises we are relocating to in January, which are very close by, but allow us all to work in close proximity to each other. For forty years, Team Resimac has provided quality products to our customers. These products have been backed by strong core competencies in credit and underwriting, distribution, funding, data, technology, and most importantly, our people. Our people is Resimac's strength. I'm confident in the capability, competence, and commitment that will drive our business success. We continue to diversify, both in terms of the scale of our two core lending businesses of mortgages and asset finance, as well as the expanding range of products we offer. We are always seeking value-creative opportunities, which will contribute to performance. As we evaluate these opportunities, we remain disciplined. We embed a return on capital requirement in everything we do.
We focus on deploying our capital in an efficient manner, whether it be human, financial, or otherwise, to ensure the group operates efficiently. I will now hand the call back to our moderator to facilitate the question and answer portion of the call, and we are happy to take your questions. Thank you.
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. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tom Strong, from Citi. Please go ahead.
Oh, good morning, and thanks for taking my questions. I just want to ask, I guess, a question around the strategy. If we go back a couple of years, the previous management team took the view to sort of ramp up asset finance, given the headwinds that the home loan book and market was under, and now we see an environment where you've stabilized and started to grow the home loan AUM, and there's sort of challenges emerging in asset finance around asset quality and competition, so I was just wondering how you're thinking about the allocation of capital going forward between those two segments.
Good morning, Tom. Andrew Marsden here, and thank you for your question. Tom, we still see a very long-term and reasonable opportunity in the asset finance space, so, you know, very much the focus is there. I think as James and Susan have outlined, we have seen the competitive or the fierce competitive landscape in mortgages, particularly the Prime space, abate over the last 12 to 18 months, and it's really the adaptable business model that we have, where we can, you know, refocus, repivot to the core part of our business, which is resi mortgages at the end of the day. We're a lot more comfortable with the outlook in the operating environment today than we were, say, 12 or 18 months back.
You know, we have a view, probably more landed view on the macro and the credit environment. So again, we're very confident that there's a reasonable risk return opportunity, in the Prime mortgage space. Sorry, the broader mortgage space, while still having a, you know, a good balance, in the asset finance market itself.
Okay, great. Thanks. That's pretty clear. And just a follow-on question, I mean, you've taken the view to increase the collective provision coverage in the asset finance portfolio. From a risk-adjusted return perspective, have you changed your pricing in that market to reflect that?
No. So look, we, I would say that, particularly in the asset finance products, we have a very granular product offering or sort of pricing structure, I should say. It is a product segment where we can have a lot more efficiencies in pricing for risk there. So, you know, again, it is in line with the outlook. So we do take into account the macro environment, our outlook for credit performance, but also managing returns at the same time. Yeah.
And we also look at the underlying customers as well. So it comes down to customer quality, and you know, when you're talking about return on capital, you know, spacing out if we do have experienced losses and stuff and so forth, we are building out our collections and recoveries capabilities as well.
Okay. That's clear. Thank you.
Thank you. Your next question comes from Jason Shao, from Macquarie. Please go ahead.
Hi, guys. Thanks for taking my question. Your growth in the home lending book is quite a positive. It sounds like there is a bit of focus on growth over margins. How do you view the trade-off between book growth and maintaining pricing on the new mortgages? And is this partly driven by anticipated funding cost benefits you expect to see in FY 25?
Hi. Hi, Jason, Andrew again. Look, again, you know, we do have some comfort as should all originators in the mortgage space. We're operating in a market where costs and benefits are passed through from a pricing perspective there. What I would say is we've seen a normalization in the mortgage market, and again, I bring it back to the Prime segment, you know, in the last 12-18 months, where both ADI and non-banks' cost of funds are being reflected in mortgage pricing itself. So the abnormal environment that we saw during the TFF phase or when TFF was being deployed, you know, that has almost reversed, and we are seeing, or we have an outlook for more stable returns in the mortgage space.
And again, those opportunities should benefit overall growth over the next reporting period.
And as I highlighted in the presentation, we do apply a return on capital, I guess discipline, in the Prime space. Obviously, margins are lower, but also the capital requirements are lower.
Great, thanks. And also related to that, curious around your strategy between Prime segments and specialist segments of your mortgage book. Like you mentioned, competition in Prime space has sort of somewhat eased over the last twelve months, but they are still quite competitive, especially when you're comparing to pre-COVID levels. Do you see a shift in focus towards specialist segments as part of a longer-term strategy for Resimac, or do you still prefer to be overweight in Prime lending?
Oh, look, I think it's fair to say we, you know, very much have a bias towards Prime. We do like the non-conforming or the specialist segment as a countercyclical mortgage opportunity there itself. There'll be times where we decide to pull back in segments of the non-conforming market due to concerns with the macro or the credit environment. There'll be other times where we do want to focus on the high-risk, high-return segments of that non-conforming space. What I would say, Jason, is that we have created a dominant market share of that non-conforming market with the Near Prime Product or the Prime Alt product that accounts for around 85% of our production.
Great. Thanks, guys.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Brendan Sproules from Citi. Please go ahead.
Hi, good morning, and thank you for taking my questions. I just have a question on the falling funding costs. Obviously, your interest margins have been impacted, I guess, over the last few years by higher funding costs. To what extent will these falling funding costs feed into better NIMs looking forward?
What I would say, and I will defer to James, but we are seeing the higher funding costs that the group booked over the last, say, two to three years. There is, you know, that dynamic in the backbook that will roll off over the next period. We've seen a reasonable, you know, reasonable history of improving, and I would say wholesale funding costs at the moment are quite stable. That will flow through to the P&L.
Shortly, as James touched on, you know, we are seeing very good coverage in our public bond transactions, that has manifested through to materially tighter pricing in both the senior and mezzanine bonds, and we are seeing that reflected, as our bank facilities are repricing as well.
Those components just take a little bit of time to flow through to our NIM and profit.
Thank you. And maybe just a follow-up question. I mean, obviously a lot of your competitors, particularly the non-banks in this space, are equally benefiting from these falling funding costs. To what extent do you think they quickly get priced through into customer pricing in both home loans, firstly, and then asset finance, secondly?
Jason, sorry, Brendan, I bring it back to, you know, the notion that the consumer credit market in Australia is one of a pass-through nature. So to the extent there are sustained changes in wholesale cost of funds, that will ultimately flow through to pricing to the street, whether it's mortgages or asset finance products.
Okay. Thank you.
Thank you. Your next question comes from Jeff Cai from Jarden. Please go ahead.
Thanks, Ian. Good morning. A question on the new CEO. Can you give us some color on what are the, I guess, the key attributes the board is looking for, and whether you're looking for a candidate that's to continue on with the AUM growth strategy or someone who's probably gonna pivot a little bit more towards the returns-focused approach?
Thank you for your question, Jeff. So the board is acutely aware that the appointment of the CEO is perhaps our most important duty, and we are going through a significant process of transformation, and this is the opportunity for the board to lean in and drive the process of transformation to develop senior talent. And as part of the process of appointing the next CEO, we're assessing the key attributes, skills, behavior, experience that we require in the next phase. So the process, Jeff, is still underway. Does that answer your question?
Can you give a bit more color in terms of what are the key attributes? Like, are you looking for someone who's more continuing on with the AUM growth strategy, or someone who's a bit more, I guess, a bit more disciplined in terms of returns focus when you sort of go through that process?
So I would say, most certainly we're looking for somebody who can add value in the organization, undoubtedly. You know, that we're going through digital transformation phase, so, you know, technology, but it's a mix of all those attributes.
And as I say, we're still going through the process, so having defined them, you know, we're still going through the defining phase.
Got it. Thank you, and then a quick question on credit quality on Slide 14. Can you talk a little bit about how the arrears trends have trended since June? They have obviously improved a little bit in this half, perhaps that's seasonality.
Look, I would say if we start with the resi portfolio first, very much a stabilization in short end and longer dated delinquencies. And again, Jeff, we have, I think when we last caught up with you, we were talking about trends across the industry there. A lot of the dynamics in delinquencies in the mortgage book, very much attributable to the current rates environment. The consecutive rate increases from the RBA had a pronounced impact on the performance. But again, that has been reflected across, excuse me, across the industry there. We are seeing an increase in our later stage arrears due to an increase in hardship applications.
Again, that is a dynamic we do see across the industry. We've taken quite a conservative approach with reporting hardships in our delinquency statistics as well. But what I would say as a corollary to this is that our outlook for losses on the mortgage portfolio is probably as low as it has been for at least in recent history. There, the strength in the housing market is providing a lot of a comfort around the ultimate performance post the default and delinquency phase itself. On the asset finance side, we are seeing, again, I'll use the term normalization in the performance of that book. These are relatively the unseasoned portfolio that we have.
So again, with the risk settings that we have in the origination and underwriting stages of the asset finance portfolio, we do expect it to perform in line with industry peers. There would be an expectation as well, that when the book, the business is mature and the book is quite seasoned, that we will outperform the rest of the industry in line with our mortgage portfolio.
Got it. Thank you very much.
Thank you. Once again, if you do wish to ask a question, please press star one. We'll pause momentarily for any further questions to register. Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.