Judo Capital Holdings Limited · ASX:JDO
Judo Capital — H1 2023 Earnings Presentation
42 slides from Judo Capital's earnings presentation, Feb 21, 2023
Slide 1: 2023 Half Year Result
2023 Half Year Result. 21 February 2023 Boldly backing business.
Slide 2: CEO Update
Our purpose To be the most trusted SME business bank in Australia. CEO Update. Joseph Healy Chief Executive Officer Our vision To build a world-class SME business bank. 2 2023 Half Year Result
Slide 3: Agenda
Agenda. Topic Presenter CEO Update Joseph Healy CFO Update Andrew Leslie Conclusion and Outlook Joseph Healy Q&A Joseph Healy, Andrew Leslie, Chris Bayliss Joseph Healy Andrew Leslie Chris Bayliss Chief Executive Officer Chief Financial Officer Deputy CEO & Chief Relationship Officer 3 2023 Half Yea
Slide 4: Another Black Belt result
• Strong 1H23 result with Dec-22 GLAs of $7.5b up 23%, revenue up 67% and profit before tax up >300% to $53m • On track to achieve FY23 guidance and key business metrics at scale • Significant organic capital generation contributing to Another Black Belt robust CET1 ratio of 17.3% result. • Our comp
Slide 5: Our purpose
• We are a unique, specialist pure-play SME bank; we passionately believe specialists outperform generalists • We are bringing back the craft of SME banking: Banking as it used to be, banking as it should be Our purpose: • Our customer value proposition is based on strong relationships, judgement-ba
Slide 6: The Judo Journey
The Judo Journey. $7.5bn $4.8bn $6.1bn Dec-22 $3.5bn Jun-22 $2.6bn Dec-21 Dec-20 Jun-21 2015 2016 2018 2019 2020 2021 2022 Concept Seed Pre-ADI Full Banking Scaling despite Growth and ASX Achieved Capital launch Licence COVID-19 listing Profitability Mid 2015 September 2016 March 2018 Early 2019 Jul
Slide 7: Building a World Class Bank
Building a World Class Bank. World Class • Build a world class SME Scaling the Bank business bank with ROE in Value the mid teens • Embed our unique culture Build the Bank and operating model • Invest in scalable technology solutions a • Prove our customer and employee value proposition • Achieve su
Slide 8: 1H23 Highlights
1H23 Highlights On track to achieve our FY23 guidance; We have benefitted from strong tailwinds in 1H23 Metric 1H23 result drivers 1H23 results FY23 guidance ✓$7.5bn Strong growth to continue within risk appetite, driven GLAs >$9bn by our relationship-led CVP ✓ 3.56% 1H23 underlying NIM exceeded gui
Slide 9: Customer value proposition continues to resonate
Customer value proposition continues to resonate. • GLA growth of 23% over 1H23 to $7.5 billion • Strong AAA pipeline of $1.3 billion at 31 December 2022 NT QLD • Four new locations opened over the half (Bunbury, Rockhampton, Orange, Albury) WA Brisbane SA • Investment in Agri and Health specialisat
Slide 10: Risk management culture reflected in robust asset quality metrics
Risk management culture reflected in robust asset quality metrics. • Judo’s risk management culture is deeply embedded • The 4C’s of credit – character, capacity, capital and collateral – have been applied consistently since day one • Portfolio remains well-secured by real property assets • Low rati
Slide 11: Another Black Belt result
• We are on track to achieve FY23 guidance and the key business metrics at scale • Our customer value proposition is proven and scalable • Judo’s risk management culture reflected in Another Black Belt strong asset quality metrics result. • We are running our own race. Our approach to growth is meas
Slide 12: Financial Update
Financial Update. Andrew Leslie Chief Financial Officer 12 2023 Half Year Result
Slide 13: 1H23 Result
1H23 Result. Profit & Loss Statement 1H23 2H22 Variance Income ($m) 165.2 99.1 67% Operating Expenses ($m) 89.7 70.7 27% Net Profit Before Impairments ($m) 75.5 28.4 166% Impairment Expense ($m) 22.3 15.8 41% Profit Before Tax ($m) 53.2 12.6 Large Key Operating Metrics 1H23 2H22 Variance GLAs ($bn)
Slide 14: Strong lending growth continues
Strong lending growth continues. Judo’s loan book over time ($bn) 7.5 10% 6.1 45% 4.8 55% 3.5 90% 2.6 1.8 14% Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 26% Business Loans Asset Finance Home Loans Line of Credit 74% 30% 56% Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Applications, accepted, Fully Secur
Slide 15: Underlying NIM higher from funding strategy
Underlying NIM higher from funding strategy. Underlying NIM Waterfall – HoH (%) 0.26% (0.19%) (0.19%) 0.46% (0.01%) 3.56% 0.39% 2.84% $0.7bn of TFF top-ups (12bps) = impact of rate TD margins benefitted Impact of rate rises on + increasing benefit of rises on fixed rate loans from hedging activity l
Slide 16: Funding mix
Funding mix. Movement in funding sources ($bn) 8.6 0.1 0.2 Funding sources 0.5 6.4 0.4 • TDs remain Judo’s primary source of funding for loan growth 0.1 0.1 • Judo’s TD balance is now $5.3bn, up $1.2bn, driven by retail 0.3 0.3 TDs and expansion into the direct SMSF channel 5.3 • Additional $740m in
Slide 17: TFF repayment strategy
TFF repayment strategy. Key TFF considerations Long term funding stack • TFF self-sec as of 31 December 2022 was $2.3bn, with peak TFF self- Equity ~ 10% • Core equity to be supplemented by sec expected during 2H23 organic capital generation • Funding for TFF repayment will be progressively raised a
Slide 18: Term deposit margins
Term deposit margins. Judo’s channel diversity supports our through-the-cycle assumption for TD margins of 80-90 bps Judo’s hedged margin over 1m BBSW for new term deposits (bps) 90 Through-the-cycle assumption of 80 – 90 bps • 1H23 margin on new TDs of 47 bps, well below through-the- 80 cycle assum
Slide 19: Lending margin
Lending margin. Lending margins impacted by variety of factors • Largely floating rate book has repriced with 1 month BBSW – headline lending rate up 190 bps h/h • Lending margin a 19 bps drag on Underlying NIM over the half, driven by: • 12 basis points due to the drag from fixed rate loans that do
Slide 20: Operating expenses
Operating expenses. 1H23 drivers Operating Expenses ($m) 83% • 1H23 CTI improved 17 percentage points to 54%, due to 140.0 revenue and continued scaling 90% 71% 120.0 70% 54% • Increase in expenses predominantly reflects higher 100.0 89.7 employee costs, travel and entertainment and new 50% 80.0 70.
Slide 21: Credit quality remains sound
Credit quality remains sound. Impairment expense Days past due & impaired assets • Impairments of $22.3m from provision build, with no write- • 90+ days past due and impaired assets remain at low offs in 1H23 levels • Driven by growth in the loan book and the accounting – Increase in 90+ days past d
Slide 22: Prudent provisioning
Prudent provisioning. 120 Provisions ($m) and coverage (% GLA) Provisioning 1.50% • Prudent provision coverage of 1.04% driven by growth in the 100 1.04% collective provision 0.92% 0.91% 1.00% • Specific provision higher, driven by a small number of 77.5 80 impaired loans 0.50% 8.4 Total collective
Slide 23: Capital
Capital. CET1 Waterfall – HoH (%) CET 1 Ratio • Strong Dec-22 CET1 ratio at 17.3% continues to support 19.2% pro forma growth 20.5% (3.3%) CET1 from lower RW on lending (0.2%) 0.7% (0.1%) 17.3% (0.3%) Revised APS 112 capital standard (effective 1 Jan) • Proforma Dec-22 CET1 ratio benefit of 1.9% due
Slide 24: 2H23 considerations
2H23 considerations. On track for FY23 guidance • Interest revenue expected to be higher in 2H23; reflecting higher lending volumes, partly offset by moderation of NIM towards at-scale assumption of >3% (due to assumed higher TD margins, undrawn facility fees on new warehouses and higher liquids bal
Slide 25: Conclusion & Outlook
Conclusion & Outlook. Joseph Healy Chief Executive Officer 25 2023 Half Year Result
Slide 26: Operating environment and outlook
Operating environment and outlook. Cash rate history1 % 8 7 Judo is well positioned for the current environment 6 • While cash rates have increased, the current OCR is not 5 materially above the long run historical average 4 3 • SMEs lending only grew modestly (~15%) in response to low 2 interest ra
Slide 27: What are our priorities?
What are our priorities? Maintaining our Customers Consistent Investing in unique culture at our core challenger technology mindset 27 2023 Half Year Result
Slide 28: What are the challenges?
What are the challenges? Tight labour Increased Entrenched Preserving market regulation inflation culture while growing 28 2023 Half Year Result
Slide 29: People & Culture priorities
People & Culture priorities Culture Talent Reward Core values of Focus on attracting Driving an owner’s accountability, and retaining top mindset with equity performance, talent, who are ownership and no teamwork and passionate about our individual sales trust culture and values targets 29 2023 Half
Slide 30: Experienced management team
Experienced management team. Diverse and credentialed business banking professionals with deep domain expertise – over 200 years of banking experience Joseph Healy Chris Bayliss Andrew Leslie CEO Deputy CEO & CRelO Chief Financial Officer • 35+ years experience • 35+ years experience • 15+ years exp
Slide 31: On track to meet FY23 guidance and metrics at scale
On track to meet FY23 guidance and metrics at scale. We continue to run our own race, and progress towards our key business metrics at scale Trajectory to Metric 2H23 drivers FY23 guidance metrics at scale Strong growth to continue within risk appetite, driven by our GLAs >$9bn $15-20bn ✓ relationsh
Slide 32: Another Black Belt result
• Our strategy is unchanged, and we continue to execute • Judo’s business model has a strategic hedge enabling continued growth in the face of macro challenges • SMEs continue to pay a ‘loyalty tax’ with the incumbent banks Another Black Belt • Poor customer outcomes in the industry still common res
Slide 33: Questions
Questions. 33 2023 Half Year Result
Slide 34: Appendix
Appendix. 34 2023 Half Year Result
Slide 35: Funding strategy
Funding strategy. Driving existing channels and leveraging investment grade credit rating to enter new markets and develop new products Customer Deposits Wholesale Funding Direct Retail Term Funding Facility Intermediated Mid Markets Warehouse Facilities Intermediated SMSF NCDs Direct SMSF Tier 2 Su
Slide 36: Hedging
Hedging. Hedging policy aims to reduce interest rate mismatch Liabilities Large % of fixed rate funding 13% hedged back to 1 month BBSW: • ~90% of lending is on floating rates • 80% of our deposit book • To manage interest rate mismatch in the balance sheet, a more 64% • 35% of the TFF active hedgin
Slide 37: Sector split of the portfolio
Sector split of the portfolio Judo’s portfolio broadly mirrors SME economy Loan book composition by industry1 5% Accommodation and food services • Judo’s goal is to build a diversified portfolio that 10% 1% Agriculture, forestry and fishing 2% mirrors the broader SME economy 18% 7% Arts and recreati
Slide 38: Credit Quality – Sector analysis of inflation & interest rates
Credit Quality – Sector analysis of inflation & interest rates. Gross loans and % Fully / Partially % 90+ DPD and Customers % of GLA advances ($m) Secured Impaired (%) 90+ DPD & Impaired1 Industry Group (By ANZSIC Code) Dec-22 Jun-22 Dec-22 Jun-22 Dec-22 Jun-22 Dec-22 Jun-22 Dec-22 Jun-22 Manufactur
Slide 39: Other operating income
Other operating income. Other Operating Income ($m) Considerations 2.8 • Fee income is largely derived from two components – Bank guarantee and undrawn line of credit fees 2.2 which are typically stable and grow in line with 1.1 GLAs 0.6 – Term deposit break fees which are volatile and have been abo
Slide 40: Revised APS 112 capital standard
Revised APS 112 capital standard. Prior APS 112 treatment Revised APS 112 treatment Average Dec-22 Key category Credit Risk Gross Credit Key category Credit Risk Weight1 Weight Exposure SME Retail 75% SME Corporate 85% CRE2 - Cash flow (CF) LVR-tiered (more punitive than Corporate dependent non-CF)
Slide 41: Thank You
Thank You. Boldly backing business. 2023 Half Year Result
Slide 42: Important Information
Important Information. This presentation is provided by Judo Capital Holdings Limited ABN 71 612 862 727 and its controlled entities (variously, "Judo", “us”, “we” or “our”) and is current at 21 February 2023. It is information given in summary form only and does not purport to be complete. It does
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