Australian Finance Group marked a significant shift in its business during the December half, when for the first time the majority of its earnings were generated from parts of its business other than its traditional aggregation business.
Over the years it has built a securitisation business, which allows it to originate its own loans. It offers white label loans under the AFG Home Loans brand. It has commercial loan products originated by lender Thinktank, which is 33 per cent AFG owned. And it has white label asset finance and personal loan arrangements.
The aggregation loan book is still the biggest, growing 5 per cent to A$160 billion during the half, compared with the previous corresponding period.
But other parts of the business are growing faster and are more profitable. The AFG Securities book grew 18 per cent to $2.9 billion, AFG Home Loans grew 9 per cent to $10.7 billion and the white label business grew 5 per cent to $7.7 billion.
Overall, the company reported net profit of $24.9 million – up 36 per cent on the previous corresponding period. Operating income increased by 11.4 per cent to $361.9 million.
Aggregation (what AFG calls wholesale mortgage broking) contributed pre-tax profit of $16.8 million, compared with $16.1 million in the previous corresponding period. The other parts of the business contributed pre-tax profit of $19.9 million, compared with $13.6 million in the December half 2019.
This diversification has given the company greater control over its product mix and pricing, helping it maintain loan book and earnings growth. Other broker groups have found this hard to achieve.
Mortgage Choice’s loan book declined during the December half, as high levels of refinancing and higher repayments offset a pick-up in settlements.
Yellow Brick Road’s mortgage book was flat and it suffered a cash outflow from operations.
AFG chief executive David Bailey said AFG Securities’ credit quality held up well last year and currently has only two borrowers on deferral arrangements.
He said one of the company’s strengths was its technology, which allows it to provide very fast turnarounds.
“The industry average days to unconditional approval is in the mid-20s. AFG gives conditional approval in one day and unconditional approval in seven days,” Bailey said.
“The market is clogged up and our brokers can offer a very good experience.”
The company is keen to maintain this advantage. It is working on a technology refresh and will launch a new broker portal this year.