Pepper Money Ltd

ASX:PPM

Q2-2025 Earnings Call

[Operator]

Thank you for standing by, and welcome to the Pepper Money Limited 2025 Half Year Results Presentation.

[Operator Instructions] I would now like to hand the conference over to Mr. Gordon Livingston, Investor Relations at Pepper Money. Please go ahead.

[Gordon Livingstone]

Good morning, everyone, and welcome to Pepper Money Limited's 2025 Half Year Results Presentation. My name is Gordon Livingston, Investor Relations at Pepper Money. I would like to begin by acknowledging the traditional custodians of the land in which we meet today, the Gadigal people of the Eora Nation. We pay our respects to each of their elders, past and present.

Today, Pepper Money's CEO, Mario Rehayem, will provide a business update, after which Pepper Money's CFO, Therese McGrath, will take us through the financial performance. After some closing remarks by Mario, there will be an opportunity to ask questions, which can be either via phone or submitted via the portal.

I will now pass over to Pepper Money's CEO, Mario Rehayem.

[Mario Rehayem, executive]

Thank you, Gordon, and thank you, everyone, who has dialed in to today's call. I will start off with our first half key performance highlights for 2025 on Page 4 of the investor presentation.

Without doubt, Pepper Money delivered strong performance across all key drivers as we continue to execute our strategy. Total originations grew by 38% on PCP to close the half at $4.5 billion. The strong growth in Mortgages, which we delivered over the second half of 2024 has accelerated and mortgage originations at $2.8 billion for the first half of 2025 grew 53% on PCP. Our Asset Finance business also continues to deliver growth with originations at $1.7 billion, up 19% on PCP.

Total Assets Under Management, which is a key foundation of future profitability, closed 30 June 2025 at $20.1 billion, a new record for Pepper Money. Mortgage AUM closed June 2025 at $9.5 billion, following 3 mortgage whole loan sales totaling $1.7 billion over the first half of 2025. Asset Finance AUM closed the half at $6.3 billion, an increase of 11% on PCP and servicing AUM closed June 2025 at $4.3 billion, up $2.1 billion on PCP following growth in our whole loan sales program.

We continue to balance volume growth with margin and profitability, given our strategy of managing for value. Total net interest income at 1.98% increased 6 basis points on PCP. Mortgage NIM at 1.51% was down 9 basis points on PCP. NIM benefited from improved funding stabilization of BBSW, whilst product mix and pricing strategies, which has supported strong originations growth, marginally compressed NIM.

Our prime origination volume grew by 171% on PCP. Asset Finance NIM of 2.73% increased 21 basis points on the prior comparable period as the flow-through of cost of funds gains and relative stable swap rates improved underlying yield. As noted at the full year, Asset Finance NIM expansion was not at the cost of taking on more risk.

Originations over the first half of 2025 continue to be weighted to low credit risk Tier A customers who accounted for 75% of the first half originations, and at the end of the period, accounted for 67% of Asset Finance AUM.

I have spoken frequently about scaled platforms and processes and how we are positioned to efficiently capture growth as it returns. Volume has returned and continues to deliver efficiency gains. Productivity, being originations over settlement FTE increased by 20% on PCP. At the same time, our disciplined cost management resulted in an ongoing reduction in total expenses, which at $116.7 million reduced 2% on PCP.

Our cost-to-income ratio of 51.7% improved by 1% on PCP. Our underlying profit being profit pretax and loan loss expense grew to $109.2 million, up 1% on PCP and 8% on the second half of 2024. The strength of originations, scale gains and our ability to manage expenses has supported net profit after tax at $47 million for the half, a growth of 2% on PCP.

The continued demand for our whole loan sales, where we undoubtedly lead the market, saw us complete 3 mortgage whole loan sales over the half totaling $1.7 billion. When this is taken with $1 billion raised through public securitizations, the business is driving a highly efficient and diverse funding structure. This helped underpin our capital management.

The strength of our capital strategy is a real highlight of the first half of the year and has seen us deliver material uplift in returns to our shareholders. Through our capital strategy, we announced in June 2025, a fully franked special dividend of $0.125 per share at an annualized yield of 13.9%. We ended the half year with $142.9 million in unrestricted cash with a special dividend of $55.5 million paid in July.

Our exceptional performance has seen the Board declared an interim fully franked dividend of $0.064 per share, representing a 60% payout ratio on net profit after tax for the 6 months through June 2025. Incorporating the $0.064 per share interim dividend to the $0.125 per share special dividend, we will return in excess of $83 million to our shareholders in fully franked dividends in respect to our performance to date in 2025.

Turning now to Slide 5. We entered 2025 with clear evidence that the mortgage market has stabilized and growth returning. This has been assisted by the RBA rate cut of 25 basis points in February, May and August. Likewise, as interest rates reduce and inflation trims, Asset Finance is also starting to see upward trends in applications and originations.

Over the first half of the year, total applications have increased 30% versus PCP and 10% over the second half of 2024. I am more than encouraged by how the initiatives we implemented over the second half of 2024 and into 2025, including new product development, modifications and improvement to our credit policies; all have gathered traction.

Mortgage applications have grown 64% on PCP and 24% on second half 2024, supporting originations growth of 53% on PCP and 21% on second half of 2024. As I noted at the time of presenting our full year results, we are seeing a skew towards prime mortgages. And in the first half of 2025, prime accounted for 70% of originations. Our strategies have seen our mortgage business grow 3.6x system compared to second half of 2024.

Growth in Asset Finance applications is more subdued than Mortgages, but we have still achieved originations growth of 19% Half 1 2025 over Half 1 2024. And while some of the growth was as a result of the removal of the FBT exemption on hybrids, which ceased 1 April 2025, the business is tracking ahead of expectations. Our Asset Finance business has achieved more than 21x system growth over the first half of 2025 compared to second half 2024.

Our start to the year has been very strong. We continue to pursue the X factor, which I spoke about at the full year. We have continued to roll out efficiency enhancements in areas such as our call center, leveraging off our ongoing investment in AI. We continue to drive down our cost to originate and cost to serve, whilst ensuring we consistently enhance our speed to yes and user experience for our distribution partners and customers. So, we are off to a positive start for 2025 and markets permitting, we remain confident for a strong finish to the year.

I will now turn to run through business segment performance on Slide 6. Our mortgage business is seeing the return to growth. Volumes have benefited from a range of strategies from new products launched in Australia to pricing initiatives and expansion in credit policies. Originations for the first half of 2025 grew by 53% on PCP to $2.8 billion. Growth was driven by prime, both residential and commercial, with originations of $1.9 billion, increasing 171% on PCP.

Originations mix for first half of 2025 was 70% prime, 30% non-conforming versus PCP of 40% and 60%, respectively. Our Self-Managed Super Fund mortgage solution launched Q4 2023 grew to contribute 6% of mortgage originations in the first half of 2025. Our Sharia lending solution, which was launched in June 2024, is tapping an unmet need and accounted for 2% of mortgage originations for the first half of 2025.

Alongside new product development, we continue to review, modify and improve our credit policies as this is a proven way to drive accretive growth. Over the first half of 2025, we executed 3 mortgage whole loan sales, 2 prime and non-conforming totaling $1.7 billion. Whole loan sales were the equitable notes and loans sold to a third party, with Pepper Money retaining the servicing of the loans. AUM, therefore, transfers from lending to servicing. As Pepper Money continues to service these loans, we benefit from the generation of a capital-light annuity style income.

Mortgage lending AUM dropped by 16% on PCP to $9.5 billion. Other than the $1.7 billion transferred under whole loan sales, as expected, we also experienced high attrition in New Zealand, mainly from the HSBC portfolio acquired end of '23. Mortgage NIM stabilized over 2024 as we entered 2025, and given ongoing improved funding markets, reduced inflation and stable employment, all key macro variables in determining credit, we were able to use pricing strategies to support accelerated originations growth, which has seen NIM compress 9 basis points on the first half of 2024.

The mortgage NIM walk, and credit performance will be covered by Therese in the financials. I will note, however, our mortgage customers have been highly resilient. And as such, our credit performance remains well within historic averages.

Turning to Asset Finance on Slide 7. Our Asset Finance business delivered originations growth of 19%. Tier A customer originations at $1.3 billion grew 32% on PCP. Tier A originations accounted for 75% of first half 2025 with Tier B at 22% and Tier C at 3%. Novated lease, which is predominantly Tier A customers, continued to perform strongly with originations at $800 million, increasing 23% on PCP.

Asset Finance AUM grew by $600 million on PCP to close 30 June 2025 at $6.3 billion. Novated lease accounted for 38% of closing AUM, up from 25% PCP, with consumer accounting for 30% and commercial 32%. Whilst demand was there, we nominated not to execute any whole loan sales for Asset Finance over the period.

Asset Finance business reported a sequential increase in NIM of 15 basis points on the second half of 2024 and a 21 basis points increase on PCP. Asset Finance NIM benefited from improved cost of funds and relatively stable swap rates. Again, Therese will cover the NIM walk and credit performance in the financials.

Now, turning to Slide 8. We continue to see the benefits of our business diversification strategy and the Loan & Other Servicing segments continue to report strong growth. The Loan & Other Servicing business is the prevision of independent loan servicing to the market and includes our whole loan sales servicing program, servicing for non-operational owners of loan portfolios and loan portfolio acquisition.

Given the ongoing strong market demand for our whole loan sales program, which supported $1.7 billion in mortgage whole loan sales over the first half of 2025, servicing AUM closed at $4.3 billion, up 90% versus 30 June 2024 and 33% on December 2024 close. Servicing and other operating income closed the first half of 2025 at $8.4 million, an increase of 57% on the first half of 2024 as the flow-through of our whole loan sales continues to deliver capital-light service income growth.

As I've said, building our Loan & Other Servicing business via whole loan sales is part of our overall capital management strategy. As it is capital-light, whole loan sales allow us to recycle capital against growth opportunities. It provides an annuity style income and no incremental cost to the business, given the loans are already being serviced, and it provides us with a defensive earnings stream across the credit cycle.

Turning to funding on Slide 9. Our funding position remains strong. Total warehouse capacity at 30 June 2025 was $11.5 billion, an increase of $600 million on 31 December 2024 and an increase of $2.3 billion on PCP. As always, we take a balanced approach to funding. We maintain around 4 to 6 months of warehouse funding headroom. This allows us to continue to originate if markets lock up. And importantly, we are also able to fund growth opportunities as they emerge.

Over the first half of 2025, we completed an asset-backed securities transaction, SPARKZ 9, raising $1 billion from public markets. As previously noted, we complemented our public term securitizations with a further $1.7 billion raised from whole loan sales, bringing our total funds raised to $2.8 billion. We have now raised more than $42 billion from debt markets across 65 transactions since 2003. We have long, strong relationships with investors with over 100 investors always supporting the business and our reputation and performance is exemplary.

Before turning over to Therese to run through the financials, I would like to just spend some time on our productivity and efficiency performance. Turning to Slide 10. We have always made constant investment in our technology platform and processes. Our approach is to ensure that the full potential is reached. Our efficient and scaled technology platform, our focus on process improvement and our digital capabilities are all key factors enabling the business to manage and fulfill originations growth on reduced cost to acquire and serve.

In both our Mortgage and Asset Finance origination platforms called Sage and Solana, respectively, our cost to originate is seeing the benefit with mortgage credit productivity up 74% and settlements productivity improving 109% over 2 years. Asset Finance is seeing similar productivity gains with credit up 3% on settlement efficiency, improving 16% over the same period.

Our Solana originations platform continues to support our partners and customers alike. Automation and API connection direct to our partner CRMs has delivered auto approvals for over 57% of Tier A customers and greater than 73% for novated lease customers over the first half of 2025.

Our speed to yes is a key driver of customer and partner satisfaction and is strengthened further by our ability to provide real-time payments, an area where we lead versus the competition. Our servicing platform, Apollo, continued to deliver enhanced customer self-help options and materially reduce customer effort post settlement as well as reducing our cost to serve.

Servicing productivity has grown 33% from the first half of 2023. We continue to leverage our technology stack, creating capacity and efficiencies to accommodate future growth. We are listening to our customers and partners, designing solutions to give them more ways to engage and interact with us.

I will now hand over to Therese to run through the financials, after which I will make some closing comments before opening to questions.

[Therese McGrath, executive]

Thank you, Mario, and good morning, everyone. Slide 11 provides a summary of the key financial measures of our business. As Mario has covered volume in detail, today, I will focus on net interest margin, credit performance, expense management and returns.

Turning to net interest margin on Slide 12. Following the volatility seen in recent years, net interest margin performance is stabilizing. NIM for the first half of 2025 at 1.98% improved 6 basis points on PCP, but was down 5 basis points from the second half of 2024 due to the mix impact from the accelerated growth in prime mortgage originations.

The improvement versus first half of 2024 in net interest margin was delivered by the benefit of business diversification, given our scale in asset finance, where NIM is more than 100 basis points in Mortgages, it delivered a positive NIM impact through mix, through improved funding margins and the stabilization of BBSW.

Turning to Mortgages. Mortgage NIM at 1.51% experienced a 9-basis points compression on PCP and a 21 basis points versus the second half of last year. This was, however, following 3 consecutive period-on-period improvements in mortgage NIM. Mortgage NIM compression was down to product mix as the benefits from improved market conditions, the strengthening in consumer confidence, stable BBSW and improved funding margins allowed us to implement pricing strategies that delivered strong prime mortgage volume growth. Prime mortgage originations were $1.9 billion and accounted for 70% of total first half mortgage originations. I should also note, we passed all RBA rate reductions on to our customers.

Now turning to Asset Finance. Asset Finance NIM improved versus both the first and second half of 2024. We closed the half at 2.73%, up 21 basis points on PCP. The growth in NIM versus PCP was driven by improved funding margins, which added 22 basis points to NIM and by the product mix and pricing initiatives that improved the average customer rate by 30 basis points versus PCP.

Our Asset Finance customers and partners value our speed to yes and our ease of doing business. These 2 vectors were marginally offset by swap rates. While these are definitely stabilizing, the geopolitical stability over the half, created periods of short-term volatility in spot rates, which impacted NIM by 31 basis points when compared to PCP.

Now to credit performance, starting on Slide 13. Starting with loan loss provisions. Total provisions at $124.7 million increased by $3.9 million versus PCP. As we commented at the time of our full year results in February, the mortgage market has proven to be very resilient. Our mortgage customers continue to manage extremely well and some customers are using RBA rate cuts as a way to get ahead by not adjusting their loan repayments as we pass through OCR reductions. The increase in loan loss provisions of 3% over June 2024 was largely following the movement in Asset Finance AUM.

Asset Finance loan loss provisions increased by $18.6 million in total versus June 2024. Key movements within collective provision, inclusive of post-model overlay, which increased over PCP given the write-back in the first half of 2024 of collective provisions following the execution of a $0.5 billion whole loan sale, which settled May 2024. The increase in collective was partially offset by specifics as late-stage arrears continue to improve following the spike in insolvencies experienced in late 2023 and into the first half of 2024.

The net changes in provisions resulted in our coverage ratio for Asset Finance increasing to 1.71%, up from 1.5% June 2024 and up from 1.7% as at December year-end. Over the same period, Asset Finance AUM has increased by 11% and 12%, respectively.

Mortgage loan loss provisions during the period decreased by $14.7 million versus June 2024, given provision releases following the whole loan sales executed, which over the 12 months through the 30th of June 2025 totaled $2.6 billion. $900 million in the second half of 2024 and $1.7 billion first half 2025 as well as the product mix shift towards prime lending.

In total, our coverage ratio for Mortgages remains strong and at 0.18% at June 2025 remains in line with the long-term average. As always, we remain well positioned with total coverage ratio at 0.79% and we continue to hold $11.2 million in post-model overlays, $9.2 million against Asset Finance and $2 million against Mortgages.

To close out on credit performance, let's turn now to Slide 14. We have largely covered movement in loan loss expense when running through provision movements. However, for completeness. Loan loss expense, including post-model overlay reduced by $0.7 million on PCP. The movement was driven by Asset Finance loan loss expense at $43.6 million, increased by $4.7 million or 12% on PCP, in line with AUM, which grew by 11% on PCP.

As covered, the main movement in Asset Finance loan loss expense has been the collective provisions inclusive of post-model overlays, which increased over PCP given the write-back in the first half of 2024 of collective provisions following the execution of $0.5 billion whole loan sale. The increase in collective was partially offset by specifics as late-stage arrears continue to improve following the spike in insolvencies, which I've already covered.

Mortgage loan loss expense decreased by $5.4 million versus 1 half 2024. Collective decreased by $4.9 million, driven by whole loan sales net of originations. Specific decreased by $0.5 million, reflecting normal portfolio movement. As always, 90-plus day arrears are a strong indicator of future losses. Mortgages closed June 2025 at 1.89%. If you restate for the impact of whole loan sales, given the $1.7 billion executed over the first half, 90-plus days arrears closed June 2025 at 1.47%, in line with December 2024 and marginally down from June last year.

As previously noted, our mortgage customers have remained very resilient. Likewise, asset finance 90-plus days arrears at 0.32% of AUM at June 2025, are in line with December 2024 and marginally down versus June 2024. As noted, this is due to the origination profile for Asset Finance being weighted to novated lease and Tier A customers.

Turning to expenses on Slide 15. We continue to demonstrate how disciplined we are in our approach to cost management. Our focus on driving efficiencies through scaled platforms and process improvements continues to deliver benefits. Total expenses at $116.7 million reduced by $2.9 million or 2% on PCP. Employee benefits expense decreased 3% on PCP as ongoing scale and process efficiencies delivered benefits over and above wage inflation. Marketing expense reduced by 11% on PCP, given the initial impact of the new sponsorship with Wests Tigers was reported in the second half of 2024.

Fair value loss in equity investments was $0.8 million adverse versus PCP, reflecting mark-to-market. Technology expense increased 15% on PCP, expenses shifting in part from capitalized to operating. This is reflected through depreciation and amortization expense, which declined 7% over the same period. Corporate interest expense improved by $1.6 million on PCP, reflecting the $57.5 million reduction in the drawn balance of the corporate debt facility and $25 million of subordinated debt retirement in the second half of 2024.

Turning to Slide 16. I've covered most of the key movements already in the P&L, so to summarize the movement versus PCP. Total operating income at $185 million was marginally down 1% on PCP. Net interest income declined 8% on PCP. This was driven in part by mix as mortgage originations and AUM shifted to prime and in part as a result of the whole loan sales executed, where income shift from net interest income to other operating income. Whole loan sale gains increased on PCP as we executed $1.7 billion in mortgage whole loan sales over the first half of 2025, up from $1.1 billion for the first half of 2024.

Loan loss expense decreased by $0.7 million, which I've already covered, and our strong cost management and efficiency gains more than offset the increase in impairment and total expenses reduced 2% on PCP. These factors delivered EBITDA of $89.5 million. Our net profit after tax on both a statutory and pro forma basis at $47 million for the half year was up 2% on PCP and our underlying profit, measured by profit pretax and loan loss expense of $109.2 million, also improved 1% on PCP

For completeness, I have provided our core operating metrics on Slide 17. So before handing back to Mario, I'd like to touch on how we continue to successfully execute on our capital management strategy, which is covered on Slide 18.

Our capital management strategy is supported by our efficient scaled funding model, including how we have led the market in whole loan sales, demonstrating the embedded value of our back book, coupled with how we approach liquidity, which includes consistent year-on-year investment behind processes, technology and marketing.

Given the level of cash that the business generates, we have, over the first half of 2025 alone, repaid $27.5 million of the corporate debt facility; and in total, $57.5 million of corporate debt has been repaid since June 2024. Over and above the CDF repayments, we've also retired $25 million subordinated debt in the latter half of 2024. We continue to execute our on-market share buyback, acquiring 10% of traded shares during the period we are in market. We closed the half with unrestricted cash of $142.9 million from which we declared an interim dividend fully franked of $28.2 million and paid a fully franked special dividend of $55.5 million in July, which we declared in June. As this is redistributing retained earnings to shareholders, it has delivered an 86-basis points improvement in return on equity. Sources and uses of cash have been provided on Slide 19.

So, turning to close out on our balance sheet on Slide 20. The main movement has been in loans and advances, which at $15.9 billion at June 2025 have followed the movement in AUM, including whole loan sales net of loan loss provisions. We originated $4.5 billion in new financial assets over the half, asset growth financed by the issuance of a public term securitization of $1 billion and a further $1.7 billion of whole loan sales.

Given the increase in mortgage originations, we increased warehouse capacity to $11.5 billion over the period, up $600 million from December 2024. Net assets closed the half at $777 million, down from $856 million at December 2024, given the movement in loans and advances and after the provision of the special dividend, which was paid following June close on the 16th of July 2025. Retained earnings reflect the profit delivered by the business net of dividends paid, including the $55.5 million special dividend.

Thank you, and I'll now hand back to Mario for closing comments.

[Mario Rehayem, executive]

Thanks, Therese. We have had an amazing start to the year. We have identified and captured opportunities to grow as market conditions improve. We have also achieved a new milestone for the business with total AUM breaking through $20 billion to close 30 June 2025 at $20.1 billion, up 4% on PCP. We have just seen the RBA starting the rate reduction cycle with 3 cuts now delivered in 2025, and there is expectation of further interest rate reductions to come. Inflation has moderated, consumer confidence continues to improve.

Funding markets have weathered the storms over the last few years, and we are managing the challenging geopolitical environment exceptionally well. I am confident as we move through 2025 that we will continue to capture more opportunities as they become available. We continue to identify and launch new products and policies. Our constant investment has delivered scale, technology and process efficiencies. We are gaining ongoing benefits from improved customer experience and reducing our cost to serve from our AI and automated process and decisioning strategy.

We have sufficient funding headroom available. We have shown how we are positioned to capitalize on growth as it returns. We are diversified, both in the terms of the scale from our 2 core lending businesses, Mortgages and Asset Finance as well as the growth from our Loan & Other Servicing business, which delivers a capital-light annuity style income stream from our whole loan sales strategy.

We are disciplined, whether it be how we manage credit, expenses or capital, we remain, as always, well provisioned. With continued appetite for profitable growth in originations and $20 billion in assets under management, I am confident that we are well positioned for a strong finish to 2025 and fast start to 2026.

Thank you, and I will now hand back to the operator for questions.

[Operator]

[Operator Instructions] Your first question comes from Jason Shao at Macquarie.

[Jason Shao, analyst]

Given you're moving towards a model that's more originate and selling, how much happier are you guys to compete on price? And has that driven that mix shift towards more prime mortgages? Because I know that NIMs on prime mortgages probably look around less than 1%. So, is there any color you can give on competition given your new strategy?

[Mario Rehayem, executive]

Yes. Thanks, Jason. With regards to the strategy and how that composition comes out, we are very fluid in the way that we operate. We chase market trends in that perspective. So, because of our diversification in product segments, if we feel that there is good margin to be made on prime, then we will chase the prime. If there is good margin to be made on near-prime, specialist or commercial, then we will chase that. So, we are not fixated on a particular segment.

Where we are fixated, obviously, is in our returns. So that for us is the #1 priority. With regards to the whole loan sales strategy, we are not an originate-to-sell model. We are an originate to retain. And if the opportunity is there for us to sell assets, then we would. The retained versus sell model for us is very important. We have numerous ways of capturing value in our whole loan sales. And as mentioned in the presentation, it is a fine balance between growing from where we were only a year or so ago at selling 10%, 15% of production to now north of 35% to 38% of our production.

That is -- we don't see that slowing down. There is significant interest coming in from offshore investors looking at the assets. They are very comfortable with the track record of Pepper, and they are very comfortable with the yield that we are able to generate versus the actual returns that they are able to generate. So, we are very comfortable with the pattern or the trend that we are emerging with our whole loan sale at the moment.

[Jason Shao, analyst]

Perhaps just to quickly follow up on that. You're increasing your whole loan sales strategy, that doesn't affect the way you think about pricing of loans?

[Mario Rehayem, executive]

No, because we originate to retain. We don't originate to sell. That is fundamentally different strategies.

[Jason Shao, analyst]

Understood. And then sort of, you touched on it just then, but yes, there is a lot of demand from money in private credit. I suspect that probably drives the premiums you're seeing on the loans you are selling. Can you just touch on maybe what kind of premiums or how the premiums changed over time as the demand for these loans have increased or if there's been any changes at all?

[Mario Rehayem, executive]

Well, obviously, I can't disclose the premiums. But what I can say is, the more competition there is for the assets, the more we're in the driver's seat with regards to the premium that we would obtain. In saying that, there is competition in the market. So, if there's competition in the market, you are going to see yield coming down a little bit to win some of that market share. And you can see that in our NIM where it's contracted 9 basis points in Mortgages.

But we are extremely comfortable with the trend pattern that we're following at the moment. And there I'd say that we have created a blueprint for the Australian market on the whole loan sale trades. And there are many looking at the same type of program, and we wish them all the best. But for us, where we are sitting, we are very comfortable with the whole loan sale program that we have.

The one advantage that we have for us, and you can see that over the years, is that ability to lean on Asset Finance when we know we want to grow in Mortgages and then vice versa, when we said that we were going to be a little bit more conservative in Mortgages, we lent on Asset Finance.

Yes, we forfeited 9 basis points in NIM for Mortgages, but we increased 21 basis points in Asset Finance to give us that round hold number of that 198, which is around that 200 basis points that we've always tested to say that that's where the business will always aim for.

[Operator]

[Operator Instructions] Your next question comes from Jeff Cai at Citi (sic) [ Jarden ].

[Jeff Cai, analyst]

Just a question on the whole loan sales. Is there a sort of upper bound on how we should think about the level of whole loan sales that you do going forward, whether that's a percentage of the book or revenue? And given the very strong demand, should we expect the whole loan sales to strengthen even further in the next half?

[Mario Rehayem, executive]

Yes. I think like I said earlier, with us, we're very much going to be on receiving end of the appetite that is available, and more importantly, on the returns. So, we have turned down a number of whole loan sale inbounds because of the premiums that they were searching for. So, we're not desperate to sell, but if it makes sense, we will.

[Jeff Cai, analyst]

Got it. And then a question on credit quality. Looking at the arrears on asset finance, I mean, that's stabilizing, and you've noted that late-stage arrears are also improving. Are we sort of now past the worst? And should we expect specific bad debt charges to sort of trend down from here?

[Therese McGrath, executive]

It's a good pickup, Jeff. I think we are probably now past the point where specifics, particularly within Asset Finance, were accelerating because of what we saw in insolvencies and the action that was sort of taken by the ATO. We're starting to see particularly our strategy to really originate that credit performance of Tier A and novated lease is playing benefits, and we've got stability in the curve returning.

[Jeff Cai, analyst]

Great. And then a final question, just on -- in terms of capital, Mario, how should we think about the prospects of further special dividends? And to what extent does that sort of depend on whole loan sales going forward?

[Mario Rehayem, executive]

Yes. Look, I think, obviously, we don't give forecast on where the dividends are. But we -- like I said, we've got a very strong capital management strategy that we rolled out a couple of years ago that really focused on accelerating our whole loan sale program. So, if you think about that particular program, since 2023, cumulatively, we've deployed $307 million, and that has been through like just shy of $175 million on cumulative dividends. We've repaid around $87.5 million in debt.

We paid for the acquisition or the completed acquisition of Stratton. That was around $42 million. And then we had a non-market share buyback of $3 million. So, we're very positive and we're very confident on how the strategy has rolled out. It is practically identical to where we had envisaged it to be. And we don't see it slowing down because, again, the way that we see it is that the market has significant demand for our assets. There isn't that many high-quality originators in the market to be able to saturate this area. So, we do believe we're in good speed.

[Operator]

Your next question comes from Jack Lynch at RBC.

[Jack Lynch, analyst]

Well done on the positive results. The first one is just on OpEx. Obviously, a strong result on cost controls. Just thinking out to FY '26, how we should be thinking about that OpEx base and the staging of that over the first half, second half?

And secondly, just around the mortgage segment and the exit NIMs, typically given that in the past, how is that trending in terms of those exit NIM? Should we be just thinking about similar heading into FY '26 along those sort of similar prime volumes? Any clarity there would be great.

[Therese McGrath, executive]

No problems. In terms of expenses, we continue to show how strong we are around our cost discipline, but importantly, around the scale benefits. As the originations have really started to come back, I would sort of hazard a guess that we've got stability in that scale benefits now. So, I'd be looking at the second half of the year as more or less steady stage versus first half.

You just got to do your normal inflation adjustments and the fact that we'll also have some accelerated marketing spend, just in line with the fact that we pulled forward some of the marketing spend in 2025 to 2024 with the Wests Tigers sponsorship. So, I think you're looking at a good steady state second half-first half, and we'll have a couple of little bit of areas that tip up just with how inflation flows through.

In terms of the exit NIM for Mortgages, we always get a little bit of noise in exit NIM when we do a whole loan sale, and we actually completed whole loan sales in both May and June. So, what we would expect to see is sort of the average that we've got at the moment of 1.51 will carry through in the back end of the year if we continue to originate the prime volume at the rate we have been originating in the first half of this year.

[Mario Rehayem, executive]

Yes. And it's fair -- just to add to that, it is fair to say that we are extremely fixated on delivering exceptional service to our customers, but also creating the right environment for our brokers and our staff alike. So, for us, the investment in technology is relentless. And you would envisage over time that we will continue to up the ante on our automation and our ability to scale up without needing extra headcount.

[Therese McGrath, executive]

Mario raises a good point, because as well, we always encourage everyone to look not just at what the NIM is, but what the marginal flow through to the bottom line is as well, given how we can use scale and process efficiencies to get more efficient loans, both on the originate side and on the serve side. So, it's sort of NIM with your marginal benefit that you consistently get through process efficiencies and how that shows through the expense line that is important.

[Operator]

There are no further phone questions at this time. I'll now hand back to Mr. Rehayem for closing remarks.

[Mario Rehayem, executive]

I'd just like to take this opportunity to thank our loyal shareholders. Thank you very much, our brokers and aggregators. These results don't come easy. And we just want to thank our people at Pepper for another fantastic result. So, thank you, and have a great day.

[Operator]

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