Good morning, and welcome to Pepper Money's full year 2021 results announcement. My name is Catherine Buckmaster, and I work in Investor Relations here at Pepper Money. Before we get started today, I would like to acknowledge the traditional custodians of the land on which we gather today, the Cammeraygal people of the Guringai tribe of the Eora Nation. We pay our respects to their elders, both past, present, and future. This morning, you will hear from our Chief Executive Officer, Mario Rehayem, and he will provide an update on the business before our CFO, Therese McGrath, takes us through the financial results. Mario will provide some closing remarks. There will be an opportunity to ask questions at the end of the session, which can either be via phone or submitted via the portal. Now, I will hand it over to Mario.
Thanks, Cathy. Good morning, and welcome to Pepper Money's first annual results announcement since our listing in May 2021. On behalf of my entire team at Pepper Money, I would like to thank everyone who has joined us today. Therese and I are proud to present a year of outstanding results and look forward to answering your questions at the end of the presentation. 2021 was a landmark year for Pepper Money. We celebrated 21 years in business. We listed on the ASX, and we delivered record results across our entire business. At our Investor Day in November last year, we spoke about our strategy to drive sustainable growth by leveraging our core capabilities. I'm proud to announce that we have achieved exactly that.
We delivered pro forma NPAT for calendar year 2021 of AUD 141.9 million, which is up 34% on PCP and up 18% on our IPO forecast. Our record NPAT reflects the outstanding performance of both our mortgages and asset finance businesses. Our business achieved record originations of AUD 8.5 billion, up 84%, with our lending assets under management growing 19% on PCP to a record AUD 16 billion. Our mortgages business delivered 2.3x system growth in the first half, followed by 2.6 times systems growth in the second half, demonstrating that we have grown faster than the market and gained market share. Our asset finance results were even more impressive.
Our AUM is up 33%, closing at AUD 3.5 billion, and we achieved 4.3x system growth in the first half, followed by 8.2x systems growth in the second half. Again, testament to our ability to grow our market share in this attractive segment. Our asset finance business now contributes 1/3 of our total operating income, providing us with the diverse income streams across the business and strengthening our overall portfolio. This balanced portfolio is important because it protects our overall margin, and you can see that in the results today. Our mortgages NIM of 2.33%, reflecting our ability to maintain our margins despite the competitive market conditions.
Importantly, our overall NIM was boosted by our asset finance business, which delivered a strong NIM of 3.41%, a 17 basis points improvement on PCP, resulting in our total NIM for the year across the group of 2.56%, a strong result which exceeded our IPO forecast. Alongside our income growth, we have throughout the year also delivered efficiencies via our investment in data and technology, which, coupled with our record originations and AUM, has enabled us to improve our underlying core productivity by 70%, driving cost to income of 43.3%, which is a 1.3% improvement on PCP. Our asset quality continued to improve, delivering a 2 basis points improvement on PCP.
Given the exceptional performance of the business and our strong capital position, the board has approved a AUD 0.09 fully franked dividend, delivering an annualized yield of 5.5%. Our calendar year 2021 performance should be looked at in the context of the broader market conditions we are operating in today. Now on to slide four. At Pepper Money, our mission is simple. It's to help people succeed. We focus on creating financial inclusion by challenging the way loans are designed and distributed. We focus on customers of all walks of life, including the underserved and undervalued, those customers that our traditional banks do not best serve. At the heart of Pepper Money are our core values of can-do, balanced, and real. Our values provide the guide to how we do business and how we interact with our customers, stakeholders, and each other.
Our strategic purpose is supported by our four pillars: customer, business, people, and brand. Our core competencies are data, distribution, funding, and credit. What we are going to focus on today are how our core competence, supported by our values and our pillars, positions us to innovate, grow, and create ongoing value for our stakeholders. Now on to slide five. The combination of prolonged record low interest rates, cashback offers, and government incentives throughout the year drove growing demand for properties, vehicles, boats, caravans, and small operating equipment. This increased demand resulted in overall growth in our total addressable market across both mortgages and asset finance. Having said that, 2021 was the most competitive market we have seen in the past 10 years. Competition in mortgages was driven by the banks.
We were able to hold our ground, delivering 0.5% of total mortgage market share and increasing our non-bank peer group inquiry market share to 28.76%, up 4% on PCP. In asset finance, we grew our market share across both the consumer and commercial segments. With our consumer asset finance business growing to 3.2% and our commercial share growing to 1.3% of total market. Our ability to leverage data and technology enables us to provide more efficient lending services to our customers. This is driving our ability to capture market share and increase market penetration. Importantly, this market share growth was achieved without wavering on credit quality. Now on to slide six.
The non-bank sector is an integral part of the Australian finance system and is growing in market share, with projections that it will grow 9.6% over the five-year period between 2019 and 2024. It is a sector typified by its agility and ability to innovate faster than the mainstream banks. It is a sector that leverages technology to drive customer solutions. This is where Pepper excels, and importantly, versus smaller startups. Pepper has scaled services and operations, allowing us to efficiently and profitably serve customers and partners end to end. Pepper holds a leading position in the NBFI segments, from residential property to commercial finance, and offers white label personal finance solutions, all areas which continue to see strong market growth. Pepper continues to expand its product and distribution footprint to capitalize on the ever-growing non-bank sector.
We have a stellar 21-year track record of addressing the needs of the underserved borrowers in Australia and more recently in New Zealand. With our continued product innovation geared up for 2022 and beyond, we have an exciting future ahead of us that will enable us to continue to build on our strong track record by serving more customers in a disciplined and prudent manner. Like all consumer lenders, bank and non-bank alike, Pepper Money is regulated by ASIC through our Australian credit license and must comply with the responsible lending provisions of the National Credit Code. On to slide seven. As we continue to serve more customers than ever before, I am pleased to say that Pepper Money is creating financial inclusion in Australia and New Zealand by focusing on a broad range of customers.
We have assisted more than 29,000 self-employed customers, bringing our total customers helped to over 59,000 customers in calendar year 2021. We have delivered record growth across our entire product range, with prime mortgages growing 85% on PCP, near prime growing 100%, and specialists growing 72% on PCP. Our asset finance delivered a diverse range of record results, with consumer volume up 55% and commercial up 86% on PCP. A defining moment for the business was not just in delivering record originations and profitability. It was our record employee engagement score and superior customer satisfaction ratings, which demonstrates our ability to find a balance between profitability while keeping our staff engaged and customers satisfied. Pepper Money is well-regarded by our brokers and introducers.
Testament to this was being voted the best specialist lender for the 8th year in a row and being recognized with the Best Non-Bank Lender award for 2021. This recognition doesn't come easy, especially with the number of new entrants in the market, demonstrating that the Pepper team differentiates itself as best in class by leveraging its core competencies. Our financial performance is a testament to this, which you can see with our record calendar year 2021 pro forma NPAT of AUD 141.9 million, up 34% on PCP. Now on to slide eight. I'd like to focus a little more on what drove our record results and the trends we have seen over calendar year 2021 in terms of applications and originations across both mortgages and asset finance, which are the key drivers of our revenue.
Starting off with mortgages, we were able to capitalize on the strength in the Australian property market with our leading turnaround times and our diverse product range. Pepper Money achieved record applications up 82% on PCP, record originations of AUD 6.4 billion, up 89%, and record AUM of AUD 12.3 billion, up 15% on PCP. Despite the aggressive competition spurred by record low interest rates, we were able to grow originations by 89% without compromising our market-leading turnaround times or our credit quality, again, validating our investment in our scalable platform. Taking a step back and looking at applications firstly, the vast majority of mortgage applications convert in months two and three. This means in finishing Q4 2021 up 59% on Q4 2020, the business is strongly positioned as we enter into calendar year 2022.
Looking at AUM, where you finish the year helps you secure upcoming year performance, given the recurring revenue stream from the back book. With our calendar year 2021 AUM up 15% on PCP, closing our AUD 12.3 billion, you will appreciate the immediate uplift in the operating income compared to prior year. This provides us with the strongest start to a calendar year in our 21-year history. Now on to slide nine. Our strong mortgage originations delivered 2.6x systems growth in the second half of 2021, which supported our 15% growth in AUM. As I noted earlier, the combination of prolonged low interest rates and other incentives created record demand for mortgages, with customers looking to take advantage and tap into their equity to upgrade, consolidate debt or purchase additional properties for investment purposes.
While we experienced an uptick in customer prepayments over the first half 2021, this was broadly in line with Fitch data for prime and non-conforming mortgages. However, in the second half of 2021, we experienced a decrease in prepayments, demonstrating the effectiveness of our customer retention initiatives. These initiatives included providing life cycle customer support, improving customer experience and making it easier to stay with us. With our combined focus on retention, we envisage our prepayments to return to long-term averages. Now on to slide 10. Our renowned industry-leading turnaround times, coupled with our unique credit cascading model, has once again taken top position with our mortgage brokers. A record number of brokers supported Pepper Money throughout calendar year 2021. They trust us to deliver. We are transparent and easy to deal with, which provides brokers with the confidence when recommending Pepper Money to their customers.
Pepper Money has an established mortgage product suite that is broken up in three main categories, prime, near prime and specialist. These products are incorporated into our credit cascading model that delivers a higher probability to yes, because one application gives access to multiple solutions. It's like applying to three different lenders at once. During 2021, we successfully piloted Near Prime Clear, a product designed to fit between existing prime and near prime products. Near Prime Clear was very well received by the market and is one of the many products we will launch throughout 2022. As demonstrated on this slide, we have successfully grown across our entire suite of products. Our prime origination at AUD 3.7 billion grew 85% on PCP, demonstrating our ability to grow an area dominated by the banks, which are offering record low interest rates and cashback offers.
This validates that customers come to Pepper Money for a purpose, not price. We also remain focused on a balanced mix of business and delivered 100% growth from our signature near prime product and our original offering, specialist mortgages, which grew 72% on PCP. It is worth reiterating that all of our loans are underwritten under the NCCP responsible lending obligations and are regulated by ASIC. Our target customers have been underserved by the banks, but are worthy recipients of credit. Now on to slide 11. I would like to give you an insight into how we are capturing this underserved customer segment. First and foremost are our mortgage turnaround times. For over four years, Pepper Money has delivered consistent industry-leading turnaround times and credit decisioning. This means brokers trust Pepper Money to help their customers.
Utilizing our PPS or Pepper Resolve, we can issue an indicative approval in under two minutes. There are three distinct differences in our two-minute approval to other offerings in the market. Firstly, it is available for customers of all walks of life. It is tailored to accommodate customers with a prime, near prime and specialist credit profile, which maximizes probability to yes. Secondly, we carry out several checks, including a comprehensive credit check, security check, and postcode check. We then run this information through our cascading decision engine. Last but not least, we honor the rate and fees we issued at indicative approval, eliminating any surprises to the customer post application. 80% of our mortgage applications are approved at first response, and 85% of all mortgage applications are approved in less than a day.
This is for a fully assessed mortgage application, which means if a customer submits all documentation at application, we could issue full approval in under seven hours, regardless of the applicant being self-employed or requiring a non-conforming product. Pepper Money makes complex simple. Now on to slide 12. On this slide, you will see the benefits that our PPS and Pepper Resolve platforms deliver. With unrivaled indicative approvals in under two minutes for all customers, regardless of the complexity or nuances of the application. With more brokers opting to utilize our digital tools, we have successfully delivered 15.3% of total mortgage originations via PPS. Brokers utilizing PPS have built trust in the delivery of accurate product selection and rates. This trust gives the brokers confidence in recommending Pepper Money without worrying about a rate change post full assessment.
This delivers the ultimate customer experience. Pepper Resolve has now successfully completed its pilot phase, and we anticipate increased traction of leads being generated throughout 2022 following its broad spread launch. Now on to slide 13. Now on to asset finance, which has again outperformed at record levels. We entered asset finance organically over six years ago, and it continues to grow from strength to strength. The first graph illustrates application volumes during calendar year 2021, exceeding calendar year 2020 volumes by 60%, delivering AUD 2.1 billion in originations, a 70% improvement on PCP. We closed the year with AUD 3.5 billion in AUM, a 33% uplift. Enhancing our introducer and customer experiences meant that we could focus on gaining insights into market and customer trends to target opportunities and grow market share in an ultra-competitive environment.
Just like mortgages, the asset finance market was awash with new entrants trying to make their mark by buying business with record low rate offers. This competition did not deter our ability to deliver nine months of back-to-back record originations. 2021 demonstrated our ability to execute at scale. We were successful in capitalizing on increased borrower demand by delivering above system growth and record volumes, by continuing to improve our digital platform, SOLANA, and by enhancing the experience we deliver to consumers, commercial and novated customers. Now on to slide 14. Our record originations for asset finance resulted in 8.2x systems growth in the second half of 2021. This exponential growth was driven by our introducers integrating through our new platform, SOLANA, and our ability to successfully roll out new products and grow our distribution footprint.
Asset finance prepayment remained steady throughout the year and was not exposed to the same challenges as mortgages due to the fixed term nature of the loans. Now on to slide 15. I would like to now give an insight into how we are achieving record growth and originations in our asset finance business. In 2021, we launched SOLANA, our asset finance originations platform, which continues to drive automation, increasing the speed of decisions and reducing the time to yes and time to cash. Since July, 27% of asset finance loans were auto-approved in two seconds, and this is expected to accelerate as we roll out the platform to all of our distribution partners and introducers with a target of 60% by the end of 2022.
We continue to add new features and functionality, making it easier for our distribution partners, introducers, and customers to do business with us. SOLANA, our in-house purpose-built originations platform, is delivering efficiencies for our introducers and our staff by significantly reducing time and effort throughout the application process. In addition, we have built a full suite of APIs to integrate to introducer systems, allowing for a seamless digital experience across the entire customer journey, from inquiries to acceptance, including a fully integrated e-signature solution. SOLANA has delivered a 53% increase in productivity for credit settlement officers to process applications. Our introducers have been delighted with SOLANA's agility to integrate into their systems and its capabilities, which reduces the level of effort required when submitting a loan to Pepper Money. Now on to slide 16.
In 2021, we saw a similar split of originations across product risk tiers as the mortgage book, with TA originations targeting customers who own a property, have stable employment, and a clear credit history. TA accounted for 57% of all originations, up 67% on PCP. TB originations, which captures customers who are or may be long-term renters, are new to a job but have a clear credit history, accounted for 34% of originations, up 86% on PCP. TC originations, also up 38%, accounted for 9% of originations. AUM was up across all categories, demonstrating the benefits of our cascading credit model and our diverse product range. We continue to see strong demand across all asset classes.
63% of our originations related to new and used motor vehicles, with demand driven by lower use of public transport and tight stock of new vehicles driving demand for used cars. The market is expecting this trend to continue throughout 2022. Pleasingly, we have continued to capture the fast-growing electric vehicle segment, financing 11% of all EVs purchased in Australia in calendar year 2021. Our distribution footprint continues to expand across our six channels. In 2021, we benefited from the new distribution partners that were onboarded in 2020. Novated leasing is a good example of this and now represents 3% of originations. Our OEM and partnership channels, which includes the recently announced partnership with DLL, now represents 6%. Now on to slide 17. Technology delivering scale and efficiencies is fundamental to our customer value proposition.
Our investment in our in-house scalable purpose-built platforms is enabling us to operate more efficiently and achieve scale. Coupled with our record originations, these efficiencies have delivered a 70% core productivity uplift. As we continue the rollout of Sage, we have increased the percentage of mortgage loans processed to 47% in Q4, up 18% on Q2. With built-in automated valuation, digital ID, and automated solicitor instructions, we are making it simpler and safer to do business with us. We envisage the Sage rollout be completed by late Q2, early Q3 in 2022. As I touched on earlier, SOLANA's suite of APIs offer a seamless experience for our introducers, minimizing the need to rekey customer data, improving efficiency and time to yes.
Finally, in Apollo, our servicing platform that went live in September 2020, we are starting to see annualized benefits in terms of service task automation, with collection transaction efforts down 13% in mortgages and 30% in asset finance. The automation of processes is reducing the time spent on customer calls, increasing employee capacity to handle the growing volume of loans served through our automated channels. Now on to slide 18. As you know, we have a strong and long track record in debt capital markets. We have raised in excess of AUD 28 billion over the past 18 years across 47 transactions via our three programs, I-Prime, PRS, and SPARKZ. We have a broad and deep investor base of both domestic and global debt investors supporting us.
It's pleasing to say a record year in 2020, the team have backed it up in 2021, raising AUD 4.8 billion across six term issuances. We completed four deals in the second half with I-Prime pricing 65 basis points better than I-Prime 2020. In our non-conforming program, both PRS 30 and 31 were priced better than deals completed in the second half of 2020. We continue to see demand for our paper from the debt capital markets from both domestic and offshore investors. With our ABS deal upsized to AUD 800 million and achieving 35 basis points better pricing than SPARKZ 3. We increased our warehouse capacity by AUD 2.4 billion, taking our total capacity to AUD 9.9 billion, up 31% on calendar year 2020, giving us significant scope to fund our aspirations for growth across both mortgages and asset finance.
Before I hand over to Therese, who will take you through the financials, I'd like to recap on what we have delivered in calendar year 2021, our first year as an ASX-listed company, following our IPO in May last year. Now on to slide 19. We have delivered record originations of AUD 8.5 billion, up 84% on PCP. Grown market share in consumer and commercial asset finance, making us the leading non-bank asset financier in Australia. Delivering double-digit AUM growth with total AUM at AUD 17 billion. Maintained strong loan performance and asset quality. Achieved a 70% uplift in core productivity. Secured AUD 9.9 billion in funding capacity and established a strong capital position, providing us with the firepower for growth in 2022. Achieved industry-leading customer satisfaction ratings and employee engagement, placing us in the top 10% of performing companies globally.
Won multiple industry awards, including Best Non-Bank Lender. Exceeded our IPO pro forma NPAT by 18% and declared a fully franked dividend representing a 5.5% annualized yield. Now, I'll hand it over to Therese to talk you through the numbers before I come back to talk about the outlook and finish with Q&A.
Thank you, Mario, and good morning, everyone. While today I'm focusing on our pro forma results, our statutory NPAT grew 31% for the full year to AUD 130.7 million. A copy of the statutory income statement and balance sheet, as well as the walk from statutory to Pro forma, have been included for you in the appendices of this presentation. Looking at our overall financial performance on slide 20 and starting with volume. As Mario went through, Pepper Money delivered record growth over calendar year 2021. Originations grew 84% on PCP to a record of AUD 8.5 billion, with mortgages up 89% and asset finance growing 70%.
The strong quality of our portfolio was seen through the growth in our prime products, with mortgage prime originations growing 85% on PCP to AUD 3.7 billion and asset finance tier A originations of AUD 1.2 billion increasing by 67%. Business growth continued to be strong over the second half, with total AUM growing by AUD 1 billion over June calendar year 2021. This has seen the business close the year with AUD 15.8 billion in lending AUM and 19% growth and servicing AUM at AUD 1.2 billion. As Mario discussed, both mortgages and asset finance grew faster than the system. The acceleration of the business was evident over the second half, with mortgages lifting systems growth from 2.3x in the first half to 2.6x in the second half.
Asset finance outpaced the system, growing 4.3x in the first half and lifting this to 8.2x in the second half. The above system growth saw mortgages AUM close at AUD 12.3 billion, up 15% on calendar year 2020, and asset finance closed with AUM at AUD 3.5 billion, a 33% uplift in PCP. Now if we head up to income, I will be diving into NIM movement in more details in the next slide. However, just to summarize. Mortgage NIM at 2.33% for calendar year 2021 was impacted by an increasingly competitive environment, which saw high levels of refinancing and price competition. These factors drove lower portfolio rates.
However, the growth in asset finance NIM helped balance the compression in mortgages with average NIM for asset finance improving 17 basis points on PCP to 3.41%. The favorable mix impact from asset finance in part offset the compression in mortgage NIM, driving our total NIM to 2.56%. While 10 basis points down on calendar year 2020, we outperformed our IPO forecast NIM of 2.51%. Now on to operating income. Total operating income grew to AUD 375.8 million, up 18% year on year. Asset finance operating income grew 47% year on year and is now contributing 30% of total operating income. This is up from the contribution it made in 2020 of 24%.
Mortgage operating income continues to be strong and at AUD 256.1 million grew 7% on PCP. If we move now to our operating expenses, the operational efficiencies that the business continues to deliver through our technology platform, automation, and process simplification is reflected through our expense lines. On a Pro forma basis, expenses only grew 4% on PCP to AUD 173.5 million. The main movement in expenses was in people costs, and this was driven by two factors. The first, a return to full establishment in our FTEs after vacancies were tightly managed in calendar year 2020, given the pandemic. Second, an increase in variable bonuses and commission, given the outperformance of the business across all key metrics in 2021.
Taking this low expense growth with the strong performance in operating income saw our CTI continue to improve and at 43.3% was 1.3% better than our PCP. I'll cover operating expenses in more detail later in the presentation. If we turn to FTEs. Total FTEs of 927 includes our new broker servicing business with 133 FTEs in total, all of which are based in Manila. Looking at underlying FTEs, that being FTEs that exclude broker servicing. FTEs in Australia at 532 have now normalized. We've built all the vacancies that we held over 2020 given the pandemic, so comparing to calendar year 2019, Australian FTEs are 4% lower. Total underlying FTEs of 794 grew by 46 on calendar year 2019.
These are all Manila-based and are in areas such as pre-settlement, finance and assurance. Our shared service capabilities in Manila support very efficient scale. As the average cost per FTE in Manila continues to run around 15% of that in Australia. If we look at our core or customer-facing FTEs only, that being FTEs excluding enablement functions and broker servicing, we delivered a 70% uplift in productivity year-on-year. Just to close out on this slide, let's look at profit.
With volume growth well ahead of system and taking into account our favorable business mix, given our balanced portfolio, our strong operating income, supported by our disciplined cost management and our scale and efficiencies, we delivered a pro forma EBITDA of AUD 230.7 million, up 28% on PCP, and a pro forma NPAT of AUD 141.9 million, a growth of 34% on calendar year 2020 and outperforming our IPO forecast of AUD 120.7 million, up by 18%. I'm going to turn to page 21 and drill down a little bit further. First, let's look at net interest margin. In total, the average NIM for calendar year 2021 was 2.56%, with the first half at 2.59% and the second half at 2.52%.
Starting with our mortgage portfolio, which is the graph on the bottom left. The strong growth in originations, especially in our prime book, coupled with higher than average customer prepayments, which was experienced across the industry, has resulted in lower portfolio rates in mortgages. These lower customer rates were in part offset by the favorable impact from BBSW and improved funding. This has seen mortgage deliver an average NIM for the year of 2.33%, down 20 basis points from the average in calendar year 2020 of 2.53%. I should note, we finished ahead of the year, ahead of our full year IPO forecast, which was 2.3%. Now to asset finance, which is the graph on the lower right-hand side.
The positive upside from BBSW showing through on swap rates was only marginally offset by slightly lower customer rates on the front book, given promotional activity we had in the market. Asset finance NIM grew from 3.35% in the second half of 2020 to 3.37% in the first half of 2021 and improved a further 6 basis points to 3.43% over the second half of the year. Net asset finance average NIM of 3.41% improved 17 basis points on PCP. Like mortgages, asset finance NIM exceeded the IPO forecast for the year, which is 3.32%.
As you can see, strong volume growth in asset finance drives a favorable mix impact on NIM, with total NIM of 2.56% for calendar year 2021, only 10 basis points down from 2.66% in calendar year 2020. Now moving to slide 22 to focus on the credit quality of our portfolio and the changes in provisions that we've taken as a result of COVID-19 management overlays. As you recall, in June 2020, when the impact on the business of COVID-19 was relatively unknown, we took an AUD 18 million management overlay for potential customer hardships. We called out in our prospectus that depending on portfolio performance over 2021, we would expect to release in the 2021 financial year, AUD 7 million of the management overlay for asset finance and around AUD 3 million for mortgages.
Given the strength of our credit performance of our asset finance business in the first half of this year, we released AUD 5 million of the management overlay in the H1 results. We released a further AUD 3 million for mortgages in October as lockdowns started to ease back. This was ahead of Omicron and the disruption this caused across the country. In respect to the full year calendar 2021, while at year-end we only had 13 customers in hardship, representing 0.03% of AUM, we have continued to be prudent and have maintained the residual COVID-19 management overlay of AUD 15 million for potential future economic loss directly related to the impacts of the pandemic.
Excluding the impact of management overlay, both provisions in calendar year 2020 and releases in 2021, our strong credit performance is seen through loan losses as a percent of AUM, which have improved 2 basis points from 0.25% in calendar year 2020 to 0.23% at December 31, 2021. Mortgages has improved 4 basis points to 0.01%, and asset finance has improved 5 basis points to 1.06%. Turning now to slide 23 and on to expenses. As I mentioned earlier, employee expenses showed the largest increase year-on-year as we normalized over 2021 for the actions we implemented in early 2020 when the pandemic first emerged.
These actions included a vacancy freeze, the partial write-back of management incentives and other bonuses, a voluntary salary reduction by the executive and other senior management, and the acceleration of annual leave taken. 2021, as COVID eased, it was back to business. With FTEs returning to the normalized rate of pre-COVID in Australia, an uplift in FTEs in Manila to support the core business and our new broker servicing opportunity, and the outperformance of the business in calendar year 2021 across all metrics saw us book higher variable bonuses and commissions. These factors drove a 17% increase in employee expenses. However, on a per FTE basis, employee costs dropped 6%. Now, marketing spend, we accelerated to capitalize on opportunities to drive volume growth.
In respect of general and admin, expenses were actually down 25% on PCP because in 2020 we had a number of COVID-19 related expenses, such as setting up for working from home. We actually continued to get benefit from these initiatives. Occupancy costs are down 6%, and this was actually due to the fact that on costs were down as offices were shut for a large proportion of 2021, given the lockdowns. Fair value gain reflects improved returns for some small equity investments held by the business. This is largely as a result of these companies successfully seeing through the pandemic. Technology costs are flat year-on-year, as we're seeing the benefit from the investments we've made in the past, and depreciation and amortization remains flat. Moving please to slide 24 and onto the pro forma income statement.
We've largely covered off all the key items in the P&L, so all I'm gonna do is call out our growth ahead of system, taken with the positive business mix and our ongoing productivity gains, plus our disciplined cost management, has seen the business deliver NPAT growth on a pro forma basis of 34% to AUD 141.9 million. On a statutory basis, NPAT has increased 31% to AUD 130.7 million. Turning now please to slide 25. Before I close out on the numbers, I'd actually like to focus on some key metrics. How we think about our value tree is volume and margin, supported by portfolio mix and coupled with productivity, will drive performance.
Volume growth is shown through the record origination across both mortgages and asset finance, supporting an uplift in lending AUM of 19% year-on-year. Income has grown 18% to AUD 375.8 million in calendar year 2021, with the favorable mix impact on NIM as asset finance now represents 30% of total operating income.
Taking this strong income growth and add the benefits of scale and efficiencies achieved across the business has seen an improvement in CTI, which at 43.3% for calendar year 2021 is an improvement of 1.3% on PCP. The depth of our data capabilities, credit and underwriting, and our risk-based approach has seen continued improvement in the quality of our assets, with loan losses as a percent of AUM, excluding all management overlays, improving by 4 basis points to 0.01 in mortgages and by 5 basis points to 1.06 in asset finance. This all goes to support a 43 basis points improvement in total operating income yield from 2.1% in calendar year 2020 to 2.4% in calendar year 2021.
The strong performance and capital position of the business has delivered an annualized dividend yield of 5.5% with a return on average equity of 25%. On that note, I'll now pass back to Mario.
Thanks, Therese. Now I'd like to take a few minutes on the outlook of the business and how this strong result sets us up for a strong start to 2022. As I mentioned earlier, our applications pipeline is the strongest it has been in our 21 years of doing business. A lead indicator of Q1 2022 originations is our Q4 2021 mortgage applications, which were up 59% on Q4 2020. Asset finance applications, which typically settle in the same period, were also up 60%, demonstrating the scale of this business, and we are yet to realize the full year productivity and efficiency benefits that SOLANA will deliver. With AUD 9.9 billion in warehouse capacity, up 31%, we have significant headroom to fund growth.
We remain focused on executing our vision to help 500,000 customers trust Pepper Money to finance their homes, cars, equipment, and commercial properties by 2023. Our targeted customers, new products, and expanded distribution plans places us in the best possible position to continue to capture opportunities for growth, and we expect to see annualized productivity gains, which should flow through to CTI. These are the things in our control. We recognize that we operate in markets where there are external factors at play, which we cannot control, such as ongoing COVID-19 related supply chain disruptions, possible interest rate rises down the track, and the uncertainty around macroeconomic settings in the lead up to and after a federal election.
We are well equipped to face in and respond to these uncertainties because we have seen it before and have a strong 21-year performance track record of operating through the cycles and volatile market conditions. Now on to slide 27. To wrap up today, before I open up to questions, I would like to reiterate the key takeaways from our calendar year 2021 results and how you should think of our business and its future growth prospects. We delivered pro forma NPAT of AUD 141.9 million, 34% ahead of PCP and 18% up, ahead of the IPO forecast. We grew our market share, delivering above system growth with record originations of AUD 8.5 billion across our diversified lending portfolio.
Our asset quality remains strong with loan losses as a percentage of AUM down two basis points and our scalable platform delivering strong productivity gains. You can see this on the slide. Our proven track record over a decade of delivering strong, disciplined and profitable growth. We have successfully entered new markets organically. We have a deep understanding of appropriately pricing for risk and are renowned in the market for our extensive knowledge of servicing distressed assets. With our mortgage book being a variable book, we have the ability to respond on price. Our asset quality reflects our extensive knowledge of who to lend to, what collateral to accept, and how to price for the risk.
If interest rates rises as they are expected to, our mortgage customers have an average of 293 basis points of buffer, and this, combined with household savings at a record high, provides a meaningful buffer overall. We expect the knock-on effect of rising interest rates may soften the level of refinancing activity and prepayments to normalize. We have demonstrated not only this year but over the 21-year history, we have the credit expertise and track record to respond to any change to market conditions, good or challenging. We look forward to providing our business update at the AGM in a couple of months' time on the 28th of April. I'll now open up to 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. If you're on a speaker phone, please pick up the handset to ask your question. Your first question comes from Josh Freeman from Macquarie. Please go ahead.
Hi, Mario and Therese. Thanks for the opportunity and congratulations on the result. Couple of questions from me. I might just ask the first and then wait for the answer and come back for the second. Just on the first, if I look at slide 21, which is a NIM movement slide, and I focus on the mortgage NIM movement. You could see that the customer rate or sort of impact from competition has doubled relative to first half 2021. Are you able to provide some more color on the competitive dynamics in the variable mortgage market? Just 'cause I thought you guys would see sort of perhaps a lessening of competition and more flow given the removal of such attractive fixed rates which majors were offering.
Yeah, thanks, Josh. It's Mario here. I'll just touch on a couple of points and probably pass over to Therese. Firstly, what you will see with Pepper is, there's a mix, positioning as well. As we write more prime as opposed to non-conforming loans, we will see a natural margin compression purely because of the less risk that is associated to those particular customers. You need to look at our margin compression in line with us writing more up the credit curve as opposed to taking on more risk of the book. That margin compression then over time will show better losses. And that's a very important one to note.
The actual market or the banks pulling out of very low interest rates did happen very, very late in 2020 and even to early 2021. Because of that, you have a pipeline of customers that would've been actually you know applying for that that particular interest rate that starts with a one or a very early early two which has kept that competition alive all the way through to Q4 2020. Maybe pass over to Therese, if you have anything to add.
Thanks, Mario. Morning, Josh, morning, everyone. Yes. Really what we did see in terms of the mortgage portfolio was the positive impact of the prime book growing. With the attritions that we're seeing or the continuous prepayment rates we've been seeing in the market, you've been seeing a slight churn of the 2017, 2018 vintage loans that we wrote out, which were written at a higher NIM, and that's been replaced by the acceleration in the prime books that we're doing now, which is being written at a slightly lower NIM.
Okay, thank you. Thanks for that. I'll probably touch on that later when we catch up. Just as a second question, I notice you guys are still seeing those funding benefits come through on the RMBS ABS. At what point do you start to see that normalize, in your view?
We have already started to see pricing starting to widen, and that started in Q4 of last year. We expect that to continue during 2022 as cost of funds start to increase. In saying that, again, we react very quickly to any cost of fund movement way ahead of the curve, and we start to factor that in our front book pricing. Over time, that will start to trickle through into, obviously, our assets under management.
Understood. Thank you.
Thank you. Your next question comes from Chami Ratnapala from RBC. Please go ahead.
Hi, Mario. Hi, Therese. Congratulations on the result and thanks for taking my questions. Just a couple of questions from me as well. I guess the first one would be you did talk about that expectation to return to a long-term average of prepayment.
Yeah.
Could you maybe touch on some of the initiatives, like the new products, that you have introduced to sort of achieve this outcome and how we should think about 2022, in particular for mortgages?
The reasons why we are confident that we will return to our historical prepayment averages is because of the focused attention around retention. It has already started to be evident in the back half or second half of calendar year 2020. We have already seen an improvement in the start of 2022 as well, and we are confident that that'll continue. Now, there is a couple of reasons behind that. One, that the market will slowly come off at very aggressive record low interest rates and cashback offers.
The second one is obviously our exerted efforts around retention and our opportunity to be able to retain customers for longer, but also be better positioned in offering different products that are better suited to customers and priced accordingly. We've got our entry this year into fixed rates as well, which will give us some more opportunities to capture customers for a longer period of time with a very unique offering that we'll launch to the market mid-year in 2022.
Chami, when you have a chance, and look forward to talking to you later today as well, on page nine of the investor presentation, if you actually have a look at the very bottom on the right-hand side, you'll see that our non-conforming prepayment rates versus the benchmark have actually dropped below the benchmark, meaning that, we're seeing less attrition in the non-conforming side. Likewise, the business has always had a slightly higher spread in prime versus the benchmark, and we've actually seen that ease back as well.
Yeah.
Thanks for that. That's great. Maybe just one more question and I can go back to the queue. Good outcome on the asset finance NIM. Just thinking about 2022 in terms of that NIM able to offset the mortgage NIM compression, how should we think about the sustainability here?
Yeah, I mean, the benefits that we have are our ability to have a diverse product range. That diverse product range allows us to obviously pull the levers to give a solid return in our balanced NIM. Now, with asset finance, our ability to leverage more against commercial, which was evident in calendar year 2021. You can see our ability to increase over 80% in commercial, which did drive a much higher yielding product for the business. We will continually monitor this, and we will position ourselves in the market to ensure that we have a very strong control of our overall NIM in the business. That's again the benefits. We've also got the emerging commercial real estate business that again does drive a higher yielding return.
We are looking to continually grow in that particular area and so does in New Zealand. We have many levers to pull to continue to protect and grow our NIM, but it really does depend on what the market is doing at that point in time, and what we feel is a right opportunity to take on, either growing market share by reducing a bit of NIM, but growing in that area, or slowing down originations if we feel that's the right thing to do, but growing NIM at the same time.
Thanks for that. Thanks for taking my question.
Thank you. The next question comes from Andrew Lyons from Goldman Sachs. Please go ahead.
Thanks, Mario. Thanks, Therese. Congratulations on the first full year result. Sorry to start on the mortgage NIM, but just a high level question. As noted, the NIM was down 20 basis points in the year, while period-end mortgage fund was up 15% and average fund was up 7%, your mortgage NII was actually down 2%. Can you therefore just in light of that, and particularly in the face of higher funding costs going forward, how are you thinking about the volume versus margin trade-off, just isolating it to the mortgage product? Obviously, the mix can help the group, but I'm just more interested in how you're thinking about that margin volume trade-off within the mortgage book.
I think it's always good to have a look at the total operating income, and the total operating income for mortgage is close at AUD 256 million, which was actually 7% up. There's some other obvious movements that we actually have within it. What we saw in terms of the net interest movement with mortgages, while the compression from NIM that we saw is really starting probably from the end of Q1, Q2. We're actually now seeing that abates its way out. As we move into 2022, the acceleration that we're seeing in the applications taken and a more balanced in terms of the mix, with prime probably continuing around that 57%, we should be able to see some smoothing as we go into 2022.
Yeah. I think it's important to note as well that again, there'll be a direct correlation between the level of risk that we are taking and the NIM that we will generate. You will find in mortgages that we have written a lower weighted average LVR across the book in calendar year 2021. We have written obviously more prime than we did in the previous year. Again, this is 100% correlated to less risk.
Yeah.
Taken on the book. We should then, you know, deliver better performances over time.
Just to be sure, just on that comment around the total operating income within the mortgages book, obviously, that's been supported by, you know, what, nearly AUD 23 million dollar turnaround in the loan losses. Now, are you saying that already reflects the quality of the loans you're writing in the front book? I would have thought that would take longer to come through.
Two things that's actually reflected. We took a AUD 3 million write back of the COVID-19 loan loss that we booked in 2020. So that there's a little bit of element of that. The underlying performance of the mortgage portfolio book does continue to improve, though. We've seen the underlying loan losses as a % of AUM move to 0.01%. It's a combination of increased volume and mix going through prime, which does attract a significantly lower loan loss ratio, being maintained with the underlying NIM within the business as well.
Okay, thanks. Just a second broader question. You note, Mario, that the annualized second half dividend yield is 5.5%, which is actually higher than the P/E ratio now on your FY 2021 earnings. Now, obviously, you've spoken a lot about what you're doing to drive shareholder value from an organic operational perspective, and I don't think anyone can doubt that these efforts are clearly benefiting the underlying performance of the business as reported today. Can you perhaps talk about any other ideas that you might have as to how you can better realize value in the business, I guess, whether that be from the perspective of the capital structure, maybe new product or even inorganic expansion?
Yeah, look, it's a fair observation. If you think about where we are positioned today and everything that I, Therese and I presented today is on the back of organic growth. Because we are such a very small percentage of the total addressable market that we play in, we have ample room to continue growing and doing what we do best, which is understanding the market, supplying credit to the underserved, and continually growing our suite of products and our distribution footprint.
In saying that, we are always looking for like-minded businesses that will be a cultural fit for Pepper to allow us, if there is an opportunity, to strategically align ourselves and acquire other businesses if they come across. In saying that, again, we are comfortable that we have plenty of room for growth organically, and if the right business comes across our path, that you know does meet our values and is culturally aligned and has all the right synergies, then we will definitely make a move when needed.
Okay. Thank you. 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 Paul Bice from Credit Suisse. Please go ahead.
Hi, good morning, Mario, Therese. Just one quick question from me, please. You've spoken a fair bit about competition on the mortgage side and the bank space. Just keen to hear your thoughts, I guess, on competition around the auto finance space, specifically noting, I guess, that there is more non-bank entrants in the space, in particular obviously Angle Finance got aspirations, strong aspirations for very strong growth in that space. Just interested to know how you see competition playing out among non-bank auto finance operators.
Yeah. Mike, sorry, Paul, we are very comfortable with our current positioning. You are right. There is a number of new entrants coming through. If you think about the market that we have been operating in the past and where we are today, we've seen an extraction of the banks in this particular sector. Now, what this means is that all the new entrants don't have any funding advantages to Pepper. What we do...
What advantages we have is a very strong ability to grow on the back of one of the largest, you know, back books of AUD 3.5 billion in asset finance, a very well tenured and seasoned distribution footprint that is going to continually allow us to feed our new tech into this particular introducer group. In one hand, you do have more competition coming in, but in another hand, the big players that had funding advantages have now, you know, exited the market. We are very confident in our ability to continue growing in the asset finance sector.
Paul, when you've got a chance, on page 16, we sort of set out all of our distribution channels, and what we've done now in these results is expand those distribution channels to give you some oversight around how novated lease is performing and how our new partnerships are performing. The great thing about asset finance as it exited 2021 and into 2022, we're going to start to see the annualized benefits of the new opportunities that we entered into in 2021 come their way through. The other thing to highlight with our asset finance business is we are the only financier on the electric.
Electric Vehicle Council.
Thank you, Mario. Electric vehicles are now accounting for 6% of our total originations and increasing. There's wonderful opportunities for this business to grow organically and to leverage off the strong opportunities that we've already implemented in 2021.
Okay. Thanks, guys. Appreciate that.
Thank you.
Thank you. There are no further questions at this time. I will now hand back to Mr. Mario Rehayem for closing remarks.
Thank you. On behalf of my team, I would like to thank all of our shareholders, new and old, for their continued support. Thank you to all the listeners today, and thank you for the questioning as well. I look forward to providing a business update at our upcoming AGM on the twenty-eighth of April. Thank you very much, and we look forward to speaking to you then. Bye.