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 on 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.
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 four 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 three mortgage hold-on 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 hold-on 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 had 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 a prior comparable period as the flow-through of cost-of-fund gains and relatively 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 pre-tax 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 have supported net profit after tax at $47 million for the half, a growth of 2% on PCP. The continued demand for our hold-on sales, where we undoubtedly lead the market, saw us complete three mortgage hold-on sales over the half, totaling $1.7 billion. When this is taken with $1 billion raised through public securitisations, the business is driving a highly efficient and diverse funding structure. This helps 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 uplifting 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 declare an interim fully franked dividend of $0.64 per share, representing a 60% payout ratio on net profit after tax for the six months to June 2025. Incorporating the $0.64 per share interim dividend to the $12.50 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 five, we entered 2025 with clear evidence that the mortgage market had 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 trends, 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 3.6 times system compared to the second half of 2024. Growth in asset finance applications is more subdued than mortgages, but we have still achieved origination growth of 19%, half one 2025 over half one 2024. 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 the second half of 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 centre, 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. 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 six. 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 the 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 Shariah-compliant solutions, 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 three mortgage hold-on sales, two prime and one non-conforming, totaling $1.7 billion.
Hold-on sales through the equitable notes in 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-like annuity style income. Mortgage lending AUM dropped by 16% on PCP to $9.5 billion. Other than the $1.7 billion transferred under hold-on sales, as expected, we also experienced high attrition in New Zealand, mainly from the HSBC portfolio acquired end of 2023. 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 seven, 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%. No VAT at 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. No VAT at 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 hold-on 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 eight, we continue to see the benefits of our business diversification strategy, and the loan and other servicing segments continue to report strong growth. The loan and other servicing business is the provision of independent loan servicing to the market and includes our hold-on sales servicing program, servicing for non-operational owners of loan portfolios, and loan portfolio acquisition.
Given the ongoing strong market demand for our hold-on sales program, which supported $1.7 billion in mortgage hold-on sales over the first half of 2025, servicing assets under management 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 hold-on sales continues to deliver capital-like service income growth. As I have said, building our loan and other servicing business via hold-on sales is part of our overall capital management strategy. As it is capital-like, hold-on 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 that are already being serviced, and it provides us with a defensive earnings stream across the credit cycle. Turning to funding on slide nine, our funding position remains strong. Total warehouse capacity at 30 June 2025 was $11.5 billion, an increase to $600 million on 31 December 2024, and an increase of $2.3 billion on prior corresponding period. As always, we take a balanced approach to funding. We maintain around four to six 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-based securities transaction, SPARKS9, raising $1 billion from public markets.
As previously noted, we complemented our public securitisations with a further $1.7 billion raise from hold-on 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 are 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 ten, 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 two years. Asset finance is seeing similar productivity gains, with credit up 3% and 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 partners' CRMs has delivered auto-approvals for over 57% of Tier A customers and greater than 73% for no VAT at 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 reduced 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.
Thank you, Mario, and good morning, everyone. Slide 11 provides the summary of the key financial measures of our business. As Mario has covered volume in detail, today I'll focus on net interest margin, credit performance, expense management, and return. 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 six basis points on PCP, but was down five basis points on the second half of 2024 due to the mixed impact from the accelerated growth in prime mortgage origination. The improvement for this 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 for mortgages, it delivers a positive NIM impact through NIM, through improved funding margins, and the stabilization of BBSW. Turning to mortgages, mortgage NIM at 1.51% experienced a nine basis points compression on PCP and a 21 basis point versus the second half of last year. This was, however, following three 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 origination. I should also note we passed all RBA rate reductions onto 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 margin, 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 two factors were marginally offset by swap rates. While these are definitely stabilizing, the geopolitical stability over the half created periods of short-term volatility in swap rates, which impacted NIM by 31 basis points when compared to PCP. Now to credit performance, starting on slide 13. Starting with loan lock 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 lock provisions of 3% over June 2024 was largely following the movement in asset finance AUM. Asset finance loan lock 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 half a billion hold-on 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 ratios for asset finance increasing to 1.71%, up from 1.5% in June 2024, and up from 1.7% as of December year-end. Over the same period, asset finance AUM has increased by 11% and 12% respectively. Mortgage loan lock provisions decreased by $14.7 million versus June 2024, given provision releases following the hold-on sales executed, which over the 12 months to the 30th of June 2025 totaled $2.6 billion, $900 million in the second half of 2024, and $1.7 billion in the first half of 2025, as well as the product mix shift towards prime lending.
In total, our coverage ratios for mortgages remain strong, and at 0.18% at June 2025, it remains in line with the long-term average. As always, we remain well provisioned 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 provision, 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 half a billion hold-on 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 one half of 2024, collective decreased by $4.9 million, driven by hold-on sales native origination. Specifics 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 the impact of hold-on sales, given the $1.7 billion executed over the first half, 90-plus-day 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-day arrears at 0.32% of assets under management 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 no VAT at 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 benefit expense decreased 3% on PCP, and 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 West Tigers, which 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 withdrawn balance of the corporate debt facility and $25 million in 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 NIM, as mortgage originations and AUM shifted to prime, and in part as a result of the hold-on sales executed, where income shifts from net interest income to other operating income. Hold-on sale gain increased on PCP as we executed $1.7 billion in mortgage hold-on 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 gain more than offset the increase in impairments, and total expenses reduced 2% on PCP. These factors delivered EBITDA at $89.5 million.
Our net profit after tax on both a statutory and profitable basis at $47 million for the half year, with up 2% on PCP, and our underlying profit measured by profit pre-tax 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. 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 scale funding model, including how we have led the market in hold-on sales, demonstrating the embedded value of our backbook, 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 CDS repayments, we've also repaid $25 million in subordinated debt in the latter half of 2024. We continue to execute our on-market share buyback, acquiring 10% of traded shares during the periods we are in market. We closed the half with unrestricted cash at $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.
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 assets under management, including hold-on sales net of loan loss provision. We originated $4.5 billion in new financial assets over the half, asset growth financed by the issuance of a public term securitisation of $1 billion and a further $1.7 billion of hold-on 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 in 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.
Thanks, Therese. We have had an amazing start to the year. We have identified and captured opportunities to grow as market conditions improved. We have also achieved a new milestone for the business, with total assets under management breaking through $20 billion to close 30 June 2025 at $20.1 billion, up 4% on PCP. We have just seen the RBA start the rate reduction cycle, with three 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 scaled 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 two core lending businesses, mortgages and asset finance, as well as the growth from our loan and other servicing business, which delivers a capital-like annuity style income stream from our hold-on 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.
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 are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Jason Chow at Macquarie. Please go ahead.
Hi guys, thanks for taking my question. Given you're moving towards a model that's more originate and selling, how much happier are you guys to compete on price? Has that driven that mix shift towards more prime mortgages? I know that NIMs on prime mortgages probably look around less than 1%. Is there any color you can give on competition given your new strategy?
Yeah, thanks [Jess]. 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. 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. We are not fixated on a particular segment. Where we are fixated, obviously, is in our returns. That for us is the number one priority. With regards to the hold-on 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 retain versus sell model for us is very important.
We have numerous ways of capturing value in our hold-on sales. 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%- 38% of our production. 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. We are very comfortable with the pattern or the trend that we are emerging with our hold-on sales at the moment.
If I just have to quickly follow up on that, your increasing hold-on sales strategy, that doesn't affect the way you think about pricing or loans?
No, because we originate to retain. We don't originate to sell. That is fundamentally two different strategies.
I'm sorry, thanks for that. You touched on it just then, but yeah, there is a lot of demand from, you know, money in private credits. 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 premium or how have the premiums changed over time as the demand for these loans have increased or if there's been any changes at all?
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. 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. You can see that in our NIM, where it's contracted nine basis points in mortgages. We are extremely comfortable with the trend pattern that we're following at the moment. Dare I say, you know, we have created the blueprint for the Australian market on the hold-on sale trades. There are many looking at the same type of programme. You know, we wish them all the best.
For us, where we are sitting, we are very comfortable with the hold-on sale programme that we have. The one advantage that we have, you know, 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. Vice versa, when we said that we were going to be a little bit more conservative in mortgages, we leant on asset finance. Yes, we forfeited nine 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, you know, festered to say that that's where the business will always aim for.
Thanks for the time, guys.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Jeff Cai in Citi. Please go ahead.
Good morning, and thanks for taking my question. Just a question on the hold-on sales. Is there a sort of upper bound on how we should think about the level of hold-on sales that you do going forward, whether that's the % of the book or revenue? Given the very strong demand, should we expect the hold-on sales to strengthen even further in the next half?
I think like I said earlier, with us, we're very much going to be on the receiving end of the appetite that is available and more importantly on the return. We have turned down a number of hold-on sale inbounds because of the premiums that they were searching for. We're not desperate to sell, but if it makes sense, we will.
Got it. A question on credit quality. Looking at the arrears on asset finance, 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 trend down from here?
It's a good pickup, Jeff. I think we are probably now past the point where specifics, particularly within asset finance, we're 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 no VAT at lease is playing benefits, and we've got stability in the curve returning.
Great. A final question just on in terms of capital. Mario, how should we think about a prospect of further special dividends, and to what extent does that sort of depend on hold-on sales going forward?
Yeah, look, I think, you know, obviously we don't give forecasts on where the dividends are, but we have, 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 that hold-on sales program. If you think about that particular program, since 2023, cumulatively, we've deployed $307 million, and that has been through 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. We had an on-market share buyback of $3 million. 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. We do believe we're in good speed.
Great. Thank you.
Your next question comes from Jack Lynch in RBC. Please go ahead.
Hi team. Well done on the positive result. Thanks for taking my questions. The first one is just on OpEx. Obviously, a strong result for cost controls. Just thinking out there for FY 2026, how we should be thinking about that OpEx space and the staging of that over the first half, second half. Secondly, just around the mortgage segment and the exit and the exit NIMs, typically given that in the past, how's that trending in terms of those exit NIMs? Should we be thinking about similar heading into FY 2026 along those sort of similar prime volumes? Any clarity there would be great. Thanks.
No problems. In terms of expenses, we can 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. I'd be looking at the second half of the year as more or less steady state versus the first half. You've just got to do your normal inflation adjustments. The fact that we'll also have some accelerated marketing spend is just in line with the fact that we've pulled forward some of the marketing spend in 2025- 2024 with the West Tigers sponsorship. 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 of tier budgets as 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 hold-on sale, and we actually completed hold-on sales in both May and June. 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.
Yeah, 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. 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.
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. 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.
Thanks for the clarity, team, and well done on the positive result.
Thank you, Jack.
There are no further phone questions at this time. I'll now hand back to Mr. Rehayem for closing remarks.
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. Thank you and have a great day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.