Pepper Money Posts Record $24 Billion AUM and 15% Profit Growth

Record Originations and Asset Growth Drive Earnings

Pepper Money Limited (ASX:PPM) delivered a standout first half in 2026, with total loan originations hitting a record $6.3 billion, a 40% jump on the prior corresponding period. This surge was led by mortgages, which grew 63% to $4.5 billion, marking the highest half-year origination in the company’s history. Asset finance originations also edged up 2% to $1.7 billion, supported by strong growth in novated leases, particularly electric and hybrid vehicles which accounted for 72% of novated originations.

The company’s assets under management (AUM) climbed 20% to $24 billion, reflecting both robust lending activity and expanded servicing portfolios. Mortgage AUM rose 32% to $12.5 billion, while servicing AUM grew 26% to $5.5 billion, buoyed by ongoing whole loan sales and new servicing mandates.

Profit and Margins Show Solid Improvement

Net interest income rose 17% to $184.5 million, driven by volume growth and a 12 basis point expansion in net interest margin to 2.10%. Mortgages delivered a 13 basis point margin lift to 1.64%, benefiting from prior cost of funds improvements and full pass-through of Reserve Bank rate hikes. Asset finance margins improved 14 basis points to 2.87%, aided by effective hedging strategies.

On a pro-forma basis, which adjusts for one-off costs and recent portfolio acquisitions, Pepper Money’s net profit after tax increased 15% to $53.9 million. Statutory net profit rose 7% to $50.4 million. Pre-tax profit including loan loss expense grew 17% to $127.8 million, reflecting strong operating leverage despite a 19% increase in loan loss expense due to portfolio expansion and revised macroeconomic assumptions.

Loan Losses and Provisions Reflect Cautious Credit Stance

Loan loss expenses increased to $48.7 million, driven by portfolio growth and adjustments to macroeconomic scenario weightings reflecting a higher-for-longer interest rate environment and inflationary pressures. Collective provisions rose accordingly, with total loan loss provisions reaching $147.2 million, maintaining a stable coverage ratio of 0.79% of lending AUM. Specific provisions decreased slightly, indicating overall portfolio resilience.

Capital Management and Funding Enhancements

Pepper Money refinanced its corporate debt facility in July 2026, establishing a new three-year revolving credit facility of $275 million on improved terms, replacing the previous $270 million facility. Drawn corporate debt remained steady at $120 million. Warehouse facility limits expanded 13% to $15.1 billion, supporting ongoing origination growth. Whole loan sales totalled $1.4 billion in the half, including a $1 billion asset finance sale and a $0.4 billion prime mortgage sale.

Expanding Servicing Business with Major Portfolio Wins

In a significant strategic move, Pepper Money secured binding arrangements to service a $36 billion Australian home loan and personal loan portfolio originated by HSBC Bank Australia, pending completion in the first half of 2027. This follows the recent onboarding of the $15.4 billion RAMS mortgage portfolio acquired from Westpac, where Pepper Money acts as servicer and holds a small investment alongside other consortium members. These contracts substantially increase the company’s capital-light servicing footprint, now approaching $40 billion in total AUM when combined with lending portfolios, positioning Pepper Money as a leading non-bank servicer in Australia.

Shareholder Returns and Dividend Increase

The board declared a fully franked interim dividend of 7.2 cents per share, a 12% increase over the 2025 interim dividend, representing a payout ratio of 60% of pro-forma net profit. This translates to an annualised yield of 9.5% based on the 30 June 2026 closing share price. Total cash returned to shareholders in the half was $32.3 million, up 14% on the prior year.

Outlook Amid Market Uncertainty

Pepper Money’s CEO Mario Rehayem highlighted the company’s strong first half performance, underpinned by a robust application pipeline and product innovation. While acknowledging recent government policy changes impacting residential lending and a slowdown in market-wide mortgage enquiries, the company remains focused on expanding its distribution network, leveraging technology and AI to improve efficiency, and growing its capital-light servicing business. The successful migration of the RAMS portfolio and the pending HSBC servicing contract underscore Pepper Money’s operational capabilities and strategic positioning to navigate evolving market conditions.