Lender Pepper Money reported strong growth in its mortgage and asset finance books in the six months to June but it was asset finance that was the key to the company’s growth in revenue and earnings.
The company is moving further into the asset finance market, completing the A$77.8 million acquisition of 65 per cent of asset finance broker Stratton Finance in July. Pepper has an option to buy the balance of the business, exercisable in 2024.
Pepper chief executive Mario Rehayem said the acquisition is a milestone, giving the company a broader distribution footprint for its asset finance business.
Pepper reported net interest income from continuing operations of $192.5 million for the six months to June – an increase of 9.2 per cent over the previous corresponding period.
Net profit rose 28.9 per cent from $56 million in the June half 2021 to $72.2 million in the latest half.
Mortgages contributed $133.7 million of net interest income, an increase of 3 per cent over the previous corresponding period, and $122.3 million of pre-tax profit, a fall of 1.9 per cent.
Asset finance contributed $58.9 million of net interest income, an increase of 26.4 per cent over the previous corresponding period, and $70.5 million of pre-tax profit, an increase of 41.3 per cent.
The change in the business mix has helped Pepper generate a higher than average net interest margin of 2.29 per cent, without any compromise in credit quality. Loan losses as a proportion of assets under management fell 10 basis points to 18 bps.
The company was not immune to margin compression from a more competitive mortgage market and higher swap rates and margins in the funding market. NIM was down 23 bps compared with the December half.
Mortgage arrears (payments past due 90 days or more) were 86 bps of assets under management in June – down from 1.14 per cent in June last year and 88 bps in December.
Asset finance arrears fell from 24 bps in June last year to 18 bs in December and remained at that level at the end of the latest half.
Originations of $5.6 billion were up 53 per cent on the previous corresponding period and assets under management grew 27 per cent to a closing balance of $18.1 billion at June 30. The mortgage book grew 23.2 per cent to $13.8 billion and the asset finance book grew 43.3 per cent to $4.3 billion.
Rehayem said Pepper had repriced its loans to offset higher funding costs. Pepper raised $2.5 billion through four securitisations in the June half and raised another $500 million in July.
He was confident that company would be able to continue with its funding program, despite the difficulties being encountered by other issuers.
Total warehouse capacity at June 30 was $11 billion, an increase of 11 per cent since December.