Low interest rates spur 12% lift in Heartland annual profit, dividend up

Tuesday 16th August 2016

Heartland Bank boosted annual profit 12 percent and will pay a bigger dividend, widening margins as low interest rates enabled cheaper funding.

Net profit rose to $54.2 million, or 11 cents per share, in the 12 months ended June 30, from $48.2 million, or 10 cents, a year earlier, the Auckland-based company said in a statement. That met the bank's guidance for profit of between $51 million to $55 million. Interest income rose 1.9 percent to $265.5 million while lending expanded 8.8 percent to $3.11 billion. Interest expense fell 5.7 percent to $118.8 million as it scaled back more expensive bank borrowings for cheaper retail deposits.

"The increase in NOI (net operating income) was primarily attributable to the increase in receivables and to a reduction in the cost of funds," the bank said. "Heartland expects underlying asset growth to continue for the 2017 financial year, with increased household, business and rural volumes projected."

Heartland has been on the hunt for new acquisitions to accelerate its expansion. It made an unsuccessful bid for Motor Trade Finance and was mooted as a potential bidder for Australia & New Zealand Banking Group's UDC Finance business.

The lender has been considering a capital return to shareholders, but says volatility in financial markets "creates greater opportunity for acquisitions."

The board declared a final dividend of 5 cents per share, payable on Oct. 7 with a Sept. 23 record date. That takes the annual payment to 8.5 cents, up from 7.5 cents a year earlier.

The shares rose 2.8 percent to $1.47, adding to the 8.3 percent gain so far this year. The stock is rated an average 'buy' based on three analyst recommendations compiled by Reuters, with a median price target of $1.34.

Heartland expects 2017 profit to rise to between $57 million and $60 million, excluding the impact of any capital management changes.

The bank's households division lifted net operating income 12 percent to $86.1 million as auto lending grew 9.5 percent, personal loans including those through the Harmoney platform jumped 55 percent, and reverse mortgages increased 8.2 percent in New Zealand and 10 percent in Australia. The unit's loan book was $1.69 billion as at June 30.

Heartland's business banking increased net operating income 5.4 percent to $43 million with assets of $907 million, and its rural division boosted income 9.6 percent to $26.3 million on $552 million of loans.

The bank's impairment expense rose to $13.5 million in the 2016 year from $12.1 million in 2015, largely due to the increase in personal and motor vehicle loans and an increase in the number of auto loan write-offs. It increased its provisioning for potentially bad rural loans to provide a buffer against the dairy sector, with dairy farms accounting for 7 percent of Heartland's total loan book.

BusinessDesk.co.nz

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