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Heartland first-half profit climbs 7% as Australian reverse mortgage outlook improves

Tuesday 20th February 2018

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Heartland Bank boosted first-half profit 7 percent as an expanding loan book underpinned all lines of business and strong reverse mortgage growth in Australia whetted the bank's appetite to do more business across the Tasman. 

Net profit rose to $31.1 million, or 6 cents per share, in the six months ended Dec. 31 from $29.1 million, or 6 cents, a year earlier, the Auckland-based company said in a statement. Net operating income rose 13 percent to $93.9 million as net receivables gained 13 percent $3.78 billion. Heartland put the increase down to its bigger loan book, although it said income from reverse mortgages jumped 26 percent to $18 million, with growth in Australia of 22 percent outpacing a 12 percent increase in New Zealand. 

"Heartland has a successful reverse mortgage business in Australia, Heartland Seniors Finance, which continues to grow strongly," the bank said in a statement. "Off the back of this success, Heartland is exploring opportunities to expand its product offering in Australia, including further development of its relationship with Spotcap, an innovative lender for small and medium-sized businesses, and launching Open for Business to serve the Australian SME market." 

The bank got into the reverse mortgage business in 2014, buying Seniors Money International for $87 million, which it said at the time would give it access to an expanding 65-plus age demographic keen on tapping the majority of their wealth tied up in residential property. 

The board declared an interim dividend of 3.5 cents per share, payable on April 3 with a March 16 record date. The shares fell 0.5 percent to $1.93, having already fallen 6.7 percent so far this year. 

Heartland has always had an eye on niche markets, eschewing the residential mortgage market dominated by the big four Australian-owned banks, and chasing riskier, higher margin business. The lender's net interest margin slipped 1 basis point to 4.44 percent in the six months ended Dec. 31, twice the 2.17 percent margin for the overall sector. 

That riskier business saw the bank boost impairment charges 51 percent to $10.4 million in the period, which was partly due to "an intentional adjustment to risk settings in previous years which has resulted in a gradual but expected increase in impairment levels," it said. Operational issues with the introduction of a new banking system also affected impairments with an increase in arrears levels, although Heartland anticipates that will reduce in the second half of the year. 

Heartland's household division, which includes consumer lending, residential mortgages, and reverse mortgages, increased earnings 14 percent to $36.2 million on a 17 percent increase in total assets to $2.08 billion. Its business lending unit boosted earnings 16 percent to $20.2 million on a 9.8 percent expansion of its loan book to $1.04 billion, while the rural unit lifted profit 12 percent to $12.8 million on a 9.6 percent increase in its assets to $676.6 million. 

The bank expects annual profit to be at the upper end of its previous forecast range of between $65 million and $68 million in the year ending June 30, up from $60.8 million a year earlier. 

"Underlying asset growth is expected to continue, with strong household, business and rural volumes projected through execution of Heartland's strategy, in particular, the expansion of customer reach through digital and intermediary channels, and expansion in Australia," the bank said. 


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