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Heartland sees more earnings growth in 2019 after lifting annual profit 11%

Wednesday 15th August 2018

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Heartland Bank is eyeing up acquisitions to maintain double-digit earnings growth in 2019 after its reverse mortgage business underpinned an 11 percent gain in annual profit. 

Net profit rose to $67.5 million in the year to June 30 from $60.8 million in the prior year. The Auckland-based lender expects net profit of $75 million to $77 million in the 2019 financial year with growth driven by digital development, customer focus and potential acquisitions.

”The board is confident in Heartland’s ability to continue achieving strong growth and profitability,” said chair Geoffrey Ricketts.

“Heartland will pursue acquisitions which align with its strategy, are value accretive, and which deliver access to innovation, distribution capability or alignment with Heartland’s core products and competencies,” he said.  

The bank's origins are through the merger of Marac Finance with the Southern Cross and Canterbury building societies, which later added the PGG Wrightson finance unit to its books. The lender has been keen on ANZ Bank New Zealand-owned UDC Finance, which is back on the market after the government blocked a sale to China's HNA Group. 

Heartland typically reports wider margins than its larger peers focusing on consumer lending, such as auto-loans and reverse mortgages, and using online channels including peer-to-peer lender Harmoney, leaving the residential mortgage market to the big four Australian-owned banks. 

The lender's net interest margin was 4.42 percent for the year, versus 4.46 percent in the prior year but well above the average of other major banks.

For the year to June 30, net operating income rose 15 percent to $196.8 million as net finance receivables increased 12 percent to $4 billion.

Income from reverse mortgages in Australia climbed 31 percent to $676.8 million and in New Zealand rose 12 percent to $453.1 million. Overall, Heartland saw 39 percent growth in Australia operations, it said.

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.

Overall, Heartland's household net finance receivables rose 21 percent to $2.3 billion with growth in motor vehicle loans, Harmoney and other consumer lending as well as the reverse mortgages in both New Zealand and Australia. Household net operating income gained 13 percent to $104.8 million. 

Within its business lending unit, operating income advanced 13 percent to $53.2 million while rural net operating income gained 10 percent to $32.2 million.

The board declared a final dividend of 5.5 cents per share bringing the full year dividend to 9 cents per share, consistent with the prior year. The final dividend will be paid Sept. 21 to all shareholders on the register on Sept. 7. 

Operating costs rose 12 percent to $80.4 million due to “increased operations and staff costs associated with strong asset growth,” the bank said. Despite these additional one-off costs, total cost to income ratio still decreased to 40.9 in the year, down from 41.9 in the prior year.

Heartland said total impaired asset expense increased to $22.1 million from $15 million in the prior year. This was due to increased receivables volume and higher overall impairment rates. The bank cited a number of one-off items including provisioning for large relationship-managed loans, insurance recovery write-back in prior year and a reduction in collections due to system implementation issues.

The bank reiterated it is seeking a corporate restructure to get greater flexibility in pursuing future growth opportunities in New Zealand and Australia.

Under the restructuring, which requires High Court and shareholder approval, Heartland Bank will become a wholly-owned subsidiary of a new listed parent company, called Heartland Group Holdings. 

Existing shareholders’ shares in Heartland Bank will be exchanged with new shares in the new listed parent on a one-for-one basis and the Australian group companies will be transferred from Heartland Bank to the new listed parent.

This will also facilitate a foreign exempt listing on the ASX.

Shareholders will be asked to vote on the proposal at the annual shareholder meeting Sept. 19.  

The shares last traded at $1.74 and have shed 16 percent so far this year. 


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