Heartland Bank annual profit down 71% after non-core property hit, sees big jump in June 2014 year

Heartland New Zealand, operator of the country's newest bank Heartland Bank, has posted annual profit of $6.9 million and reiterated its forecast for a big jump in profit to as much as $37 million in its new financial year.

Heartland's net profit after tax for the year to June 30 tumbled $16.7 million, or 71%, to $6.9 million. This is in line with the company's guidance given in early June after Heartland took a $24.3 million pre-tax hit from the write-down of its non-core property holdings.

Created through the merger of Marac Finance, CBS Canterbury and Southern Cross Building Society in January 2011, Heartland's focus is on growing lending to families, small businesses and the rural sector. It's aiming to exit the majority of assets left in its non-core property portfolio inherited from Marac by December 31, 2014.

As of June 30, Heartland said the non-core property portfolio had a book value of $107.4 million, which is down a third year-on-year and comprises net receivables of $49.1 million and investment properties valued at $58.3 million.

In its three core target markets - business, rural and retail & consumer - Heartland said net operating income rose 22%, 20%, and 11%, respectively to $26 million, $23 million and $50 million. Heartland said lower cost of funds helped, with rural operations helped by a full year contribution from the PGG Wrightson Finance rural book acquired in August 2011, and growth in motor vehicle lending boosting retail & consumer.

During the year Heartland, which obtained banking registration from the Reserve Bank last December, says its total assets increased by $157 million, or 7%, to $2.5 billion. It says core net finance receivables increased $76 million. But net finance receivables were down $68 million in total to $2 billion when non-core property and retail mortgages are included.

Heartland also said;

Deposits rose $200 million, or 11%, to $1.8 billion;

Overall net operating income rose $12 million, or 13%, to $107 million;

Operating costs rose $5 million, or 7%, to $70 million;

Impaired asset expense rose $17 million to $23 million;

Net tangible assets per share were down 3 cents to 85c. And;

The operating expense ratio was 66%, down from 69%.

Net impaired, restructured and loans past due by more than 90 days fell to $49 million, or 2% of net finance receivables, from $91 million or 4% a year earlier. The non-core property book accounted for $31 million of the impaired, restructured and past due loans at June 30.

As of June 30 liquidity, comprising cash, liquid assets and unutilised available funding lines stood at $578 million, including a $106 million bond repaid on July 15.

Heartland's residential mortgage book contracted by $96 million, or 29%, to $231 million. Home loans aren't regarded as a core activity by Heartland, which is now offering its customers Kiwibank residential mortgage products.

Heartland will pay a fully imputed final dividend of 2.5 cents per share. This takes dividends for the year to 6c per share in total.

Meanwhile, Heartland reiterated its June forecast for net profit after tax of between $34 million and $37 million in the year to June 30, 2014.

"The net profit after tax expectation for the next financial year reflects on-going reductions in cost of funds, lower impairments, continued focus on cost reductions and asset growth in core assets in line with credit growth expectations," Heartland said.