Bank wannabe Heartland NZ loses its chief financial officer, says margins rose in Q3 after end of extended Crown guarantee

Chief financial officer Sean Kam has become the second senior executive to quit Heartland New Zealand, with the building society with ambitions of becoming a bank saying Kam will leave in June.

Kam's departure follows that of Bryan Inch, the chief executive of CBS Canterbury, one of the three entities merged in early 2011 to create Heartland, who had been lined up to be Heartland's head of retail.

Instead, Inch left shortly after the merger of CBS Canterbury with fellow building society Southern Cross and Pyne Gould Corporation's Marac Finance, telling interest.co.nz he didn't want to set up a national banking branch network for a second time, having previously done this at Rabobank, and that his style differed from that of Heartland chief executive Jeff Greenslade.

In a sharemarket announcement Heartland said Kam, CFO of both Pyne Gould Corporation and Marac prior to Heartland's creation, would remain with Heartland until June 21 to ensure a smooth transition for his replacement, with internal candidates in the running.

“My skills are as a transformational CFO, and the role at Heartland during a period of significant change has suited me," Kam said. "I have now completed what I set out to do at Heartland, and feel it is time to move on and look for my next challenge.”

Greenslade said Kam had been "instrumental" in building what he termed a "high-performing control environment and finance function" capable of supporting an application for bank registration.

"Sean’s resignation will not affect that ongoing process," Greenslade added.

Heartland recently said the process to formal application for banking registration from the Reserve Bank was of "indeterminate length." It added that, given discussions with the Reserve Bank were confidential, it couldn't comment further on timing or criteria. Greenslade told interest.co.nz in late 2010 that Heartland would only formally apply for bank registration when it was confident its application would succeed.

The Heartland merger plans envisaged a sharemarket listed "Heartland Bank" that would aim to double its NZ$2.2 billion asset base within five years through growing lending to families, small business and the rural sector.

Profit rises in third quarter

Meanwhile, Heartland also said it produced operating net profit after tax of NZ$5.3 million in the third quarter (three months to March 31), versus NZ$3.6 million for the first two quarters of its 2011/2012 financial year combined.

Total net profit after tax, including a one-off deferred tax benefit of NZ$6.2 million is NZ$15.1 million for the three quarters. Heartland has forecast net profit after tax for the full year to June 30 of between NZ$20 million and NZ$22 million, meaning it needs to make NZ$4.9 million in the fourth quarter to hit the bottom of that target range.

Heartland said its increased profit had been driven by margin growth in the third quarter mostly due to a decrease in cost of funds following the expiry of the extended Crown retail deposit guarantee scheme on  December 31, through which Heartland had debts guaranteed by the taxpayer, and a change in lending product mix. On top of this its normalised cost to income ratio dropped to 62% for the quarter compared with 79% for the first half of the year, and impairment expense was stable.

Heartland grew its lending book by a net NZ$18 million over the third quarter to NZ$2.093 billion, with the growth largely attributed to business lending.

"The Business division is showing good momentum, with increases in both pipeline and new business opportunities," Heartland said. "The earlier build-up of the pipeline post the Rugby World Cup and general election is now being reflected in drawdowns."

"The Rural division pipeline continues to improve, with an increase in ‘approved facilities not yet drawn’ and the launch of a new livestock leasing product consolidating the division’s position in the market. This is expected to be reflected in increased drawdowns in the coming months."

"In the Retail and Consumer division, new consumer lending is ahead of the same quarter last year despite a competitive environment. Retail mortgage business remains subdued," Heartland added.