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Heartland says full-year profit soars after one-off charges wash through

Heartland New Zealand [NZX: HNZ], the bank formed from the merger of Canterbury and Southern Cross building societies and Marac Finance, said annual earnings soared 421 percent after one-off charges in the prior year washed through and as it improved profitability.

Profit rose to $36 million in the year ended June 30, 2014, from $6.9 million and near the higher end of its forecast $34 million to $37 million range, the Christchurch-based lender said in a statement. Heartland's 2013 earnings were weighed down by charges to take control of distressed assets previously managed by Pyne Gould Corp, and it said increased operating income, and continued management of expenses and impairments helped lift the 2014 profit.

The earnings represent a return on average equity (ROE) of about 9 percent, compared to a previous ROE of 2 percent, and an adjusted ROE of 6.5 percent, Heartland said in a statement.

"Heartland will continue to investigate potential acquisition opportunities that are ROE accretive as well as assessing possible capital management options to improve ROE," the company said. "We will continue our product centric strategy focusing on higher yielding products where a leading market position can be achieved."

Earlier this year, Heartland bought a reverse mortgage business from Seniors Money International for $87 million, and at its February first-half report said it was looking for new acquisitions to accelerate growth. Last month it emerged that Motor Trade Finances, which has a loan book of some $438 million, had rejected a takeover bid from the bank.

The Seniors Money acquisition contributed about $1 million to net profit, it said.

In May Standard & Poor's raised the Christchurch-based lender's long-term issuer credit rating to BBB from BBB-, while retaining a negative outlook based on New Zealand's exposure to economic imbalances, it said in the upgrade.

Shares of Heartland were unchanged at 94 cents. The company will announce its annual results on Aug. 25.


Comments and questions

It will be interesting to compare their accounts from last year based on what profit they have booked on the reverse mortgage book and how much free cash they actually do have. Whilst the overall profit is great the cash profits won't be nearly as good as reverse mortgages capitalise income

This effect on their accounts is similar to the old finance companies capitalising interest on their property development loans.

Mmm, not so sure on that point Doctor. I think that business is a good business. Win win for borrower and lender.

What I cannot figure though is why MTF motor dealers have not jumped at the Heartland opportunity. When I last heard MTF did their business on a recourse basis, very high risk for dealers. Heartland takes that risk and the dealer returns are much the same. Many dealers have gone to the wall thanks to the MTF system because dealers basically write any business and at any value they wish to. . It would be a sensible acquisition for Heartland, but I wonder at the quality of the ledger.

It is good to hear positive stuff about Heartland.

I am impressed with the" brains trust" both in the public arena and behind the scene that run Heartland Bank.

They early on in the peace when they became a bank identified and addressed any problems within their ranks and gave shareholders a good indication of where they wanted to be positioned in the market.

Slow and steady acquisitions, good risk assessment policies, dedicated and focused people at the helm, and I see Heartland as a very good long term investment with real growth potential.

Heartland are very good ay communicating with their shareholders so no surprises at for me that the above suggested result will be reflected in the accounts.