Heartland Bank takes a big hit

23:57, Aug 14 2013

Heartland Bank's troubled origins have bitten back with a $24 million write-off as the lender deals with legacy assets.

The write-off will slash profit for the year to June from an expected $25m to just $7m.

Heartland said it had decided to take the hit after reviewing property and loan assets taken on during merger deals involved in its formation two years ago.

The assets had a book value of $139m and were managed under contract by Real Estate Credit, part of the Torchlight group run by Pyne Gould Corp boss George Kerr.

Heartland paid an $11m management fee up front to Real Estate Credit in 2011 and will now write-off $6m of that, the bank said.

A further $18m would be written off the value of assets. Most were to be sold within 18 months, with the bank retaining only those loans and property expected to require no write-downs in future.

The arrangement curtails the earlier plan for Real Estate Credit to manage the assets until 2016.

In a statement, Heartland said the new strategy would give it greater flexibility to manage the property portfolio and "to best-balance an exit strategy with maximising shareholder value".

"While the cost is uncertain, recognising a write-down up front removes the potential for property losses to detract from underlying earnings in the future," the bank said.

Chairman Bruce Irvine said the write-down was a non-cash item and would have no effect on the board's decision on a full year dividend.

The bank said it was expecting net profit for the year to June 2014 of $34m-$37m.

It also announced plans for a share buyback scheme, with details to be provided later.

Heartland Bank was formed in 2011 after mergers involving PGC subsidiary Marac Finance, PGG Wrightson Finance, Southern Cross Building Society and CBS Canterbury.

Its shares last traded at 79 cents, valuing the bank at $307m.