Second dividend for Heartland

MARTA STEEMAN
Last updated 07:48 26/02/2013

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Heartland's patient shareholders will be receiving their first half-year dividend soon, after the new bank made good on its new dividend policy.

The bank is one of the few survivors of the finance sector collapse and has been formed from the amalgamation of two finance companies and two building societies.

It is now beginning to grow earnings and yesterday announced it would be distributing a dividend of 2 cents a share - about $7.8 million - to its shareholders on April 5.

It posted a net profit after tax of $10.7m yesterday, 9.2 per cent higher than the previous first half.

The shareholder payment is the second since the grouping was formed in January 2011. The first payment was a special dividend of 1.5c a share late last year.

Heartland received its banking licence from the Reserve Bank in December. It was a key milestone for the group, with "banking" status expected to bring lower funding costs.

Heartland intends to be a niche player targeting business, rural and consumer lending and avoiding the battle for residential loans. However, it considers its earnings could be higher and has promised to focus on "acceptable and sustainable earnings" from the 2014 financial year onwards, which starts on July 1.

The bank is aiming for a greater-than-10 per cent return on equity, which is $381m. Also, it was formulating strategies to ensure better returns in 2014.

Its goals were increasing operating income, growth in assets, more reductions in operating costs and in costs of funding, fewer impairments on the property loan book and more-efficient use of capital.

This half-year result was driven by lower operating and funding costs across the business, rather than growth in lending. Loans in its business and consumer books contracted, but rural book loans grew marginally.

The company tipped a bit of growth for the second half of the year (the six months to June 30), with a forecast of net profit before tax of $16.5m (in the middle of a range) and higher than $14.9m in this first half.

Hamilton Hindin Green director Grant Williamson said Heartland had delivered "an acceptable result . . . I think very much in line with what everyone was expecting, showing some progress but, I think, still a long way to go".

Legacy property loans had not been revalued at the half year.

"Obviously they are seeing some net interest margin improvement. They seem to have operating expenses under control," Williamson said.

The Heartland share price fell 1c yesterday to 72c. Williamson said it had been trading around that level for some days.

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To hold its loan books relatively stable in this environment was good, he said.

The company said it was reviewing its property loan book.

It also announced it would be strengthening the boards of both the parent, Heartland New Zealand, and its banking subsidiary, Heartland Bank.

It aimed for broader representation of shareholders on the parent board and had invited substantial shareholder Greg Tomlinson from Marlborough to sit on the parent board.

On the bank board, it was looking for more banking expertise and more diversity to move to a position where half of the bank's directors were fully independent of the parent board.

AT A GLANCE

Net profit after tax up 9.2 per cent to $10.7m.

Business loans contracted $9m to $530.5m.

Rural loans increased slightly from $478m to $480m.

Consumer loans contracted $9m to $956m.

Operating costs fell by $3.7m to $31.9m.

Net interest income rose to $46.8m from $39m.

Property loan impairments of $4m.

Overall loans remained at $1.9b.

- © Fairfax NZ News

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