Heartland earnings up 14% as loan book swells

Heartland Bank increased first-half profit 14 per cent as the NZX-listed lender’s loan book grew at the same time as it benefited from cheaper funding costs.

Net profit rose to $29.1 million, or 6c per share, in the six months ended December 31 from $25.6m, or 5c, a year earlier, the Auckland-based company said.

The bank’s loan book grew 7.1 per cent to $3.33 billion, with rural and business loans expanding at a faster pace than household lending. Profit was ahead of Forsyth Barr analyst James Bascand’s forecast of $28.1m.

Interest income edged up to $135.8m from $134.3m, while interest expenses fell 9.7 per cent to $56.8m, with deposits growing 10 per cent to $2.51b. Still, Heartland’s net interest margin (NIM) shrank to 4.44 per cent from 4.52 per cent due to higher levels of early car loan repayments and a reduction in more profitable livestock loans.

Heartland generates higher margins than its rivals by limiting its exposure to the residential mortgage market, where it struggles to compete with the scale of the four large Australian-owned banks, and instead targets more profitable lines of business, such as vehicle loans and rural lending.

The country’s banks faced a margin squeeze last year as appetite for home loans outpaced their ability to fund that through term deposits, meaning they had to source funding with more expensive wholesale credit lines overseas.

Heartland lifted its annual earnings guidance, saying net profit was likely to be at the upper end of its previous projection of $57m to $60m in the year ending June 30.

The board declared an interim dividend of 3.5c per share, payable on April 7 to shareholders on the register at the end of trading on March 24. That’s up from 3c a year earlier, but less than the 3.8c Forsyth Barr’s Bascand was forecasting.

The bank on Monday announced it took a 25 per cent stake in online small and medium-sized business lender Fuelled, which it yesterday said cost less than $1m. Heartland has provided a $2m committed debt facility to Fuelled to speed up its plans to launch in Australia.

Operating costs were down 6 per cent due to lower maintenance costs. Mercury said it would pay a fullyimputed dividend of 5.8c per share on April 3, up 1.8 per cent on the year. It maintained its full-year dividend guidance of 14.6c per share. Looking ahead, the Auckland-based generator lifted the full-year ebitdaf guidance it gave in November to $500m versus prior guidance of $495m.

The closure of several industrial facilities over the past 18 months has extended a decade-long trend of falling electricity demand and national consumption dipped in the first half due to wetter and warmer weather conditions, however, “GDP growth and record net migration are positives that will flow through to demand”, it said.

Capital expenditure is expected to be $115m in the full year as a result of its focus on hydro reinvestment and geothermal drilling.

The company also said it is lobbying for the government to shift from the current renewable electricity target to focusing on total renewable energy.