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Heartland delivers on profit promise

Heartland New Zealand delivered on its promise by producing a $7.1 million annual net profit.

Friday, August 19th 2011, 7:00PM

by Jenny Ruth

The result is in the middle of the company's $6 million to $8 million guidance and includes $6.8 million in costs from the three-way merger which created the company.

Its retail deposit book, the mainstay of its funding, was stable at $1.6 billion with more than half its investors having moved to non-guaranteed deposits or to terms beyond the December 31 expiry of the government's retail deposit guarantee scheme.

Heartland says 95% of new funds and 79% of reinvestments are currently electing non-guaranteed deposits or terms beyond the December 31 expiry of the government's retail deposit guarantee scheme.

Nevertheless, Heartland is maintaining high liquidity levels to ensure a smooth transition beyond the guarantee. It had $547 million of liquid funds at June 30 and says this has increased to $634 million, made up of $254 million cash, $200 committed but undrawn bank facilities and $180 million of unutilised securitisation facilities.

"This represents 41% of total retail deposits and is more than the total amount of Crown guaranteed term deposits maturing before the expiry of the Crown guarantee," Heartland says.

Heartland's reinvestment rate has averaged 77% since the January merger between Marac Finance, Canterbury Building Society and Southern Cross Building Society and is currently above 80%.

"The quality of the retail deposit base has progressively improved with the purging of "hot money" or guarantee chasers and is now significantly more loyal and stable," the company says.

Loans in arrears or impaired, the reason for international ratings agency Standard & Poor's downgrading Heartland's rating outlook to negative from stable, continue at elevated levels but the charge against profit for bad loans was $13.3 million for the year compared with the three companies' pre-merger charge of about $30 million in each of the two previous years.

Heartland says this is due to the benefits of collective provisions taken at the merger and its management contract with Real Estate Credit Limited, a subsidiary of Marac's former owner Pyne Gould Corporation.

"RECL's security position was improved on a number of assets by bringing $34 million of the underlying property security onto the balance sheet as investment property," Heartland says.

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