Heritage Bank defies COVID impacts to post solid half-year profit and strong deposit growth

25 February 2021

A significant surge in retail deposits, along with a solid profit, were the highlights of a half-year financial performance that has Heritage Bank primed to pursue accelerated growth through the rest of the year, CEO Peter Lock said today.

Mr Lock said the half-year results were well above budget targets, with the impacts of COVID less dire than anticipated.

Heritage recorded a $1.105 billion increase in retail deposits in the six months to 30 December 2020.  This was a 210% increase on the $357 million growth achieved in the same period in 2019. The growth defied Heritage’s conservative budget forecast of a reduction in deposits.

The strong deposit growth helped Heritage achieve a total consolidated asset figure of $11.354 billion as at 31 December 2020 – the first time in the bank’s 145 year history it has broken through the $11 billion milestone.

After-tax profit remained steady at $23.20 million – just 2.64% lower than the same period the previous year.

Funded loans in the period were up by 14.68% at $1.064 billion. 

The net loan growth of $59.6 million in the period was $189.2 million above budget expectations, though 40% lower than for the same time last year. Higher than budgeted repayment rates, driven by low rates and the effects of the COVID stimulus payments, have restricted growth in the total loan balance. 

“We’re extremely happy that our results have defied the expectation we had when we set our budgets for the year that COVID-19 would severely impact the economy,” Mr Lock said.

“COVID has still had an effect, but not as much as we anticipated.

“It’s pleasing that our profit and our lending have held up well, given the circumstances and the disruptions we encountered.  

“It’s even more pleasing that we have attracted such strong growth in retail deposits. The emergency measures that the Federal Government put in place to combat COVID has seen plenty of cash flood into the economy. 

“With limited travel possible, and with concerns lingering about what COVID means for the future, people are choosing to save rather than spend. Borrowers are also paying down their loans at a higher than normal rate. 

“With such strong deposits, we are in an excellent position to be more aggressive in targeting loan growth through the remainder of the year. We are already offering sharper rates to accelerate acquisition, with reductions to many of our variable home loan rates announced earlier this month.

“We are continuing to investigate opportunities to expand our offering to members, particularly our physical footprint, as we move further into the COVID recovery phase.”

Mr Lock said that Heritage continued to invest in improving its services to members despite the uncertainties of COVID, as well as maintaining sponsorship and support of community events.

“In this period we launched Apple Pay for our members, making us one of only a few banks in Australia to offer the full suite of digital payment wallets. We also invested significantly in a new lending origination platform in partnership with Experian. This platform that will vastly improve the process of loading and assessing loan applications, and deliver a better experience for both customers and staff.

“I’m also proud to say that we remained committed to sponsoring community events, such as the Toowoomba Royal Show, even when they were cancelled due to COVID. That’s because as a mutual we recognise the wider role we play in the life of our community, and how important our support is to the ongoing viability of many events and organisations.

“We also continued our own events, such as our annual Charity Golf Day that last year raised $65,000, despite COVID adding multiple layers of complexity. It would have been easy to simply cancel these events for 2020 but that’s not in keeping with Heritage’s ethos and community spirit.”

Chairman Mr Kerry Betros, AM, said Heritage’s excellent financial performance was noteworthy given the commitment the bank had shown to assisting its members in their time of need.

“As a customer-owned bank, our first priority is the well-being of our members,” Mr Betros said. 

“We took swift action to assist our members when the COVID pandemic hit, offering hardship relief packages, putting in place extra hygiene protocols, and providing special assistance measures to the elderly, and to health and emergency services workers. 

“This was on top of similar hardship support we offered to people affected by the bushfires that hit many communities at the start of 2020. 

“We’ve definitely been there for our members in their time of need.

“Thankfully, COVID has not had the impact on our credit performance that we feared might be the case. In our budget for this financial year we made a significant provision for an increase in loan arrears. 

“The expected credit issues have not eventuated. Our mortgage arrears rate at 31 December 2020 actually improved in this period, sitting at 0.31% compared to the 0.40% we recorded at 30 June 2020.

“More than 95% of our members who took up hardship assistance in early 2020 were able to return to normal repayment arrangements after the initial six-month period ended.

“That’s a great outcome for our members and for Heritage as a whole.”

Mr Betros said Heritage’s prudential ratios had strengthened, with the capital adequacy ratio at 14.97% and the liquidity ratio at 22.66% as at 31 December 2020.