Heritage posts solid profit in difficult environment

Heritage Building Society today announced a solid pre-tax profit of $19.97 million for the six month period to December 2010.

That profit figure was 2.7% higher than the first half of calendar 2010, but 12.8% lower than the six months to December 2009.

In announcing the results, Chairman Mr Brian Carter AM and CEO Mr John Minz said the performance reflected Heritage’s decision to absorb continuing high costs of funding for extended periods rather than pass them on to members.

However Mr Carter said the Society had moved on interest rates and introduced other measures late in 2010 which would improve profitability in the second half of the financial year.

“As a result of those measures, and based on current projections, we expect to be able to generate profits for the full year similar to those we recorded in 2009/10,” he said.

Heritage recorded excellent growth in retail deposits of $183 million for the six months to December, a 64% increase on the same period in the previous year. Total retail deposits at 31 December grew to slightly more than $3.5 billion.

Mortgage loan approvals of $806.41 million for the period were slightly down – just 2.9% lower than the same period in the previous year.

Mr Carter said the higher costs of funding in 2010 explained the difference in profitability compared to the same period in 2009.

“As a member-focussed organisation, we absorbed those costs and resisted passing them on to members as long as possible. We took the difficult decision in November 2010 to increase most lending rates by more than the Reserve Bank’s cash rate increase, which will improve profitability.

“Even after that decision, Heritage’s mortgage rates remain far better than the big banks and most other ADIs,” Mr Carter said.

Total consolidated assets increased almost 2% to $7.71 billion at 31 December from $7.56 billion at 30 June. The capital adequacy ratio was 14.33% at 31 December with the liquidity ratio at 18.45%, well above regulatory requirements.

Mr Minz said the growth in retail deposits was particularly pleasing as it reflected positive outcomes from a number of measures put in place during the six-month period.

“Competition for retail funding remains at a very high level,” Mr Minz said.

“Heritage carried out a major restructure of interest rates and transaction fees on its savings products during this six-month period to help attract a higher level of retail funds.

“Another key initiative was the arrangement entered into with Westpac in October giving Heritage members direct-fee free access to almost 3,000 ATMs around Australia, which makes everyday banking with Heritage more attractive for many people.

“The response to these measures has been excellent.”

Loan arrears greater than 30 days increased slightly but still represent only 0.43% of the total mortgage portfolio balance. This increase came off an extremely low base and the result is still the envy of most other banking institutions.

* Based on a $150,000 loan over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.