First Quarter Results for Heartland Bank

NZX/ASX and Media Release

First Quarter Results for Heartland Bank
19 November 2018

Heartland Group Holdings Limited (NZX/ASX:HGH) (Heartland Group) is pleased to announce the
results for Heartland Bank Limited (Heartland Bank) for the three months ended 30 September
2018.
Unaudited net profit after tax (NPAT) for Heartland Bank was $17.4 million for the three months
ended 30 September 2018, an increase of 8.7% from the corresponding three month period ended
30 September 2017.
This result reflects Heartland Bank’s differentiated offering and continuous growth in areas of
Reverse Mortgages, online SME lending and Motor.
Net finance receivables grew from $3,984.9 million as at 30 June 2018 to $4,087.5 million as at 30
September 2018, a 10.2% annualised growth (2.6% growth in the quarter). Net finance receivables
growth was particularly strong in reverse mortgages, intermediated business and lending through
our online Open for Business platform. Heartland Bank continues to execute the strategy of exiting
larger relationship business lending to reduce concentration risk.
Heartland Bank continued to optimise risk versus return, achieving another strong Net Interest
Margin (NIM) of 4.44% for the three months ended 30 September 2018, compared to 4.42% for the
year ended 30 June 2018. Heartland Bank’s NIM is a significant and positive point of difference
compared the NIM of its bank peers, and is a result of its strategy of identifying and focusing on
niche markets and products that offer attractive margins.
Offsetting this Net Interest Margin, impairment expense was $6.2 million for the three months
ended 30 September 2018, compared to $5.1 million for three months ended 30 September 2017
and $5.9 million for three months ended 30 June 2018. The impairment expense ratio (impairment
expense as a percentage of average receivables) for the three months ended 30 September 2018
was 0.61%, an increase from 0.58% for the year ended 30 June 2018 and 0.56% for the three months
ended 30 September 2017.
The increases in impairment expense and to the impairment expense ratio were a function of
growth in net finance receivables and the application of the new IFRS9 accounting standard which
requires provisions to be made earlier than the previous accounting standard required.
Heartland Bank’s Net Interest Margin of 4.44%, offset by an impairment expense of 0.61%, results in
a margin after impairments of 3.83%.

Total non-performing loans were 1.77% of gross receivables at 30 September 2018 compared to
1.84% at 30 June 2018.
Heartland Bank’s cost to income ratio continued to improve to 40.48% for the three months ended
30 September 2018, compared to 40.87% for the year ended 30 June 2018 and 41.37% for the three
months ended 30 September 2017.
Corporate Restructure and ASX Listing
Following approval by shareholders at the Annual Meeting and the receipt of final court orders, the
corporate restructure was implemented on 31 October 2018. The restructure resulted in all of the
shares in Heartland Bank being exchanged for shares in Heartland Group, with Heartland Bank
becoming a wholly-owned subsidiary of Heartland Group. In addition, the Australian subsidiaries
were transferred from Heartland Bank to Heartland Group. On 1 November 2018, shares in
Heartland Group commenced trading on the NZX Main Board and the ASX under a Foreign Exempt
Listing under the ticker code HGH.
The restructure and the ASX listing are significant milestones for the group and provide a more
suitable platform for future growth. The restructure removes constraints on growth previously
arising from Reserve Bank of New Zealand regulations, and will provide greater flexibility to explore
and take advantage of future growth opportunities in New Zealand and Australia outside the
banking group. A Foreign Exempt Listing on the ASX is expected to expand the capital sources
available to Heartland Group in order to fund growth.
As the results in this announcement relate to a period that ended before the restructure was
implemented, they include the Australian operations which formed part of Heartland Bank’s banking
group during that period.
RBNZ/FMA
The Financial Markets Authority and Reserve Bank of New Zealand recently released a report
detailing findings from their review of conduct and culture in New Zealand retail banks. Heartland
Bank supports the work that its regulators are doing in this area, and believes that a focus on good
customer outcomes, conduct and culture are key components of sustainable, successful businesses.
The report focusses on the industry as a whole, rather than specific banks, and makes a number of
findings. Heartland Bank is reviewing the findings in order to determine their specific application to
Heartland Bank, including how they may affect Heartland Bank’s on-going work in this area.
Heartland Bank, along with the other industry participants, expects to receive specific feedback from
the regulators in due course, and will update the market at that time if required.
Outlook
Heartland Group reiterates the previous guidance provided by Heartland Bank and expects its NPAT
for the year ending 30 June 2019 to be in the range of $75 million to $77 million.

Key Highlights
3 months ended
30 Sept 2018
($’000)
3 months ended
30 Sept 2017
($’000)
12 months ended
30 June 2018
($’000)
Net interest income 49,256 44,928 183,801
Net operating income 51,397 46,760 196,794
Net profit after tax 17,426 16,025 67,513
Net Interest Margin (NIM)
1
4.44% 4.45% 4.42%
Cost to income ratio 40.48% 41.37% 40.9%
Impairment expense ratio 0.61% 0.56% 0.59%
Return on Equity (ROE)
2
10.9% 11.3% 11.1%


30 Sept 2018 30 Sept 2017 30 June 2018
Net Finance Receivables ($m) 4,088 3,684 3,985
Total Capital Ratio 13.39% 13.04% 14.12%
Non-Performing Loans (NPL) ratio 1.77% 1.93% 1.84%


– Ends –


For further information, please contact:

Jeff Greenslade
Chief Executive Officer
MOB 021 563 5493
jeff.greenslade@heartland.co.nz

David Mackrell
Chief Financial Officer
DDI 09 927 9561
david.mackrell@heartland.co.nz

Julia Belk
Investor Relations Manager
DDI 09 926 3837
julia.belk@heartland.co.nz


1
NIM and Impairment expense ratio are based on quarterly results annualised for the number of days in the
period.
2
Return on Equity is based on daily results annualised for the number of days in the period.