Heartland Group Holdings Limited/Announcement

Heartland announces full year NPAT of $72.0 million

Full Year Results17 September 2020HGHFinancials

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Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Updated as at 17 October 2019

Results for announcement to the market
Name of issuer Heartland Group Holdings Limited
Reporting Period 12 months to 30 June 2020
Previous Reporting Period 12 months to 30 June 2019
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$235,346 13.2%
Total Revenue $235,346 13.2%
Net profit/(loss) from
continuing operations
$71,972 -2.2%
Total net profit/(loss) $71,972 -2.2%
Interim/Final Dividend
Amount per Quoted Equity
Security
$0.02500000
Imputed amount per Quoted
Equity Security
$0.00972222
Record Date 25/09/2020
Dividend Payment Date 09/10/2020
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$1.05 $1.04
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Please refer to the audited financial statements that accompany
this announcement for a further explanation of these figures.
Authority for this announcement
Name of person

authorised
to make this announcement
Andrew Dixson, Chief Financial Officer
Contact person for this
announcement
Andrew Dixson, Chief Financial Officer
Contact phone number 09 927 9274
Contact email address Andrew.Dixson@heartland.co.nz
Date of release through MAP

17/09/2020

Audited financial statements accompany this announcement.

---

Financial Statements
FOR THE 12 MONTHS ENDED 30 JUNE 2020

CONTENTS
Financial Statements
General Information...........................................................................................................................................................................3
Auditor ..............................................................................................................................................................................................3
Other Material Matters..........................................................................................................................................................................3
Directors..........................................................................................................................................................................................................4
Directors' Statements..................................................................................................................................................................5
Consolidated Statement of Comprehensive Income..................................................................................................................................................6
Consolidated Statement of Changes in Equity....................................................................................................................................7
Consolidated Statement of Financial Position..........................................................................................................................................8
Consolidated Statement of Cash Flows................................................................................................................................................................9
Notes to the Financial Statements
1Financial statements preparation.......................................................................................................................................................11
Performance
2Segmental analysis.........................................................................................................................................................................................................................18
3Net interest income.........................................................................................................................................................................................................................19
4Net operating lease income.........................................................................................................................................................................................................................20
5Other income.........................................................................................................................................................................................................................20
6Operating expenses.........................................................................................................................................................................................................................21
7Compensation of auditor.........................................................................................................................................................................................................................21
8Impaired asset expense.........................................................................................................................................................................................................................22
9Taxation.........................................................................................................................................................................................................................24
10Earnings per share.........................................................................................................................................................................................................................26
Position
11Investments.........................................................................................................................................................................................................................27
12Derivative financial instruments.........................................................................................................................................................................................................................27
13Finance receivables.........................................................................................................................................................................................................................29
14Operating lease vehicles.........................................................................................................................................................................................................................34
15Borrowings.........................................................................................................................................................................................................................34
16Share capital and dividends.........................................................................................................................................................................................................................35
17Other reserves.........................................................................................................................................................................................................................36
18Other balance sheet items.........................................................................................................................................................................................................................36
19Related party transactions and balances.........................................................................................................................................................................................................................39
20Fair value.........................................................................................................................................................................................................................40
Risk Management
21Enterprise risk management program.........................................................................................................................................................................................................................46
22Credit risk exposure.........................................................................................................................................................................................................................49
23Liquidity risk.........................................................................................................................................................................................................................54
24Interest rate risk.........................................................................................................................................................................................................................56
Other Disclosures
25Significant subsidiaries.........................................................................................................................................................................................................................58
26Structured entities.........................................................................................................................................................................................................................58
27Staff share ownership arrangements.........................................................................................................................................................................................................................59
28Insurance business, securitisation, funds management, other fiduciary activities.........................................................................................................................................................................................................................61
29Concentrations of funding.........................................................................................................................................................................................................................61
30Contingent liabilities and commitments.........................................................................................................................................................................................................................62
31Events after the reporting date.........................................................................................................................................................................................................................62
Auditor's Report....................................................................................................................................................................................................63
Page
P. 2

GENERAL INFORMATION
The Group’s address for service is Level 3, Heartland House, 35 Teed Street, Newmarket, Auckland.
HGH was incorporated in New Zealand under the Companies Act 1993 on 19 July 2018.
AUDITOR
OTHER MATERIAL MATTERS
These financial statements are issued by Heartland Group Holdings Limited (HGH) and its subsidiaries (the Group) for the year ended 30
June 2020.
Auckland
Name and address for service
Details of incorporation
KPMG
KPMG Centre
18 Viaduct Harbour Avenue
There are no material matters relating to the business or affairs of the Group that are not contained elsewhere in these consolidated financial
statements which would, if disclosed in these consolidated financial statements, materially affect the decision of a person to subscribe for debt or
equity instruments of which the Group is the issuer.
P. 3

DIRECTORS
Name: Geoffrey Thomas Ricketts CNZMQualifications: LLB (Hons), LLD (honoris causa), CFInstD
Chairman - Board of DirectorsOccupation: Company Director
Type of Director: Independent Non-Executive Director
External Directorships:
Name: Ellen Frances ComerfordQualifications: BEc
Type of Director: Independent Non-Executive DirectorOccupation: Company Director
External Directorships:
Name: Sir Christopher Robert Mace KNZMQualifications: CMInstD
Type of Director: Independent Non-Executive DirectorOccupation: Company Director
External Directorships:
Name: Gregory Raymond TomlinsonQualifications: AME
Type of Director: Non-Independent Non-Executive DirectorOccupation: Company Director
External Directorships:
Name: Jeffrey Kenneth GreensladeQualifications: LLB
Type of Director: Non-Independent Executive DirectorOccupation: Chief Executive Officer of HGH
External Directorships:
Akitu Equities Limited, Akitu Capital Limited, Akitu Group Company No 1 Limited, Akitu Group Company No 2 Limited, Akitu Group Company No 3
Limited, Akitu Health Services Limited, Akitu Investments Limited, Akitu Investments No 2 Limited, Goldburn Resources Limited, Helicopter
Enterprises Limited, Janik Equities Limited, Janmac Capital Limited, J N S Capital Limited, Mace Capital Limited, Mace Construction Limited,
Mace Developments Limited, Mace Enterprises Limited, Mace Investments Limited, Maisemore Enterprises Limited, Nuffield Forestry Limited,
Oceania and Eastern Finance Limited, Oceania and Eastern Group Funds Limited, Oceania and Eastern Holdings Limited, Oceania and Eastern
Limited, Oceania and Eastern Securities Limited, O & E Group Services Limited, Paroa Bay Station Limited, PPT Trustee (NZ) Limited, Quartet
Equities Limited, Ryburn Lagoon Trust Limited, St. Just Enterprises Limited, Te Puia Tapapa GP Limited, The Aotearoa Circle.
Alta Cable Holdings Limited, Argenta Limited, Chippies Vineyard Limited, Forte Health Group Limited, Forte Health Limited, Impact Capital
Limited, Indevin Group Limited, Little Ngakuta Trust Company Limited, Mountbatten Trustee Limited, Nearco Stud Limited, Oceania Healthcare
Limited, Pelorus Finance Limited, St Leonards Limited, The Icehouse Limited, Tomlinson Group NZ Limited, Tomlinson Holdings Limited,
Tomlinson Group Investments Limited, Tomlinson Ventures Limited.
All Directors of HGH reside in New Zealand with the exception of Ellen Comerford who resides in Australia. Communications to the Directors can
be sent to Heartland Group Holdings Limited, 35 Teed Street, Newmarket, Auckland. At the time of the signing of these consolidated financial
statements the Directors of HGH and their details were:
Janmac Capital Limited, Maisemore Enterprises Limited, MCF2 Message4U Limited, MCF 2 Nexus Limited, MCF 7 Limited, MCF 8 Limited, MCF
9 Limited, MCF 10 Limited, MCF2 (Fund 1) Limited, MCF2A General Partner Limited, MCF2 GP Limited, MCF3 GP Limited, MCF3B General
Partner Limited, MCF3A General Partner Limited, MCF2 FFF-GK Limited, MCF3 Cook Limited, MCF3 TEG Limited, MCF3 Squiz Limited, MC
Medical Properties Limited, Mercury Capital No.1 Fund Limited, Mercury Capital No. 1 Trustee Limited, Mercury Medical Holdings Limited, New
Zealand Catholic Education Office Limited, NZCEO Finance Limited, O & E Group Services Limited, Oceania and Eastern Finance Limited,
Oceania and Eastern Group Funds Limited, Oceania and Eastern Holdings Limited, Oceania and Eastern Limited, Oceania and Eastern Securities
Limited, Oceania North Limited, Oceania Securities Limited, Quartet Equities Limited, The Centre for Independent Studies Limited.
Auscred Limited, Hollard Holdings Australia Pty Limited, The Hollard Insurance Group Pty Limited, Comerford Gohl Holdings Pty Limited.
Henley Family Investments Limited.
P. 4

DIRECTORS' STATEMENTS
G T Ricketts (Chair)E F Comerford
J K Greenslade
G R Tomlinson
The consolidated financial statements are dated 17 September 2020 and have been signed by all the Directors.
Sir C R Mace
P. 5

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2020
$000's
Note June 2020 June 2019
Interest income
3
346,802 330,041
Interest expense
3
130,129 135,734
Net interest income216,673 194,307
Operating lease income
4
5,9466,337
Operating lease expense
4
4,0633,670
Net operating lease income1,883 2,667
Lending and credit fee income10,8116,642
Other income
5
3,8822,435
Net operating income233,249 206,051
Operating expenses
6
106,794 85,798
Profit before impaired asset expense and income tax126,455 120,253
Fair value gain on investment2,0971,936
Impaired asset expense
8
29,419 20,676
Profit before income tax99,133 101,513
Income tax expense
9
27,161 27,896
Profit for the year71,972 73,617
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss, net of income tax:
Effective portion of change in fair value of derivative financial instruments(2,179) (4,762)
Movement in fair value reserve7662,968
Movement in foreign currency translation reserve114 (5,281)
Items that will not be reclassified to profit or loss, net of income tax:
Movement in defined benefit reserve- (86)
Other comprehensive (loss) for the year, net of income tax(1,299) (7,161)
Total comprehensive income for the year70,673 66,456
Earnings per share
Basic earnings per share10
12c13c
Diluted earnings per share1012c13c
Total comprehensive income for the year is attributable to the owners of the Group.
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
P. 6

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2020
$000's
Note
Balance at beginning of year558,970 (4,297) 120,995 675,668542,315 4,585 117,260 664,160
NZ IFRS 9 adjustment- - - - - - (19,283) (19,283)
NZ IFRS 16 adjustment1- - (751)(751)- - - -
Profit for the year- - 71,972 71,972- - 73,617 73,617
Dividends paid16- - (62,993) (62,993)- - (50,599) (50,599)
Dividend reinvestment plan1616,895- - 16,89514,333- - 14,333
Issue of share capital- - - - - - - -
Share based payments- 516- 516- 619- 619
Shares vested420(420)- - 2,340 (2,340)- -
Total transactions with owners17,28796 (62,993) (45,610)16,655 (1,721) (50,599) (35,665)
Balance at the end of the year576,257 (5,500) 129,223 699,980558,970 (4,297) 120,995 675,668
- (7,161) 73,617 66,45671,972 70,673
- (1,299)
- - (18)- - (18)(28)
- (7,161)- (7,161)
Restated balance at beginning of
year
542,315 4,585 97,977 644,877558,970 (4,297) 120,244 674,917
Total comprehensive income for
the year
Other comprehensive (loss),
net of income tax
Transaction costs associated with
capital raising
Contributions by and distributions
to owners
- (1,299)
Total comprehensive income for
the year
- (1,299)
(28)
June 2019June 2020
Share
Capital Reserves
Retained
Earnings
Total
Equity
Share
Capital Reserves
Retained
Earnings
Total
Equity
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
P. 7

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2020
$000's
Note June 2020 June 2019
Assets
Cash and cash equivalents147,179 74,496
Investments11413,340 354,928
Investment properties11,132 11,132
Derivative financial instruments1217,246 14,491
Finance receivables133,045,195 3,031,128
Finance receivables - reverse mortgages131,538,585 1,318,677
Operating lease vehicles1417,603 15,516
Right of use assets1818,362-
Other assets1819,558 27,208
Intangible assets1872,813 71,924
Deferred tax asset917,1239,531
Total assets5,318,136 4,929,031
Liabilities
Deposits 153,264,192 3,153,681
Other borrowings151,267,931 1,057,568
Tax liabilities12,3037,532
Derivative financial instruments1217,012 11,147
Lease liabilities1820,456-
Trade and other payables1836,262 23,435
Total liabilities4,618,156 4,253,363
Equity
Share capital16576,257 558,970
Retained earnings and reserves123,723 116,698
Total equity699,980 675,668
Total equity and liabilities5,318,136 4,929,031
Total interest earning and discount bearing assets5,114,348 4,757,615
Total interest and discount bearing liabilities4,518,174 4,199,564
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
P. 8

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
$000's
Note June 2020 June 2019
Cash flows from operating activities
Interest received258,665 249,193
Operating lease income received5,9345,392
Lending, credit fees and other income received16,0377,284
Operating inflows280,636 261,869
Interest paid117,313 143,252
Payments to suppliers and employees82,874 87,528
Taxation paid24,619 25,895
Operating outflows224,806 256,675
55,8305,194
Proceeds from sale of operating lease vehicles4,9694,959
Purchase of operating lease vehicles(9,938) (5,496)
Net movement in finance receivables(171,617) (329,378)
Net movement in deposits110,993 270,232
Net cash flows (applied to) operating activities(9,763) (54,489)
Cash flows from investing activities
Sale of property, plant and equipment and intangible assets118-
Total cash provided from investing activities118-
Purchase of property, plant and equipment and intangible assets6,7394,514
Net increase in investments55,549 11,226
Total cash applied to investing activities62,288 15,740
Net cash flows (applied to) investing activities(62,170) (15,740)
Cash flows from financing activities
Net increase / (decrease) in wholesale funding85,795 (14,580)
Proceeds from issue of Unsubordinated Notes106,952 177,247
Total cash provided from financing activities192,747 162,667
Dividends paid1646,098 36,266
Repayments of subordinated notes- 26,206
Payment of lease liabilities2,005-
Transaction costs associated with capital raising2818
Total cash applied to financing activities48,131 62,490
Net cash flows from financing activities144,616 100,177
Net increase in cash held72,683 29,948
Opening cash and cash equivalents74,496 44,548
Closing cash and cash equivalents147,179 74,496
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
Net cash flows from operating activities before changes in operating assets and liabilities
P. 9

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
Reconciliation of profit after tax to net cash flows from operating activities
$000's
Note June 2020 June 2019
Profit for the year71,972 73,617
Add / (less) non-cash items:
Depreciation and amortisation expense9,1615,760
Depreciation on lease vehicles143,6343,363
Capitalised net interest income and fee income(77,429) (81,325)
Impaired asset expense829,419 20,676
Investment fair value movement(2,097) (1,936)
Other non-cash items2,4881,750
Total non-cash items (34,824) (51,712)
Add / (less) movements in operating assets and liabilities:
Finance receivables(171,617) (329,378)
Operating lease vehicles(4,969)(537)
Other assets9,528 (5,599)
Current tax 4,771 (3,927)
Derivative financial instruments931 (8,231)
Deferred tax(7,592) (4,212)
Deposits110,993 270,232
Other liabilities11,0445,258
Total movements in operating assets and liabilities(46,911) (76,394)
Net cash flows applied to operating activities(9,763) (54,489)
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
P. 10

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1 Financial statements preparation
Reporting entity
Basis of preparation
Basis of measurement
Principles of consolidation
The financial statements presented are the consolidated financial statements comprising Heartland Group Holdings Limited
(HGH) and its subsidiaries (the Group). Refer Note 25 – Significant subsidiaries for further details.
The consolidated financial statements of the Group incorporate the assets, liabilities and results of all controlled entities. Controlled
entities are all entities in which the Group is exposed to, or has rights to, variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. Intercompany transactions, balances and any unrealised
income and expense (except for foreign currency translation gains or losses) between controlled entities are eliminated.
Assets and liabilities in a transactional currency that is not the New Zealand dollar, are translated at the exchange rates ruling at
balance date. Revenue and expense items are translated at the spot rate at the transaction date. Exchange differences are taken to
the consolidated statement of comprehensive income.
The financial statements are presented in New Zealand dollars which is the Group’s functional and presentation currency. Unless
otherwise indicated, amounts are rounded to the nearest thousand dollars.
The financial statements have been prepared on a going concern basis after considering the Group’s funding and liquidity position.
The accounting policies adopted have been applied consistently throughout the periods presented in these financial statements.
The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ
GAAP) and the NZX Main Board Listing Rules and the ASX Listing Rules. The financial statements comply with New Zealand
equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards as
appropriate for profit-oriented entities. The financial statements also comply with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board.
As at 30 June 2020, HGH is a company incorporated in New Zealand under the Companies Act 1993 and a Financial Market
Conduct (FMC) reporting entity for the purposes of the Financial Markets Conduct Act 2013.
Certain comparative balances have been reclassified to align with the presentation used in the current financial year. These
reclassifications have no impact on the overall financial performance or financial position for the comparative year.
The financial statements have been prepared on the basis of historical cost, except for certain financial instruments and investment
property, which are measured at their fair values as identified in the accounting policies set out in the accompanying notes to the
financial statements.
P. 11

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1 Financial statements preparation (continued)
Changes in accounting standards
Impact of adopting NZ IFRS 16 Leases
$000's
Operating lease commitments as at 30 June 201912,497
Discounted using the Group's incremental borrowing rate on initial application(1,060)
Adjustments relating to changes in the index or rate effective variable payments316
Lease liability recognised as at 1 July 201911,753
Of which are:
Current lease liabilities1,947
Non-current lease liabilities9,806
Total lease liabilities11,753
The Group has adopted NZ IFRS 16 retrospectively from 1 July 2019, but has not restated comparatives for the 2019 reporting
period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from
the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an
extension option. Extension options are only included in the lease term if the lease is reasonably certain to be extended.
On adoption of NZ IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as
‘operating leases’ under the principles of NZ IAS 17 Leases. These liabilities were measured at the present value of the remaining
lease payments, discounted using the Group’s incremental borrowing rate as at 1 July 2019. The weighted average Group’s
incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 2.9%.
The Group elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts
entered into before the transition date, the Group relied on its assessment made applying NZ IAS 17 and NZ IFRIC 4 Determining
whether an Arrangement contains a Lease.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in
profit or loss. Short-term leases are leases with a lease term of 12 months or less.
The Group leases office space, car parks, equipment and cars. Rental contracts are typically made for fixed periods but may have
extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
Until 30 June 2019, leases of property, plant and equipment were classified as either finance or operating leases. Payments made
under operating leases (net of any incentives received from the lessor) were charged to profit or loss.
From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased
asset is available for use by the Group. The right-of-use assets are initially measured at cost, comprising the amount of the initial
measurement of the lease liability, any lease payments made at or before the commencement date less any lease incentives
received, any initial direct costs and restoration costs. The right-of-use asset is depreciated over the shorter of the asset's estimated
useful life and the lease term on a straight-line basis. The estimated useful life of right-of-use assets are determined on the same
basis as those of property, plant and equipment.
P. 12

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1 Financial statements preparation (continued)
The change in accounting policy affected the following items in the consolidated statement of financial position as at 1 July 2019.
• Right-of-use assets: increased by $10.7 million
• Deferred tax assets: increased by $0.3 million
• Lease liabilities: increased by $11.8 million
The net impact on retained earnings on 1 July 2019 was a decrease of $0.8 million.
The adoption of NZ IFRS 16 has no material impact to the Group’s leasing business where the Group acts as the lessor.
Accounting standards issued but not yet effective
Other amendments to existing standards that are not yet effective are not expected to have a material impact on the Group.
Estimates and judgements
•
•
•
Goodwill - Determining the fair value of assets and liabilities of acquired businesses requires the Group to exercise judgement.
The carrying value of goodwill is tested annually for impairment, refer to Note 18 - Other balance sheet items.
There have been no other changes to accounting policies or new or amended standards that are issued and effective that are
expected to have a material impact on the Group.
The preparation of the Group’s consolidated financial statements requires the use of estimates and judgements. This note provides
an overview of the areas that involve a higher degree of judgement or complexity. Detailed information about each of these
estimates and judgements is included in the relevant notes together with the basis of calculation for each affected item in the
financial statements.
NZ IFRS 17 Insurance Contracts was issued in July 2017 and is applicable to general and life insurance contracts. NZ IFRS 17 will
replace NZ IFRS 4 Insurance Contracts. In March 2020, the effective date of NZ IFRS 17 was deferred by one year. As such it is
expected that the standard will be effective for the Group's reporting for the financial year ending 30 June 2024, including 30 June
2023 comparatives.
The Group conducts insurance business through its subsidiary MARAC Insurance Limited (MIL). MIL has entered into a distribution
agreement with DPL Insurance Limited (DPL) to distribute DPL’s insurance products through its network and has stopped writing
insurance policies in February 2020. The Group will assess the impact arising from NZ IFRS 17 in conjunction with this new
arrangement.
Provisions for impairment - The effect of credit risk is quantified based on the Group's best estimate of future cash repayments
and proceeds from any security held or by reference to risk profile groupings, historical loss data and forward-looking
information. Refer to Note 8 - Impaired asset expense, and Note 13 - Finance receivables for further details.
The associated right-of-use assets which are predominantly property leases were measured on a retrospective basis as if the new
rules had always been applied. There were no onerous lease contracts that would have required an adjustment to the right-of-use
assets at the date of initial application.
Fair value of reverse mortgages - Fair value is quantified by the transaction price and the Group’s subsequent best estimate of
the risk profile of the reverse mortgage portfolio. Refer to Note 20 - Fair value for further details.
P. 13

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1 Financial statements preparation (continued)
COVID-19 Pandemic - Impact on Estimates and Judgements
•
•
•
•
On 11 March 2020, COVID-19 was declared a pandemic by the World Health Organisation. The domestic economy has been
significantly disrupted by measures put in place to limit the impact of the spread of COVID-19 among the community, and also by the
downstream effects of the deterioration that COVID-19 has caused in the global economy. Countermeasures implemented by
Government (including the Government’s support and fiscal programmes) and the Reserve Bank of New Zealand have assisted to
mitigate the impact of those measures – however, the unprecedented nature of the current environment and the number of variables
which impact on that environment means that significant uncertainty around future economic conditions remains.
The Group has responded to the pandemic by working with its customers to understand their needs and provide them with the
financial support that best meets their requirements. To date, that support has included participating in industry wide measures (such
as the mortgage deferrals programme and the provision of liquidity under the Business Finance Guarantee Scheme (BFGS)
program), and implementing other measures such as temporary payment reduction or payment deferral arrangements for both
business and consumer customers. The Group has also developed a product, Heartland Extend, which provides customers with
flexible payment options.
The impact of the pandemic has also been considered where there is significant use of forward-looking estimates and judgement,
primarily when identifying impairment indicators for goodwill and intangible assets and calculating the recoverable amount.
Note 13 - Finance receivables
Note 18 - Other balance sheet items - Goodwill
Note 20 - Fair value
Assumptions made at each reporting date (e.g. the calculation of the provision for impairment and fair value adjustments) are based
on best estimates as at that date. Although the Group has internal controls in place to ensure that estimates can be reliably
measured, actual amounts may differ from these estimates. The estimates and judgements used in the preparation of the Group’s
financial statements are continually evaluated. They are based on historical experience and other factors, including expectations of
future events that may have a financial impact on the entity. Revisions to accounting estimates are recognised in the reporting period
in which the estimates are revised and in any future periods affected.
The impact of the COVID-19 pandemic on each of these estimates and judgements is discussed further in the following notes to the
consolidated financial statements:
Note 8 - Impaired asset expense
The accounting judgement that is most impacted by the pandemic relates to expected credit losses (ECL) on finance receivables at
amortised cost. The Group’s accounting policy for the recognition and measurement of the allowance for ECL is described in Note 8
Impaired asset expense. The Group measures the allowance for ECL using an expected credit loss impairment model in compliance
with NZ IFRS 9 Financial Instruments.
P. 14

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1 Financial statements preparation (continued)
Financial assets and liabilities
Financial Assets
Financial assets are classified based on:
•
•
Whether the contractual cash flows of the instrument represent solely payment of principal and interest (SPPI).
Note
FVOCI
11
FVOCI
11
11
13
13
Financial assets measured at amortised cost
Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved both through
collecting contractual cash flows which represent SPPI on the principal balance or selling the financial asset.
Financial Assets Measurement Category
Bank bonds and floating rate notes
Fair value through other comprehensive income
(FVOCI)
11
Public sector securities and corporate bonds
Local authority stock
Finance receivables
Financial assets measured at FVOCI
Financial assets at FVOCI are measured at fair value with unrealised gains and losses recognised in other comprehensive income
except for interest income, impairment charges and foreign exchange gains and losses, which are recognised in profit or loss.
The business model within which the assets are managed; and
The Group determines the business model at the level that reflects how groups of financial assets are managed. When assessing
the business model, the Group considers factors including how performance and risks are managed, evaluated and reported and the
frequency and volume of, and reason for sales in previous periods.
Financial assets are classified into the following measurement categories:
Financial assets are measured at amortised cost if they are held within a business model whose objective is achieved through
holding the financial asset to collect contractual cash flows which represent SPPI on the principal balance.
Financial assets at amortised cost are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest rate method.
Amortised cost
Equity investments
Fair value through profit or loss (FVTPL)
Finance receivables – reverse mortgagesFVTPL
P. 15

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1Financial statements preparation (continued)

•

•
Financial Liabilities
Financial liabilities are classified into the following measurement categories:
•
•
Financial liabilities measured at amortised cost
Financial liabilities are measured at amortised cost if they are not held for trading or designated at FVTPL.
Financial liabilities measured at amortised cost are accounted for using the effective interest rate method.

•

•
Financial liabilities at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.
Recognition
Further details of the accounting policy for each category of financial asset or financial liability mentioned above is set out in the note
for the relevant item.
They are held for trading whose principal objective is achieved through selling or repurchasing the financial liability in the near
term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-
term profit taking; or
The Group’s policies for determining the fair value of financial assets and financial liabilities are set out in Note 20 - Fair value.
The Group initially recognises finance receivables and borrowings on the date that they are originated. All other financial assets and
liabilities (including assets and liabilities designated at FVTPL) are initially recognised on the trade date at which the Group becomes
a party to the contractual provisions of the instrument.
Those to be measured at FVTPL.
Financial assets are measured at FVTPL if:
They are held within a business model whose objective is achieved through selling or repurchasing the financial asset in the
near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of
short-term profit taking; or
Financial assets measured at FVTPL
Financial assets at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.
Those to be measured at amortised cost;
They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.
Financial liabilities measured at FVTPL
Financial liabilities are measured at FVTPL if:
They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.
P. 16

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1Financial statements preparation (continued)
Derecognition
Offsetting financial instruments
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of
ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is
recognised as a separate asset.
The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position, but
retains either all risks or rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are
retained, then the transferred assets are not derecognised from the consolidated statement of financial position. Transfers of assets
with the retention of all or substantially all risks and rewards include, for example, securitised assets and repurchase transactions.
The Group offsets financial assets and financial liabilities and reports the net balance in the balance sheet where there is currently a
legally enforceable right to set off and there is an intention to settle on a net basis or to realise the asset and settle the liability
simultaneously.
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Where an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, the exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, with
the difference in the respective carrying amounts recognised in profit or loss.
P. 17

Performance
2 Segmental analysis
Operating segments
The Group operates within New Zealand and Australia and comprises the following main operating segments:
Motor
Reverse mortgages
Other personal
Business
Rural
Australia
ReverseOther
$000's
Motor
Mortgages Personal
BusinessRural AustraliaOtherTotal
June 2020
Net interest income 56,957 20,118 18,365 57,95029,67430,1273,482 216,673
Net other income 3,622 3,430 3,0553,4651,0284,214(2,238) 16,576
Net operating income 60,579 23,548 21,420 61,415 30,702 34,341 1,244 233,249
Operating expenses 3,248 4,804 6,776 11,2832,64811,68066,355 106,794
Fair value gain on investment- - - - - - 2,0972,097
Impaired asset expense/(benefit) 10,160- 11,119 10,110(1,970)- - 29,419
Income tax expense- - - - - - 27,16127,161
Profit / (loss) for the year 47,171 18,744 3,525 40,022 30,024 22,661 (90,175) 71,972
Total assets1,125,295 559,934 214,759 1,126,632 604,938 979,496 707,0825,318,136
Total liabilities4,618,156
50,132 28,054 22,661 (65,111)
Certain operating expenses, such as premises, IT and support centre costs are not allocated to operating segments and are included in
Other. Liabilities are managed centrally and therefore are not allocated across the operating segments.
Profit / (loss) before income
tax from continuing operations
Profit / (loss) before impaired
asset expense and income tax
57,331 18,744 126,455
47,171 18,744 3,525 40,022 30,024 22,661 (63,014) 99,133
14,644
Segment information is presented in respect of the Group's operating segments which are those used for the Group's management and
internal reporting structure.
Term debt, plant and equipment finance, commercial mortgage lending and working capital solutions
for small-to-medium sized businesses.
Specialist financial services to the farming sector primarily offering livestock finance, rural mortgage
lending, seasonal and working capital financing, as well as leasing solutions to farmers.
Reverse mortgage lending and other financial services within Australia.
Motor vehicle finance.
Reverse mortgage lending within New Zealand.
A comprehensive range of financial services - including term, transactional and personal loans to
individuals.
The Group's operating segments are different from the industry categories detailed in Note 22 - Credit risk exposure. The operating
segments are primarily categorised by sales channel, whereas Note 22 - Credit risk exposure categorises exposures based on credit risk
concentrations.
P. 18

2Segmental analysis (continued)
ReverseOther
$000's
Motor
Mortgages Personal
BusinessRural AustraliaOtherTotal
June 2019
Net interest income
54,695
20,674 14,564
52,85730,39322,265(1,141) 194,307
Net other income
2,578
224 4,344
2,9891,288477(156)
11,744
Net operating income57,273 20,898 18,908 55,84631,68122,742(1,297) 206,051
Operating expenses2,7502,2795,6029,1563,2635,12257,62685,798
- - - - - - 1,9361,936
Impaired asset expense/(benefit) 5,277- 8,4297,102(132)- - 20,676
Income tax expense- - - - - - 27,89627,896
Profit / (loss) for the year49,246 18,6194,877 39,58828,55017,620 (84,883) 73,617
Total assets1,089,769 510,299 220,500 1,096,773 650,751 808,733 552,2064,929,031
Total liabilities4,253,363
3 Net interest income
Policy
$000'sJune 2020 June 2019
Interest income
Cash and cash equivalents499717
Investments8,4969,733
Finance receivables250,606 239,624
Finance receivables - reverse mortgages87,20179,967
Total interest income346,802 330,041
Interest expense
Retail deposits90,73996,476
Other borrowings35,88837,415
Net interest expense on derivative financial instruments3,5021,843
Total interest expense130,129 135,734
Net interest income 216,673 194,307
46,69028,418
Interest income and expense on financial instruments is measured using the effective interest rate method that discounts the financial
instruments' future cash flows to their present value and allocates the interest income or expense over the life of the financial instrument.
The effective interest rate is established on initial recognition of the financial assets or liabilities and is not subsequently revised. For
financial instruments at amortised cost, the calculation of the effective interest rate includes all yield related fees and commissions paid or
received that are an integral part of the underlying financial instrument.
Profit / (loss) before income
tax from continuing operations
18,6194,877 39,58828,55017,620
Profit / (loss) before impaired
asset expense and income tax
Fair value gain on investment
120,253
49,246
17,620 (58,923)54,523 18,619 13,306
(56,987) 101,513
P. 19

4Net operating lease income
Policy
$000'sJune 2020 June 2019
Operating lease income
Lease income5,1945,518
Gain on disposal of lease assets752819
Total operating lease income5,9466,337
Operating lease expense
Depreciation on lease assets3,6343,363
Direct lease costs429307
Total operating lease expense4,0633,670
Net operating lease income1,8832,667
5 Other income
Policy
Rental income from investment property
Insurance income
$000'sJune 2020 June 2019
Rental income from investment properties1,125731
Insurance income1,6102,537
Gain on sale of investments- 173
Other income/(loss)774(408)
FX gain/(loss)373(598)
Total other income3,8822,435
Rental income from investment properties is recognised on a straight-line basis over the term of the relevant lease.
As a lessor, the Group retains substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental
income and expense from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs
incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a
straight-line basis over the lease term. Profits on the sale of operating lease assets are included as part of operating lease income.
Current year depreciation and losses on the sale of operating lease assets are included as part of operating lease expenses. The leased
assets are depreciated over their useful lives on a basis consistent with similar assets.
Insurance premium income and commission expense are recognised in profit or loss from the date of attachment of the risk over the
period of the insurance contract. Claim expense is recognised in the profit or loss on an accrual basis once our liability to the policyholder
has been confirmed under the terms of the contract.
P. 20

6Operating expenses
Policy
$000'sJune 2020 June 2019
Personnel expenses54,51147,222
Directors' fees1,0591,099
Superannuation1,0691,081
Depreciation - property, plant and equipment2,3801,867
Operating lease expense as a lessee- 1,807
Legal and professional fees3,6153,129
Advertising and public relations6,7293,354
Depreciation - right of use asset2,324-
Technology services6,3725,721
Telecommunications, stationary and postage1,8861,883
Customer acquisition costs7,4191,227
Amortisation of intangible assets4,4563,893
Other operating expenses
1
14,97413,515
Total operating expenses106,79485,798
1
Other operating expenses include compensation of auditor which is disclosed in Note 7.
7 Compensation of auditor
$000'sJune 2020 June 2019
Audit and review of the financial statements
1
774614
Other assurance services paid to auditor
2
13352
Total compensation of auditor907666
2
Other assurance services paid to the auditor comprise regulatory assurance services, agreed upon procedures engagements and supervisor reporting.
Operating expenses are recognised as the underlying service is rendered or over a period in which an asset is consumed or a liability is
incurred.
1
Audit and review of the financial statements includes fees paid for both the audit of the annual financial statements and the review of the interim financial
statements.
P. 21

8Impaired asset expense
Policy
$000'sJune 2020 June 2019
Non-securitised
Individually impaired asset expense3,3851,311
Collectively impaired asset expense25,63719,024
Total non-securitised impaired asset expense29,02220,335
Securitised
Collectively impaired asset expense397341
Total securitised impaired asset expense397341
Total
Individually impaired asset expense3,3851,311
Collectively impaired asset expense26,03419,365
Total impaired asset expense29,41920,676
The calculation of expected credit loss is modelled for portfolios of like assets. For portfolios which are either new or too small to model,
judgement is used to determine impairment provisions.
Stage 2 - Lifetime ECL not credit impaired (greater than 30 but less than 90 days past due)
Stage 3 - Lifetime ECL credit impaired (90 days past due or more)
Where there has been a significant increase in credit risk.
Objective evidence of impairment, so are considered to be in default or otherwise credit impaired.
In determining whether credit risk has increased all available information relevant to the assessment of economic conditions at the
reporting date are taken into consideration. To do this the Group considers its historical loss experience and adjusts this for current
observable data. In addition to this the Group uses reasonable and supportable forecasts of future economic conditions including
experienced judgement to estimate the amount of an expected impairment loss. Future economic conditions consider macroeconomic
factors such as unemployment, interest rate, gross domestic product, and inflation, and requires an evaluation of both the current and
forecast direction of the economic cycle. The methodology and assumptions including any forecasts of future economic conditions are
reviewed regularly as incorporating forward-looking information increases the level of judgement as to how changes in these
macroeconomic factors will affect the ECL.
Where there has been no evidence of increased credit risk since initial recognition, and are not credit impaired upon origination, the
portion of the lifetime ECL associated with the probability of default events occurring within the next 12 months is recognised.
The ECL model is a forward looking model where impairment allowances are recognised before losses are actually incurred. On initial
recognition, an impairment allowance is required, based on events that are possible in the next 12 months.
At each reporting date, the Group applies a three stage approach to measuring ECL to finance receivables not carried at fair value. The
ECL model assesses whether there has been a significant increase in credit risk since initial recognition.
Impairment of finance receivables
Assets may migrate through the following stages based on their change in credit quality:
Stage 1 - 12 months ECL (past due 30 days or less)
P. 22

8Impaired asset expense (continued)
•
•
•
House prices falling 6.6% to March 2021, with a full recovery to June 2021.
That base case also assumes:
•
•
•
•
•
The price for exported primary produce would not materially fall.
A steep initial adverse movement (at close to -20%) in gross domestic product to 30 June 2020 but with a relatively quick, full
recovery by June 2022;
Unemployment to peak at 8.2% (June 2021) and then to largely recover over the following 2.5 years; but
There are no further significant periods of lockdown in or across any part of NZ as at the date of approval of the Group’s financial
statements for the year ended 30 June 2020.
Heartland Extend, through providing customers with time (with economic conditions improving over time) would be successful in
supporting the Group’s consumer and business customers who need that assistance.
Second hand car prices would remain stable.
Using those assumptions, and taking Management’s experience and deep understanding of the Group’s customers (following the
customer contact programmes implemented by the Group during, and after, COVID-19), the Group recognised that there is downside risk
(including in the event that any of the underlying assumptions transpire to be incorrect) and, as a result, the Group’s expected credit
losses could be understated.
The recently amended BFGS would be successful in supporting the Group’s business customers who need that assistance.
The Group has followed industry and regulatory guidance when assessing individual customers, or portfolios of assets, to determine if a
significant increase in credit risk (SICR) has occurred. The industry guidance provides that any payment deferral or similar allowance
provided to customers as a result of the impact of COVID-19 would not automatically result in a SICR. Accordingly, customers who
received assistance through the pandemic as a result of a payment reduction, deferral arrangement, or through the Heartland Extend
product, have not been assessed as being subject to a SICR.
However, as a result (and when considered in conjunction with the measures put in place to limit the impact of the spread of COVID-19
among the community), the traditional indicators of increased credit risk may not provide an accurate measure of the credit quality of the
Group’s assets.
In the current scenario, the pandemic has caused a deterioration in economic conditions. The Group has therefore applied judgement to
estimate whether the modelled output should be subject to an economic overlay. In exercising that judgement, it was assumed that the
Group’s “base case” economic forecast would prevail. That base case forecast scenario is for:
The Group’s models for estimating expected credit losses for each of its portfolios are based on the historic credit experience of those
portfolios. The models assume that economic conditions (such as GDP growth, unemployment rates, and house price index forecasts)
remain static over time. If the Group forecasts that economic conditions will not remain static in the foreseeable future, the Group applies
judgment to determine whether the modelled output should be subject to an economic overlay. This follows analysis of historic data and
performance which has established no clear correlation between key economic indicators and the credit performance of the Group’s
unique portfolios, meaning the approach is an inherently judgmental exercise.
It is stressed that there is considerable uncertainty in these judgements. As noted by the New Zealand Treasury:
“The magnitude and duration of the downturn and the subsequent pace of the recovery depends on many unknown factors, including the
course of the virus, how long activity restrictions are in place, how quickly the global economy will recover, how behaviours and
production might change, and how successful government policies will be in supporting households and firms.”
P. 23

8Impaired asset expense (continued)
1.
2.
3.
9 Taxation
Policy
Income tax
Current tax
Deferred tax
Goods and services tax (GST)
To reflect that inherent risk, the Group employed three methodologies to ascertain a range of potential expected credit losses on each of
its portfolios:
Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to the tax payable or receivable in respect of previous years. Current tax for current and prior
years is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of
assets and liabilities for accounting purposes and the amounts used for taxation purposes. As required by NZ IAS 12 Income Taxes, a
deferred tax asset is recognised only to the extent that it is probable that a future taxable profit will be available to realise the asset.
Revenues, expenses and assets are recognised net of GST. As the Group is predominantly involved in providing financial services, only
a proportion of GST paid on inputs is recoverable. The non-recoverable proportion of GST is treated as an expense or, if relevant, as part
of the cost of acquisition of an asset.
Income tax expense for the year comprises current tax and movements in deferred tax balances, including any adjustment required for
prior years' tax expense. Income tax expense is recognised in profit and loss except to the extent that it relates to items recognised
directly in other comprehensive income, in which case it is recognised in equity or other comprehensive income.
Each of those methodologies have limitations. However, they did provide the Group with a range of “downside” potential credit losses for
each portfolio. Across the three methodologies and portfolios, the range of possible outcomes was between $4.1 million and $11.8
million. Judgement was applied (taking into account the ranges provided by those methodologies, and all other relevant factors) in order
to calculate an economic overlay across each affected portfolio. As a result a pre-tax overlay of $9.6 million was applied as outlined in
Note 13 - Finance receivables.
This methodology neutralises the concern that the Group’s assistance measures (when considered in conjunction with the
measures put in place to limit the impact of the spread of COVID-19 among the community), may have masked traditional indicators
of increased credit risk, by demonstrating how much provisions would increase by if all customers receiving assistance were treated
as posing increased credit risk for the Group.
Lastly, the Group engaged a consultant to analyse historic correlations between certain industry default levels and macroeconomic
indicators. This correlation was then applied to the Group’s base case forecast scenario economic outlook, to determine the degree
to which (based on that historic correlation, and the base case forecast scenario) the Group’s customers may be likely to default in
the base case forecast scenario economic overlay. That increased chance of default was then used to calculate an increase in
provisions in affected portfolios.
Secondly, the Group used the loss rates experienced on its Motor portfolio during the Global Financial Crisis of 2008, applied them
to its current Motor portfolio, and extrapolated the proportionate increase in provisions to its other affected portfolios.
First, the Group has calculated a “Stage 2” lifetime expected loss provision as applied to the most affected parts of its portfolio.
P. 24

9Taxation (continued)
$000'sJune 2020 June 2019
Income tax recognised in profit or loss
Current tax
Current year30,86825,181
Adjustments for prior year1,834(1,989)
Tax other rates335277
Deferred tax
Current year(3,568)3,306
Adjustments for prior year(2,289)1,067
Tax other rates(19)54
Total income tax expense recognised in profit or loss27,16127,896
Income tax recognised in other comprehensive income
Current tax
Derivatives at fair value reserve768(82)
Fair value movements of cash flow hedge(1,477)-
Deferred tax
Defined benefit plan- (34)
Fair value movements of cash flow hedges- (238)
Total income tax expense recognised in other comprehensive income(709)(354)
$000'sJune 2020 June 2019
Profit before income tax99,133 101,513
Reconciliation of effective tax rate
Tax at New Zealand income tax rate of 28%27,75728,424
Higher tax rate for overseas jurisdiction316331
Adjusted tax effect of items not taxable/deductible(457)63
Adjustments for prior year(455)(922)
Total income tax expense27,16127,896
Income tax expense
P. 25

9Taxation (continued)
Deferred tax assets comprise the following temporary differences:
$000'sJune 2020 June 2019
Employee expenses1,9421,286
Share based payment692-
Provision for impairment17,73914,574
Investment properties- 4
Intangibles and property, plant and equipment(4,576) (4,182)
Deferred acquisition costs(936) (1,321)
Operating lease vehicles731(800)
Other temporary differences
1,531(30)
Total deferred tax assets17,1239,531
Opening balance of deferred tax assets9,5315,319
Movement recognised in profit or loss7,336(4,537)
Movement recognised in other comprehensive income- (272)
Transfer on demerger- 777
Movement recognised in retained earnings2568,244
Closing balance of deferred tax assets17,1239,531
Imputation credit account
$000'sJune 2020 June 2019
Imputation credit account 5,676 9,116
10 Earnings per share
WeightedWeighted
Earnings Net Profit Average No.Earnings Net Profit Average No.
Per Share After Tax of Shares Per Share After Tax of Shares
Cents $000's000'sCents$000's000's
Basic earnings12 71,972 576,9291373,617 563,364
Diluted earnings12 71,972 576,9291373,617 563,364
June 2019June 2020
P. 26

Financial Position
11 Investments
Policy
Fair value through profit or loss
$000'sJune 2020 June 2019
Bank deposits, bank bonds and floating rate notes366,289 246,724
Public sector securities and corporate bonds30,71682,370
Local authority stock- 13,399
Equity investments16,33512,435
Total investments413,340 354,928
12 Derivative financial instruments
Policy
Derivative financial instruments are contracts whose value is derived from changes in one or more underlying financial instruments or
indices. They include forward contracts, swaps, options and combinations of these instruments.
Investments are classified into one of the following categories:
Investments under this category include equity investments and are measured at fair value plus transaction costs. Changes in fair
value of these investments are recognised in profit or loss in the period in which they occur.
Fair value through other comprehensive income
Investments under this category include bank bonds, floating rate notes, local authority stock, public securities and corporate bonds.
These are initially measured at fair value, including transaction costs, and subsequently carried at fair value. Changes in fair value of
these investments are recognised in other comprehensive income and presented within the fair value reserve.
Amortised cost
Investments under this category include bank deposits and are measured using effective interest rate method. They are held to
collect contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently
measured at their fair value at each reporting date. All derivatives are carried as assets when fair value is positive and as liabilities
when fair value is negative.
A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that exposes the Group to risk of
changes in fair value or cash flows, and that is designated as being hedged. The Group applies fair value hedge accounting to hedge
movements in the value of fixed interest rate assets and liabilities subject to interest rate risk. The Group applies cash flow hedge
accounting to hedge the variability in highly probable forecast future cash flows attributable to interest rate risk on variable rate assets
and liabilities.
Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques,
including discounted cash flow models and options pricing models, as appropriate. Fair values include adjustment for counterparty
credit risk. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged. A hedge instrument is a designated derivative, the changes in fair
values or cash flows of which are expected to offset changes in the fair value of cash flows of the designated hedged item.
Refer to Note 20 - Fair value for details of the split between investments measured at fair value through profit or loss, fair value
through other comprehensive income and amortised cost.
P. 27

12 Derivative financial instruments (continued)
•
•
•
The criteria that must be met for a relationship to qualify for hedge accounting include:
•
•
•
effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective, consistent with the originally
documented risk management strategy, and
Fair value hedge accounting
the instruments or counterparty must be a third party external to the Group.
The Group documents, at the inception of the transaction, the relationship between hedged items and hedging instruments, as well
as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair value of hedged items.
Subsequent to initial designation, changes in the fair value of derivatives that are designated and qualify for fair value hedge
accounting are recorded in the consolidated statement of comprehensive income together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk. The movement in fair value of the hedged item attributable to the
hedged risk is made as an adjustment to the carrying value of the hedged asset or liability.
the instruments or counterparty must be a third party external to the Group.
Cash flow hedge accounting
the hedging relationship must be formally designated and documented at inception of the hedge,
effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective, consistent with the originally
documented risk management strategy, and
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the adjustment to
carrying amount of a hedged item is amortised to the consolidated statement of comprehensive income on an effective yield basis
over the remaining period to maturity of the hedged item. Where the hedged item is derecognised from the balance sheet, the
adjustment to the carrying amount of the asset or liability is immediately transferred to the consolidated statement of comprehensive
income.
The criteria that must be met for a relationship to qualify for hedge accounting include:
the hedging relationship must be formally designated and documented at inception of the hedge,
A fair value gain or loss associated with the effective portion of a derivative designated as a cash flow hedge is recognised initially in
the hedging reserve. The ineffective portion of a fair value gain or loss is recognised immediately in the consolidated statement of
comprehensive income.
The Group documents, at the inception of the transaction, the relationship between hedged items and hedging instruments, as well
as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in cash flows of hedged items.
When a hedging derivative expires or is sold, the hedge no longer meets the criteria for hedge accounting, or the Group elects to
revoke the hedge designation, the cumulative gain or loss on the hedging derivative remains in the cash flow hedging reserve until
the forecast transaction occurs and affects income, at which point it is transferred to the corresponding income or expense line. If a
forecast transaction is no longer expected to occur, the cumulative gain or loss on the hedging derivative previously reported in the
cash flow hedging reserve is immediately transferred to the consolidated statement of comprehensive income.
P. 28

12 Derivative financial instruments (continued)
Notional Fair Value Fair Value Notional
Fair Value
Fair Value
$000's
PrincipalAssets Liabilities PrincipalAssets Liabilities
Held for risk management
Interest rate related contracts
Swaps 1,140,42217,23816,938 1,958,08313,04811,005
Foreign currency related contracts
Forwards237,900874 222,769315142
Options- - - 177,2551,128-
Total derivative financial instruments1,378,32217,24617,012 2,358,10714,49111,147
13 Finance receivables
(a) Finance receivables held at amortised cost
Policy
Fees and direct costs relating to loan origination, financing and loan commitments are deferred and amortised to interest income over
the life of the loan using the effective interest rate method. Lending fees not directly related to the origination of a loan are recognised
over the period of service.
The calculation of expected credit loss is modelled for portfolios of like assets. For portfolios which are either new or too small to
model, judgement is used to determine impairment provisions.
Past due but not impaired assets are any assets which have not been operated by the counterparty within their key terms but are not
considered to be impaired by the Group.
Individually impaired assets are those loans for which the Group has evidence that it will incur a loss, and will be unable to collect all
principal and interest due according to the contractual terms of the loan.
In determining whether credit risk has increased all available information relevant to the assessment including information about past
events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date are taken into
consideration.
June 2019June 2020
Finance receivables are initially recognised at fair value plus incremental direct transaction costs and are subsequently measured at
amortised cost using the effective interest method, less any impairment loss.
P. 29

13 Finance receivables (continued)
$000'sJune 2020 June 2019
Non-securitised
Neither at least 90 days past due nor impaired - at amortised cost2,945,858 3,018,741
At least 90 days past due - at amortised cost58,87644,466
Individually impaired - at amortised cost24,66726,412
Gross finance receivables3,029,401 3,089,619
Less provision for impairment(62,272) (58,491)
Total non-securitised finance receivables2,967,129 3,031,128
Securitised
Neither at least 90 days past due nor impaired - at amortised cost78,059-
At least 90 days past due - at amortised cost404-
Individually impaired - at amortised cost- -
Gross finance receivables78,463-
Less provision for impairment(397)-
Total securitised finance receivables78,066-
Total
Neither at least 90 days past due nor impaired - at amortised cost3,023,917 3,018,741
At least 90 days past due - at amortised cost59,28044,466
Individually impaired - at amortised cost24,66726,412
Gross finance receivables3,107,864 3,089,619
Less provision for impairment(62,669) (58,491)
Total finance receivables3,045,195 3,031,128
The impact of COVID-19 on use of judgements and estimates is discussed in Note 8 - Impaired asset expense.
P. 30

13 Finance receivables (continued)
Movement in provision
LifetimeLifetime
ECLECL
12 - MonthNot CreditCreditSpecific
$000's
ECL Impaired Impaired ProvisionTotal
June 2020
Non-securitised
Impairment allowance as at 30 June 2019
30,4221,78118,4257,86358,491
Changes in loss allowance
Transfer between stages
(1,190)(294)(109)1,593-
Recovery of amounts written off
- - (2,808)- (2,808)
Credit impairment charge
1,7111,79622,1303,38529,022
Recovery of amounts previously written off
- - 2,808- 2,808
Write offs
- (1,438) (20,705)(5,947) (28,090)
Effect of changes in foreign exchange rate
27410- 41
Impairment allowance as at 30 June 2020
32,1602,14322,6685,30162,272
Securitised
Impairment allowance as at 30 June 2019
- - - - -
Changes in loss allowance
Transfer between stages
(19)118- -
Recovery of amounts written off
- - - - -
Credit impairment charge
26023114- 397
Recovery of amounts previously written off
- - - - -
Write offs
- - - - -
Effect of changes in foreign exchange rate
- - - - -
Impairment allowance as at 30 June 2020
26023114- 397
Total
Impairment allowance as at 30 June 2019
30,4221,78118,4257,86358,491
Changes in loss allowance
Transfer between stages
(1,209)(283)(101)1,593-
Recovery of amounts written off
- - (2,808)- (2,808)
Credit impairment charge
1,9711,81922,2443,38529,419
Recovery of amounts previously written off
- - 2,808- 2,808
Write offs
- (1,438) (20,705)(5,947) (28,090)
Effect of changes in foreign exchange rate
27410- 41
Impairment allowance as at 30 June 2020
32,4202,16622,7825,30162,669
25,1531,79232,227
31,830
New and increased provision (net of
collective provision releases)
27912106- 397
New and increased provision (net of
collective provision releases)
2,102
New and increased provision (net of
collective provision releases)
2,9012,09025,0471,792
3,180
The following table details the movement from the opening balance to the closing balance of the provision for impairment losses by
class.
P. 31

13 Finance receivables (continued)
LifetimeLifetime
ECLECL
12 - MonthNot CreditCreditSpecific
$000's
ECL Impaired Impaired ProvisionTotal
June 2019
Non-securitised
Impairment allowance as at 30 June 2018
31,7841,36514,9458,89756,991
Changes in loss allowance
Transfer between stages
(2,462)(238)522,648-
Recovery of amounts written off
- - (828)- (828)
Credit impairment charge
(1,311)41818,3753,95921,441
Recovery of amounts previously written off
- - 829- 829
Write offs
- - (15,722)(4,993) (20,715)
Effect of changes in foreign exchange rate
(51)(2)(2)- (55)
Impairment allowance as at 30 June 2019
30,4221,78118,4257,86358,491
Securitised
Impairment allowance as at 30 June 2018
40020345- 765
Changes in loss allowance
Transfer between stages
(8)(7)15- -
Recovery of amounts written off
- - - - -
Credit impairment charge
(400)(20)(345)- (765)
Recovery of amounts previously written off
- - - - -
Write offs
- - - - -
Effect of changes in foreign exchange rate
- - - - -
Impairment allowance as at 30 June 2019
- - - - -
Total
Impairment allowance as at 30 June 2018
32,1841,38515,2908,89757,756
Changes in loss allowance
Transfer between stages
(2,470)(245)672,648-
Recovery of amounts written off
- - (828)- (828)
Credit impairment charge
(1,711)39818,0303,95920,676
Recovery of amounts previously written off
- - 829- 829
Write offs
- - (15,722)(4,993) (20,715)
Effect of changes in foreign exchange rate
(51)(2)(2)- (55)
Impairment allowance as at 30 June 2019
30,4221,78118,4257,86358,491
(765)
New and increased provision (net of
collective provision releases)
1,31122,26965619,151
New and increased provision (net of
collective provision releases)
1,31121,504
1,151
-
New and increased provision (net of
collective provision releases)
(392)(13)(360)
75964318,791
P. 32

13 Finance receivables (continued)
Impact of COVID-19 on allowance for ECL
$000'sJune 2020
Collectively impaired asset expense (excluding COVID-19 adjustments)16,434
COVID-19 adjustments9,600
Total collectively impaired asset expense26,034
Individually impaired asset expense3,385
Total impaired asset expense29,419
Impact of changes in gross finance receivables held at amortised cost on allowance for ECL
LifetimeLifetime
ECLECL
12 - monthNot CreditCreditSpecific
$000's
ECL Impaired Impaired ProvisionTotal
June 2020
Gross finance receivables as at 1 July 20192,799,282 206,88257,04326,412 3,089,619
Transfer between stages(61,191) 12,57041,2457,376-
Additions1,497,07387,84323,610- 1,608,526
Deletions(1,402,340) (118,572) (37,334)(3,174) (1,561,420)
Write offs(6,616)(5,463) (10,835)(5,947) (28,861)
Gross finance receivables as at 30 June 20202,826,208 183,26073,72924,667 3,107,864
(b) Finance receivables held at fair value
Policy
$000'sJune 2020 June 2019
Finance receivables - reverse mortgages1,538,585 1,318,677
Total finance receivables - reverse mortgages1,538,585 1,318,677
Credit risk adjustments on financial assets designated at fair value through Profit or loss
There were no credit risk adjustments on individual financial assets.
The following table represents a summary of amounts included in the credit impairment charge with respect to the Group's allowance
for ECL:
Finance receivables – reverse mortgages are initially recognised, and subsequently measured, at fair value through profit or loss.
Note 20 (a) - Financial instruments measured at fair value discloses further information regarding the Group’s valuation policy.
Note 22 - Credit risk exposure discloses further information regarding how reverse mortgages operate.
P. 33

14 Operating lease vehicles
Policy
$000'sJune 2020 June 2019
Cost
Opening balance21,62324,703
Additions9,9385,495
Disposals(7,463)(8,575)
Closing balance24,09821,623
Accumulated depreciation
Opening balance6,1077,179
Depreciation charge for the year3,6343,363
Disposals(3,246)(4,435)
Closing balance6,4956,107
Opening net book value15,51617,524
Closing net book value17,60315,516
15 Borrowings
Policy
$000'sJune 2020 June 2019
Deposits3,264,192 3,153,681
Total borrowings related to deposits3,264,192 3,153,681
Unsubordinated Notes448,228 337,680
Bank borrowings- 25,002
Certificate of deposit- 34,836
Securitised borrowings819,703 660,050
Total other borrowings1,267,931 1,057,568
Deposits and unsubordinated notes rank equally and are unsecured.
Operating lease vehicles are stated at cost less accumulated depreciation.
Borrowings and deposits are initially recognised at fair value including incremental direct transaction costs. They are subsequently
measured at amortised cost using the effective interest method.
Operating lease vehicles are depreciated on a straight line basis over their expected useful life after allowing for any residual values.
The estimated lives of these vehicles vary up to five years. Vehicles held for sale are not depreciated but are tested for impairment.
The future minimum lease payments receivable under operating leases not later than one year is $3.487 million (2019: $3.952
million), within one to five years is $2.053 million (2019: $3.137 million) and over five years is nil (2019: nil).
P. 34

15 Borrowings (continued)
Frequency
of Interest
PrincipalValuationNoteIssue DateRepayment
$125 millionAmortised cost
20(b)Half yearly
$150 millionAmortised cost
20(b)Half yearly
AU $45 millionAmortised cost
20(b)Quarterly
AU $100 millionAmortised cost
20(b)Quarterly
At 30 June 2020 the Group had the following securitised borrowings outstanding:
•
•
•
16Share capital and dividends
Policy
June 2020 June 2019
Number of Number of
000'sShares Shares
Issued shares
Opening balance569,338 560,588
Shares issued during the year817-
Dividend reinvestment plan10,8249,191
Cancelled shares- (441)
Closing balance580,979 569,338
Dividends paid
CentsDateCents
Per Share$000'sDeclared Per Share$000's
Final dividend
6.5
37,007
5.5
30,808
Interim dividend4.5 25,986
3.5
19,791
Total dividends paid62,99350,599
Senior Warehouse Trust No. 2 securitisation facility AU $250 million, drawn AU $160 million (2019: nil). The bank facility is
secured over the assets of Seniors Warehouse Trust No. 2 and has a maturity date of 1 July 2022.
June 2020
15 August 2019
18 February 2020
Senior Warehouse Trust securitisation facility AU $600 million, drawn AU $544 million (2019: AU $650 million, drawn AU $631
million). The bank facility is secured over the assets of ASF Settlement Trust and Seniors Warehouse Trust. The facility has a
maturity date of 30 September 2022.
Maturity Date
The Group has the following unsubordinated notes on issue at balance sheet date:
8 March 2019
13 November 2019
12 April 2024
21 September 2022
8 March 2021
13 May 2022
Date
Declared
Ordinary shares are classified as equity, incremental costs directly attributable to the issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effect.
Under dividend reinvestment plans, 7,313,501 new shares were issued at $1.5444 per share on 6 September 2019 and 3,511,020 at
$1.5948 on 11 March 2020 (2019: 5,282,619 new shares were issued at $1.6250 per share on 21 September 2018 and 3,907,858 at
$1.4709 per share on 1 April 2019). Other shares issued during the period relate to staff share schemes.
15 August 2018
19 February 2019
12 April 2019
21 September 2017
June 2019
Heartland Auto Receivables Warehouse Trust 2018 - 1 securitisation facility $300 million, drawn $66 million (2019: $150 million,
undrawn). Securitised borrowings held by investors are secured over the assets of the Heartland Auto Receivables Warehouse
Trust 2018-1. The facility has a maturity date of 29 August 2021.
P. 35

17 Other reserves
Foreign
Currency
Employee TranslationDefined Cash Flow
Benefits Reserve Fair Value BenefitHedge
$000'sReserve (FCTR) Reserve Reserve ReserveTotal
June 2020
Balance as at 1 July 2019838(4,021)4,558171(5,843)(4,297)
- 114766- (2,179)(1,299)
Share based payments516- - - - 516
Shares vested(420)- - - - (420)
Balance as at 30 June 2020934 (3,907) 5,324 171 (8,022) (5,500)
June 2019
-
Balance as at 1 July 20182,5591,2601,590257(1,081)4,585
- (5,281)2,968(86)(4,762)(7,161)
Share based payments619- - - - 619
Shares vested(2,340)- - - - (2,340)
Balance as at 30 June 2019838 (4,021) 4,558 171 (5,843) (4,297)
18 Other balance sheet items
Policy
$000'sJune 2020 June 2019
Other assets
Trade receivables1,9526,269
GST receivable9853,840
Prepayments4,8575,649
Property, plant and equipment10,15310,216
Other receivables1,6111,234
Total other assets19,55827,208
Property, plant and equipment are stated at cost less accumulated depreciation and impairment (if any). Depreciation is calculated on
a straight line basis to write off the net cost or revalued amount of each asset over its expected life to its estimated residual value.
Other comprehensive income, net of income tax
Other comprehensive income, net of income tax
P. 36

18 Other balance sheet items (continued)
Policy
Intangible assets
Intangible assets with finite useful lives
Goodwill
$000'sJune 2020 June 2019
Computer software
Cost42,53437,210
Accumulated amortisation14,86410,429
Net carrying value of computer software27,67026,781
Goodwill
Cost45,14345,143
Net carrying value of goodwill45,14345,143
Total intangible assets72,81371,924
• Comparing cashflows and other key financial metrics against budget;
• Material decreases in mid-term and/or long-term growth rates as compared to previous estimates;
• Any material changes in business model or strategy;
• Comparing the Group's market capitalisation against its net assets;
• Changes in market interest rates or other market rates of return;
• Fluctuations in the foreign exchange rates or commodity prices that impact the entity’s cash flows; and
• Any deferral of investment projects.
Goodwill was tested for impairment on 30 June 2020. In assessing impairment, an internal valuation model was developed to indicate
the value of the business i.e. the recoverable amount. This value was compared to the net assets of the Group.
There was no indication of impairment and no impairment losses have been recognised against the carrying amount of goodwill for
the year ended 30 June 2020 (30 June 2019: nil).
Software acquired or internally developed by the Group is stated at cost less accumulated amortisation and any accumulated
impairment losses. Expenditure on software assets is capitalised only when it increases the future economic value of that asset.
Amortisation of software is on a straight line basis, at rates which will write off the cost over the assets’ estimated useful lives. The
expected useful life of the software has been determined to be ten years.
The recoverable amount was determined on a value in use basis using a five-year discounted cash flow methodology based on
financial budget and forecasts. Key assumptions used in the model included a discount rate of 10% and a terminal growth rate of 2%
which reflect both past experience and external sources of information.
The deterioration in economic conditions as a result of the COVID-19, and the consequential impact on the Group were also
considered for any indicators of impairment. These included:
Goodwill arising on acquisition represents the excess of the cost of the acquisition over the Group’s interest in the fair value of the
identifiable net assets acquired. Goodwill that has an indefinite useful life is not subject to amortisation and is tested for impairment
annually. Goodwill is carried at cost less accumulated impairment losses.
P. 37

18 Other balance sheet items (continued)
•
•
Policy
Employee benefits
$000'sJune 2020 June 2019
Trade and other payables
Trade payables20,6578,815
Insurance liability6,0947,469
Employee benefits8,2235,595
Other tax payables1,2881,556
Total trade and other payables36,26223,435
Policy
Leases
$000'sJune 2020 June 2019
Right of use assets
Balance at 1 July 201910,728-
Depreciation charge for the year, included within depreciation expense in the income statement(2,324)-
Additions to right of use assets9,958-
Total right of use assets18,362-
Lease liability
Current2,222-
Non-current18,234-
Total lease liability20,456-
Interest expense relating to lease liability570-
For the purposes of impairment testing, goodwill is allocated to cash generating units (CGU's). A CGU is the smallest identifiable
group of assets that generate independent cash inflows. The Group has assessed that goodwill should be allocated to the following
smallest identifiable CGUs:
Heartland Australia Holdings Pty Limited: $15.3 million (2019: $15.3 million).
Heartland Bank Limited (HBL): $29.8 million (2019: $29.8 million).
Right of use assets are depreciated at the shorter of lease term or the Group’s depreciation policy for that asset class.
Annual leave entitlements are accrued at amounts expected to be paid. Long service leave is accrued by calculating the probable
future value of the entitlements and discounting back to present value. Obligations to defined contribution superannuation schemes
are recognised as an expense when the contribution is paid.
The Group leases office space, car parks, equipment and cars. Rental contracts are typically made for fixed periods but may have
extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
In determining the lease term, all facts and circumstances that create an economic incentive to exercise an extension option are
considered. Extension options are only included in the lease term if the lease is reasonably certain to be extended.
Lease liabilities are measured at the present value of the remaining lease payments and discounted using the Group’s incremental
borrowing rate (IBR). Lease liabilities are measured using the effective interest method. Carrying amounts are remeasured only upon
reassessments and lease modifications.
P. 38

19 Related party transactions and balances
Policy
a)
A person or a close member of that person's family if that person:
b)
(a) Transactions with key management personnel
$000'sJune 2020 June 2019
Transactions with key management personnel
Interest income18-
Interest expense(47)(76)
Key management personnel compensation
Short-term employee benefits(8,814)(4,839)
Share-based payment expense(828)(703)
Total transactions with key management personnel(9,671)(5,618)
Due (to) / from key management personnel
Lending239-
Borrowings - deposits(1,646)(3,019)
Total due (to) key management personnel(1,407)(3,019)
iii) Both entities are joint ventures of the same third party;
A person or entity is a related party under the following circumstances:
i) has control or joint control over HGH;
ii) has significant influence over HGH; or
All other transactions with KMPs and their related entities are made on terms equivalent to those that prevail in arm's length
transactions.
Key management personnel (KMP), are those who, directly or indirectly, have authority and responsibility for planning, directing and
controlling the activities of the Group. This includes all executive staff, Directors and their close family members.
KMP receive personal banking and financial investment services from the Group in the ordinary course of business. The terms and
conditions, for example interest rates and collateral, and the risks to the Group are comparable to transactions with other employees
and did not involve more than the normal risk of repayment or present other unfavourable features.
iii) is a member of the key management personnel of HGH.
An entity is related to HGH if any of the following conditions applies:
i) The entity and HGH are members of the same group;
ii) One entity is an associate or joint venture of the other entity;
iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity;
v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity
related to HGH;
vi) The entity is controlled, or jointly controlled by a person identified in (a); and
vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel
of the entity (or of a parent of the entity).
P. 39

19 Related party transactions and balances (continued)
(b) Transactions with related parties
$000'sJune 2020 June 2019
Southern Cross Building Society Staff Superannuation (SCBS)
Interest expense
33
43
Management fees from SCBS
10
10
ASF Custodians Pty Limited
Audit fees
7
-
Heartland Trust (HT)
Dividend paid
712
583
Heartland Trust held 6,475,976 shares in HGH (2019: 6,475,976 shares).
(c)
$000'sJune 2020 June 2019
Southern Cross Building Society Staff Superannuation
Retail deposits
1,934
2,070
20 Fair value
Policy
Entities within the Group have regular transactions between each other on agreed terms. The transactions include the provision of
administrative services, tax transactions, and customer operations and call centre. Banking facilities are provided by Heartland Bank
Limited to other Heartland Group entities on normal commercial terms as with other customers. There is no lending from subsidiaries
within the Group to HGH.
HGH is the ultimate parent company of the Group.
On initial recognition, the transaction price generally represents the fair value of the financial instrument, unless there is observable
information from an active market that provides a more appropriate fair value.
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
The Group measures fair values using the following fair value hierarchy, which reflects the observability of the inputs used in
measuring fair value:
The Trustees of Heartland Trust and certain employees of the Group provided their time and skills to the oversight and operation of
HT at no charge.
Related party transactions between the Group eliminate on consolidation. Related party transactions outside of the Group are as
follows:
Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or
dealer price quotations. For all other financial instruments, the Group determines fair value using other valuation techniques.
Other balances with related parties
P. 40

20 Fair value (continued)
(a) Financial instruments measured at fair value
Investments
Finance receivables - reverse mortgages
•
Mortality and move to care;
•
Voluntary exits;
•
House price changes;
•
No negative equity guarantee; and
•
Interest rate margin.
Reverse mortgage loans are classified at fair value through profit or loss. On initial recognition the Group considers the transaction
price to represent the fair value of the loan.
When the Group enters into a reverse mortgage loan the Group has set expectations regarding the loan’s current and future risk
profile and expectation of performance. This expectation references a wide range of assumptions including:
For subsequent measurement the Group has considered if the fair value can be determined by reference to a relevant active market
or observable inputs, but has concluded relevant support is not currently available. In the absence of such market evidence the
Group has used valuation techniques (income approach) including actuarial assessments to consider the fair value.
Investments in public sector securities and corporate bonds are classified as being available for sale and are stated at FVOCI, with
the fair value being based on quoted market prices (Level 1 under the fair value hierarchy) or modelled using observable market
inputs (Level 2 under the fair value hierarchy). Refer to Note 11 - Investments for more details.
Investments valued under Level 2 of the fair value hierarchy are valued either based on quoted market prices or dealer quotes for
similar instruments, or discounted cash flows analysis.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Investments in unlisted equity securities are classified as being fair valued through profit or loss and are valued under Level 3 of the
fair value hierarchy, with the fair value being based on unobservable inputs.
The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the
change has occurred.
The following methods and assumptions were used to estimate the fair value of each class of financial asset and liability measured at
fair value on a recurring basis in the consolidated statement of financial position.
P. 41

20 Fair value (continued)
Derivative financial instruments
$000'sLevel 1Level 2 Level 3Total
June 2020
Assets
Investments295,30094,35416,335 405,989
Derivative financial instruments- 17,246- 17,246
Finance receivables - reverse mortgages- - 1,538,585 1,538,585
Total financial assets measured at fair value295,300 111,600 1,554,920 1,961,820
Liabilities
Derivative financial instruments- 17,012- 17,012
Total financial liabilities measured at fair value- 17,012- 17,012
June 2019
Assets
Investments255,87579,04712,435 347,357
Derivative financial instruments- 14,491- 14,491
Finance receivables - reverse mortgages- - 1,318,677 1,318,677
Total financial assets measured at fair value255,87593,538 1,331,112 1,680,525
Liabilities
Derivative financial instruments- 11,147- 11,147
Total financial liabilities measured at fair value- 11,147- 11,147
The Group will continue to reassess the existence of a relevant active market and movements in expectations on an on-going basis.
The following table analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy
into which each fair value measurement is categorised. The amounts are based on the values recognised in the Statement of
Financial Position.
Interest rate and foreign currency related contracts are recognised in the financial statements at fair value. Fair values are
determined from observable market prices as at the reporting date, discounted cash flow models or option pricing models as
appropriate. (Level 2 under the fair value hierarchy).
At balance date the Group does not consider any of the above expectations to have moved outside of the original expectation range.
Therefore the Group has continued to estimate the fair value of the portfolio at transaction price. There has been no fair value
movement recognised in profit or loss during the period. Given the nature of the loan terms and tenor, the fair value as recorded is
regarded as not being highly sensitive to the above assumptions, particularly to house prices and interest rates, that would impact the
fair value at balance date. While noting the significant uncertainty around future economic conditions, based on current judgment
there is no evidence that COVID-19 will have a long-term adverse impact on market conditions, particularly regarding the key
elements of house prices or interest rates, that would materially influence the fair value of the reverse mortgage portfolio at balance
date.
P. 42

20 Fair value (continued)
The movement in Level 3 assets measured at fair value are below:
$000's
InvestmentsTotal
June 2020
As at 1 July 2019
1,318,67712,4351,331,112
New loans
290,488- 290,488
Repayments
(182,653)- (182,653)
Capitalised Interest and fees
91,288- 91,288
Additions
- 1,8031,803
Other
20,7852,09722,882
As at 30 June 2020
1,538,58516,3351,554,920
$000's
InvestmentsTotal
June 2019
As at 1 July 2018
1,129,9569,6941,139,650
Adjustment for NZ IFRS 9
2,882- 2,882
New loans
233,095- 233,095
Repayments
(104,644)- (104,644)
Capitalised Interest and fees
80,999- 80,999
Additions
- 2,7412,741
Other
(23,611)- (23,611)
As at 30 June 2019
1,318,67712,4351,331,112
(b) Financial instruments not measured at fair value
Cash and cash equivalents
Finance receivables
Borrowings
The fair value of deposits, bank borrowings and other borrowings is the present value of future cash flows and is based on the current
market interest rates payable by the Group for the debt of similar maturities. The average current market rate used to fair value
borrowings is 2.24% (2019: 2.59%).
The current weighted average lending rate used to fair value finance receivables with a fixed interest rate was 8.06% (2019: 8.88%).
Finance receivables with a floating interest rate are deemed to be at current market rates. The current amount of credit provisioning
has been deducted from the fair value calculation of finance receivables as a proxy for future losses.
Cash and cash equivalents are measured at amortised cost and their carrying value is considered equivalent to their fair value due to
their short term nature.
Finance Receivables
- Reverse Mortgage
The fair value of the Group's finance receivables is calculated using a valuation technique which assumes the Group's current
weighted average lending rates for loans of a similar nature and term.
The following assets and liabilities of the Group are not measured at fair value in the consolidated statement of financial position.
Finance Receivables
- Reverse Mortgage
P. 43

20 Fair value (continued)
Other financial assets and financial liabilities
TotalTotal
Fair Value Total Fair Carrying Fair Value Total Fair Carrying
$000'sHierarchyValueValue HierarchyValueValue
Assets
Cash and cash equivalentsLevel 1 147,179 147,179Level 1 74,49674,496
Investments
1
Level 27,3757,351Level 27,4327,571
Finance receivablesLevel 2 3,092,150 3,045,195Level 2 3,017,327 3,031,128
Other financial assetsLevel 33,5633,563Level 37,5037,503
Total financial assets3,250,267 3,203,2883,106,758 3,120,698
Liabilities
Retail depositsLevel 2 3,278,483 3,264,192Level 2 3,160,426 3,153,681
Other borrowingsLevel 2 448,626 448,228Level 2 397,643 397,643
Borrowings - securitisedLevel 2 819,305 819,703Level 2 659,925 659,925
Other financial liabilitiesLevel 3 26,75126,751Level 3 16,28416,284
Total financial liabilities4,573,165 4,558,8744,234,278 4,227,533
(c) Classification of financial instruments
Total
Amortised Carrying Total Fair
$000'sFVOCIFVTPLCostValueValue
June 2020
Cash and cash equivalents- - 147,179 147,179 147,179
Investments389,65416,3357,351 413,340 413,364
Finance receivables- - 3,045,195 3,045,195 3,092,150
Finance receivables - reverse mortgages- 1,538,585- 1,538,585 1,538,585
Derivative financial instruments3217,213- 17,24617,246
Other financial assets- - 3,5633,5633,563
Total financial assets389,686 1,572,133 3,203,288 5,165,108 5,212,087
Retail deposits- - 3,264,192 3,264,192 3,278,483
Other borrowings- - 1,267,931 1,267,931 1,267,931
Derivative financial instruments15,4081,604- 17,01217,012
Other financial liabilities- - 26,75126,75126,751
Total financial liabilities15,4081,604 4,558,874 4,575,886 4,590,177
The following table summarises the categories of financial instruments and the carrying value and fair value of all financial
instruments of the Group:
1
Included within investments are bank deposits which are held to support the Group's contractual cash flows. Such investments are measured at
amortised cost.
Financial instruments such as short-term trade receivables and payables are considered equivalent to their carrying value due to
their short term nature.
The following table sets out financial instruments not measured at fair value, compares their carrying value against their fair value
and analyses them by level in the fair value hierarchy.
June 2020June 2019
P. 44

20 Fair value (continued)
Total
Amortised Carrying Total Fair
$000'sFVOCIFVTPLCostValueValue
June 2019
Cash and cash equivalents- - 74,49674,49674,496
Investments334,92212,4357,571 354,928 354,789
Finance receivables- - 3,031,128 3,031,128 3,017,327
Finance receivables - reverse mortgages- 1,318,677- 1,318,677 1,318,677
Derivative financial instruments2,82511,666- 14,49114,491
Other financial assets- - 7,5037,5037,503
Total financial assets337,747 1,342,778 3,120,698 4,801,223 4,787,283
Retail deposits- - 3,153,681 3,153,681 3,160,426
Other borrowings- - 1,057,568 1,057,568 1,057,568
Derivative financial instruments9,8931,254- 11,14711,147
Other financial liabilities- - 16,28416,28416,284
Total financial liabilities9,8931,254 4,227,533 4,238,680 4,245,425
P. 45

Risk Management
21 Enterprise risk management program
Role of the Board and the Board Risk Committee
• To advise the Board on the formulation of the Board's Risk Appetite Statement at least annually.
•
•
Audit Committee
Internal Audit
To review any reports, policies, standards, other risk documents or matters, or minutes which have been prepared by or in
respect of the HGH's Board, Risk Committee, or Executive Risk Committee as it may see fit, and to advise the Board in relation
thereto.
To advise and make recommendations to the Board as to the key parameters for ICAAP, delegated authorities, risk appetite and
stress testing for its subsidiary, Heartland Bank Limited.
The BRC consists of three non-executive directors. All three members of the BRC sit on the Audit Committee. In addition, the
directors who are not members of the BRC are entitled to attend meetings and to receive copies of the BRC papers.
Charters for both the BRC and Audit Committee ensure suitable cross representation to allow effective communication pertaining to
identified issues with oversight by the Board.
The board of directors (the Board) sets and monitors the Group’s risk appetite across the primary risk domains of credit, capital,
liquidity, market (including interest rate), operational and compliance and general business risk. Management are, in turn, responsible
for ensuring appropriate structures, policies, procedures and information systems are in place to actively manage these risk domains,
as outlined within the Enterprise Risk Management Framework (ERMF). Collectively, these processes are known as the Group's
Enterprise Risk Management Program (RMP).
The Board, through its Board Risk Committee (BRC) is responsible for oversight and governance of the development of the RMP.
The role of the BRC is to assist the Board to formulate its risk appetite, and to monitor the effectiveness of the RMP. The BRC has the
following specific responsibilities:
The Group has an Internal Audit function, the objective of which is to provide independent, objective assurance over the internal
control environment. In certain circumstances, Internal Audit will provide risk and control advice to Management provided the work
does not impede the independence of the Internal Audit function. The function assists the Group in accomplishing its objectives by
bringing a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control, and
governance processes.
The Audit Committee focuses on financial reporting and application of accounting policies as part of the internal control and risk
assessment framework. The Audit Committee monitors the identification, evaluation and management of all significant risks through
the Group. This work is supported by internal audit, which provides an independent assessment of the design, adequacy and
effectiveness of internal controls. The Audit Committee receives regular reports from internal audit.
P. 46

21Enterprise risk management program (continued)
Asset and Liability Committee (ALCO)
• Market risk (including non-traded interest rate risk and the investment of capital)
• Liquidity risk (including funding)
• Foreign exchange rate risk
• Balance sheet structure
• Capital management
Internal Audit is allowed full, free and unfettered access to any and all of the organisation’s records, personnel and physical properties
deemed necessary to accomplish its activities.
A regular cycle of review has been implemented to cover all areas of the business, focused on assessment, management and control
of risks identified. The audit plan takes into account cyclical review of various business units and operational areas, as well as
identified areas of higher identified risk. The audit methodology is designed to meet the International Standards for the Professional
Practice of Internal Auditing of The Institute of Internal Auditors.
Each audit has specific audit procedures tailored to the area of business that is being reviewed. The audit procedures are updated
during each audit to reflect any process changes. Audit work papers are completed to evidence the testing performed in accordance
with the audit procedures.
The ALCO comprises the CEO HGH, CEO HBL, GCRO, CFO, Chief Legal & Bank Risk Officer, Treasurer, Head of Retail, Financial
Controller HBL and Chief Distribution Officer. The ALCO generally meets monthly, and provides reports to the BRC. ALCO's specific
responsibilities include decision making and oversight of risk matters in relation to:
Audit reports are addressed to the manager of the relevant area that is being audited in addition to other relevant stakeholders within
the Bank. Management comments are obtained from the process owner(s) and are included in the report.
The Head of Internal Audit has a direct reporting line to the Chairman of the Audit Committee whilst administratively reporting to the
Chief Legal & Bank Risk Officer. Internal audit has accountability to the Audit Committee of the Group. A schedule of all outstanding
internal control issues is maintained and presented to the Audit Committee to assist the Audit Committee to track the resolution of
previously identified issues. Any issues raised that are categorised as high risk are specifically reviewed by internal audit during a
follow up review once the issue is considered closed by management. The follow up review is performed with a view to formally close
out the issue.
P. 47

21Enterprise risk management program (continued)
Operational and compliance risk
•
•
•
Market risk
Interest rate risk
•
•
•
•
The third line of defence is Internal Audit which is responsible for independently assessing how effectively the Group is managing
its risk according to the stated risk appetite.
The second line of defence is the Risk and Compliance function, responsible for the design and ownership of the Operational Risk
Management Framework. It incorporates key processes including Risk and Control Self-Assessment (RCSA), incident
management, independent evaluation of the adequacy and effectiveness of the internal control framework, and the attestation
process.
Market risk is the possibility of experiencing losses or gains due to factors affecting the overall performance of financial markets in
which the Group is exposed. The primary market risk exposures for the Group are interest rate risk and foreign exchange risk. The
risk being that market interest rates or foreign exchange rates will change and adversely impact on the Group’s earnings due to either
adverse moves in foreign exchange market rates or in the case of interest rate risks mismatches between repricing dates of interest
bearing assets and liabilities and/or differences between customer pricing and wholesale rates.
Mismatches between the repricing dates of interest bearing assets and liabilities (yield curve and repricing risk);
Banking products repricing differently to changes in wholesale market rates (basis risk);
Operational and compliance risk is the risk arising from day to day operational activities in the execution of the Group's strategy which
may result in direct or indirect losses. Operational and compliance risk losses can occur as a result of fraud, human error, missing or
inadequately designed processes, failed systems, damage to physical assets, improper behaviour, or from external events. The
losses range from direct financial losses, to reputational damage, unfavourable media attention, injury to or loss of staff or clients or
as a breach of laws or banking regulations. Where appropriate, risks are mitigated by insurance.
To ensure appropriate responsibility is allocated for the management, reporting and escalation of operational and compliance risk, the
Group operates a “three lines of defence” model which outlines principles, responsibilities and accountabilities for operational and
compliance risk management:
Refer Note 24 - Interest rate risk for further details regarding interest rate risk.
The first line of defence is the business line management of the identification, management and mitigation of the risks associated
with the products and processes of the business. This accountability includes regular testing and attestation of the adequacy and
effectiveness of controls and compliance with the Group's policies.
The effect of internal or market forces on a bank’s net interest margin where, for example, in a low rate environment any fall in
rates will further decrease interest income earned on the assets whereas funding cost cannot be reduced as it is already at the
minimum level (margin compression risk).
Loan prepayment or deposit early withdrawal behaviour from customers that deviates from the expected or contractually agreed
behaviour (optionality risk); and
Interest rate risk refers to exposure of an entity’s earnings and / or capital because of a mismatch between the interest rate exposures
of its assets and liabilities. Interest rate risk for the Group arises from the provision of non-traded retail banking products and services
and from traded wholesale transactions entered into to reduce aggregate interest rate risk (known as hedges). This risk arises from
four key sources:
P. 48

21Enterprise risk management program (continued)
Foreign exchange risk
Counterparty Credit Risk
•
• Finance receivables;
•
•
22 Credit risk exposure
•
Credit origination meets agreed levels of credit quality at point of approval;
•
Sector concentrations are monitored;
•
Maximum total exposure to any one debtor is actively managed; and
•
Changes to credit risk are actively monitored with regular credit reviews.
Profit translation risk is the risk that deviations in exchange rates have a significant impact on the reported profit. Balance sheet
translation risk is the risk that whilst the foreign currency value of the net investment in a subsidiary may not have changed, when
translated back to the New Zealand dollars (NZD), the NZD value has changed materially due to movements in the exchange rates.
Foreign exchange revaluation gains and losses are booked to the foreign currency translation reserve. Foreign exchange rate
movements in any given year may have an impact on other comprehensive income. The Group manages this risk by setting and
approving the foreign exchange rate for the upcoming financial year and entering into hedging contracts to manage the foreign
exchange translation risks.
Credit risk is managed to achieve sustainable risk-reward performance whilst maintaining exposures within acceptable risk “appetite”
parameters. This is achieved through the combination of governance, policies, systems and controls, underpinned by commercial
judgement as described below.
Counterparty credit risk is managed against limits set in the Market Risk Policy including credit exposure on derivative contracts,
bilateral set-off arrangements, cash and cash equivalents and investment securities.
Credit risk is the risk that a borrower will default on any type of debt by failing to make payments which it is obligated to make. The risk
is primarily that of the lender and includes loss of principal and interest, disruption to cash flows and increased collection costs.
To manage this risk, HBL's Executive Risk Committee (ERC) oversees the formal credit risk management strategy. The ERC reviews
the Group's credit risk exposures typically on a monthly basis. The credit risk management strategies aim to ensure that:
The Group has on-going credit exposure associated with:
Cash and cash equivalents;
Holding of investment securities; and
Payments owed to the Group from risk management instruments.
The BRC also oversees the Group's credit risk exposures to monitor overall risk metrics having regard to risk appetite set by the
Board.
Foreign exchange risk is the risk that the Group’s earnings and shareholder equity position are adversely impacted from changes in
foreign exchange rates. The Group has exposure to foreign exchange translation risks through its Australian subsidiaries (which have
a functional currency of AUD), in the forms of profit translation risk and balance sheet translation risk.
P. 49

22 Credit risk exposure (continued)
Reverse mortgage loans and negative equity risk
Business Finance Guarantee Scheme
Maximum exposure to credit risk at the relevant reporting dates
$000'sJune 2020 June 2019
Cash and cash equivalents147,17974,496
Investments397,005 342,493
Finance receivables3,045,195 3,031,128
Finance receivables - reverse mortgages1,538,585 1,318,677
Derivative financial assets17,24614,491
Other financial assets3,5637,503
Total on balance sheet credit exposures5,148,773 4,788,788
The Group employs a process of hindsighting loans to ensure that credit policies and the quality of credit processes are maintained.
Reverse mortgage loans are a form of mortgage lending designed for the needs of people over 60 years. These loans differ to
conventional mortgages in that they typically are not repaid until the borrower ceases to reside in the property. Further, interest is not
required to be paid, it is capitalised into the loan balance and is repayable on termination of the loan. As such, there are no incoming
cash flows and therefore no default risk to manage during the term of the loan. Negative equity risk arises from the promise by the
Group that the maximum repayment amount is limited to the net sale proceeds of the borrowers' property.
HBL's BRC has authority for approval of all credit exposures. Lending authority has been provided to the HBL's Credit Committee,
and to the business units under a detailed Delegated Lending Authority framework. Application of credit discretions in the business
operation are monitored through a defined review and hindsight structure as outlined in the Credit Risk Oversight Policy. Delegated
Lending Authorities are provided to individual officers with due cognisance of their experience and ability. Larger and higher risk
exposures require approval of senior management, the Credit Committees and ultimately through to HBL's BRC.
The Group’s exposure to negative equity risk is managed by the Credit Risk Oversight Policy in conjunction with associated lending
standards specific for this product. In addition to usual criteria regarding the type, and location, of security property that the Group will
accept for reverse mortgage lending, a key aspect of the Group's policy is that a borrower’s age on origination of the reverse
mortgage loan will dictate the loan-to-value ratio of the reserve mortgage on origination. Both New Zealand and Australia reverse
mortgage operations are similarly aligned. The policy is managed and reviewed periodically to ensure appropriate consistency across
locations.
The following table represents the maximum credit risk exposure, without taking account of any collateral held. The exposures set out
below are based on net carrying amounts as reported in the consolidated statement of financial position.
HBL, along with other registered banks in New Zealand, has entered into a Deed of Indemnity with the New Zealand Government to
implement the New Zealand Governments Business Finance Guarantee Scheme. The purpose of the scheme is to provide short term
credit to eligible small and medium size businesses, who have been impacted by economic effects of COVID 19. The scheme allows
banks to lend to a maximum of $500,000 for a maximum of three years. The New Zealand Government will guarantee 80% of any
loss incurred (credit risk) with HBL holding the remaining 20%. As at 30 June 2020 the Group had a total exposure of $6.5 million to
its customers under the scheme.
Impact of COVID-19 has been considered by the Group as outlined in Note 8 - Impaired asset expense.
P. 50

22 Credit risk exposure (continued)
Concentration of credit risk by geographic region
$000'sJune 2020 June 2019
New Zealand3,855,199 3,686,867
Australia1,060,894 906,261
Rest of the world
1
295,349 254,151
5,211,442 4,847,279
Provision for impairment(62,669) (58,491)
Total on balance sheet credit exposures5,148,773 4,788,788
Concentration of credit risk by industry sector
$000'sJune 2020 June 2019
Agriculture625,141 689,089
Forestry and fishing145,045 132,545
Mining12,99313,695
Manufacturing75,65970,740
Finance and insurance596,772 430,532
Wholesale trade39,54040,869
Retail trade and accommodation232,664 237,342
Households2,603,760 2,428,705
Other business services163,801 170,013
Construction197,174 186,843
Rental, hiring and real estate services142,467 148,502
Transport and storage257,634 237,451
Other118,79260,953
5,211,442 4,847,279
Provision for impairment(62,669) (58,491)
Total on balance sheet credit exposures5,148,773 4,788,788
Commitments to extend credit
$000'sJune 2020 June 2019
Undrawn facilities available to customers248,868 177,316
Conditional commitments to fund at future dates58,04514,286
As at 30 June 2020 there was no undrawn lending commitments available to counterparties for whom drawn balances were classified
as individually impaired (2019: nil).
The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for categorising
customer industry sectors.
1
These overseas assets are primarily NZD-denominated investments in AA+ and higher rated securities issued by offshore supranational agencies
("Kauri Bonds").
P. 51

22 Credit risk exposure (continued)
Credit risk grading
Lifetime
ECLLifetime
12 Months Not CreditECL CreditSpecifically
$000's
ECL Impaired Impaired Provided Fair ValueTotal
Judgemental portfolio
Grade 1 - Very Strong28- - - - 28
Grade 2 - Strong9,323- - - - 9,323
Grade 3 - Sound65,084- 189- - 65,273
Grade 4 - Adequate509,1545,1174,238- - 518,509
Grade 5 - Acceptable817,1904,6131,938- - 823,741
Grade 6 - Monitor- 112,5862,558- - 115,144
Grade 7 - Substandard- 27,28917,652- - 44,941
Grade 8 - Doubtful- - - 16,025- 16,025
Grade 9 - At risk of loss- - - 8,642- 8,642
Total judgemental portfolio1,400,779 149,60526,57524,667- 1,601,626
Total behavioural portfolio1,425,42933,65547,154- 1,538,585 3,044,823
Gross finance receivables2,826,208 183,26073,72924,667 1,538,585 4,646,449
Provision for impairment(32,420)(2,166) (22,782)(5,301)- (62,669)
Total finance receivables2,793,788 181,09450,94719,366 1,538,585 4,583,780
The Group's finance receivables are monitored either by account behaviour (Behavioural portfolio) or a regular assessment of their
credit risk grade based on an objective review of defined risk characteristics (Judgemental portfolio).
Finance receivables - reverse mortgages have no arrears characteristics and are assessed on origination against a pre-determined
criteria.
The Judgemental portfolio consists mainly of business and rural lending where an on-going and detailed working relationship with the
customer has been developed while the Behavioural portfolio consists of consumer, retail and smaller business receivables.
Judgemental loans are individually risk graded based on loan status, financial information, security and debt servicing ability.
Exposures in the Judgemental portfolio are credit risk graded by an internal risk grading mechanism where grade 1 is the strongest
risk. Grade 8 and grade 9 are the weakest risk grades where a loss is probable. Behavioural loans are managed based on their
arrears status.
Upon adoption of NZ IFRS 9 all loans past due but not impaired have been categorised into three impairments stages (see Note 8)
which are in most cases based on arrears status. If a Judgemental loan is risk graded 6 or above it will be classified as stage 2 as a
minimum and carry a provision based on lifetime expected credit losses.
June 2020
P. 52

22 Credit risk exposure (continued)
Lifetime
ECLLifetime
12 Months Not CreditECL CreditSpecifically
$000's
ECL Impaired Impaired Provided
Fair Value
Total
June 2019
Judgemental portfolio
Grade 1 - Very Strong7- - - - 7
Grade 2 - Strong8,685- - - - 8,685
Grade 3 - Sound86,109- 71- - 86,180
Grade 4 - Adequate478,6823,7075,478- - 487,867
Grade 5 - Acceptable851,8734,8354,854- - 861,562
Grade 6 - Monitor- 142,1225,031- - 147,153
Grade 7 - Substandard- 22,9133,450- - 26,363
Grade 8 - Doubtful- - - 15,391- 15,391
Grade 9 - At risk of loss- - - 11,021- 11,021
Total Judgemental portfolio1,425,356 173,57718,88426,412- 1,644,229
Total Behavioural portfolio1,373,92633,30538,159- 1,318,677 2,764,067
Gross finance receivables2,799,282 206,88257,04326,412 1,318,677 4,408,296
Provision for impairment(30,422)(1,781) (18,425)(7,863)- (58,491)
Total finance receivables2,768,860 205,10138,61818,549 1,318,677 4,349,805
P. 53

23 Liquidity risk
RBNZ facilities
$000'sJune 2020 June 2019
Cash and cash equivalents147,17974,496
Investments397,005 342,493
Undrawn committed bank facilities390,762 219,631
Total liquidity934,946 636,620
Liquidity risk is the risk that the Group is unable to meet its payment obligations as they fall due. The timing mismatch of cash flows
and the related liquidity risk in all banking operations and is closely monitored by the Group.
Measurement of liquidity risk is designed to ensure that the Group has the ability to generate or obtain sufficient cash in a timely
manner and at a reasonable price to meet its financial commitments on a daily basis.
The Group’s exposure to liquidity risk is governed by a policy approved by the Board and managed by the ALCO. This policy sets out
the nature of the risk which may be taken and aggregate risk limits, and the ALCO must conform to this. The objective of the ALCO is
to derive the most appropriate strategy for the Group in terms of a mix of assets and liabilities given its expectations of future cash
flows, liquidity constraints and capital adequacy. The Group employs asset and liability cash flow modelling to determine appropriate
liquidity and funding strategies.
In March 2020, HBL was onboarded by the RBNZ as an approved counterparty and executed a 2011 Global Master Repo Agreement
providing an additional source for intra-day liquidity for the Group if required.
On 16 March 2020, as a result of COVID-19, the RBNZ announced that it would provide term funding through a Term Auction Facility
to give banks the ability to access term funding using repurchase agreements with qualifying collateral for a term of up to twelve
months. From 26 May 2020, the RBNZ also made available, for a period of 6 months, a Term Lending Facility to offer loans for a fixed
term of three years at the Official Cash Rate, with access to the funds linked to HBL’S lending under the BFGS. The Group had not
utilised either of these facilities as at 30 June 2020.
The Group holds the following liquid assets and committed funding sources for the purpose of managing liquidity risk:
P. 54

23 Liquidity risk (continued)
Contractual liquidity profile of liabilities
On0-66-121-22-55+
$000'sDemand Months MonthsYearsYearsYearsTotal
June 2020
Financial liabilities
Retail deposits813,140 1,418,656 833,440 162,22186,615- 3,314,072
Other borrowings- 13,51761,038 196,835 1,039,462- 1,310,852
Lease liabilities- 1,4001,4155,7307,6347,08523,264
Derivative financial liabilities- 5,7224,6655,2971,354- 17,038
Other financial liabilities- 26,751- - - - 26,751
Total financial liabilities813,140 1,466,046 900,558 370,083 1,135,0657,085 4,691,977
248,868- - - - - 248,868
Undrawn committed bank facilities390,762- - - - - 390,762
June 2019
Financial liabilities
Retail deposits895,290 1,415,994 605,804 224,54573,0341,680 3,216,347
Other borrowings- 75,19815,03281,915 977,044- 1,149,189
Derivative financial liabilities- 4,7517,76910,5525,741- 28,813
Other financial liabilities- 16,284- - - - 16,284
Total financial liabilities895,290 1,512,227 628,605 317,012 1,055,8191,680 4,410,633
102,285- - - - - 102,285
Undrawn committed bank facilities219,631- - - - - 219,631
The contractual cash flows presented below may differ significantly from actual cash flows. This occurs as a result of future actions by
the Group and its counterparties, such as early repayments or refinancing of term loans and borrowings. Deposits and other public
borrowings include customer savings deposits and transactional accounts, which are at call. These accounts provide a stable source
of long term funding for the Group.
Undrawn facilities available to
customers
Undrawn facilities available to
customers
The following tables present the Group's liabilities by relevant maturity groupings based upon contractual maturity date. The amounts
disclosed in the tables represent undiscounted future principal and interest cash flows. As a result, the amounts in the tables below
may differ to the amounts reported on the consolidated statement of financial position.
P. 55

24 Interest rate risk
• Monitoring maturity profiles and seeking to match the re-pricing of assets and liabilities;
• Monitoring interest rates daily and regularly (at least monthly) reviewing interest rate exposures; and
•
Contractual repricing analysis
Non-
0-33-66-121-22+ Interest
$000'sMonths Months MonthsYearsYears BearingTotal
June 2020
Financial assets
Cash and cash equivalents147,172- - - - 7 147,179
Investments43,86318,42552,70859,296 222,71316,335 413,340
Finance receivables1,522,837 198,446 352,076 557,569 400,65813,609 3,045,195
Derivative financial assets- - - - - 17,24617,246
Other financial assets- - - - - 3,5633,563
Total financial assets3,252,457 216,871 404,784 616,865 623,37150,760 5,165,108
Financial liabilities
Retail deposits1,616,521 585,482 815,366 155,21977,65513,949 3,264,192
Other borrowings976,638970- - 290,323- 1,267,931
Derivative financial liabilities- - - - - 17,01217,012
Lease liabilities- - - - - 20,45620,456
Other financial liabilities- - - - - 26,75126,751
Total financial liabilities2,593,159 586,452 815,366 155,219 367,97878,168 4,596,342
Net financial assets / (liabilities) 1,217,253 (420,930) (649,719) 224,434 225,136 (27,408) 568,766
557,955 (51,349) (239,137) (237,212) (30,257)- -
The Group's market risk is derived primarily of exposure to interest rate risk, predominantly from raising funds through the retail and
wholesale deposit market, the debt capital markets and committed and uncommitted bank funding, securitisation of receivables, and
offering loan finance products to the commercial and consumer market in New Zealand and Australia.
The Group’s exposure to market risk is governed by a policy approved by the Board and managed by the ALCO. This policy sets out
the nature of risk which may be taken and aggregate risk limits, and the ALCO must conform to this. The objective of the ALCO is to
derive the most appropriate strategy for the Group in terms of the mix of assets and liabilities given its expectations of the future and
the potential consequences of interest rate movements, liquidity constraints and capital adequacy.
The interest rate risk profile of financial assets and liabilities that follows has been prepared on the basis of maturity or next repricing
date, whichever is earlier.
Entering into derivatives to hedge against movements in interest rates.
To manage this market risk, the Group measures sensitivity to interest rate changes by assessing the change in the fair value of the
position to a +/- 1 basis point shock to the curve (that is multiplied by 100), with basis point sensitivity limits set according to the Risk
Appetite Statement and Market Risk Policy. The Group also manages interest rate risk by:
1,538,585- - - - - 1,538,585
Finance receivables - reverse
mortgages
Effect of derivatives held for risk
management
P. 56

24 Interest rate risk (continued)
Non-
0-33-66-121-22+ Interest
$000'sMonths Months MonthsYearsYears BearingTotal
June 2019
Financial assets
Cash and cash equivalents74,490- - - - 674,496
Investments24,09715,36891,24862,048 149,73212,435 354,928
Finance receivables1,553,748 206,801 337,236 537,300 386,8709,173 3,031,128
Derivative financial assets- - - - - 14,49114,491
Other financial assets- - - - - 7,5037,503
Total financial assets2,971,012 222,169 428,484 599,348 536,60243,608 4,801,223
Financial liabilities
Retail deposits1,614,124 519,676 729,734 212,57565,88711,685 3,153,681
Other borrowings772,134- - - 285,434- 1,057,568
Derivative financial liabilities- - - - - 11,14711,147
Other financial liabilities- - - - - 16,28416,284
Total financial liabilities2,386,258 519,676 729,734 212,575 351,32139,116 4,238,680
Effect of derivatives held for
risk management
Net financial assets / (liabilities)547,965 (134,758) (262,275) 73,589 333,5304,492 562,543
1,318,677
The tables above illustrate the periods in which the cash flows from interest rate swaps are expected to occur and affect profit or loss.
(36,789) 162,74938,975 (313,184) 148,249- -
Finance receivables - reverse
mortgages
1,318,677- - - - -
P. 57

Other Disclosures
25Significant subsidiaries
Proportion of ownership
and voting power held
Country of Incorporation
Significant Subsidiariesand Place of Business Nature of BusinessJune 2020 June 2019
Heartland Bank LimitedNew ZealandBank100%100%
VPS Properties LimitedNew ZealandInvestment property holding company100%100%
MARAC Insurance Limited New ZealandInsurance services100%100%
26 Structured entities
(a) Heartland Cash and Term PIE Fund (Heartland PIE Fund)
$000'sJune 2020 June 2019
Deposits166,676 146,094
(b) Seniors Warehouse Trust, Seniors Warehouse Trust No.2 (together the SW Trusts) and ASF Settlement Trust (ASF Trust)
$000'sJune 2020 June 2019
Cash and cash equivalents26,4916,112
Finance receivables - reverse mortgages929,179 756,454
Other borrowings(783,373) (659,925)
100%
100%
100%
100%
Australia
Australia
Heartland Australia Holdings Pty
Limited
A structured entity is one which has been designed such that voting or similar rights are not the dominant factor in deciding who controls
the entity. Structured entities are created to accomplish a narrow and well-defined objective such as the securitisation or holding of
particular assets, or the execution of a specific borrowing or lending transaction. Structured entities are consolidated where the
substance of the relationship is that the Group controls the structured entity.
Heartland Australia Group Pty
Limited
SW Trusts and ASF Trust (collectively the Trusts) form part of ASF's reverse mortgage business and were set up by ASF as asset
holding entities. The Trustee for the Trusts is ASF Custodians Pty Limited and the Trust Manager is ASF. The reverse mortgage loans
held by the Trusts are set aside for the benefit of the investors in the Trusts. The balances of SW Trusts and ASF Trust are represented
as follows:
100%
Australian Seniors Finance Pty
Limited
Financial services
Financial services
Management services
100%
Australia
The Group controls the operations of the Heartland PIE Fund which is a portfolio investment entity that invests in the Group's deposits.
Investments of Heartland PIE Fund are represented as follows:
P. 58

26 Structured entities (continued)
(c) Heartland Auto Receivables Warehouse Trust 2018-1 (Auto Warehouse)
$000'sJune 2020 June 2019
Cash and cash equivalents5,493555
Finance receivables78,066-
Other borrowings(79,012)(559)
27 Staff share ownership arrangements
(a) Share-based compensation plan details
Heartland performance rights plan (PR plan)
PR Plan 2022 Tranche (PR plan 2022)
Performance rights will vest on the measurement date to the extent these criteria have been met, but subject to caps and also to
retesting on a later measurement date if the criteria are not met on the initial measurement date.
The PR plan was established to enhance the alignment of participants' interests with those of the Group’s shareholders. Under the PR
plan participants are issued performance rights which will entitle them to receive shares in the Group. As at June 2020, there were 3
tranches being 2017, 2018 and 2022. The 2017 and 2018 tranche rules have been aligned to the PR Plan 2022, and therefore they all
have the same terms and conditions applying regarding participants, awarding of PR, measurement date and vesting as outlined below:
The number of performance rights offered is determined by the participant’s long-term incentive (LTI) value over the volume weighted
average price (VWAP) of the Group's ordinary shares on the NZX Main Board for the 20 business days immediately before (and
excluding) the issue date. The issue date is 14 September 2019. Performance rights do not entitle participants to dividends or voting
rights.
The Group operates a number of share-based compensation plans that are equity settled. The fair value determined at the grant date is
expensed on a straight line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest,
with a corresponding increase in equity. At the end of each reporting period the Group revises its estimate of the number of equity
instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to the employee benefits reserve.
The Auto Warehouse securitises motor loan receivables as a source of funding.
The Group continues to recognise the securitised assets and associated borrowings in the consolidated statement of financial position
as the Group remains exposed to and has the ability to affect variable returns from those assets and liabilities. Although the Group
recognises those interests in Auto Warehouse, the loans sold to Auto Warehouse are set aside for the benefit of investors in Auto
Warehouse and other depositors and lenders to the Group have no recourse to those assets.
The performance rights are issued subject to the participants’ continued employment with the Group until the measurement date and the
Group achieving its financial measures, strategic objectives and culture and conduct objectives, over the period commencing 1 July
2019 and ending on 30 June 2022. The targets are dynamic and may be adjusted by the Board from time to time in order to account for
unanticipated capital changes during the performance period. The measurement date is the business days following the date on which
the Group announces its full year results for the financial year ended 2022.
P. 59

27 Staff share ownership arrangements (continued)
PR Plan
SES
1
Number of Number of
RightsShares
1 July 20193,121,340-
Granted(816,858)-
Issued1,230,740-
Forfeited(318,295)-
3,216,927-
1 July 20183,180,298 1,858,676
Granted
- (1,858,676)
Issued293,759-
Forfeited(352,717)-
30 June 20193,121,340-
1
Senior Executive Scheme (SES) was established in June 2016 and terminated in June 2019.
(b) Effect of share-based payment transactions
$000'sJune 2020 June 2019
Award of Shares
SES- 327
PR Plan516341
Total expense recognised516668
(c) Number of rights outstanding at 30 June 2020
Rights
Remaining
Rights
Remaining
000'sOutstandingYears OutstandingYears
PR plan - 2016- - 823-
PR Plan - 20172,03922,0392
PR Plan - 201825922592
PR Plan - 20229192- -
Total3,2173,121
June 2020June 2019
30 June 2020
As at 30 June 2020, $1.9 million of the share scheme awards remain unvested and not expensed (2019: $0.59 million). This expense
will be recognised over the vesting period of the awards.
P. 60

28 Insurance business, securitisation, funds management, other fiduciary activities
Insurance business
The Group conducts insurance business through its subsidiary MIL.
Securitisation, funds management and other fiduciary activities
29 Concentrations of funding
(a) Concentrations of funding by industry
$000'sJune 2020 June 2019
Agriculture109,26868,559
Forestry and fishing14,90125,360
Mining3561
Manufacturing6,97611,233
Finance and insurance1,431,320 1,149,034
Wholesale trade10,85511,520
Retail trade and accommodation20,42319,730
Households2,263,668 2,340,764
Rental, hiring and real estate services41,34830,110
Construction19,70215,338
Other business services63,69757,360
Transport and storage4,5524,416
Other 97,150 140,084
4,083,895 3,873,569
Unsubordinated notes448,228 337,680
Total borrowings4,532,123 4,211,249
(b) Concentration of funding by geographical area
$000'sJune 2020 June 2019
New Zealand3,470,744 3,404,163
Rest of the world1,061,379 807,086
Total borrowings4,532,123 4,211,249
The Group's aggregate amount of insurance business comprises the total consolidated assets of MIL of $10.9 million (2019: $12.9
million), which represents 0.2% of the total consolidated assets of the Group.
The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for categorising
customer industry sectors:
Changes to the Group’s involvement in securitisation activities are set out in Note 26. There have been no material changes to the
Group’s involvement in funds management and other fiduciary activities during the year.
During the current year the Group has undertaken a strategic review of its insurance business in line with its core banking business. The
Group has entered into a distribution agreement with DPL to distribute DPL's insurance products through its network and has stopped
writing insurance policies in February 2020. The Group will gradually exit from the insurance business as the existing written policies
expire over time.
P. 61

30 Contingent liabilities and commitments
$000'sJune 2020 June 2019
Letters of credit, guarantee commitments and performance bonds6,5156,757
Total contingent liabilities6,5156,757
Undrawn facilities available to customers248,868 177,316
Conditional commitments to fund at future dates58,04514,286
Total commitments306,913 191,602
31 Events after the reporting date
The Group declared a fully imputed dividend of 2.5 cents per share on 17 September 2020, to be paid to share holders on 9 October
2020.
Following the confirmation of further community spread of COVID-19 with unknown origin, the Government announced on 12 August
2020 that New Zealand’s COVID-19 Alert Levels will change, with the Auckland region (Wellsford to Pukekohe) moving to Alert Level 3
and the rest of New Zealand moving to Alert Level 2. Following that, the Auckland region moved to Alert Level 2 from 31 August 2020.
This did not have any impact on Group's estimates and judgements (refer to Note 1 - Financial statements preparation).
There were no other events subsequent to the reporting period which would materially affect the consolidated financial statements.
Funding facility
On 15 September 2020, the Group announced that a funding facility of AU$142 million had been secured for its Australian reverse
mortgages portfolio.
Dividend
Contingent liabilities and credit related commitments arising in respect of the Group's operations were:
The Group in the ordinary course of business will be subject to claims and proceedings against it whereby the validity of the claim will
only be confirmed by uncertain future events. In such circumstances the contingent liabilities are possible obligations, or present
obligations if known, where the transfer of economic benefit is uncertain or cannot be reliable measured. Contingent Liabilities are not
recognised, but are disclosed, unless they are remote. Where some loss is probable, provisions have been made on a case by case
basis.
COVID-19 pandemic update
P. 62

© 2020 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
63
Independent Auditor’s Report
To the shareholders of Heartland Group Holdings Limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the accompanying consolidated
financial statements which comprise:
— the consolidated statement of financial position
as at 30 June 2020;
— the consolidated statements of comprehensive
income, changes in equity and cash flows for
the year then ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.
In our opinion, the accompanying consolidated
financial statements of Heartland Group Holdings
Limited and its subsidiaries (the “Group”) on pages
6 to 62:
i.present fairly in all material respects the Group’s
financial position as at 30 June 2020 and its
financial performance and cash flows for the
year ended on that date; and
ii.comply with New Zealand Equivalents to
International Financial Reporting Standards and
International Financial Reporting Standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISAs (NZ)”). We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of
Ethics for Assurance Practitioners (Including International Independence Standards) (New Zealand) issued by the
New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for
Accountants’ International Code of Ethics for Professional Accountants (including International Independence
Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the
consolidated financial statements section of our report.
Our firm has also provided other services to the Group in relation to the review of the Group’s consolidated
interim financial statements, regulatory assurance services, agreed upon procedure engagements and supervisor
reporting. Subject to certain restrictions, partners and employees of our firm may also deal with the Group on
normal terms within the ordinary course of trading activities of the business of the Group. These matters have
not impaired our independence as auditor of the Group. The firm has no other relationship with, or interest in, the
Group.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually
and on the consolidated financial statements as a whole. The materiality for the consolidated financial statements
as a whole was set at $5,470,000 determined with reference to a benchmark of the Group’s normalised profit
before tax. We chose the benchmark because, in our view, this is a key measure of the Group’s performance.
We agreed with the Audit Committee that we would report to them, misstatements identified during our audit
above $270,000 as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.

64
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements in the current period. We summarise below those matters and our key
audit procedures to address those matters in order that the shareholders as a body may better understand the
process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely
for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not
express discrete opinions on separate elements of the consolidated financial statements.
Key changes in the assessment of audit risks
Covid-19
The Covid-19 pandemic has created significant additional risks across a number of areas of the business,
particularly the assessment of the provision for impairment of finance receivables. All forward looking
assumptions are inherently more uncertain during these unprecedented times. While the key audit matter
"Provision for impairment of finance receivables", detailed below, is unchanged from last year, the underlying
audit risk has increased which impacted the extent and nature of audit evidence that we had to gather.
The key audit matter How the matter was addressed in our audit
Provision for impairment of finance receivables
Refer to notes 1 and 13 to the consolidated financial statements.
The provision for impairment of finance
receivables is a key audit matter due to the
financial significance and the inherent
complexity of the Group’s expected credit
loss (“ECL”) models.
Significant judgement and estimates are
required to incorporate forward-looking
information to reflect future economic
conditions, including the potential economic
impact of the Covid-19 pandemic and other
assumptions such as defining a significant
increase in credit risk (“SICR”).
The collective provision is estimated through
the ECL model which uses historical data,
adjusted for forward looking information and
the assigned risk grade or arrears status.
Additionally, management apply judgement
in the determination of provision overlays to
adjust for future market conditions.
The level of judgement involved in
determining the provision for collectively
impaired assets requires us to challenge the
appropriateness of management’s
assumptions.
The provision for individually impaired assets
is based on the application of management
judgement regarding expected future
cashflows, which are inherently uncertain.
Together with KPMG credit risk specialists we assessed the Group’s
collective and individual provisions. Our procedures, amongst others,
included:
⎯ Assessing the Group’s governance and oversight, including the
continuous reassessment of overall provisioning;
⎯ Assessing the Group’s significant accounting policies and ECL
modelling methodology against the requirements of the
standards and underlying accounting records;
⎯ Testing key controls including the arrears calculations, customer
loan ratings, annual loan reviews, credit risk reviews and data
reconciliations between the ECL models and source systems;
⎯ Assessing the model output against actual losses incurred by the
Group;
⎯ Challenging the key assumptions, including forward looking
economic assumptions, against external information including
benchmarking management’s estimates to a range of different
market forecasts;
⎯ Evaluating individual credit assessments for a sample of ‘rural’
and other ‘corporate’ loans on management’s credit watchlist.
This included inspection of the latest correspondence with the
borrower, assessment of the provision estimates prepared by
credit risk officers, and consideration of the resolution strategy.
We challenged assumptions and assessed collateral values by
comparing them to valuations performed by independent valuers;
and
⎯ Assessing the disclosures in the consolidated financial
statements against the requirements of NZ IFRS.
From the procedures performed we consider the Group appropriately
identified and considered the uncertainties in the provision estimates.

65
The key audit matter How the matter was addressed in our audit
Valuation of finance receivables – reverse mortgages
Refer to notes 13(b) and 20 to the consolidated financial statements.
The Group’s reverse mortgage portfolio is
held at fair value.
The fair value calculation is based on the
application of management judgement. In
assessing the fair value, the Group
continuously considers evidence of a
relevant active market. In the absence of
such a market, in the current period, the
Group considered changes since loan
origination and expected future cashflows.
The inherent uncertainties include estimated
exits, interest rates and security property
values.
Our procedures over the fair value loan portfolios, amongst others,
included:
⎯ Testing key controls over the accuracy of data impacting the fair
value assessment;
⎯ Assessing evidence of a relevant active market or observable
inputs; and
⎯ Challenging the key assumptions used by the Group in
determining the portfolio’s fair value.
The estimates and assumptions used to determine the valuation of
finance receivables are reasonable, with no evidence of management
bias or influence identified from our procedures.
Operation of IT systems and controls
The Group is reliant on complex IT systems
for the processing and recording of
significant volumes of transactions and other
core banking activity.
For significant financial statement balances,
such as finance receivables and deposits,
where relevant, our audit involves an
assessment of the design of the Group’s
internal control environment. There are
some areas of the audit where we seek to
test and place reliance on IT systems,
automated controls and reporting.
The effective operation of these controls is
dependent upon the Group’s general IT
control environment, which incorporates
controls relevant to IT system changes and
development, IT operations, developer and
user access.
Our audit procedures, amongst others, included:
⎯ Gaining an understanding of business processes, key controls
and IT systems relevant to significant financial statement
balances, including technology services provided by a third party;
⎯ Assessing the effectiveness of the IT control environment,
including core banking IT systems, key automated controls and
reporting; and
⎯ Evaluating general IT controls relevant to IT system changes and
development, IT operations, developer and user access.
Where we noted design or operating effectiveness matters relating to
IT system or application controls relevant to our audit, we performed
alternative audit procedures. We also identified and tested mitigating
controls in order to respond to the impact on our overall audit
approach.
We did not identify any material issues or exceptions from those
additional procedures.
Other information
The Directors, on behalf of the Group, are responsible for the other information included in the entity’s Annual
Report. Other information may include the Annual Review and information included in the Financial Report. Our
opinion on the consolidated financial statements does not cover any other information and we do not express
any form of assurance conclusion thereon.
The Annual Report is expected to be made available to us after the date of this Independent Auditor's
Report. Our responsibility is to read the Annual Report when it becomes available and consider whether the
other information it contains is materially inconsistent with the consolidated financial statements, or our
knowledge obtained in the audit, or otherwise appear misstated. If so, we are required to report such matters to
the Directors.

66
Use of this independent auditor’s report
This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been
undertaken so that we might state to the shareholders those matters we are required to state to them in the
independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent
auditor’s report, or any of the opinions we have formed.
Responsibilities of the Directors for the consolidated financial statements
The Directors, on behalf of the Group, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally
accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial
Reporting Standards) and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of consolidated financial statements that
are fairly presented and free from material misstatement, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated financial
statements

Our objective is:
— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error; and
— to issue an independent auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs NZ will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at
the External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor's report is Graeme Edwards.
For and on behalf of
KPMG
Auckland
17 September 2020

---

Distribution Notice

Please note: all cash amounts in this form should be provided to 8 decimal places

Section 1: Issuer information
Name of issuer Heartland Group Holdings Limited
Financial product name/description Ordinary Shares
NZX ticker code HGH
ISIN (If unknown, check on NZX
website)
NZHGHE0007S9
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year X Quarterly
Half Year Special
DRP applies X
Record date 25/09/2020
Ex-Date (one business day before the
Record Date)
24/09/2020
Payment date (and allotment date for
DRP)
09/10/2020
Total monies associated with the
distribution
1

$14,524,477.65
Source of distribution (for example,
retained earnings)
Retained earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution
2
$0.03472222
Gross taxable amount
3
$0.03472222
Total cash distribution
4
$0.02500000
Excluded amount (applicable to listed
PIEs)
NIL
Supplementary distribution amount $0.00441176
Section 3: Imputation credits and Resident Withholding Tax
5

Is the distribution imputed Fully imputed - YES
Partial imputation

1
Continuous issuers should indicate that this is based on the number of units on issue at the date of the form
2
“Gross distribution” is the total cash distribution plus the amount of imputation credits, per financial product, before the deduction of
Resident Withholding Tax (RWT).
3
“Gross taxable amount” is the gross distribution minus any excluded income.
4
“Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT.
This should include any excluded amounts, where applicable to listed PIEs.
5
The imputation credits plus the RWT amount is 33% of the gross taxable amount for the purposes of this form. If the distribution is
fully imputed the imputation credits will be 28% of the gross taxable amount with remaining 5% being RWT. This does not constitute
advice as to whether or not RWT needs to be withheld.

No imputation
If fully or partially imputed, please
state imputation rate as % applied
6

28%
Imputation tax credits per financial
product
$0.00972222
Resident Withholding Tax per
financial product
$0.00173611
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
2.0%
Start date and end date for
determining market price for DRP
28/09/2020 02/10/2020
Date strike price to be announced (if
not available at this time)
05/10/2020
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
New issue
DRP strike price per financial product
$

Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
28/09/2020, 5:00pm (NZT)
Section 5: Authority for this announcement
Name of person

authorised to make
this announcement
Andrew Dixson, Chief Financial Officer
Contact person for this
announcement
Andrew Dixson, Chief Financial Officer
Contact phone number 09 927 9274
Contact email address Andrew.Dixson@heartland.co.nz
Date of release through MAP

17/09/2020

6
Calculated as (imputation credits/gross taxable amount) x 100. Fully imputed dividends will be 28% as a % rate applied.

---

FOR THE YEAR ENDED 30 JUNE 2020
Disclosure Statement

CONTENTS
Financial Statements
Page
General Information...........................................................................................................................................................................3
Priority of Creditors' Claims............................................................................................................................................................................................3
Guarantee Arrangements............................................................................................................................................................................................3
Auditor..............................................................................................................................................................................................3
Directors..........................................................................................................................................................................................................4
Directors' Statements..................................................................................................................................................................5
Consolidated Statement of Comprehensive Income..................................................................................................................................................7
Consolidated Statement of Changes in Equity....................................................................................................................................8
Consolidated Statement of Financial Position..........................................................................................................................................9
Consolidated Statement of Cash Flows................................................................................................................................................................10
Notes to the Financial Statements
1Financial statements preparation.......................................................................................................................................................12
Performance
2Segmental analysis.........................................................................................................................................................................................................................18
3Net interest income.........................................................................................................................................................................................................................19
4Net operating lease income.........................................................................................................................................................................................................................20
5Other income.........................................................................................................................................................................................................................20
6Operating expenses.........................................................................................................................................................................................................................21
7Compensation of auditor.........................................................................................................................................................................................................................21
8Impaired asset expense.........................................................................................................................................................................................................................21
9Taxation.........................................................................................................................................................................................................................24
Position
10Investments.........................................................................................................................................................................................................................26
11Derivative financial instruments.........................................................................................................................................................................................................................26
12Finance receivables.........................................................................................................................................................................................................................29
13Operating lease vehicles.........................................................................................................................................................................................................................33
14Borrowings.........................................................................................................................................................................................................................33
15Share capital and dividends.........................................................................................................................................................................................................................34
16Other reserves.........................................................................................................................................................................................................................35
17Other balance sheet items.........................................................................................................................................................................................................................35
18Related party transactions and balances.........................................................................................................................................................................................................................37
19Fair value.........................................................................................................................................................................................................................39
Risk Management
20Enterprise risk management program.........................................................................................................................................................................................................................45
21Credit risk exposure.........................................................................................................................................................................................................................48
22Asset quality.........................................................................................................................................................................................................................51
23Liquidity risk.........................................................................................................................................................................................................................57
24Interest rate risk.........................................................................................................................................................................................................................59
25Concentrations of funding.........................................................................................................................................................................................................................61
Other Disclosures
26Significant subsidiaries.........................................................................................................................................................................................................................63
27Structured entities.........................................................................................................................................................................................................................63
28Capital adequacy.........................................................................................................................................................................................................................63
29Insurance business, securitisation, funds management, other fiduciary activities.........................................................................................................................................................................................................................69
30Contingent liabilities and commitments.........................................................................................................................................................................................................................71
31Events after the reporting date.........................................................................................................................................................................................................................71
Historical Summary of the Financial Statements .........................................................................................................................................................................................................................72
Amendments to Conditions of Registration.........................................................................................................................................................................................................................73
Conditions of Registration.........................................................................................................................................................................................................................73
Conditions of Registration Non-Compliance.........................................................................................................................................................................................................................78
Pending Proceedings..........................................................................................................................................................................................................78
Credit Ratings..........................................................................................................................................................................................................79
Other Material Matters..........................................................................................................................................................................79
Auditor's Report.........................................................................................................................................................................................................................80
P. 2

GENERAL INFORMATION
Name
Percentage held
Heartland Group Holdings Limited
100%
PRIORITY OF CREDITORS' CLAIMS
GUARANTEE ARRANGEMENTS
AUDITOR
The Bank was incorporated under the Companies Act 1993 on 30 September 2010.
In the event of the Bank becoming insolvent or ceasing business, certain claims set out in legislation are paid in priority to others. These claims
include secured creditors, taxes, certain payments to employees and any liquidator’s costs. After payment of those creditors, the claims of all other
creditors are unsecured and would rank equally, with the exception of holders of subordinated bonds and notes which rank below all other claims.
Auckland
The Banking Group consists of the Bank and all of its subsidiaries.
The Bank's address for service is Level 3, Heartland House, 35 Teed Street, Newmarket, Auckland.
18 Viaduct Harbour Avenue
The address for service of the ultimate parent, Heartland Group Holdings Limited, is Level 3, Heartland House, 35 Teed Street, Newmarket,
Auckland.
Heartland Group Holdings Limited have the ability to appoint 100% of Directors, subject to RBNZ restrictions and RBNZ Director approval.
Interests in 5% or more of voting securities of the Bank
KPMG Centre
This Disclosure Statement has been issued by Heartland Bank Limited (the Bank) and its subsidiaries (the Banking Group) for the year ended 30
June 2020 in accordance with the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as
amended) (the Order). The financial statements of the Bank for the year ended 30 June 2020 form part of, and should be read in conjunction with,
this Disclosure Statement.
Details of incorporation
As at the date this Disclosure Statement was signed, no material obligations of the Bank were guaranteed.
KPMG
Words and phrases defined by the Order have the same meanings when used in this Disclosure Statement.
Name and address for service
The name of the Registered Bank is Heartland Bank Limited.
P. 3

DIRECTORS
Chairman - Board of Directors
Name: Bruce Robertson IrvineQualifications: BCom, LLB, FCA, CF Inst D, FNZIM
Type of Director: Independent Non-Executive DirectorOccupation: Company Director
External Directorships:
Name: Edward John HarveyQualifications: BCom, CA, CFInstD
Type of Director: Independent Non-Executive DirectorOccupation: Company Director
External Directorships:
Name: Ellen Frances ComerfordQualifications: BEc
Type of Director: Non-Independent Non-Executive DirectorOccupation: Company Director
External Directorships:
Air Rarotonga Limited, Amaia Day Spa (Tonga) Limited, Amaia Luxury Spa Limited, Amyes Road Limited (in liquidation), B R Irvine Limited,
Blackbyre Horticulture Limited, Bowdens Mart Limited, Bray Frampton Limited, Britten Motorcycle Company 1992 Limited, Chambers @151
Limited, Clipper Investments (2002) Limited, Cockerill and Campbell (2007) Limited, Embassy Hotels Limited, GZ Capital Limited, GZ NZ Limited,
GZ RES Limited, Hansons Lane International Holdings Limited, Hawling Holdings Limited, House of Travel ESP Trustee Limited, House of Travel
Holdings Limited, J.S. Ewers Limited, Kaipaki Holdings Limited, Kaipaki Properties Limited, Lake Angelus Holdings Limited, Lamanna Bananas
(NZ) Limited, Lamanna Premier Group Pty Limited, Lamanna Limited, Limeloader Irrigation Limited, Market Fresh Wholesale Limited, Market
Gardeners Limited, MG Group Holdings Limited, MG Marketing Limited, MG New Zealand Limited, Monarch Hotels Limited, Noblesse Oblige
Limited, Original Foods N.Z. Limited; Paradise Islands Limited; Phimai Holdings Limited, Quitachi Limited, Rakon ESOP Trustee Limited, Rakon
Limited, Rakon PPS Trustee Limited, Scenic Hotels (Karapiro) Limited, Scenic Hotels (Hamilton) Limited, Scenic Circle Convention Services
Limited, Scenic Hotel (Haast) Limited, Scenic Circle (Napier) Limited, Scenic Hotel Group Limited, Scenic Hotels (Ashburton) Limited, Scenic Hotels
(International) Limited, Scenic Circle MLC Café & Bar Limited, Skope Industries Limited, Southland Produce Markets Limited, Stark Holdings (NZ)
Limited, USC Investments Limited, Wavell Resources Limited.
External Directorships:
Name: Jeffrey Kenneth Greenslade
Type of Director: Non-Independent Non-Executive DirectorOccupation: Chief Executive Officer of Heartland Group Holdings Limited
On 01 January 2020, Vanessa Cynthia May Stoddart resigned as Director, and Shelley Maree Ruha was appointed as a Director.
All Directors of the Bank reside in New Zealand with the exception of Ellen Comerford who resides in Australia. Communications to the Directors
can be sent to Heartland Bank Limited, 35 Teed Street, Newmarket, Auckland.
The Directors of the Bank and their details at the time this Disclosure Statement was signed were:
Type of Director: Non-Independent Non-Executive Director
Auscred Limited, Comerford Gohl Holdings Pty Limited, Heartland Group Holdings Limited, Hollard Holdings Australia Pty Limited, The Hollard
Insurance Group Pty Limited.
Investore Property Limited, Kathmandu Holdings Limited, Napier Port Holdings Limited, Pomare Investments Limited, Port of Napier Limited, Stride
Holdings Limited, Stride Investment Management Limited, Stride Property Limited.
Qualifications: LLB
Qualifications: LLB (Hons), LLD (honoris causa), CFInstD
Heartland Group Holdings Limited, Janmac Capital Limited, Maisemore Enterprises Limited, MCF2 Message4U Limited, MCF 2 Nexus Limited,
MCF 7 Limited, MCF 8 Limited, MCF 9 Limited, MCF 10 Limited, MCF2 (Fund 1) Limited, MCF2A General Partner Limited, MCF2 GP Limited,
MCF3 GP Limited, MCF3B General Partner Limited, MCF3A General Partner Limited, MCF2 FFF-GK Limited, MCF3 Cook Limited, MCF3 TEG
Limited, MCF3 Squiz Limited, MC Medical Properties Limited, Mercury Capital No.1 Fund Limited, Mercury Capital No. 1 Trustee Limited, Mercury
Medical Holdings Limited, New Zealand Catholic Education Office Limited, NZCEO Finance Limited, O & E Group Services Limited, Oceania and
Eastern Finance Limited, Oceania and Eastern Group Funds Limited, Oceania and Eastern Holdings Limited, Oceania and Eastern Limited,
Oceania and Eastern Securities Limited, Oceania North Limited, Oceania Securities Limited, Quartet Equities Limited, The Centre for Independent
Studies Limited.
Heartland Australia Group Pty Limited, Heartland Australia Holdings Pty Limited, Australian Seniors Finance Pty Limited, ASF Custodians Pty
Limited, Heartland Group Holdings Limited, Henley Family Investments Limited.
Occupation: Company Director
Name: Geoffrey Thomas Ricketts CNZM
External Directorships:
P. 4

DIRECTORS (CONTINUED)
Conflicts of interest policy
Audit committee composition
Edward John Harvey (Chairperson)Independent Non-Executive Director
Bruce Robertson IrvineIndependent Non-Executive Director
Geoffrey Thomas RickettsNon-Independent Non-Executive Director
DIRECTORS' STATEMENTS
1.
(a)
(b)
2.
(a)
(b)
(c)
Qualifications: BA, CMInstD
External Directorships:
Interested transactions
There have been no transactions between the Bank or any member of the Banking Group and any Director or immediate relative or close business
associate of any Director which either has been entered into on terms other than those which would in the ordinary course of business of the Bank
or any member of the Banking Group be given to any other person of like circumstances or means, or could be reasonably likely to influence
materially the exercise of the Directors' duties.
Members of the Bank's Audit Committee as at the date of this Disclosure Statement are as follows:
Directors are required to take any necessary and reasonable measures to try to resolve the conflict and comply with the Companies Act 1993 by
disclosing interests and restrictions on voting. Any Director with a material personal, professional or business interest in a matter being considered
by the Board must declare their interest and, unless the Board resolves otherwise, may not be present during the boardroom discussions or vote on
the relevant matter.
All Directors are required to disclose to the Board any actual or potential conflicts of interest which may exist or is thought to exist upon appointment
and are required to keep these disclosures up to date. The details of each disclosure made by a Director to the Board must be entered in the
Interests Register.
the Disclosure Statement contains all the information that is required by the Order; and
the Disclosure Statement is not false or misleading.
the Bank had systems in place to monitor and control adequately material risks of the Banking Group, including credit risk,
concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risk and other business risks, and
that those systems were being properly applied.
During the year ended 30 June 2020:
credit exposures to connected persons were not contrary to the interests of the Banking Group; and
the Bank complied with all Conditions of Registration applicable during the period except as noted on page 78;
Occupation: Company Director
External Directorships:
Analey Holdings Limited, IT & Business Consulting Limited, New Zealand Rural Land Management Limited, Partners Group Holdings Limited,
Partners Life Limited, 9 Spokes International Limited.
Occupation: Company Director
Chambers@151 Limited, Christchurch International Airport Limited, Farmright Limited, Firsttrax Limited, Helpings Hands Holdings Limited, Link
Engine Management Limited, Morrison Horgan Limited, The New Zealand Merino Company Limited.
As at the date on which this Disclosure Statement is signed:
Each Director of the Bank states that he or she believes, after due enquiry, that:
Name: Kathryn Mitchell
Type of Director: Independent Non-Executive Director
Name: Shelley Maree Ruha Qualifications: BCom, DipBank
Type of Director: Independent Non-Executive Director
P. 5

B. R. Irvine (Chair - Board of Directors)
K. Mitchell
E. F. Comerford
G. T. Ricketts
This Disclosure Statement is dated 17 September 2020 and has been signed by all the Directors.
E. J. Harvey
J. K. Greenslade
S. M. Ruha
P. 6

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2020
$000'sNote
June 2020
June 2019
Interest income
3
297,512 284,064
Interest expense
3
108,476 111,665
Net interest income189,036 172,399
Operating lease income
4
5,946 6,336
Operating lease expense
4
4,063 3,670
Net operating lease income1,883 2,666
Lending and credit fee income7,894 6,217
Other income
5
5,965 526
Net operating income204,778 181,808
Operating expenses
6
90,782 76,298
Profit before impaired asset expense and income tax113,996 105,510
Fair value gain on investments- 1,936
Impaired asset expense
8
29,372 20,554
Profit before income tax84,624 86,892
Profit before income tax from discontinued operations- 6,169
Income tax expense
9
23,924 24,762
Profit for the year60,700 68,299
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss, net of income tax:
Effective portion of change in fair value of derivative financial instruments(2,179) (4,762)
Movement in fair value reserve766 2,968
Movement in foreign currency translation reserve- (4,229)
Items that will not be reclassified to profit or loss, net of income tax:
Movement in defined benefit reserve- (86)
Other comprehensive (loss) for the year, net of income tax(1,413) (6,109)
Total comprehensive income for the year59,287 62,190
Total comprehensive income for the year is attributable to the owner of the Bank.
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
P. 7

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2020
$000's
Note
Balance at beginning of year553,239 (1,114) 51,265 603,390542,3154,585 117,260 664,160
NZ IFRS 9 adjustment- - - - - - (19,283) (19,283)
NZ IFRS 16 adjustment1- - (640)(640)- - - -
Restated balance at beginning of year553,239 (1,114) 50,625 602,750542,3154,585 97,977 644,877
Profit for the year- - 60,70060,700- - 68,29968,299
Dividends paid15- - (65,000) (65,000)- - (30,808) (30,808)
Transfer of ownership- - - - - (297)- (297)
Sale of business- - - - - 2,969(2,969)-
Dividend reinvestment plan- - - - 8,584- - 8,584
Share based payments- - - - - 78- 78
Shares vested- - - - 2,340(2,340)- -
Total transactions with owners- - (65,000) (65,000)10,924410 (115,011) (103,677)
Balance at end of the year553,239 (2,527) 46,325 597,037553,239 (1,114) 51,265 603,390
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
June 2019June 2020
Share
Capital Reserves
Retained
Earnings
Total
Equity
Share
Capital Reserves
Retained
Earnings
Total
Equity
(6,109)
Other comprehensive (loss),
net of income tax
Total comprehensive income for
the year
Dividend to Heartland Group Holdings
Limited
Contributions by and distributions
to owners
- (1,413)- (1,413)- (6,109)- (6,109)
- -
68,299 62,190
(81,234)15
16
- - - - (81,234)
Total comprehensive income for
the year
- (1,413) 60,700 59,287-
P. 8

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2020
$000's
Note June 2020
June 2019
Assets
Cash and cash equivalents105,46339,140
Investments10399,308 354,928
Investment properties11,13211,132
Derivative financial instruments1117,24614,467
Due from related parties181,48124,558
Finance receivables123,044,960 3,031,066
Finance receivables - reverse mortgages12609,346 561,131
Operating lease vehicles1317,60315,516
Right of use assets1717,843-
Other assets1717,38025,362
Intangible assets1757,47056,580
Deferred tax asset915,3279,948
Total assets4,314,559 4,143,828
Liabilities
Retail deposits143,269,239 3,153,681
Other borrowings14358,732 345,273
Due to related parties187,9443,381
Lease liabilities1719,871-
Tax liabilities11,2715,667
Derivative financial instruments1116,97411,147
Trade and other payables1733,49121,289
Total liabilities3,717,522 3,540,438
Equity
Share capital15553,239 553,239
Retained earnings and other reserves43,79850,151
Total equity597,037 603,390
Total equity and liabilities4,314,559 4,143,828
Total interest earning and discount bearing assets4,143,158 3,964,651
Total interest and discount bearing liabilities3,614,022 3,487,269
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
P. 9

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
$000's
Note June 2020
June 2019
Cash flows from operating activities
Interest received258,797 246,885
Operating lease income received5,9345,391
Lending, credit fees and other income received17,4224,585
Operating inflows282,153 256,861
Interest paid103,793 129,270
Payments to suppliers and employees40,27777,795
Taxation paid20,28121,888
Operating outflows164,351 228,953
117,802 27,908
Proceeds from sale of operating lease vehicles4,9694,959
Purchase of operating lease vehicles(9,938)(5,495)
Net movement in finance receivables(51,372) (325,390)
Net movement in deposits116,040 270,232
Net cash flows from/(applied to) operating activities177,501 (27,786)
Cash flows from investing activities
Sale of property, plant and equipment and intangible assets95-
Total cash provided from investing activities95-
Purchase of property, plant and equipment and intangible assets6,6024,302
Net increase in investments43,61411,227
Total cash applied to investing activities50,216 15,529
Net cash flows (applied to) investing activities(50,121) (15,529)
Cash flows from financing activities
Net increase in wholesale funding5,74549,892
Proceeds from issue of unsubordinated notes- 125,000
Total cash provided from financing activities5,745 174,892
Dividends paid1565,00042,014
Repayments of subordinated notes- 26,206
Payment of lease liabilities1,802-
Total cash applied to financing activities66,802 68,220
Net cash flows (applied to)/from financing activities(61,057) 106,672
Net increase in cash held66,323 63,357
Opening cash and cash equivalents39,14044,548
Cash transferred on corporate restructure- (68,765)
Closing cash and cash equivalents105,463 39,140
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
Net cash flows from operating activities before changes in operating assets and liabilities
P. 10

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2020
Reconciliation of profit after tax to net cash flows from operating activities
$000's
Note June 2020 June 2019
Profit for the year60,700 68,299
Add / (less) non-cash items:
Depreciation and amortisation expense8,8595,754
Depreciation on lease vehicles133,6343,363
Capitalised net interest income and fee income(39,620) (52,948)
Impaired asset expense829,37221,181
Investment fair value movement- (1,936)
Other non-cash items6,3101,765
Total non-cash items 8,555 (22,821)
Add / (less) movements in operating assets and liabilities:
Finance receivables(51,372) (325,390)
Operating lease vehicles(4,969)(537)
Other assets32,471(5,802)
Current tax 5,604(3,744)
Derivative financial instruments869(8,207)
Deferred tax(5,379)(5,762)
Deposits116,040 270,232
Other liabilities14,9825,946
Total movements in operating assets and liabilities108,246 (73,264)
Net cash flows applied to operating activities177,501 (27,786)
The notes to the financial statements form an integral part of, and should be read in conjunction with, these consolidated financial statements.
P. 11

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2020
1 Financial statements preparation
Reporting entity
Basis of preparation
Discontinued Operations
Basis of measurement
Principles of consolidation
The financial statements presented are the consolidated financial statements comprising Heartland Bank Limited (the Bank) and its
subsidiaries (the Banking Group). Refer Note 26 – Significant subsidiaries for further details.
The financial statements are presented in New Zealand dollars which is the Banking Group's functional and presentation currency. Unless
otherwise indicated, amounts are rounded to the nearest thousand dollars.
The financial statements have been prepared on a going concern basis after considering the Banking Group's funding and liquidity position.
The accounting policies adopted have been applied consistently throughout the periods presented in these financial statements.
The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP) and
with the requirements of the Financial Markets Conduct Act 2013. The financial statements comply with New Zealand equivalents to
International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards as appropriate for profit-oriented
entities, and the Registered Bank Disclosure Statement (New Zealand Incorporated Registered Banks) Order 2014 (as amended) (the
Order). The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board.
As at 30 June 2020, the Bank is a company incorporated in New Zealand under the Companies Act 1993, a registered bank under the
Reserve Bank of New Zealand Act 1989 and a Financial Market Conduct (FMC) reporting entity for the purposes of the Financial Markets
Conduct Act 2013.
The financial statements have been prepared on the basis of historical cost, except for certain financial instruments and investment property,
which are measured at their fair values as identified in the accounting policies set out in the accompanying notes to the financial statements.
Comparative balances for the year ended 30 June 2019 classified as discontinued operations are a result of the corporate restructure on 31
October 2018 that led to the Australian group of companies being transferred from the Banking group to Heartland Group Holdings Limited
(HGH).
The consolidated financial statements of the Banking Group incorporate the assets, liabilities and results of all controlled entities. Controlled
entities are all entities in which the Bank is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. Intercompany transactions, balances and any unrealised income and
expense (except for foreign currency transaction gains or losses) between controlled entities are eliminated.
Assets and liabilities in a transactional currency that is not the New Zealand dollar, are translated at the exchange rates ruling at balance
date. Revenue and expense items are translated at the spot rate at the transaction date or a rate approximating that rate. Exchange
differences are taken to the consolidated statement of comprehensive income.
Certain comparative balances have been reclassified to align with the presentation used in the current financial year. These reclassifications
have no impact on the overall financial performance or financial position for the comparative year.
P. 12

1 Financial statements preparation (continued)
$000's
Operating lease commitments as at 30 June 201911,573
Discounted using the Banking Group's incremental borrowing rate on initial application(1,019)
Adjustments relating to changes in the index or rate effective variable payments316
Lease liability recognised as at 1 July 201910,870
Of which are:
Current lease liabilities1,762
Non-current lease liabilities9,108
Total lease liabilities10,870
Impact of adopting NZ IFRS 16 Leases
The Banking Group has adopted NZ IFRS 16 retrospectively from 1 July 2019, but has not restated comparatives for the 2019 reporting
period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new
leasing rules are therefore recognised in the opening balance sheet on 1 July 2019.
Changes in accounting standards
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the
profit or loss. Short-term leases are leases with a lease term of 12 months or less.
On adoption of NZ IFRS 16, the Banking Group recognised lease liabilities in relation to leases which had previously been classified as
‘operating leases’ under the principles of NZ IAS 17 Leases. These liabilities were measured at the present value of the remaining lease
payments, discounted using the Banking Group's incremental borrowing rate as at 1 July 2019. The weighted average Banking Group's
incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 2.9%.
The Banking Group elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts
entered into before the transition date, the Banking Group relied on its assessment made applying NZ IAS 17 and NZ IFRIC 4 Determining
whether an Arrangement contains a Lease.
The associated right-of-use assets which are predominantly property leases were measured on a retrospective basis as if the new rules had
always been applied. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of
initial application.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension
option. Extension options are only included in the lease term if the lease is reasonably certain to be extended.
The Banking Group leases office space, car parks, equipment and cars. Rental contracts are typically made for fixed periods but may have
extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
Until 30 June 2019, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under
operating leases (net of any incentives received from the lessor) were charged to profit or loss.
From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is
available for use by the Banking Group. The right-of-use assets are initially measured at cost, comprising the amount of the initial
measurement of the lease liability, any lease payments made at or before the commencement date less any lease incentives received, any
initial direct costs and restoration costs. The right-of-use asset is depreciated over the shorter of the asset's estimated useful life and the
lease term on a straight-line basis. The estimated useful life of right-of-use assets are determined on the same basis as those of property,
plant and equipment.
P. 13

1 Financial statements preparation (continued)
• Right-of-use assets: increased by $10.0 million
• Deferred tax assets: increased by $0.2 million
• Lease liabilities: increased by $10.8 million
The net impact on retained earnings on 1 July 2019 was a decrease of $0.6 million.
The adoption of NZ IFRS 16 has no material impact to the Banking Group’s leasing business where the Banking Group acts as the lessor.
Accounting standards issued but not yet effective
Other amendments to existing standards that are not yet effective are not expected to have a material impact on the Banking Group.
Estimates and judgements
•
•
•
COVID-19 Pandemic - Impact on Estimates and Judgements
The preparation of the Banking Group’s consolidated financial statements requires the use of estimates and judgements. This note provides
an overview of the areas that involve a higher degree of judgement or complexity. Detailed information about each of these estimates and
judgements is included in the relevant notes together with the basis of calculation for each affected item in the financial statements.
On 11 March 2020, COVID-19 was declared a pandemic by the World Health Organisation. The domestic economy has been significantly
disrupted by measures put in place to limit the impact of the spread of COVID-19 among the community, and also by the downstream effects
of the deterioration that COVID-19 has caused in the global economy. Countermeasures implemented by Government (including the
Government’s support and fiscal programmes) and the Reserve Bank of New Zealand have assisted to mitigate the impact of those
measures – however, the unprecedented nature of the current environment and the number of variables which impact on that environment
means that significant uncertainty around future economic conditions remains.
The Banking Group conducts insurance business through its subsidiary MARAC Insurance Limited (MIL). MIL has entered into a distribution
agreement with DPL Insurance Limited (DPL) to distribute DPL’s insurance products through its network and therefore stopped writing
insurance policies in February 2020. The Banking Group will assess the impact arising from NZ IFRS 17 in conjunction with this new
arrangement.
Assumptions made at each reporting date (e.g. the calculation of the provision for impairment and fair value adjustments) are based on best
estimates as at that date. Although the Banking Group has internal controls in place to ensure that estimates can be reliably measured,
actual amounts may differ from these estimates. The estimates and judgements used in the preparation of the Banking Group’s financial
statements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that
may have a financial impact on the entity. Revisions to accounting estimates are recognised in the reporting period in which the estimates are
revised and in any future periods affected.
Provisions for impairment - The effect of credit risk is quantified based on the Banking Group's best estimate of future cash repayments
and proceeds from any security held or by reference to risk profile groupings, historical loss data and forward-looking information. Refer
to Note 8 - Impaired asset expense, and Note 12 - Finance receivables for further details.
Fair value of reverse mortgages - Fair value is quantified by the transaction price and the Banking Group’s subsequent best estimate of
the risk profile of the reverse mortgage portfolio. Refer to Note 19 - Fair value for further details.
Goodwill - Determining the fair value of assets and liabilities of acquired businesses requires the Banking Group to exercise judgement.
The carrying value of goodwill is tested annually for impairment, refer to Note 17 - Other balance sheet items.
NZ IFRS 17 Insurance Contracts was issued in July 2017 and is applicable to general and life insurance contracts. NZ IFRS 17 will replace
NZ IFRS 4 Insurance Contracts. In March 2020, the effective date of NZ IFRS 17 was deferred by one year. As such it is expected that the
standard will be effective for the Banking Group's reporting for the financial year ending 30 June 2024, including 30 June 2023 comparatives.
There have been no other changes to accounting policies or other new or amended standards that are issued and effective that are expected
to have a material impact on the Banking Group.
The change in accounting policy affected the following items in the consolidated statement of financial position as at 1 July 2019.
P. 14

1 Financial statements preparation (continued)
•
•
•
•
Financial assets and liabilities
Financial Assets
Financial assets are classified based on:
•
• Whether the contractual cash flows of the instrument represent solely payment of principal and interest (SPPI).
Note
FVOCI
10
FVOCI
10
10
12
12
Financial assets measured at amortised cost
The accounting judgement that is most impacted by the pandemic relates to expected credit losses (ECL) on finance receivables at
amortised cost. The Banking Group’s accounting policy for the recognition and measurement of the allowance for ECL is described in Note 8
Impaired asset expense. The Banking Group measures the allowance for ECL using an expected credit loss impairment model in compliance
with NZ IFRS 9 Financial Instruments.
Note 17 - Other balance sheet items - Goodwill
Note 19 - Fair value
The impact of the pandemic has also been considered where there is significant use of forward-looking estimates and judgement, primarily
when identifying impairment indicators for goodwill and intangible assets and calculating the recoverable amount.
The impact of the COVID-19 pandemic on each of these estimates and judgements is discussed further in the following notes to the
consolidated financial statements:
Note 8 - Impaired asset expense
Note 12 - Finance receivables
The Banking Group has responded to the pandemic by working with its customers to understand their needs and provide them with the
financial support that best meets their requirements. To date, that support has included participating in industry wide measures (such as the
mortgage deferrals programme and the provision of liquidity under the Business Finance Guarantee Scheme (BFGS) program), and
implementing other measures such as temporary payment reduction or payment deferral arrangements for both business and consumer
customers. The Banking Group has also developed a product, Heartland Extend, which provides customers with flexible payment options.
The business model within which the assets are managed; and
The Banking Group determines the business model at the level that reflects how groups of financial assets are managed. When assessing
the business model, the Banking Group considers factors including how performance and risks are managed, evaluated and reported and the
frequency and volume of, and reason for sales in previous periods.
Financial assets are classified into the following measurement categories:
Financial Assets
Public sector securities and corporate bonds
Bank bonds and floating rate notes
Fair value through profit or loss (FVTPL)
Financial assets are measured at amortised cost if they are held within a business model whose objective is achieved through holding the
financial asset to collect contractual cash flows which represent SPPI on the principal balance.
Financial assets at amortised cost are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest rate method.
Measurement Category
FVTPL
Amortised cost
10
Local authority stock
Equity investments
Finance receivables – reverse mortgages
Finance receivables
Fair value through other comprehensive income
(FVOCI)
P. 15

1 Financial statements preparation (continued)

•

•
Financial Liabilities
Financial liabilities are classified into the following measurement categories:
•
•
Financial liabilities measured at amortised cost
Financial liabilities are measured at amortised cost if they are not held for trading or designated at FVTPL.
Financial liabilities measured at amortised cost are accounted for using the effective interest rate method.

•

•
Financial liabilities at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.
Recognition
Derecognition
Financial assets measured at FVOCI
Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved both through collecting
contractual cash flows which represent SPPI on the principal balance or selling the financial asset.
Financial assets at FVOCI are measured at fair value with unrealised gains and losses recognised in other comprehensive income except for
interest income, impairment charges and foreign exchange gains and losses, which are recognised in profit or loss.
Financial assets measured at FVTPL
Financial assets are measured at FVTPL if:
They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.
They are held within a business model whose objective is achieved through selling or repurchasing the financial asset in the near term,
or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking;
or
The Banking Group initially recognises finance receivables and borrowings on the date that they are originated. All other financial assets and
liabilities (including assets and liabilities designated at FVTPL) are initially recognised on the trade date at which the Banking Group becomes
a party to the contractual provisions of the instrument.
The Banking Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership
of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Banking Group is
recognised as a separate asset.
They are held for trading whose principal objective is achieved through selling or repurchasing the financial liability in the near term, or
forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking; or
Further details of the accounting policy for each category of financial asset or financial liability mentioned above is set out in the note for the
relevant item.
The Banking Group’s policies for determining the fair value of financial assets and financial liabilities are set out in Note 19 - Fair value.
Financial assets at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.
Those to be measured at amortised cost;
Those to be measured at FVTPL.
Financial liabilities measured at FVTPL
Financial liabilities are measured at FVTPL if:
They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.
P. 16

1 Financial statements preparation (continued)
Offsetting financial instruments
The Banking Group offsets financial assets and financial liabilities and reports the net balance in the balance sheet where there is currently a
legally enforceable right to set off and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Where an existing financial liability is replaced
by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, the exchange
or modification is treated as a derecognition of the original liability and the recognition of a new liability, with the difference in the respective
carrying amounts recognised in profit or loss.
The Banking Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position, but
retains either all risks or rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then
the transferred assets are not derecognised from the consolidated statement of financial position. Transfers of assets with the retention of all
or substantially all risks and rewards include, for example, securitised assets and repurchase transactions.
P. 17

Performance
2 Segmental analysis
Operating segments
The Banking Group operates within New Zealand and comprises the following main operating segments:
Motor
Reverse mortgages
Other personal
Business
Rural
ReverseOther
$000's
Motor
Mortgages Personal
BusinessRuralOtherTotal
June 2020
Net interest income56,95720,11818,36557,95029,6745,972189,036
Net other income3,6223,4303,0553,4651,0281,14215,742
Net operating income60,57923,54821,42061,41530,7027,114 204,778
Operating expenses3,2484,8046,77611,2832,64862,02390,782
Impaired asset expense/(benefit)10,113- 11,11910,110(1,970)- 29,372
Income tax expense- - - - - 23,92423,924
Profit/(loss) for the year47,21818,7443,52540,02230,024 (78,833) 60,700
Total assets
1,125,295559,934214,759 1,126,632604,938683,001
4,314,559
Total liabilities3,717,522
Motor vehicle finance.
Reverse mortgage lending in New Zealand.
A comprehensive range of financial services - including term, transactional and personal loans to
individuals.
Certain operating expenses, such as premises, IT and support centre costs are not allocated to operating segments and are included
in Other. Liabilities are managed centrally and therefore are not allocated across the operating segments.
The Banking Group's operating segments are different from the industry categories detailed in Note 21 - Credit risk exposure. The
operating segments are primarily categorised by sales channel, whereas Note 21 - Credit risk exposure categorises exposures based
on credit risk concentrations.
Profit before income tax from
continuing operations
Segment information is presented in respect of the Banking Group's operating segments which are those used for the Banking Group's
management and internal reporting structure.
Term debt, plant and equipment finance, commercial mortgage lending and working capital solutions
for small-to-medium sized businesses.
Specialist financial services to the farming sector primarily offering livestock finance, rural mortgage
lending, seasonal and working capital financing, as well as leasing solutions to farmers.
(54,909) 113,996
(54,909) 84,624
18,74414,64450,13228,054
47,21818,7443,52540,02230,024
57,331
Profit / (loss) before impaired asset
expense and income tax
P. 18

2 Segmental analysis (continued)
ReverseOther
$000's
Motor
Mortgages Personal
BusinessRuralOtherTotal
June 2019
Net interest income54,69520,67414,56452,85730,393(784) 172,399
Net other income2,3712244,3442,9891,288(1,807)9,409
Net operating income57,06620,89818,90855,84631,681(2,591) 181,808
Operating expenses2,5432,2795,6029,1563,26353,45576,298
Fair value gain on investments- - - - - 1,9361,936
Impaired asset expense5,277- 8,3077,102(132)- 20,554
Income tax expense- - - - - 24,76224,762
Profit / (loss) for the year49,24618,6194,99939,58828,550 (72,703) 68,299
Total assets
1,089,769510,299220,500 1,096,773650,751575,736
4,143,828
Total liabilities3,540,438
3 Net interest income
Policy
$000'sJune 2020 June 2019
Interest income
Cash and cash equivalents482717
Investments8,4969,733
Finance receivables250,592236,906
Finance receivables - reverse mortgages37,94236,708
Total interest income297,512 284,064
Interest expense
Retail deposits90,78696,476
Other borrowings14,18813,349
Net interest expense on derivative financial instruments3,5021,840
Total interest expense108,476 111,665
Net interest income 189,036 172,399
6,169
4,999
Profit / (loss) before impaired asset
expense and income tax
54,52318,61913,30646,69028,418 (56,046) 105,510
39,58828,550 (54,110) 86,892
-
Profit / (loss) before income tax
from continuing operations
Profit / (loss) before income tax
from discontinued operations
18,619
Interest income and expense on financial instruments is measured using the effective interest rate method that discounts the financial
instruments' future cash flows to their present value and allocates the interest income or expense over the life of the financial
instrument. The effective interest rate is established on initial recognition of the financial assets or liabilities and is not subsequently
revised. For financial instruments at amortised cost, the calculation of the effective interest rate includes all yield related fees and
commissions paid or received that are an integral part of the underlying financial instrument.
49,246
- - - - 6,169
P. 19

4 Net operating lease income
Policy
$000'sJune 2020 June 2019
Operating lease income
Lease income5,1945,517
Gain on disposal of lease assets752819
Total operating lease income5,9466,336
Operating lease expense
Depreciation on lease assets3,6343,363
Direct lease costs429307
Total operating lease expense4,0633,670
Net operating lease income1,8832,666
5 Other income
Policy
Rental income from investment property
Insurance income
$000'sJune 2020 June 2019
Rental income from investment properties1,124731
Insurance income1,6102,536
Gain on sale of investments- 173
Other income2,810(197)
FX gain / (loss)421(2,717)
Total other income5,965526
As a lessor, the Banking Group retains substantially all the risks and rewards of ownership of an asset are classified as operating
leases. Rental income and expense from operating leases is recognised on a straight-line basis over the term of the relevant lease.
Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and
recognised on a straight-line basis over the lease term. Profits on the sale of operating lease assets are included as part of operating
lease income. Current year depreciation and losses on the sale of operating lease assets are included as part of operating lease
expenses. The leased assets are depreciated over their useful lives on a basis consistent with similar assets.
Rental income from investment properties is recognised on a straight-line basis over the term of the relevant lease.
Insurance premium income and commission expense are recognised in profit or loss from the date of attachment of the risk over the
period of the insurance contract. Claim expense is recognised in the profit or loss on an accrual basis once our liability to the
policyholder has been confirmed under the terms of the contract.
P. 20

6 Operating expenses
Policy
$000'sJune 2020 June 2019
Personnel expenses45,75941,732
Directors' fees650822
Superannuation836827
Depreciation - property, plant and equipment2,2801,861
Operating lease expense as a lessee- 1,646
Legal and professional fees3,0492,278
Advertising and public relations4,5773,019
Depreciation - right of use asset2,122-
Technology services6,0635,565
Telecommunications, stationary and postage1,6511,692
Customer acquisition costs2,919861
Amortisation of intangible assets4,4563,893
Other operating expenses
1
16,42012,102
Total operating expenses90,78276,298
1
Other operating expenses include compensation of auditor which is disclosed in Note 7.
7 Compensation of auditor
$000'sJune 2020 June 2019
Audit and review of the financial statements
1
559472
Other assurance services paid to auditor
2
6047
Total compensation of auditor619519
8 Impaired asset expense
Policy
Impairment of finance receivables
Operating expenses are recognised as the underlying service is rendered or over a period in which an asset is consumed or a liability
is incurred.
2
Other assurance related services paid to the auditor comprise regulatory assurance services, trust deed reporting, registry audits and other agreed
upon procedure engagements.
The ECL model is a forward looking model where impairment allowances are recognised before losses are actually incurred. On initial
recognition, an impairment allowance is required, based on events that are possible in the next 12 months.
1
Audit and review of the financial statements includes fees paid for both the audit of the annual financial statements and review of interim financial
statements.
At each reporting date, the Banking Group applies a three stage approach to measuring ECL to finance receivables not carried at fair
value. The ECL model assesses whether there has been a significant increase in credit risk since initial recognition.
Assets may migrate through the following stages based on their change in credit quality:
Stage 1 - 12 months ECL (past due 30 days or less)
Where there has been no evidence of increased credit risk since initial recognition, and are not credit impaired upon origination, the
portion of the lifetime ECL associated with the probability of default events occurring within the next 12 months is recognised.
Stage 2 - Lifetime ECL not credit impaired (greater than 30 but less than 90 days past due)
Where there has been a significant increase in credit risk.
Stage 3 - Lifetime ECL credit impaired (90 days past due or more)
Objective evidence of impairment, so are considered to be in default or otherwise credit impaired.
P. 21

8 Impaired asset expense (continued)
$000'sJune 2020 June 2019
Non-securitised
Individually impaired asset expense3,3851,311
Collectively impaired asset expense25,59019,529
Total non-securitised impaired asset expense28,97520,840
Securitised
Collectively impaired asset expense397341
Total securitised impaired asset expense397341
Total
Individually impaired asset expense3,3851,311
Collectively impaired asset expense25,98719,870
Total impaired asset expense29,37221,181
Reconciliation of impaired asset expense
Impaired asset expense29,37220,554
Impaired asset expense for discontinued operations
-
627
Total impaired asset expense29,37221,181
However, as a result (and when considered in conjunction with the measures put in place to limit the impact of the spread of COVID-19
among the community), the traditional indicators of increased credit risk may not provide an accurate measure of the credit quality of
the Banking Group’s assets.
The Banking Group has followed industry and regulatory guidance when assessing individual customers, or portfolios of assets, to
determine if a significant increase in credit risk (SICR) has occurred. The industry guidance provides that any payment deferral or
similar allowance provided to customers as a result of the impact of COVID-19 would not automatically result in a SICR. Accordingly,
customers who received assistance through the pandemic as a result of a payment reduction, deferral arrangement, or through the
Heartland Extend product, have not been assessed as being subject to a SICR.
The calculation of expected credit loss is modelled for portfolios of like assets. For portfolios which are either new or too small to
model, judgement is used to determine impairment provisions.
In determining whether credit risk has increased all available information relevant to the assessment of economic conditions at the
reporting date are taken into consideration. To do this the Banking Group considers its historical loss experience and adjusts this for
current observable data. In addition to this the Banking Group uses reasonable and supportable forecasts of future economic
conditions including experienced judgement to estimate the amount of an expected impairment loss. Future economic conditions
consider macroeconomic factors such as unemployment, interest rate, gross domestic product, and inflation, and requires an
evaluation of both the current and forecast direction of the economic cycle. The methodology and assumptions including any forecasts
of future economic conditions are reviewed regularly as incorporating forward-looking information increases the level of judgement as
to how changes in these macroeconomic factors will affect the ECL.
The Banking Group’s models for estimating expected credit losses for each of its portfolios are based on the historic credit experience
of those portfolios. The models assume that economic conditions (such as GDP growth, unemployment rates, and house price index
forecasts) remain static over time. If the Banking Group forecasts that economic conditions will not remain static in the foreseeable
future, the Banking Group applies judgment to determine whether the modelled output should be subject to an economic overlay. This
follows analysis of historic data and performance which has established no clear correlation between key economic indicators and the
credit performance of the Banking Group’s unique portfolios, meaning the approach is an inherently judgmental exercise.
In the current scenario, the pandemic has caused a deterioration in economic conditions. The Banking Group has therefore applied
judgement to estimate whether the modelled output should be subject to an economic overlay. In exercising that judgement, it was
assumed that the Banking Group’s “base case” economic forecast would prevail. That base case forecast scenario is for:
P. 22

8 Impaired asset expense (continued)
•
•
•
House prices falling 6.6% to March 2021, with a full recovery to June 2021.
That base case also assumes:
•
•
•
•
•
The price for exported primary produce would not materially fall.
1.
2.
3.
There are no further significant periods of lockdown in or across any part of NZ as at the date of approval of the Banking Group’s
financial statements for the year ended 30 June 2020.
Heartland Extend, through providing customers with time (with economic conditions improving over time) would be successful in
supporting the Banking Group’s consumer and business customers who need that assistance.
Lastly, the Banking Group engaged a consultant to analyse historic correlations between certain industry default levels and
macroeconomic indicators. This correlation was then applied to the Banking Group’s base case forecast scenario economic
outlook, to determine the degree to which (based on that historic correlation, and the base case forecast scenario) the Banking
Group’s customers may be likely to default in the base case forecast scenario economic overlay. That increased chance of
default was then used to calculate an increase in provisions in affected portfolios.
First, the Banking Group has calculated a “Stage 2” lifetime expected loss provision as applied to the most affected parts of its
portfolio.
This methodology neutralises the concern that the Banking Group’s assistance measures (when considered in conjunction with
the measures put in place to limit the impact of the spread of COVID-19 among the community), may have masked traditional
indicators of increased credit risk, by demonstrating how much provisions would increase by if all customers receiving assistance
were treated as posing increased credit risk for the Banking Group.
Secondly, the Banking Group used the loss rates experienced on its Motor portfolio during the Global Financial Crisis of 2008,
applied them to its current Motor portfolio, and extrapolated the proportionate increase in provisions to its other affected
portfolios.
The recently amended BFGS would be successful in supporting the Banking Group’s business customers who need that
assistance.
Second hand car prices would remain stable.
To reflect that inherent risk, the Banking Group employed three methodologies to ascertain a range of potential expected credit losses
on each of its portfolios:
It is stressed that there is considerable uncertainty in these judgements. As noted by the New Zealand Treasury:
“The magnitude and duration of the downturn and the subsequent pace of the recovery depends on many unknown factors, including
the course of the virus, how long activity restrictions are in place, how quickly the global economy will recover, how behaviours and
production might change, and how successful government policies will be in supporting households and firms.”
Using those assumptions, and taking Management’s experience and deep understanding of the Banking Group’s customers (following
the customer contact programmes implemented by the Banking Group during, and after, COVID-19), the Banking Group recognised
that there is downside risk (including in the event that any of the underlying assumptions transpire to be incorrect) and, as a result, the
Banking Group’s expected credit losses could be understated.
Each of those methodologies have limitations. However, they did provide the Banking Group with a range of “downside” potential credit
losses for each portfolio. Across the three methodologies and portfolios, the range of possible outcomes was between $4.1 million and
$11.8 million. Judgement was applied (taking into account the ranges provided by those methodologies, and all other relevant factors)
in order to calculate an economic overlay across each affected portfolio. As a result a pre-tax overlay of $9.6 million was applied as
outlined in Note 12 - Finance receivables.
Unemployment to peak at 8.2% (June 2021) and then to largely recover over the following 2.5 years; but
A steep initial adverse movement (at close to -20%) in gross domestic product to 30 June 2020 but with a relatively quick, full
recovery by June 2022;
P. 23

9 Taxation
Policy
Income tax
Current tax
Deferred tax
Goods and services tax (GST)
$000'sJune 2020 June 2019
Income tax recognised in profit or loss
Current tax
Current year26,28122,932
Adjustments for prior year1,536(2,037)
Deferred tax
Current year(2,418)2,830
Adjustments for prior year(1,475)1,037
Total income tax expense recognised in profit or loss23,92424,762
Income tax recognised in other comprehensive income
Current tax
Derivatives at fair value reserve768(82)
Fair value movements of cash flow hedge(1,477)-
Deferred tax
Defined benefit plan- (34)
Fair value movements of cash flow hedges- (238)
Total income tax expense recognised in other comprehensive income(709)(354)
Profit before income tax from continuing operations84,62486,892
Profit before income tax from discontinued operations- 6,169
Total profit before income tax84,62493,061
Reconciliation of effective tax rate
Prima facie tax @ 28%23,69526,057
Higher tax rate for overseas jurisdictions- 112
Adjusted tax effect of items not taxable/deductible168(407)
Adjustments for prior year61(1,000)
Total income tax expense23,92424,762
Income tax expense
Income tax expense for the year comprises current tax and movements in deferred tax balances, including any adjustment required for
prior years' tax expense. Income tax expense is recognised in profit and loss except to the extent that it relates to items recognised
directly in other comprehensive income, in which case it is recognised in equity or other comprehensive income.
Revenues, expenses and assets are recognised net of GST. As the Banking Group is predominantly involved in providing financial
services, only a proportion of GST paid on inputs is recoverable. The non-recoverable proportion of GST is treated as an expense or,
if relevant, as part of the cost of acquisition of an asset.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of
assets and liabilities for accounting purposes and the amounts used for taxation purposes. As required by NZ IAS 12 Income Taxes, a
deferred tax asset is recognised only to the extent that it is probable that a future taxable profit will be available to realise the asset.
Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to the tax payable or receivable in respect of previous years. Current tax for current
and prior years is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).
P. 24

9 Taxation (continued)
Deferred tax assets comprise the following temporary differences:
$000'sJune 2020 June 2019
Employee entitlements
1,468 984
Provision for impairment
17,547 14,391
Investment properties
- 4
Intangibles and property, plant and equipment
(4,576) (4,182)
Deferred acquisition costs
(936) (1,321)
Operating lease vehicles
731 (800)
Other temporary differences
1,093 872
Total deferred tax assets15,3279,948
Opening balance of deferred tax assets9,9485,319
Movement recognised in profit or loss5,136(4,281)
Movement recognised in other comprehensive income- (272)
Transfer on demerger- 1,442
Movement recognised in retained earnings2437,740
Closing balance of deferred tax assets15,3279,948
P. 25

Financial Position
10 Investments
Policy
Fair value through profit or loss
$000'sJune 2020 June 2019
Bank deposits, bank bonds and floating rate notes366,289246,724
Public sector securities and corporate bonds30,71682,370
Local authority stock- 13,399
Equity investments2,30312,435
Total investments399,308 354,928
11 Derivative financial instruments
Policy
Refer to Note 19 - Fair value for details of the split between investments measured at fair value through profit or loss, fair value
through other comprehensive income and amortised cost.
Investments are classified into one of the following categories:
Investments under this category include equity investments and are measured at fair value plus transaction costs. Changes in fair
value of these investments are recognised in profit or loss in the period in which they occur.
Fair value through other comprehensive income
Investments under this category include bank bonds, floating rate notes, local authority stock, public securities and corporate bonds.
These are initially measured at fair value, including transaction costs, and subsequently carried at fair value. Changes in fair value of
these investments are recognised in other comprehensive income and presented within the fair value reserve.
Amortised cost
Investments under this category include bank deposits and are measured using effective interest rate method. They are held to
collect contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.
Derivative financial instruments are contracts whose value is derived from changes in one or more underlying financial instruments or
indices. They include forward contracts, swaps, options and combinations of these instruments.
A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that exposes the Banking Group to risk of
changes in fair value or cash flows, and that is designated as being hedged. The Banking Group applies fair value hedge accounting
to hedge movements in the value of fixed interest rate assets and liabilities subject to interest rate risk. The Banking Group applies
cash flow hedge accounting to hedge the variability in highly probable forecast future cash flows attributable to interest rate risk on
variable rate assets and liabilities.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently
measured at their fair value at each reporting date. All derivatives are carried as assets when fair value is positive and as liabilities
when fair value is negative.
Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques,
including discounted cash flow models and options pricing models, as appropriate. Fair values include adjustment for counterparty
credit risk. The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged. A hedge instrument is a designated derivative, the changes in fair
values or cash flows of which are expected to offset changes in the fair value of cash flows of the designated hedged item.
P. 26

11 Derivative financial instruments (continued)
•
•
•
The criteria that must be met for a relationship to qualify for hedge accounting include:
•
•
•
The Banking Group documents, at the inception of the transaction, the relationship between hedged items and hedging instruments,
as well as its risk management objective and strategy for undertaking various hedge transactions. The Banking Group also
documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair value of hedged items.
Subsequent to initial designation, changes in the fair value of derivatives that are designated and qualify for fair value hedge
accounting are recorded in the consolidated statement of comprehensive income together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk. The movement in fair value of the hedged item attributable to the
hedged risk is made as an adjustment to the carrying value of the hedged asset or liability.
the instruments or counterparty must be a third party external to the Banking Group.
The criteria that must be met for a relationship to qualify for hedge accounting include:
the hedging relationship must be formally designated and documented at inception of the hedge,
effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective, consistent with the originally
documented risk management strategy, and
Fair value hedge accounting
Cash flow hedge accounting
the hedging relationship must be formally designated and documented at inception of the hedge,
effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective, consistent with the originally
documented risk management strategy, and
the instruments or counterparty must be a third party external to the Banking Group.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the adjustment to
carrying amount of a hedged item is amortised to the consolidated statement of comprehensive income on an effective yield basis
over the remaining period to maturity of the hedged item. Where the hedged item is derecognised from the balance sheet, the
adjustment to the carrying amount of the asset or liability is immediately transferred to the consolidated statement of comprehensive
income.
P. 27

11 Derivative financial instruments (continued)
June 2020
June 2019
Notional Fair Value Fair Value Notional
Fair Value
Fair Value
$000's
PrincipalAssets Liabilities PrincipalAssets Liabilities
Held for risk management
Interest rate related contracts
Swaps 1,140,42217,23816,939 1,958,08413,04911,005
Foreign currency related contracts
Forwards168,100835157,147290142
Options- - - 177,2551,128-
Total derivative financial instruments1,308,52217,24616,974 2,292,48614,46711,147
The Banking Group documents, at the inception of the transaction, the relationship between hedged items and hedging instruments,
as well as its risk management objective and strategy for undertaking various hedge transactions. The Banking Group also
documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of hedged items.
When a hedging derivative expires or is sold, the hedge no longer meets the criteria for hedge accounting, or the Banking Group
elects to revoke the hedge designation, the cumulative gain or loss on the hedging derivative remains in the cash flow hedging
reserve until the forecast transaction occurs and affects income, at which point it is transferred to the corresponding income or
expense line. If a forecast transaction is no longer expected to occur, the cumulative gain or loss on the hedging derivative previously
reported in the cash flow hedging reserve is immediately transferred to the consolidated statement of comprehensive income.
A fair value gain or loss associated with the effective portion of a derivative designated as a cash flow hedge is recognised initially in
the hedging reserve. The ineffective portion of a fair value gain or loss is recognised immediately in the consolidated statement of
comprehensive income.
P. 28

12 Finance receivables
(a) Finance receivables held at amortised cost
Policy
$000'sJune 2020 June 2019
Non-securitised
Neither at least 90 days past due nor impaired - at amortised cost2,945,623 3,018,679
At least 90 days past due - at amortised cost58,87644,466
Individually impaired - at amortised cost24,66726,412
Gross finance receivables3,029,166 3,089,557
Less provision for impairment(62,272)(58,491)
Total non-securitised finance receivables2,966,894 3,031,066
Securitised
Neither at least 90 days past due nor impaired - at amortised cost78,059-
At least 90 days past due - at amortised cost404-
Individually impaired - at amortised cost- -
Gross finance receivables78,463-
Less provision for impairment(397)-
Total securitised finance receivables78,066-
Total
Neither at least 90 days past due nor impaired - at amortised cost3,023,682 3,018,679
At least 90 days past due - at amortised cost59,28044,466
Individually impaired - at amortised cost24,66726,412
Gross finance receivables3,107,629 3,089,557
Less provision for impairment(62,669)(58,491)
Total finance receivables3,044,960 3,031,066
Refer to Note 22 - Asset quality for further analysis of finance receivables by credit risk concentration.
The impact of COVID-19 on use of judgements and estimates is discussed in Note 8 - Impaired asset expense.
In determining whether credit risk has increased all available information relevant to the assessment including information about past
events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date are taken into
consideration.
The calculation of expected credit loss is modelled for portfolios of like assets. For portfolios which are either new or too small to
model, judgement is used to determine impairment provisions.
Finance receivables are initially recognised at fair value plus incremental direct transaction costs and are subsequently measured at
amortised cost using the effective interest method, less any impairment loss.
Past due but not impaired assets are any assets which have not been operated by the counterparty within their key terms but are not
considered to be impaired by the Banking Group.
Individually impaired assets are those loans for which the Banking Group has evidence that it will incur a loss, and will be unable to
collect all principal and interest due according to the contractual terms of the loan.
Fees and direct costs relating to loan origination, financing and loan commitments are deferred and amortised to interest income over
the life of the loan using the effective interest rate method. Lending fees not directly related to the origination of a loan are recognised
over the period of service.
P. 29

12 Finance receivables (continued)
Movement in provision
LifetimeLifetime
ECLECL
12 - MonthNot CreditCreditSpecific
$000's
ECL Impaired Impaired ProvisionTotal
June 2020
Non-securitised
Impairment allowance as at 30 June 201930,4221,78118,4257,86358,491
Changes in loss allowance
Transfer between stages(1,190)(294)(109)1,593-
Recovery of amounts written off- - (2,808)- (2,808)
Credit impairment charge1,7111,79722,0823,38528,975
Recovery of amounts previously written off- - 2,808- 2,808
Write offs- (1,438)(20,658)(5,947)(28,043)
Effect of changes in foreign exchange rate27410- 41
Impairment allowance as at 30 June 2020
32,1602,14422,6675,30162,272
Securitised
Impairment allowance as at 30 June 2019- - - - -
Changes in loss allowance
Transfer between stages(19)118- -
Recovery of amounts written off- - - - -
Credit impairment charge26023114- 397
Recovery of amounts previously written off- - - - -
Write offs- - - - -
Effect of changes in foreign exchange rate- - - - -
Impairment allowance as at 30 June 2020
26023114- 397
Total
Impairment allowance as at 30 June 201930,4221,78118,4257,86358,491
Changes in loss allowance
Transfer between stages(1,209)(283)(101)1,593-
Recovery of amounts written off- - (2,808)- (2,808)
Credit impairment charge1,9711,82022,1963,38529,372
Recovery of amounts previously written off- - 2,808- 2,808
Write offs- (1,438)(20,658)(5,947)(28,043)
Effect of changes in foreign exchange rate27410- 41
Impairment allowance as at 30 June 2020
32,4202,16722,7815,30162,669
-
25,105
31,783
279
2,09124,9991,792
397
2,901
New and increased provision (net of
collective provision releases)
The following table details the movement from the opening balance to the closing balance of the provision for impairment losses by
class.
New and increased provision (net of
collective provision releases)
12106
3,1801,79232,180
New and increased provision (net of
collective provision releases)
2,103
P. 30

12 Finance receivables (continued)
LifetimeLifetime
ECLECL
12 - MonthNot CreditCreditSpecific
$000's
ECL Impaired Impaired ProvisionTotal
June 2019
Non-securitised
Impairment allowance as at 30 June 201831,7841,36514,9458,89756,991
Changes in loss allowance
Transfer between stages(2,462)(238)522,648-
Recovery of amounts written off- - (829)- (829)
Credit impairment charge(805)41818,3743,95921,946
Recovery of amounts previously written off- - 829- 829
Write offs- - (15,721)(4,993)(20,714)
Effect of changes in foreign exchange rate(51)(2)(2)- (55)
Sale of portfolio(506)- - - (506)
Impairment allowance as at 30 June 2019
30,4221,78118,4257,86358,491
Securitised
Impairment allowance as at 30 June 201840020345- 765
Changes in loss allowance
Transfer between stages(8)(7)15- -
Recovery of amounts written off- - - - -
Credit impairment charge(400)(20)(345)- (765)
Recovery of amounts previously written off- - - - -
Write offs- - - - -
Effect of changes in foreign exchange rate- - - - -
Impairment allowance as at 30 June 2019
- - - - -
Total
Impairment allowance as at 30 June 201832,1841,38515,2908,89757,756
Changes in loss allowance
Transfer between stages(2,470)(245)672,648-
Recovery of amounts written off- - (829)- (829)
Credit impairment charge(1,205)39818,0293,95921,181
Recovery of amounts previously written off- - 829- 829
Write offs- - (15,721)(4,993)(20,714)
Effect of changes in foreign exchange rate(51)(2)(2)- (55)
Sale of portfolio(506)- - - (506)
Impairment allowance as at 30 June 2019
30,4221,78118,4257,86358,491
- (392)
1,265643
New and increased provision (net of
collective provision releases)
1,311
1,65765619,1511,31122,775
New and increased provision (net of
collective provision releases)
(765)
New and increased provision (net of
collective provision releases)
(13)(360)
18,79122,010
P. 31

12 Finance receivables (continued)
Impact of COVID-19 on allowance for ECL
$000'sJune 2020
Collectively impaired asset expense (excluding COVID-19 adjustments)16,387
COVID-19 adjustments9,600
Total collectively impaired asset expense25,987
Individually impaired asset expense3,385
Total impaired asset expense29,372
Impact of changes in gross finance receivables held at amortised cost on allowance for ECL
LifetimeLifetime
ECLECL
12 - MonthNot CreditCreditSpecific
$000's
ECL Impaired Impaired ProvisionTotal
Gross finance receivables as at 1 July 2019
2,799,220 206,882 57,043 26,412 3,089,557
Transfer between stages
(61,191)12,570 41,245 7,376
-
Additions
1,496,900 87,843 23,610 -
1,608,353
Deletions
(1,402,340) (118,572)(37,334)(3,174)
(1,561,420)
Write offs
(6,616)(5,463)(10,835)(5,947)
(28,861)
Gross finance receivables as at 30 June 20202,825,973 183,26073,72924,667 3,107,629
(b) Finance receivables held at fair value
Policy
$000'sJune 2020 June 2019
Finance receivables - reverse mortgages609,346 561,131
Total finance receivables - reverse mortgages609,346 561,131
Credit risk adjustments on financial assets designated at fair value through Profit or loss
There were no credit risk adjustments on individual financial assets.
Finance receivables – reverse mortgages are initially recognised, and subsequently measured, at fair value through profit or loss.
Note 19 (a) - Financial instruments measured at fair value discloses further information regarding the Banking Group’s valuation
policy.
The following table represents a summary of amounts included in the credit impairment charge with respect to the Banking Group's
allowance for ECL:
Note 21 - Credit risk exposure discloses further information regarding how reverse mortgages operate.
P. 32

13 Operating lease vehicles
Policy
$000'sJune 2020 June 2019
Cost
Opening balance21,62324,703
Additions9,9385,495
Disposals(7,463)(8,575)
Closing balance24,09821,623
Accumulated depreciation
Opening balance6,1077,179
Depreciation charge for the year3,6343,363
Disposals(3,246)(4,435)
Closing balance6,4956,107
Opening net book value15,51617,524
Closing net book value17,60315,516
14 Borrowings
Policy
$000'sJune 2020 June 2019
Deposits3,269,239 3,153,681
Total borrowings related to deposits3,269,239 3,153,681
Unsubordinated notes293,147285,435
Bank borrowings- 25,002
Certificate of deposit- 34,836
Securitised borrowings65,585-
Total other borrowings358,732 345,273
Deposits and unsubordinated notes rank equally and are unsecured.
The future minimum lease payments receivable under operating leases not later than one year is $3.487 million (2019: $3.952
million), within one to five years is $2.053 million (2019: $3.137 million) and over five years is nil (2019: nil).
Operating lease vehicles are depreciated on a straight line basis over their expected useful life after allowing for any residual values.
The estimated lives of these vehicles vary up to five years. Vehicles held for sale are not depreciated but are tested for impairment.
Operating lease vehicles are stated at cost less accumulated depreciation.
Borrowings and deposits are initially recognised at fair value including incremental direct transaction costs. They are subsequently
measured at amortised cost using the effective interest method.
P. 33

14 Borrowings (continued)
Frequency
of Interest
PrincipalValuationNoteIssue DateRepayment
$125 millionAmortised cost
19 (b)Half yearly
$150 millionAmortised cost
19 (b)Half yearly
•
15Share capital and dividends
Policy
June 2020 June 2019
Number of Number of
000'sShares Shares
Issued shares
Opening balance565,430560,588
Shares issued during the year- -
Dividend reinvestment plan- 5,283
Cancelled shares- (441)
Closing balance565,430 565,430
Dividends paid
DateCentsDateCents
Declared Per Share$000'sDeclared Per Share$000's
Dividend to HGH- 35,000- 19,790
Dividend to HGH- 20,000- - -
Dividend to HGH- 10,000- - -
In specie dividend- - - - 61,444
Final dividend- - - 5.530,808
Total dividends paid65,000112,042
15 November 2019
5 December 2019
19 February 2019
At 30 June 2020 the Banking Group had the following securitised borrowings outstanding:
The Banking Group has the following unsubordinated notes on issue at balance sheet date:
Maturity Date
12 April 2019
June 2019
Ordinary shares are classified as equity, incremental costs directly attributable to the issue of ordinary shares and share options are
recognised as a deduction from equity, net of any tax effect.
1 August 2019
15 August 2018
12 April 2024
The RBNZ changed the Conditions of Registration for all locally incorporated banks to restrict the payment of dividends on ordinary
shares, and the redemption on non-CET1 capital instruments as a result of the COVID-19 pandemic. The restrictions will remain in
place until further notice. The purpose of the restriction is to support the stability of the financial system due to the current economic
stress arising from COVID-19. The Banking Group has complied with the requirements of the RBNZ. This requirement was effective
from 2 April 2020 and was made via a change in the banks Conditions of Registration (COR).
June 2020
31 October 2018
There were no new shares issued during the period (2019: 5,282,619 new shares were issued at $1.6250 per share on 21 September
2018 under dividend reinvestment plans).
Heartland Auto Receivables Warehouse Trust 2018 - 1 securitisation facility $300 million, drawn $66 million (2019: $150 million,
undrawn). Securitised borrowings held by investors are secured over the assets of the Heartland Auto Receivables Warehouse
Trust 2018-1. The facility has a maturity date of 29 August 2021.
21 September 201721 September 2022
P. 34

16 Other reserves
Foreign
Currency
Employee TranslationDefined Cash Flow
Benefits Reserve Fair Value BenefitHedge
$000'sReserve(FCTR) Reserve Reserve ReserveTotal
June 2020
Balance as at 1 July 2019- - 4,558171(5,843)(1,114)
- - 766- (2,179)(1,413)
Balance as at 30 June 2020
- -
5,324 171 (8,022) (2,527)
June 2019
Balance as at 1 July 20182,5591,2601,590257(1,081)4,585
- (4,229)2,968(86)(4,762)(6,109)
Transfer to Heartland Group Holdings(297)- - - - (297)
Sale of business- 2,969- - - 2,969
Share based payments78- - - - 78
Shares vested(2,340)- - - - (2,340)
Balance as at 30 June 2019
- -
4,558 171 (5,843) (1,114)
17 Other balance sheet items
Policy
$000'sJune 2020 June 2019
Other assets
Trade receivables1,9266,264
GST receivables7423,643
Prepayments3,2694,380
Property, plant and equipment9,8399,896
Other receivables1,6041,179
Total other assets17,38025,362
Policy
Intangible assets
Intangible assets with finite useful lives
Goodwill
Other comprehensive income, net of income tax
Other comprehensive income, net of income tax
Goodwill arising on acquisition represents the excess of the cost of the acquisition over the Banking Group’s interest in the fair value
of the identifiable net assets acquired. Goodwill that has an indefinite useful life is not subject to amortisation and is tested for
impairment annually. Goodwill is carried at cost less accumulated impairment losses.
Property, plant and equipment are stated at cost less accumulated depreciation and impairment (if any). Depreciation is calculated
on a straight line basis to write off the net cost or revalued amount of each asset over its expected life to its estimated residual value.
Software acquired or internally developed by the Banking Group is stated at cost less accumulated amortisation and any accumulated
impairment losses. Expenditure on software assets is capitalised only when it increases the future economic value of that asset.
Amortisation of software is on a straight line basis, at rates which will write off the cost over the assets’ estimated useful lives. The
expected useful life of the software has been determined to be ten years.
P. 35

17 Other balance sheet items (continued)
$000'sJune 2020 June 2019
Computer software
Cost42,53537,210
Accumulated depreciation14,86410,429
Net carrying value of computer software27,67126,781
Goodwill
Cost29,79945,143
Transferred to Heartland Group Holdings Limited- (15,344)
Net carrying value of goodwill29,79929,799
Total intangible assets57,47056,580
• Comparing cashflows and other key financial metrics against budget;
• Material decreases in mid-term and/or long-term growth rates as compared to previous estimates;
• Any material changes in business model or strategy;
• Changes in market interest rates or other market rates of return;
• Fluctuations in the foreign exchange rates or commodity prices that impact the entity’s cash flows; and
• Any deferral of investment projects.
Policy
Employee benefits
$000'sJune 2020 June 2019
Trade and other payables
Trade payables20,0067,890
Insurance liability6,0947,468
Employee benefits6,1044,389
Other tax payables1,2871,542
Total trade and other payables33,49121,289
For the purposes of impairment testing, goodwill is allocated to cash generating units (CGU's). A CGU is the smallest identifiable
group of assets that generate independent cash inflows. The Banking Group has assessed that goodwill should be allocated to
Heartland Bank Limited as the smallest identifiable CGU.
Annual leave entitlements are accrued at amounts expected to be paid. Long service leave is accrued by calculating the probable
future value of the entitlements and discounting back to present value. Obligations to defined contribution superannuation schemes
are recognised as an expense when the contribution is paid.
Goodwill was tested for impairment on 30 June 2020. In assessing impairment, an internal valuation model was developed to indicate
the value of the business i.e. the recoverable amount. This value was compared to the net assets of the Banking Group.
The deterioration in economic conditions as a result of the COVID-19, and the consequential impact on the Banking Group were also
considered for any indicators of impairment. These included:
The recoverable amount was determined on a value in use basis using a five-year discounted cash flow methodology based on
financial budget and forecasts. Key assumptions used in the model included a discount rate of 10% and a terminal growth rate of 2%
which reflect both past experience and external sources of information.
There was no indication of impairment and no impairment losses have been recognised against the carrying amount of goodwill for
the year ended 30 June 2020 (30 June 2019: nil).
P. 36

17 Other balance sheet items (continued)
Policy
Leases
$000'sJune 2020 June 2019
Right of use assets
Balance at 1 July 201910,002-
Depreciation charge for the year, included within depreciation expense in the income statement(2,122)-
Additions to right of use assets9,963-
Total right of use assets17,843-
Lease liability
Current2,021-
Non-current17,850-
Total lease liability19,871-
Interest expense relating to lease liability550-
18 Related party transactions and balances
Policy
a)
A person or a close member of that person's family if that person:
b)
Lease liabilities are measured at the present value of the remaining lease payments and discounted using the Banking Group's
incremental borrowing rate (IBR). Lease liabilities are measured using the effective interest method. Carrying amounts are
remeasured only upon reassessments and lease modifications.
Right of use assets are depreciated at the shorter of lease term or the Banking Group’s depreciation policy for that asset class.
In determining the lease term, all facts and circumstances that create an economic incentive to exercise an extension option are
considered. Extension options are only included in the lease term if the lease is reasonably certain to be extended.
The Banking Group leases office space, car parks, equipment and cars. Rental contracts are typically made for fixed periods but may
have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
i) The entity and the Bank are members of the same group;
ii) One entity is an associate or joint venture of the other entity;
iii) Both entities are joint ventures of the same third party;
iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity;
ii) has significant influence over the Bank; or
vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel
of the entity (or of a parent of the entity).
A person or entity is a related party under the following circumstances:
i) has control or joint control over the Bank;
vi) The entity is controlled, or jointly controlled by a person identified in (a); and
v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity
related to the Bank;
iii) is a member of the key management personnel of the Bank.
An entity is related to the Bank if any of the following conditions applies:
P. 37

18 Related party transactions and balances (continued)
(a) Transactions with key management personnel
$000'sJune 2020 June 2019
Transactions with key management personnel
Interest income18-
Interest expense(47)(76)
Key management personnel compensation
Short-term employee benefits(3,034)(4,839)
Short-term employee benefits - HGH parent(6,240)(4,502)
Share-based payment expense(827)(703)
Total transactions with key management personnel(10,130) (10,120)
Due (to) / from key management personnel
Lending239
-
Borrowings - deposits(1,646)(3,019)
Total due (to) / from key management personnel(1,407)(3,019)
(b) Transactions with related parties
$000'sJune 2020 June 2019
Heartland Group Holdings Limited
Interest expense
47
-
Dividends paid
65,000
112,042
Disposal of investment in Harmoney Corp Limited
11,935
-
Management fees to HGH
4,745
-
Management fees from HGH
160
-
Heartland Australia Group Pty Limited (HAG)
Interest income
678 1,846
Funding repaid to the Bank
27,225
-
All other transactions with KMPs and their related entities are made on terms equivalent to those that prevail in arm's length
transactions.
The Banking Group's ultimate parent company is HGH.
KMP receive personal banking and financial investment services from the Bank in the ordinary course of business. The terms and
conditions, for example interest rates and collateral, and the risks to the Bank are comparable to transactions with other employees
and did not involve more than the normal risk of repayment or present other unfavourable features.
Related party transactions between the Banking Group eliminate on consolidation. Related party transactions outside of the Banking
Group are as follows:
The Bank has regular transactions with its ultimate parent company, fellow subsidiaries and subsidiaries (collectively known as the
Heartland Group) on agreed terms. The transactions include the provision of administrative services, tax transactions, and customer
operations and call centre. Banking facilities are provided by Heartland Bank Limited to other Heartland Group entities on normal
commercial terms as with other customers. There is no lending from the Banking Group to HGH.
Key management personnel (KMP), are those who, directly or indirectly, have authority and responsibility for planning, directing and
controlling the activities of HGH and HBL. This includes all executive staff, Directors and their close family members.
P. 38

18 Related party transactions and balances (continued)
$000'sJune 2020 June 2019
Australian Seniors Finance Pty Limited (ASF)
Management fees to ASF
9
-
Management fees from ASF
1,790
-
Southern Cross Building Society Staff Superannuation (SCBS)
Interest expense
33
43
Management fees from SCBS
10
10
(c) Due from/to related parties
$000'sJune 2020 June 2019
Due from
Australian Seniors Finance Pty Limited
1,481
-
Heartland Australia Group Pty Limited- 24,558
Total due from related parties1,481 24,558
Due to
Heartland Group Holdings Limited
5,788 3,381
ASF Settlement Trust
197
-
Heartland Australia Group Pty Ltd
1,959
-
Total due to related parties7,944 3,381
(d)
$000'sJune 2020 June 2019
Heartland Group Holdings Limited
Retail deposits
5,047
-
Southern Cross Building Society Staff Superannuation
Retail deposits
1,934
2,070
19 Fair value
Policy
Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
The Banking Group measures fair values using the following fair value hierarchy, which reflects the observability of the inputs used in
measuring fair value:
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (derived from prices).
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Other balances with related parties
On initial recognition, the transaction price generally represents the fair value of the financial instrument, unless there is observable
information from an active market that provides a more appropriate fair value.
The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or
dealer price quotations. For all other financial instruments, the Banking Group determines fair value using other valuation techniques.
P. 39

19 Fair value (continued)
(a) Financial instruments measured at fair value
Investments
Finance receivables - reverse mortgages
•
Mortality and move to care;
•
Voluntary exits;
•
House price changes;
•
No negative equity guarantee; and
•
Interest rate margin.
Investments in unlisted equity securities are classified as being fair valued through profit or loss and are valued under Level 3 of the
fair value hierarchy, with the fair value being based on unobservable inputs.
The Banking Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which
the change has occurred.
The following methods and assumptions were used to estimate the fair value of each class of financial asset and liability measured at
fair value on a recurring basis in the consolidated statement of financial position.
Investments in public sector securities and corporate bonds are classified as being available for sale and are stated at FVOCI, with
the fair value being based on quoted market prices (Level 1 under the fair value hierarchy) or modelled using observable market
inputs (Level 2 under the fair value hierarchy). Refer to Note 10 - Investments for more details.
Investments valued under Level 2 of the fair value hierarchy are valued either based on quoted market prices or dealer quotes for
similar instruments, or discounted cash flows analysis.
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
For subsequent measurement the Banking Group has considered if the fair value can be determined by reference to a relevant active
market or observable inputs, but has concluded relevant support is not currently available. In the absence of such market evidence
the Banking Group has used valuation techniques (income approach) including actuarial assessments to consider the fair value.
Reverse mortgage loans are classified at fair value through profit or loss. On initial recognition the Banking Group considers the
transaction price to represent the fair value of the loan.
When the Banking Group enters into a reverse mortgage loan the Banking Group has set expectations regarding the loan’s current
and future risk profile and expectation of performance. This expectation references a wide range of assumptions including:
P. 40

19 Fair value (continued)
Derivative financial instruments
$000'sLevel1Level2Level3Total
June 2020
Assets
Investments295,30094,3542,303391,957
Derivative financial instruments- 17,246- 17,246
Finance receivables - reverse mortgages- - 609,346609,346
Total financial assets measured at fair value295,300 111,600 611,649 1,018,549
Liabilities
Derivative financial instruments- 16,974- 16,974
Total financial liabilities measured at fair value- 16,974- 16,974
$000'sLevel1Level2Level3Total
June 2019
Assets
Investments255,87579,04712,435347,357
Derivative financial instruments- 14,467- 14,467
Finance receivables - reverse mortgages- - 561,131561,131
Total financial assets measured at fair value255,87593,514 573,566 922,955
Liabilities
Derivative financial instruments- 11,147- 11,147
Total financial liabilities measured at fair value- 11,147- 11,147
The following table analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy
into which each fair value measurement is categorised. The amounts are based on the values recognised in the consolidated
statement of financial position.
Interest rate and foreign currency related contracts are recognised in the financial statements at fair value. Fair values are
determined from observable market prices as at the reporting date, discounted cash flow models or option pricing models as
appropriate. (Level 2 under the fair value hierarchy).
At balance date the Banking Group does not consider any of the above expectations to have moved outside of the original
expectation range. Therefore the Banking Group has continued to estimate the fair value of the portfolio at transaction price. There
has been no fair value movement recognised in profit or loss during the period. Given the nature of the loan terms and tenor, the fair
value as recorded is regarded as not being highly sensitive to the above assumptions, particularly to house prices and interest rates,
that would impact the fair value at balance date. While noting the significant uncertainty around future economic conditions, based on
current judgment there is no evidence that COVID-19 will have a long-term adverse impact on market conditions, particularly
regarding the key elements of house prices or interest rates, that would materially influence the fair value of the reverse mortgage
portfolio at balance date.
The Banking Group will continue to reassess the existence of a relevant active market and movements in expectations on an on-
going basis.
P. 41

19 Fair value (continued)
The movement in Level 3 assets measured at fair value are below:
$000's
InvestmentsTotal
June 2020
As at 1 July 2019
561,13112,435573,566
New loans
76,729- 76,729
Repayments
(69,932)- (69,932)
Capitalised Interest and fees
39,620- 39,620
Additions
- 1,8031,803
Deletions
- (11,935)(11,935)
Other
1,798- 1,798
As at 30 June 2020
609,3462,303611,649
$000's
InvestmentsTotal
June 2019
As at 1 July 2018
456,8449,694466,538
Purchased from ASF
54,711- 54,711
New loans
57,477- 57,477
Repayments
(42,715)- (42,715)
Capitalised Interest and fees
36,903- 36,903
Additions
- 2,7412,741
Other
(2,089)- (2,089)
As at 30 June 2019
561,13112,435573,566
(b) Financial instruments not measured at fair value
Cash and cash equivalents
Finance receivables
Borrowings
Finance Receivables
- Reverse Mortgage
The following assets and liabilities of the Banking Group are not measured at fair value in the consolidated statement of financial
position.
The fair value of deposits, bank borrowings and other borrowings is the present value of future cash flows and is based on the current
market interest rates payable by the Banking Group for debt of similar maturities. The average current market rate used to fair value
borrowings was 2.24% (2019: 2.59%).
Cash and cash equivalents are measured at amortised cost and their carrying value is considered equivalent to their fair value due to
their short term nature.
The fair value of the Banking Group's finance receivables is calculated using a valuation technique which assumes the Banking
Group's current weighted average lending rates for loans of a similar nature and term.
The current weighted average lending rate used to fair value finance receivables with a fixed interest rate was 8.06% (2019: 8.88%).
Finance receivables with a floating interest rate are deemed to be at current market rates. The current amount of credit provisioning
has been deducted from the fair value calculation of finance receivables as a proxy for future losses.
- Reverse Mortgage
Finance Receivables
P. 42

19 Fair value (continued)
Due to and from related parties
Other financial assets and financial liabilities
TotalTotal
Fair Value Total Fair Carrying Fair Value Total Fair Carrying
$000'sHierarchyValueValue HierarchyValueValue
Assets
Cash and cash equivalentsLevel 1 105,463105,463Level 139,14039,140
Investments
1
Level 27,3757,351Level 27,4327,571
Finance receivablesLevel 2 3,092,150 3,044,960Level 2 3,017,327 3,031,066
Due from related partiesLevel 31,4811,481Level 324,55824,558
Other financial assetsLevel 33,5303,530Level 37,4437,443
Total financial assets3,209,999 3,162,7853,095,900 3,109,778
Liabilities
Retail depositsLevel 2 3,283,530 3,269,239Level 2 3,160,426 3,153,681
Borrowings - securitisedLevel 265,58565,585Level 2- -
Other borrowingsLevel 2 293,147293,147Level 2 345,273345,273
Due to related parties
Level 37,9447,944Level 33,3813,381
Other financial liabilitiesLevel 326,10026,100Level 315,35815,358
Total financial liabilities3,676,306 3,662,0153,524,438 3,517,693
June 2020June 2019
1
Included within investments are bank deposits which are held to support the Banking Group's contractual cash flows. Such investments are
measured at amortised cost.
The fair value of amounts due to and from related parties is considered equivalent to their carrying value due to their short term
nature.
The following table sets out financial instruments not measured at fair value, compares their carrying value against their fair value and
analyses them by level in the fair value hierarchy.
The fair value of financial instruments such as short-term trade receivables and payables is considered equivalent to their carrying
value due to their short term nature.
P. 43

19 Fair value (continued)
(c) Classification of financial instruments
Total
Amortised Carrying Total Fair
$000'sFVOCIFVTPLCostValueValue
June 2020
Cash and cash equivalents- - 105,463105,463105,463
Investments389,6542,3037,351399,308399,332
Finance receivables- - 3,044,960 3,044,960 3,092,150
Finance receivables - reverse mortgages- 609,346- 609,346609,346
Derivative financial instruments3217,214- 17,24617,246
Due from related parties- - 1,4811,4811,481
Other financial assets- - 3,5303,5303,530
Total financial assets389,686 628,863 3,162,785 4,181,334 4,228,548
Retail deposits- - 3,269,239 3,269,239 3,283,530
Other borrowings- - 358,732358,732358,732
Derivative financial instruments15,4091,565- 16,97416,974
Due to related parties- - 7,9447,9447,944
Other financial liabilities- - 26,10026,10026,100
Total financial liabilities15,4091,565 3,662,015 3,678,989 3,693,280
Total
Amortised Carrying Total Fair
$000'sFVOCIFVTPLCostValueValue
June 2019
Cash and cash equivalents- - 39,14039,14039,140
Investments334,92212,4357,571354,928354,789
Finance receivables- - 3,031,066 3,031,066 3,017,327
Finance receivables - reverse mortgages- 561,131- 561,131561,131
Derivative financial instruments2,82511,642- 14,46714,467
Due from related parties- - 24,55824,55824,558
Other financial assets- - 7,4437,4437,443
Total financial assets337,747 585,208 3,109,778 4,032,733 4,018,855
Retail deposits- - 3,153,681 3,153,681 3,160,426
Other borrowings- - 345,273345,273345,273
Derivative financial instruments9,8931,254- 11,14711,147
Due to related parties- - 3,3813,3813,381
Other financial liabilities- - 15,35815,35815,358
Total financial liabilities9,8931,254 3,517,693 3,528,840 3,535,585
The following tables summarise the categories of financial instruments and the carrying value and fair value of all financial
instruments of the Banking Group:
P. 44

Risk Management
20 Enterprise risk management program
Role of the Board and the Board Risk Committee
• The Board's Risk Appetite Statement.
• Heartland’s Internal Capital Adequacy Assessment Program (ICAAP) including appropriate stress testing scenarios.
•
•
• Conduct, culture and customer outcomes, including emerging risks and any areas of concern.
• Credit exposures of the Bank, including the Delegated Lending Authority Policy and Framework.
• New products, including the process for approval of new products.
Audit Committee
The board of directors (the Board) sets and monitors the Banking Group’s risk appetite across the primary risk domains of credit, capital,
liquidity, market (including interest rate), operational and compliance and general business risk. Management are, in turn, responsible for
ensuring appropriate structures, policies, procedures and information systems are in place to actively manage these risk domains, as
outlined within the Enterprise Risk Management Framework (ERMF). Collectively, these processes are known as the Bank's Enterprise
Risk Management Program (RMP).
The Board, through its Board Risk Committee (BRC) is responsible for oversight and governance of the development of the RMP. The
role of the BRC is to assist the Board to formulate its risk appetite, and to monitor the effectiveness of the RMP. The BRC has the
following specific responsibilities:
The effectiveness of the ERMF and internal compliance and risk related policies, including approval or variation of policies,
procedures and standards.
Respond to changes anticipated in the economic, business and regulatory environment.
The Audit Committee focuses on financial reporting and application of accounting policies as part of the internal control and risk
assessment framework. The Audit Committee monitors the identification, evaluation and management of all significant risks through the
Banking Group. This work is supported by Internal Audit, which provides an independent assessment of the design, adequacy and
effectiveness of internal controls. The Audit Committee receives regular reports from Internal Audit.
Charters for both the BRC and the Audit Committee ensure suitable cross representation to allow effective communication pertaining to
identified issues with oversight by the Board. The CRO has a direct reporting line to the Chairman of the BRC. The Head of Internal Audit
has a direct reporting line to the Chairman of the Audit Committee.
The BRC consists of four non-executive directors. Two members of the BRC sit on the Audit Committee. In addition the CEO Heartland
Bank Limited (HBL), GCRO, CFO, Chief Legal & Bank Risk Officer, and Head of Internal Audit (or their nominee, subject to the Chair’s
prior approval) attend the BRC meetings, and the directors who are not members of the BRC are entitled to attend meetings and to
receive copies of the BRC papers.
Internal Audit is allowed full, free and unfettered access to any and all of the organisation’s records, personnel and physical properties
deemed necessary to accomplish its activities.
Internal Audit
The Banking Group has an Internal Audit function, the objective of which is to provide independent, objective assurance over the internal
control environment. In certain circumstances, Internal Audit will provide risk and control advice to Management provided the work does
not impede the independence of the Internal Audit function. The function assists The Banking Group in accomplishing its objectives by
bringing a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance
processes.
P. 45

20Enterprise risk management program (continued)
Asset and Liability Committee (ALCO)
• Market risk (including non-traded interest rate risk and the investment of capital).
• Liquidity risk (including funding).
• Foreign exchange rate risk.
• Balance sheet structure.
• Capital management.
Executive Risk Committee (ERC)
Operational and compliance risk
•
A regular cycle of review has been implemented to cover all areas of the business, focused on assessment, management and control of
risks identified. The audit plan takes into account cyclical review of various business units and operational areas, as well as identified
areas of higher identified risk. The audit methodology is designed to meet the International Standards for the Professional Practice of
Internal Auditing of The Institute of Internal Auditors.
Each audit has specific audit procedures tailored to the area of business that is being reviewed. The audit procedures are updated during
each audit to reflect any process changes. Audit work papers are completed to evidence the testing performed in accordance with the
audit procedures.
The Internal Audit function has a direct reporting line, and accountability to the Audit Committee of the Bank and administratively to the
Chief Legal & Bank Risk Officer. A schedule of all outstanding internal control issues is maintained and presented to the Audit Committee
to assist the Audit Committee to track the resolution of previously identified issues. Any issues raised that are categorised as high risk are
specifically reviewed by Internal Audit during a follow-up review once the issue is considered closed by management. The follow-up
review is performed with a view to formally close out the issue.
Audit reports are addressed to the manager of the relevant area that is being audited in addition to other relevant stakeholders within the
Bank. Management comments are obtained from the process owner(s) and are included in the report.
The ERC comprises the CEO HBL, GCRO, CFO, Chief Legal & Bank Risk Office and Head of Internal Audit. The ERC has responsibility
for overseeing risk aspects not considered by ALCO, including that the internal control environment is managed so that residual risk is
consistent with the Banking Group's risk appetite. The ERC generally meets monthly, and provides minutes to the BRC. ERC’s specific
responsibilities include decision making and oversight of operational, compliance risk, and credit risk.
The ALCO comprises the CEO HGH, CEO HBL, GCRO, CFO, Chief Legal & Bank Risk Officer, Treasurer, Head of Retail, Financial
Controller HBL and Chief Distribution Officer. The ALCO has responsibility for overseeing aspects of risk management of the Banking
Group's financial position. The ALCO usually meet monthly, and provide reports to the BRC. ALCO's specific responsibilities include
decision making and oversight of risk matters in relation to:
Operational and compliance risk is the risk arising from day to day operational activities in the execution of the Banking Group's strategy
which may result in direct or indirect loss. Operational and compliance risk losses can occur as a result of fraud, human error, missing or
inadequately designed processes, failed systems, damage to physical assets, improper behaviour or from external events. The losses
range from direct financial losses, to reputational damage, unfavourable media attention, injury to or loss of staff or clients or as a breach
of laws or banking regulations. Where appropriate, risks are mitigated by insurance.
To ensure appropriate responsibility is allocated for the management, reporting and escalation of operational and compliance risk, the
Banking Group operates a “three lines of defence” model which outlines principles for the roles, responsibilities and accountabilities for
operational and compliance risk management:
The first line of defence is the business line management of the identification, management and mitigation of the risks associated with
the products and processes of the business. This accountability includes regular testing and attestation of the adequacy and
effectiveness of controls and compliance with the Banking Group's policies.
P. 46

20Enterprise risk management program (continued)
•
•
Market risk
Interest rate risk
•
•
•
•
Foreign exchange risk
Counterparty Credit Risk
•
• Finance receivables;
•
•
The Banking Group’s exposure to operational and compliance risk is governed by a risk appetite statement approved by the Board and is
used to guide management activities by the ERC. This statement sets out the nature of risk which may be taken and aggregate risk limits,
including the requirement for the ERC to monitor adherence to this.
Mismatches between the repricing dates of interest bearing assets and liabilities (yield curve and repricing risk);
Banking products repricing differently to changes in wholesale market rates (basis risk);
The third line of defence is Internal Audit which is responsible for independently assessing how effectively the Banking Group is
managing its risk according to its stated risk appetite.
Interest rate risk refers to exposure of an entity’s earnings and / or capital because of a mismatch between the interest rate exposures of
its assets and liabilities. Interest rate risk for the Banking Group arises from the provision of non-traded retail banking products and
services and from traded wholesale transactions entered into to reduce aggregate interest rate risk (known as hedges). This risk arises
from four key sources:
The second line of defence is the Risk and Compliance function, responsible for the design and ownership of the Operational Risk
Management Framework. It incorporates key processes including Risk and Control Self-Assessment (RCSA), incident management,
independent evaluation of the adequacy and effectiveness of the internal control framework and the attestation process.
Market risk is the possibility of experiencing losses or gains due to factors affecting the overall performance of financial markets in which
the Banking Group is exposed. The primary market risk exposures for the Banking Group are interest rate risk and foreign exchange risk.
The risk being that market interest rates or foreign exchange rates will change and adversely impact on the Banking Group’s earnings due
to either adverse moves in foreign exchange market rates or in the case of interest rate risks mismatches between repricing dates of
interest bearing assets and liabilities and/or differences between customer pricing and wholesale rates.
Foreign exchange risk is the risk that the Banking Group’s earnings and shareholder equity position are adversely impacted from changes
in foreign exchange rates. The Banking Group has exposure to foreign exchange translation risks through its holding of AUD assets.
Loan prepayment or deposit early withdrawal behaviour from customers that deviates from the expected or contractually agreed
behaviour (optionality risk); and
The effect of internal or market forces on a bank’s net interest margin where, for example, in a low rate environment any fall in rates
will further decrease interest income earned on the assets whereas funding cost cannot be reduced as it is already at the minimum
level (margin compression risk).
Counterparty credit risk is managed against limits set in the Market Risk Policy including credit exposure on derivative contracts, bilateral
set-off arrangements, cash and cash equivalents and investment securities.
The Banking Group has on-going credit exposure associated with:
Cash and cash equivalents;
Holding of investment securities; and
Payments owed to the Banking Group from risk management instruments.
Refer Note 24 - Interest rate risk for further details regarding interest rate risk.
P. 47

21Credit risk exposure
•
Credit origination meets agreed levels of credit quality at point of approval;
•
Sector concentrations are monitored;
•
Maximum total exposure to any one debtor is actively managed;
•
Changes to credit risk are actively monitored with regular credit reviews.
Reverse mortgage loans and negative equity risk
Business Finance Guarantee Scheme
The Bank, along with other registered banks in New Zealand, has entered into a Deed of Indemnity with the New Zealand Government to
implement the New Zealand Governments Business Finance Guarantee Scheme. The purpose of the scheme is to provide short term
credit to eligible small and medium size businesses, who have been impacted by economic effects of COVID 19. The scheme allows
banks to lend to a maximum of $500,000 for a maximum of three years. The New Zealand Government will guarantee 80% of any loss
incurred (credit risk) with the Bank holding the remaining 20%. As at 30 June 2020 the Bank had a total exposure of $6.5 million to its
customers under the scheme.
The Banking Group’s exposure to negative equity risk is managed by the Credit Risk Oversight Policy in conjunction with associated
lending standards specific for this product. In addition to usual criteria regarding the type, and location, of security property that the
Banking Group will accept for reverse mortgage lending, a key aspect of the Banking Group's policy is that a borrower’s age on origination
of the reverse mortgage loan will dictate the loan-to-value ratio of the reserve mortgage on origination. Both New Zealand and Australia
reverse mortgage operations are similarly aligned. The policy is managed and reviewed periodically to ensure appropriate consistency
across locations.
Impact of COVID-19 has been considered by the Banking Group as outlined in Note 8 - Impaired asset expense.
Reverse mortgage loans are a form of mortgage lending designed for the needs of people over 60 years. These loans differ to
conventional mortgages in that they typically are not repaid until the borrower ceases to reside in the property. Further, interest is not
required to be paid, it is capitalised into the loan balance and is repayable on termination of the loan. As such, there are no incoming cash
flows and therefore no default risk to manage during the term of the loan. Negative equity risk arises from the promise by the Banking
Group that the maximum repayment amount is limited to the net sale proceeds of the borrowers' property.
Credit risk is the risk that a borrower will default on any type of debt by failing to make payments which it is obligated to make. The risk is
primarily that of the lender and includes loss of principal and interest, disruption to cash flows and increased collection costs.
To manage this risk the ERC oversees the formal credit risk management strategy. The ERC reviews the Banking Group's credit risk
exposures typically on a monthly basis. The credit risk management strategies aim to ensure that:
Credit risk is managed to achieve sustainable risk-reward performance whilst maintaining exposures within acceptable risk “appetite”
parameters. This is achieved through the combination of governance, policies, systems and controls, underpinned by commercial
judgement as described below.
The BRC has authority from the Board for approval of all credit exposures. Lending authority has been provided to the Banking Group's
Credit Committees, and to the business units under a detailed Delegated Lending Authority framework. Application of credit discretions in
the business operation are monitored through a defined review and hindsight structure as outlined in the Credit Risk Oversight Policy.
Delegated Lending Authorities are provided to individual officers with due cognisance of their experience and ability. Larger and higher
risk exposures require approval of senior management, the Credit Committees and ultimately through to the BRC.
The Banking Group employs a process of hindsighting loans to ensure that credit policies and the quality of credit processes are
maintained.
The BRC also oversees the Banking Group's credit risk exposures to monitor overall risk metrics having regard to risk appetite set by the
Board.
P. 48

21Credit risk exposure (continued)
Maximum exposure to credit risk at the relevant reporting dates
$000'sJune 2020 June 2019
Cash and cash equivalents105,46339,140
Investments397,005342,493
Finance receivables3,044,960 3,031,066
Finance receivables - reverse mortgages609,346561,131
Derivative financial assets17,24614,467
Due from related parties1,48124,558
Other financial assets3,5307,443
Total on balance sheet credit exposures4,179,031 4,020,298
Concentration of credit risk by geographic region
$000'sJune 2020 June 2019
New Zealand3,814,932 3,711,429
Australia131,419113,209
Rest of the world
1
295,349254,151
4,241,700 4,078,789
Provision for impairment(62,669)(58,491)
Total on balance sheet credit exposures4,179,031 4,020,298
Concentration of credit risk by industry sector
$000'sJune 2020 June 2019
Agriculture625,141689,089
Forestry and fishing145,045132,545
Mining12,99313,695
Manufacturing75,65970,740
Finance and insurance556,537419,709
Wholesale trade39,54040,869
Retail trade and accommodation 232,664237,342
Households1,674,286 1,671,097
Other business services163,801170,013
197,174186,843
Rental, hiring and real estate services142,467148,561
Transport and storage257,634237,451
Other118,75960,835
4,241,700 4,078,789
Provision for impairment(62,669)(58,491)
Total on balance sheet credit exposures4,179,031 4,020,298
Construction
1
These overseas assets are primarily NZD-denominated investments in AA+ and higher rated securities issued by offshore supranational agencies
("Kauri Bonds").
The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for categorising
customer industry sectors.
The following table represents the maximum credit risk exposure, without taking account of any collateral held. The exposures set out
below are based on net carrying amounts as reported in the consolidated statement of financial position.
P. 49

21Credit risk exposure (continued)
Commitments to extend credit
$000'sJune 2020 June 2019
Undrawn facilities available to customers166,489110,920
Conditional commitments to fund at future dates58,04514,286
Credit exposures to connected persons
Peak End-of-Day for
As at June 2020
Year Ended June 2020
Credit exposures to connected persons ($000's)1.4829.84
As a percentage of Tier 1 capital of the Banking Group at end of the year (%)0.28%5.78%
Credit exposures to non-bank connected persons ($000's)1.4829.84
As a percentage of Tier 1 capital of the Banking Group at end of the year (%)0.28%5.78%
Credit exposure to individual counterparties
The Banking Group's methodology for calculating credit exposure concentrations is on the basis of actual credit exposures and calculated
on a gross basis (net of individual credit impairment allowances and excluding advances of a capital nature) in accordance with the
Bank's conditions of registration and the Reserve Bank's Connected Exposures Policy (BS8). Peak end-of-day credit exposures to non-
bank connected persons are calculated using the Banking Group’s Tier 1 capital at the end of the reporting period.
As at 30 June 2020, the Banking Group had no aggregate contingent exposures to connected persons arising from risk lay-off
arrangements in respect of credit exposures to counterparties (excluding counterparties that are connected persons). The aggregate
amount of the Banking Group's individual credit provisions provided against credit exposure to connected persons was nil at 30 June
2020.
As at 30 June 2020 there were no undrawn lending commitments available to counterparties for whom drawn balances are classified as
individually impaired (2019: nil).
The Banking Group measures its concentration of credit risk to individual counterparties at the reporting date based on actual exposures.
Peak aggregate end-of-day credit exposure is determined by taking the maximum end-of-day aggregate amount of credit exposure over
the relevant six month period. The exposure is then divided by the Banking Group's Common Equity Tier 1 (CET1) Capital as at the
reporting date.
The exposure information in the table below excludes exposures to connected persons, the central government or central bank of any
country with a long term credit rating of A- or A3 or above, or its equivalent and any supranational or quasi-sovereign agency with a long-
term credit rating of A- or A3 or above, or its equivalent.
The Banking Groups rating-contingent limit as defined in its conditions of registration is 15%, which is the same as the overall rating-
contingent sub-limit which applies to the aggregate credit exposure to non-bank connected persons. There have been no rating-
contingent limit changes during the accounting period.
As at 30 June 2020 the Banking Group had 1 counterparty whose period end or peak end-of-day over the relevant six month period credit
exposures is over 10% of equity to individual counterparties (not being members of groups of closely related counterparties) or groups of
closely related counterparties (excluding central government of any country with a long-term credit rating of A- or A3 or above, or its
equivalent, or any bank with a long-term credit rating of A- or A3 or above, or its equivalent, and connected persons).
P. 50

21Credit risk exposure (continued)
Peak End-of-Day over
As at June 2020
6 Months to June 2020
Exposures to banks
1 1
- -
- -
Exposures to non-banks
- -
22 Asset quality
Corporate
Residential
All Other
(a) Finance receivables by credit risk concentration
$000'sCorporate Residential All OtherTotal
June 2020
Neither at least 90 days past due nor impaired1,889,231632,894 1,110,903 3,633,028
At least 90 days past due27,09859931,58359,280
Individually impaired22,77491,88424,667
Gross finance receivables1,939,103 633,502 1,144,370 3,716,975
Provision for impairment(34,614)(7)(28,048)(62,669)
Total net finance receivables1,904,489 633,495 1,116,322 3,654,306
June 2019
Neither at least 90 days past due nor impaired1,735,151592,807 1,251,852 3,579,810
At least 90 days past due15,25653528,67544,466
Individually impaired26,412- - 26,412
Gross finance receivables1,776,819 593,342 1,280,527 3,650,688
Provision for impairment(34,469)(104)(23,918)(58,491)
Total net finance receivables1,742,350 593,238 1,256,609 3,592,197
Number of Exposures
Number of Exposures
Lending secured by a first ranking mortgage over a residential property used primarily for residential
purposes either by the mortgagor or a tenant of the mortgagor
Business lending including rural lending
With a long-term credit rating of at least BBB- or Baa3, or its equivalent, and at
most BBB+ or Baa1, or its equivalent
With a long-term credit rating of A- or A3 or above, or its equivalent:
- -
The disclosures in this note are categorised by the following credit risk concentrations:
10% to less than 15% of CET1 capital
- -
With a long-term credit rating of A- or A3 or above, or its equivalent:
This relates primarily to consumer lending to individuals
With a long-term credit rating of at least BBB- or Baa3, or its equivalent, and at
most BBB+ or Baa1, or its equivalent
Total number of exposures to non-banks that are greater than 10% of CET1
capital
- -
15% to less than 20% of CET1 capital
20% to less than 25% of CET1 capital
P. 51

22Asset quality (continued)
(b) Past due but not impaired
$000'sCorporate Residential All OtherTotal
June 2020
Less than 30 days past due14,30185320,96536,119
At least 30 but less than 60 days past due9,361- 10,86320,224
At least 60 but less than 90 days past due8,041478,28016,368
At least 90 days past due27,09859931,58359,280
Total past due but not impaired58,8011,49971,691 131,991
June 2019
Less than 30 days past due15,2971,17441,09557,566
At least 30 but less than 60 days past due7,50947213,58021,561
At least 60 but less than 90 days past due4,671- 6,92011,591
At least 90 days past due15,25653528,67544,466
Total past due but not impaired42,7332,18190,270 135,184
(c) Individually impaired assets
$000'sCorporate Residential All OtherTotal
June 2020
Opening26,412- - 26,412
Additions 5,48391,8847,376
Deletions(3,174)- - (3,174)
Write offs(5,947)- - (5,947)
Closing gross individually impaired assets22,77491,88424,667
Less: provision for individually impaired assets5,301- - 5,301
Total net individually impaired assets17,47291,88419,366
June 2019
Opening41,2376123,33745,186
Reclassified on adoption of NZ IFRS9- (612)- (612)
Additions 6,479- - 6,479
Deletions(16,311)- (3,337)(19,648)
Write offs(4,993)- - (4,993)
Closing gross individually impaired assets26,412- - 26,412
Less: provision for individually impaired assets7,863- - 7,863
Total net individually impaired assets18,549- - 18,549
P. 52

22Asset quality (continued)
(d) Credit risk grading
Lifetime
ECLLifetime
12 Months Not CreditECL CreditSpecifically
$000's
ECL Impaired Impaired Provided Fair valueTotal
June 2020
Judgemental portfolio
Grade 1 - Very Strong28- - - - 28
Grade 2 - Strong9,323- - - - 9,323
Grade 3 - Sound65,084- 189- - 65,273
Grade 4 - Adequate509,1545,1174,238- - 518,509
Grade 5 - Acceptable817,1904,6131,938- - 823,741
Grade 6 - Monitor- 112,5862,558- - 115,144
Grade 7 - Substandard- 27,28917,652- - 44,941
Grade 8 - Doubtful- - - 16,025- 16,025
Grade 9 - At risk of loss- - - 8,642- 8,642
Total Judgemental portfolio1,400,779149,60526,57524,667- 1,601,626
Total Behavioural portfolio1,425,19433,65547,154- 609,346 2,115,349
Gross finance receivables2,825,973 183,260 73,729 24,667 609,346 3,716,975
Provision for impairment(32,420)(2,167)(22,781)(5,301)- (62,669)
Total finance receivables2,793,553 181,093 50,948 19,366 609,346 3,654,306
Judgemental loans are individually risk graded based on loan status, financial information, security and debt servicing ability. Exposures in
the Judgemental portfolio are credit risk graded by an internal risk grading mechanism where grade 1 is the strongest risk. Grade 8 and
grade 9 are the weakest risk grades where a loss is probable. Behavioural loans are managed based on their arrears status.
Upon adoption of NZ IFRS 9 all loans past due but not impaired have been categorised into three impairments stages (refer Note 8) which
are in most cases based on arrears status. If a Judgemental loan is risk graded 6 or above it will be classified as stage 2 as a minimum
and carry a provision based on lifetime expected credit losses.
The Banking Group's finance receivables are monitored either by account behaviour (Behavioural portfolio) or a regular assessment of
their credit risk grade based on an objective review of defined risk characteristics (Judgemental portfolio).
The Judgemental portfolio consists mainly of business and rural lending where an on-going and detailed working relationship with the
customer has been developed while the Behavioural portfolio consists of consumer, retail and smaller business receivables.
Finance receivables - reverse mortgages have no arrears characteristics and are assessed on origination against a pre-determined
criteria.
P. 53

22Asset quality (continued)
Lifetime
ECLLifetime
12 Months Not CreditECL CreditSpecifically
$000's
ECL Impaired Impaired ProvidedTotal
June 2019
Judgemental portfolio
Grade 1 - Very Strong7- - - - 7
Grade 2 - Strong8,685- - - - 8,685
Grade 3 - Sound86,109- 71- - 86,180
Grade 4 - Adequate478,6823,7075,478- - 487,867
Grade 5 - Acceptable851,8734,8354,854- - 861,562
Grade 6 - Monitor- 142,1225,031- - 147,153
Grade 7 - Substandard- 22,9133,450- - 26,363
Grade 8 - Doubtful- - - 15,391- 15,391
Grade 9 - At risk of loss- - - 11,021- 11,021
Total Judgemental portfolio1,425,356173,57718,88426,412- 1,644,229
Total Behavioural portfolio1,373,86433,30538,159- 561,131 2,006,459
Gross finance receivables2,799,220 206,88257,04326,412 561,131 3,650,688
Provision for impairment(30,422)(1,781)(18,425)(7,863)- (58,491)
Total finance receivables2,768,798 205,10138,61818,549 561,131 3,592,197
Fair Value
P. 54

22Asset quality (continued)
(e) Provision for impairment
Lifetime
ECLLifetime
12 Months Not CreditECL CreditSpecific
$000's
ECL Impaired Impaired Provision
June 2020
Corporate
Impairment allowance as at 30 June 201921,4046704,5327,86334,469
Changes in loss allowance
Transfer between stages(254)61(1,400)1,593-
Recovery of amounts written off- - - - -
Credit impairment charge(2,622)1585,1703,3856,091
Recovery of amounts previously written off- - - - -
Write offs- - - (5,947)(5,947)
Effect of changes in foreign exchange rate- 1- - 1
Impairment allowance as at 30 June 2020
18,7828299,7025,30134,614
Residential
Impairment allowance as at 30 June 201921380- 104
Changes in loss allowance
Transfer between stages44(1)(43)- -
Recovery of amounts written off- - - - -
Credit impairment charge(11)(2)(84)- (97)
Recovery of amounts previously written off- - - - -
Write offs- - - - -
Effect of changes in foreign exchange rate- - - - -
Impairment allowance as at 30 June 2020
101(4)- 7
All Other
Impairment allowance as at 30 June 20198,9971,10813,813- 23,918
Changes in loss allowance
Transfer between stages(999)(343)1,342- -
Recovery of amounts written off- - (2,808)- (2,808)
Credit impairment charge4,6041,66417,110- 23,378
Recovery of amounts previously written off- - 2,808- 2,808
Write offs- (1,438)(20,658)- (22,096)
Effect of changes in foreign exchange rate27310- 40
Impairment allowance as at 30 June 2020
13,6281,33713,083- 28,048
Total
Impairment allowance as at 30 June 201930,4221,78118,4257,86358,491
Changes in loss allowance
Transfer between stages(1,209)(283)(101)1,593-
Recovery of amounts written off- - (2,808)- (2,808)
Credit impairment charge1,9711,82022,1963,38529,372
Recovery of amounts previously written off- - 2,808- 2,808
Write offs- (1,438)(20,658)(5,947)(28,043)
Effect of changes in foreign exchange rate27410- 41
Impairment allowance as at 30 June 2020
32,4202,16722,7815,30162,669
32,180
1,7926,091
(55)(1)(41)-
5,6032,00718,576- 26,186
(97)
New and increased provision (net of collective
provision releases)
3,1802,10325,1051,792
Total
New and increased provision (net of collective
provision releases)
New and increased provision (net of collective
provision releases)
New and increased provision (net of collective
provision releases)
(2,368)976,570
P. 55

22Asset quality (continued)
Lifetime
ECLLifetime
12 Months Not CreditECL CreditSpecific
$000's
ECL Impaired Impaired Provision
June 2019
Corporate
Impairment allowance as at 30 June 2019
23,2906972,3158,67234,974
Changes in loss allowance
Transfer between stages
(1,649)15(1,014)2,648-
Recovery of amounts written off
- - - - -
Credit impairment charge
(1,870)(27)4,6824,1846,969
Recovery of amounts previously written off
- - - - -
Write offs
- - (2,465)(4,993)(7,458)
Effect of changes in foreign exchange rate
(16)- - - (16)
Impairment allowance as at 30 June 202021,4046704,5327,86334,469
Residential
Impairment allowance as at 30 June 2019
444- 2472
Changes in loss allowance
Transfer between stages
258(60)- -
Recovery of amounts written off
- - - - -
Credit impairment charge
(23)(1)80(24)32
Recovery of amounts previously written off
- - - - -
Write offs
- - - - -
Effect of changes in foreign exchange rate
- - - - -
Impairment allowance as at 30 June 202021380- 104
All Other
Impairment allowance as at 30 June 2019
8,85068412,97520122,710
Changes in loss allowance
Transfer between stages
(823)(318)1,141- -
Recovery of amounts written off
- - (829)- (829)
Credit impairment charge
68842613,267(201)14,180
Recovery of amounts previously written off
- - 829- 829
Write offs
- - (13,256)- (13,256)
Effect of changes in foreign exchange rate
(35)(2)(2)- (39)
Sale of portfolio
(506)- - - (506)
Impairment allowance as at 30 June 20208,9971,10813,813- 23,918
(221)
New and increased provision (net of collective
provision releases)
Total
(42)5,6961,5366,969
New and increased provision (net of collective
provision releases)
1,51174412,955(201)15,009
New and increased provision (net of collective
provision releases)
(25)(59)140(24)32
P. 56

22Asset quality (continued)
Lifetime
ECLLifetime
12 Months Not CreditECL CreditSpecific
June 2019
ECL Impaired Impaired Provision
Total
Impairment allowance as at 30 June 2019
32,1841,38515,2908,89757,756
Changes in loss allowance
Transfer between stages
(2,470)(245)672,648-
Recovery of amounts written off
- - (829)- (829)
Credit impairment charge
(1,205)39818,0293,95921,181
Recovery of amounts previously written off
- - 829- 829
Write offs
- - (15,721)(4,993)(20,714)
Effect of changes in foreign exchange rate
(51)(2)(2)- (55)
Sale of portfolio
(506)- - - (506)
Impairment allowance as at 30 June 202030,4221,78118,4257,86358,491
(f) Other assets under administration
23 Liquidity risk
RBNZ facilities
Liquidity risk is the risk that the Banking Group is unable to meet its payment obligations as they fall due. The timing mismatch of cash
flows and the related liquidity risk in all banking operations and is closely monitored by the Banking Group.
Measurement of liquidity risk is designed to ensure that the Banking Group has the ability to generate or obtain sufficient cash in a timely
manner and at a reasonable price to meet its financial commitments on a daily basis.
The Banking Group’s exposure to liquidity risk is governed by a policy approved by the Board and managed by the ALCO. This policy sets
out the nature of the risk which may be taken and aggregate risk limits, and the ALCO must conform to this. The objective of the ALCO is
to derive the most appropriate strategy for the Banking Group in terms of a mix of assets and liabilities given its expectations of future
cash flows, liquidity constraints and capital adequacy. The Banking Group employs asset and liability cash flow modelling to determine
appropriate liquidity and funding strategies.
1,265643
In March 2020, the Bank was onboarded by the RBNZ as an approved counterparty and executed a 2011 Global Master Repo Agreement
providing an additional source for intra-day liquidity for the Banking Group if required.
On 16 March 2020, as a result of COVID-19, the RBNZ announced that it would provide term funding through a Term Auction Facility to
give banks the ability to access term funding using repurchase agreements with qualifying collateral for a term of up to twelve months.
From 26 May 2020, the RBNZ also made available, for a period of 6 months, a Term Lending Facility to offer loans for a fixed term of
three years at the Official Cash Rate, with access to the funds linked to banks’ lending under the Business Finance Guarantee Scheme.
The Banking Group had not utilised either of these facilities as at 30 June 2020.
Other assets under administration are any loans, not being individually impaired or 90 days or more past due, where the customer is in
any form of voluntary or involuntary administration, including receivership, liquidation, bankruptcy or statutory management. As at 30 June
2020, the Banking Group had $5.562 million assets under administration (2019: $5.791 million).
18,7911,31122,010
New and increased provision (net of collective
provision releases)
Total
P. 57

23Liquidity risk (continued)
$000'sJune 2020 June 2019
Cash and cash equivalents105,46339,140
Investments397,005342,493
Undrawn committed bank facilities234,415150,000
Total liquidity736,883 531,633
Contractual liquidity profile of financial liabilities
On0-66-121-22-55+
$000'sDemand Months MonthsYearsYearsYearsTotal
June 2020
Financial liabilities
Retail deposits813,140 1,418,656833,440162,22186,615- 3,314,072
Other borrowings- 6,2286,12676,964284,462- 373,780
Derivative financial liabilities- 5,6834,6655,2971,354- 16,999
Due to related parties- 7,944- - - - 7,944
Lease liabilities- 1,2841,3045,3357,6347,08522,642
Other financial liabilities- 26,100- - - - 26,100
Total financial liabilities813,140 1,465,895 845,535 249,817 380,0657,085 3,761,537
Undrawn committed bank facilities234,415- - - - - 234,415
June 2019
Financial liabilities
Retail deposits 895,290 1,415,994605,804224,54574,714- 3,216,347
Other borrowings- 65,6405,57811,188295,649- 378,055
Derivative financial liabilities- 4,7517,76910,5525,741- 28,813
Due to related parties- 3,381- - - - 3,381
Other financial liabilities- 15,358- - - - 15,358
Total financial liabilities895,290 1,505,124 619,151 246,285 376,104- 3,641,954
Undrawn committed bank facilities150,000- - - - - 150,000
102,285
Undrawn facilities available to
customers
102,285- - - - -
- - - - - 166,489
The following tables present the Banking Group's financial liabilities by relevant maturity groupings based upon contractual maturity date.
The amounts disclosed in the tables represent undiscounted future principal and interest cash flows. As a result, the amounts in the tables
below may differ to the amounts reported on the consolidated Statement of financial position.
The contractual cash flows presented below may differ significantly from actual cash flows. This occurs as a result of future actions by the
Banking Group and its counterparties, such as early repayments or refinancing of term loans and borrowings. Deposits and other public
borrowings include customer savings deposits and transactional accounts, which are at call. These accounts provide a stable source of
long term funding for the Banking Group.
Undrawn facilities available to
customers
166,489
The Banking Group holds the following liquid assets and committed funding sources for the purpose of managing liquidity risk:
P. 58

24Interest rate risk
• Monitoring maturity profiles and seeking to match the re-pricing of assets and liabilities;
• Monitoring interest rates daily and regularly (at least monthly) reviewing interest rate exposures; and
•
The Banking Group's market risk is derived primarily of exposure to interest rate risk, predominantly from raising funds through the retail
and wholesale deposit market, the debt capital markets and committed and uncommitted bank funding, securitisation of receivables, and
offering loan finance products to the commercial and consumer market in New Zealand and Australia.
To manage this market risk, the Banking Group measures sensitivity to interest rate changes by assessing the change in the fair value of
the position to a +/- 1 basis point shock to the curve (that is multiplied by 100), with basis point sensitivity limits set according to the Risk
Appetite Statement and Market Risk Policy. The Banking Group also manages interest rate risk by:
The Banking Group’s exposure to market risk is governed by a policy approved by the Board and managed by the ALCO. This policy sets
out the nature of risk which may be taken and aggregate risk limits, and the ALCO must conform to this. The objective of the ALCO is to
derive the most appropriate strategy for the Banking Group in terms of the mix of assets and liabilities given its expectations of the future
and the potential consequences of interest rate movements, liquidity constraints and capital adequacy.
Entering into derivatives to hedge against movements in interest rates.
P. 59

24Interest rate risk (continued)
Contractual repricing analysis
Non-
0-33-66-121-22+ Interest
$000'sMonths Months MonthsYearsYears BearingTotal
June 2020
Financial assets
Cash and cash equivalents105,456- - - - 7105,463
Investments43,86318,42552,70859,296222,7132,303399,308
Finance receivables1,522,602198,446352,076557,569400,65813,609 3,044,960
- - - - - 1,4811,481
Derivative financial assets- - - - - 17,24617,246
Other financial assets- - - - - 3,5303,530
Total financial assets2,281,267 216,871 404,784 616,865 623,37138,176 4,181,334
Financial liabilities
Retail deposits1,621,568585,482815,366155,21977,65513,949 3,269,239
Other borrowings67,439970- - 290,323- 358,732
Derivative financial liabilities- - - - - 16,97416,974
Due to related parties- - - - - 7,9447,944
Lease liabilities- - - - - 19,87119,871
Other financial liabilities- - - - - 26,10026,100
Total financial liabilities1,689,007 586,452 815,366 155,219 367,97884,838 3,698,860
Net financial assets / (liabilities)1,150,215 (420,930) (649,719) 224,433 225,137(46,662) 482,474
June 2019
Financial assets
Cash and cash equivalents39,134- - - - 639,140
Investments24,09715,36891,24862,048149,73212,435354,928
Due from related parties- - - - - 24,55824,558
Finance receivables1,553,686206,801337,236537,300386,8709,173 3,031,066
Derivative financial assets- - - - - 14,46714,467
Other financial assets- - - - - 7,4437,443
Total financial assets2,178,048 222,169 428,484 599,348 536,60268,082 4,032,733
Financial liabilities
Retail deposits1,614,124519,676729,734212,57565,88711,685 3,153,681
Other borrowings59,839- - - 285,434- 345,273
Derivative financial liabilities- - - - - 11,14711,147
Due to related parties- - - - - 3,3813,381
Other financial liabilities- - - - - 15,35815,358
Total financial liabilities1,673,963 519,676 729,734 212,575 351,32141,571 3,528,840
Net financial assets / (liabilities)467,296 (134,758) (262,275)73,589 333,53026,511 503,893
148,249- - (313,184)
The tables above illustrate the periods in which the cash flows from interest rate swaps are expected to occur and affect profit or loss.
The interest rate risk profile of financial assets and liabilities that follows has been prepared on the basis of maturity or next repricing date,
whichever is earlier.
Due from related parties
Finance receivables - reverse
mortgages
609,346- - - - - 609,346
Finance receivables - reverse
mortgages
561,131- - - - - 561,131
Effect of derivatives held for risk
management
(36,789)162,74938,975
Effect of derivatives held for risk
management
557,955(51,349) (239,137) (237,213)(30,256)- -
P. 60

25Concentrations of funding
(a) Regulatory liquidity ratios
One-week mismatch ratio
One-month mismatch ratio
Core funding ratio
The one-year core funding ratio measures the extent to which loans and advances are funded by the funding that is considered stable.
The one-year core funding ratio = 100 x (one-year core funding dollar amount / BS13 total loans and advances) and must currently remain
at not less than 50% on a daily basis.
The table below shows the 3-month average of the respective daily ratio values in accordance with RBNZ's Liquidity Policy (BS13/BS13A)
(BS13) and the Bank's Conditions of Registration relating to liquidity-risk management.
The one-week mismatch ratio is a measure of the Banking Group's one-week mismatch amount over its total funding, where the one-week
mismatch amount represents the Banking Group's portfolio of primary liquid assets plus expected cash inflows minus expected cash
outflows during a one-week period of stress. The Bank is required to maintain this ratio at not less than the minimum level of zero percent
on a daily basis. The one-week mismatch ratio = 100 x (one-week mismatch dollar amount / total funding).
Average for the 3 Months
Ended 30 June 2020
Average for the 3 Months
Ended 31 March 2020
The one-month mismatch ratio is a measure of the Banking Group's one-month mismatch amount over its total funding, where the one-
month mismatch amount represents the Banking Group's portfolio of primary and secondary liquid assets plus expected cash inflows
minus expected cash outflows during a one-month period of stress. The Bank is required to maintain this ratio at not less than the
minimum level of zero percent on a daily basis. The one-month mismatch ratio = 100 x (one-month mismatch dollar amount / total
funding).
The RBNZ announced on 24 March that the banks COR requirement for a core funding ratio of 75% was amended, reducing the
requirement to 50% to further provide support and liquidity to the financial sector. This was effective from 2 April 2020 and was made via a
change in the banks Conditions of Registration.
4.59
85.74
8.53
The table above has not incorporated any recalculations as detailed on page 78 of this Disclosure Statement.
7.15
87.14
3.30
P. 61

25Concentrations of funding (continued)
(b) Concentration of funding by industry
$000'sJune 2020 June 2019
Agriculture109,26868,559
Forestry and fishing14,90125,360
Mining3561
Manufacturing6,97611,233
Finance and insurance682,249488,985
Wholesale trade10,85511,520
Retail trade and accommodation20,42319,730
Households2,263,668 2,340,763
Rental, hiring and real estate services41,34830,110
Construction19,70215,338
Other business services63,69757,360
Transport and storage4,5524,416
Other 97,150140,084
3,334,824 3,213,519
Unsubordinated Notes 293,147285,435
Total borrowings3,627,971 3,498,954
(c) Concentration of funding by geographical area
$000'sJune 2020 June 2019
New Zealand3,475,790 3,403,248
Overseas152,18195,706
Total borrowings3,627,971 3,498,954
The Australian and New Zealand Standard Industrial Classification codes have been used as the basis for categorising customer industry
sectors.
P. 62

Other Disclosures
26Significant subsidiaries
Proportion of ownership
and voting power held
Country of Incorporation
Significant Subsidiariesand Place of Business Nature of BusinessJune 2020 June 2019
VPS Properties LimitedNew ZealandInvestment property holding company100%100%
MARAC Insurance Limited
New ZealandInsurance services100%100%
27 Structured entities
(a) Heartland Cash and Term PIE Fund (Heartland PIE Fund)
$000'sJune 2020 June 2019
Deposits166,676146,094
(b) Heartland Auto Receivable Warehouse Trust 2018-1 (Auto Warehouse)
$000'sJune 2020 June 2019
Cash and cash equivalents5,493555
Finance receivables78,066-
Other borrowings(79,012)(559)
28 Capital adequacy
•
•
•
Pillar 2 is designed to ensure that Banks have adequate capital to support all risks (not just those set out under Pillar 1 above) and is
enforced through the requirement for supervisory review.
A structured entity is one which has been designed such that voting or similar rights are not the dominant factor in deciding who controls
the entity. Structured entities are created to accomplish a narrow and well-defined objective such as the securitisation or holding of
particular assets, or the execution of a specific borrowing or lending transaction. Structured entities are consolidated where the
substance of the relationship is that the Banking Group controls the structured entity.
The Auto Warehouse securitises motor loan receivables as a source of funding.
The Banking Group controls the operations of the Heartland PIE Fund which is a portfolio investment entity that invests in the Banking
Group's deposits. Investments of Heartland PIE Fund are represented as follows:
The Banking Group’s Conditions of Registration prescribes minimum capital adequacy ratios calculated in accordance with the Capital
Adequacy Framework (Standardised Approach) BS2A (BS2A).
The Banking Group has adopted the Basel II standardised approach per RBNZ BS2A to calculate its regulatory requirements. Basel II is
made up of the following three Pillars:
The Banking Group is subject to regulation by the Reserve Bank of New Zealand (RBNZ). The RBNZ has set minimum regulatory capital
requirements for Banks that are consistent with the internationally agreed framework developed by the Basel Committee on Banking
Supervision. The resulting Basel II and III requirements define what is acceptable as capital and provide for methods of measuring the
risks incurred by the Banking Group.
The Banking Group continues to recognise the securitised assets and associated borrowings in the consolidated statement of financial
position as the Banking Group remains exposed to and has the ability to affect variable returns from those assets and liabilities. Although
the Banking Group recognises those interests in Auto Warehouse, the loans sold to the Trust are set aside for the benefit of investors in
Auto Warehouse and other depositors and lenders to the Banking Group have no recourse to those assets.
Pillar 3 outlines the requirements for adequate and transparent disclosure.
Pillar 1 sets out the minimum capital requirements for credit, market and operational and compliance risks.
P. 63

28 Capital adequacy (continued)
•
•
•
•
Internal Capital Adequacy Assessment Process (ICAAP)
•
The quantum of the capital requirement;
•
That some of the capital requirement may be satisfied through hybrid capital instruments rather than common equity;
•
The length of the transitional period;
•
The Bank’s existing capital position.
Basel III was developed in order to strengthen the regulation, supervision and risk management of the Banking sector. The measures
aim to improve the Banking sector's ability to absorb shocks arising from financial and economic stress; improve risk management and
governance; and strengthen Banks' transparency and disclosures. The requirements that impact capital are as follows:
RBNZ capital review
The RBNZ released a consultation paper in December 2018 in relation to proposed changes to the Capital Adequacy Framework for
Registered Banks in New Zealand (the Framework). On 5 December 2019, the RBNZ released its final decision on the revised
Framework.
The revised Framework requires the Bank, as a standardised registered bank, to increase its Total Capital ratio to 16% over a seven-
year transitional period. The Bank's Total Capital ratio was 12.56% as at 31 December 2019. This means the revised Framework
requires the Bank to increase its Total Capital ratio by 3.44% over the transitional period.
The Bank does not expect the revised Framework to result in any changes to the underlying business model or its approach to raising
equity, given:
The corporate structure of HGH, the ultimate parent company provides the Banking Group with flexibility to mitigate the impact of the
revised Framework. Various capital raising options available include using HGH’s dividend reinvestment plan, or raise debt and use the
proceeds to subscribe for new capital in the Bank.
The Basel III requirements have not effected the Banking Group's minimum capital requirements as the Banking Group’s Conditions of
Registration prescribe minimum capital requirements higher than the Basel III requirements.
The level of capital required to be held by Banks increased through the introduction of new minimum capital requirements for CET1
Capital, Additional Tier 1 (AT1) Capital and Total Capital as a percentage of risk-weighted-assets (RWAs).
A capital conservation buffer held over and above the minimum capital ratio requirements used to absorb losses during periods of
financial and economic stress.
A counter-cyclical capital buffer held and to be used at the RBNZ’s discretion, to assist in attaining the macro-prudential goal of
protecting the Banking sector from periods of extraordinary excess aggregate credit growth.
Strengthen the calculation of RWAs, particularly in respect of counterparty credit risk.
The capital adequacy tables set out on the following pages summarise the composition of regulatory capital and the capital adequacy
ratios for the Banking Group as at 30 June 2020.
The Banking Group has an ICAAP which complies with the requirements set out in the "Guidelines on a Bank's Internal Capital
Adequacy Assessment Process (ICAAP)" BS12 and is in accordance with its Conditions of Registration.
The Board has overall responsibility for ensuring the Banking Group has adequate capital in relation to its risk profile and establishes
minimum internal capital levels and limits above the regulatory minimum. The Banking Group has established a Capital Management
Policy (CMP) to determine minimum capital levels for Tier 1 and Total capital under Basel III and in accordance with its Conditions of
Registration. The documented process ensures that the Banking Group has sufficient available capital to meet minimum capital
requirements, even in stressed events. It describes the risk profile of the Banking Group and the risk appetite and tolerances under
which it operates, and assesses the level of capital held against the material risks of the Banking Group (both Pillar 1 and Pillar 2).
The ICAAP identifies the capital required to be held against other material risks, being strategic / business risk, reputational risk,
regulatory risk and additional credit risk.
Compliance with minimum capital levels is monitored by the ALCO and reported to the Board. The ICAAP and CMP is reviewed annually
by the Board.
P. 64

28 Capital adequacy (continued)
(a) Capital
$000'sJune 2020
Tier 1 Capital
CET1 capital
Paid-up ordinary shares issued by the Banking Group plus related share premium553,239
Retained earnings (net of appropriations)46,325
Accumulated other comprehensive income and other disclosed reserves(2,527)
Less deductions from CET1 capital
Intangible assets(57,469)
Deferred tax assets(15,327)
Hedging reserve8,022
Defined benefit superannuation fund assets(715)
Reverse residential mortgage loan greater than value of security(42)
Adjustment under the corresponding deduction approach(500)
Total CET1 capital531,006
AT1 capital-
Total Tier 1 capital531,006
Tier 2 capital-
-
531,006
(b) Capital structure
Ordinary shares
Retained earnings
Reserves classified as CET1 capital
Fair value reserve
Defined benefit reserve
In accordance with BS2A, ordinary share capital is classified as CET1 capital. The ordinary shares have no par value. Each ordinary
share of the Bank carries the right to vote on a poll at meetings of shareholders, the right to an equal share in dividends authorised by
the Board and the right to an equal share in the distribution of the surplus assets of the Bank in the event of liquidation.
The debt instrument fair value reserve comprises the changes in the fair value of investments, net of tax.
Retained earnings is the accumulated profit or loss that has been retained in the Banking Group. Retained earnings is classified as
CET1 capital.
Total capital
The following details summarise each instrument included within Total Capital. None of these instruments are subject to phase-out from
eligibility as capital under the RBNZ's Basel III transitional arrangements.
As a result of the impacts of COVID-19 and to support the availability of credit, the RBNZ announced in March 2020 that it has made the
decision to delay the start date of increased capital requirements for banks by 12 months to 1 July 2021. Should conditions warrant it
next year, the RBNZ will reassess whether further delays are necessary.
The Bank will continue to assess the options available to it to meet the requirements of the revised Framework over the transitional
period.
The defined benefit reserve represents the excess of the fair value of the assets of the defined benefit
superannuation plan over the net present value of the defined benefit obligations.
Total Tier 2 capital
P. 65

28 Capital adequacy (continued)
Cash flow hedge reserve
(c) Credit risk
On balance sheet exposures
Total
Exposure
Minimum
After Credit AverageRisk
Pillar 1
RiskRisk Weighted
Capital
MitigationWeight Exposure
Requirement
$000's%$000's
$000's
Cash- 0%- -
Multilateral development banks157,7340%- -
Multilateral development banks137,56620%27,5132,201
Banks - Tier 1138,84620%27,7692,222
Banks - Tier 215,54350%7,772622
Banks - Tier 323,998100%23,9981,920
Banks - Short Term Tier 3- 20%- -
Public sector entity (AA- and above)16,71820%3,344268
Public sector entity (A- and above)- 50%- -
Public sector entity (BBB+, BBB, BBB-)- 100%- -
Corporates (AA- and above)- 20%- -
Corporates (A- and above)13,99850%6,999560
Corporates (BBB- and above)- 100%- -
Corporates other3,62520%72558
Corporates other1,596,593100% 1,596,593127,727
Welcome Home Loans - loan to value ratio (LVR) <= 80%
1
2,33335%81765
Welcome Home Loans - loan to value ratio (LVR) <= 90%
1
89935%31525
Welcome Home Loans - LVR 90% >= 100%
1
- 50%- -
Welcome Home Loans - LVR > 100%
1
- 100%- -
Reverse Residential mortgages <= 60% LVR591,61650%295,80823,665
Reverse Residential mortgages 60 <= 80% LVR15,95580%12,7641,021
Reverse Residential mortgages > 80% LVR1,589100%1,589127
Reverse Residential mortgages > 100% LVR144100%14412
Non Property Investment Mortgage Loan <=80% LVR14,61335%5,115409
Non Property Investment Mortgage Loan 80 <= 90% LVR- 50%- -
Non Property Investment Mortgage Loan 90 <= 100% LVR- 75%- -
Non Property Investment Mortgage Loan > 100% LVR584100%58447
Property Investment Mortgage Loan <= 80% LVR5,11840%2,047164
Property Investment Mortgage Loan 80 <= 90% LVR
- 70%- -
Property Investment Mortgage Loan 90 <= 100% LVR
- 90%- -
Property Investment Mortgage Loan < 100% LVR- 100%- -
Past due residential mortgages609100%60949
Other past due assets - provision >= 20%27,262100%27,2622,181
Other past due assets - provision < 20%28,522150%42,7833,423
Equity holdings- 300%- -
All other equity holdings1,803400%7,212577
Other assets1,446,771100% 1,446,771115,742
Not risk weighted assets74,0540%- -
Total on balance sheet exposures4,316,4933,538,533283,085
1
The LVR classification above is calculated in line with the Bank’s Pillar 1 Capital requirement which includes relief for Welcome Home loans that are
guaranteed by the Crown.
The hedging reserve comprises the fair value gains and losses associated with the effective portion of
designated cash flow hedging instruments.
P. 66

28 Capital adequacy (continued)
Minimum
CreditCredit AverageRiskPillar 1
Total Conversion EquivalentRisk WeightedCapital
ExposureFactor AmountWeight Exposure Requirement
$000's%$000's%$000's$000's
4,269100%4,269100%4,269342
2,24650%1,123100%1,12390
Interest rate contracts1,140,422n/a6,06720%1,21397
FX forward contracts179,795n/a1,80620%36129
Credit valuation adjustment- - 131,20010,496
Total off balance sheet exposures1,551,267124,797247,09619,768
1
The credit equivalent amount for market related contracts was calculated using the current exposure method.
(d) Additional mortgage information - LVR range
On Balance Off Balance
Sheet Sheet Total
$000's
Exposures
Exposures
1
Exposures
Does not exceed 80%629,62810,410640,038
Exceeds 80% and not 90%2,307- 2,307
Exceeds 90%1,560- 1,560
Total exposures633,49510,410643,905
1
(e) Reconciliation of mortgage related amounts
$000'sNoteJune 2020
Gross finance receivables - reverse mortgages13b609,346
Loans and advances - loans with residential mortgages24,156
On balance sheet residential mortgage exposures subject to the standardised approach23a633,502
Less: collective provision for impairment(7)
Off balance sheet mortgage exposures subject to the standardised approach31d10,410
Total residential exposures subject to the standardised approach643,905
At 30 June 2020, there were no Welcome Home loans whose credit risk is mitigated by the Crown included in “Exceeds 90% residential
mortgages”. Other loans in the exceeds 90% LVR range is primarily business and rural lending where residential mortgage security is
only a part of the total security. For capital adequacy calculations only the value of the first mortgages over residential property is
included in the LVR calculation, in accordance with BS2A. All new residential mortgages in respect of non-property investments lending
have a loan-to-valuation ratio of less than or equal to 80%.
2,452
Direct credit substitute
Performance-related contingency
20%490100%
Other commitments where original maturity is
more than one year
Other commitments where original maturity is
more than one year
211,67350%105,837100%105,8378,467
10,41050%5,20550%
Market related contracts
1
49039
Other commitments where original maturity is less
than or equal to one year
The RBNZ removed the mortgage loan-to-value (LVR) restrictions for 12 months as a result of the economic impact of COVID-19, and
the RBNZ’s mandate to maintain financial stability. This was effective from 1 May 2020 and was made via a change in the Bank’s
Conditions of Registration.
Off balance sheet exposures
2,603208
Off balance sheet exposures means unutilised limits.
P. 67

28 Capital adequacy (continued)
(f) Credit risk mitigation
(g) Operational risk
$000's
Operational risk272,30621,784
(h) Market risk
$000's
Market risk end-of-period capital chargeEquity rate risk only1,803144
Market risk peak end-of-day capital chargeEquity rate risk only1,803144
Market risk end-of-period capital chargeInterest rate risk only122,0459,764
Market risk peak end-of-day capital chargeInterest rate risk only193,20715,457
Market risk end-of-period capital chargeForeign currency risk only9,384751
Market risk peak end-of-day capital chargeForeign currency risk only9,384751
(i) Total capital requirements
$000's
Total credit risk
On balance sheet4,316,4933,538,533283,085
Off balance sheet1,551,267247,09619,768
Operational riskn/a272,30621,784
Market riskn/a133,23210,659
Total4,191,167335,296
Total Exposure After
Credit Risk Mitigation
Risk Weighted Exposure
or Implied Risk
Weighted ExposureTotal Capital Requirement
Market risk is the risk that market interest rates or foreign exchange rates will change and impact on the Banking Group’s earnings due
to either mismatches between repricing dates of interest bearing assets and liabilities and/or differences between customer pricing and
wholesale rates.
Peak end-of-day aggregate capital charge at the end of the period is derived by following the risk methodology for measuring capital
requirements within Part 10 of the BS2A Approach. Peak end-of-day aggregate capital charge is derived by determining the maximum
end of month capital charge over the reporting period. Based on the portfolio of the Banking Group’s risk exposures, it is considered by
management that the difference between end of month aggregate capital charge and end-of-day aggregate capital charge is
insignificant.
As at 30 June 2020 the Banking Group had $3.23 million of Welcome Home Loans, whose credit risk was mitigated by the Crown. Other
than this the Banking Group does not have any exposures covered by eligible collateral, guarantees and credit derivatives.
Implied Risk
Weighted Exposure
Total Operational Risk
Capital Requirement
Operational risk is calculated based on the previous 12 quarters of the Banking Group.
Implied Risk
Weighted Exposure
Aggregate
Capital Charge
P. 68

28 Capital adequacy (continued)
(j) Capital ratios
%June 2020 June 2019
Capital ratios compared to minimum ratio requirements
Common Equity Tier 1 Capital expressed as a percentage of total risk weighted exposures12.67%13.49%
Minimum Common Equity Tier 1 Capital as per Conditions of Registration4.50%4.50%
Tier 1 Capital expressed as a percentage of total risk weighted exposures12.67%13.49%
Minimum Tier 1 Capital as per Conditions of Registration6.00%6.00%
Total Capital expressed as a percentage of total risk weighted exposures12.67%13.49%
Minimum Total Capital as per Conditions of Registration8.00%8.00%
Buffer ratio
Buffer ratio4.67%5.49%
Buffer ratio requirement2.50%2.50%
(k) Solo capital adequacy
%June 2020 June 2019
Capital ratios compared to minimum ratio requirements
Common Equity Tier 1 Capital expressed as a percentage of total risk weighted exposures12.81%13.46%
Tier 1 Capital expressed as a percentage of total risk weighted exposures12.81%13.46%
Total Capital expressed as a percentage of total risk weighted exposures12.81%13.46%
(l) Capital for other material risks
29 Insurance business, securitisation, funds management, other fiduciary activities
The Banking Group conducts insurance business through its subsidiary MIL.
During the current year the Banking Group has undertaken a strategic review of its insurance business in line with its core banking
business. The Banking Group has entered into a distribution agreement with DPL to distribute DPL's insurance products through its
network and has stopped writing insurance policies in February 2020. The Banking Group will gradually exit from the insurance business
as the existing written policies expire over time.
In addition to the material risks included in the calculation of the capital ratios, the Banking Group has identified other material risks to be
included in the capital allocation (being strategic/business risk, regulatory and additional credit risk). As at 30 June 2020, the Banking
Group has made an internal capital allocation of $23.2 million to cover these risks (2019: $7.0 million).
Insurance business
The Banking Group's aggregate amount of insurance business comprises the total consolidated assets of MIL of $10.9 million (2019:
$12.9 million), which represents 0.25% of the total consolidated assets of the Banking Group.
For the purposes of calculating capital adequacy on a solo basis, subsidiaries which are both wholly owned and wholly funded by the
Bank are to be consolidated with the Bank.
P. 69

29 Insurance business, securitisation, funds management, other fiduciary activities (continued)
Marketing and distribution of the insurance products
Securitisation
Funds management and other fiduciary activities
Risk management
Provision of financial services and asset purchases
Any assets purchased from such entities have been purchased on arm's length terms and conditions and at fair value.
Peak aggregate funding to entities
Over the accounting period, financial services provided by the Banking Group to entities which were involved in the activities above
(including trust, custodial, funds management and other fiduciary activities) were provided on arm's length terms and conditions and at
fair value.
The Banking Group did not provide any funding to entities conducting funds management and other fiduciary activities, or insurance
product or marketing and distribution activities described in this note, during the year (2019: nil).
The Bank provided the following funding in relation to securitisation entities.
As at 30 June 2020, the Banking Group had $78.07 million securitised assets (2019: nil).
There have been no material changes to the Banking Group's involvement in the securitisation activities.
The Banking Group, through Heartland PIE Fund Limited, controls, manages and administers the Heartland Cash and Term PIE Fund
and its products (Heartland Call PIE and Heartland Term Deposit PIE). Note 27 - Structured entities has further details. The Heartland
Cash and Term PIE Fund deals with the Bank in the normal course of business, in the Bank's capacity as Registrar of the Fund and also
invests in the Bank's deposits. The Banking Group is considered to control the Heartland Cash and Term PIE Fund, and as such the
Heartland Cash and Term PIE Fund is consolidated within the financial statements of the Banking Group.
Heartland NZ Trustee Limited (HNZT), a subsidiary of the Bank, acts as manager for a superannuation scheme. The assets and
liabilities of this scheme are not included in the financial statements of the Banking Group as the Banking Group does not control the
scheme. The Bank provides services to HNZT and its fees for performance of those services are included in other income.
The Banking Group has in place policies and procedures to ensure that the fiduciary activities identified above are conducted in an
appropriate manner. It is considered that these policies and procedures will ensure that any difficulties arising from these activities will
not impact adversely on the Banking Group. The policies and procedures include comprehensive and prominent disclosure of
information regarding products, and formal and regular review of operations and policies by management and internal and external
auditors. Further information on the Banking Group's risk management policies and practices is included in Note 20 - Enterprise risk
management program.
Pre February 2020's distribution agreement with DPL, the Banking Group marketed and distributed term life insurance and general
insurance covering risks such as redundancy, bankruptcy or suspension of employment. The insurance products were either
underwritten by MIL, a subsidiary of the Banking Group, or sold by MIL on behalf of other parties who underwrite those products
themselves.
P. 70

29 Insurance business, securitisation, funds management, other fiduciary activities (continued)
June 2020 June 2019
Peak end-of-day aggregate amount of funding provided ($000's)76,846165,189
June 2020 June 2019
76,846165,189
30 Contingent liabilities and commitments
$000'sJune 2020 June 2019
Letters of credit, guarantee commitments and performance bonds6,5156,757
Total contingent liabilities6,5156,757
Undrawn facilities available to customers166,489110,920
Conditional commitments to fund at future dates58,04514,286
Total commitments224,534125,206
31 Events after the reporting date
Contingent liabilities and credit related commitments arising in respect of the Banking Group's operations were:
For this purpose, peak ratio information was derived by determining the maximum end-of-day aggregate amount of funding and then
dividing that amount by the amount of the entity's assets or the Banking Group's Tier 1 Capital (as the case required) as at the end of the
year.
For this purpose, peak ratio information was derived by determining the maximum end-of-day aggregate amount of funding over the
financial year and then dividing that amount by the amount of the entity's assets or the Banking Group's Tier 1 Capital (as the case
required) as at the end of the year.
Auto Warehouse
Total Trusts
14.5%
31.3%
Peak end-of-day aggregate amount of funding provided as a percentage of the Banking
Group's Tier 1 Capital as at the end of the year
Following the confirmation of further community spread of COVID-19 with unknown origin, the Government announced on 12 August
2020 that New Zealand’s COVID-19 Alert Levels will change, with the Auckland region (Wellsford to Pukekohe) moving to Alert Level 3
and the rest of New Zealand moving to Alert Level 2. Following that, the Auckland region moved to Alert Level 2 from 31 August 2020.
This did not have any impact on Banking Group's estimates and judgements (refer to Note 1 - Financial statements preparation).
COVID-19 pandemic update
The Banking Group in the ordinary course of business will be subject to claims and proceedings against it whereby the validity of the
claim will only be confirmed by uncertain future events. In such circumstances the contingent liabilities are possible obligations, or
present obligations if known, where the transfer of economic benefit is uncertain or cannot be reliable measured. Contingent Liabilities
are not recognised, but are disclosed, unless they are remote. Where some loss is probable, provisions have been made on a case by
case basis.
Peak end-of-day aggregate amount of funding provided as a percentage of the total assets of
the individual entity as at the end of the year
Peak end-of-day aggregate amount of funding provided ($000's)
98.3%
16838.9%
There were no other events subsequent to the reporting period which would materially affect the consolidated financial statements.
P. 71

HISTORICAL SUMMARY OF FINANCIAL STATEMENTS
For the year ended 30 June 2020
Audited Audited Audited Audited Audited
$000'sJune 2020 June 2019 June 2018 June 2017 June 2016
Interest income297,512 284,064 272,323278,279265,475
Interest expense108,476 111,665 108,737115,169118,815
Net interest income189,036 172,399 163,586 163,110 146,660
Other net income15,7429,40912,6838,14210,901
Net operating income204,778 181,808 176,269 171,252 157,561
Employee benefits- - - 41,54739,799
Operating expenses90,78276,29876,29130,13730,073
Profit before impaired asset expense and income tax113,996 105,51099,97899,56887,689
Fair value gain on investments- 1,936- - -
Impaired asset expense29,37220,55421,83315,01513,501
Profit before income tax84,62486,89278,14584,55374,188
Profit before income tax from discontinued operations- 6,16916,149- -
Income tax expense23,92424,76226,78123,74520,024
Profit for the year60,70068,29967,51360,80854,164
(2,179)(4,762)721,108(708)
7662,968981(353)(208)
Movement in foreign currency translation reserve- (4,229)2,315761(4,047)
Items that will not be reclassified to profit or loss, net of income tax:
Movement in defined benefit reserve- (86)340(84)(93)
Other comprehensive income / (loss) for the year, net of income tax(1,413) (6,109)3,7081,432(5,056)
Total comprehensive income for the year
59,28762,19071,22162,24049,108
Dividends paid to equity holders65,000112,04247,89541,97737,690
As at 30 June 2020
Audited Audited Audited Audited Audited
$000'sJune 2020 June 2019 June 2018 June 2017 June 2016
Total assets
4,314,559 4,143,828 4,496,849 4,034,671 3,547,181
Individually impaired assets
24,66726,41245,18632,08433,764
Total liabilities
3,717,522 3,540,438 3,832,689 3,465,076 3,048,840
Total equity
597,037603,390664,160569,595498,341
Other comprehensive income
Movement in fair value reserve
Effective portion of change in fair value of derivative financial instruments
Items that are or may be reclassified subsequently to profit or loss,
net of income tax:
P. 72

AMENDMENTS TO CONDITIONS OF REGISTRATION
•
•
With effect from 1 May 2020:
•
CONDITIONS OF REGISTRATION
1. That—
(a)
the Total capital ratio of the Banking Group is not less than 8%;
(b)
the Tier 1 capital ratio of the Banking Group is not less than 6%;
(c)
the Common Equity Tier 1 capital ratio of the Banking Group is not less than 4.5%;
(d)
the Total capital of the Banking Group is not less than $30 million;
(e)
(f)
1A. That—
(a)
(b)
(c)
Addition of condition 1C to ban the distribution and to restrict the extent to which distributions on additional capital instruments are
permitted; and
The amendment of condition 11C to reduce the minimum core funding ratio from 75% to 50%.
Removal of conditions 19,20 and 21, abolishing the restrictions on the Banks mortgage lending at high loan to value (‘LVR’) ratios.
In response to the severe economic effects of the COVID-19 pandemic, the Bank’s conditions of registration were amended as follows:
These conditions apply on and after 1 May 2020.
The registration of Heartland Bank Limited ("the Bank") as a registered Bank is subject to the following conditions:
a Tier 2 capital instrument is an instrument that meets the requirements of subsection 9(2)(a) or (c) of the Reserve Bank of New Zealand
document "Capital Adequacy Framework (Standardised Approach)" (BS2A) dated November 2015.
the Bank has an internal capital adequacy assessment process (“ICAAP”) that accords with the requirements set out in the document
“Guidelines on a Bank’s internal capital adequacy assessment process ('ICAAP')” (BS12) dated December 2007;
under its ICAAP the Bank identifies and measures its “other material risks” defined as all material risks of the Banking Group that are not
explicitly captured in the calculation of the Common Equity Tier 1 capital ratio, the Tier 1 capital ratio and the Total capital ratio under the
requirements set out in the document “Capital Adequacy Framework (Standardised Approach)” (BS2A) dated November 2015; and
the Bank determines an internal capital allocation for each identified and measured “other material risk”.
the Bank must not include the amount of an Additional Tier 1 capital instrument or Tier 2 capital instrument issued after 1 January 2013
in the calculation of its capital ratios unless it has received a notice of non-objection to the instrument from the Reserve Bank; and
the Bank meets the requirements of Part 3 of the Reserve Bank of New Zealand document "Application requirements for capital
recognition or repayment and notification requirements in respect of capital" (BS16) dated November 2015 in respect of regulatory capital
instruments.
For the purposes of this condition of registration, -
the Total capital ratio, the Tier 1 capital ratio, the Common Equity Tier 1 capital ratio and Total capital must be calculated in accordance with
the Reserve Bank of New Zealand document: “Capital Adequacy Framework (Standardised Approach)” (BS2A) dated November 2015.
“Total capital” has the same meaning as in Part 2 of the Reserve Bank of New Zealand document “Capital Adequacy Framework
(Standardised Approach)” (BS2A) dated November 2015;
an Additional Tier 1 capital instrument is an instrument that meets the requirements of subsection 8(2)(a) or (c) of the Reserve Bank of New
Zealand document "Capital Adequacy Framework (Standardised Approach)" (BS2A) dated November 2015.
With effect from 2 April 2020:
P. 73

CONDITIONS OF REGISTRATION (CONTINUED)
1B. That, if the buffer ratio of the Banking Group is 2.5% or less, the Bank must:
(a)
(b)
(c)
For the purposes of this condition of registration, -
1C.
2.
3.
(a)
(b)
(a)
(b)
That the Banking Group’s insurance business is not greater than 1% of its total consolidated assets.
That the bank must make no distributions, whether paid out of earnings, or out of accumulated previous years’ retained earnings or other
reserves included within the banking group’s total capital, other than discretionary payments payable to holders of Additional Tier 1 capital
instruments to the extent permitted by condition 1B.
if the entity conducts insurance business and its business does not predominantly consist of insurance business and the entity is not a
subsidiary of another entity in the banking group whose business predominantly consists of insurance business, the amount of the
insurance business to sum is the total liabilities relating to the entity’s insurance business plus the equity retained by the entity to meet
the solvency or financial soundness needs of its insurance business.
In determining the total amount of the Banking Group’s insurance business—
all amounts must relate to on balance sheet items only, and must comply with generally accepted accounting practice; and
if products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of such products
or assets must be considered part of the insurance business.
according to the following table, limit any distributions of the bank’s earnings payable to holders of Additional Tier 1 capital instruments to
the percentage limit on distributions that corresponds to the banking group’s buffer ratio:
For the purposes of this condition of registration,—
an Additional Tier 1 capital instrument is an instrument that meets the requirements of subsection 8.2(a) or (c) of the Reserve Bank of New
Zealand document “Capital Adequacy Framework (Standardised Approach)” (BS2A) dated November 2015;
“total capital” has the same meaning as in Part 2 of the Reserve Bank of New Zealand document “Capital Adequacy Framework
(Standardised Approach)” (BS2A) dated November 2015;
have the capital plan approved by the Reserve Bank.
Banking Group's buffer ratioPercentage limit to distributions of the Banks' earnings
0% - 0.625%0%
>0.625% - 1.25%20%
“distributions” and “earnings” have the same meaning as in Part 3 of the Reserve Bank of New Zealand document: “Capital Adequacy
Framework (Standardised Approach)” (BS2A) dated November 2015.
That the Banking Group does not conduct any non-financial activities that in aggregate are material relative to its total activities.
For the purposes of this condition of registration, the Banking Group’s insurance business is the sum of the following amounts for entities in
the Banking Group:
if the business of an entity predominantly consists of insurance business and the entity is not a subsidiary of another entity in the banking
group whose business predominantly consists of insurance business, the amount of the insurance business to sum is the total
consolidated assets of the Banking Group headed by the entity; and
an Additional Tier 1 capital instrument is an instrument that meets the requirements of subsection 8.2(a) or (c) of the Reserve Bank of New
Zealand document “Capital Adequacy Framework (Standardised Approach)” (BS2A) dated November 2015;
“buffer ratio”, “distributions”, and “earnings” have the same meaning as in Part 3 of the Reserve Bank of New Zealand document: “Capital
Adequacy Framework (Standardised Approach)” (BS2A) dated November 2015.
>1.25% - 1.875%40%
>1.875% - 2.5%60%
prepare a capital plan to restore the Banking Group's buffer ratio to above 2.5% within any timeframe determined by the Reserve Bank
for restoring the buffer ratio; and
In this condition of registration, the meaning of “material” is based on generally accepted accounting practice.
P. 74

CONDITIONS OF REGISTRATION (CONTINUED)
4.
5.
6.
(a)
(b)
(c)
(d)
(i)
(ii)
(e)
(f)
(g)
(a)
(b)
(i)
(ii)
1
Credit rating of the Bank
1
Connected exposure limit (% of the Banking Group’s Tier 1
capital)
AA/Aa2 and above75
For the purposes of this condition of registration,—
"insurance business" means the undertaking or assumption of liability as an insurer under a contract of insurance:
“independent,”—
in relation to a person other than a person to whom paragraph (b) applies, has the same meaning as in the Reserve Bank of New
Zealand document entitled “Corporate Governance” (BS14) dated July 2014; and
in relation to a person who is the chairperson of the board of the Bank, means a person who—
meets the criteria for independence set out in section 10 except for those in paragraph 10(1)(a) in BS14; and
does not raise any grounds of concern in relation to the person’s independence that are communicated in writing to the Bank by the
Reserve Bank of New Zealand:
“non-executive” has the same meaning as in the Reserve Bank of New Zealand document entitled “Corporate Governance” (BS14) dated July
2014.
the chairperson of the board of the Bank must be independent; and
the Bank’s constitution must not include any provision permitting a director, when exercising powers or performing duties as a director, to
act other than in what he or she believes is the best interests of the company (i.e. the Bank).
For the purposes of this condition of registration,—
the majority of the board members must be non-executive directors;
at least half of the board members must be independent directors;
an alternate director,—
AA-/Aa370
A+/A160
A/A240
That exposures to connected persons are not on more favourable terms (e.g. as relates to such matters as credit assessment, tenor, interest
rates, amortisation schedules and requirement for collateral) than corresponding exposures to non-connected persons.
A-/A330
BBB+/Baa1 and below15
Within the rating-contingent limit, credit exposures (of a non-capital nature and net of any allowances for impairment) to non-bank connected
persons shall not exceed 15% of the banking group’s Tier 1 capital.
for an independent director must be independent;
at least half of the independent directors of the Bank must be ordinarily resident in New Zealand;
For the purposes of this condition of registration, compliance with the rating-contingent connected exposure limit is determined in accordance
with the Reserve Bank of New Zealand document entitled “Connected exposures policy” (BS8) dated November 2015.
This table uses the rating scales of Standard & Poor's, Fitch Ratings and Moody's Investor Service. (Fitch Ratings' scale is identical to Standard & Poor's.)
for a non-executive director must be non-executive; and
That the Bank complies with the following corporate governance requirements:
the board of the Bank must have at least five directors;
“insurer” and “contract of insurance” have the same meaning as provided in sections 6 and 7 of the Insurance (Prudential Supervision) Act
2010.
That aggregate credit exposures (of a non-capital nature and net of any allowances for impairment) of the banking group to all connected
persons do not exceed the rating-contingent limit outlined in the following matrix:
P. 75

CONDITIONS OF REGISTRATION (CONTINUED)
7.
(a)
(b)
8.
(a)
(b)
9.
(a)
(b)
(c)
(d)
(e)
10.
11.
(a)
(b)
(c)
12.
(a)
(b)
(c)
(d)
13.
(a)
(b)
(c)
who has granted, or may grant, a security interest in its assets for the benefit of any holder of any covered bond; and
who carries on no other business except for that necessary or incidental to guarantee the obligations of any member of the Banking
Group under a covered bond:
“covered bond” means a debt security issued by any member of the Banking Group, for which repayment to holders is guaranteed by a SPV,
and investors retain an unsecured claim on the issuer.
considers the material sources of stress that the Bank might face, and prepares the Bank to manage stress through a contingency
funding plan.
That no more than 10% of total assets may be beneficially owned by a SPV.
For the purposes of this condition,—
“total assets” means all assets of the banking group plus any assets held by any SPV that are not included in the banking group’s assets:
“SPV” means a person—
to whom any member of the Banking Group has sold, assigned, or otherwise transferred any asset;
the one-year core funding ratio of the Banking Group is not less than 50 percent at the end of each business day.
For the purposes of this condition of registration, the ratios identified must be calculated in accordance with the Reserve Bank of New Zealand
documents entitled “Liquidity Policy” (BS13) dated January 2018 and “Liquidity Policy Annex: Liquid Assets” (BS13A) dated October 2018.
That the Bank has an internal framework for liquidity risk management that is adequate in the Bank’s view for managing the Bank’s liquidity
risk at a prudent level, and that, in particular:
is clearly documented and communicated to all those in the organisation with responsibility for managing liquidity and liquidity risk;
identifies responsibility for approval, oversight and implementation of the framework and policies for liquidity risk management;
identifies the principal methods that the Bank will use for measuring, monitoring and controlling liquidity risk; and
the chairperson of the committee must be independent and must not be the chairperson of the Bank.
For the purposes of this condition of registration, “independent” and “non-executive” have the same meanings as in condition of registration 6.
That a substantial proportion of the Bank’s business is conducted in and from New Zealand.
That the Banking Group complies with the following quantitative requirements for liquidity-risk management:
the one-week mismatch ratio of the Banking Group is not less than zero percent at the end of each business day;
the one-month mismatch ratio of the Banking Group is not less than zero percent at the end of each business day; and
the Reserve Bank has advised that it has no objection to that appointment.
That the bank has a board audit committee, or other separate board committee covering audit matters, that meets the following requirements:
the mandate of the committee must include: ensuring the integrity of the bank’s financial controls, reporting systems and internal audit
standards;
the committee must have at least three members;
every member of the committee must be a non-executive director of the Bank;
the majority of the members of the committee must be independent; and
That no appointment of any director, chief executive officer, or executive who reports or is accountable directly to the chief executive officer, is
made in respect of the Bank unless:
the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and
the Reserve Bank has advised that it has no objection to that appointment.
That a person must not be appointed as chairperson of the board of the Bank unless:
the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and
P. 76

CONDITIONS OF REGISTRATION (CONTINUED)
14. That—
(a)
(i)
(ii)
(b)
(i)
(ii)
(iii)
15.
(a)
(i)
(ii)
(b)
(c)
(d)
(e)
(f)
16.
(a)
(b)
For the purposes of this condition of registration, “Implementation Plan” has the same meaning as in the Reserve Bank of New Zealand
document “Open Bank Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.
maintain a full freeze on liabilities not pre-positioned for open bank resolution; and
reinstate customers' access to some or all of their residual frozen funds.
For the purposes of this condition of registration, “de minimis”, “partial freeze”, “customer liability account”, and “frozen and unfrozen funds”
have the same meaning as in the Reserve Bank of New Zealand document “Open Bank Resolution (OBR) Pre-positioning Requirements
Policy” (BS17) dated September 2013.
That the Bank has an Implementation Plan that—
is up-to-date; and
demonstrates that the Bank's prepositioning for Open Bank Resolution meets the requirements set out in the Reserve Bank document:
"Open Bank Resolution Pre-positioning Requirements Policy" (BS 17) dated September 2013.
close promptly at any time of the day and on any day of the week and that effective upon the appointment of the statutory manager—
all liabilities are frozen in full; and
no further access by customers and counterparties to their accounts (deposits, liabilities or other obligations) is possible;
apply a de minimis to relevant customer liability accounts;
apply a partial freeze to the customer liability account balances;
reopen by no later than 9am the next business day following the appointment of a statutory manager and provide customers access to
their unfrozen funds;
no member of the banking group may give effect to a qualifying acquisition or business combination that meets the non-objection
threshold unless:
the bank has notified the Reserve Bank in writing of the intended acquisition or business combination;
at the time of notifying the Reserve Bank of the intended acquisition or business combination, the bank provided the Reserve Bank
with the information required under the Reserve Bank of New Zealand Banking Supervision Handbook document “Significant
Acquisitions Policy” (BS15) dated December 2011; and
the Reserve Bank has given the Bank a notice of non-objection to the significant acquisition or business combination.
For the purposes of this condition of registration, “qualifying acquisition or business combination”, “notification threshold” and “non-objection
threshold” have the same meaning as in the Reserve Bank of New Zealand Banking Supervision Handbook document “Significant
Acquisitions Policy” (BS15) dated December 2011.
That the Bank is pre-positioned for Open Bank Resolution and in accordance with a direction from the Reserve Bank, the Bank can—
no member of the Banking Group may give effect to a qualifying acquisition or business combination that meets the notification
threshold, and does not meet the non-objection threshold, unless:
the bank has notified the Reserve Bank in writing of the intended acquisition or business combination and at least 10 working days
have passed; and
at the time of notifying the Reserve Bank of the intended acquisition or business combination, the bank provided the Reserve Bank
with the information required under the Reserve Bank of New Zealand Banking Supervision Handbook document “Significant
Acquisitions Policy” (BS15) dated December 2011; and
P. 77

CONDITIONS OF REGISTRATION (CONTINUED)
17.
(a)
(i)
(ii)
(b)
(c)
18.
CONDITIONS OF REGISTRATION NON-COMPLIANCE
• Banking Standard 2A: Capital Adequacy Framework (Standardised Approach) (BS2A);
• Banking Standard 13: Liquidity Policy (BS13); and
• Liquidity Policy Annex: Liquid Assets (BS13A).
PENDING PROCEEDINGS
In these conditions of registration,—
“Banking Group” means Heartland Bank Limited (as reporting entity) and all other entities included in the Banking Group as defined in section
6(1) of the Financial Markets Conduct Act 2013 for the purposes of Part 7 of that Act.
if the Reserve Bank's agreement is conditional, meets the Reserve Bank's conditions.
For the purposes of this condition of registration, “compendium of liabilities”, and “pre-positioned and non pre-positioned liabilities” have the
same meaning as in the Reserve Bank of New Zealand document “Open Bank Resolution (OBR) Pre-positioning Requirements Policy” (BS17)
dated September 2013.
That on an annual basis the bank tests all the component parts of its Open Bank Resolution solution that demonstrates the bank’s
prepositioning for Open Bank Resolution as specified in the bank’s Implementation Plan.
For the purposes of this condition of registration, “Implementation Plan” has the same meaning as in the Reserve Bank of New Zealand
document “Open Bank Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.
That the Bank has a compendium of liabilities that—
at the product-class level lists all liabilities, indicating which are—
pre-positioned for Open Bank Resolution; and
"generally accepted accounting practice" has the same meaning as in section 8 of the Financial Reporting Act 2013.
There are no pending legal proceedings or arbitrations concerning any member of the Banking Group at the date of Disclosure Statement that may
have a material adverse effect on the Bank or the Banking Group.
not pre-positioned for Open Bank Resolution;
is agreed to by the Reserve Bank; and
As reported in the 31 December 2019 and 30 June 2019 Disclosure Statement, the Bank had not been calculating its regulatory capital and liquidity
ratios in compliance with the requirements of Condition of Registration 1 and Condition of Registration 11. The Bank engaged an external
consultant to perform an independent assessment of compliance with those Conditions of Registration, specifically compliance with the
requirements of:
That review found discrepancies with the calculation for both Conditions of Registration as noted below which the Reserve Bank of New Zealand
(RBNZ) are aware of. The Bank has conducted a remediation programme which is largely complete though has been disrupted by the impacts of
COVID-19. The Bank has remained above all RBNZ ratio requirements at all times.
Condition of Registration 1
As previously reported the Bank engaged an external consultant to undertake a review of the Bank’s calculations of its regulatory capital ratios
which identified discrepancies in the calculations for credit risk exposures. Remediation is largely complete though delays have been experienced
due to COVID-19 resulting in the Bank not having been able to remediate all issues by reporting date. The impact of unadjusted errors at 30 June
2020 reporting date was a 0.28% reduction on the Bank’s capital ratio.
As previously reported the Bank had engaged an external consultant to undertake a review of its calculations of regulatory liquidity ratios which
identified discrepancies in the calculation of the One-Week and One-Month mismatch ratios and Core Funding Ratio. Remediation is largely
complete though delays have been experienced due to COVID-19 resulting in the Bank not having been able to remediate all issues by reporting
date. While this remediation continues, the Bank has adopted the most conservative approach to reporting its liquidity ratios as at 30 June 2020
reporting date.
Condition of Registration 11
P. 78

CREDIT RATINGS
AAAAaa
AAAa
AA
BBBBaa
BBBa
BB
CCCCaa
CC - CCa - C
D-
OTHER MATERIAL MATTERS
There are no material matters relating to the business or affairs of the Bank or the Banking Group that are not already contained elsewhere in this
Disclosure Statement which would, if disclosed in this Disclosure Statement, materially affect the decision of a person to subscribe for debt
securities of which the Bank or any member of the Banking Group is the issuer.
RD to DObligations currently in default.
Credit ratings from Fitch Ratings and Standard & Poor’s may be modified by the addition of a plus or minus sign to show relative status within the
major rating categories. Moody’s Investors Service apply numerical modifiers 1, 2, and 3 to show relative standing within the major rating
categories, with 1 indicating the higher end and 3 the lower end of the rating category.
BB
B
Greater vulnerability and therefore greater likelihood of default.
CCC
Likelihood of default considered high. Timely repayment of principal and interest is dependent on
favourable financial conditions.
As at the date of signing this Disclosure Statement, the Bank's credit rating issued by Fitch Australia Pty Ltd (Fitch Ratings) was BBB stable. This
BBB credit rating was issued on 14 October 2015 and is applicable to long term unsecured obligations payable in New Zealand, in New Zealand
dollars. This BBB stable credit rating was affirmed by Fitch Ratings on 18 May 2020.
The following is a summary of the descriptions of the ratings categories for rating agencies for the rating of long-term senior unsecured obligations:
CC - CHighest risk of default.
AA
Very strong ability to repay principal and interest in a timely manner.
A
Strong ability to repay principal and interest although somewhat susceptible to adverse changes in
economic, business or financial conditions.
BBB
Adequate ability to repay principal and interest. More vulnerable to adverse changes.
Fitch Ratings
Standard &
Poor's
Moody's
Investors
Service
Description of Grade
AAA
Ability to repay principal and interest is extremely strong. This is the highest investment category.
Significant uncertainties exist which could affect the payment of principal and interest on a timely basis.
P. 79

© 2020 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
80

Independent Auditor’s Report
To the shareholder of Heartland Bank Limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the accompanying
consolidated financial statements and
supplementary information (excluding
supplementary information relating to
capital adequacy and regulatory liquidity
requirements) which comprise:
— the consolidated statement of
financial position as at 30 June
2020;
— the consolidated statements of
comprehensive income, changes in
equity and cash flows for the year
then ended;
— notes, including a summary of
significant accounting policies and
other explanatory information; and
— the information that is required to
be disclosed in accordance with
Schedules 4, 7, 13, 14, 15 and 17
of the Registered Bank Disclosure
Statements (New Zealand
Incorporated Registered Banks)
Order 2014 (as amended) (the
“Order”).
In our opinion, the accompanying consolidated financial statements
and supplementary information (excluding supplementary
information relating to capital adequacy and regulatory liquidity
requirements) of Heartland Bank Limited (the “Bank”) and its
subsidiaries (the “Banking Group”) on pages 7 to 71:
i. give a true and fair view of the Banking Group’s financial position
as at 30 June 2020 and its financial performance and cash flows
for the year ended on that date; and
ii. comply with New Zealand Generally Accepted Accounting
Practice, which in this instance means New Zealand Equivalents
to International Financial Reporting Standards (“NZ IFRS”) and
International Financial Reporting Standards.
In our opinion, the supplementary information (excluding
supplementary information relating to capital adequacy and
regulatory liquidity requirements) that is required to be disclosed in
accordance with Schedules 4, 7, 13, 14, 15 and 17 of the Order):
i. has been prepared, in all material respects, in accordance with
the guidelines issued pursuant to section 78(3) of the Reserve
Bank of New Zealand Act 1989 and any conditions of registration;
ii. is in accordance with the books and records of the Banking Group
in all material respects; and
iii. fairly states the matters to which it relates in accordance with
those Schedules.

Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISAs (NZ)”). We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Banking Group in accordance with Professional and Ethical Standard 1 International
Code of Ethics for Assurance Practitioners (Including International Independence Standards) (New Zealand) issued
by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for
Accountants’ International Code of Ethics for Professional Accountants (including International Independence
Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with these
requirements and the IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the
consolidated financial statements and supplementary information (excluding supplementary information relating to
capital adequacy and regulatory liquidity requirements) section of our report.
Our firm has also provided other services to the Banking Group in relation to the review of the Banking Group’s half
year disclosure statement, regulatory assurance services, agreed upon procedure engagements and supervisor
reporting. Subject to certain restrictions, partners and employees of our firm may also deal with the Banking Group
on normal terms within the ordinary course of trading activities of the business of the Banking Group. These
matters have not impaired our independence as auditor of the Banking Group. The firm has no other relationship
with, or interest in, the Banking Group.

81

Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and
on the consolidated financial statements as a whole. The materiality for the consolidated financial statements as a
whole was set at $4,700,000 determined with reference to a benchmark of the Banking Group's normalised profit
before tax. We chose the benchmark because, in our view, this is a key measure of the Banking Group’s
performance.
We agreed with the Audit Committee that we would report to them, misstatements identified during our audit
above $230,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative
reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements in the current period. We summarise below those matters and our key audit
procedures to address those matters in order that the shareholder may better understand the process by which we
arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the purpose of our
statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete
opinions on separate elements of the consolidated financial statements.
Key changes in the assessment of audit risks
Covid-19
The Covid-19 pandemic has created significant additional risks across a number of areas of the business,
particularly the assessment of the provision for impairment of finance receivables. All forward looking assumptions
are inherently more uncertain during these unprecedented times. While the key audit matter "Provision for
impairment of finance receivables", detailed below, is unchanged from last year, the underlying audit risk has
increased which impacted the extent and nature of audit evidence that we had to gather.
The key audit matter How the matter was addressed in our audit
Provision for impairment of finance receivables
Refer to notes 1, 12 and 22 to the consolidated financial statements.
The provision for impairment of finance
receivables is a key audit matter due to the
financial significance and the inherent
complexity of the Banking Group’s expected
credit loss (“ECL”) models.
Significant judgement and estimates are
required to incorporate forward-looking
information to reflect future economic
conditions, including the potential economic
impact of the Covid-19 pandemic and other
assumptions such as defining a significant
increase in credit risk (SICR).
The collective provision is estimated through the
ECL model which uses historical data, adjusted
for forward looking information and the assigned
risk grade or arrears status. Additionally,
management apply judgement in the
determination of provision overlays to adjust for
future market conditions.
The level of judgement involved in determining
the provision for collectively impaired assets
Together with KPMG credit risk specialists we assessed the Banking
Group’s collective and individual provisions. Our procedures, amongst
others, included:
⎯ Assessing the Banking Group’s governance and oversight,
including the continuous reassessment of overall provisioning;
⎯ Assessing the Banking Group’s significant accounting policies and
expected credit loss (“ECL”) modelling methodology against the
requirements of the standards and underlying accounting records;
⎯ Testing key controls including the arrears calculations, customer
loan ratings, annual loan reviews, credit risk reviews and data
reconciliations between the ECL models and source systems;
⎯ Assessing the model output against actual losses incurred by the
Banking Group;
⎯ Challenging the key assumptions, including forward looking
economic assumptions, against external information including
benchmarking management’s estimates to a range of different
market forecasts;
⎯ Evaluating individual credit assessments for a sample of ‘rural’ and
other ‘corporate’ loans on management’s credit watchlist. This
included inspection of the latest correspondence with the

82

The key audit matter How the matter was addressed in our audit
requires us to challenge the appropriateness of
management’s assumptions.
The provision for individually impaired assets is
based on the application of management
judgement regarding expected future cashflows,
which are inherently uncertain.
borrower, assessment of the provision estimates prepared by
credit risk officers, and consideration of the resolution strategy.
We challenged assumptions and assessed collateral values by
comparing them to valuations performed by independent valuers;
and
⎯ Assessing the disclosures in the consolidated financial statements
against the requirements of NZ IFRS.
From the procedures performed we consider the Banking Group
appropriately identified and considered the uncertainties in the
provision estimates.
Valuation of finance receivables – reverse mortgages
Refer notes 12(b) and 19 to the consolidated financial statements.
The Banking Group’s reverse mortgage portfolio
is held at fair value.
The fair value calculation is based on the
application of management judgement. In
assessing the fair value, the Banking Group
continuously considers evidence of a relevant
active market. In the absence of such a market,
in the current period, the Banking Group
considered changes since loan origination and
expected future cashflows.
The inherent uncertainties include estimated
exits, interest rates and security property values.
Our procedures over the fair value loan portfolios, amongst others,
included:
⎯ Testing key controls over the accuracy of data impacting the fair
value assessment;
⎯ Assessing evidence of a relevant active market or observable
inputs; and
⎯ Challenging the key assumptions used by the Banking Group in
determining the portfolio’s fair value.
The estimates and assumptions used to determine the valuation of
finance receivables are reasonable, with no evidence of management
bias or influence identified from our procedures.
Operation of IT systems and controls
The Banking Group is reliant on complex IT
systems for the processing and recording of
significant volumes of transactions and other
core banking activity.
For significant financial statement balances,
such as finance receivables and deposits, where
relevant, our audit involves an assessment of
the design of the Banking Group’s internal
control environment. There are some areas of
the audit where we seek to test and place
reliance on IT systems, automated controls and
reporting.
The effective operation of these controls is
dependent upon the Banking Group’s general IT
control environment, which incorporates
controls relevant to IT system changes and
development, IT operations, developer and user
access.
Our audit procedures, amongst others, included:
⎯ Gaining an understanding of business processes, key controls and
IT systems relevant to significant financial statement balances,
including technology services provided by a third party;
⎯ Assessing the effectiveness of the IT control environment,
including core banking IT systems, key automated controls and
reporting; and
⎯ Evaluating general IT controls relevant to IT system changes and
development, IT operations, developer and user access.
Where we noted design or operating effectiveness matters relating to
IT system or application controls relevant to our audit, we performed
alternative audit procedures. We also identified and tested mitigating
controls in order to respond to the impact on our overall audit approach.
We did not identify any material issues or exceptions from those
additional procedures.

Other information
The Directors, on behalf of the Banking Group, are responsible for the other information included in the Bank’s
disclosure statement. Other information comprises the information required to be included in the disclosure
statement in accordance with schedule 2 of the Order. Our opinion on the consolidated financial statements does
not cover any other information and we do not express any form of assurance conclusion thereon.

83

In connection with our audit of the consolidated financial statements our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Report on other legal and regulatory requirements
In accordance with the requirements of clauses 2(1)(d) and 2(1)(e) of Schedule 1 of the Order, we report that:
— we have obtained all the information and explanations we have required; and
— in our opinion, proper accounting records have been kept by the Banking Group, as far as appears from our
examination of those records.
Responsibilities of Directors for the consolidated financial statements and
supplementary information (excluding supplementary information relating to
capital adequacy and regulatory liquidity requirements)
The Directors, on behalf of the Banking Group, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with Clause 24 of
the Order, NZ IFRS and International Financial Reporting Standards;
— the preparation and fair presentation of supplementary information (excluding the supplementary information
relating to capital adequacy and regulatory liquidity requirements), in accordance with Schedules 2, 4, 7, 13, 14,
15 and 17 of the Order;
— implementing necessary internal control to enable the preparation of consolidated financial statements that are
fairly presented and free from material misstatement, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial
statements and supplementary information (excluding supplementary information
relating to capital adequacy and regulatory liquidity requirements)
Our objective is:
— to obtain reasonable assurance about whether the disclosure statement, including the financial statements
prepared in accordance with Clause 24 of the Order, and supplementary information (excluding the
supplementary information relating to capital adequacy and regulatory liquidity requirements), in accordance
with Schedules 4, 7, 13, 14, 15 and 17 of the Order as a whole is free from material misstatement, whether
due to fraud or error; and
— to issue an independent auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs (NZ) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at the
External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.

84

Review conclusion on the supplementary information relating to capital
adequacy and regulatory liquidity requirements
We have reviewed the supplementary
information relating to capital adequacy and
regulatory liquidity requirements, as
disclosed in note 25(a) and 28 of the
consolidated financial statements for the
year ended 30 June 2020. The
supplementary information relating to capital
adequacy and regulatory liquidity
requirements comprises the information that
is required to be disclosed in accordance
with Schedule 9 of the Order.
Based on our review, nothing has come to our attention
that causes us to believe that the supplementary
information relating to capital adequacy and regulatory
liquidity requirements, disclosed in note 25(a) and 28 to
the consolidated financial statements, is not, in all material
respects:
i. prepared in accordance with the Banking Group’s
conditions of registration; and
ii. disclosed in accordance with Schedule 9 of the Order.
Emphasis of matter
We draw attention to note 25(a) and the conditions of registration non-compliance on page 78 of the disclosure
statement which reference the Banking Group’s identification of adjustments to the capital and liquidity ratios, as
required under conditions of registration 1 and 11. Our opinion is not modified in respect of this matter.
Basis for conclusion on the supplementary information relating to capital
adequacy and regulatory liquidity requirements
A review of the supplementary information relating to capital adequacy and regulatory liquidity requirements in
accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity
(“NZ SRE 2410”) is a limited assurance engagement. Our responsibilities under that standard are further described
in the Auditor’s responsibilities for the review of the supplementary information relating to capital adequacy and
regulatory liquidity requirements section of our report.
As the auditor of the Banking Group, NZ SRE 2410 requires that we comply with the ethical requirements relevant
to the audit of the annual consolidated financial statements.
Responsibilities of Directors for the supplementary information relating to
capital adequacy and regulatory liquidity requirements
The directors are responsible for the preparation of supplementary information relating to capital adequacy and
regulatory liquidity requirements that is required to be disclosed under Schedule 9 of the Order and prepared in
accordance with the Capital Adequacy Framework (Standardised Approach) (BS2A) and described in note 25(a) and
28 to the consolidated financial statements.
Auditor’s responsibilities for the review of the supplementary information
relating to capital adequacy and regulatory liquidity requirements
Our responsibility is to express a conclusion on the supplementary information relating capital adequacy and
regulatory liquidity requirements based on our review. We conducted our review in accordance with NZ SRE 2410.
As the auditor of the Banking Group, NZ SRE 2410 requires that we plan and perform the review to obtain limited
assurance about whether the supplementary information relating to capital adequacy and regulatory liquidity
requirements is, in all material respects:
— prepared in accordance with the Banking Group’s conditions of registration; and
— disclosed in accordance with Schedule 9 of the Order.

85

A review of the supplementary information relating to capital adequacy and regulatory liquidity requirements in
accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily
consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying
analytical and other review procedures.
The procedures performed in a review are substantially less than those performed in an audit conducted in
accordance with ISAs (NZ). Accordingly, we do not express an audit opinion on the supplementary information
relating to capital adequacy and regulatory liquidity requirements disclosures.
Use of this independent auditor’s report
This independent auditor’s report is made solely to the shareholder. Our work has been undertaken so that we
might state to the shareholder those matters we are required to state to them in the independent auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the shareholder for our work, this independent auditor’s report, or any of the opinions or
conclusions we have formed.
The engagement partner on the audit resulting in this independent auditor's report is Graeme Edwards.
For and on behalf of

KPMG
Auckland
17 September 2020

---

NZX/ASX Release
ASX Listing Rule 1.15.3 Statement
17 September 2020
Heartland Group Holdings Limited (ASX/NZX: HGH) (an ASX Foreign Exempt Listing) confirms, for the
purposes of ASX Listing Rule 1.15.3, that it has complied with and continues to comply with the
Listing Rules of NZX Limited, which is its overseas home exchange.
- Ends -

For further information, please contact the person(s) who authorised this announcement:

Andrew Dixson
Chief Financial Officer
Heartland Group Holdings Limited
DDI: 09 927 9274
E: Andrew.Dixson@heartland.co.nz

Address:
Level 3, Heartland House
35 Teed Street
Newmarket, Auckland
New Zealand

---

1

NZX/ASX Release
Heartland announces full year net profit after tax of
$72.0 million (or $78.9 million adjusted to remove economic
overlay for COVID-19)
17 September 2020
Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH) achieved a net profit after tax
(NPAT) of $72.0 million for the financial year ended 30 June 2020 (FY2020). Included within this
NPAT is an economic overlay of $9.6 million pre-tax which Heartland applied to its potential credit
losses in response to the ongoing uncertainties relating to the COVID-19 pandemic. The adjusted
NPAT (which excludes this economic overlay) is $78.9 million
1
.
Highlights for FY2020
2

• NPAT of $72.0 million.
• Adjusted NPAT of $78.9 million (removing the economic overlay of $9.6 million pre-tax), up
7.2% ($5.3 million).
• Gross finance receivables (Receivables)
3
of $4.6 billion, up 4.9% ($215.0 million)
4
.
• Return on equity (ROE) of 11.4%, up 31 basis points (bps).
• Net interest margin (NIM)
5
of 4.33%, flat on FY2019.
• Net operating income (NOI) of $235.3 million, up 13.2%.
• Cost to income ratio (CTI) of 45.4%, up 3.8 percentage points (pp). After allowing for
changes in the accounting treatment and one-off impacts, the underlying CTI is 44.5%, up
4.6 pp as a result of significant investments in areas of strategic importance.
• FY2020 final dividend of 2.5 cents per share (cps), taking FY2020 total dividend to 7.0 cps – a
decrease of 3.0 cps (as a consequence of restrictions imposed by the Reserve Bank of New
Zealand (RBNZ) on distributions by banks in New Zealand).
• A dividend yield of 8.2%
6
(8.6%
7
in FY2019).
• Earnings per share (EPS) of 13.7 cps, up 5.2%.

1
Heartland’s FY2020 results present reported and adjusted financial information. These measures are
considered useful for investors because they adjust for one-off impacts, which allows for better comparability
with past performance. A reconciliation of adjusted financial information is set out on pages 31 and 32 of the
accompanying results presentation.
2
All comparative results are based on restated audited full year consolidated financial statements of Heartland
for the year ended 30 June 2019 (FY2019).
3
Gross finance receivables also includes Reverse Mortgages.
4
Excluding the impact of changes in foreign currency exchange (FX) rates.
5
NIM calculated based on average gross interest earning assets.
6
FY2020 total fully imputed dividends divided by share price as at 16 September 2020 of $1.19.
7
FY2019 total fully imputed dividends divided by share price as at 14 August 2019 of $1.62.

2

• Heartland has transitioned through a number of strategic phases to establish itself as a
digitally-led financial services group, ‘a financial technology company (fintech) with a bank
licence’.
• In May 2020, Fitch Ratings (Fitch) affirmed Heartland’s Long-Term Issuer Default Ratings and
Outlooks. Heartland Bank Limited (Heartland Bank) was one of only two Australasian banks
to have no reduction or adverse change to its rating or outlook as it entered the economic
downturn.
• Established new products to support customers affected by COVID-19.
• Digital tools such as electronic document signing and biometric facial recognition enabled
motor vehicle dealers to continue to offer Heartland’s motor vehicle finance despite alert
level restrictions on in-person interactions.
• Heartland Bank awarded Canstar’s 2020 Bank of the Year – Savings and Canstar’s 5-Star
Rating for Outstanding Value Savings Account for its Direct Call and YouChoose accounts.
• Heartland Bank Reverse Mortgages awarded Consumer Trusted accreditation for the fourth
year in a row.
• Heartland Bank a finalist in the Diversity Works NZ Diversity Awards in the Cultural
Celebration category.
• Heartland Bank became an accredited Living Wage employer, and part of the first Living
Wage accredited industry in New Zealand.

3

COVID-19 RESPONSE
The COVID-19 pandemic and resulting alert level restrictions created an uncertain economic
environment for many of Heartland’s customers. Heartland responded by contacting
Consumer, small-to-medium enterprise (SME) and Business customers to offer support.
Consumer customers, representing $143 million of loans, took up the various offers of
support, as did SME and Business customers, representing $510 million of loans. Support
options included payment holidays of 1-3 months, reduced principal and interest only
payments.
Most of Heartland’s customers have returned to pre-COVID-19 payment schedules. At 27
August 2020, 96% of Consumer loans and 98% of SME and Business loans were on usual (or
pre-COVID-19) repayment schedules or had taken up Heartland Extend.
Heartland Extend is a new product, launched in May 2020, allowing customers the flexibility
to manage the term of their loan to suit cashflow needs. Across all of Heartland’s customers,
at 14 September 2020, 1,601 customers, representing $116.4 million of loans, had taken up
Heartland Extend. This offer will be extended to non-customers.
Heartland became one of nine providers of the New Zealand Government’s Business Finance
Guarantee Scheme (BFGS). Heartland is offering business loans under the BFGS not only to its
own customers, but to any business that qualifies.
During the period 1 March to 30 June 2020, Heartland:
• enabled 46 Australian seniors to apply for a Heartland Reverse Mortgage online,
from the safety of their own home
• approved $356 million in new lending, including:
− $165 million for Motor
− $66 million for Australian Reverse Mortgages
− $84 million for Business
− $25 million for New Zealand Reverse Mortgages.
Heartland was quick to mobilise its employees to support customers despite alert level
restrictions limiting occupancy in its places of work. Employees were provided with the
appropriate systems, tools and resourcing to enable them to work remotely. Heartland
redeployed employees to areas of the business experiencing high demand and brought on
additional permanent and contract staff to meet customer needs.
Considerable uncertainty remains and as a consequence, Heartland will create an economic
overlay of 8.8% of its NPAT for the financial year (see page 6).

4

DIGITAL EVOLUTION
Since listing on the NZX in 2011 and becoming a bank in 2012, Heartland has progressed through a
number of strategic phases to establish itself as a digitally-led financial services group, ‘a fintech with
a bank licence’.
This, together with its best or only approach to its products and services, has successfully
differentiated it from mainstream banks, best exemplified by a significantly higher NIM. It has been
named the Canstar Savings Bank of the Year for three consecutive years and is the recipient of
multiple awards for its reverse mortgages. Its digital platforms for deposits, small business and
mortgage lending are world class in terms of financial technology.
Heartland is digitalising everything it does – its distribution, its processing and how it markets to
customers.
At the centre of Heartland’s digital strategy is the ongoing enhancement of the Heartland Mobile
App. Mobile phones are increasingly becoming the electronic channel of choice for all adults
8
.
Heartland believes customers will increasingly turn to their smartphones for all interactions with
service providers and the Heartland Mobile App will continue to be enhanced to meet this customer
expectation – it will be Heartland’s virtual branch on every corner.
Heartland’s digital platforms have enabled customers to access products and services despite alert
level restrictions on in-person interactions. Heartland’s digital facial recognition (biometrics) and
electronic document signature (DocuSign) innovations provide customers with an end-to-end
contactless onboarding and fulfilment process. From 25 March to 13 May 2020 during the height of
alert level 3 and 4 lockdowns, dealers were able to progress vehicle loan applications by sending
biometrics facial recognition links to 142 people.
Increased investment will be undertaken in technology to expand digital capability to meet
Heartland’s growth aspirations and the needs of customers in both New Zealand and Australia –
particularly in a post-COVID-19 world where the ability to interact online is of even greater
importance.
FINANCIAL RESULTS
Financial position
Receivables increased by $215.0 million (4.9% growth)
9
mainly due to growth in Reverse Mortgages,
Business Intermediated, Motor, Open for Business (O4B) and Harmoney, offset by decreases in non-
core lending, specifically Business Relationship and Rural Relationship.
Total assets increased by $389.1 million (7.9% growth), primarily driven by the $234.0 million (5.4%)
increase in net finance receivables. Liquid assets, comprising cash, cash equivalents and investments

8
According to Deloitte’s 2019 global mobile consumer survey.
9
Excluding the impact of changes in FX rates.

5

increased by $127.2 million (30.5% growth). This reflected the precaution of a strong liquidity buffer
through the period of COVID-19 uncertainty.
Total funding
10
increased by $320.9 million (7.6% growth).
During the reporting period, net assets increased by $24.3 million to $700.0 million. Net tangible
assets (NTA) increased by $15.8 million to $610.0 million, resulting in an NTA per share of $1.05 (30
June 2019: $1.04).
Profitability
NPAT was $72.0 million, a $1.6 million (2.2%) decrease on FY2019. Adjusted NPAT
11
was $78.9
million, a $5.3 million (7.2%) increase on FY2019.
ROE was 10.5%, down 59 bps from FY2019. Adjusted ROE
11
was 11.4%, up 31 bps from FY2019.
EPS was 12.5 cps, down 0.5 cps from FY2019. Adjusted EPS
11
was 13.7 cps, up 0.7 cps from FY2019 as
a result of an increase in underlying NPAT.

FY2020 FY2019
NOI
12
($m) 235.3 208.0
NPAT ($m) 72.0 73.6
Adjusted NPAT ($m) 78.9 73.6
NIM 4.33% 4.33%
NIM excl. liquid assets
13
4.59% 4.46%
CTI 45.4% 41.6%
Adjusted impairment expense ratio 0.44% 0.49%
Adjusted ROE 11.4% 11.1%
Adjusted EPS 13.7 cps 13.0 cps

Income
Total NOI was $235.3 million, an increase of $27.4 million (13.2%) on FY2019.
The required accounting standard change in respect of upfront reverse mortgage fees contributed
$6.4 million to the FY2020 NOI (and resulted in a corresponding contribution of $7.4 million in
operating expenses). Adjusted for this, NOI increased by $21.7 million (10.5%) compared with

10
Total funding includes retail deposits and other borrowings.
11
Excluding the impact of $9.6 million pre-tax economic overlay due to COVID-19.
12
NOI includes fair value gains/losses on investments.
13
NIM is calculated based on average gross interest earning assets excluding liquid assets.

6

FY2019, largely due to a $22.4 million (11.5%) increase in underlying net interest income. Underlying
other operating income decreased by $0.7 million (5.2%) compared with FY2019, primarily due to a
lower net operating lease, insurance and fee income result.
NOI was $1.9 million (1.6%) lower in the second half (2H2020) compared with the first half of FY2020
(1H2020). Excluding the impact of the required accounting standard change in respect of upfront
reverse mortgage fees and fair value gains on equity investments from 1H2020, underlying NOI was
$2.6 million (2.3%) higher half-on-half.
Heartland’s NIM for FY2020 was 4.33%, flat on FY2019.
Net interest income was $6.3 million higher in 2H2020, a 5.7% increase half-on-half. This was a result
of a $4.6 million (6.8%) decrease in interest expense which was primarily due to 28 bps reduction in
cost of funds, and a $1.7 million (1.0%) increase in interest income largely driven by $117.5 million
increase in interest earning assets.
Expenses
Operating expenses were $106.8 million, an increase of $21.0 million (24.5%) on FY2019. The
required accounting standard change in respect of upfront reverse mortgage costs contributed
$7.4 million to FY2020 operating expenses. Adjusted for this, underlying operating expenses were
$14.8 million (17.5%) higher compared with FY2019.
The CTI increased to 45.4%, compared with 41.6% in FY2019, while on an underlying basis this was
44.5% in the current period, compared with 39.9% in FY2019.
Higher operating expenses were primarily due to a $7.3 million (15.1%) increase in staff expenses.
While many organisations are downsizing, Heartland employed 23 new people in permanent or fixed
term roles between March and June 2020 to provide additional support to customers.
Heartland has also invested in technical expertise in areas of strategic importance (for example, in its
digital and finance teams) to reduce the reliance on external service providers and enable Heartland
to adopt a more agile delivery model, reflecting the growing maturity of the business and the need
to respond to an increasingly complex and regulated operating environment.
Higher operating expenses were also due to a $3.3 million (97.6%) increase in marketing investment
across both New Zealand and Australian markets to drive product and brand awareness.
IMPACT OF COVID-19 ON PROVISIONING
Since March 2020, the economy has been disrupted by measures put in place to limit the impact of
the spread of COVID-19. It has also been disrupted by the downstream effects of the deterioration
that COVID-19 has caused in the global economy.
Countermeasures implemented by Government (including the Government’s support and fiscal
programmes) and the RBNZ have assisted to mitigate the impact of those measures. As noted

7

elsewhere, Heartland has also worked closely with its customers to understand their needs and
provide them with the financial support that best meets their requirements.
On 18 May 2020, during this period of disruption, Fitch affirmed the Long-Term Issuer Default
Ratings for Heartland, Heartland Bank and Heartland Australia Group Pty Ltd (Heartland Australia)
with outlook remaining stable. Heartland was one of only two Australasian banks to have no
reduction or adverse change to its rating or outlook as it entered the economic downturn.
The affirmation reflects Fitch’s view that Heartland has solid buffers to withstand its base-case
scenario and enters the economic downturn with sufficient headroom in its key financial metrics.
Fitch noted that “the ratings of [Heartland Group] and [Heartland Bank] are driven by the group’s
consolidated risk profile, which reflect its stronger-than-peer profitability”.
Heartland does not have a material exposure to the industries most profoundly affected by COVID-
19 (tourism, hospitality, retail business)
14
, nor the demographic most impacted by rising
unemployment (15-24 year olds)
15
. In addition, a significant proportion of Heartland’s book has
shown resilience to the economic disruption – in particular the Reverse Mortgage books in Australia
and New Zealand (where borrower behaviour remains largely unchanged) and the Rural portfolio.
Taking into account Heartland’s differentiated portfolio composition, management’s experience and
understanding of Heartland’s customers, and assuming management’s forecast of future economic
conditions transpires to be accurate, Heartland determined that there was no reason to consider
that its existing provisions were not adequate. However, Heartland recognises that its support
arrangements and the significant Government support mean that traditional indicators of increased
credit risk may not provide an accurate measure of credit quality.
Against that backdrop, Heartland has taken an economic overlay of $9.6 million pre-tax to allow for
the uncertainty created by COVID-19. Economic overlays are deployed to supplement existing
methods of calculating expected credit loss where the economic environment is outside that
contemplated by existing methods and have been used by banks as a response to the uncertainty
created by COVID-19. Importantly, an overlay does not represent actual or current losses, but
provides a buffer against any losses that the uncertainty may give rise to.
The bulk of Heartland’s overlay has been apportioned to the Consumer and SME portfolios.
Heartland will continue to monitor that overlay, and it may change over time as the position
develops and Heartland comes to have greater certainty as to the impact.
Heartland’s total provision coverage ratio excluding the $9.6 million pre-tax economic overlay due to
COVID-19 is 1.71%
16
as at 30 June 2020. This is a relatively strong position compared with most of its

14
Heartland’s total exposure to the retail, accommodation and transport (excluding road freight transport)
industries at 30 June 2020, based on borrower ANZSIC codes, was 2.84%, 2.17% and 1.15% respectively.
15
At 10 August 2020, Heartland’s exposure to customers in this age bracket is 2.9% in Motor, 0.7% in personal
lending and 0.9% in Harmoney.
16
Calculated as total provisions over gross finance receivables excluding Reverse Mortgages.

8

peers. The COVID-19 economic overlay further increased the total provision coverage ratio to 2.02%
as at 30 June 2020.
The table below compares Heartland’s provision coverage ratio
17
year-on-year, including the impact
of the $9.6 million pre-tax economic overlay due to COVID-19.

30 June 2020 30 June 2019

Gross Total Provision Gross Total Provision

Receivables Provision Coverage Receivables Provision Coverage

$m $m Ratio $m $m Ratio

Motor

1,126

17.8 1.58% 1,089

14.1 1.30%
Harmoney NZ

146

7.6 5.20% 151

5.5 3.66%
Harmoney AU

54

3.1 5.77% 38

1.7 4.55%
Personal Loans

12

1.8 15.05% 17

2.0 12.18%
Open for Business

155

8.5 5.46% 133

4.8 3.63%
Business Intermediated

499

7.6 1.53% 425

5.7 1.34%
Business Relationship

496

8.1 1.62% 560

11.4 2.03%
Rural

606

8.2 1.35% 656

13.1 2.00%
Retail Mortgages

14

- 0.00% 20

- 0.00%

3,108

62.7 2.02% 3,090

58.5 1.89%

Impairments
Including the overlay mentioned above, impairment expense increased by $8.7 million (42.3%) to
$29.4 million. Impairment expense as a percentage of average receivables increased from 0.49% in
FY2019 to 0.65% in FY2020.
On an adjusted
18
basis, impairment expense decreased by $0.9 million (4.1%) to $19.8 million, and
impairment expense as a percentage of average receivables decreased from 0.49% in FY2019 to
0.44% in FY2020. This reflects improving quality and improved collections processes.

17
Being total provisions divided by gross receivables.
18
Excluding the impact of $9.6 million pre-tax economic overlay due to COVID-19.

9

Additionally, refined provisioning methodologies in accordance with IFRS9 have resulted in a
reduced impairment expense.
BUSINESS PERFORMANCE
New Zealand Reverse Mortgages
New Zealand Reverse Mortgages NOI was $23.5 million, an increase of $2.7 million (12.7%)
compared with FY2019.
New Zealand Reverse Mortgage Receivables increased $49.6 million (9.7%) to $559.9 million, driven
by an investment in marketing to increase brand awareness and digital channel enhancements.
Motor
Motor NOI was $60.6 million, an increase of $3.5 million (6.2%) compared with FY2019.
Motor Receivables increased $37.0 million (3.4%) to $1,125.6 million mainly due to an increase in
the Motor dealer book (car dealerships, brokers and partnerships such as Kia and Jaguar/Land
Rover).
Following a strong result in 1H2020, 2H2020 was characterised by higher repayment levels in Motor.
While new lending held up strongly in the period 1 March to 30 June 2020 ($164.8 million)
repayments were $164.2 million (partly due to customers consolidating debt due to low interest
residential mortgage rates). As a result, Motor posted a largely flat volume growth in 2H2020.
Generating much of Motor’s new lending in 2H2020 was Heartland Bank’s innovative digital
platforms, which allowed motor dealers to safely provide vehicle finance to New Zealanders even
when alert levels restricted in-person interactions with customers.
Harmoney and other personal lending
Harmoney NOI was $17.2 million, an increase of $4.8 million (39.1%) compared with FY2019.
Harmoney Receivables increased $10.1 million (5.3%), with the New Zealand Harmoney portfolio
contracting $5.6 million (3.7%) to $145.9 million, while the Australia Harmoney portfolio increased
$15.7 million (40.9%) to $54.0 million. Both New Zealand and Australian portfolios contracted in
2H2020 as a result of slowdown in new lending following the COVID-19 outbreak.
Harmoney impairments were higher in FY2020 primarily due to additional provisions taken up to
cover potential future COVID-19 losses, as well as the impact of strong growth in Australia which
resulted in an increase in stage one provisions. Prior to the COVID-19 lockdown, loss rates in FY2020
had been lower than FY2019 in both New Zealand and Australia. Adjusted for the COVID-19 overlay,
FY2020 impairment rate for New Zealand and Australia Harmoney portfolio is 3.4% and 4.1%
respectively (4.1% and 4.9% in FY2019). FY2020 impairment rate for New Zealand and Australia
Harmoney portfolio is 4.7% and 5.6% respectively.

10

Business Intermediated
Business Intermediated lending NOI was $21.9 million, an increase of $4.3 million (24.3%) compared
with FY2019.
Business Intermediated Receivables increased $73.6 million (17.3%) to $499.0 million, reflecting
Heartland Bank’s growth focus on this portfolio.
Business Relationship
Business Relationship lending NOI was $24.8 million, a decrease of $3.8 million (13.4%) compared
with FY2019.
Business Relationship Receivables decreased a further $19.7 million in 2H2020 to $495.7 million as a
result of the strategic focus on reducing concentration risk in low margin exposures, posting a $63.9
million (11.4%) decrease in FY2020.
O4B
O4B NOI was $14.7 million, an increase of $5.1 million (53.7%) compared with FY2019.
O4B Receivables increased $21.8 million (16.4%) to $155.1 million. Whilst O4B growth slowed down
in 2H2020, ongoing investments in operational capacity, automation and marketing to increase
product awareness are expected to fuel recovery to pre-COVID-19 levels and growth in future
periods.
Rural
Rural lending NOI was $30.7 million, a decrease of $1.0 million (3.1%) compared with FY2019.
Rural Receivables decreased by $50.7 million (7.7%) to $605.7 million. Rural Relationship Receivables
reduced by $22.2 million in 2H2020 to $490.4 million as optimisation of non-core Rural Relationship
lending to reduce low margin concentration continues, posting a $44.4 million (8.3%) decrease in
FY2020. At the same time, Livestock Receivables decreased by $6.3 million (5.2%) to $115.3 million.
Australia
Australian operations NOI was $34.3 million, an increase of $11.6 million (51.0%) compared with
FY2019.
Australian Reverse Mortgage Receivables increased by $149.1 million (18.4%)
19
to $957.5 million.
Heartland remains the leading originator of reverse mortgages in Australia with 12-month market

19
Excluding the impact of changes in FX rates.

11

share increasing from 21%
20
to 26%
21
, and a similar trend expected in the future.
FUNDING AND LIQUIDITY
New Zealand
Heartland Bank increased borrowings by $131.8 million (3.8%), primarily as a result of growth in
deposits of $115.6 million (3.7%) and growth in other borrowings of $16.2 million (4.7%).
Deposits grew $100.5 million (3.2%) in the April-June 2020 quarter (Q4) as a result of strong
promotional activity with Heartland Bank continuing to be a consistent rate leader during the
lockdown period and beyond. Heartland Bank’s focus is on the reduction of risk concentrations in its
deposit book and shifting its deposit mix in favour of lower rate call deposits where Heartland is
relatively underweight.
Within other borrowings, money market and registered certificate of deposit borrowings reduced by
$59.8 million in aggregate, while borrowings under the auto warehouse facility increased by $65.6
million as part of a strategy to shift funding away from short-term uncommitted sources in favour of
committed wholesale lines.
Heartland Bank increased total liquidity by $205 million (39%). This was a result of growth in cash
and cash equivalents of $66 million (169%), growth in investments of $55 million (16%) and growth
in undrawn committed facilities of $205 million (39%).
In response to the uncertain economic and liquidity impacts of COVID-19, Heartland Bank increased
its committed auto warehouse facility from $150 million to $300 million, and increased its target
holding of cash and cash equivalents. As such Heartland Bank holds liquidity well in excess of
regulatory minimums.
Heartland cancelled its $25 million undrawn corporate debt facility in May 2020.
Australia
Heartland Australia increased borrowings by A$168.4 million (24.7%) as a result of growth in reverse
mortgage warehouse funding of A$73.2 million (11.6%) and a A$100 million medium-term note
(MTN) issuance.
To support its growth, Heartland has secured A$142 million of long-term funding for its Australian
Reverse Mortgage business. The innovative Australian reverse mortgage-backed syndicated loan
securitisation transaction announced on 15 September 2020 is funded by established offshore
institutional investors. The first-of-its-kind transaction achieves another milestone in executing

20
Based on APRA ADI Property Exposure combined with Heartland Seniors Finance data as at 31 March 2019.
21
Based on APRA ADI Property Exposure combined with Heartland Seniors Finance data as at 31 March 2020.

12

Heartland’s strategy to diversify type, source and tenor of its Australian funding and importantly
evidences market liquidity to existing warehouse funders.
The financing structure provides Heartland access to deep pools of efficient long-dated funding that
is typically unavailable to most Australian non-bank financial institutions. Heartland’s high-quality
reverse mortgage asset portfolio has enabled the structure to achieve leverage
22
of 98%.
During the financial year, Heartland Australia successfully continued to execute on its strategic
funding programme to cater for the strong growth that continues to be generated.
Other funding activity included:
• execution and utilisation of a new A$250 million reverse mortgage funding warehouse
provided by a major Australian financial institution
• issuance of A$100 million new MTNs.

Heartland now has access to committed Australian reverse mortgage loan funding of A$1 billion in
aggregate. Further expansion of existing warehouse funding through increased senior limits and
introduction of mezzanine funding is planned together with continued optimisation of long-term
duration matched funding.
REGULATORY UPDATE
As a result of COVID-19, some delays to regulatory change timeframes were announced in 2H2020.
However, a significant volume of regulatory change continues to be upcoming. Key changes include
the proposed Financial Markets (Conduct of Institutions) Amendment Bill (Conduct Bill) and Phase 2
of the review of the Reserve Bank of New Zealand Act 1989 (RBNZ Act).
If enacted, the Conduct Bill would introduce a new conduct regime for registered banks (including
Heartland Bank), licensed insurers and non-bank deposit takers in New Zealand.
The Government has made a number of in-principle decisions in relation to its review of the RBNZ
Act which will affect the New Zealand financial system, including proposing a depositor protection
scheme and significant strengthening of accountability requirements for directors and executives.
A consultation paper for the proposed changes to the RBNZ Act has been published with submissions
due on 23 October 2020. Heartland will continue to monitor progress in respect of the review, and
any bill which is subsequently introduced to Parliament.
STRATEGIC PRIORITIES
Heartland has three core strategic objectives: acquiring scale as a New Zealand bank, expanding in
Australia and digitalising everything it does.

22
Being total senior debt divided by total reverse mortgages funded.

13

New Zealand
Heartland remains dedicated to providing customers with banking products and services through
best or only digital channels.
Within this, Heartland Bank has developed a unique, low-cost operating model in New Zealand,
through the digitalisation of its core distribution channels and fulfilment processes. Heartland views
growing scale through consolidation in the banking industry as a potential opportunity to expand
this low-cost model and create greater access to capital for other industry participants. At a time
when other participants are required to raise additional capital and the industry in general faces
additional investment in technology and regulatory compliance, consolidation may be considered
attractive.
In March, Heartland Bank entered into the retail mortgage market with its new online Home Loans
platform. The trial sought to test the appetite of the New Zealand market for a digital home loan
product which allows Kiwis to apply and receive a conditional approval online, without the need to
go into a bank or meet with a mortgage manager. The trial was successful, with $50 million of
conditional home loan approvals being given in the month the trial was run. Heartland Bank expects
to relaunch its Home Loans product during the financial year ending 30 June 2021 (FY2021) with a
rate as market leading as that offered during the trial.
Australia
Growth has continued in Australia’s Reverse Mortgage business, despite the impact of COVID-19 on
the Australian market. Investment in marketing activity will continue for reverse mortgages in
Australia to grow reach and drive leads.
Heartland launched its O4B unsecured small business lending platform in Australia in late 2019. Due
to the impact of COVID-19, Heartland paused lending through the Australian platform in March, but
intends to relaunch O4B in Australia this calendar year.
Heartland has had success in the consumer and small business markets in New Zealand, and is now
focused on replicating that success in Australia. Heartland currently has small exposures to those
markets through its partners, such as Harmoney, and is targeting growth in both areas, with an
appetite for both organic and acquisition growth opportunities.
Digital
Heartland’s strategy to digitalise everything it does is described in detail above under Digital
Evolution on page 4.

14

FINAL DIVIDEND
Heartland is pleased to declare a 2020 final dividend of 2.5 cps, taking the total dividend for FY2020
to 7.0 cps (3.0 cps down on FY2019). The dividend yield of 8.2%
23
compares to 8.6%
24
in FY2019. The
dividend decrease reflects restrictions imposed by the RBNZ on distributions by banks in New
Zealand. However, the continued growth in Heartland’s Australian operations enable it to distribute
earnings derived from assets held outside of Heartland Bank. Heartland expects to return to a pay-
out ratio aligning to historical levels once the RBNZ restrictions are removed.
The final dividend will be paid on Friday 9 October 2020 (Payment Date) to shareholders on the
company’s register as at 5.00pm on Friday 25 September 2020 (Record Date) and will be fully
imputed.
Heartland has a Dividend Reinvestment Plan (DRP), giving eligible shareholders the opportunity to
reinvest some or all of their dividend payments into new ordinary shares. The DRP will apply to the
final dividend with a 2.0% discount
25
.
The DRP offer document and participation form is available on Heartland’s shareholder website at:
https://shareholders.heartland.co.nz/shareholder-resources/dividends.
OPTIMISATION OF VALUE WITHIN THE GROUP
As described above, Heartland has a strategy to:
1. acquire scale in banking in New Zealand
2. expand in Australia
3. digitalise everything it does.

This strategy aligns with the core strengths of Heartland’s businesses, being:
1. an established financial technology business in New Zealand based on SME and consumer
lending with the potential to grow its start-up platforms in Australia
2. a leading provider of motor vehicle finance in New Zealand with potential to capture further
market share
3. the largest active provider of Reverse Mortgages in Australia
4. a New Zealand bank based on business, rural and household lending with the potential to
develop a low-cost model through digitalisation and increased scale through consolidation.

Current bank price-to-earnings ratio multiples are below many of those for finance companies and
fintechs, and Heartland recognises that its current share price may not appropriately reflect the

23
FY2020 total fully imputed dividends divided by share price as at 16 September 2020 of $1.19.
24
FY2019 total fully imputed dividends divided by share price as at 14 August 2019 of $1.62.
25
That is, the strike price under the DRP will be 98.0% of the volume weighted average sale price of Heartland
shares over the five trading days following the Record Date. For the full details of the DRP and the Strike Price
calculation, refer to Heartland Group Holdings Limited DRP offer document dated 10 December 2018.

15

underlying nature of its businesses. Consequently, the Board has asked management to explore this
and identify means of optimising value.

LOOKING FORWARD
In Digital, an increased emphasis on development of the Heartland Mobile App for the New Zealand
market will be the focus. This App will afford more interaction to meet customer needs and greater
distribution to new customers.
Across the New Zealand activities, Heartland expects continued growth in Motor and Business, as
well as Reverse Mortgages.
In Australia, growth in Reverse Mortgages is expected to continue (supported by further issuance
from its recently established long-term funding structure), alongside expansion in SME and
Consumer activities.
Heartland’s commitment to diversity and inclusion remains an integral part of its overall strategy.
FY2021 will see Heartland’s continued focus on further developing and embedding its Māori
initiatives, including growth in its Manawa Ako internship programme. Heartland’s Environmental,
Social and Governance (ESG) strategy will also continue, with a focus on reducing the environmental
impact of Heartland’s operations and providing products and services which support customers to
make behaviour changes consistent with a circular economy.
Alongside this, Heartland remains committed to supporting customers through any future COVID-19
related uncertainties.
Heartland currently expects its NPAT for the year ending 30 June 2021 to be in the range of $83
million to $85 million.
- Ends -
For further information, please contact the person(s) who authorised this announcement:
Jeff Greenslade Andrew Dixson
Chief Executive Officer Chief Financial Officer
M 027 382 0023 M 027 263 2666
Address:
Level 3, Heartland House
35 Teed Street
Newmarket, Auckland
New Zealand
For media enquiries, please contact:
Nicola Foley
Head of Communications
M 027 345 6809

---

2020 Annual Results

Important notice
•
•
•
•
•
•

FY2020
highlights

Financial performance

Strategic highlights
•
•
•
•
•
•
•
•
•

COVID-19 response
•
•
•
•
•
•
•
•

Financial
results

Growth in profitability
6.9

Growth in receivables










Key performance measures
Reported CTIUnderlying CTI
Reported Impairment Expense Ratio
Adjusted Impairment Expense Ratio
0%
1%
1%
2%
2%
0
20
40
60
80
100

Shareholder return
•
•
•
•
•
10.5%
AdjustedReported

Economic overlay and impairments
•
•
•
•
•
•
•

Divisional
summary

Australia
•
•
•
•
•
•
•
•

NZ Reverse Mortgages
•
•
•

Open for Business (O4B)
•
•
•

Business Intermediated
•
•
•
•

Motor Finance
•
•
•
•

Harmoney and other
personal lending
•
•
•
•

Livestock Finance
•
•
•

Relationship
•
•
•

Funding
•
•
•
•
•
•
•

Strategic
update

[
Core strategic objectives
•
•
•
•
•
•
•
•
•
•

Customers and culture
ā

Regulatory update
•
•
•
•
•
•

FY2021 outlook
ā

Appendices

Appendix –Financial position

Appendix –Financial performance

Appendix –Reconciliation of Reported with Adjusted Results

Appendix –Reconciliation of Reported with Underlying Results

Thank you

Heartland secures significant new funding Heartland 2020 final dividend: Updated ASX Appendix 3A

Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.

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