Heartland to purchase Challenger Bank in Australia

Heartland Group Holdings Limited | NZX/ASX: HGH | PO Box 9919, Newmarket, Auckland 1149 | shareholders.heartland.co.nz

NZX/ASX release
20 October 2022

Heartland to purchase Challenger Bank in Australia, and
provides lending growth update

Entry into acquisition documentation for Challenger Bank
Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH) is pleased to announce that it has
signed a conditional share purchase agreement for the purchase of Challenger Bank Limited
(Challenger Bank) from Challenger Limited (ASX: CGF). The share purchase agreement is subject to
obtaining the requisite regulatory approvals.

Based in Melbourne, Australia, Challenger Bank is an established authorised deposit-taking
institution (ADI) which offers customers a range of savings and lending products. Challenger Bank’s
products include government-guaranteed retail term deposits and home loans – its system is also
capable of Reverse Mortgage origination. As at 30 June 2022, Challenger Bank had A$89 million of
retail lending, A$17 million of corporate lending and A$228 million of deposits.

Subject to completion, Heartland’s existing Reverse Mortgage and Livestock businesses in Australia
will be transferred to sit in or under Challenger Bank. The opportunity to grow these existing
businesses in Australia either as part of a bank or a broader banking group is significant. Challenger
Bank also affords further opportunities to expand Heartland’s best or only products into Australia.

For regulatory reasons, Heartland will be required to hold Challenger Bank through an Australian
incorporated non-operating holding company (NOHC) which is approved and regulated by the
Australian Prudential Regulatory Authority (APRA). It is anticipated that Heartland’s top-level holding
company in Australia, Heartland Australia Holdings Pty Limited (HAH), would be the appropriate
vehicle to apply to APRA for authority to act as a NOHC. Heartland continues to engage with the
Reserve Bank of New Zealand (RBNZ) to obtain consent for HAH to also act as the NOHC of
Heartland Bank Limited in New Zealand. Completion of the transaction is also conditional upon
consent under the Financial Sector (Shareholdings) Act.

The consideration payable by Heartland on completion is expected to be approximately A$36
million, subject to adjustments for net assets delivered at completion. Heartland’s intention is to
cover the costs of the acquisition through existing resources.

Strategic rationale
Heartland’s strategic objective for expansion in Australia requires the establishment or acquisition of
an ADI. Becoming a bank through an ADI in Australia would make possible a number of benefits:
• access to a deep and efficient pool of funding to support ongoing growth;
• potential uplift in margin, to the extent that retail funding rates are less than wholesale rates;
and
• providing a platform to extend Heartland’s best or only strategy into Australia.

The aim is to create a digital bank which, once Heartland assets are transferred to it, will be
profitable. This, together with Heartland’s best or only strategy, provides the opportunity for a
differentiated proposition.

Heartland Group Holdings Limited | 0800 85 20 20 | PO Box 9919, Newmarket, Auckland 1149 | shareholders.heartland.co.nz
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On 23 August 2022, Heartland announced it had entered into a non-binding memorandum of
understanding with Avenue Hold Limited (Avenue Hold) for the potential acquisition of Avenue Hold
and Avenue Bank Limited (Avenue Bank), a restricted ADI. Following that announcement, Heartland
continued due diligence and negotiation of binding transaction documentation with Avenue Hold.

Since then, market conditions have changed. Heartland also became aware of Challenger Bank as an
alternative opportunity. Heartland Board’s assessment is that Challenger Bank is a stronger
acquisition opportunity for Heartland’s execution of its strategic objective for growth in Australia as
it offers a full ADI licence. Challenger Bank has also recently undertaken a programme of significant
investment to build out its digital capability, which fits with Heartland’s digitalisation strategy.

Heartland has accordingly advised Avenue Hold that it will no longer be exploring the potential
acquisition opportunity previously disclosed, and has discontinued due diligence and negotiations.
Heartland made an initial subscription for A$5 million of capital (circa 11%) in Avenue Hold. No
decision has been made on the future of this shareholding. For accounting purposes, this investment
is classified as fair value through other comprehensive income, with any change in value not
impacting Heartland’s net profit after tax.

Heartland was advised by Corrs Chambers Westgarth, Deloitte and Jarden in relation to the
acquisition.

Business update
The first quarter of the financial year ending 30 June 2023 (1Q2023) has seen growth across key
lending portfolios of Reverse Mortgages, Motor and Asset Finance.

Reverse Mortgages in both New Zealand and Australia maintained strong growth momentum,
recording 24.4% and 19.3% annualised growth in 1Q2023 respectively. The Motor portfolio is
starting to return to growth levels seen before the New Zealand Credit Contracts and Consumer
Finance Act 2003 and the Credit Contracts and Consumer Finance Regulations 2004 (CCCFA) were
amended with effect from 1 December 2021, recording 7.8% annualised growth in 1Q2023. Asset
Finance recorded annualised growth of 10.3% in 1Q2023.

Other areas are performing satisfactorily, noting that the Livestock lending season has only just
commenced.

– ENDS –

About Challenger Limited
Challenger Limited (Challenger) is an investment management firm focused on providing customers
with financial security for a better retirement.

Challenger operates a fiduciary Funds Management division, an APRA-regulated Life division and an
APRA regulated ADI, Challenger Bank Limited (Challenger Bank). Challenger Life Company Limited
(Challenger Life) is Australia's largest provider of annuities.

Challenger Bank is an Australian-based digital bank offering customers a range of savings and lending
products. This includes government-guaranteed retail term deposits and home loans. Challenger
Bank, formally MyLifeMyFinance Limited, was acquired by Challenger in July 2021.

More about Challenger Bank: www.bankchallenger.com.au
More about Challenger: www.challenger.com.au

Heartland Group Holdings Limited | 0800 85 20 20 | PO Box 9919, Newmarket, Auckland 1149 | shareholders.heartland.co.nz
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About Heartland Group Holdings Limited
Heartland Group Holdings Limited (Heartland) is a financial services group with operations in
Australia and New Zealand. Heartland has a long history with roots stretching back to 1875, and is
listed on the New Zealand and Australian stock exchanges (NZX/ASX: HGH) with a market cap in
excess of NZ$1 billion.

In Australia, Heartland’s main business is currently in reverse mortgages through Heartland Finance
which is a market leader. Heartland also operates StockCo Australia, a specialist livestock financier,
which was acquired by Heartland in May 2022. Heartland’s New Zealand business, Heartland Bank,
provides customers with savings and deposit products, reverse mortgages, business loans, car loans
and rural loans.

Heartland’s point of differentiation is its best or only strategy – where it focuses on providing
products which are the best or only of their kind through scalable digital platforms. Heartland is
committed to delivering financial solutions through speed and simplicity, particularly via digital
platforms which reduce the cost of onboarding and make it easier for customers to open accounts or
apply for funds when they need it.

More about Heartland: shareholders.heartland.co.nz


The person(s) who authorised this announcement:

Jeff Greenslade
Chief Executive Officer

Andrew Dixson
Chief Financial Officer

For media enquiries and further information, please contact:

Nicola Foley
Group Head of Communications
nicola.foley@heartland.co.nz
+64 27 345 6809
Level 3, Heartland House, 35 Teed Street, Newmarket, Auckland, New Zealand