HGH financial statements with auditor’s review opinions
P. 2
Contents
Page
General 3
3
....3
4
5
.6
8
Consolidated Interim Statement of Cash 9
Notes to the Interim Financial Statements
1 Interim f11
Performance
2 Segmental 12
3 15
4 Operating 15
5 15
6 Impaired asset 16
7 Earnings per share 16
Financial Position
8 Finance 17
9 21
10 Share capital and 23
11 23
12 25
Risk Management
13 30
14 30
15 Liquidity 31
16 33
Other Disclosures
17 Structured 35
18 36
19 Contingent liabilities and ....37
20 37
38
P. 3
General Information
Heartland Group Holdings Limited (HGH) is incorporated in New Zealand and registered under the Companies Act 1993. The
shares in HGH are listed on the New Zealand Exchange (NZX) main board and the Australian Securities Exchange (ASX) under a
foreign exempt listing.
HGH's address for service is Level 3, 35 Teed Street, Newmarket, Auckland 1023.
Directors
All Directors of HGH reside in New Zealand with the exception of Ellen Frances Comerford and Geoffrey Edward Summerhayes
who reside in Australia. Communications to the Directors can be sent to Heartland Group Holdings Limited, Level 3, 35 Teed
Street, Newmarket, Auckland 1023.
On 20 February 2023 Geoff Ricketts has stepped down as Chairperson of HGH and remains as a director of HGH. The Board has
resolved on 23 February 2023 for Greg Tomlinson to assume the role of Chairperson.
There have been no other changes in the composition of the Board of Directors of HGH since 30 June 2022 to the six months
ended 31 December 2022.
Auditor
PricewaterhouseCoopers
PwC Tower, Level 27
15 Customs Street West
Auckland 1010
P.4
Directors’ Statements
The consolidated interim financial statements for HGH and its subsidiaries (together the Group) are dated 27 February 2023
and have been signed by a majority of the Directors.
G R Tomlinson (Chair) E F Comerford
J K Greenslade K Mitchell
G E Summerhayes
P. 5
Consolidated Interim Statement of Comprehensive Income
For the six months ended 31 December 2022
Unaudited
6 Months to
December 2022
Unaudited
6 Months to
December 2021
Audited
12 Months to
June 2022
$000's Note
Interest income
3
240,716 163,586 342,101
Interest expense
3
101,813 39,683 91,959
Net interest income 138,903 123,903 250,142
Operating lease income
2,696 2,588 5,284
Operating lease expense
1,862 1,545 3,383
Net operating lease income 834 1,043 1,901
Lending and credit fee income
6,397 4,565 9,639
Other (expense)/income
(1,966) 1,295 18,933
Net operating income 144,168 130,806 280,615
Operating expenses
4
63,450 57,292 116,753
Profit before impaired asset expense and income tax 80,718 73,514 163,862
Fair value (loss) on investments
(2,449) (93) (12,998)
Impaired asset expense
6
9,240 8,535 13,823
Profit before income tax 69,029 64,886 137,041
Income tax expense
20,367 17,370 41,916
Profit for the period 48,662 47,516 95,125
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 for cash flow hedging instruments
8,536 6,739 7,041
Movement in fair value reserve (752) (6,356) (712)
Movement in foreign currency translation reserve (9,736) (25) 2,340
Items that will not be reclassified to profit or loss, net of income
tax:
Movement in defined benefit reserve - - (171)
Net loss due to wind-up of superannuation scheme - - (473)
Other comprehensive income for the period, net of income tax (1,952) 358 8,025
Total comprehensive income for the period 46,710 47,874 103,150
Earnings per share
Basic earnings per share 7 7.30c 8.08c 16.13c
Diluted earnings per share 7 7.30c 8.08c 16.13c
Total comprehensive income for the period is attributable to the owners of the Group.
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 6
Consolidated Interim Statement of Changes in Equity
For the six months ended 31 December 2022
Share
Capital
Employee
Benefit
Reserve
Foreign
Currency
Translation
Reserve
Fair
Value
Reserve
Defined
Benefit
Reserve
Cash
Flow
Hedge
Reserve
Retained
Earnings
Total
Equity
$000's Note
Unaudited - December 2022
Balance as at 1 July 2022
599,185 4,646 (1,635) (1,034) - 7,959 199,586 808,707
Total comprehensive
income for the period
Profit for the period
- - - - - - 48,662 48,662
Other comprehensive (loss)/gain,
net of income tax
- - (9,736) (752) - 8,536 - (1,952)
Total comprehensive (loss)/
income for the period
- - (9,736) (752) - 8,536 48,662 46,710
Contributions by and
distributions to owners
Dividends paid 10
- - - - - - (32,610) (32,610)
Share based payments
- (263) - - - - - (263)
Vesting of share based payments
1,170 (1,170) - - - - - -
Share issuance
197,006 - - - - - - 197,006
Transaction costs associated with
share issuance
(3,695) - - - - - - (3,695)
Total transactions with owners 194,481 (1,433) - - - - (32,610) 160,438
Balance as at 31 December 2022
793,666 3,213 (11,371) (1,786) - 16,495 215,638 1,015,855
Unaudited - December 2021
Balance as at 1 July 2021
583,781 2,731 (3,975) (322) 171 918 178,388 761,692
Total comprehensive
income for the period
Profit for the period
- - - - - - 47,516 47,516
Other comprehensive (loss)/gain,
net of income tax
- - (25) (6,356) - 6,739 - 358
Total comprehensive (loss)/
income for the period
- - (25) (6,356) - 6,739 47,516 47,874
Contributions by and
distributions to owners
Dividends paid 10
- - - - - - (41,013) (41,013)
Dividend reinvestment plan 10
8,926 - - - - - - 8,926
Share based payments
- 698 - - - - - 698
Total transactions with owners 8,926 698 - - - - (41,013) (31,389)
Balance as at 31 December 2021
592,707 3,429 (4,000) (6,678) 171 7,657 184,891 778,177
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 7
Consolidated Interim Statement of Changes in Equity (Continued)
For the six months ended 31 December 2022
Share
Capital
Employee
Benefit
Reserve
Foreign
Currency
Translation
Reserve
Fair
Value
Reserve
Defined
Benefit
Reserve
Cash
Flow
Hedge
Reserve
Retained
Earnings
Total
Equity
$000's Note
Audited - June 2022
Balance as at 1 July 2021
583,781 2,731 (3,975) (322) 171 918 178,388 761,692
Total comprehensive
income for the year
Profit for the year
- - - - - - 95,125 95,125
Other comprehensive gain/ (loss),
net of income tax
- - 2,340 (712) (171) 7,041 (473) 8,025
Total comprehensive income/(loss) for
the year
- - 2,340 (712) (171) 7,041 94,652 103,150
Contributions by and
distributions to owners
Dividends paid 10
- - - - - - (73,454) (73,454)
Dividend reinvestment plan 10
15,404 - - - - - - 15,404
Share based payments
- 1,915 - - - - - 1,915
Total transactions with owners 15,404 1,915 - - - - (73,454) (56,135)
Balance as at 30 June 2022
599,185 4,646 (1,635) (1,034) - 7,959 199,586 808,707
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 8
Consolidated Interim Statement of Financial Position
As at 31 December 2022
Unaudited
December 2022
Unaudited
December 2021
Audited
June 2022
$000's
Note
Assets
Cash and cash equivalents 385,277 207,666 310,758
Investments 12 287,258 318,273 289,294
Derivative financial instruments 12 51,374 21,714 45,221
Finance receivables 8 4,234,966 3,526,234 4,146,821
Finance receivables - reverse mortgages 8 2,171,516 1,778,066 1,996,854
Investment properties 12 11,903 11,832 11,832
Operating lease vehicles 15,546 13,009 15,161
Right of use assets 12,775 14,843 14,145
Other assets 23,694 16,444 18,229
Intangible assets 223,061 74,531 218,874
Deferred tax asset 20,504 16,288 23,074
Total assets 7,437,874 5,998,900 7,090,263
Liabilities
Deposits 9 4,070,558 3,332,409 3,592,508
Other borrowings 9 2,258,511 1,822,465 2,578,213
Lease liabilities 14,798 16,980 16,240
Tax liabilities 3,308 5,619 22,044
Derivative financial instruments 12 10,406 3,548 6,341
Trade and other payables 64,438 39,702 66,210
Total liabilities 6,422,019 5,220,723 6,281,556
Equity
Share capital 10 793,666 592,707 599,185
Retained earnings and other reserves 222,189 185,470 209,522
Total equity 1,015,855 778,177 808,707
Total equity and liabilities 7,437,874 5,998,900 7,090,263
Total interest earning and discount bearing assets 6,982,869 5,735,324 6,667,260
Total interest and discount bearing liabilities 6,283,731 5,138,333 6,131,593
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 9
Consolidated Interim Statement of Cash Flows
For the six months ended 31 December 2022
Unaudited
6 Months to
December 2022
Unaudited
6 Months to
December 2021
Audited
12 Months to
June 2022
$000's
Note
Cash flows from operating activities
Interest received 155,508 116,664 222,894
Operating lease income received 2,197 1,807 3,913
Lending, credit fees and other income received 1,516 2,920 6,101
Operating inflows 159,221 121,391 232,908
Interest paid (88,759) (51,000) (100,467)
Payments to suppliers and employees (58,118) (38,641) (69,463)
Taxation paid (38,505) (20,988) (32,987)
Operating outflows (185,382) (110,629) (202,917)
Net cash flows from operating activities before changes in
operating assets and liabilities
(26,161) 10,762 29,991
Proceeds from sale of operating lease vehicles 1,643 3,023 4,481
Purchase of operating lease vehicles (3,245) (6,016) (10,758)
Net movement in finance receivables (182,656) (299,163) (693,512)
Net movement in deposits 472,606 149,107 407,484
Net cash flows from/(applied to) operating activities
1
262,187 (142,287) (262,314)
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets (7,744) (8,578) (9,809)
Decrease in investments 4,919 53,101 75,531
Deposit paid for the conditional acquisition of Challenger Bank
Limited
(3,936) - -
Purchase of equity investment (5,667) - -
Net movement of investment property (71) - -
Purchase of subsidiary, net of cash acquired (3,047) - (159,919)
Total cash (applied to)/from investing activities (15,546) 44,523 (94,197)
Net cash flows (applied to)/from investing activities (15,546) 44,523 (94,197)
Cash flows from financing activities
Net movement in wholesale funding - 111,117 468,139
Net movement from issue of unsubordinated notes - 45,265 77,243
Net issue of share capital 197,006 - -
Total cash provided from financing activities 197,006 156,382 545,382
Net decrease in wholesale funding (205,556) - -
Repayment of unsubordinated notes (125,577) - -
Dividends paid 10 (32,610) (32,087) (58,050)
Payment of lease liabilities (1,692) (1,198) (2,396)
Transaction costs associated with capital raising (3,693) - -
Total cash (applied to) financing activities (369,128) (33,285) (60,446)
Net cash flows (applied to)/from financing activities (172,122) 123,097 484,936
Net increase in cash held 74,519 25,333 128,425
Opening cash and cash equivalents 310,758 182,333 182,333
Closing cash and cash equivalents 385,277 207,666 310,758
1
Cash flows from operating activities do not include cash flows from wholesale funding which are included as part of financing activities.
P. 10
Consolidated Interim Statement of Cash Flows (Continued)
For the six months ended 31 December 2022
Reconciliation of profit after tax to net cash flows from operating activities
Unaudited
6 Months to
December 2022
Unaudited
6 Months to
December 2021
Audited
12 Months to
June 2022
$000's
Note
Profit for the period 48,662 47,516 95,125
Add/(less) non-cash items:
Depreciation and amortisation expense 5,177 5,624 10,691
Depreciation on lease vehicles 1,692 1,429 3,104
Capitalised net interest income and fee income (81,311) (53,178) (95,271)
Impaired asset expense 6 9,240 8,535 13,823
Investment fair value unrealised movement 2,449 93 12,998
Other non-cash items 1,325 (6,662) (30,408)
Total non-cash items (61,428) (44,159) (85,063)
Add/(less) movements in operating assets and liabilities:
Finance receivables (182,656) (299,163) (693,512)
Operating lease vehicles (1,602) (2,993) (6,277)
Other assets (3,440) (191) (207)
Current tax (18,736) (1,821) 14,604
Derivative financial instruments 5,696 (2,090) (23,214)
Deferred tax 2,570 (2,171) (8,957)
Deposits 472,606 149,107 407,484
Other liabilities 515 13,678 37,703
Total movements in operating assets and liabilities 274,953 (145,644) (272,376)
Net cash flows from/(applied to) operating activities
1
262,187 (142,287) (262,314)
1
Cash flows from operating activities do not include cash flows from wholesale funding which are included as part of financing activities.
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 11
Notes to the Interim Financial Statements
For the six months ended 31 December 2022
1 Interim financial statements preparation
Basis of preparation
The interim financial statements presented are the consolidated interim financial statements comprising Heartland Group
Holdings Limited (HGH) and its subsidiaries (the Group). They have been prepared in accordance with Generally Accepted
Accounting Practice in New Zealand (NZ GAAP) as defined in the Financial Reporting Act 2013. These consolidated interim
financial statements comply with NZ IAS 34 Interim Financial Reporting as appropriate for publicly accountable for-profit entities
and IAS 34 Interim Financial Reporting.
The consolidated interim financial statements do not include all notes of the type normally included in an annual financial report.
Accordingly this report is to be read in conjunction with the consolidated financial statements for the year ended 30 June 2022.
The consolidated interim financial statements presented here are for the following periods:
6 month period ended 31 December 2022 Unaudited
6 month period ended 31 December 2021 Unaudited
12 month period ended 30 June 2022 Audited
The consolidated interim financial statements have been prepared on a going concern and historical cost basis, unless stated
otherwise. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim
reporting period.
Certain comparative balances have been reclassified to align with the presentation used in the current period. These
reclassifications have no impact on the overall financial performance or net assets for the comparative year/period.
Estimates and judgements
There have been no material changes to the use of estimates and judgements for the preparation of the interim financial
statements since the reporting date of the previous financial statements. The financial statements for the year ended 30
June 2022 contain detail on the estimates and judgements used.
In respect of the provision for expected credit loss on finance receivables, the Group has previously created an economic overlay
of $8.0 million as at 30 June 2022 to address economic uncertainty. The economic overlay of $8.0 million remains appropriate at
31 December 2022.
Significant events and transactions
On 20 October 2022 Heartland Group Holdings Limited entered into a conditional share purchase agreement for the purchase of
Challenger Bank Limited (Challenger Bank) from Challenger Limited for a consideration of approximately AU $36 million, subject
to adjustments for net assets delivered at completion. The share purchase agreement is subject to obtaining the requisite
regulatory approvals. A 10% deposit was paid to Challenger Limited on execution of the conditional share purchase agreement.
During the period Heartland Group Holdings Limited settled deferred consideration and payments relating to adjustments for net
assets delivered at completion in relation to the acquisition of StockCo Holdings 2 Pty Ltd (StockCo Australia) which amounted to
AU $2.85 million. A revised provisional goodwill of AU $126.94 million (NZ $136.08 million) was recognised (2022: AU $124.91
million (NZ $137.58 million)).
P. 12
Performance
2 Segmental analysis
Segment information is presented in respect of the Group's operating segments consistent with those used for the Group's
management and internal reporting structure.
Operating segments
The Group operates within New Zealand and Australia and comprises the following main operating segments:
Motor Motor vehicle finance.
Reverse mortgages Reverse mortgage lending in New Zealand.
Personal lending Transactional, home loans and personal loans to individuals.
Business Term debt, plant and equipment finance, commercial mortgage lending and working capital solutions for
small-to-medium sized businesses.
Rural 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 in New Zealand.
StockCo Australia Specialise in livestock finance within Australia. This segment was acquired through the acquisition of
StockCo Holdings 2 Pty Ltd and StockCo Australia Management Pty Ltd on 31 May 2022.
Australia Reverse mortgage lending and other financial services within Australia, excluding StockCo Australia.
Certain operating expenses, such as premises, IT, support centre costs and tax expense 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 Group's operating segments are different from the industry categories detailed in Note 14 Credit risk exposure. The operating
segments are primarily categorised by sales channel, whereas Note 14 Credit risk exposure categorises exposures are based on
credit risk concentrations.
P. 13
2 Segmental analysis (continued)
Reverse Personal StockCo
$000's
Motor Mortgages Lending Business Rural Australia Australia Other Total
Unaudited - December
2022
Net interest income 30,936 19,058 5,284 35,843 16,612 13,413 20,526 (2,769) 138,903
Net other
income/(expense)
1,734 1,444 594 1,542 336 2 2,594 (2,981) 5,265
Net operating
income/(expense)
32,670 20,502 5,878 37,385 16,948 13,415 23,120 (5,750) 144,168
Operating expenses 2,055 2,585 3,344 4,867 1,628 4,566 6,473 37,932 63,450
Profit/(loss) before
impaired asset expense
and income tax
30,615 17,917 2,534 32,518 15,320 8,849 16,647 (43,682) 80,718
Fair value (loss) on
investments
- - - - - - - (2,449) (2,449)
Impaired asset expense 3,341 - 1,580 4,092 162 39 26 - 9,240
Profit/(loss) before
income tax
27,274 17,917 954 28,426 15,158 8,810 16,621 (46,131) 69,029
Income tax
(benefit)/expense
- - - - - (11) - 20,378 20,367
Profit/(loss) for the
period
27,274 17,917 954 28,426 15,158 8,821 16,621 (66,509) 48,662
Total assets 1,457,970 808,701 361,870 1,386,602 674,009 374,484 1,370,816 1,003,422 7,437,874
Total liabilities 6,422,019
P. 14
2 Segmental analysis (continued)
Reverse Personal StockCo
$000's
Motor Mortgages Lending Business Rural Australia Australia Other
Total
Unaudited - December
2021
Net interest income 34,687 14,000 4,529 35,888 15,138 - 19,881 (220) 123,903
Net other income 1,703 1,289 726 1,408 365 - 1,143 269 6,903
Net operating income 36,390 15,289 5,255 37,296 15,503 - 21,024 49 130,806
Operating expenses 1,975 2,354 3,268 4,756 1,531 5,507 37,901 57,292
Profit/(loss) before
impaired asset expense
and income tax
34,415 12,935 1,987 32,540 13,972 - 15,517 (37,852) 73,514
Fair value (loss) on
investments
- - - - - - - (93) (93)
Impaired asset
expense/(benefit)
2,518 - 902 4,210 909 - (5) 1 8,535
Profit/(loss) before
income tax
31,897 12,935 1,085 28,330 13,063 - 15,522 (37,946) 64,886
Income tax expense - - - - - - - 17,370 17,370
Profit/(loss) for the
period
31,897 12,935 1,085 28,330 13,063 - 15,522 (55,316) 47,516
Total assets 1,344,866 648,865 272,803 1,294,601 583,026 - 1,185,598 669,141 5,998,900
Total liabilities 5,220,723
Audited - June 2022
Net interest income 69,730 29,957 10,287 70,602 29,460 1,889 38,662 (445) 250,142
Net other income 3,326 2,583 1,562 2,679 741 3 2,690 16,889 30,473
Net operating income 73,056 32,540 11,849 73,281 30,201 1,892 41,352 16,444 280,615
Operating expenses 3,792 4,485 6,419 9,358 3,038 1,692 11,286 76,683 116,753
Profit/(loss) before
impaired asset expense
and income tax
69,264 28,055 5,430 63,923 27,163 200 30,066 (60,239) 163,862
Fair value (loss) on
investments
- - - - - - - (12,998) (12,998)
Impaired asset
expense/(benefit)
1,481 - (877) 11,831 2,256 (291) (577) - 13,823
Profit/(loss) before
income tax
67,783 28,055 6,307 52,092 24,907 491 30,643 (73,237) 137,041
Income tax expense - - - - - - - 41,916 41,916
Profit/(loss) for the
period
67,783 28,055 6,307 52,092 24,907 491 30,643 (115,153) 95,125
Total assets 1,382,367 721,264 332,783 1,387,352 687,232 372,172 1,288,494 918,599 7,090,263
Total liabilities 6,281,556
P. 15
3 Net interest income
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's
December 2022 December 2021 June 2022
Interest income
Cash and cash equivalents
3,525 149 811
Investments
2,399 2,782 5,156
Finance receivables
156,707 113,863 236,916
Finance receivables - reverse mortgages
78,085 46,792 99,218
Total interest income 240,716 163,586 342,101
Interest expense
Deposits
58,667 18,708 45,717
Other borrowings
50,374 20,524 46,110
Net interest (income)/expense on derivative financial instruments
(7,228) 451 132
Total interest expense 101,813 39,683 91,959
Net interest income 138,903 123,903 250,142
4 Operating expenses
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's December 2022 December 2021 June 2022
Personnel expenses
33,682 30,884 61,152
Directors' fees
574 563 1,149
Superannuation
952 768 1,530
Depreciation - property, plant and equipment
948 1,388 2,459
Legal and professional fees
1,876 903 3,112
Advertising and public relations
1,785 2,185 4,510
Depreciation - right of use asset
1,278 1,154 2,310
Technology services
4,940 4,785 9,374
Telecommunications, stationery and postage
1,011 842 1,723
Customer acquisition costs
3,693 2,888 5,974
Amortisation of intangible assets
2,951 3,082 5,922
Other operating expenses
1
9,760 7,850 17,538
Total operating expenses 63,450 57,292 116,753
1
Other operating expenses include compensation of auditor which is disclosed in Note 5 - Compensation of auditor.
5 Compensation of auditor
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's
December 2022 December 2021 June 2022
Fees paid to current auditor - PricewaterhouseCoopers
Audit and review of financial statements
1
275 - -
Other non-assurance services paid to auditor
2
111 - -
Total compensation paid to PricewaterhouseCoopers 386 - -
1
These relates to fees paid for both the audit of the annual financial statements and review of the interim financial statements.
2
Other non-assurance services paid to PricewaterhouseCoopers relates to actuarial services for reverse mortgages for the Group and tax
compliance services for a subsidiary of the Group.
P. 16
5 Compensation of auditor (continued)
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's
December 2022 December 2021 June 2022
Fees paid to predecessor auditor - KPMG
Audit and review of financial statements
1
40 386 879
Other assurance services paid to auditor
2
- 51 103
Total compensation paid to KPMG 40 437 982
1
These relates to fees paid for both the audit of the annual financial statements and review of the interim financial statements for the
comparative periods.
2
Other assurance related services paid to KPMG comprise regulatory assurance services, trust deed reporting and registry audits.
6 Impaired asset expense
At each reporting date, the Group applies a three stage approach to measuring expected credit loss to finance receivables carried
at amortised cost. The following table details impairment charges of those finance receivables for the six months ended 31
December 2022.
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's December 2022 December 2021 June 2022
Non-securitised
Individually impaired asset expense
5,292 6,266 10,783
Collectively impaired asset expense
5,421 3,300 6,466
Total non-securitised impaired asset expense 10,713 9,566 17,249
Securitised
Individually impaired asset expense
155 - -
Collectively impaired asset expense
(311) 392 (70)
Total securitised impaired asset expense (156) 392 (70)
Total
Individually impaired asset expense
5,447 6,266 10,783
Collectively impaired asset expense
5,110 3,692 6,396
Total impaired asset expense excluding recovery amounts previously
written off to the income statement 10,557 9,958 17,179
Recovery of amounts previously written off to the income statement
(1,317) (1,423) (3,356)
Total impaired asset expense
9,240 8,535 13,823
7 Earnings per share
Earnings
Per Share
Net Profit
After Tax
Weighted
Average No.
of Shares
Cents $000's 000's
Unaudited - December 2022
Basic earnings
7.30 48,662 666,186
Diluted earnings
7.30 48,662 666,186
Unaudited - December 2021
Basic earnings
8.08 47,516 588,190
Diluted earnings
8.08 47,516 588,190
Audited - June 2022
Basic earnings
16.13 95,125 589,771
Diluted earnings
16.13 95,125 589,771
P. 17
Financial Position
8 Finance receivables
(a) Finance receivables held at amortised cost
Unaudited Unaudited Audited
$000's
December 2022 December 2021 June 2022
Non-securitised
Neither at least 90 days past due nor impaired
3,570,689 3,203,046 3,404,451
At least 90 days past due
59,274 38,593 41,768
Individually impaired
69,000 63,965 66,183
Gross finance receivables 3,698,963 3,305,604 3,512,402
Less provision for impairment
(52,440)
(52,651)
(50,629)
Total non-securitised finance receivables 3,646,523 3,252,953 3,461,773
Securitised
Neither at least 90 days past due nor impaired
589,320 273,650 686,236
At least 90 days past due
- 263 -
Individually impaired
343 - 188
Gross finance receivables 589,663 273,913 686,424
Less provision for impairment
(1,220) (632) (1,376)
Total securitised finance receivables 588,443 273,281 685,048
Total
Neither at least 90 days past due nor impaired
4,160,009 3,476,696 4,090,687
At least 90 days past due
59,274 38,856 41,768
Individually impaired
69,343 63,965 66,371
Gross finance receivables 4,288,626 3,579,517 4,198,826
Less provision for impairment
(53,660) (53,283) (52,005)
Total finance receivables 4,234,966 3,526,234 4,146,821
P. 18
8 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision for impairment losses
The following table details the movement from the opening balance to the closing balance of the provision for impairment losses
by class.
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Unaudited - December 2022
Non-securitised
Impairment allowance as at 30 June 2022 19,068 1,959 14,601 15,001 50,629
Changes in loss allowance
Transfer between stages (3,946) (1,976) 1,964 3,958 -
New and increased provision (net of provision releases)
2,828 2,314 4,237 1,334 10,713
Credit impairment charge (1,118) 338 6,201 5,292 10,713
Write-offs - - (6,782) (2,071) (8,853)
Effect of changes in foreign exchange rate (33) - (16) - (49)
Impairment allowance as at 31 December 2022 17,917 2,297 14,004 18,222 52,440
Securitised
Impairment allowance as at 30 June 2022 1,188 (1) 1 188 1,376
Changes in loss allowance
Transfer between stages (156) 1 - 155 -
New and increased provision (net of provision releases)
(169) 13 - - (156)
Credit impairment charge (325) 14 - 155 (156)
Write-offs - - - - -
Effect of changes in foreign exchange rate - - - - -
Impairment allowance as at 31 December 2022 863 13 1 343 1,220
Total
Impairment allowance as at 30 June 2022 20,256 1,958 14,602 15,189 52,005
Changes in loss allowance
Transfer between stages (4,102) (1,975) 1,964 4,113 -
New and increased provision (net of provision releases)
2,659 2,327 4,237 1,334 10,557
Credit impairment charge (1,443) 352 6,201 5,447 10,557
Write-offs - - (6,782) (2,071) (8,853)
Effect of changes in foreign exchange rate (33) - (16) - (49)
Impairment allowance as at 31 December 2022 18,780 2,310 14,005 18,565 53,660
P. 19
8 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision for impairment losses (continued)
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Unaudited - December 2021
Non-securitised
Impairment allowance as at 30 June 2021 26,591 2,405 16,823 7,629 53,448
Changes in loss allowance
Transfer between stages (2,323) (1,102) 714 2,711 -
New and increased provision (net of provision releases) (1,149) 391 6,769 3,555 9,566
Credit impairment charge (3,472) (711) 7,483 6,266 9,566
Write-offs - - (9,109) (1,219) (10,328)
Effect of changes in foreign exchange rate (35) - - - (35)
Impairment allowance as at 31 December 2021 23,084 1,694 15,197 12,676 52,651
Securitised
Impairment allowance as at 30 June 2021 216 22 1 - 239
Changes in loss allowance
Transfer between stages (2) (27) 29 - -
New and increased provision (net of provision releases) 231 77 84
-
392
Credit impairment charge 229 50 113 - 392
Write-offs - - - - -
Effect of changes in foreign exchange rate - 1 - - 1
Impairment allowance as at 31 December 2021 445 73 114 - 632
Total
Impairment allowance as at 30 June 2021 26,807 2,427 16,824 7,629 53,687
Changes in loss allowance
Transfer between stages (2,325) (1,129) 743 2,711 -
New and increased provision (net of provision releases) (918) 468 6,853 3,555 9,958
Credit impairment charge (3,243) (661) 7,596 6,266 9,958
Write-offs - - (9,109) (1,219) (10,328)
Effect of changes in foreign exchange rate (35) 1 - - (34)
Impairment allowance as at 31 December 2021 23,529 1,767 15,311 12,676 53,283
P. 20
8 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision for impairment losses (continued)
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Audited - 30 June 2022
Non-securitised
Impairment allowance as at 30 June 2021 26,591 2,405 16,823 7,629 53,448
Changes in loss allowance
Transfer between stages (3,903) (2,447) 1,074 5,276 -
New and increased provision (net of provision releases) (3,652) 1,998 13,396 5,507 17,249
Credit impairment charge (7,555) (449) 14,470 10,783 17,249
Write-offs - - (16,692) (3,411) (20,103)
Effect of changes in foreign exchange rate 32 3 - - 35
Acquisition of portfolio - - - - -
Impairment allowance as at 30 June 2022 19,068 1,959 14,601 15,001 50,629
Securitised
Impairment allowance as at 30 June 2021 216 22 1 - 239
Changes in loss allowance
Transfer between stages (6) (109) 115 - -
New and increased provision (net of provision releases) (14) 85 (141) - (70)
Credit impairment charge (20) (24) (26) - (70)
Write-offs - - 26 - 26
Effect of changes in foreign exchange rate - 1 - - 1
Acquisition of portfolio 992 - - 188 1,180
Impairment allowance as at 30 June 2022 1,188 (1) 1 188 1,376
Total
Impairment allowance as at 30 June 2021 26,807 2,427 16,824 7,629 53,687
Changes in loss allowance
Transfer between stages (3,909) (2,556) 1,189 5,276 -
New and increased provision (net of provision releases) (3,666) 2,083 13,255 5,507 17,179
Credit impairment charge (7,575) (473) 14,444 10,783 17,179
Write-offs - - (16,666) (3,411) (20,077)
Effect of changes in foreign exchange rate 32 4 - - 36
Acquisition of portfolio 992 - - 188 1,180
Impairment allowance as at 30 June 2022 20,256 1,958 14,602 15,189 52,005
P. 21
8 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Impact of changes in gross finance receivables held at amortised cost on allowance for ECL
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Unaudited - December 2022
Gross finance receivables as at 30 June 2022 3,967,917 118,424 46,114 66,371 4,198,826
Transfer between stages (106,785) 63,057 34,341 9,387 -
Additions 718,239 - - 7,928 726,167
Deletions (556,132) (47,720) (11,235) (12,427) (627,514)
Write-offs - - (6,782) (2,071) (8,853)
Gross finance receivables as at 31 December 2022 4,023,239 133,761 62,438 69,188 4,288,626
Unaudited - December 2021
Gross finance receivables as at 30 June 2021 3,092,653 165,793 45,564 38,143 3,342,153
Transfer between stages (48,097) (11,584) 20,313 39,368 -
Additions 897,124 - - 906 898,030
Deletions (594,443) (34,662) (8,000) (13,233) (650,338)
Write-offs - - (9,109) (1,219) (10,328)
Gross finance receivables as at 31 December 2021 3,347,237 119,547 48,768 63,965 3,579,517
Audited - June 2022
Gross finance receivables as at 30 June 2021 3,092,653 165,793 45,564 38,143 3,342,153
Transfer between stages (112,179) 25,532 31,253 55,394 -
Additions 2,433,553 - - 3,190 2,436,743
Deletions (1,446,110) (72,901) (14,037) (26,945) (1,559,993)
Write-offs - - (16,666) (3,411) (20,077)
Gross finance receivables as at 30 June 2022 3,967,917 118,424 46,114 66,371 4,198,826
(b) Finance receivables held at fair value
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Finance receivables - reverse mortgages 2,171,516 1,778,066 1,996,854
Total finance receivables - reverse mortgages 2,171,516 1,778,066 1,996,854
9 Borrowings
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Deposits 4,070,558 3,332,409 3,592,508
Total deposits 4,070,558 3,332,409 3,592,508
Unsubordinated notes 510,169 560,307 636,407
Securitised borrowings 1,541,163 1,152,521 1,559,108
Certificate of deposit 207,179 109,637 198,715
Bank borrowings - - 173,982
Money market borrowings - - 10,001
Total other borrowings 2,258,511 1,822,465 2,578,213
P. 22
9 Borrowings (continued)
Deposits and unsubordinated notes rank equally and are unsecured.
Unsubordinated notes
The Group has the following unsubordinated notes on issue at 31 December 2022. Australian (AU) borrowings are stated in
AU dollars.
Principal
Valuation
Issue Date
Maturity Date
Frequency of
Interest
Repayment
AU $75 million
AU $45 million
NZ $125 million
AU $45 million
AU $30 million
AU $115 million
AU $50 million
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
21 January 2021
8 March 2021
12 April 2019
9 July 2021
16 August 2022
12 May 2022
5 October 2022
21 April 2023
21 April 2023
12 April 2024
9 July 2024
9 July 2024
13 May 2025
5 October 2027
Quarterly
Quarterly
Semi-annually
Quarterly
Quarterly
Quarterly
Quarterly
Securitised borrowings
At 31 December 2022 the Group had the following securitised borrowings outstanding:
Heartland Auto Receivables Warehouse Trust 2018 - 1 securitisation facility $400 million, drawn $191 million (December
2021: $400 million, drawn $235 million; June 2022: $400 million, drawn $268 million). Securitised borrowings held by
investors are secured over the assets of the Heartland Auto Receivables Warehouse Trust 2018-1 (predominantly motor
loans). The facility has a maturity date of 26 August 2024.
Seniors Warehouse Trust securitisation facility AU $600 million, drawn AU $563 million (December 2021: AU $600 million,
drawn AU $552 million; June 2022: AU $600 million, drawn AU $585 million). Notes issued to investors are secured over the
assets of Seniors Warehouse Trust (predominantly reverse mortgage loans). The facility has a maturity date of 30 September
2025.
Seniors Warehouse Trust No.2 securitisation facility AU $400 million, drawn AU $313 million (December 2021: AU $250
million, drawn AU $180 million; June 2022: AU $350 million, drawn AU $210 million). Notes issued to investors are secured
over the assets of Seniors Warehouse Trust No.2 (predominantly reverse mortgage loans). The facility has a maturity date of
1 July 2024.
Atlas 2020-1 Trust securitisation facility AU $127 million, drawn AU $127 million (December 2021: AU $136 million, drawn AU
$136 million; June 2022: AU $127 million, drawn AU $127 million). Loans issued to investors are secured over the assets of
Atlas 2020-1 Trust (predominantly reverse mortgage loans) and has a maturity date of 24 September 2050.
StockCo Securitisation Trust 2022-1 securitisation facility AU $300 million, drawn AU $253 million (December 2021: n/a; June
2022: AU $300 million, drawn AU $249 million). Loans issued to investors are secured over the assets of StockCo
Securitisation Trust 2022-1 (predominantly livestock loans). The facility has a maturity date of 27 May 2024.
P. 23
10 Share capital and dividends
Unaudited Unaudited Audited
December 2022 December 2021 June 2022
000's Number of Shares Number of Shares Number of Shares
Issued shares
Opening balance 592,904 585,904 585,904
Net shares issued during the period 112,417 - -
Dividend reinvestment plan - 3,930 7,000
Closing balance 705,321 589,834 592,904
HGH completed a capital raise during the six months to 31 December 2022, which comprised a share placement (Placement) and
a Share Purchase Plan (SPP). HGH issued 72,222,222 shares on 26 August 2022 under the Placement and 38,822,458 new shares
on 9 September 2022 under the SPP.
On 19 September 2022, HGH issued a further 2,250,625 shares under the Long Term Incentive Scheme of HGH (LTI Scheme), of
which 877,777 shares were acquired by HGH pursuant to a buyback offer to the participants to fund the tax liability arising for
those participants upon receipt of shares under the LTI Scheme.
The dividend reinvestment plan (DRP) was suspended during the period of the capital raise, consequently no new shares were
issued in relation to the DRP (2022: 3,930,116 new shares on 15 September 2021 and 3,069,339 new shares on 16 March 2022).
Dividends paid
6 Months to December 2022 12 Months to June 2022
Date Cents Date Cents
Declared Per Share $000's Declared Per Share $000's
Final dividend 26 August 2022 5.5 32,610 24 August 2021 7.0 41,013
Interim dividend - - - 22 February 2022 5.5 32,441
Total dividends paid 32,610 73,454
11 Related party transactions and balances
(a) Transactions with key management personnel
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 such as interest rates and collateral along with the risks to the Group are comparable to transactions with other
employees and customers, and did not involve more than the normal risk of repayment or present other unfavourable features.
All other transactions with KMPs and their related entities are made on terms equivalent to those that prevail in arm's length
transactions.
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's December 2022 December 2021 June 2022
Transactions with key management personnel
Interest income 11 15 26
Interest expense (15) (24) (24)
Net transactions with key management personnel (4) (9) 2
Due from/(to) key management personnel
Lending 831 296 229
Deposits (1,325) (1,425) (508)
Net due (to) key management personnel (494) (1,129) (279)
P. 24
11 Related party transactions and balances (continued)
(b) Transactions with related parties
HGH is the ultimate parent company of the Group.
Entities within the Group have regular transactions with each other on agreed terms. The transactions include the provision of tax
and administrative services and customer operations. Banking facilities are provided by HBL to other Group entities on normal
commercial terms as with other customers. There is no lending from subsidiaries within the Group to HGH.
Related party transactions between the Group eliminate on consolidation. Related party transactions outside of the Group are as
follows:
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's December 2022 December 2021 June 2022
Southern Cross Building Society Staff Superannuation (SCBS)
Interest expense payable to SCBS
1 4 6
Management fees receivable from SCBS
- 5 10
Cash received from SCBS
- - 350
ASF Custodians Pty Limited
Audit fees
4 4 7
Heartland Trust (HT)
Dividend paid to HT 356 453 809
(c) Other balances with related parties
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Southern Cross Building Society Staff Superannuation
Deposits owing to SCBS 1 1,704 35
P. 25
12 Fair value
(a) Financial instruments measured at fair value
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 interim statement of financial position.
The Group has an established framework in performing valuations required for financial reporting purposes including Level 3 fair
values. The Group regularly reviews and calibrates significant unobservable inputs and valuation adjustments in accordance with
ence
obtained from these specialists to support the conclusion of these valuations. All significant valuations are reported to the
Group's Board Audit and Risk Committee for approval prior to its adoption in the financial statements.
Investments in debt securities
Investments in public sector securities and corporate bonds are classified as fair value through other comprehensive income
(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).
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.
Investments in equity securities
Investments in equity securities are classified as fair value through profit or loss (FVTPL) unless an irrevocable election is made by
the Group to measure at FVOCI. Investment in equity securities traded in liquid, active markets where prices are readily
observable are measured under Level 1 of the fair value hierarchy with no modelling or assumptions used in the valuation.
Investments in unlisted equity securities are measured under Level 3 of the fair value hierarchy with the fair value being based on
unobservable inputs using market accepted valuation techniques. Where appropriate, the Group may apply adjustments to the
above mentioned techniques to determine fair value of an equity security to reflect the underlying characteristics. These
adjustments are reflective of market participant considerations in valuing the said security.
Investment properties
Investment properties are initially recorded at their fair value, with subsequent changes in fair value recognised in profit or loss.
Fair value is determined by qualified independent valuers or other similar external evidence, adjusted for changes in market
conditions.
Investment properties are typically acquired through the enforcement of security over finance receivables and are held to earn
rental income or for capital appreciation (or both).
P. 26
12 Fair value (continued)
(a) Financial instruments measured at fair value
Finance receivables - reverse mortgages
Reverse mortgage loans are classified as FVTPL. On initial recognition the Group considers the transaction price to represent the
fair value of the loan.
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.
When the Group enters into reverse mortgage loans the Group has se
profile and expectation of performance. This expectation references a wide range of assumptions including:
Mortality and potential move into care;
Voluntary exits;
House price changes;
No negative equity guarantee; and
Interest rate margin.
At 31 December 2022, 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. Fair value is not highly sensitive to the above
assumptions in the longer term due to the nature of the reverse mortgage loans. In particular, given conservative origination loan-
to-value ratio criteria, a material deterioration in house prices combined with a material increase in interest rates over a sustained
period of time would likely need to occur before any potential impact to fair value.
The Group continues to assess the existence of a relevant active market and movements in expectations on an on-going basis.
Derivative financial instruments
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 (Level 1 under the fair value hierarchy), discounted cash flow
models or option pricing models as appropriate (Level 2 under the fair value hierarchy).
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 interim statement of financial position.
P. 27
12 Fair value (continued)
(a) Financial instruments measured at fair value (continued)
$000's Level 1 Level 2 Level 3 Total
Unaudited - December 2022
Assets
Investments 269,293 5,602 12,363 287,258
Investment properties - - 11,903 11,903
Derivative financial instruments - 51,374 - 51,374
Finance receivables - reverse mortgages - - 2,171,516 2,171,516
Total financial assets measured at fair value 269,293 56,976 2,195,782 2,522,051
Liabilities
Derivative financial instruments - 10,406 - 10,406
Total financial liabilities measured at fair value - 10,406 - 10,406
Unaudited - December 2021
Assets
Investments 229,453 61,745 22,459 313,657
Investment properties - - 11,832 11,832
Derivative financial instruments - 21,714 - 21,714
Finance receivables - reverse mortgages - - 1,778,066 1,778,066
Total financial assets measured at fair value 229,453 83,459 1,812,357 2,125,269
Liabilities
Derivative financial instruments - 3,548 - 3,548
Total financial liabilities measured at fair value - 3,548 - 3,548
Audited - June 2022
Assets
Investments 279,841 - 7,032 286,873
Investment properties - - 11,832 11,832
Derivative financial instruments - 45,221 - 45,221
Finance receivables - reverse mortgages - - 1,996,854 1,996,854
Total financial assets measured at fair value 279,841 45,221 2,015,718 2,340,780
Liabilities
Derivative financial instruments - 6,341 - 6,341
Total financial liabilities measured at fair value - 6,341 - 6,341
There were no executed trades on Harmoney Corp Limited (ASX:HMY) on the last business day of the financial period. In the
absence of a traded closing price a mid-point of the bid-
Equity investment in HMY amounting to $5.6 million was transferred out from Level 1 into Level 2 during the six months ended 31
December 2022. There were no other transfers between levels in the fair value hierarchy for the period (December 2021: nil; June
2022: $8.1 million of equity investments transferred out of Level 3 to Level 1).
P. 28
12 Fair value (continued)
(a) Financial instruments measured at fair value (continued)
The movement in Level 3 assets measured at fair value are below:
Finance Receivables Investment
$000's
- Reverse Mortgages Investments Properties Total
Unaudited - December 2022
As at 30 June 2022
1,996,854 7,032 11,832 2,015,718
New loans
285,356 - - 285,356
Repayments
(154,651) - - (154,651)
Capitalised Interest and fees
81,311 - - 81,311
Purchase of investments
- 5,494 - 5,494
Other
1
(37,354) (163) 71 (37,446)
As at 31 December 2022 2,171,516 12,363 11,903 2,195,782
Unaudited - December 2021
As at 30 June 2021
1,676,073 20,667 11,832 1,708,572
New loans
190,734 - - 190,734
Repayments
(127,057) - - (127,057)
Capitalised Interest and fees
49,718 - - 49,718
Purchase of investments
- 1,885 - 1,885
Fair value (loss) on investment
- (93) - (93)
Other
1
(11,402) - - (11,402)
As at 31 December 2021 1,778,066 22,459 11,832 1,812,357
Audited - June 2022
As at 30 June 2021
1,676,073 20,667 11,832 1,708,572
New loans
439,110 - - 439,110
Repayments
(257,319) - - (257,319)
Capitalised Interest and fees
106,966 - - 106,966
Purchase of investments
- 7,414 - 7,414
Fair value (loss) on investment
- (12,998) - (12,998)
Other
1
32,024 - - 32,024
Transfer out of Level 3
- (8,051) - (8,051)
As at 30 June 2022 1,996,854 7,032 11,832 2,015,718
1
This relates to foreign currency translation differences for the assets.
P. 29
12 Fair value (continued)
(b) Financial instruments not measured at fair value
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.
Unaudited Unaudited Audited
December 2022 December 2021 June 2022
Total Total Total
Fair Value Total Fair Carrying Total Fair Carrying Total Fair Carrying
$000's Hierarchy Value Value Value Value Value Value
Assets
Cash and cash equivalents Level 1 385,277 385,277 207,666 207,666 310,758 310,758
Investments
1
Level 2 - - 4,615 4,616 2,418 2,421
Finance receivables Level 3 4,166,431 4,234,966 3,563,778 3,526,234 4,073,977 4,146,821
Other financial assets Level 3 2,261 2,261 2,322 2,322 273 273
Total financial assets 4,553,969 4,622,504 3,778,381 3,740,838 4,387,426 4,460,273
Liabilities
Deposits Level 2 4,068,973 4,070,558 3,334,667 3,332,409 3,590,918 3,592,508
Other borrowings Level 2 2,258,511 2,258,511 1,822,465 1,822,465 2,578,213 2,578,213
Other financial liabilities
2
Level 3 53,016 53,016 30,690 30,690 55,538 55,538
Total financial liabilities 6,380,500 6,382,085 5,187,822 5,185,564 6,224,669 6,226,259
1
Included within Investments at 31 December 2021 and 30 June 2022 are bank deposits which are held to support the Group's contractual cash
flows. Such Investments are measured at amortised cost. There were no bank deposits within Investments at 31 December 2022.
2
Included within Other financial liabilities are $36.76 million of cash collateral received (December 2021: $16.32 million; June 2022: $32.34
million) against derivative assets as per credit support annexes (CSAs) agreements.
P. 30
Risk Management
13 Enterprise risk management program
since the reporting date of the previous statement.
14 Credit risk exposure
(a) Maximum exposure to credit risk at the relevant reporting dates
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 interim statement of financial position.
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
On balance sheet:
Cash and cash equivalents 385,277 207,666 310,758
Investments 269,293 295,814 274,212
Finance receivables 4,234,966 3,526,234 4,146,821
Finance receivables - reverse mortgages 2,171,516 1,778,066 1,996,854
Derivative financial assets 51,374 21,714 45,221
Other financial assets 2,261 2,322 273
Total on balance sheet credit exposures 7,114,687 5,831,816 6,774,139
Off balance sheet:
Letters of credit, guarantee commitments and performance bonds 5,931 7,217 8,969
Undrawn facilities available to customers 457,195 365,623 416,561
Conditional commitments to fund at future dates 25,007 21,646 34,791
Total off balance sheet credit exposures 488,133 394,486 460,321
Total credit exposures 7,602,820 6,226,302 7,234,460
As at 31 December 2022 there were no undrawn lending commitments available to counterparties for whom drawn balances are
classified as individually impaired (December 2021: nil, June 2022: $0.003 million).
(b) Concentration of credit risk by geographic region
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
New Zealand 5,470,334 4,749,474 5,264,609
Australia 1,977,798 1,299,626 1,809,104
Rest of the world
1
208,348 230,485 212,752
7,656,480 6,279,585 7,286,465
Provision for impairment (53,660) (53,283) (52,005)
Total credit exposures 7,602,820 6,226,302 7,234,460
1
These overseas assets are primarily NZD-denominated investments in AA+ (Standard & Poor's) and higher rated securities issued by offshore
supranational agencies e.g. Kauri Bonds.
P. 31
14 Credit risk exposure (continued)
(c) Concentration of credit risk by industry sector
The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for categorising
customer and investee industry sectors.
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Agriculture 1,130,473 667,835 1,120,678
Forestry and fishing 143,883 149,561 148,797
Mining 10,200 14,217 12,524
Manufacturing 80,501 85,737 78,432
Finance and insurance 875,385 701,269 784,948
Wholesale trade 42,665 35,543 41,986
Retail trade and accommodation 415,300 338,163 423,975
Households 3,786,246 3,233,026 3,555,566
Other business services 202,182 172,647 189,860
Construction 320,431 304,593 291,971
Rental, hiring and real estate services 211,581 180,689 199,388
Transport and storage 339,182 311,068 323,732
Other 98,451 85,237 114,608
7,656,480 6,279,585 7,286,465
Provision for impairment (53,660) (53,283) (52,005)
Total credit exposures 7,602,820 6,226,302 7,234,460
15 Liquidity risk
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 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 holds the following liquid assets and committed funding sources for the purpose of managing liquidity risk:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Cash and cash equivalents 385,277 207,666 310,758
Investments 269,293 295,814 274,212
Undrawn committed bank facilities 380,319 290,774 360,859
Total liquid assets and committed undrawn funding 1,034,889 794,254 945,829
Contractual liquidity profile of financial liabilities
The following tables present the 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 interim 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 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.
P. 32
15 Liquidity risk (continued)
Contractual liquidity profile of financial liabilities (continued)
On 0-6 6-12 1-2 2-5 5+
$000's Demand Months Months Years Years Years Total
Unaudited - December 2022
Non-derivative financial liabilities
Deposits 800,321 2,369,117 837,546 86,351 35,931 - 4,129,266
Other borrowings - 374,628 34,242 1,046,738 911,570 150,405 2,517,583
Lease liabilities - 1,550 1,357 2,669 6,862 3,827 16,265
Other financial liabilities - 53,016 - - - - 53,016
Total non-derivative financial liabilities 800,321 2,798,311 873,145 1,135,758 954,363 154,232 6,716,130
Derivative financial liabilities
Inflows from derivatives - 2,121 2,268 3,221 1,965 - 9,575
Outflows from derivatives - 3,751 4,687 5,509 2,577 - 16,524
Total derivative financial liabilities - 1,630 2,419 2,288 612 - 6,949
Undrawn facilities available to customers 457,195 - - - - - 457,195
Unaudited - December 2021
Non-derivative financial liabilities
Deposits 847,180 1,776,648 568,895 105,741 54,417 - 3,352,881
Other borrowings - 231,215 938,328 384,597 158,088 172,881 1,885,109
Lease liabilities - 1,432 1,441 2,742 7,320 5,990 18,925
Other financial liabilities - 30,690 - - - - 30,690
Total non-derivative financial liabilities 847,180 2,039,985 1,508,664 493,080 219,825 178,871 5,287,605
Derivative financial liabilities
Inflows from derivatives - 13,951 4,065 6,936 5,303 - 30,255
Outflows from derivatives - 16,113 4,222 7,396 5,107 - 32,838
Total derivative financial liabilities - 2,162 157 460 (196) - 2,583
Undrawn facilities available to customers 365,623 - - - - - 365,623
Audited - June 2022
Non-derivative financial liabilities
Deposits 887,976 2,028,225 561,468 103,192 41,655 - 3,622,516
Other borrowings - 505,191 268,653 702,349 1,160,157 210,428 2,846,778
Lease liabilities - 1,575 1,525 2,616 6,985 4,911 17,612
Other financial liabilities - 55,538 - - - - 55,538
Total non-derivative financial liabilities 887,976 2,590,529 831,646 808,157 1,208,797 215,339 6,542,444
Derivative financial liabilities
Inflows from derivatives - 15,681 1,759 3,505 813 - 21,758
Outflows from derivatives - 14,800 3,227 6,621 839 - 25,487
Total derivative financial liabilities - (881) 1,468 3,116 26 - 3,729
Undrawn facilities available to customers 416,561 - - - - - 416,561
P. 33
16 Interest rate risk
Contractual repricing analysis
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.
Non-
0-3 3-6 6-12 1-2 2+ Interest
$000's Months Months Months Years Years Bearing Total
Unaudited - December 2022
Financial assets
Cash and cash equivalents 380,787 - - - - 4,490 385,277
Investments 30,308 20,862 53,883 56,209 108,031 17,965 287,258
Finance receivables 1,850,327 283,962 452,114 682,875 891,995 73,693 4,234,966
Finance receivables - reverse mortgages 2,171,516 - - - - - 2,171,516
Derivative financial assets - - - - - 51,374 51,374
Other financial assets - - - - - 2,261 2,261
Total financial assets 4,432,938 304,824 505,997 739,084 1,000,026 149,783 7,132,652
Financial liabilities
Deposits 2,374,631 743,604 805,089 81,738 31,887 33,609 4,070,558
Other borrowings 1,982,576 107,343 - 120,374 36,489 11,729 2,258,511
Derivative financial liabilities - - - - - 10,406 10,406
Lease liabilities - - - - - 14,798 14,798
Other financial liabilities - - - - - 53,016 53,016
Total financial liabilities 4,357,207 850,947 805,089 202,112 68,376 123,558 6,407,289
Effect of derivatives held for risk
management
1,027,804 (49,932) (176,843) (354,844) (446,185) - -
Net financial assets/(liabilities) 1,103,535 (596,055) (475,935) 182,128 485,465 26,225 725,363
Unaudited - December 2021
Financial assets
Cash and cash equivalents 207,665 - - - - 1 207,666
Investments 22,884 1,101 - 120,826 151,003 22,459 318,273
Finance receivables 1,623,877 166,312 312,265 503,151 848,174 72,455 3,526,234
Finance receivables - reverse mortgages 1,778,066 - - - - - 1,778,066
Derivative financial assets - - - - - 21,714 21,714
Other financial assets - - - - - 2,322 2,322
Total financial assets 3,632,492 167,413 312,265 623,977 999,177 118,951 5,854,275
Financial liabilities
Deposits 1,870,753 730,076 561,848 102,537 50,654 16,541 3,332,409
Other borrowings 1,486,681 60,714 151,260 - 123,810 - 1,822,465
Derivative financial liabilities - - - - - 3,548 3,548
Lease liabilities - - - - - 16,980 16,980
Other financial liabilities - - - - - 30,690 30,690
Total financial liabilities 3,357,434 790,790 713,108 102,537 174,464 67,759 5,206,092
Effect of derivatives held for risk
management
669,798 (67,794) (8,974) (295,757) (297,273) - -
Net financial assets/(liabilities) 944,856 (691,171) (409,817) 225,683 527,440 51,192 648,183
P. 34
16 Interest rate risk (continued)
Contractual repricing analysis (continued)
Non-
0-3 3-6 6-12 1-2 2+ Interest
$000's Months Months Months Years Years Bearing Total
Audited - June 2022
Financial assets
Cash and cash equivalents 310,749 - - - - 9 310,758
Investments 1,568 854 51,144 91,974 128,672 15,082 289,294
Finance receivables 1,906,457 277,891 426,251 561,636 913,210 61,376 4,146,821
Finance receivables - reverse mortgages 1,996,854 - - - - - 1,996,854
Derivative financial assets - - - - - 45,221 45,221
Other financial assets - - - - - 273 273
Total financial assets 4,215,628 278,745 477,395 653,610 1,041,882 121,961 6,789,221
Financial liabilities
Deposits 2,190,337 684,378 546,718 99,196 38,325 33,554 3,592,508
Other borrowings 2,320,575 130,873 - 121,191 - 5,574 2,578,213
Derivative financial liabilities - - - - - 6,341 6,341
Lease liabilities - - - - - 16,240 16,240
Other financial liabilities - - - - - 55,538 55,538
Total financial liabilities 4,510,912 815,251 546,718 220,387 38,325 117,247 6,248,840
Effect of derivatives held for risk
management
986,194 (76,349) (127,004) (309,781) (473,060) - -
Net financial assets/(liabilities) 690,910 (612,855) (196,327) 123,442 530,497 4,714 540,381
P. 35
Other Disclosures
17 Structured entities
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.
(a) Heartland Cash and Term PIE Fund (Heartland PIE Fund)
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:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Deposits 188,421 151,830 149,824
(b) Heartland Auto Receivable Warehouse Trust 2018-1 (Auto Warehouse)
The Auto Warehouse securitises motor vehicle loan receivables as a source of funding.
The Group continues to recognise the securitised assets and associated borrowings in the consolidated interim 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 the Trust 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.
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Cash and cash equivalents 14,229 19,840 20,197
Finance receivables 213,958 273,289 312,239
Other borrowings (217,634) (275,787) (315,308)
(c) Seniors Warehouse Trust, Seniors Warehouse Trust No.2 (together the SW Trusts) and ASF Settlement Trust (ASF Trust)
SW Trusts and ASF Trust (collectively the Trusts) form part of ASF's reverse mortgage business and were set up by Australian
Seniors Finance Limited (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:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Cash and cash equivalents 27,120 29,509 26,003
Finance receivables - reverse mortgages 1,226,343 992,664 1,136,644
Other borrowings (979,331) (798,735) (902,155)
(d) Atlas 2020-1 Trust (Atlas Trust)
Atlas Trust was set up on 11 September 2020 as part of ASF's reverse mortgage business similar to the existing SW Trusts and ASF
Trust. The Trustee for the Trust is BNY Trust Company of Australia Limited and the Trust Manager is ASF. The balances of Atlas
Trust are represented as follows:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Cash and cash equivalents 16,142 18,118 15,774
Finance receivables - reverse mortgages 136,535 136,537 138,950
Other borrowings (141,561) (148,453) (145,219)
P. 36
17 Structured entities (continued)
(e) StockCo Securitisation Trust 2022-1
The StockCo Securitisation Trust 2022-
for the Trust is AMAL Trustees Pty Limited and the Trust Manager is AMAL Management Services Pty Limited. The balances of
StockCo Securitisation Trust 2022-1 are represented as follows:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Cash and cash equivalents 20,620 - 15,007
Finance receivables 353,708 - 354,901
Other borrowings (305,994) - (311,415)
18 Insurance business, securitisation, funds management, other fiduciary activities
Insurance business
Marac Insurance Limited (MIL), a subsidiary of Heartland Bank Limited (HBL), ceased writing insurance policies in 2020 with the
periodic policies expected to expire in 2025.
The Group's aggregate amount of insurance business comprises the total consolidated assets of MIL of $7.3 million (December
2021: $8.3 million; June 2022: $7.4 million), which represents 0.10% of the total consolidated assets of the Group (December
2021: 0.14%; June 2022: 0.11%).
Securitisation, funds management and other fiduciary activities
been no material changes
previous financial statements.
Risk management
The 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 Group. There has been no material changes to those policies and procedures since the
reporting date of the previous financial statements.
Provision of financial services and asset purchases
Over the accounting period, financial services provided by the 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.
Any assets purchased from such entities have been purchased on arm's length terms and conditions and at fair value.
P. 37
19 Contingent liabilities and commitments
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 would become possible
obligations, or present obligations if known, where the transfer of economic benefit is uncertain or cannot be reliably measured.
Contingent Liabilities are not recognised, but are disclosed, unless they are deemed remote. Where some loss is considered
probable, provisions have been made on a case by case basis.
Contingent liabilities and credit related commitments arising in respect of the Group's operations were:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Letters of credit, guarantee commitments and performance bonds 5,931 7,217 8,969
Total contingent liabilities 5,931 7,217 8,969
Undrawn facilities available to customers 457,195 365,623 416,561
Conditional commitments to fund at future dates 25,007 21,646 34,791
Total commitments 482,202 387,269 451,352
20 Events after reporting date
Severe weather events across the North Island of New Zealand
Subsequent to the reporting period, severe weather events, including flooding in Auckland and Cyclone Gabrielle, have impacted
regions across the North Island of New Zealand. These events have had a devastating effect on individuals and businesses,
In both events, HBL implemented a targeted call programme to customers in affected areas, or areas of high risk. This is an
ongoing process as the situation evolves and the nature and extent of the damage is understood by customers. HBL has been
working with customers to provide support as they need it. Support has included deferred loan repayments, interest only
payments, additional funding or other solutions determined on a case-by-case basis.
areas most heavily impacted by Cyclone Gabrielle is
limited. HBL will continue to support its Auckland-based customers, as well as its rural, livestock, forestry and transportation
customers on the East Coast, and in the months ahead. However, at the date the consolidated financial statements were signed,
the Group does not consider there to be a material risk to the business from either event.
Proposed unsecured notes issuance
HBL is considering making an offer of up to $75 million (with the right to accept oversubscriptions of up to an additional $50
and certain overseas institutional investors. The
Dividends
The Group approved a fully imputed final dividend of 5.5 cents per share on 27 February 2023.
There were no other events subsequent to the reporting period which would materially affect the consolidated financial
statements.
PricewaterhouseCoopers, 15 Customs Street West, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent auditor’s review report
To the shareholders of Heartland Group Holdings Limited
Report on the consolidated interim financial statements
Our conclusion
We have reviewed the consolidated interim financial statements of Heartland Group Holdings Limited
(the “Company”) and its controlled entities (the “Group”), which comprise the consolidated interim
statement of financial position as at 31 December 2022, and the consolidated interim statement of
comprehensive income, the consolidated interim statement of changes in equity and the consolidated
interim statement of cash flows for the six months ended on that date, and other explanatory
information.
Based on our review, nothing has come to our attention that causes us to believe that these
accompanying consolidated interim financial statements of the Group do not present fairly, in all
material respects, the financial position of the Group as at 31 December 2022, and its financial
performance and cash flows for the period ended 31 December 2022 then ended, in accordance with
International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) and New Zealand
Equivalent to International Accounting Standard 34 Interim Financial Reporting(“NZ IAS 34”).
Basis for conclusion
We conducted our review in accordance with the New Zealand Standard on Review Engagements
2410 (Revised) Review of Financial Statements Performed by the Independent Auditor of the Entity
(“NZ SRE 2410 (Revised)”). Our responsibilities are further described in the Auditor’s responsibilities
for the review of the consolidated interim financial statementssection of our report.
We are independent of the Group in accordance with the relevant ethical requirements in New
Zealand relating to the audit of the annual financial statements, and we have fulfilled our other ethical
responsibilities in accordance with these ethical requirements. In addition to our role as auditor, our
firm carries out other services for the Group. These services are actuarial services for reverse
mortgages for the Group and tax compliance services for a subsidiary of the Group. In addition, certain
partners and employees of our firm may deal with the Group on normal terms within the ordinary
course of trading activities of the Group. These matters have not impaired our independence.
Responsibilities of Directors for the consolidated interim financial statements
The Directors of the Company are responsible, on behalf of the Company, for the preparation and fair
presentation of these consolidated interim financial statements in accordance with IAS 34 and NZ IAS
34 and for such internal control as the Directors determine is necessary to enable the preparation and
fair presentation of the consolidated interim financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibilities for the review of the consolidated interimfinancial statements
Our responsibility is to express a conclusion on the consolidated interim financial statements based on
our review. NZ SRE 2410 (Revised) requires us to conclude whether anything has come to our
attention that causes us to believe that the consolidated interim financial statements, taken as a whole,
are not prepared in all material respects, in accordance with IAS 34 and NZ IAS 34.
A review of consolidated interim financial statements in accordance with NZ SRE 2410 (Revised) is a
limited assurance engagement. We perform 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 International Standards on Auditing (New Zealand) and
International Standards on Auditing and consequently does not enable us to obtain assurance that we
PwC39
might identify in an audit. Accordingly, we do not express an audit opinion on these consolidated
interim financial statements.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our review work has been
undertaken so that we might state those matters which we are required to state to them in our review
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 review procedures, for this
report, or for the conclusion we have formed.
The engagement partner on the review resulting in this independent auditor’s review report is Karen
Shires.
For and on behalf of:
Chartered Accountants Auckland
27 February 2023
---
Disclosure Statement
P. 2
Contents
Page
General 3
3
Guarantee 3
....3
3
4
5
Con.6
8
Consolidated Interim Statement of Cash 9
Notes to the Interim Financial Statements
1 Interim f11
Performance
2 Segmental 12
3 14
4 14
5 14
6 15
Financial Position
7 Finance 16
8 21
9 Share capital and 21
10 22
11 Fair 24
Risk Management
12 29
13 Credit risk 29
14 31
15 38
16 41
17 43
Other Disclosures
18 Structured 44
19 45
20 Insurance business, securitisation, funds management, other fiduciary 51
21 ....51
22 Events after reporting 52
53
Other Material 53
54
Independent assurance repor56
P. 3
General Information
This Disclosure Statement has been issued by Heartland Bank Limited (the Bank or HBL) and its subsidiaries (the Banking Group)
for the six months ended 31 December 2022 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 six months
ended 31 December 2022 form part of, and should be read in conjunction with, this Disclosure Statement.
Words and phrases defined by the Order have the same meanings when used in this Disclosure Statement.
The Bank's address for service is Level 3, 35 Teed Street, Newmarket, Auckland 1023.
In the event of the Bank becoming insolvent or ceasing business, certain claims set out in legislation are paid in priority to others.
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.
Guarantee Arrangements
As at the date this Disclosure Statement was signed, no material obligations of the Bank were guaranteed.
Auditor
PricewaterhouseCoopers
PwC Tower, Level 27
15 Customs Street West
Auckland 1010
Directors
All Directors of the Bank reside in New Zealand. Communications to the Directors can be sent to Heartland Bank Limited, Level 3,
35 Teed Street, Newmarket, Auckland 1023.
On 8 November 2022, Simon Tyler was appointed as Director.
There have been no other changes in the composition of the Board of Directors of the Bank since 30 June 2022 to the six months
ended 31 December 2022.
P.4
Directors’ Statements
Each Director of the Bank states that he or she believes, after due enquiry, that:
1.As at the date on which this Disclosure Statement is signed:
a)the Disclosure Statement contains all the information that is required by the Order; and
b)the Disclosure Statement is not false or misleading.
2.During the six months ended 31 December 2022:
a)the Bank has complied in all material respects with each Condition of Registration applicable during the period;
b)credit exposures to connected persons were not contrary to the interests of the Banking Group; and
c)the Bank had systems in place to monitor and control adequately the 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.
This Disclosure Statement is dated 27 February 2023 and has been signed by a majority of the Directors.
B R Irvine (Chair) S M Ruha
J K Greenslade K Mitchell
E J Harvey S Tyler
P. 5
Consolidated Interim Statement of Comprehensive Income
For the six months ended 31 December 2022
Unaudited
6 Months to
December 2022
Unaudited
6 Months to
December 2021
Audited
12 Months to
June 2022
$000's Note
Interest income
3
170,581 132,072 275,770
Interest expense
3
63,118 28,057 66,205
Net interest income 107,463 104,015 209,565
Operating lease income
2,696 2,588 5,284
Operating lease expense
1,862 1,545 3,383
Net operating lease income 834 1,043 1,901
Lending and credit fee income
3,803 3,416 6,943
Other income
2,376 3,967 24,860
Net operating income 114,476 112,441 243,269
Operating expenses
4
53,126 48,154 96,203
Profit before impaired asset expense and income tax 61,350 64,287 147,066
Fair value (loss) on investment
- (315) (315)
Impaired asset expense
6
9,175 8,540 14,692
Profit before income tax 52,175 55,432 132,059
Income tax expense
14,689 14,449 36,068
Profit for the period 37,486 40,983 95,991
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 for cash flow hedging instruments
8,678 6,619 6,540
Movement in fair value reserve (579) (6,356) (712)
Items that will not be reclassified to profit or loss, net of income
tax:
Movement in defined benefit reserve - - (171)
Net loss due to wind-up of superannuation scheme - - (473)
Other comprehensive income for the period, net of income tax 8,099 263 5,184
Total comprehensive income for the period 45,585 41,246 101,175
Total comprehensive income for the period is attributable to the owner of the Bank.
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 6
Consolidated Interim Statement of Changes in Equity
For the six months ended 31 December 2022
Share
Capital
Fair
Value
Reserve
Defined
Benefit
Reserve
Cash Flow
Hedge
Reserve
Retained
Earnings
Total
Equity
$000's
Note
Unaudited - December 2022
Balance as at 1 July 2022 553,239 (1,034) - 7,446 147,852 707,503
Total comprehensive income for the period
Profit for the period - - - - 37,486 37,486
Other comprehensive (loss)/
income, net of income tax
- (579) - 8,678 - 8,099
Total comprehensive (loss)/
income for the period
- (579) - 8,678 37,486 45,585
Contributions by and distributions to owner
Dividend to Heartland Group Holdings Limited 9 - - - - (30,000) (30,000)
Total transactions with owner - - - - (30,000) (30,000)
Balance as at 31 December 2022 553,239 (1,613) - 16,124 155,338 723,088
Unaudited - December 2021
Balance as at 1 July 2021 553,239 (322) 171 906 87,834 641,828
Total comprehensive income for the period
Profit for the period - - - - 40,983 40,983
Other comprehensive (loss)/
income, net of income tax
- (6,356) - 6,619 - 263
Total comprehensive (loss)/
income for the period
- (6,356) - 6,619 40,983 41,246
Contributions by and distributions to owner
Dividend to Heartland Group Holdings Limited 9 - - - - - -
Total transactions with owner - - - - - -
Balance as at 31 December 2021 553,239 (6,678) 171 7,525 128,817 683,074
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 7
Consolidated Interim Statement of Changes in Equity (Continued)
For the six months ended 31 December 2022
Share
Capital
Fair
Value
Reserve
Defined
Benefit
Reserve
Cash Flow
Hedge
Reserve
Retained
Earnings
Total
Equity
$000's
Note
Audited - June 2022
Balance as at 1 July 2021 553,239 (322) 171 906 87,834 641,828
Total comprehensive income for the year
Profit for the year - - - - 95,991 95,991
Other comprehensive (loss)/
income, net of income tax
- (712) (171) 6,540 (473) 5,184
Total comprehensive (loss)/
income for the year
- (712) (171) 6,540 95,518 101,175
Contributions by and distributions to owner
Dividend to Heartland Group Holdings Limited 9 - - - - (35,500) (35,500)
Total transactions with owner - - - - (35,500) (35,500)
Balance as at 30 June 2022 553,239 (1,034) - 7,446 147,852 707,503
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 8
Consolidated Interim Statement of Financial Position
As at 31 December 2022
Unaudited
December 2022
Unaudited
December 2021
Audited
June 2022
$000's
Note
Assets
Cash and cash equivalents 296,551 137,937 221,469
Investments 11 270,923 297,316 275,714
Derivative financial instruments 11 50,729 21,540 44,487
Due from related parties 10 548 1,345 1,540
Finance receivables 7 3,852,536 3,470,003 3,762,231
Finance receivables - reverse mortgages 7 808,701 648,865 721,264
Investment properties 11 11,903 11,832 11,832
Operating lease vehicles 15,546 13,009 15,161
Right of use assets 12,602 14,609 13,660
Other assets 11,929 14,536 13,338
Intangible assets 61,704 57,353 58,418
Deferred tax asset 15,648 14,595 15,538
Total assets 5,409,320 4,702,940 5,154,652
Liabilities
Deposits 8 4,077,665 3,336,509 3,597,144
Other borrowings 8 518,644 622,336 749,478
Due to related parties 10 - 688 1,535
Lease liabilities 14,615 16,703 15,726
Tax liabilities 5,246 6,211 22,479
Derivative financial instruments 11 10,403 3,400 6,335
Trade and other payables 59,659 34,019 54,452
Total liabilities 4,686,232 4,019,866 4,447,149
Equity
Share capital 9 553,239 553,239 553,239
Retained earnings and other reserves 169,849 129,835 154,264
Total equity 723,088 683,074 707,503
Total equity and liabilities 5,409,320 4,702,940 5,154,652
Total interest earning and discount bearing assets 5,153,687 4,481,311 4,918,261
Total interest and discount bearing liabilities 4,561,011 3,942,304 4,312,180
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 9
Consolidated Interim Statement of Cash Flows
For the six months ended 31 December 2022
Unaudited
6 Months to
December 2022
Unaudited
6 Months to
December 2021
Audited
12 Months to
June 2022
$000's
Note
Cash flows from operating activities
Interest received 135,934 113,807 232,601
Operating lease income received 2,197 1,807 3,913
Lending, credit fees and other income received 6,989 4,881 11,740
Operating inflows 145,120 120,495 248,254
Interest paid (55,018) (36,697) (87,131)
Payments to suppliers and employees (40,384) (30,021) (47,169)
Taxation paid (34,571) (18,283) (26,616)
Operating outflows (129,973) (85,001) (160,916)
Net cash flows from operating activities before changes in
operating assets and liabilities
15,147 35,494 87,338
Proceeds from sale of operating lease vehicles 1,642 3,023 4,482
Purchase of operating lease vehicles (3,245) (6,016) (10,758)
Net movement in finance receivables (150,835) (292,843) (636,981)
Net movement in deposits 475,077 117,139 376,052
Net movement in related party balances (543) (3,721) (3,069)
Net cash flows from/(applied to) operating activities
1
337,243 (146,924) (182,936)
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets (6,539) (7,676) (11,889)
Net decrease in investments 4,791 54,988 82,946
Net movement of investment property (71) - -
Total cash (applied to)/from investing activities (1,819) 47,312 71,057
Net cash flows (applied to)/from investing activities (1,819) 47,312 71,057
Cash flows from financing activities
Net increase in wholesale funding - 125,740 258,127
Total cash provided from financing activities - 125,740 258,127
Net decrease in wholesale funding (79,006) - -
Repayment of unsubordinated notes (150,000) - -
Dividends paid 9 (30,000) - (35,500)
Payment of lease liabilities (1,336) (1,094) (2,182)
Total cash (applied to) financing activities (260,342) (1,094) (37,682)
Net cash flows (applied to)/from financing activities (260,342) 124,646 220,445
Net increase in cash held 75,082 25,034 108,566
Opening cash and cash equivalents 221,469 112,903 112,903
Closing cash and cash equivalents 296,551 137,937 221,469
1
Cash flows from operating activities do not include cash flows from wholesale funding which are included as part of financing activities.
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 10
Consolidated Interim Statement of Cash Flows (Continued)
For the six months ended 31 December 2022
Reconciliation of profit after tax to net cash flows from operating activities
Unaudited
6 Months to
December 2022
Unaudited
6 Months to
December 2021
Audited
12 Months to
June 2022
$000's
Note
Profit for the period 37,486 40,983 95,991
Add/(less) non-cash items:
Depreciation and amortisation expense 4,722 5,429 10,294
Depreciation on lease vehicles 1,692 1,429 3,103
Capitalised net interest income and fee income (31,231) (19,149) (41,863)
Impaired asset expense 6 9,175 8,540 14,692
Investment fair value unrealised movement - 315 315
Other non-cash items (2,040) (8,242) (17,490)
Total non-cash items (17,682) (11,678) (30,949)
Add/(less) movements in operating assets and liabilities:
Finance receivables (150,835) (292,843) (636,981)
Operating lease vehicles (1,602) (2,993) (6,276)
Other assets 1,991 (2,126) (1,780)
Current tax (17,233) (1,345) 14,923
Derivative financial instruments 5,926 (2,199) (23,002)
Deferred tax (110) (2,344) (3,287)
Deposits 475,077 117,139 376,052
Other liabilities 4,225 10,482 32,373
Total movements in operating assets and liabilities 317,439 (176,229) (247,978)
Net cash flows from/(applied to) operating activities
1
337,243 (146,924) (182,936)
1
Cash flows from operating activities do not include cash flows from wholesale funding which are included as part of financing activities.
The notes to the interim financial statements form an integral part of, and should be read in conjunction with, these
consolidated interim financial statements.
P. 11
Notes to the Interim Financial Statements
For the six months ended 31 December 2022
1 Interim financial statements preparation
Basis of preparation
The interim financial statements presented are the consolidated interim financial statements comprising Heartland Bank Limited
(the Bank or HBL) and its subsidiaries (the Banking Group). They have been prepared in accordance with Generally Accepted
Accounting Practice in New Zealand (NZ GAAP) as defined in the Financial Reporting Act 2013. These consolidated interim
financial statements comply with NZ IAS 34 Interim Financial Reporting as appropriate for publicly accountable for-profit entities
and IAS 34 Interim Financial Reporting.
The Disclosure Statement does not include all notes of the type normally included in an annual financial report. Accordingly this
report is to be read in conjunction with the Disclosure Statement for the year ended 30 June 2022.
The consolidated interim financial statements presented here are for the following periods:
6 month period ended 31 December 2022 Unaudited
6 month period ended 31 December 2021 Unaudited
12 month period ended 30 June 2022 Audited
The consolidated interim financial statements have been prepared on a going concern and historical cost basis, unless stated
otherwise. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim
reporting period.
Certain comparative balances have been reclassified to align with the presentation used in the current period. These
reclassifications have no impact on the overall financial performance or net assets for the comparative year/period.
Estimates and judgements
There have been no material changes to the use of estimates and judgements for the preparation of the interim financial
statements since the reporting date of the previous financial statements. T
ended 30 June 2022 contains detail on the estimates and judgements used.
In respect of the provision for expected credit loss on finance receivables, the Banking Group has previously created an economic
overlay of $8.0 million as at 30 June 2022 to address economic uncertainty. The economic overlay of $8.0 million remains
appropriate at 31 December 2022.
P. 12
Performance
2 Segmental analysis
Segment information is presented in respect of the Banking Group's operating segments consistent with those used for the
Banking Group's management and internal reporting structure.
Operating segments
The Banking Group operates within New Zealand and comprises the following main operating segments:
Motor Motor vehicle finance.
Reverse mortgages Reverse mortgage lending in New Zealand.
Personal Lending Transactional, home loans and personal loans to individuals.
Business Term debt, plant and equipment finance, commercial mortgage lending and working capital solutions for
small-to-medium sized businesses.
Rural 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 in New Zealand.
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 13 - Credit risk exposure. The
operating segments are primarily categorised by sales channel, whereas Note 13 - Credit risk exposure categorises exposures
based on credit risk concentrations.
Reverse Personal
$000's
Motor Mortgages Lending Business Rural Other Total
Unaudited - December 2022
Net interest income 30,936 19,058 5,213 35,843 16,612 (199) 107,463
Net other income 1,734 1,444 594 1,542 336 1,363 7,013
Net operating income 32,670 20,502 5,807 37,385 16,948 1,164 114,476
Operating expenses 2,055 2,585 3,344 4,867 1,628 38,647 53,126
Profit/(loss) before impaired asset
expense and income tax
30,615 17,917 2,463 32,518 15,320 (37,483) 61,350
Impaired asset expense 3,341 - 1,580 4,092 162 - 9,175
Profit/(loss) before income tax 27,274 17,917 883 28,426 15,158 (37,483) 52,175
Income tax expense - - - - - 14,689 14,689
Profit/(loss) for the period 27,274 17,917 883 28,426 15,158 (52,172) 37,486
Total assets 1,457,970 808,701 361,870 1,386,602 674,009 720,168 5,409,320
Total liabilities 4,686,232
P. 13
2 Segmental analysis (continued)
Reverse Personal
$000's
Motor Mortgages Lending Business Rural Other Total
Unaudited - December 2021
Net interest income 34,687 14,000 4,496 35,888 15,138 (195) 104,014
Net other income 1,703 1,289 726 1,408 365 2,936 8,427
Net operating income 36,390 15,289 5,222 37,296 15,503 2,741 112,441
Operating expenses 1,975 2,354 3,268 4,756 1,531 34,270 48,154
Profit/(loss) before impaired asset 34,415 12,935 1,954 32,540 13,972 (31,529) 64,287
Fair value (loss) on investment - - - - - (315) (315)
Impaired asset expense/(benefit) 2,518 - 902 4,210 909 1 8,540
Profit/(loss) before income tax 31,897 12,935 1,052 28,330 13,063 (31,845) 55,432
Income tax expense - - - - - 14,449 14,449
Profit/(loss) for the period 31,897 12,935 1,052 28,330 13,063 (46,294) 40,983
Total assets 1,344,865 648,865 272,803 1,294,601 583,026 558,780 4,702,940
Total liabilities 4,019,866
Audited - June 2022
Net interest income 69,730 29,957 10,218 70,602 29,460 (402) 209,565
Net other income 3,326 2,583 1,562 2,679 739 22,815 33,704
Net operating income 73,056 32,540 11,780 73,281 30,199 22,413 243,269
Operating expenses 3,792 4,485 6,417 9,358 3,038 69,113 96,203
Profit/(loss) before impaired asset 69,264 28,055 5,363 63,923 27,161 (46,700) 147,066
Fair value (loss) on investment - - - - - (315) (315)
Impaired asset expense/(benefit) 1,481 - (877) 11,831 2,257 - 14,692
Profit/(loss) before income tax 67,783 28,055 6,240 52,092 24,904 (47,015) 132,059
Income tax expense - - - - - 36,068 36,068
Profit/(loss) for the year 67,783 28,055 6,240 52,092 24,904 (83,083) 95,991
Total assets 1,382,367 721,264 332,783 1,387,352 687,232 643,654 5,154,652
Total liabilities 4,447,149
P. 14
3 Net interest income
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's
December 2022 December 2021 June 2022
Interest income
Cash and cash equivalents
3,043 149 805
Investments
2,399 2,782 5,156
Finance receivables
135,407 111,277 230,514
Finance receivables - reverse mortgages
29,732 17,864 39,295
Total interest income 170,581 132,072 275,770
Interest expense
Deposits
56,864 18,741 45,387
Other borrowings
13,297 8,890 20,727
Net interest expense/(income) on derivative financial instruments
(7,043) 426 91
Total interest expense 63,118 28,057 66,205
Net interest income 107,463 104,015 209,565
4 Operating expenses
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's
December 2022 December 2021 June 2022
Personnel expenses 31,983 27,375 53,826
Directors' fees
282 288 542
Superannuation
654 517 1,045
Depreciation - property, plant and equipment
871 1,331 2,342
Legal and professional fees
1,124 709 1,697
Advertising and public relations
1,081 1,596 2,814
Depreciation - right of use asset
1,059 1,062 2,122
Technology services
4,625 4,597 9,014
Telecommunications, stationery and postage
867 722 1,492
Customer acquisition costs
1,325 1,212 2,419
Amortisation of intangible assets
2,792 3,036 5,830
Other operating expenses
1
6,463 5,709 13,060
Total operating expenses 53,126 48,154 96,203
1
Other operating expenses include compensation of auditor which is disclosed in Note 5 - Compensation of auditor.
5 Compensation of auditor
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's
December 2022 December 2021 June 2022
Fees paid to current auditor - PricewaterhouseCoopers
Audit and review of financial statements
1
180 - -
Other non-assurance services paid to auditor
2
15 - -
Total compensation to PricewaterhouseCoopers 195 - -
Fees paid to predecessor auditor - KPMG
Audit and review of financial statements
1
26 295 593
Other assurance services paid to auditor
3
-
10 20
Total compensation to KPMG 26 305 613
1
These relates to fees paid for both the audit of the annual financial statements and review of the interim financial statements.
2
Other non-assurance services paid to PricewaterhouseCoopers relates to actuarial services for reverse mortgages for the Banking Group.
3
Other assurance related services paid to KPMG comprise regulatory assurance services, trust deed reporting and registry audits.
P. 15
6 Impaired asset expense
At each reporting date, the Banking Group applies a three stage approach to measuring expected credit loss (ECL) to finance
receivables carried at amortised cost. The following table details impairment charges of those finance receivables for the six
months ended 31 December 2022.
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's
December 2022 December 2021 June 2022
Non-securitised
Individually impaired asset expense
5,292 6,266 10,782
Collectively impaired asset expense
5,016 3,147 6,735
Total non-securitised impaired asset expense 10,308 9,413 17,517
Securitised
Collectively impaired asset expense
(154) 392 (70)
Total securitised impaired asset expense (154) 392 (70)
Total
Individually impaired asset expense
5,292 6,266 10,782
Collectively impaired asset expense
4,862 3,539 6,665
Total impaired asset expense excluding recovery of amounts previously
written off 10,154 9,805 17,447
Recovery of amounts previously written off to the income statement
(979) (1,265) (2,755)
Total impaired asset expense 9,175 8,540 14,692
P. 16
Financial Position
7 Finance receivables
(a) Finance receivables held at amortised cost
Unaudited Unaudited Audited
$000's
December 2022 December 2021 June 2022
Non-securitised
Neither at least 90 days past due nor impaired
3,562,670 3,145,180 3,391,832
At least 90 days past due
58,975 38,158 41,279
Individually impaired
69,000 63,965 66,183
Gross finance receivables 3,690,645 3,247,303 3,499,294
Less provision for impairment
(52,354) (50,582) (50,232)
Total non-securitised finance receivables 3,638,291 3,196,721 3,449,062
Securitised
Neither at least 90 days past due nor impaired
214,286 273,650 313,364
At least 90 days past due
- 263 -
Gross finance receivables 214,286 273,913 313,364
Less provision for impairment
(41) (631) (195)
Total securitised finance receivables 214,245 273,282 313,169
Total
Neither at least 90 days past due nor impaired
3,776,956 3,418,830 3,705,196
At least 90 days past due
58,975 38,421 41,279
Individually impaired
69,000 63,965 66,183
Gross finance receivables 3,904,931 3,521,216 3,812,658
Less provision for impairment
(52,395) (51,213) (50,427)
Total finance receivables 3,852,536 3,470,003 3,762,231
Refer to Note 14 - Asset quality for further analysis of finance receivables by credit risk concentration.
P. 17
7 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision for impairment losses
The following table details the movement from the opening balance to the closing balance of the provision for impairment losses
by class.
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Unaudited - December 2022
Non-securitised
Impairment allowance as at 30 June 2022 19,005 1,865 14,361 15,001 50,232
Changes in loss allowance
Transfer between stages (3,933) (1,946) 1,921 3,958 -
New and increased provision (net of provision releases)
2,917 2,313 3,744 1,334 10,308
Credit impairment charge (1,016) 367 5,665 5,292 10,308
Write-offs - - (6,115) (2,071) (8,186)
Impairment allowance as at 31 December 2022 17,989 2,232 13,911 18,222 52,354
Securitised
Impairment allowance as at 30 June 2022 196 (2) 1 - 195
Changes in loss allowance
Transfer between stages (1) 1 - - -
New and increased provision (net of provision releases)
(167) 13 - - (154)
Credit impairment charge (168) 14 - - (154)
Write-offs - - - - -
Impairment allowance as at 31 December 2022 28 12 1 - 41
Total
Impairment allowance as at 30 June 2022 19,201 1,863 14,362 15,001 50,427
Changes in loss allowance
Transfer between stages (3,934) (1,945) 1,921 3,958 -
New and increased provision (net of provision releases)
2,750 2,326 3,744 1,334 10,154
Credit impairment charge (1,184) 381 5,665 5,292 10,154
Write-offs - - (6,115) (2,071) (8,186)
Impairment allowance as at 31 December 2022 18,017 2,244 13,912 18,222 52,395
P. 18
7 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision for impairment losses (continued)
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Unaudited - December 2021
Non-securitised
Impairment allowance as at 30 June 2021 24,216 2,334 16,630 7,629 50,809
Changes in loss allowance
Transfer between stages (2,278) (1,086) 653 2,711 -
New and increased provision (net of provision releases) (623) 360 6,121 3,555
9,413
Credit impairment charge (2,901) (726) 6,774 6,266 9,413
Write-offs - - (8,421) (1,219) (9,640)
Impairment allowance as at 31 December 2021 21,315 1,608 14,983 12,676 50,582
Securitised
Impairment allowance as at 30 June 2021 216 22 1 - 239
Changes in loss allowance
Transfer between stages (2) (27) 29 - -
New and increased provision (net of provision releases) 231 77 84 - 392
Credit impairment charge 229 50 113 - 392
Write-offs - - - - -
Impairment allowance as at 31 December 2021 445 72 114 - 631
Total
Impairment allowance as at 30 June 2021 24,432 2,356 16,631 7,629 51,048
Changes in loss allowance
Transfer between stages (2,280) (1,113) 682 2,711 -
New and increased provision (net of provision releases) (392) 437 6,205 3,555
9,805
Credit impairment charge (2,672) (676) 6,887 6,266 9,805
Write-offs - - (8,421) (1,219) (9,640)
Impairment allowance as at 31 December 2021 21,760 1,680 15,097 12,676 51,213
P. 19
7 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Movement in provision for impairment losses (continued)
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Audited - 30 June 2022
Non-securitised
Impairment allowance as at 30 June 2021 24,216 2,334 16,630 7,629 50,809
Changes in loss allowance
Transfer between stages (3,800) (2,391) 916 5,275 -
New and increased provision (net of provision releases) (1,411) 1,922 11,499 5,507 17,517
Credit impairment charge (5,211) (469) 12,415 10,782 17,517
Write-offs - - (14,684) (3,410) (18,094)
Impairment allowance as at 30 June 2022 19,005 1,865 14,361 15,001 50,232
Securitised
Impairment allowance as at 30 June 2021 216 22 1 - 239
Changes in loss allowance
Transfer between stages (6) (109) 115 - -
New and increased provision (net of provision releases) (14) 85 (141) - (70)
Credit impairment charge (20) (24) (26) - (70)
Write-offs - - 26 - 26
Impairment allowance as at 30 June 2022 196 (2) 1 - 195
Total
Impairment allowance as at 30 June 2021 24,432 2,356 16,631 7,629 51,048
Changes in loss allowance
Transfer between stages (3,806) (2,500) 1,031 5,275 -
New and increased provision (net of provision releases) (1,425) 2,007 11,358 5,507 17,447
Credit impairment charge (5,231) (493) 12,389 10,782 17,447
Write-offs - - (14,658) (3,410) (18,068)
Impairment allowance as at 30 June 2022 19,201 1,863 14,362 15,001 50,427
P. 20
7 Finance receivables (continued)
(a) Finance receivables held at amortised cost (continued)
Impact of changes in gross finance receivables held at amortised cost on allowance for ECL
Lifetime Lifetime
ECL ECL
12 - Month Not Credit Credit Specific
$000's ECL Impaired Impaired Provision Total
Unaudited - December 2022
Gross finance receivables as at 30 June 2022 3,583,335 117,515 45,625 66,183 3,812,658
Transfer between stages (106,391) 63,271 33,733 9,387 -
Additions 715,969 - - 7,928 723,897
Deletions (552,790) (47,544) (10,677) (12,427) (623,438)
Write-offs - - (6,115) (2,071) (8,186)
Gross finance receivables as at 31 December 2022 3,640,123 133,242 62,566 69,000 3,904,931
Unaudited - December 2021
Gross finance receivables as at 30 June 2021 3,016,571 164,728 45,199 38,143 3,264,641
Transfer between stages (46,346) (12,348) 19,326 39,368 -
Additions 896,211 - - 906 897,117
Deletions (575,509) (34,581) (7,579) (13,233) (630,902)
Write-offs - - (8,421) (1,219) (9,640)
Gross finance receivables as at 31 December 2021 3,290,927 117,799 48,525 63,965 3,521,216
Audited - June 2022
Gross finance receivables as at 30 June 2021 3,016,571 164,728 45,199 38,143 3,264,641
Transfer between stages (109,051) 24,871 28,786 55,394 -
Additions 2,059,181 - - 3,002 2,062,183
Deletions (1,383,366) (72,084) (13,702) (26,946) (1,496,098)
Write-offs - - (14,658) (3,410) (18,068)
Gross finance receivables as at 30 June 2022 3,583,335 117,515 45,625 66,183 3,812,658
(b) Finance receivables held at fair value
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Finance receivables - reverse mortgages 808,701 648,865 721,264
Total finance receivables - reverse mortgages 808,701 648,865 721,264
P. 21
8 Borrowings
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Deposits 4,077,665 3,336,509 3,597,144
Total borrowings related to deposits 4,077,665 3,336,509 3,597,144
Unsubordinated notes 120,374 277,959 272,983
Securitised borrowings 191,091 234,739 267,779
Certificate of deposit 207,179 109,638 198,715
Money market borrowings - - 10,001
Total other borrowings 518,644 622,336 749,478
Deposits and unsubordinated notes rank equally and are unsecured.
The Banking Group has the following unsubordinated notes on issue at balance sheet date:
Principal
Valuation
Issue Date
Maturity Date
Frequency of
Interest
Repayment
$125 million Amortised cost 12 April 2019 12 April 2024 Half yearly
At 31 December 2022 the Banking Group had the following securitised borrowings outstanding:
Heartland Auto Receivables Warehouse Trust 2018 - 1 securitisation facility $400 million, drawn $191 million (December
2021: $400 million, drawn $235 million; June 2022: $400 million, drawn $268 million). Securitised borrowings held by
investors are secured over the motor loan assets of the Heartland Auto Receivables Warehouse Trust 2018-1. The facility has
a maturity date of 26 August 2024.
9 Share capital and dividends
Unaudited Unaudited Audited
December 2022 December 2021 June 2022
000's Number of Shares Number of Shares Number of Shares
Issued shares
Opening balance 565,430 565,430 565,430
Closing balance 565,430 565,430 565,430
There were no new shares issued during the period (December 2021: nil; June 2022: nil).
Dividends paid
6 Months to December 2022 12 Months to June 2022
Date Cents Date Cents
Declared Per Share $000's Declared Per Share $000's
Dividend to Heartland Group
Holdings Limited (HGH)
22 August 2022 - 30,000 21 February 2022 - 35,500
Total dividends paid 30,000 35,500
P. 22
10 Related party transactions and balances
(a) Transactions with key management personnel
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.
KMP receive personal banking and financial investment services from the Bank in the ordinary course of business. The terms and
conditions, such as interest rates and collateral along with the risks to the Bank are comparable to transactions with other
employees and customers and did not involve more than the normal risk of repayment or present other unfavourable features.
All other transactions with KMPs and their related entities are made on terms equivalent to those that prevail in arm's length
transactions.
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's December 2022 December 2021 June 2022
Transactions with key management personnel
Interest income 11 15 26
Interest expense (15) (24) (24)
Net transactions with key management personnel (4) (9) 2
Due from/(to) key management personnel
Lending 831 296 229
Deposits (1,325) (1,425) (508)
Net due (to) key management personnel (494) (1,129) (279)
(b) Transactions with related parties
The Banking Group's ultimate parent company is HGH.
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 tax and administrative services and customer
operations. Banking facilities are provided by HBL to other Banking Group entities on normal commercial terms as with other
customers. There is no lending from the Banking Group to HGH.
Related party transactions between the Banking Group eliminate on consolidation. Related party transactions outside of the
Banking Group are as follows:
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's December 2022 December 2021 June 2022
Heartland Group Holdings Limited
Interest expense
71 32 68
Deposits/(withdrawals)
2,400 (32,000) (31,500)
Dividends paid to HGH
30,000 - 35,500
Management fees to HGH
5,361 4,298 8,327
Management fees from HGH
2,271 1,153 2,164
P. 23
10 Related party transactions and balances (continued)
(b) Transactions with related parties (continued)
Unaudited Unaudited Audited
6 Months to 6 Months to 12 Months to
$000's December 2022 December 2021 June 2022
Australian Seniors Finance Pty Limited (ASF)
Management fees to ASF
2 - -
Management fees from ASF
2,369 1,614 2,752
Southern Cross Building Society Staff Superannuation (SCBS)
Interest expense
1 4 6
Management fees from SCBS
- 5 10
Cash received from SCBS
- - 350
(c) Due from/to related parties
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Due from
Australian Seniors Finance Pty Limited
491 1,334 1,540
Heartland Group Holdings Limited
57 11 -
Total due from related parties 548 1,345 1,540
Due to
Heartland Group Holdings Limited
- 688 1,535
Total due to related parties - 688 1,535
(d) Other balances with related parties
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Heartland Group Holdings Limited
Deposits owing to HGH 7,108 4,100 4,636
Southern Cross Building Society Staff Superannuation
Deposits owing to SCBS 1 1,704 35
P. 24
11 Fair value
(a) Financial instruments measured at fair value
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.
The Banking Group has an established framework in performing valuations required for financial reporting purposes including
Level 3 fair values. The Banking Group regularly reviews and calibrates significant unobservable inputs and valuation adjustments
tion specialists are engaged to measure fair values, the Banking
Group assesses the evidence obtained from these specialists to support the conclusion of these valuations. All significant
valuations are reported to the Banking Group's Board Audit and Risk Committee for approval prior to its adoption in the financial
statements.
Investments in debt securities
Investments in public sector securities and corporate bonds are classified at fair value through other comprehensive income
(FVOCI), with the fair value being based on quoted market prices (Level 1 under the fair value hierarchy).
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.
Investments in equity securities
Investments in equity securities are classified as fair value through profit or loss (FVTPL) unless an irrevocable election is made by
the Banking Group to measure at FVOCI. Investment in listed securities traded in liquid, active markets where prices are readily
observable are measured under Level 1 of the fair value hierarchy with no modelling or assumptions used in the valuation.
Investments in unlisted equity securities are measured under Level 3 of the fair value hierarchy with the fair value being based on
unobservable inputs using market accepted valuation techniques. Where appropriate, the Banking Group may apply adjustments
to the above-mentioned techniques to determine fair value of an equity security to reflect the underlying characteristics. These
adjustments are reflective of market participant considerations in valuing the said security.
Investment properties
Investment properties are initially recorded at their fair value, with subsequent changes in fair value recognised in profit or loss.
Fair values are determined by qualified independent valuers or other similar external evidence, adjusted for changes in market
conditions.
Investment properties have been acquired through the enforcement of security over finance receivables and are held to earn
rental income or for capital appreciation (or both).
Finance receivables - reverse mortgages
Reverse mortgage loans are classified at FVTPL. On initial recognition the Banking Group considers the transaction price to
represent the fair value of the loan.
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.
When the Banking Group enters into reverse mortgage loans
and future risk profile and expectation of performance. This expectation references a wide range of assumptions including:
Mortality and potential move into care;
Voluntary exits;
House price changes;
No negative equity guarantee; and
Interest rate margin.
P. 25
11 Fair value (continued)
(a) Financial instruments measured at fair value (continued)
Finance receivables - reverse mortgages (continued)
At 31 December 2022 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. Fair value is not highly sensitive to the
above assumptions in the longer term due to the nature and term of the reverse mortgage loans. In particular, given conservative
origination loan-to-value ratio criteria, a material deterioration in house prices combined with a material increase in interest rates
over a sustained period of time would likely need to occur before any potential impact to fair value.
The Banking Group continues to reassess the existence of a relevant active market and movements in expectations on an on-
going basis.
Derivative financial instruments
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).
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.
P. 26
11 Fair value (continued)
(a) Financial instruments measured at fair value (continued)
$000's Level 1 Level 2 Level 3 Total
Unaudited - December 2022
Assets
Investments 269,293 - 1,630 270,923
Investment properties - - 11,903 11,903
Derivative financial instruments - 50,729 - 50,729
Finance receivables - reverse mortgages - - 808,701 808,701
Total financial assets measured at fair value 269,293 50,729 822,234 1,142,256
Liabilities
Derivative financial instruments - 10,403 - 10,403
Total financial liabilities measured at fair value - 10,403 - 10,403
Unaudited - December 2021
Assets
Investments 229,452 61,745 1,503 292,700
Investment properties - - 11,832 11,832
Derivative financial instruments - 21,540 - 21,540
Finance receivables - reverse mortgages - - 648,865 648,865
Total financial assets measured at fair value 229,452 83,285 662,200 974,937
Liabilities
Derivative financial instruments - 3,400 - 3,400
Total financial liabilities measured at fair value - 3,400 - 3,400
Audited - June 2022
Assets
Investments 271,790 - 1,503 273,293
Investment properties - - 11,832 11,832
Derivative financial instruments - 44,487 - 44,487
Finance receivables - reverse mortgages - - 721,264 721,264
Total financial assets measured at fair value 271,790 44,487 734,599 1,050,876
Liabilities
Derivative financial instruments - 6,335 - 6,335
Total financial liabilities measured at fair value - 6,335 - 6,335
There were no transfers between any fair value hierarchy levels in the six months ended 31 December 2022 (December 2021: nil;
June 2022: nil).
P. 27
11 Fair value (continued)
(a) Financial instruments measured at fair value (continued)
The movement in Level 3 assets measured at fair value are below:
Finance Receivables Investment
$000's
- Reverse Mortgages Investments Properties Total
Unaudited - December 2022
As at 30 June 2022
721,264 1,503 11,832 734,599
New loans
107,071 - - 107,071
Repayments
(50,884) - - (50,884)
Capitalised interest and fees
31,231 - - 31,231
Purchase of investments
- 127 - 127
Fair value gain/(loss) on investments
- - - -
Other
19 - 71 90
As at 31 December 2022 808,701 1,630 11,903 822,234
Unaudited - December 2021
As at 30 June 2021
601,505 1,818 11,832 615,155
New loans
74,530 - - 74,530
Repayments
(46,330) - - (46,330)
Capitalised interest and fees
19,149 - - 19,149
Purchase of investments
- - - -
Fair value (loss) on investments
- (315) - (315)
Other
11 - - 11
As at 31 December 2021 648,865 1,503 11,832 662,200
Audited - June 2022
As at 30 June 2021
601,505 1,818 11,832 615,155
New loans
162,166 - - 162,166
Repayments
(83,629) - - (83,629)
Capitalised interest and fees
41,864 - - 41,864
Purchase of investments
- - - -
Fair value (loss) on investments
- (315) - (315)
Other
(642) - - (642)
As at 30 June 2022 721,264 1,503 11,832 734,599
P. 28
11 Fair value (continued)
(b) Financial instruments not measured at fair value
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.
Unaudited Unaudited Audited
December 2022 December 2021 June 2022
Total Total Total
Fair Value Total Fair Carrying Total Fair Carrying Total Fair Carrying
$000's Hierarchy Value Value Value Value Value Value
Assets
Cash and cash equivalents Level 1 296,551 296,551 137,937 137,937 221,469 221,469
Investments
1
Level 2 - - 4,615 4,616 2,418 2,421
Finance receivables Level 3 3,776,898 3,852,536 3,506,207 3,470,003 3,701,694 3,762,231
Due from related parties Level 3 548 548 1,345 1,345 1,540 1,540
Other financial assets Level 3 1,606 1,606 2,282 2,282 175 175
Total financial assets 4,075,603 4,151,241 3,652,386 3,616,183 3,927,296 3,987,836
Liabilities
Deposits Level 2 4,076,080 4,077,665 3,338,767 3,336,509 3,595,554 3,597,144
Other borrowings Level 2 518,644 518,644 622,336 622,336 749,478 749,478
Due to related parties
Level 3 - - 688 688 1,535 1,535
Other financial liabilities
2
Level 3 51,299 51,299 27,670 27,670 47,510 47,510
Total financial liabilities 4,646,023 4,647,608 3,989,461 3,987,203 4,394,077 4,395,667
1
Included within Investments at 31 December 2021 and 30 June 2022 are bank deposits which are held to support the Banking Group's
contractual cash flows. Such Investments are measured at amortised cost. There were no bank deposits within Investments at 31 December
2022.
2
Included within Other financial liabilities are $36.76 million of cash collateral received (December 2021: $16.32 million; June 2022: $32.34
million) against derivative assets as per the requirement of credit support annexes (CSAs) agreements.
P. 29
Risk Management
12 Enterprise risk management program
There have been no material changes in the Banking G
risk since the reporting date of the previous Disclosure Statement.
13 Credit risk exposure
(a) Maximum exposure to credit risk at the relevant reporting dates
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 interim statement of financial position.
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
On balance sheet:
Cash and cash equivalents 296,551 137,937 221,469
Investments 269,293 295,813 274,211
Finance receivables 3,852,536 3,470,003 3,762,231
Finance receivables - reverse mortgages 808,701 648,865 721,264
Derivative financial assets 50,729 21,540 44,487
Due from related parties 548 1,345 1,540
Other financial assets 1,606 2,282 175
Total on balance sheet credit exposures 5,279,964 4,577,785 5,025,377
Off balance sheet:
Letters of credit, guarantee commitments and performance bonds 5,931 7,217 8,969
Undrawn facilities available to customers 310,389 254,174 272,735
Conditional commitments to fund at future dates 25,007 21,646 34,791
Total off balance sheet credit exposures 341,327 283,037 316,495
Total credit exposures 5,621,291 4,860,822 5,341,872
As at 31 December 2022 there were no undrawn lending commitments available to counterparties for whom drawn balances are
classified as individually impaired (December 2021: nil; June 2022: $0.003 million).
(b) Concentration of credit risk by geographic region
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
New Zealand 5,464,699 4,680,875 5,176,026
Australia 639 675 3,520
Rest of the world
1
208,348 230,485 212,753
5,673,686 4,912,035 5,392,299
Provision for impairment (52,395) (51,213) (50,427)
Total credit exposures 5,621,291 4,860,822 5,341,872
1
These overseas assets are primarily NZD-denominated investments in AA+ (Standard & Poor's) and higher rated securities issued by offshore
supranational agencies e.g. Kauri Bonds.
P. 30
13 Credit risk exposure (continued)
(c) Concentration of credit risk by industry sector
The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for categorising
customer and investee industry sectors.
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Agriculture 755,096 667,835 747,618
Forestry and fishing 143,883 149,561 148,797
Mining 10,200 14,217 12,524
Manufacturing 80,501 85,737 78,432
Finance and insurance 786,562 594,370 685,938
Wholesale trade 42,665 35,543 41,986
Retail trade and accommodation 415,303 338,163 423,975
Households 2,268,703 1,972,869 2,134,097
Other business services 202,182 172,647 189,860
Construction 320,431 304,593 291,971
Rental, hiring and real estate services 211,581 180,689 199,388
Transport and storage 339,182 311,068 323,732
Other 97,397 84,743 113,981
5,673,686 4,912,035 5,392,299
Provision for impairment (52,395) (51,213) (50,427)
Total credit exposures 5,621,291 4,860,822 5,341,872
(d) Credit exposure to individual counterparties
credit exposure. Credit 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 are excluded.
The peak end-of-day aggregate concentration of credit exposure to individual counterparties has been calculated by determining
the maximum end-of-day aggregate amount of credit exposure over the relevant six-month period and then dividing the amount
pital as at 31 December 2022.
Unaudited
Unaudited Number of Exposures
Number of Exposures Peak End-of-Day over
As at December 2022
6 Months to December 2022
Exposures to banks
With a long-term credit rating of A- or A3 or above, or its equivalent:
10% to less than 15% of CET1 capital 1 1
15% to less than 20% of CET1 capital - -
20% to less than 25% of CET1 capital 1 1
25% to less than 30% of CET1 capital 1 1
With a long-term credit rating of at least BBB- or Baa3, or its equivalent,
and at most BBB+ or Baa1, or its equivalent
- -
Exposures to non-banks
Total number of exposures to non-banks that are greater than 10% to
less than 15% of CET1 capital that do not have a long-term credit rating.
1 1
P. 31
14 Asset quality
The disclosures in this note are categorised by the following credit risk concentrations:
Corporate Business lending including rural lending.
Residential 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.
All Other This relates primarily to consumer lending to individuals.
(a) Finance receivables by credit risk concentration
$000's Corporate Residential All Other Total
Unaudited - December 2022
Neither at least 90 days past due nor impaired 2,420,633 1,120,175 1,044,849 4,585,657
At least 90 days past due 27,564 350 31,061 58,975
Individually impaired 68,646 - 354 69,000
Gross finance receivables 2,516,843 1,120,525 1,076,264 4,713,632
Provision for impairment (42,093) (123) (10,179) (52,395)
Total net finance receivables 2,474,750 1,120,402 1,066,085 4,661,237
Unaudited - December 2021
Neither at least 90 days past due nor impaired 2,115,876 874,682 1,077,137 4,067,695
At least 90 days past due 15,321 135 22,965 38,421
Individually impaired 63,757 9 199 63,965
Gross finance receivables 2,194,954 874,826 1,100,301 4,170,081
Provision for impairment (32,511) (88) (18,614) (51,213)
Total net finance receivables 2,162,443 874,738 1,081,687 4,118,868
Audited - June 2022
Neither at least 90 days past due nor impaired 2,377,755 1,006,977 1,041,728 4,426,460
At least 90 days past due 15,276 131 25,872 41,279
Individually impaired 65,970 - 213 66,183
Gross finance receivables 2,459,001 1,007,108 1,067,813 4,533,922
Provision for impairment (40,196) (115) (10,116) (50,427)
Total net finance receivables 2,418,805 1,006,993 1,057,697 4,483,495
P. 32
14 Asset quality (continued)
(b) Past due but not individually impaired
$000's Corporate Residential All Other Total
Unaudited - December 2022
Less than 30 days past due 3,515 164 1,956 5,635
At least 30 but less than 60 days past due 9,268 386 11,035 20,689
At least 60 but less than 90 days past due 6,231 - 5,842 12,073
At least 90 days past due 27,564 350 31,061 58,975
Total past due but not individually impaired 46,578 900 49,894 97,372
Unaudited - December 2021
Less than 30 days past due 6,120 356 5,365 11,841
At least 30 but less than 60 days past due 7,077 207 9,022 16,306
At least 60 but less than 90 days past due 2,999 - 4,455 7,454
At least 90 days past due 15,321 135 22,965 38,421
Total past due but not individually impaired 31,517 698 41,807 74,022
Audited - June 2022
Less than 30 days past due 4,147 171 3,249 7,567
At least 30 but less than 60 days past due 15,320 263 10,751 26,334
At least 60 but less than 90 days past due 4,621 85 5,071 9,777
At least 90 days past due 15,276 131 25,872 41,279
Total past due but not individually impaired 39,364 650 44,943 84,957
P. 33
14 Asset quality (continued)
(c) Individually impaired assets
$000's Corporate Residential All Other Total
Unaudited - December 2022
Opening 65,970 - 213 66,183
Additions 17,174 - 141 17,315
Deletions (12,427) - - (12,427)
Write-offs (2,071) - - (2,071)
Closing gross individually impaired assets 68,646 - 354 69,000
Less: provision for individually impaired assets 18,222 - - 18,222
Total net individually impaired assets 50,424 - 354 50,778
Unaudited - December 2021
Opening 37,561 9 573 38,143
Additions 40,274 - - 40,274
Deletions (12,717) - (374) (13,091)
Write-offs (1,361) - - (1,361)
Closing gross individually impaired assets 63,757 9 199 63,965
Less: provision for individually impaired assets 12,675 - 1 12,676
Total net individually impaired assets 51,082 9 198 51,289
Audited - June 2022
Opening 37,561 9 573 38,143
Additions 58,396 - - 58,396
Deletions (26,577) (9) (360) (26,946)
Write-offs (3,410) - - (3,410)
Closing gross individually impaired assets 65,970 - 213 66,183
Less: provision for individually impaired assets 15,001 - - 15,001
Total net individually impaired assets 50,969 - 213 51,182
P. 34
14 Asset quality (continued)
(d) Provision for impairment
Lifetime
ECL Lifetime
Total
12 Months Not Credit ECL Credit Specific
$000's
ECL Impaired Impaired Provision
Unaudited - December 2022
Corporate
Impairment allowance as at 30 June 2022 19,353 897 4,945 15,001 40,196
Changes in loss allowance
Transfer between stages (3,700) (995) 737 3,958 -
New and increased provision (net of provision releases) 1,363 1,267 1,469 1,334 5,433
Credit impairment charge (2,337) 272 2,206 5,292 5,433
Write-offs - - (1,465) (2,071) (3,536)
Impairment allowance as at 31 December 2022 17,016 1,169 5,686 18,222 42,093
Residential
Impairment allowance as at 30 June 2022 115 - - - 115
Changes in loss allowance
Transfer between stages - - - - -
New and increased provision (net of provision releases) 8 - - - 8
Credit impairment charge 8 - - - 8
Write-offs - - - - -
Impairment allowance as at 31 December 2022 123 - - - 123
All Other
Impairment allowance as at 30 June 2022 (267) 966 9,417 - 10,116
Changes in loss allowance
Transfer between stages (234) (950) 1,184 - -
New and increased provision (net of provision releases) 1,379 1,059 2,275 - 4,713
Credit impairment charge 1,145 109 3,459 - 4,713
Write-offs - - (4,650) - (4,650)
Impairment allowance as at 31 December 2022 878 1,075 8,226 - 10,179
P. 35
14 Asset quality (continued)
(d) Provision for impairment (continued)
Lifetime
ECL Lifetime
Total
12 Months Not Credit ECL Credit Specific
$000's
ECL Impaired Impaired Provision
Unaudited - December 2022
Total
Impairment allowance as at 30 June 2022 19,201 1,863 14,362 15,001 50,427
Changes in loss allowance
Transfer between stages (3,934) (1,945) 1,921 3,958 -
New and increased provision (net of provision releases) 2,750 2,326 3,744 1,334 10,154
Credit impairment charge (1,184) 381 5,665 5,292 10,154
Write-offs - - (6,115) (2,071) (8,186)
Impairment allowance as at 31 December 2022 18,017 2,244 13,912 18,222 52,395
Lifetime
ECL Lifetime
12 Months Not Credit ECL Credit Specific
$000's
ECL Impaired Impaired Provision Total
Unaudited - December 2021
Corporate
Impairment allowance as at 30 June 2021
16,586 1,218 4,844 7,629 30,277
Changes in loss allowance
Transfer between stages (2,196) (454) (60) 2,710 -
New and increased provision (net of provision releases) (137) 90 2,021 3,555 5,529
Credit impairment charge (2,333) (364) 1,961 6,265 5,529
Write-offs
- - (2,076) (1,219) (3,295)
Impairment allowance as at 31 December 2021 14,253 854 4,729 12,675 32,511
Residential
Impairment allowance as at 30 June 2021
88 - - - 88
Changes in loss allowance
Transfer between stages
- - - - -
New and increased provision (net of provision releases) - - - - -
Credit impairment charge - - - - -
Write-offs
- - - - -
Impairment allowance as at 31 December 2021 88 - - - 88
P. 36
14 Asset quality (continued)
(d) Provision for impairment (continued)
Lifetime
ECL Lifetime
12 Months Not Credit ECL Credit Specific
$000's
ECL Impaired Impaired Provision Total
Unaudited - December 2021
All Other
Impairment allowance as at 30 June 2021
7,758 1,138 11,787 - 20,683
Changes in loss allowance
Transfer between stages
(84) (659) 742 1 -
New and increased provision (net of provision releases) (256) 348 4,184 - 4,276
Credit impairment charge (340) (311) 4,926 1 4,276
Write-offs
- - (6,345) - (6,345)
Impairment allowance as at 31 December 2021 7,418 827 10,368 1 18,614
Total
Impairment allowance as at 30 June 2021
24,432 2,356 16,631 7,629 51,048
Changes in loss allowance
Transfer between stages
(2,280) (1,113) 682 2,711 -
New and increased provision (net of provision releases) (392) 437 6,205 3,555 9,805
Credit impairment charge (2,672) (676) 6,887 6,266 9,805
Write-offs
- - (8,421) (1,219) (9,640)
Impairment allowance as at 31 December 2021 21,760 1,680 15,097 12,676 51,213
Lifetime
ECL Lifetime
12 Months Not Credit ECL Credit Specific
$000's
ECL Impaired Impaired Provision Total
Audited - June 2022
Corporate
Impairment allowance as at 30 June 2021
16,586 1,218 4,844 7,629 30,277
Changes in loss allowance
Transfer between stages
(3,614) (1,060) (601) 5,275 -
New and increased provision (net of provision releases) 6,381 739 4,164 5,507 16,791
Credit impairment charge 2,767 (321) 3,563 10,782 16,791
Write-offs
- - (3,462) (3,410) (6,872)
Impairment allowance as at 30 June 2022 19,353 897 4,945 15,001 40,196
P. 37
14 Asset quality (continued)
(d) Provision for impairment (continued)
Lifetime
ECL Lifetime
12 Months Not Credit ECL Credit Specific
$000's
ECL Impaired Impaired Provision Total
Audited - June 2022
Residential
Impairment allowance as at 30 June 2021
88 - - - 88
Changes in loss allowance
Transfer between stages
- - - - -
New and increased provision (net of provision releases) 27 - - - 27
Credit impairment charge 27 - - - 27
Write-offs
- - - - -
Impairment allowance as at 30 June 2022 115 - - - 115
All Other
Impairment allowance as at 30 June 2021
7,758 1,138 11,787 - 20,683
Changes in loss allowance
Transfer between stages
(192) (1,440) 1,632 - -
New and increased provision (net of provision releases) (7,833) 1,268 7,194 - 629
Credit impairment charge (8,025) (172) 8,826 - 629
Recovery of amounts previously written off
- - - - -
Write-offs
- - (11,196) - (11,196)
Impairment allowance as at 30 June 2022 (267) 966 9,417 - 10,116
Total
Impairment allowance as at 30 June 2021
24,432 2,356 16,631 7,629 51,048
Changes in loss allowance
Transfer between stages
(3,806) (2,500) 1,031 5,275 -
New and increased provision (net of provision releases) (1,425) 2,007 11,358 5,507 17,447
Credit impairment charge (5,231) (493) 12,389 10,782 17,447
Write-offs
- - (14,658) (3,410) (18,068)
Impairment allowance as at 30 June 2022 19,201 1,863 14,362 15,001 50,427
P. 38
14 Asset quality (continued)
(e) Other assets under administration
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 31 December 2022, the Banking Group had $2.3 million assets under administration (December 2021: $1.0 million, June
2022: $1.0 million).
15 Liquidity risk
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 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 holds the following liquid assets and committed funding sources for the purpose of managing liquidity risk:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Cash and cash equivalents 296,551 137,937 221,469
Investments 269,293 295,813 274,211
Undrawn committed bank facilities 208,909 165,261 132,221
Total liquid assets and committed undrawn bank facilities 774,753 599,011 627,901
Contractual liquidity profile of financial liabilities
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.
P. 39
15 Liquidity risk (continued)
Contractual liquidity profile of financial liabilities (continued)
On 0-6 6-12 1-2 2-5 5+
$000's Demand Months Months Years Years Years Total
Unaudited - December 2022
Non-derivative financial liabilities
Deposits
807,429 2,369,117 837,546 86,351 35,931 - 4,136,374
Other borrowings
- 217,913 7,998 324,826 - - 550,737
Lease liabilities
- 1,346 1,356 2,669 6,862 3,827 16,060
Other financial liabilities
- 51,299 - - - - 51,299
Total non-derivative financial liabilities 807,429 2,639,675 846,900 413,846 42,793 3,827 4,754,470
Derivative financial liabilities
Inflows from derivatives
- 2,121 2,268 3,221 1,965 - 9,575
Outflows from derivatives
- 3,751 4,687 5,509 2,577 - 16,524
Total derivative financial liabilities - 1,630 2,419 2,288 612 - 6,949
Undrawn facilities available to customers
310,389 - - - - - 310,389
Unaudited - December 2021
Non-derivative financial liabilities
Deposits
851,280 1,776,648 568,895 105,741 54,417 - 3,356,981
Other borrowings
- 118,017 156,616 242,902 126,252 - 643,787
Due to related parties
- 688 - - - - 688
Lease liabilities
- 1,320 1,327 2,685 7,320 5,990 18,642
Other financial liabilities
- 27,670 - - - - 27,670
Total non-derivative financial liabilities 851,280 1,924,343 726,838 351,328 187,989 5,990 4,047,768
Derivative financial liabilities
Inflows from derivatives
- 3,277 4,065 6,936 5,303 - 19,581
Outflows from derivatives
- 5,206 4,222 7,396 5,107 - 21,931
Total derivative financial liabilities - 1,929 157 460 (196) - 2,350
Undrawn facilities available to customers
254,174 - - - - - 254,174
P. 40
15 Liquidity risk (continued)
Contractual liquidity profile of financial liabilities (continued)
On 0-6 6-12 1-2 2-5 5+
$000's Demand Months Months Years Years Years Total
Audited - June 2022
Non-derivative financial liabilities
Deposits
892,612 2,028,225 561,468 103,192 41,655 - 3,627,152
Other borrowings
- 368,926 7,251 397,859 - - 774,036
Due to related parties
- 1,535 - - - - 1,535
Lease liabilities
- 1,282 1,292 2,615 6,985 4,911 17,085
Other financial liabilities
- 47,510 - - - - 47,510
Total non-derivatives financial liabilities 892,612 2,447,478 570,011 503,666 48,640 4,911 4,467,318
Derivative financial liabilities
Inflows from derivatives
- 5,007 1,759 3,505 813 - 11,084
Outflows from derivatives
- 3,893 3,227 6,621 839 - 14,580
Total derivative financial liabilities - (1,114) 1,468 3,116 26 - 3,496
Undrawn facilities available to customers
272,735 - - - - - 272,735
P. 41
16 Interest rate risk
Contractual repricing analysis
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.
Non-
0-3 3-6 6-12 1-2 2+ Interest
$000's Months Months Months Years Years Bearing Total
Unaudited - December 2022
Financial assets
Cash and cash equivalents 296,541 - - - - 10 296,551
Investments 30,308 20,862 53,883 56,209 108,031 1,630 270,923
Finance receivables 1,655,587 180,941 371,333 680,717 890,574 73,384 3,852,536
Finance receivables - reverse mortgages 808,701 - - - - - 808,701
Due from related parties - - - - - 548 548
Derivative financial assets - - - - - 50,729 50,729
Other financial assets - - - - - 1,606 1,606
Total financial assets 2,791,137 201,803 425,216 736,926 998,605 127,907 5,281,594
Financial liabilities
Deposits 2,381,738 743,604 805,089 81,738 31,887 33,609 4,077,665
Other borrowings 98,147 107,343 - 120,374 - 1,689 327,553
Securitised borrowings 191,091 - - - - - 191,091
Derivative financial liabilities - - - - - 10,403 10,403
Lease liabilities - - - - - 14,615 14,615
Other financial liabilities - - - - - 51,299 51,299
Total financial liabilities 2,670,976 850,947 805,089 202,112 31,887 111,615 4,672,626
Effect of derivatives held for risk
management
1,011,804 (41,932) (176,843) (349,844) (443,185) - -
Net financial assets/(liabilities) 1,131,965 (691,076) (556,716) 184,970 523,533 16,292 608,968
Unaudited - December 2021
Financial assets
Cash and cash equivalents 137,936 - - - - 1 137,937
Investments 22,884 1,101 - 120,826 151,003 1,502 297,316
Finance receivables 1,592,561 163,419 307,064 495,447 840,205 71,307 3,470,003
Finance receivables - reverse mortgages 648,865 - - - - - 648,865
Due from related parties - - - - - 1,345 1,345
Derivative financial assets - - - - - 21,540 21,540
Other financial assets - - - - - 2,282 2,282
Total financial assets 2,402,246 164,520 307,064 616,273 991,208 97,977 4,579,288
Financial liabilities
Deposits 1,874,853 730,076 561,848 102,537 50,654 16,541 3,336,509
Other borrowings 286,552 60,714 151,260 - 123,810 - 622,336
Derivative financial liabilities - - - - - 3,400 3,400
Due to related parties - - - - - 688 688
Lease liabilities - - - - - 16,703 16,703
Other financial liabilities - - - - - 27,670 27,670
Total financial liabilities 2,161,405 790,790 713,108 102,537 174,464 65,002 4,007,306
Effect of derivatives held for risk
management
669,798 (67,794) (8,974) (295,757) (297,273) - -
Net financial assets/(liabilities) 910,639 (694,064) (415,018) 217,979 519,471 32,975 571,982
P. 42
16 Interest rate risk (continued)
Contractual repricing analysis (continued)
Non-
0-3 3-6 6-12 1-2 2+ Interest
$000's Months Months Months Years Years Bearing Total
Audited - June 2022
Financial assets
Cash and cash equivalents 221,460 - - - - 9 221,469
Investments 1,568 854 51,144 91,974 128,672 1,502 275,714
Finance receivables 1,730,148 178,756 323,766 558,256 910,399 60,906 3,762,231
Finance receivables - reverse mortgages 721,264 - - - - - 721,264
Due from related parties - - - - - 1,540 1,540
Derivative financial assets - - - - - 44,487 44,487
Other financial assets - - - - - 175 175
Total financial assets 2,674,440 179,610 374,910 650,230 1,039,071 108,619 5,026,880
Financial liabilities
Deposits 2,194,973 684,378 546,718 99,196 38,325 33,554 3,597,144
Other borrowings 548,488 78,911 - 121,191 - 888 749,478
Derivative financial liabilities - - - - - 6,335 6,335
Due to related parties - - - - - 1,535 1,535
Lease liabilities - - - - - 15,726 15,726
Other financial liabilities - - - - - 47,510 47,510
Total financial liabilities 2,743,461 763,289 546,718 220,387 38,325 105,548 4,417,728
Effect of derivatives held for risk
management
986,194 (76,349) (127,004) (309,781) (473,060) - -
Net financial assets/(liabilities) 917,173 (660,028) (298,812) 120,062 527,686 3,071 609,152
P. 43
17 Concentrations of funding
(a) Regulatory liquidity ratios
RBNZ requires banks to hold minimum amounts of liquid assets to help ensure that they are effectively managing their liquidity
one-
month or one-total funding. The Banking Group must maintain its
one-month and one-week mismatch ratios above zero on a daily basis. The below one-month and one-week mismatch ratios are
averaged over the quarter.
RBNZ requires banks to hold a minimum amount of funding from stable sources called core funding. The minimum amount of
core funding is 75% of a bank's total loans. The Banking Group must maintain its core funding ratio above the regulatory minimum
on a daily basis. The below measure of the core funding ratio is averaged over the quarter.
Unaudited
Average for the 3 Months
Ended 31 December 2022
Unaudited
Average for the 3 Months
Ended 30 September 2022
One-week mismatch ratio 7.97 8.29
One-month mismatch ratio 7.56 7.04
Core funding ratio 90.36 89.12
(b) Concentration of funding by industry
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Agriculture 120,145 102,123 113,848
Forestry and fishing 13,670 18,182 14,391
Mining 368 119 1,524
Manufacturing 18,105 14,645 18,643
Finance and insurance 927,300 842,073 960,175
Wholesale trade 6,281 10,354 5,854
Retail trade and accommodation 23,596 24,204 19,491
Households 3,142,298 2,474,259 2,754,452
Rental, hiring and real estate services 64,848 57,392 43,797
Construction 37,511 25,959 28,449
Other business services 76,177 61,446 66,731
Transport and storage 5,061 4,713 4,598
Other 40,575 45,417 41,686
4,475,935 3,680,886 4,073,639
Unsubordinated Notes 120,374 277,959 272,983
Total borrowings 4,596,309 3,958,845 4,346,622
(c) Concentration of funding by geographical area
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
New Zealand 4,463,943 3,866,286 4,241,026
Overseas 132,366 92,559 105,596
Total borrowings 4,596,309 3,958,845 4,346,622
P. 44
Other Disclosures
18 Structured entities
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.
(a) Heartland Cash and Term PIE Fund (Heartland PIE Fund)
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:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Deposits 188,421 151,830 149,824
(b) Heartland Auto Receivable Warehouse Trust 2018-1 (Auto Warehouse)
The Auto Warehouse securitises motor loan receivables as a source of funding.
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.
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Cash and cash equivalents 14,229 19,840 20,197
Finance receivables - motor 213,958 273,289 312,239
Other borrowings (217,634) (275,787) (315,308)
P. 45
19 Capital adequacy
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 31 December 2022.
Internal Capital Adequacy Assessment Process (ICAAP)
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)" Part D of the Banking Prudential Requirements (BPR) documents: BPR100 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. 46
19 Capital adequacy (continued)
(a) Capital
Unaudited
$000's December 2022
Tier 1 Capital
CET1 capital
Paid-up ordinary shares issued by the Banking Group plus related share premium 553,239
Retained earnings (net of appropriations) 155,338
Accumulated other comprehensive income and other disclosed reserves 14,511
Less deductions from CET1 capital
Intangible assets (61,719)
Deferred tax asset (15,648)
Cash flow hedge reserve (16,124)
Total CET1 capital 629,597
AT1 capital -
Total Tier 1 capital 629,597
Tier 2 capital -
Total Tier 2 capital -
Total capital 629,597
(b) Capital structure
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 BPR110 Capital Definitions transitional arrangements.
Ordinary shares
In accordance with BPR110, 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.
Retained earnings
Retained earnings is the accumulated profit or loss that has been retained in the Banking Group. Retained earnings is classified as
CET1 capital.
Reserves classified as CET1 capital
Fair value reserve The debt instrument fair value reserve comprises the changes in the fair value of investments, net of
tax.
Cash flow hedge reserve The hedging reserve comprises the fair value gains and losses associated with the effective portion of
designated cash flow hedging instruments.
P. 47
19 Capital adequacy (continued)
(c) Credit risk
On balance sheet exposures
Total
Exposure
Minimum
After Credit Risk
Pillar 1
Risk Risk Weighted
Capital
Mitigation Weight Exposure
Requirement
$000's % $000's $000's
Unaudited - December 2022
Multilateral development banks 113,419 0% - -
Multilateral development banks 92,881 20% 18,576 1,486
Banks - Short term - Tier 1 - 20% - -
Banks - Short term - Tier 2 296,551 20% 59,310 4,745
Banks - Short term - Tier 3 - 20% - -
Banks - Long term - Tier 1 - 20% - -
Banks - Long term - Tier 2 48,329 50% 24,164 1,933
Banks - Long term - Tier 3 1 50% - -
Public sector entity (AA- and above) 14,665 20% 2,933 235
Public sector entity (A- and above) - 50% - -
Public sector entity (BBB+, BBB, BBB-) - 100% - -
Corporates (AA- and above) - 20% - -
Corporates (A- and above) - 50% - -
Corporates (BBB- and above) - 100% - -
Corporate Exposures - BFGS 48,458 20% 9,692 775
Corporate Exposures - unrated 2,036,664 100% 2,036,664 162,933
Welcome Home Loans - loan to value ratio (LVR) <= 80%
1
1,387 35% 485 39
Welcome Home Loans - loan to value ratio (LVR) <= 90%
1
- 35% - -
Welcome Home Loans - LVR 90% >= 100%
1
- 50% - -
Welcome Home Loans - LVR > 100%
1
- 100% - -
Reverse Residential mortgages <= 60% LVR 805,100 50% 402,550 32,204
Reverse Residential mortgages 60 <= 80% LVR 3,601 80% 2,880 230
Reverse Residential mortgages > 80% LVR - 100% - -
Reverse Residential mortgages > 100% LVR - 100% - -
Non Property Investment Mortgage Loan <=80% LVR 307,740 35% 107,709 8,617
Non Property Investment Mortgage Loan 80 <= 90% LVR - 50% - -
Non Property Investment Mortgage Loan 90 <= 100% LVR 538 75% 404 32
Non Property Investment Mortgage Loan > 100% LVR - 100% - -
Property Investment Mortgage Loan <= 80% LVR 1,686 40% 674 54
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 mortgages 350 100% 350 28
Other past due assets - provision >= 20% 42,548 100% 42,548 3,404
Other past due assets - provision < 20% 46,761 150% 70,141 5,611
Equity holdings - 300% - -
All other equity holdings 1,615 400% 6,460 517
Fixed Assets 6,551 100% 6,551 524
Leased Assets 12,602 100% 12,602 1,008
Other assets 1,399,918 100% 1,399,918 111,993
Not risk weighted assets 77,367 0% - -
Total on balance sheet exposures 5,358,732 4,204,611 336,368
1
The Home loans that
are guaranteed by the Crown.
P. 48
19 Capital adequacy (continued)
(c) Credit risk (continued)
Off balance sheet exposures
Minimum
Credit Credit Average Risk Pillar 1
Total Conversion Equivalent Risk Weighted Capital
Exposure Factor Amount Weight Exposure Requirement
$000's % $000's % $000's $000's
Unaudited - December 2022
Direct credit substitute 942 100% 942 100% 942 75
Performance-related contingency 4,988 50% 2,494 100% 2,494 200
Other commitments where original maturity is
more than one year
196,858 50% 98,429 100% 98,429 7,874
Other commitments where original maturity is
more than one year
33,189 50% 16,595 35% 5,808 465
Other commitments where original maturity is
less than or equal to one year
60,005 20% 12,001 100% 12,001 960
Other commitments where original maturity is
less than or equal to one year
44,918 20% 8,984 50% 4,492 359
Other commitments where original maturity is
less than or equal to one year
426 20% 85 35% 30 2
Counterparty credit risk
1
Interest rate contracts 1,335,876 n/a 45,566 33% 14,839 1,187
FX forward contracts - n/a - 0% - -
Credit valuation adjustment - - 13,724 1,098
Total off balance sheet exposures 1,677,202 185,096 152,759 12,220
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
Unaudited - December 2022
Does not exceed 80% 1,119,514 78,533 1,198,047
Exceeds 80% and not 90% - - -
Exceeds 90% 888 - 888
Total exposures 1,120,402 78,533 1,198,935
1
Off balance sheet exposures means unutilised limits.
At 31 December 2022, there were no
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 BPR131. All new residential mortgages in respect of
non-property investments lending have a loan-to-valuation ratio of less than or equal to 80%.
P. 49
19 Capital adequacy (continued)
(e) Reconciliation of mortgage related amounts
Unaudited
$000's Note December 2022
Gross finance receivables - reverse mortgages 7(b) 808,701
Loans and advances - loans with residential mortgages
311,824
On balance sheet residential mortgage exposures subject to the standardised approach 14(a) 1,120,525
Less: collective provision for impairment
14(a)
(123)
On balance sheet residential mortgage exposures after collective provision 19(d) 1,120,402
Off balance sheet mortgage exposures subject to the standardised approach
19(d)
78,533
Total residential exposures subject to the standardised approach 19(d) 1,198,935
(f) Credit risk mitigation
As at 31 December 2022 the Banking Group had $1.4 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.
(g) Operational risk
Implied Risk Total Operational Risk
$000's Weight Exposure Capital Requirement
Unaudited - December 2022
Operational risk 288,949 23,116
Operational risk is calculated based on the previous 12 quarters of the Banking Group.
(h) Market risk
Implied Risk Aggregate
$000's
Weighted Exposure Capital Charge
Unaudited - December 2022
Market risk end-of-period capital charge
Equity risk 1,615 129
Interest rate risk 140,542 11,243
Foreign currency risk 128 10
Market risk peak end-of-period capital charge
Equity risk 1,615 129
Interest rate risk 159,841 12,787
Foreign currency risk 292 23
PR140. Peak end-of-day capital charge disclosure
is derived by taking the highest month end market exposure over the six months ended 31 December 2022. Interest rate risk,
foreign exchange risk and equity risk are calculated monthly using the month end position. While the Banking Group views this
methodology as being materially correct, it is currently investigating the impact a daily aggregate market risk exposure would
have for future reporting periods.
P. 50
19 Capital adequacy (continued)
(i) Total capital requirement
Risk Weighted Exposure
Total Exposure After or Implied Risk
$000's
Credit Risk Mitigation Weighted Exposure Total Capital Requirement
Unaudited - December 2022
Total credit risk
On balance sheet 5,358,732 4,204,611 336,368
Off balance sheet 1,677,202 152,759 12,220
Operational risk n/a 288,949 23,116
Market risk n/a 142,285 11,382
Total 7,035,934 4,788,604 383,086
(j) Capital ratios
Unaudited Unaudited
% December 2022 December 2021
Capital ratios compared to minimum ratio requirements
Common Equity Tier 1 Capital expressed as a percentage of total risk weighted exposures 13.15% 13.98%
Minimum Common Equity Tier 1 Capital as per Conditions of Registration 4.50% 4.50%
Tier 1 Capital expressed as a percentage of total risk weighted exposures 13.15% 13.98%
Minimum Tier 1 Capital as per Conditions of Registration 6.00% 6.00%
Total Capital expressed as a percentage of total risk weighted exposures 13.15% 13.98%
Minimum Total Capital as per Conditions of Registration 8.00% 8.00%
Buffer ratio
Buffer ratio 5.15% 5.98%
Buffer trigger ratio 2.50% 2.50%
(k) Solo capital adequacy
Unaudited Unaudited
% December 2022 December 2021
Capital ratios compared to minimum ratio requirements
Common Equity Tier 1 Capital expressed as a percentage of total risk weighted exposures 13.72% 14.80%
Tier 1 Capital expressed as a percentage of total risk weighted exposures 13.72% 14.80%
Total Capital expressed as a percentage of total risk weighted exposures 13.72% 14.80%
For the purposes of calculating capital adequacy on a solo basis, subsidiaries which are both wholly owned and wholly funded by
the Bank are consolidated with the Bank.
(l) Capital for other material risks
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 31
December 2022, the Banking Group has made an internal capital allocation of $9.4 million to cover these risks (December 2021:
$9.1 million; June 2022: $8.4 million).
P. 51
20 Insurance business, securitisation, funds management, other fiduciary activities
Insurance business
Marac Insurance Limited (MIL), a subsidiary of HBL, ceased writing insurance policies in 2020 with the periodic policies expected
to expire in 2025.
The Banking Group's aggregate amount of insurance business comprises the total consolidated assets of MIL of $7.3 million
(December 2021: $8.3 million; June 2022: $7.4 million), which represents 0.14% of the total consolidated assets of the Banking
Group (December 2021: 0.18%; June 2022: 0.14%).
Securitisation, funds management and other fiduciary activities
ial
in either case since the reporting
date of the previous Disclosure Statement.
Risk management
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. There have been no material changes to those policies and procedures
since the reporting date of the previous Disclosure Statement.
Provision of financial services and asset purchases
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.
Any assets purchased from such entities have been purchased on arm's length terms and conditions and at fair value.
21 Contingent liabilities and commitments
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 would become
possible obligations, or present obligations if known, where the transfer of economic benefit is uncertain or cannot be reliably
measured. Contingent Liabilities are not recognised, but are disclosed, unless they are deemed remote. Where some loss is
considered probable and can be reliably estimated, provisions have been made on a case by case basis.
Contingent liabilities and credit related commitments arising in respect of the Banking Group's operations were:
Unaudited Unaudited Audited
$000's December 2022 December 2021 June 2022
Letters of credit, guarantee commitments and performance bonds 5,931 7,217 8,969
Total contingent liabilities 5,931 7,217 8,969
Undrawn facilities available to customers 310,389 254,174 272,735
Conditional commitments to fund at future dates 25,007 21,646 34,791
Total commitments 335,396 275,820 307,526
P. 52
22 Events after reporting date
Severe weather events across the North Island of New Zealand
Subsequent to the reporting period, severe weather events, including flooding in Auckland and Cyclone Gabrielle, have impacted
regions across the North Island of New Zealand. These events have had a devastating effect on individuals and businesses,
particularly in Northland
In both events, the Bank implemented a targeted call programme to customers in affected areas, or areas of high risk. This is an
ongoing process as the situation evolves and the nature and extent of the damage is understood by customers. The Bank has
been working with customers to provide support as they need it. Support has included deferred loan repayments, interest only
payments, additional funding or other solutions determined on a case-by-case basis.
he areas most heavily impacted by Cyclone
Gabrielle is limited. The Bank will continue to support its Auckland-based customers, as well as its rural, livestock, forestry and
transportation customers on the East Coast, and in the months ahead. However, at the date the consolidated financial statements
were signed, the Bank does not consider there to be a material risk to the business from either event.
Proposed unsecured notes issuance
The Bank is considering making an offer of up to $75 million (with the right to accept oversubscriptions of up to an additional $50
and certain overseas institutional investors. The
Dividends
The Bank resolved to pay a cash dividend to its parent company HGH of $30 million on its ordinary shares on 27 February 2023.
There were no other events subsequent to the reporting period which would materially affect the consolidated financial
statements.
P. 53
Conditions of Registration
As at 31 December 2022, there have been no changes to the Conditions of Registration.
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.
PricewaterhouseCoopers, 15 Customs Street West, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent auditor’s review report
To the shareholder of Heartland Bank Limited
Report on the Consolidated Interim Financial Statements and the
Supplementary Information (excluding the information relating to capital
adequacy and regulatory liquidity requirements disclosed in accordance with
Schedule 9)
Our conclusion
We have reviewed theconsolidated interim financial statements (the “Financial Statements”) for the six
month period ended 31 December 2022 of Heartland Bank Limited (the “Bank”) and the entities it
controlled at 31 December 2022 or from time to time during the period (together, the “Banking Group”)
as required by clause 25 of the Registered Bank Disclosure Statements (New Zealand Incorporated
Registered Banks) Order 2014 (as amended) (the “Order”) and the supplementary information disclosed
in accordance with Schedules 5, 7, 13, 16 and 18 of the Order (the “Supplementary Information”),
excluding the information relating to capital adequacy and regulatory liquidity requirements disclosed in
accordance with Schedule 9 of the Order contained in the half year disclosure statement (the
“Disclosure Statement”).
The Financial Statements comprise the consolidated interim statement of financial position as at 31
December 2022, the related consolidated interim statement of comprehensive income, consolidated
interim statement of changes in equity and consolidated interim statement of cash flows for the six
month period then ended and explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying:
Financial Statements have not been prepared, in all material respects, in accordance with New
Zealand Equivalent to International Accounting Standard 34 Interim Financial Reporting (“NZ IAS
34”) and International Accounting Standard 34 Interim Financial Reporting(“IAS 34”); and
Supplementary Information that is required to be disclosed in accordance with Schedules 5, 7, 13,
16 and 18 of the Order:
does not present fairly, in all material respects, the matters to which it relates; or
is not disclosed, in all material respects, in accordance with those schedules; or
has not been prepared, in all material respects, in accordance with any conditions of
registration relating to disclosure requirements imposed under section 74(4)(c) of the Banking
(Prudential Supervision) Act 1989.
Basis for conclusion
We conducted our review in accordance with the New Zealand Standard on Review Engagements
2410 (Revised) Review of Financial Statements Performed by the Independent Auditor of the Entity
(“NZ SRE 2410 (Revised)”).Our responsibilities are further described in the Auditor’s responsibilities
for the review of the Financial Statements and Supplementary Informationsection of our report.
We are independent of the Banking Group in accordance with the relevant ethical requirements in
New Zealand relating to the audit of the annual financial statements, and we have fulfilled our other
ethical responsibilities in accordance with these ethical requirements. In addition to our role as auditor,
our firm carried out an actuarial service in respect of reverse mortgages for the Banking Group. In
addition, certain partners and employees of our firm may deal with the Banking Group on normal terms
within the ordinary course of trading activities of the Banking Group. These matters have not impaired
our independence.
PwC55
Responsibilities of the Directors for the Disclosure Statement
The Directors are responsible, on behalf of the Bank, for the preparation and fair presentation of the
Financial Statements in accordance with clause 25 of the Order, NZ IAS 34 and IAS 34 and for such
internal control as the Directors determine is necessary to enable the preparation of the Financial
Statements that are free from material misstatement, whether due to fraud or error.
In addition, the Directors are responsible, on behalf of the Bank, for the preparation and fair
presentation of the Disclosure Statement which includes:
all of the information prescribed in Schedule 3 of the Order; and
the information prescribed in Schedules 5, 7, 13, 16 and 18 of the Order.
Auditor’s responsibilities for the review of the Financial Statements and Supplementary
Information
Our responsibility is to express a conclusion on the Financial Statements and Supplementary
Information based on our review. NZ SRE 2410 (Revised) requires us to conclude whether anything
has come to our attention that causes us to believe that the:
Financial Statements, taken as a whole, have not been prepared, in all material respects, in
accordance with NZ IAS 34 and IAS 34; and
Supplementary Information that is required to be disclosed in accordance with Schedules 5, 7, 13,
16 and 18 of the Order:
odoes not present fairly, in all material respects, the matters to which it relates; or
ois not disclosed, in all material respects, in accordance with those schedules; or
ohas not been prepared, in all material respects, in accordance with any conditions of
registration relating to disclosure requirements imposed under section 74(4)(c) of the
Banking (Prudential Supervision) Act 1989.
A review in accordance with NZ SRE 2410 (Revised) is a limited assurance engagement. We perform
procedures, 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
International Standards on Auditing (New Zealand) and International Standards on Auditing and
consequently do not enable us to obtain assurance that we might identify in an audit. Accordingly, we
do not express an audit opinion on the Financial Statements and Supplementary Information.
Who we report to
This report is made solely to the Bank’s shareholder. Our review work has been undertaken so that we
might state those matters which we are required to state to them in our review 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 Bank’s shareholder for our review procedures, for this report, or for the conclusions we
have formed.
The engagement partner on the review resulting in this independent auditor’s review reportis Karen
Shires.
For and on behalf of:
Chartered Accountants Auckland
27 February 2023
PricewaterhouseCoopers, 15 Customs Street West, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent Assurance Report
To the shareholder of Heartland Bank Limited
Limited assurance report on compliance with the information required on capital
adequacy and regulatory liquidity requirements
Our conclusion
We have undertaken a limited assurance engagement on Heartland Bank Limited’s (the “Bank”)
compliance, in all material respects, with clause 22 of the Registered Bank Disclosure Statements (New
Zealand Incorporated Registered Banks) Order 2014 (as amended)(the “Order”) which requires
information prescribed in Schedule 9 of the Order relating to capital adequacy and regulatory liquidity
requirements to be disclosed in its half year Disclosure Statement for the six month period ended 31
December 2022 (the “Disclosure Statement”).
Based on the procedures we have performed and the evidence we have obtained, nothing has come to
our attention that causes us to believe that the Bank’s information relating to capital adequacy and
regulatory liquidity requirements, included in the Disclosure Statement in compliance with clause 22 of the
Order and disclosed in notes 17(a) and 19, is not, in all material respects, disclosed in accordance with
Schedule 9 of the Order.
Basis for conclusion
We have conducted our engagement in accordance with Standard on Assurance Engagements (SAE)
3100 (Revised) Compliance Engagements (“SAE 3100 (Revised)”)issued by the New Zealand Auditing
and Assurance Standards Board.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our
conclusion.
Directors’ responsibilities
The Directors are responsible on behalf of the Bank for compliance with the Order, including clause 22 of
the Order which requires information relating to capital adequacy and regulatory liquidity requirements
prescribed in Schedule 9 of the Order to be included in the Disclosure Statement, for the identification of
risks that may threaten compliance with that clause, controls that would mitigate those risks and
monitoring ongoing compliance.
Our independence and quality management
We have complied with the independence and other ethical requirements of 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, which is
founded on the fundamental principles of integrity, objectivity, professional competence and due care,
confidentiality and professional behaviour.
We apply Professional and Ethical Standard 3 Quality Management for Firms that Perform Audits or
Reviews of Financial Statements, or Other Assurance or Related Services Engagements, which requires
our firm to design, implement and operate a system of quality management including policies or
procedures regarding compliance with ethical requirements, professional standards and applicable legal
and regulatory requirements.
We are independent of the Bank and the entities it controlled at 31 December 2022 or from time to time
during the period (together, the “Banking Group”). Our firm carried out an actuarial service in respect of
PwC57
reverse mortgages for the Banking Group. In addition, certain partners and employees of our firm may
deal with the Banking Group on normal terms within the ordinary course of trading activities of the Banking
Group. These matters have not impaired our independence.
Assurance practitioner’s responsibilities
Our responsibility is to express a limited assurance conclusion on whether the Bank’s information relating
to capital adequacy and regulatory liquidity requirements, included in the Disclosure Statement in
compliance with clause 22 of the Order is not, in all material respects, disclosed in accordance with
Schedule 9 of the Order. SAE 3100 (Revised) requires that we plan and perform our procedures to obtain
limited assurance about whether anything has come to our attention that causes us to believe that the
Bank’s information relating to capital adequacy and regulatory liquidity requirements, included in the
Disclosure Statement in compliance with clause 22 of the Order, is not, in all material respects, disclosed
in accordance with Schedule 9 of the Order.
In a limited assurance engagement, the assurance practitioner performs procedures, primarily consisting
of discussion and enquiries of management and others within the entity, as appropriate, and observation
and walk-throughs, and evaluates the evidence obtained. The procedures selected depend on our
judgement, including identifying areas where the risk of material non-compliance with clause 22 of the
Order in respect of the information relating to capital adequacy and regulatory liquidity requirements is
likely to arise.
Given the circumstances of the engagement we:
obtained an understanding of the process, models, data and internal controls implemented over the
preparation of the information relating to capital adequacy and regulatory liquidity requirements;
obtained an understanding of the Bank’s compliance framework and internal control environment to
ensure the information relating to capital adequacy and regulatory liquidity requirements is in
compliance with the Reserve Bank of New Zealand’s (the “RBNZ”) prudential requirements for banks;
obtained an understanding and assessed the impact of any matters of non-compliance with the
RBNZ’s prudential requirements for banks that relate to capital adequacy and regulatory liquidity
requirements and inspected relevant correspondence with the RBNZ;
performed analytical and other procedures on the information relating to capital adequacy and
regulatory liquidity requirements disclosed in accordance with Schedule 9 of the Order, and
considered its consistency with the interim consolidated financial statements; and
agreed the information relating to capital adequacy and regulatory liquidity requirements disclosed in
accordance with Schedule 9 of the Order to information extracted from the Bank’s models, accounting
records or other supporting documentation.
The procedures performed in a limited assurance engagement vary in nature and timing from, and are
less in extent than for, a reasonable assurance engagement and consequently the level of assurance
obtained in a limited assurance engagement is substantially lower than the assurance that would have
been obtained had a reasonable assurance engagement been performed. Accordingly, we do not express
a reasonable assurance opinion on compliance with the compliance requirements.
Inherent limitations
Because of the inherent limitations of an assurance engagement, together with the internal control
structure, it is possible that fraud, error or non-compliance with the compliance requirements may occur
and not be detected.
PwC58
A limited assurance engagement on the Bank's information relating to capital adequacy and regulatory
liquidity requirements prescribed in Schedule 9 of the Order to be included in the Disclosure Statement in
compliance with clause 22 of the Order does not provide assurance on whether compliance will continue
in the future.
Use of report
This report has been prepared for use by the Bank’s shareholder for the purpose of establishing that these
compliance requirements have been met.
Our report should not be used for any other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility for any reliance on this report to anyone other than the Bank’s
shareholder, or for any purpose other than that for which it was prepared.
The engagement partner on the engagement resulting in this independent assurance report is Karen
Shires.
Chartered AccountantsAuckland
27 February 2023
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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