Market update: Increase in HBL impairment expense

Heartland Group Holdings Limited | NZX/ASX: HGH | PO Box 9919, Newmarket, Auckland 1149 | heartlandgroup.info
NZX/ASX release
18 February 2025

Market update: Increase in Heartland Bank impairment
expense

Heartland Group Holdings Limited (Heartland) (NZX/ASX: HGH) has today announced an impairment
expense of $49.6 million
1
in its New Zealand bank, Heartland Bank Limited (Heartland Bank), for the
six-month period ended 31 December 2024 (1H2025). This is in response to the impact of ongoing
deterioration in economic conditions in New Zealand, and to derisk and reposition some of the New
Zealand bank’s lending portfolios.

This impairment expense relates predominantly to arrears within Heartland Bank’s Motor Finance
and business lending portfolios where collectability of customer arrears has been impacted by
continued economic deterioration in New Zealand.

Although this is a substantial increase in impairment expense for Heartland Bank (up from $23.9
million in 1H2024
2
), this will significantly derisk and reposition the affected lending portfolios, and is
in the long-term interests of the business, its customers and Heartland’s shareholders.

The components of the $49.6 million Heartland Bank impairment expense are listed below and
detailed later.
1. Write-offs: a $20.2 million impact from writing off arrears, net of expected recoveries. This
includes an $12.1 million impact from writing-off arrears greater than 365 days past due in the
Motor Finance and Open for Business (O4B) loan portfolios, and $8.1 million of business-as-
usual write offs.
2. Specific provisions: $19.4 million specific provisions
3
expense predominantly for Asset Finance
and older Business Relationship loan portfolios.
3. Collective provisions: $10.0 million collective provisions
4
expense for the Motor Finance, O4B
and Asset Finance loan portfolios.

This New Zealand bank impairment expense will impact Heartland’s net profit after tax (NPAT) for
1H2025. Heartland expects 1H2025 NPAT to be in the range of $2 million to $5 million, subject to
completion of the 1H2025 interim review by Heartland’s external auditors, which is substantially
progressed.

Heartland Bank remains well capitalised with a total capital ratio of 14.8% as at 31 December 2024
and strong liquidity. The credit quality of its Reverse Mortgage and Livestock Finance portfolios
remains strong.

The Australian bank, Heartland Bank Australia Limited, is unaffected and continues to perform well.
Growth has returned in its Livestock Finance portfolio, while strong growth continues in its Reverse
Mortgage portfolio. The transition from mostly wholesale funding to a wholesale and deposit
funding mix is progressing well.

1
All figures are in NZD unless otherwise stated and remain subject to completion of interim review by
Heartland’s external auditors, which is substantially progressed.
2
The six-month period ended 31 December 2023 (1H2024).
3
Specific provisions are credit impairment provisions held against loans which are assessed individually.
4
Collective provisions are credit impairment provisions held against a portfolio of loans which are assessed
collectively.

Heartland Group Holdings Limited | NZX/ASX: HGH | PO Box 9919, Newmarket, Auckland 1149 | heartlandgroup.info 2

While the Board is yet to declare an interim dividend, its current expectation is that the increased
Heartland Bank impairment expense will not prevent Heartland from paying an interim dividend. The
quantum of any dividend to be declared in respect of 1H2025 will be carefully determined by the
Board based on Heartland’s capital needs, return on equity accretive growth opportunities, balance
sheet flexibility and financial performance.

Impact of the recessionary operating environment
As anticipated by Heartland in recent market announcements, economic volatility in New Zealand
has continued into the financial year ending 30 June 2025 (FY2025). During 1H2025, New Zealand
economic conditions have significantly deteriorated. The latest GDP data from Stats NZ reveals a
1.0% fall for the September 2024 quarter. Taken together with a significant restatement of the June
2024 quarterly GDP result which saw the New Zealand economy shrink by 1.1%, this represents the
largest six-month fall in GDP since mid-1991, excluding the COVID-19 period.

The magnitude of this recent contraction is reflected in other macroeconomic indicators, with
unemployment in New Zealand rising to a four-year high of 5.1%
5
, financial hardships up 19% year-
on-year
6
, and company liquidations in New Zealand up 39% year-on-year
7
. Within the market,
consumer defaults increased by 39% annually
6
compared with 28% at June 2024
8
, while business
defaults increased 22% annually
6
compared with 5% at June 2024
8
.

Construction and manufacturing are two of the sectors most affected by the recent deterioration –
both are sectors Heartland Bank supports within its Asset Finance, O4B and older Business
Relationship lending.

The continuing deterioration of economic conditions in New Zealand, particularly over 1H2025, is
ultimately impacting the ability of Heartland Bank’s Motor Finance, O4B, Asset Finance and Business
Relationship customers in arrears to repay.

In response to this, Heartland Bank has increased provisions across affected portfolios and is writing
off Motor Finance and O4B loans greater than 365 days past due (net of anticipated recoveries) in
1H2025.

Write-offs
The $12.1 million net impact from writing off all arrears greater than 365 days past due in Heartland
Bank’s Motor Finance and O4B loan portfolios constitutes a $27.2 million write-off of these loans,
less an $11.2 million release of collective provisions held against these loans, and an assumed $3.9
million recovery from continued collections efforts.
9
Of these arrears being written off, 77% are
Motor Finance loans and 23% are O4B loans.

Writing off these arrears is expected to result in Heartland Bank’s non-performing loan (NPL) ratio
10

decreasing from 3.65% as at 30 June 2024 to 3.40% as at 31 December 2024 and will enable more
resources to continue to focus on addressing earlier stage arrears.

5
Stats NZ Unemployment Rate, February 2025.
6
Centrix Market Report, January 2025.
7
Companies Office Liquidation data, December 2024.
8
Centrix Market Report, July 2024.
9
This conservative estimated recovery rate of 31% is based on Heartland Bank’s last six months recovery rate
for secured Motor Finance loans more than 365 days past due and has only been applied to the secured Motor
Finance loan book.
10
The NPL ratio is calculated as total loan exposures greater than or equal to 90 days past due or impaired,
divided by total loan exposures.

Heartland Group Holdings Limited | NZX/ASX: HGH | PO Box 9919, Newmarket, Auckland 1149 | heartlandgroup.info 3

The $8.1 million in business-as-usual write-offs, net of expected recoveries, is across Heartland
Bank’s lending portfolios. This compares with $8.5 million in the six-month period to 30 June 2024.

Specific provisions
The $19.4 million specific provisions expense is predominantly for Asset Finance and older Business
Relationship lending within the transport, construction, forestry and agriculture sectors, where the
probability of recovery has reduced substantially since June 2024.
11
This increase reflects the impact
of the current economic deterioration on trading conditions in these sectors, security valuations, and
overall recoverability prospects of NPLs within these portfolios.

The majority (69%) of these loans were originated prior to Heartland Bank updating its lending
standards in 2020 and are loans which Heartland Bank no longer writes.

Collective provisions
The $10.0 million collective provisions expense is due to the impact of the prolonged recessionary
environment on loans within Heartland Bank’s Motor Finance, O4B and Asset Finance portfolios. In
particular, the economic deterioration for business lending (with reference to the increased rate of
liquidations and receiverships in New Zealand) has resulted in an increase in estimated probabilities
of default and an increase in the resulting loss. These are key inputs applied to model collective
provisions.

Changes to Heartland Bank’s collections, recoveries and write-off strategies
Heartland Bank had historically taken a supportive and judgement-based approach to helping
customers in arrears repay their loans, particularly through the COVID-19 period. This approach had
worked well, particularly during more stable economic conditions and due to the markets Heartland
Bank served. As the economy has deteriorated and Heartland Bank has grown, its arrears
management practices, while remaining supportive, require a more proactive and prescriptive
approach.

As a result, Heartland Bank has enhanced its collections, recoveries and write-offs strategies for its
Motor Finance portfolio. Changes have included the adoption of a more prescriptive repossession
policy. This sees Heartland Bank implement recovery action sooner in the collections cycle for
customers in arrears unable or unwilling to work with Heartland Bank to develop corrective
solutions. Recovery rate improvements are already flowing through.

Heartland Bank has also implemented a prescriptive write-off policy which requires write-off
decisions to be made no later than the point at which a loan becomes 180 days past due and the
repossession process has been completed, if not earlier.

Rather than mainly managing recovery activity internally, Heartland Bank is now engaging with debt
collection agencies immediately post-write-off to enhance subsequent recovery.

Simultaneously, in Heartland Bank’s older Business Relationship and older Rural Relationship
portfolios, changes to risk-grading, security valuations, Heartland Bank’s restructuring policy, and the
strategy and timing of intervention measures are underway to strengthen NPL management.



11
Three Rural Relationship loans, including a single large loan, are also included.

Heartland Group Holdings Limited | NZX/ASX: HGH | PO Box 9919, Newmarket, Auckland 1149 | heartlandgroup.info 4
Looking forward
While there may be some positive economic tailwinds emerging in New Zealand during the second
half of FY2025 (2H2025) from further interest rate reductions and a consequential increase in credit
demand, it is expected economic conditions for New Zealand consumers and businesses will remain
challenging. In particular, Heartland Bank expects trading conditions within the forestry, transport,
agriculture and construction sectors to remain challenging through 2H2025. Heartland Bank will
continue to proactively work with impacted customers.

With all future arrears in the Motor Finance and O4B portfolios managed under the new 180-day
write-off policy, Heartland Bank is proactively managing Motor Finance and O4B loans currently
between 180 and 364 days past due. Combined with the write-off of all Motor Finance and O4B
loans greater than 365 days past due, this is expected to result in no arrears for this cohort by 30
June 2026.

If conditions deteriorate further than what is currently anticipated and provisioned within Heartland
Bank’s lending portfolios, then additional losses could result in 2H2025, of up to $8 million in write-
offs (in addition to what is considered business as usual) and up to $5 million in specific provisions.

Heartland will report on its 1H2025 financial results, and provide a NPAT guidance range for FY2025,
on 27 February 2025.

Heartland will hold an investor briefing at 11am NZDT today (18 February 2025) to discuss this
announcement. Register to attend the briefing here: https://ccmediaframe.com/?id=IMC96OAT.

– ENDS –

The persons who authorised this announcement:
Andrew Dixson, Chief Executive Officer

For further information and media enquiries, please contact:
Nicola Foley, Head of Corporate Communications & Investor Relations
+64 27 345 6809
nicola.foley@heartland.co.nz
Level 3, Heartland House, 35 Teed Street, Newmarket, Auckland, New Zealand

About Heartland
Heartland is a financial services group with operations in Australia and New Zealand. Heartland has a
long history with roots stretching back to 1875 and is listed on the New Zealand and Australian stock
exchanges (NZX/ASX: HGH).

Heartland’s New Zealand business, Heartland Bank, provides customers with savings and deposit
products, reverse mortgages, rural loans, car loans, business loans and online home loans. In
Australia, Heartland Bank Australia offers competitive term deposits, is Australia's leading provider
of reverse mortgages and provides specialist livestock finance through the StockCo brand.

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

More: heartlandgroup.info

---

Market update
18 February 2025
INVESTOR
PRESENTATION

2
INCREASE IN HEARTLAND BANK IMPAIRMENT EXPENSE
•Impairment expense of $49.6m required for 1H2025:
•write-offs: $20.2m net impact from writing off arrears, net of expected recoveries, including:
•$12.1m impact from writing off loans >365 days past due in Motor Finance and O4B
•$8.1m BAU write-offs
•specific provisions: $19.4m predominantly for Asset Finance and older Business Relationship
•collective provisions: $10.0m for Motor Finance, O4B and Asset Finance.
•This NZ bank impairment expense will have an impact on 1H2025 NPAT. 1H2025 NPAT is expected to be in the range of
$2m to $5m subject to completion of 1H2025 interim review by Heartland’s external auditors, which is substantially
progressed.
•Heartland Bank remains well capitalised with strong liquidity.
•Credit quality of NZ Reverse Mortgage and NZ Livestock Finance portfolios remain strong.
•AU bank is unaffected continues to perform well.
•While the Board is yet to declare an interim dividend, its current expectation is that the increased Heartland Bank
impairment expense will not prevent Heartland from paying an interim dividend. The quantum of any dividend to be
declared in respect of 1H2025 will be carefully determined by the Board based on Heartland’s capital needs, return on
equity accretive growth opportunities, balance sheet flexibility and financial performance.
Increase in response to the impact of ongoing deterioration
in NZ economic conditions and to derisk and reposition some
of the NZ bank’s lending portfolios.
0.39%
0.49%
0.96%
0.92%
1.99%
Dec-22Jun-23Dec-23Jun-24Dec-24
Impairment Expense %
10.0
19.4
8.5
16.1
(0.4)
(3.9)
Collective provision
expense
Gross specific provision
expense
BAU write-offsLonger dated
>365 DPD
1H2025 Impairment Expense ($m)

3
Sources: Stats NZ.
IMPACT OF RECESSIONARY OPERATING ENVIRONMENT
-4.5
-2.5
-0.5
1.5
3.5
Dec-20Mar-21Jun-21Sep-21Dec-21Mar-22Jun-22Sep-22Dec-22Mar-23Jun-23Sep-23Dec-23Mar-24Jun-24Sep-24
Quarterly GDP Growth (%)
Quarterly GDP Growth (%)Restatement by Stats NZ
4.90%
4.00%
3.20%
3.30%
3.40%
3.60%
4.00%
4.60%
5.10%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Dec
2020
Jun
2021
DecJun
2022
DecJun
2023
DecJun
2024
Dec
Unemployment Rate (%)
Total Unemployment RateAverage Unemployment Rate

4
Sources: RBNZ economic indicators data; Gross domestic product: September 2024 quarter release published by Stats NZ in December 2024; Stats NZ Unemployment Rate, February 2025; Centrix Market Report, January 2025; Companies Office December 2024, Centrix Market Report,
January 2025 and Centrix Market Report, July 2024.
IMPACT OF RECESSIONARY OPERATING ENVIRONMENT
NZ economic conditions
significantly deteriorated during
1H2025
•Largest six-month fall in GDP since mid-1991,
excluding the COVID-19 period.
•Unemployment rose to four-year high of 5.1%.
•Financial hardships up 19% year-on-year.
•Company liquidations up 39% year-on-year .
•Consumer defaults up 39% annually vs 28% at
June 2024.
•Business defaults up 22% annually vs 5% at
June 2024.

5
MOTOR FINANCE
3.59%
3.84%
4.87%
5.84%
4.75%
2.66%
2.95%
3.12%
3.99%
2.90%
3.84%
4.87%
5.84%
6.03%
4.20%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Dec-2022Jun-2023Dec-2023Jun-2024Dec-2024
Motor Finance arrears ratios
30DPD %Gross NPL %Predicted 30DPDPredicted NPL
1.0%, $14
0.9%, $15
1.2%, $19
1.5%, $25
1.6%, $26 1.6%, $26
0.7%, $10
0.9%, $15
1.0%, $16
1.2%, $20
1.2%, $20 1.3%, $20
0.7%, $11
0.9%, $14
1.0%, $16
1.2%, $20
1.3%, $22
$-
$10
$20
$30
$40
$50
$60
$70
$80
Dec-2022Jun-2023Dec-2023Jun-2024Dec-2024
(Before)
Dec-2024
(After)
Millions
Motor Finance 90DPD composition ($m & %)
90-179DPD180-364DPD365+ DPD

6
OPEN FOR BUSINESS
5.28%
7.25%
12.96%
16.89%
15.14%
4.64%
6.43%
8.63%
14.87%
11.49%
12.96%
16.89%
21.97%
18.53%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Dec-2022Jun-2023Dec-2023Jun-2024Dec-2024
O4B arrears ratios
30DPD %Gross NPL %Predicted 30DPDPredicted NPL
1.7%, $2
1.2%, $1
1.7%, $2
4.0%, $3
3.6%, $3 3.9%, $3
1.7%, $2
2.9%, $3
2.5%, $2
3.7%, $3
5.8%, $4 6.3%, $4
0.8%, $1
1.7%, $2
4.4%, $4
7.1%, $6
7.6%, $5
$-
$2
$4
$6
$8
$10
$12
$14
Dec-2022Jun-2023Dec-2023Jun-2024Dec-2024
Before
Dec-2024
After
Millions
O4B 90DPD composition ($ and %)
90-179DPD180-364DPD365+ DPD

7
ASSET FINANCE & BUSINESS RELATIONSHIP
2.15%
3.57%
5.62%
6.16%
5.73%
2.91%
3.33%
4.43%
4.90%
6.77%
5.62%
6.16%
6.98%
7.40%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Dec-2022Jun-2023Dec-2023Jun-2024Dec-2024
Asset Finance arrears ratios
30DPD %Gross NPL %Predicted 30DPDPredicted NPL
1.47%
1.68%
5.74%
1.61%
5.54%
8.17%
7.35%
11.28%
7.29%
13.00%
1.68%
5.74%
1.61%
6.51%
13.68%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Dec-2022Jun-2023Dec-2023Jun-2024Dec-2024
Business Relationship arrears ratios
30DPD %Gross NPL %Predicted 30DPDPredicted NPL

8
HEARTLAND BANK (NEW ZEALAND)
1.91%
2.57%
3.69%
3.63%
3.20%
2.81%
2.88%
3.60%
3.65%
3.40%
4.04%
4.08%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Dec-2022Jun-2023Dec-2023Jun-2024Dec-2024
Heartland Bank arrears ratios
30DPD %Gross NPL %Predicted 30DPDPredicted NPL
Business,
31.4%
Business
NPLs, 2.3%
Consumer,
32.6%
Consumer
NPLs, 1.0%
Reverse
Mortgages &
Residential
Mortgages,
29.2%
Livestock,
3.4%
Livestock NPLs,
0.1%
Heartland Bank portfolio composition
$52.4
$52.1
$68.4
$74.6
$76.7
1.34%
1.30%
1.71%
1.86%
2.10%
Dec-22Jun-23Dec-23Jun-24Dec-24
Heartland Bank – Total provisions and coverage
Collective ProvisionSpecific ProvisionCoverage Ratio

9
PROVISIONS
$11.6
$16.7
$27.1
$31.7
$22.5
0.80%
1.06%
1.67%
1.95%
1.41%
Dec-22Jun-23Dec-23Jun-24Dec-24
Motor Finance
Collective ProvisionSpecific ProvisionCoverage Ratio
$10.8
$11.7
$12.9
$17.1
$25.3
1.60%
1.72%
1.80%
2.32%
3.65%
Dec-22Jun-23Dec-23Jun-24Dec-24
Asset Finance
Collective ProvisionSpecific ProvisionCoverage Ratio
$5.9
$4.5
$4.7
$6.1
$4.9
4.44%
3.88%
4.71%
7.02%
7.53%
Dec-22Jun-23Dec-23Jun-24Dec-24
Open 4 Business
Collective ProvisionSpecific ProvisionCoverage Ratio
$11.3
$11.6
$16.8
$11.6
$14.5
2.55%
2.74%
4.24%
3.21%
6.02%
Dec-22Jun-23Dec-23Jun-24Dec-24
Business Relationship
Collective ProvisionSpecific ProvisionCoverage Ratio

10
COLLECTIONS ENHANCEMENTS
Motor Finance and O4B loans
•Adopted a more prescriptive repossession policy, to implement recovery action sooner in the collections
cycle.
•Implemented a prescriptive 180-day write-off policy.
•Formal engagement with debt collection agencies immediately post-write-off to enhance recovery.
Older Business and Rural Relationship loans
•Changes to risk-grading, security valuations, Heartland Bank’s restructuring policy, and the strategy and
timing of intervention measures are underway to strengthen NPL management.
Heartland Bank has enhanced its collections, recoveries and
write-off strategies

11
LOOKING FORWARD
•While there may be some positive economic tailwinds emerging in NZ in 2H2025 from further interest rate reductions and a
consequential increase in credit demand, it is expected economic conditions for NZ consumers and businesses will remain
challenging.
•Heartland Bank expects trading conditions within the forestry, transport, agriculture and construction sectors to remain
challenging through 2H2025.
•Heartland Bank will continue to proactively work with impacted customers.
•Heartland Bank is proactively managing Motor Finance and O4B loans currently 180-364 days past due. This is expected to
result in no arrears for this cohort by 30 June 2026.
•If conditions deteriorate further than what is currently anticipated and provisioned within Heartland Bank’s lending
portfolios, then additional losses could result in 2H2025, of up to $8m in write-offs (in addition to what is considered
business as usual) and up to $5m in specific provisions.
2H2025 expected to remain challenging for borrowers
Heartland will report on its 1H2025 financial results, and provide a NPAT
guidance range for FY2025, on 27 February 2025.

Investor information
For more information
heartlandgroup.info/investor-information
Investor & media relations
Nicola Foley
Head of Corporate Communications & Investor Relations
+64 27 345 6809
nicola.foley@heartland.co.nz
THANK YOU