Heartland Group Holdings Limited Annual Report 2020

← All annual reports

FY2020 Annual Report · Heartland Group Holdings Limited

Loading PDF…

2 02 0 A N N UA L R E P O R T

OUR YEAR IN REVIEW

Chair’s Report
Chief Executive Officer’s Report

P. 2
P. 6
P. 10 Na te kaiwhakahaere matua
P. 14 2020 Results at a Glance

COVID-19

P. 16 Our Response to COVID-19
P. 20 Reverse Mortgages and COVID-19

WHO WE ARE

P. 22 Our Business
P. 24 Our Directors
P. 28 Our Leadership Team
P. 30 Diversity Report
P. 38 Corporate Governance
P. 50 Directors’ Disclosures

OUR SUSTAINABILITY JOURNEY

P. 60 Sustainability Framework
P. 62 Social Equity
P. 68 Environmental Conservation
P. 70 Economic Prosperity

OUR FINANCIAL RESULTS

P. 74 Financial Commentary
P. 84 Financial Statements
P. 140 Auditor’s Report

OTHER DISCLOSURES

P. 144 Executive Remuneration
P. 145 Shareholder Information
P. 146 Other Information

DIRECTORY

P. 147 Directory

This Annual Report of Heartland Group
Holdings Limited (Heartland) is dated
30 October 2020 and is signed on behalf
of the Board of Directors by:

Geoffrey Ricketts Chair of the Board

Jeffrey Greenslade Chief Executive Officer

We asked our Manawa Ako interns to create
a series of murals that represent Heartland.

This mural (continued on the back cover)
portrays scenery from Piopiotahi (Milford
Sound) to Te Rerenga Wairua (Cape Reinga)
representing all of our Heartland whānau
across Aotearoa together with our Teed Street
building acknowledging our whakapapa,
or foundations.

The mural symbolises the importance of
knowing where we’ve come from to know
where we’re going. The United Tribes Flag
(Te Whakaminenga o Ngā Rangatiratanga
o Ngā Hapū o Nu Tīreni) represents bicultural
unity, the tī kouka (cabbage tree) symbolises
resilience and the tui represents life fulfilment
and confidence.

We recognise the importance of our history
and the landscapes that have shaped it.
This is consistent with the proverb ‘ka mua,
ka muri’, to walk backwards into our future.

Chair’s Report

GEOFFRE Y RICKET TS
Chair of the Board

The effects of the COVID-19 pandemic have resulted
in an unprecedented year for all. The global economic
and social impacts have been profound and are still
continuing to unfold. From Heartland’s perspective, our
priorities are and will remain, the health and wellbeing
of our employees and supporting our customers.

At the same time, Heartland’s Board and senior
management have been focused on responding
proactively to the events as they have arisen,
mitigating the impacts on the business and planning
for the future.

We entered into the COVID-19 lockdown in a strong
financial position and I am pleased to report that
Heartland achieved a net profit after tax (NPAT) of
$72.0 million for the financial year ended 30 June 2020
(FY2020). Included within this NPAT is an economic
overlay of $9.6 million pre-tax which Heartland applied
to its potential credit losses in response to the ongoing
uncertainties relating to the COVID-19 pandemic.
The adjusted NPAT (which excludes this economic
overlay) is $78.9 million1.

Heartland’s Response to COVID-19

With banks being identified as an ‘essential service’,
Heartland continued to operate during the lockdown
period at alert levels 3 and 4 to support our customers.
We immediately introduced alternative ways of
working and equipped the majority of our people to
enable them to work from home. For those remaining in
the workplace, we introduced strict hygiene protocols
and physical distancing requirements.

Our initial response focused on proactively contacting
our Consumer, small-to-medium enterprise (SME)
and Business customers to offer support. At the same
time, we built new website functionality to enable
customers to easily contact us and request support
online. Support options included payment holidays of
one to three months, reduced principal and interest
only payments.

Consumer customers, representing $143 million of
loans, took up the various offers of support, as did SME
and Business customers, representing $510 million of
loans. Most of Heartland’s customers have returned to
their pre-COVID-19 payment schedules or have taken
up our new product, Heartland Extend, providing them
flexibility to manage the term of their loan to suit their
cashflow needs.

Heartland Extend was launched in May 2020, enabling
customers to adjust their payments as needed, with no
fees to make these changes. With Heartland Extend,
customers have the option to reduce their regular
repayment amounts immediately, or have the flexibility
to adjust them in the future if their situation changes.
Applications for Heartland Extend are available
through a purpose-built digital platform. Across all
of Heartland’s customers, as at 14 September 2020,
over 1,600 customers representing over $116 million of
loans, had taken up Heartland Extend. This offer is now
being extended to new customers.

Heartland Annual Report 2020

W
E
V
E
R
N

R
A
E
Y
R
U
O

– Creating a new policy, internal training and tools

to assist Heartlanders to identify and better
assist vulnerable customers. The training includes
understanding where there is a higher chance of
specific vulnerabilities as well as how to identify
vulnerable customers in an empathetic way

Regulatory Update

As a result of COVID-19, some delays to regulatory
change timeframes were announced in the second
half of FY2020. However, a significant volume of
regulatory change remains in the pipeline. Key changes
include the proposed Financial Markets (Conduct of
Institutions) Amendment Bill (Conduct Bill) and Phase
2 of the review of the Reserve Bank of New Zealand
Act 1989 (RBNZ Act).

If enacted, the Conduct Bill would introduce a new
conduct regime for registered banks (including
Heartland Bank Limited (Heartland Bank)), licensed
insurers and non-bank deposit takers in New Zealand.
This regime would impose duties on these financial
institutions to treat customers fairly and to maintain
a fair conduct programme. It would also enable
regulations to be made which relate to incentives, with
which financial institutions and their intermediaries
must comply. The Conduct Bill is awaiting its second
and third readings in Parliament, which will not occur
until after the New Zealand general election.

The Government has made a number of in-principle
decisions in relation to its review of the RBNZ Act
which will affect the New Zealand financial system,
including proposing a depositor protection scheme
and significant strengthening of accountability
requirements for directors and executives.

A consultation paper for the proposed changes to the
RBNZ Act was published and submissions closed on
23 October 2020. Heartland will continue to monitor
progress in respect of the review, and any bill which is
subsequently introduced to Parliament.

Heartland’s response to the COVID-19 pandemic
has highlighted the resilience of both our employees
and our organisation. The efforts of our people were
exceptional and the Board and senior management
are extremely grateful. They worked long hours,
often far outside of their usual roles, evolving and
adapting as the situation required. They displayed
real compassion for our customers and worked
together to support their colleagues throughout and
after the lockdown period.

You can read about our response to COVID-19 in
more detail on pages 16 to 19 of this Annual Report.

Conduct and Culture

The Financial Markets Authority (FMA) and the
Reserve Bank of New Zealand (RBNZ) completed
their review of conduct and culture in New Zealand
retail banks in November 2018. The findings of
the FMA and RBNZ review focused on the
industry as a whole and, in addition, each bank
received recommendations specific to them. The
recommendations for Heartland formed the basis
of our Conduct and Culture Work Plan.

During the year, significant progress was made
towards completing the Conduct and Culture Work
Plan. Details of the progress made are outlined
on page 64 of this Annual Report. Some of the
highlights included:

– Refreshing our Heartland Code of Conduct to

ensure it accurately reflects the way we do things
at Heartland. The revised Code of Conduct is
underpinned by one of our mātāpono (values),
Mahi Tika (do the right thing), and provides a
framework for making good decisions by setting
out the standards expected of all Heartlanders
and Heartland’s intermediaries.

– Refreshing our Speak Up framework to ensure

Heartlanders feel safe and comfortable to speak
up when they see something that may need
attention. The framework outlines the importance
of speaking up, while also providing the tools and
resources necessary to do so comfortably. These
tools include an independent and external whistle-
blower hotline that allows employees to voice
their concerns about suspected violations with no
negative reprisals to them.

P. 2

P. 3

Heartland Annual Report 2020

W
E
V
E
R
N

R
A
E
Y
R
U
O

Credit Rating

Board Changes

Optimisation of Value within the Group

Dividend

On 18 May 2020, Fitch affirmed the Long-Term Issuer
Default Ratings (IDR) for Heartland (BBB), Heartland
Bank (BBB) and Heartland Australia Group Pty Ltd
(Heartland Australia) (BBB-) with outlook remaining
stable. Heartland was one of only two Australasian
banks to have no reduction or adverse change to its
rating or outlook as it entered the economic downturn.

The affirmation reflects Fitch’s view that Heartland
has solid buffers to withstand its base-case scenario
and enters the economic downturn with sufficient
headroom in its key financial metrics. Fitch noted that
“the ratings of [Heartland Group] and [Heartland Bank]
are driven by the group’s consolidated risk profile,
which reflect its stronger-than-peer profitability”.

Supporting our Communities

This year Heartland (through the Heartland Trust2)
continued to make a positive contribution to the
communities in which it operates. During the year,
the Heartland Trust made grants totalling $451,734
to support our communities including in the areas of
education, sport and financial literacy.

To assist those working to help the Australian people
recover from the bush fires, the Heartland Trust
donated a $5,000 grant to the Victorian Country
Fire Association, who manage fighting fires, road
rescues and fundraising. A further $5,000 donation
was made to the New South Wales Rural Fire Service,
who provide community programs designed to
help vulnerable and isolated people live safely and
confidently in their homes, in areas where bush fires
may begin.

The Heartland Trust also continued its support of the
InZone Education Foundation, the Kupe Leadership
Scholarship, the Auckland City Mission, the Auckland
Writers Festival and 1st XV rugby during the year.
You can read about the activities of the Heartland
Trust in more detail on page 65 of this Annual Report.

During the year, we welcomed Shelley Ruha to the
Heartland Bank Board as an independent director.
Shelley has significant governance experience spanning
fintech, large scale technology infrastructure and
payments innovation, wealth management, venture
capital and education-based growth for SMEs. Shelley
has extensive banking experience in the New Zealand
market. Her last executive role saw her leading BNZ
Partners, covering all aspects of business banking and
wealth management for Bank of New Zealand.

Vanessa Stoddart resigned from her directorship of
Heartland Bank on 1 January 2020. Vanessa joined the
Heartland Bank Board in 2016, making a significant
contribution throughout that period, particularly in
relation to the areas of people, culture and conduct.
The Board wishes her all the best for the future.

Heartland was one of
only two Australasian
banks to have no reduction
or adverse change to its
rating or outlook as it
entered the economic
downturn.

Heartland’s strategy is threefold, being to:

1. acquire scale in banking in New Zealand;

2. expand in Australia; and

3. digitalise everything it does.

This strategy (which is set out in more detail in the
Chief Executive Officer’s Report) aligns with the core
strengths of Heartland’s businesses, being:

1. an established financial technology (Fintech)
business in New Zealand based on SME and
consumer lending with the potential to grow our
start-up platforms in Australia;

2. a leading provider of motor vehicle finance in
New Zealand with potential to capture further
market share;

3. the largest active provider of Reverse Mortgages

in Australia; and

4. a New Zealand bank based on business, rural and
household lending with the potential to develop a
low-cost model through digitalisation and increased
scale through consolidation.

Current bank valuation multiples are below many
of those for finance companies and Fintechs and
Heartland recognises that its current share price
may not appropriately reflect the underlying nature
of its businesses. Consequently, the Board has asked
management to explore this and identify means of
optimising value.

The Board resolved to pay a fully imputed final
dividend of 2.5 cents per share on Friday 9 October
2020 to all shareholders on Heartland’s register at
5.00pm on Friday 25 September 2020. Together with
the interim dividend of 4.5 cents per share, the total
dividend for the year was 7.0 cents per share (3.0 cents
per share down from FY2019).

The dividend decrease reflects restrictions imposed
by the RBNZ on distributions by banks in New Zealand.
However, the continued growth in Heartland’s
Australian operations enable it to distribute earnings
derived from assets held outside of Heartland Bank.
Heartland expects to return to a pay-out ratio
aligning to historical levels once the RBNZ restrictions
are removed.

Outlook

The Board is confident in Heartland’s ability to continue
achieving strong growth and profitability, while
continuing to support our existing customers through
any future COVID-19 related uncertainties.

Heartland currently expects its net profit after tax for
the year ending 30 June 2021 to be in the range of $83
million to $85 million.

On behalf of the Board, I would like to take this
opportunity to thank our Heartland whānau for their
efforts this year and their commitment to our
customers, particularly through the challenging
events brought about by COVID-19. I also wish
to acknowledge the continued support of our
shareholders throughout this year.

Geoffrey Ricketts
Chair of the Board

2 The Heartland Trust is a registered charitable trust which is independent from, but closely supported by, Heartland Bank.

P. 4

P. 5

Chief Executive Officer’s Report

Digital Evolution

Since listing on the NZX in 2011 and achieving bank
registration for Heartland Bank in 2012, Heartland
has progressed through a number of strategic phases.
Focus on enhancing digital capabilities has seen
Heartland establish itself as a digitally-led financial
services group – a financial technology business with
a bank licence.

This, together with a best or only approach to products
and services, has successfully differentiated Heartland
from mainstream banks, exemplified by a higher Net
Interest Margin and Heartland being one of only two
Australasian banks to have no reduction or adverse
change to its rating or outlook as it entered the
economic downturn. Heartland has been named the
Canstar Savings Bank of the Year for three consecutive
years and has received multiple awards for its reverse
mortgage product. Heartland’s digital platforms for
deposits, small business and mortgage lending are
world class in terms of financial technology.

One of Heartland’s key strategic priorities is to
digitalise everything it does including distribution,
on-boarding and processing.

At the centre of this digital strategy is the ongoing
enhancement of the Heartland Mobile App. Mobile
phones are increasingly becoming the electronic
channel of choice for all adults1. Irrespective of age,
customers will increasingly turn to their smartphones
for all interactions with service providers and the
Heartland Mobile App will continue to be enhanced to
meet this customer expectation – it will be Heartland’s
virtual branch on every corner.

Heartland’s digital platforms enabled customers
to access products and services despite alert level
restrictions on in-person interactions. Digital facial
recognition (biometrics) and electronic document
signature (DocuSign) provide customers with an
end-to-end contactless on-boarding and fulfilment
process. From 25 March to 13 May 2020, during
the height of the alert level 3 and 4 lockdowns,
Heartland’s intermediary motor vehicle dealers were
able to progress vehicle loan applications by sending
biometrics facial recognition links to customers.

JEFF GREENSL ADE
Chief Executive Officer

Heartland achieved a strong financial result
for FY2020, notwithstanding the significant
health and economic challenges arising as
a result of the COVID-19 pandemic. NPAT
for FY2020 was $72.0 million and adjusted
NPAT (which excludes the impact of the
economic overlay of $9.6 million pre-tax due
to COVID-19) was $78.9 million, which is a
7.2% increase on FY2019. Gross finance
receivables grew strongly to $4.6 billion,
up $215 million on FY2019.

1According to Deloitte’s 2019 global mobile consumer survey.

P. 6

Heartland Annual Report 2020

W
E
V
E
R
N

R
A
E
Y
R
U
O

Increased investment will be undertaken in technology
to expand digital capability to meet Heartland’s
growth aspirations and the needs of customers in both
New Zealand and Australia – particularly in a post-
COVID-19 world where the ability to interact online is
of even greater importance.

Financial Performance

Since March 2020, the New Zealand economy has
been disrupted by restrictions put in place to limit the
impact of the spread of COVID-19. Countermeasures
implemented by the New Zealand Government
(including its support and fiscal programmes) and the
RBNZ have assisted to mitigate the impact of those
measures. In particular, the speedy introduction of
a simple facility to help SMEs, the Small Business
Cashflow Loan Scheme, by the New Zealand
Government injected liquidity and confidence to the
sector. During this time, Heartland’s people have
worked closely with customers to understand their
needs and provide them with financial support.

Heartland does not have a material exposure to
the industries most affected by COVID-19 (tourism,
hospitality, retail business)2, nor the demographic most
impacted by rising unemployment (15-24 year olds)3.
In addition, Heartland’s lending book has a high degree
of resilience to the economic disruption – in particular
the Reverse Mortgage books in Australia and New
Zealand (where borrower behaviour remains largely
unchanged) and the Rural portfolio.

Considering the differentiated portfolio composition,
management’s experience and understanding of
Heartland’s customers, and assuming management’s
forecast of future economic conditions transpires to
be accurate, Heartland determined that there was no
reason to consider that its existing provisions were
not adequate. However, Heartland recognised that its
support arrangements and the significant Government
support mean that traditional indicators of increased
credit risk may not provide an accurate measure of
credit quality.

Against that backdrop, Heartland took an overlay of
$9.6 million pre-tax to allow for the uncertainty created
by COVID-19. Economic overlays are deployed to
supplement existing methods of calculating expected
credit loss where the economic environment is outside
that contemplated by existing methods and have
been used by banks as a response to the uncertainties
created by COVID-19. Importantly, an overlay does not
represent actual or current losses, but provides a buffer
against any losses that the uncertainty may give rise to.

The bulk of Heartland’s overlay has been apportioned
to the Consumer and SME portfolios. Heartland will
continue to monitor that overlay, and it may change
over time as the position develops and Heartland
comes to have greater certainty as to the impact.

Heartland’s total provision coverage ratio excluding the
$9.6 million pre-tax economic overlay due to COVID-19
was 1.71%4 as at 30 June 2020. This is a relatively
strong position compared with most of Heartland’s
peers. The COVID-19 economic overlay further
increased the total provision coverage ratio to 2.02%
as at 30 June 2020.

Heartland’s digital
platforms enabled
customers to access
products and services
despite alert level
restrictions on in-person
interactions.

2 Heartland’s total exposure to the Retail, Accommodation and Transport (excluding road freight transport) industries at 30 June 2020, based on
borrower ANZSIC codes, was 2.84%, 2.17% and 1.15% respectively.
3 At 10 August 2020, Heartland’s exposure to customers in this age bracket is 4.2% in Motor, 0.7% in Personal lending and 0.9% in Harmoney.
4 Calculated as total provisions over gross finance receivables excluding Reverse Mortgages.

P. 7

Heartland Annual Report 2020

W
E
V
E
R
N

R
A
E
Y
R
U
O

Strategic Priorities

Expand in Australia

He Manawa Tangata – Our People

Looking Forward

Heartland’s three core strategic objectives are to
acquire scale as a New Zealand bank, expand in
Australia and digitalise all on-boarding, distribution
and processing (as discussed on the previous page).

Growth has continued in Australian Reverse
Mortgages, despite the impact of COVID-19 on the
Australian market. Investment in marketing activity will
continue for reverse mortgages in Australia.

Acquire Scale in New Zealand

Heartland remains dedicated to providing customers
with best or only products and services through mainly
digital channels.

Heartland Bank has developed a unique, low-cost
operating model in New Zealand, through the
digitalisation of core distribution channels and
fulfilment processes. Consolidation in the banking
industry is a potential opportunity to expand this
low-cost model and create greater access to capital
for other industry participants. At a time when other
participants are required to raise additional capital and
the industry in general faces additional investment in
technology and regulatory compliance, consolidation
may be considered an attractive option.

In March 2020, Heartland Bank entered into the retail
mortgage market with an online Home Loans platform.
The trial sought to test the appetite of the New Zealand
market for a digital home loan product which allows
Kiwis to apply and receive a conditional approval
online, without the need to go into a bank or meet
with a mortgage manager. The trial was successful,
with $50 million of conditional home loan approvals
being given in the month the trial was run. Heartland
Bank relaunched the digital Home Loans product on
12 October 2020.

Open for Business, an unsecured small business
lending platform, was launched in Australia in late
2019. Due to the impact of COVID-19, lending was
paused through the Australian platform in March 2020.
However, Heartland intends to relaunch Open for
Business in Australia this calendar year.

Heartland has had success in the consumer and small
business markets in New Zealand, and its focus is now
on replicating that success in Australia. Heartland
currently has small exposures to those markets through
partners such as Harmoney, and is targeting growth in
both areas, with an appetite for organic and acquisition
growth opportunities.

Optimisation of Value within the Group

As requested by the Board, management is considering
the next phase of Heartland’s strategic execution.
Investment banking firm Jarden has been appointed to
advise on opportunities for value creation, recognising
that current bank valuation multiples are below many
of those for finance companies and Fintechs.

Jarden has been asked to consider the implications
on value, investment strategy and resourcing were
Heartland to be viewed more distinctly as a collection
of discrete business units including:

1. a New Zealand bank based on business, rural and

household lending with the potential to expand via
a low-cost model;

2. a leading provider of motor vehicle finance in
New Zealand with potential to capture further
market share;

3. the largest active provider of Reverse Mortgages

in Australia; and

4. an established Fintech business in New Zealand

focused on SME lending.

All forms of diversity bring different perspectives and
expressions of ideas and opinions throughout the
organisation and contribute to Heartland’s productivity,
profitability and connection with its communities
and stakeholders.

In light of the current COVID-19 pandemic, Heartland
has reaffirmed its commitment to growing and
celebrating diversity and continuing to build a culture
of inclusion. Having a diverse and inclusive workplace
are key success factors for resilience, recovery and
reimagination, all of which are essential for businesses
in the current economic climate.

This year, significant progress has been made in
Heartland’s key areas of focus for diversity and
inclusion, being to achieve and maintain an equal
gender balance across the organisation and to be
recognised as an employer of choice for Māori.

Whāia te iti kahurangi, Heartland’s framework for
providing a workplace and financial service that
enables Māori to succeed as Māori, was established
during the year. The purpose of Whāia te iti
kahurangi is to support the work Heartland does with
Māori, te reo Māori, and customary practices. It is
used as a reference point for Heartland’s people on
operational issues and to support the inclusion of an
indigenous perspective.

Heartland’s Manawa Ako internship programme has
continued to grow, providing opportunities for the next
generation of Māori and Pasifika to experience working
in the financial sector and a corporate environment.
Manawa Ako has had a positive impact on Heartland’s
diversity journey, contributing to a significant increase
in the use, understanding and normalisation of te
reo and tikanga Māori at Heartland. It has also
contributed to the development of a more accepting,
open-minded and inclusive internal culture throughout
the organisation.

Looking to the year ahead, Heartland is committed to
supporting customers through the current environment.
Continued growth is expected in New Zealand across
Motor, Business and Reverse Mortgages. In Australia,
growth in Reverse Mortgages is expected to continue
alongside expansion in SME and Consumer activities.
In Digital, there will be an increased emphasis on
development of the Heartland Mobile App for the
New Zealand market, enabling more interaction to
meet customer needs and greater distribution to
new customers.

Heartland’s commitment to diversity and inclusion
remains an integral part of its overall strategy. Work
will continue to further develop and embed Māori
initiatives, including growth of the Manawa Ako
internship programme and roll out of a new recruitment
strategy, Iho Pūmanawa, to assist with providing a
more equitable process for Māori applicants.

Heartland’s Environmental, Social and Governance
strategy will also continue, with a focus on reducing
the environmental impact of its operations and
providing products and services which support
customers to make behavioural changes consistent
with a circular economy.

I would like to thank our Heartland people for living our
mātāpono throughout the year. I also wish to thank our
shareholders for their continued support of Heartland.

Ngā mihi nui,

Jeff Greenslade
Chief Executive Officer

P. 8

P. 9

Nā te kaiwhakahaere matua

Ko tētahi o ngā rautaki matua a Heartland ko te
whakamamati i ngā mahi katoa, he pērā me te
tohatoha, me te whakaekeeke kiritaki, me te hātepetepe.

Kei te rito o taua rautaki mamati nei, ko te
whakawhānakenake i te taupānga irirangi o Heartland.
Kua huri rawa ngā waea atamai hei ara irirangi mō
ngā pakeke katoa4. Hurihuri haere ai ngā kiritaki ki ā
rātou waea atamai kia tutuki ai ngā taupāpātanga
katoa ki ngā ratonga, ā, nā reira te whānakenake o te
Taupānga Irirangi o Heartland kia tatū ai ngā hiahia a
te apataki – ka huri hei peka mariko o Heartland i tēnā
koko, i tēnā koko.

Nā ngā pae mamati o Heartland i āhei ai ngā kiritaki ki
te whai atu i ngā hua me ngā ratonga, ahakoa te aukati
i ngā tūtakitanga ā-tinana e ai ki te taumata o ngā
rāhui. Ma te tautuhi mamati i ngā kanohi (ine-koiora)
me te haina ā-irirangi i ngā pepa (DocuSign) e whiwhi
ai ngā kiritaki ki te pūnaha e uru atu ai ki te apataki, e
tatū ai ngā whāinga, pāpā kore nei i te tīmatanga ki te
mutunga. I te 25 o Māehe ki te 13 o Mei, i te wā o ngā
rāhui o ngā taumata tūmatohi 3, 4, āhei ai ngā kaihoko
waka takawaenga o Heartland ki te whakariterite i
ngā tono pūtea taurewa ma te tuku atu i ngā hononga
tautuhi kanohi ki ngā kiritaki.

Ka piki te haumitanga o ngā pūnaha hangarau kia
nui atu ai ngā āheinga mamati e tatū ai ngā whāinga
whakatupu a Heartland me ngā hiahia o ngā kiritaki
i Aotearoa me Ahitereiria – ina hoki te ao whai
imurangi-19 nei, he ao e hirahira ake ai te taupāpā
ā-irirangi.

Kua tutuki i a Heartland he putanga ahumoni
kaha i te TAm1 2020 nei, ahakoa ngā wero
taikaha o te hauora me te ohaoha kua pupū
ake i te urutā imurangi-19. I $72.0 miriona
te tōpūtanga haumoni rauiti [THRi2], nā, kua
$78.9 miriona te tōpūtanga whakariterite
(hāunga te pānga o te paparua ohaoha o te
$9.6 miriona i mua i te tangohanga tāke no te
putanga ake o te imurangi-19), ārā he pikinga
ake o te 7.2% no te TAm2019. He kaha hoki te
pikinga ake o ngā whiwhinga ahumoni raunui
ki te $4.6 piriona, he pikinga kia $215 miriona
kē atu i tō te TAm2019.

Te Whanaketanga Mamati

No te urunga ki te Te Paehoko o Aotearoa3 i te tau
2011 me te rēhitatanga o Heartland Bank hei pēke
whai mana i te tau 2011, kua ahu whakamua a
Heartland i ētahi taumata rautakitaki. Na te aro ki te
whakawhanake i ngā āheinga mamati kua kitea a
Heartland e tū ana hei hono ahumoni whai mamati,
arā, hei kaipakihi hangarau ahumoni (Fintech) e mana
ana hei pēke.

Nā reira, na te aronga pai rawa hoki - ina hoki te
aronga tōtahi – ki ngā hua me ngā ratonga kua tū
motuhake a Heartland i ngā pēke au matua. Hei tauira
pai rawa ko te tiketike kē atu o te Pae Huamoni Rauiti,
me te mea hoki ko Heartland tētahi o ngā pēke e rua
noa iho nei o tēnei pito o te ao kāore i raruraru i te
whakahekenga rānei, i te kawenga kētanga rānei o
te taumata aromatawai me te aronga atu i te urunga
atu ki te hekenga ohaoha. Kua waitohua a Heartland
e Canstar ko te Pēke Penapena o te Tau i ngā tau e
toru nei, ā, kua whiwhi ki ngā tohu huhua i te tukanga
mōkete tauaro. Hei tikanga hangarau ahumoni, no
te taumata ā-ao ngā pae mamati a Heartland hei
kuhukuhu moni, hei tukutuku moni ki ngā kaipakihi ririki,
hei whakariterite i ngā mōkete.

1 TAm - tau huamoni [FY].
2 THRi - tōpūtanga hua rauiti [NPAT].
3 NZX.
4 E ai ki te aromātai o te apataki irirangi ā-ao a Deloitte i te tau 2019.

Heartland Annual Report 2020

W
E
V
E
R
N

R
A
E
Y
R
U
O

Whaihua Ahumoni

Kei te wāhanga Kōrero Ahumoni o te Pūrongo ā-Tau i
te whārangi 74 te wetewetenga o te whaihua ahumoni
o Heartland i te TAm2020. Nā reira ka aro ngā kōrero
nei o te whaihua ahumoni ki ngā pānga o te taiao
ohaoha onāianei.

No te Māehe o 2020, kua raruraru i ngā aukatinga
i whakaritea hei ārai i ngā pānga o te horanga o te
imurangi-19. Kua raruraru hoki i ngā pānga e rere mai
ana i te hekenga iho o te ōhanga ā-ao i te pātukinga
o te imurangi-19. Ko ngā tikanga i whakaritea e te
Kāwanatanga o Aotearoa (me ngā kaupapa tautoko,
ahumahi) me Te Pūtea Matua o Aotearoa5 kua taunaki i
te whakangāwaritanga o aua tikanga rā. Hei tino tauira,
na te whakarewa tere a te Manatū Ahumoni i te huarahi
ngāwari hei āwhina i ngā HRT6 me te Kaupapa Kapewhiti
Taurewa mā ngā Kaipakihi Ririki7 i piki ai te māngohe
me te titikaha o te tūtanga ahumoni. I aua wā, kua
pātata atu a Ngāi Heartland ki ngā kiritaki kia mārama
ai ki tā rātou e mate ana, kia tautoko ā-pūtea hoki.

Kāore he whakaaritanga rarahi atu o Heartland ki
ngā ahumahi kua tukia kinotia e te imurangi-19 (mahi
tūruhi, mahi taurima, kaipakihi utu takitahi)8, kāore hoki
ki te tūtanga tokopae kua tino tukia e te pikinga ake o
te kore mahi (15-24 tau te pakeke)9. Me te mea hoki, he
teitei te taumata manawaroa o te pukapuka tukutuku
pūtea a Heartland ki ngā pōraruraru ohaoha – hei tino
tauira ko ngā pukapuka Mōkete Tauaro o Aotearoa me
Ahitereiria (he wāhi e pūmau ana te whanonga o ngā
kaitono), ko te tauira hoki o te Kōpaki Taiwhenua.

Na te whakaaroaro i te hanga rauāhua o te kōpaki, i te
pakari o te hunga whakahaere, i te mōhio ki te apataki,
na te whakaae hoki ki te tika o ngā matapae o ngā
hanga ohaoha a te hunga whakahaere, i whakatau ai
a Heartland kāore he take kia whakaarohia te hē o ngā
tikanga o te wā. Engari i te mārama tonu a Heartland
kāore pea i tika te tātaitai i te pakari o te tūnga taurewa
i runga i ngā whakaritenga tautoko a Heartland ake me
te āwhina nui a te Kāwanatanga.

I te aroaro o aua hanga, i mau a Heartland ki te
paparua o te $9.6 miriona i mua i te tangohanga tāke
hei ārai atu i te warawara i pupū ake i te imurangi-19. I
whakaritea ngā paparua ohaoha hei tāpiritanga ki ngā
tikanga tātaitai i te matapae o te ngaromanga moni
taurewa mehemea kei waho te taiao ohaoha i tērā i
puta i ngā tikanga tātaitai o te wā, ā, kua whakamahia
e ngā pēke hei whakaō atu ki ngā warawara i puta ake
i te ahunga ake o te imurangi-19. Ko te mea nui, kāore
te paparua e tohu i ngā ngaromanga moni tūturu o te
wā, engari hei āraitanga atu ki ngā ngaromanga ka
ahuahu ake pea i te warawara.

Kua tirihia atu te nuinga o te paparua o Heartland
ki ngā kōpaki Kiritaki me tō ngā HRT. Ka mātai tonu
a Heartland i taua paparua, ā, ka panoni pea i te
pahurenga o te wā e mārama rawa ai te horopaki, ā,
hei reira ka mōhio pai a Heartland ki te pātukinga mai.

Ko te ōwehenga o te hōkaitanga ratorato katoa o
Heartland, hāunga te paparua ohaoha nō mua i te
tangohanga tāke o te $9.6 miriona mo te ahunga ake o
te imurangi-19, ko te 1.71%10 i te 30 o Hune o 2020. He
tūnga taikaha, whakariterite nei, i te aroaro o ngā hoa
kaipakihi ōrite. I piki anō te ōwehenga o te hōkaitanga
ratorato katoa o te paparua ohaoha mo te imurangi-19
ki te 2.02% i te 30 o Hune o 2020.

Whāinga Rautaki Matua

E toru ngā whāinga matua o te rautaki o Heartland,
arā, ko te piki taumata hei pēke mō Aotearoa; ko
te whakawhānui o ngā mahi i Ahitereiria; ko te
whakamamati i te whakaekeeke kiritaki, i te tohatoha, i
te hātepetepe (he pērā me ngā kōrero o runga).

Te Piki Taumata i Aotearoa

E titikaha tonu ana te ngākau o Heartland ki te ratorato
i ngā hua me ngā ratonga – pai rawa atu rānei, tōtahi
rānei – ki te apataki mā ngā huarahi huhua, ā, ko te
nuinga he mea mamati.

5 RBNZ.
6 HRT - hinonga ririki, tōwaenga [SME].
7 Small Business Cashflow Loan Scheme.
8 Ko te whakaaritanga katoa o Heartland ki ngā ahumahi Utu Takitahi, Taurima, Hari Rawa (hāunga te hari rawa ā-rori) i te 30 o Hune o 2020, e
ai ki ngā rāngai kaitono o te ANZSIC, ko te 2.84%, ko te 2.17%, ko te 1.15% hāngaingai nei.
9 I te 10 te Akuhata o 2020, ko te whakaaritanga atu o Heartland ki ngā kiritaki o taua reanga ko te 4.2% i a Motor, ko te 0.7% i te tukutuku pūtea
Personal, ko te 0.9% i a Harmoney.
10 I tātaitia hei tapeke ratonga i runga i ngā whiwhinga ahumoni raunui, hāunga ngā Mōkete Tauaro.

P. 10

P. 11

Kua whakawhanake a Heartland Bank i te tauira tōtahi,
utu-iti e mahi ana i Aotearoa, i runga i te whakamamati
i ngā hongere matua o te tohatoha me ngā pūnaha
e ngata ai ngā hiahia. Ko te whakatōpū i te ahumahi
pēke he huarahi pea hei whakawhānui i taua tauira
utu-iti nei, hei hiki hoki i te whakawhiwhinga atu a ērā
atu hunga ahumahi ki te haupū moni. I te wā nei e mate
ana aua hunga ki te emiemi i ngā haupū moni kē atu, ā,
e raruraru whānui ana hoki te ahumahi i te haumitanga
kē atu ki te hangarau me te whakatutuki ture. Mā reira
pea, ka kitea te whakatōpū hei whiringa pai.

No te Māehe o te tau 2020, i uru atu rā a Heartland
ki roto i te mākete utu takitahi me te pae irirangi mō
ngā Pūtea Taurewa ā-Whare. Hei whakamātautau
i te hiahia o te mākete o Aotearoa ki ngā pūtea
taurewa ā-whare mamati nei e āhei ai te iwi ki te tono
me te whiwhi, heipūtanga nei, ki te whakaaetanga
ā-irirangi. Hei aha hoki te haerenga rānei ki te pēke,
te tūtakitanga rānei i te kaiwhakarite mōkete. He
mea angitu te whakamātautau, ā, e $50 miriona
te ritenga o ngā whakaaetanga heipū ki ngā pūtea
taurewa ā-whare i te marama i whakamātautauria ai.
I whakarewa anō a Heartland i taua hua mamati nei
o ngā Pūtea Taurewa ā-Whare i te rā 12 o Oketopa
2020.

Te Whakawhānui i Ahitereiria

Kua tupu tonu ngā Mōkete Tauaro o Ahitereiria, ahakoa
te pānga o te imurangi-19 ki te mākete o Ahitereiria.
Ka whāia tonutia te haumitanga i ngā mōkete tauaro i
waenga i ngā mahi o te mākete i Ahitereiria.

I whakarewaina te pae mamati, ko Open for Business11,
hei tukutuku moni taurewa punga kore nei, i Ahitereiria
i te marama whakamutunga o te tau 2019. Na te
pātukinga mai o te imurangi-19 i hīkina ai te tukutuku
i ngā moni taurewa ma te pae mamati o Ahitereiria i
te Māehe o 2020. Otirā e ngana ana a Heartland ki te
whakarewa anō i a Open for Business i Ahitereiria i te
tau maramataka nei.

Kua angitu hoki a Heartland i te mākete apataki me
tō ngā kaipakihi ririki i Aotearoa. Nā, ko te aronga atu
kia tāruatia taua angitu ki Ahitereiria. He paku ngā
whakaaritanga atu o Heartland ki aua mākete mā ngā
hoa kaipakihi, he pērā i a Harmoney, ā, kei te whai atu i te
tupuranga ake i aua wāhi e rua, me te hiakai hoki ki ngā
huarahi e tuputupu noa ai rānei, e hokohoko atu ai rānei.

Te Whakamarohi o te Wāriu i roto o te Hono

Hei whai i te tono a te Poari, kei te tāuteute te hunga
whakahaere i te whitinga hou o te whakatutuki i te
rautaki o Heartland. Kua waitohua te kaipakihi pēke
hāumiumi o Jarden kia tohutohu mai i ngā huarahi hei
waihanga i te wāriu, me te aro atu ki te pāpaku iho o
ngā pānga riterite nōnāianei o te wāriu o ngā pēke i
ō te nuinga o ērā o ngā kaipakihi ahumoni me ō ngā
kaipakihi e whai ana i te hangarau ahumoni.

Kua tonoa a Jarden kia tāuteute i ngā pānga ki te
wāriu, ki te rautaki haumitanga, ki te whai rauemi
ina kitea kētia a Heartland hei hono o ngā kaipakihi
motuhake e whā, arā:

1. he pēke nō Aotearoa e pūtake ake ana i te tukutuku
moni taurewa mō ngā kaipakihi, mo te taiwhenua,
mō ngā whare, me te āheinga ki te whakawhānui
atu ki te tauira utu-iti;

2. he ratonga ngārahu o te ahumoni waka i Aotearoa,
me te āheinga ki te kapo atu i te wāhanga mākete e
rahi atu ana;

3. te ratonga mātātoa nui rawa o ngā Mōkete Tauaro i

Ahitereiria, ā,

4. he kaipakihi tūmau e whai ana ki te hangarau

ahumoni, ā, ka aro ki te tuku taurewa i ngā moni ki
ngā HRT12

Heartland Annual Report 2020

W
E
V
E
R
N

R
A
E
Y
R
U
O

He Manawa Tangata – Ō tātou tāngata

Te Titiro Whakamua

Tāpaepae ai ngā hanga huhua i ngā aronga rere kē
me ngā whakamāramatanga rere kē o ngā whakaaro
me ngā huatau, huri noa i te kamupene, hei hāpai i
te whakaputanga, i te haumoni, i te hononga ki ngā
hapori me te hunga whai pānga.

I te aroaro o te urutā imurangi-19 nei, kua whakapuaki
anō a Heartland i te titikaha o te ngākau ki te hiki me te
whakanui i ngā hanga huhua hei waihanga i te ahurea
awhiawhi. Mā aua hanga huhua, ma te ringa awhiawhi
hoki o te wāhi mahi e riro ai ngā take momoho rawa
o te manawa nui, o te manawa ora, o te manawa
pūmahara, ā, he hanga whakaharahara rawa ērā e
ora ai ngā kaipakihi i te ao ohaoha onāianei.

No te tau nei, he kaha te ahunga whakamua i ō
Heartland kaupeka matua o te aronga atu ki te mata
māhaki me te ringa awhiawhi, he ahunga e tutuki ai, e
tūmau ai te tairite ā-ira, huri noa i te kamupene, ā, he
ahunga e āta whirihia ai hei kaiwhakarato mahi mā
Ngāi Māori.

No te tau hoki nei ka tū ko Whāia te iti kahurangi, ko tā
Heartland tīrewa e whai wāhi mahi ai, e whai ratonga
ahumoni ai kia toa ai ngā Māori hei Māori. Ko te take
o Whāia te iti kahurangi ko te tautoko i ngā mahi a
Heartland i waenga i a Ngāi Māori, i te reo Māori, i ngā
tikanga tuku iho. Hei taunga hoki hei ārahi i a Ngāi
Heartland i ngā mahi kaipakihi, hei hāpai i te aronga
mai o te tangata whenua.

Kua piki ake te hōtaka whakakaiaka o Heartland,
arā, o te Manawa Ako, i maha atu ai ngā huarahi e
whakamātautau ai te uri whakatupu – Māori mai, Ngāi
Moutere mai – i ngā mahi o te tūtanga ahumoni me te
ao rangatōpū. Kua pai te pānga atu o Manawa Ako ki
te tāwhai mata māhaki o Heartland, he pānga i piki
rawa ai te whakamahi, te mārama, te whakataunga
i te reo me ngā tikanga Māori i roto o Heartland. Nā
reira hoki i hāpainga ai te whanaketanga o te ahurea
māhaki, tuhera, awhiawhi, huri noa i te kamupene.

Hei tirohanga atu ki te tau e heke mai nei, ka whakaū a
Heartland ki te tautoko i te apataki i roto i te taiao. Kei
te matapaea te tupuranga tonutanga o ngā Mōkete
Waka, Kaipakihi, Tauaro i Aotearoa. Hei Ahitereiria, kei
te matapaea te tupuranga tonutanga o ngā Mōkete
Tauaro, waihoki te pikinga o ngā mahi HRT me ō te
apataki. Hei te taha mamati, ka kaha atu te aro ki te
whakawhanake i te Taupānga Irirangi Heartland i roto
i te mākete o Aotearoa, kia piki ake ai te taupāpātanga
hei whakatutuki i ngā hiahia a te apataki me te
tohatoha atu ki ngā kiritaki hōu.

Mau tonu ai a Heartland ki ngā tikanga o te mata
māhaki me te ringa awhiawhi hei tino wāhanga
o te rautaki whānui. Ka whai tonu i ngā mahi hei
whakawhanake, hei whakaū i ngā hinonga Māori, he
pērā hoki me te whakatupu i te hōtaka whakakaiaka o
te Manawa Ako, me te whakarewa i te rautaki poapoa
kaimahi, i te Iho Pūmanawa hoki, hei hāpai i te pūnaha
e tairite atu ai mō ngā kaitono Māori.

Ka mau tonu te rautaki ā-taiao, ā-hapori, ā-kāwana a
Heartland, ā, ka aro ki te whakahekenga o te pānga
ā-taiao o ngā mahi me te whakaratorato i ngā hua me
ngā ratonga e tautoko ana i te apataki kia hāngai te
whanonga ki ngā tikanga o te taiōhanga porotiti.

Hei mutunga ake, e hiahia ana ahau ki te mihi ki a Ngāi
Heartland kua whakatinana i ō tātou mātāpono i te
roanga o te tau. Kei te hiahia hoki ahau ki te whakamihi
ki te hunga whai pānga me tā rātou tautoko tonu i a
Heartland.

Ngā mihi nui,

Jeff Greenslade
Te Mana Hautū

11 Tuhera ana ki te kaipakihi.
12 HRT - hinonga ririki, tōwaenga [SME].

P. 12

P. 13

2020 Results at a Glance

Heartland Annual Report 2020

W
E
V
E
R
N

R
A
E
Y
R
U
O

G R O S S F I N A N C E R E C E I VA B L E S

N E T P R O F I T A F T E R TA X 1

FY19 $4.4b4.6 billion

72.0 million

Adjusted net profit after tax2 $78.9m
FY19 $73.6m

R E T U R N O N E Q U I T Y

N E T I N T E R E S T M A R G I N

N E T P R O F I T A F T E R TA X

10.5%

Adjusted return on equity2 11.4%
FY19 11.1%

4.33%

FY19 4.33%
Consistently higher than banking peers3

E A R N I N G S P E R S H A R E

F I N A L D I V I D E N D D E C L A R E D

12.5Adjusted earnings per share2 13.7 cents per share

cents
per share

FY19 13.0 cents per share

FY19 6.5 cents per share2.5 cents

per share

TOTA L DI V I DEN D FOR T H E Y E A R

7.0 cents

FY19 10.0 cents per share

per share

67.5

36.4

60.8

31.7

73.6

72.01

40.5

32.1

29.1

31.1

33.1

39.9

54.2

28.6

48.2

24.7

23.5

25.6

FY15

FY16

FY17

FY18

FY19

FY20

1 Included within this NPAT is an economic overlay of $9.6 million pre-tax which Heartland applied to its potential credit losses in response
to the ongoing uncertainties relating to the COVID-19 pandemic.
2 These adjusted figures for FY20 exclude the impact of the $9.6 million pre-tax economic overlay due to COVID-19. See page 76 for
further information.
3 KPMG FIPS Report March 2020.

P. 14

P. 15

Our Response to COVID-19

B U I LT N E W W E B S I T E

F U N C T I O N A L I T Y TO

E N A B L E C U S TO M E R S

TO R E Q U E S T S U P P O R T

O N L I N E

B E C A M E A P R OV I D E R

O F T H E N E W Z E A L A N D

G OV E R N M E N T ’ S

B U S I N E S S F I N A N C E

G UA R A N T E E S C H E M E

A P P R OX I M AT E LY

Heartland Annual Report 2020

9
1
-
D
V
O
C

Loan variation
options

O F F E R E D C U S TO M E R S A R A N G E O F LOA N VA R I AT I O N O P T I O N S

I N C L U D I N G PAY M E N T H O L I DAY S , R E D U C E D P R I N C I PA L PAY M E N T S

A N D I N T E R E S T O N LY PAY M E N T S

Heartland Extend

B U I LT N E W H E A R T L A N D E X T E N D P R O D U C T, P R OV I D I N G B U S I N E S S

A N D CO N S U M E R C U S TO M E R S W I T H CO N T R O L A N D F L E X I B I L I T Y

OV E R T H E I R LOA N R E PAY M E N T S

O F H E A R T L A N D E M P LOY E E S R E - D E P LOY E D TO C U S TO M E R S E R V I C E A N D S U P P O R T

R O L E S A S PA R T O F COV I D -1 9 R E S P O N S E S T R AT E G Y

I M M E D I AT E LY I D E N T I F I E D H E A R T L A N D T E A M M E M B E R S W H O

W E R E M O R E V U L N E R A B L E TO COV I D -1 9 A N D WO R K E D W I T H

T H E M TO K E E P T H E M S A F E

CO M M U N I C AT E D F R E Q U E N T LY W I T H E M P LOY E E S TO E N S U R E

T H E Y W E R E AWA R E O F L AT E S T D E V E LO P M E N T S , H OW TO S TAY

CO N N E C T E D A N D H OW TO ACC E S S S U P P O R T I F N E E D E D

P R OV I D E D T E C H N O LO G Y TO E N A B L E T H E M AJ O R I T Y O F

E M P LOY E E S TO WO R K F R O M H O M E D U R I N G A L E R T L E V E L 4

P. 16

P. 17

Our Response to COVID-19

Supporting our Customers through COVID-19

Support for our Business Customers

Heartland is committed to supporting its customers
through the financial impacts of the COVID-19
pandemic. When New Zealand began to feel the
effects of COVID-19 in March this year, a number of
measures were put in place to proactively contact
customers, re-deploying a significant proportion of
employees to ensure that we were well positioned to
do so. Customers were contacted through a number of
channels including outbound phone calls and email.

New website functionality was built to specifically
enable customers to request support online. To support
our customers, a range of loan variation options were
offered including payment holidays, reduced principal
payments and interest only payments.

Approximately 20% of Heartland employees were
re-deployed to customer service and support roles as
part of our COVID-19 response strategy. For example,
a dedicated customer-facing team was established
to proactively contact over 8,000 business customers
who may have needed support. 50 employees were
also re-deployed to create a dedicated Consumer
lending COVID-19 response team of 100 people to
respond to, and action, customer support requests.

To help customers leverage their savings during this
time, a range of term deposit and call deposit offers
were provided to existing customers and shareholders.
These interest rate offers also provided an attractive
option for customers who were holding government
support packages before they were distributed
to employees.

Heartland Bank has participated in the Business
Finance Guarantee Scheme (BFGS) since its inception.
The BFGS is a collaboration between the New Zealand
Government and banks to provide loans to businesses
that are financially impacted by COVID-19. Any loans
provided by Heartland Bank under this scheme have
80% of the risk guaranteed by the Government – the
remaining 20% is covered by Heartland Bank.

On 20 August 2020, the Government announced a number
of changes to simplify and expand the BFGS, enabling
larger and longer-term loans to be made available to
more New Zealand businesses, for more purposes.
Heartland supports the changes to the BFGS and
believe these are positive for New Zealand businesses.

The changes will enable Heartland Bank, and other
participating banks, to assist more new and existing
qualifying business customers:

– to access funding for more purposes – as well as
cashflow, loans can now also be used for capital
assets related to responding to or recovering from,
the impacts of COVID-19

– to borrow more, for longer – now $5 million (under

one or more loans) for up to five years (increased from
$500,000 for three years)

– to repay or refinance up to 20% of their existing debt

– who may otherwise have previously been excluded

from borrowing under the BFGS.

In addition to continuing to support BFGS lending,
support is being provided to existing customers by
giving them more time and flexibility to meet the
challenges of lockdowns. In particular, Heartland Extend
was launched in May 2020, allowing customers to choose
loan repayment terms suited to their needs. Applications
are available via a purpose-built digital platform.

Heartland Annual Report 2020

9
1
-
D
V
O
C

Support for our People

The support provided to Heartland’s customers in
response to COVID-19 was only made possible through
the resilience and adaptability of our people. In the
face of challenges presented to the business, our
people stepped up and truly lived and demonstrated
our mātāpono. This meant doing the right thing by our
customers (mahi tika), working as one team to make
change happen (mahi tahi) and continuously evolving
as the situation required (mahi tipu).

The health and wellbeing of our people was paramount
in our response. Team members who were more
vulnerable to COVID-19 were immediately identified
and we worked with them to keep them safe.
Throughout the lockdown and moving back down the
alert levels, we communicated frequently to ensure our
people were aware of latest developments, how to stay
connected and how to reach out for support if needed.

For those working from home, the use of our online
meeting tools was encouraged to enable productive
meetings and to keep up regular contact with each
other. For those essential employees who remained in
the offices, appropriate protocols were immediately
put in place to introduce strict hygiene standards and
adhere to physical distancing requirements.

Heartland Extend provides the customer with control
and flexibility over their loan repayments – allowing
them to adjust their payments as needed, with no fees
to make these changes. Customers have the option to
reduce their regular repayment amounts immediately,
or have the flexibility to adjust them in the future if their
situation changes. This is done by making changes to
the term of the loan. Heartland will continue to work
with all Business Extend customers to determine
the repayment amounts and term which suit their
particular situation.

To date, Heartland has assisted over 2,700 business
customers to deal with the ongoing disruption caused
to their businesses by COVID-19. With the expansion
of the BFGS, and the introduction of Business Extend
to new customers, Heartland will be able to assist more
businesses to respond to and recover from the impacts
of COVID-19.

Support for our Vehicle Loan Customers

For vehicle loan customers in the Consumer division,
support options offered included interest-only
payments and payment deferrals where required.
The feedback from these customers regarding the
service provided to them following the outbreak of
COVID-19 has been positive. In a survey conducted
with vehicle loan customers who had requested
assistance with their loan, 96% of respondents were
happy with the options provided to them by Heartland
and 91% of respondents rated the Heartland team as
either “very helpful” or “extremely helpful”.

Investment in digital capability over the last two
years meant that intermediary motor vehicle dealers
could continue to process finance applications for
their customers using digital tools such as electronic
document signing and biometric facial recognition
despite alert level restrictions on in-person interactions1.

P. 18

P. 19

1 For information on biometric identity verification technology, please refer to page 72 of this Annual Report.

Danny Olive Team Leader - Collections

Reverse Mortgages and COVID-19

Strong growth in Reverse Mortgages expected
to continue

Once again, Reverse Mortgages performed well in
the financial year, showing strong growth across both
New Zealand and Australia.

Many New Zealanders and Australians are retiring
without sufficient financial means to support the
lifestyle they want to live and we expect this trend
to continue.

It’s no surprise that the latest Massey University
retirement expenditure report found that most
New Zealanders aspire to a better standard of
living in retirement than can be supported by
NZ Superannuation alone1.

Accordingly, we expect growth in Reverse Mortgages
to continue, although it is likely that the most common
uses of a Reverse Mortgage may change. For example,
we have seen a decline in overseas travel and higher
rates of debt consolidation.

Heartland continues to be the market leader

The impacts of COVID-19

There is no ‘one size fits all’ approach to funding
retirement. Each person has a different set of financial,
social and family circumstances and differing lifestyle
choices. A Reverse Mortgage is simply another option to
enable retirees to make their chosen lifestyle a reality.

We believe that the ability to provide Reverse
Mortgages to retirees will be more important than ever
given the impacts of COVID-19, for example:

– Saving for retirement will inevitably become a lower
priority for those facing redundancy or salary cuts.
For many, the focus must shift to making ends meet
on a day-to-day basis, with retirement savings taking
a back seat. Those who were already under-prepared
for retirement will be most significantly affected.

– The current low interest rate environment will mean
less income for retirees who are heavily reliant on
interest from term deposits to fund their retirement.
Again, this may result in the need to seek other
options to support their retirement income.

During the course of the financial year, one competitor
re-commenced the promotion of a Reverse Mortgage
product in New Zealand. However, our learnings
from the Australian market have shown that some
competition can help to increase awareness and
acceptance of the product amongst the target market.

We believe that our market-leading position in New
Zealand will continue despite this competition as a
result of our strong experience in the Reserve Mortgage
market and our dedicated and knowledgeable team
who deliver outstanding service and provide a
streamlined process for our customers.

Heartland Seniors Finance in Australia also continues
to be the leading originator of Reverse Mortgages in
Australia, with our 12-month market share increasing
from 21%2 to 26%3.

For many retirees,
COVID-19 has highlighted
the importance of their
home as it connects them
to their family, friends
and community.

Heartland Annual Report 2020

9
1
-
D
V
O
C

For many retirees, COVID-19 has highlighted the
importance of their home as it connects them to their
family, friends and community.

Many are looking at a Reverse Mortgage to release
equity rather than the traditional method of downsizing.

Heartland is proud to be able to provide another
alternative to help New Zealanders and Australians
live a more comfortable retirement despite the current
economic environment brought about by the
COVID-19 pandemic.

“It’s been a life-changing experience and we intend to
make the most of it.”

John and Margaret
Heartland Reverse Mortgage customers

1 New Zealand Retirement Expenditure Guidelines 2019 https://www.massey.ac.nz/shadomx/apps/fms/fmsdownload.cfm?file_
uuid=18330758-8D36-4EF6-A79B-92C86889BFAB
2 Based on APRA ADI Property Exposure combined with Heartland Seniors Finance data as at 31 March 2019.
3 Based on APRA ADI Property Exposure combined with Heartland Seniors Finance data as at 31 March 2020.

P. 20

P. 21

Our Business

As at 30 June 2020

O U R P E O P L E

EMPLOYEES
475 NEW ZEALAND + 25 AUSTRALIA

12,000+

SHAREHOLDERS

120,000 +

CUSTOMERS

O U R F U N D I N G

3.3B

RETAIL DEPOSITS

O U R L E N D I N G

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

9
m

m 1,517.4 M

Reverse Mortgages

i
l

Digital Home Lo
$0.6m

Open for B
$155.3

usin

5.7m

9
4
$
p
i
h
s
n
o

Business Finance

1,150.0M
diated $4

9.0m

i
s

Livestock Fin
$115.3

n
e
s
s

n
t
e
r
m
e

m
o
n
e
y
$
1
4

5.9

LOCATIONS

52:46:2

FEMALE : MALE : NOT STATED

20+

ETHNICITIES

13.8M

Residential Mortgages

s $
n

egacy Home Loa

605.7M

Rural Finance

hip
s

Rural Relation

O t h

r P e r s o n a l Loans
e
1 2 . 2 m
$

$ 819.7

SECURITISATION FACILITIES

1,125.6 M

Motor Vehicle Finance

.7
2
5
$
s
u
A

$ 448.2M

UNSUBORDINATED BONDS

All of the above lending portfolio figures exclude FX impact.

210.8M

Other Personal Lending

P. 22

P. 23

Heartland
Group
Holdings
Board

From left to right:

JEFFRE Y GREENSL ADE
CEO and Executive Director
Appointed 19 July 2018
Committee memberships: N/A

GEOFFRE Y RICKET TS
Chair and Independent Non-Executive Director
Appointed 31 October 2018
Committee memberships: HGH Audit and Risk
Committee, HGH Corporate Governance,
People, Remuneration and Nominations
Committee (Chair)

ELLEN COMERFORD
Independent Non-Executive Director
Appointed 31 October 2018
Committee memberships: HGH Audit and Risk
Committee (Chair)

SIR CHRISTOPHER MACE
Independent Non-Executive Director
Appointed 31 October 2018
Committee memberships: HGH Audit
and Risk Committee

GREGORY TOMLINSON
Deputy Chair and Non-Executive Director
Appointed 31 October 2018
Committee memberships: HGH Corporate
Governance, People, Remuneration and
Nominations Committee

As at the date of this Annual Report.

For full profiles, visit
shareholders.heartland.co.nz

P. 24

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

P. 25

Heartland Bank Board

Pictured on pages 24-25:

JEFFRE Y GREENSL ADE
Non-Independent Director
Appointed 31 December 2015
Committee memberships: N/A

GEOFFRE Y RICKET TS
Independent
Non-Executive Director
Appointed 31 December 2015
Committee memberships:
HBL Audit Committee

ELLEN COMERFORD
Independent
Non-Executive Director
Appointed 1 January 2017
Committee memberships: N/A

BRUCE IRVINE (CHAIR)
Independent Non-Executive Director
Appointed 31 December 2015
Committee memberships:
HBL Audit Committee, HGH Corporate
Governance, People, Remuneration and
Nominations Committee1

SHELLE Y RUHA
Independent Non-Executive Director
Appointed 1 January 2020
Committee memberships:
HBL Risk Committee Chair

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

K ATHRYN MORRISON
Independent Non-Executive Director
Appointed 29 March 2019
Committee memberships:
HBL Risk Committee

EDWARD JOHN HARVE Y
Independent Non-Executive Director
Appointed 31 December 2015
Committee memberships:
HBL Audit Committee (Chair),
HBL Risk Committee

1 Refer to page 45 for information on Bruce Irvine’s membership of the HGH Corporate Governance, People, Remuneration
and Nominations Committee.

As at the date of this Annual Report.

For full profiles, visit
shareholders.heartland.co.nz

P. 26

P. 27

Strategic
Management
Group

From left to right:

JEFF GREENSL ADE
CEO, Heartland Group Holdings Limited

LYDIA ZULKIFLI
Chief Digital Officer

ANDREW DIXSON
Chief Financial Officer

GRANT KEMBLE
Group Chief Risk Officer

L AURA BYRNE
Group Chief of Staff

KEIRA BILLOT
Chief People & Culture Officer

CHRIS FLOOD
CEO, Heartland Bank Limited

MICHAEL DRUMM
Chief Legal & Bank Risk Officer

SARAH SMITH
Chief Technology Officer

For full profiles, visit
shareholders.heartland.co.nz

P. 28

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

P. 29

Diversity Report

E koekoe te tūī, e ketekete te kākā,
e kūkū te kereru – Appreciate the
many voices of the forest

Heartland considers diversity, in all its forms, a
strength. We are committed to supporting initiatives
which foster diversity at all levels of the organisation
to put us in a better position to attract the widest
pool of talent, understand and respond to our
diverse stakeholder needs, and provide us with a
broad experience base from which to identify new
opportunities, solve problems and make the right
decisions. By promoting a culture of inclusion and
embracing diversity, we believe our people will be
engaged and motivated to create the best outcomes
for our customers and stakeholders.

In order to articulate our commitment to diversity,
Heartland has a Diversity and Inclusion Policy.
The Diversity and Inclusion Policy is available on our
shareholder website: shareholders.heartland.co.nz.

Diversity is the many characteristics that make each of
us different, including gender, ethnicity, heritage, sexual
orientation, age, religious beliefs or other ideologies,
family status, language, cultural background, and
physical and mental abilities.

An inclusive workplace is one where all those forms of
diversity are valued, respected and leveraged, creating
equal opportunities for all employees.

Under the Diversity and Inclusion Policy, the Board,
with the assistance of the Diversity Committee, is
responsible for setting measurable objectives and
reviewing progress against them.

In 2019, the Board set the following objectives
to measure Heartland’s performance against its
Diversity and Inclusion Policy:

a) To improve the inclusiveness of our workplace by
increasing cultural awareness and celebrating
diversity in all of its forms.

b) To achieve a gender balance at all levels of the

organisation as soon as possible.

c) To be recognised as a preferred employer for
emerging Māori talent, and thereby create a
pathway to being an employer that is welcoming to
all cultures and ethnicities.

d) To create an environment where having English as a
second language does not present a hurdle to being
employed by, or succeeding at, Heartland.

The following section demonstrates the progress made
against these objectives during the 2020 financial year.

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

To improve the inclusiveness of our
workplace by increasing cultural
awareness and celebrating diversity
in all of its forms

Heartland has a workforce with diverse ethnicities,
heritages, backgrounds, cultures, genders and ages.
We are focused on continuing to develop an inclusive
culture that embraces and celebrates our diversity and
encourages our people to be authentic and share their
thoughts and ideas. Throughout the year, we continued
to grow awareness across the organisation of the
value of diversity and inclusion through our internal
communication channels, including regular news and
interest stories.

Diversity Committee

Heartland’s Diversity Committee is a forum
for our people to come together and share

ideas to measure, celebrate and promote diversity
and inclusion. The Committee reports to the Board on
diversity related matters, including those in relation
to Heartland’s progress towards achievement of the
measurable objectives.

During the year the Diversity Committee coordinated a
number of events to celebrate and recognise times of
cultural significance including Christmas, Eid, Diwali,
Lunar New Year, Matariki, Māori Language Week,
Waitangi Day and NZ wars commemoration.

Te reo and tikanga Māori

The promotion of Māori language and
culture continues as a core focus at

Heartland, with our Manawa Whenua group (made
up of our Māori employees and allies) leading these
activities. Manawa Whenua led our Māori Language
Week celebrations which were well received and
involved numerous interactive opportunities. For
Matariki this year, we took the opportunity to create
awareness about what it means, reflect on the events
of the past year, and think ahead to the months to come.

Māori language continues to be used in various
contexts, with many positive comments being received
from external sources recognising and commending
the Māori version of our website. These types of
initiatives have a positive impact on developing new
relationships, and strengthening existing ones with our
customers and communities.

Rainbow Community

As part of continuously evolving our
frameworks, we have updated our
Prevention of Harassment, Discrimination and Bullying,
and Diversity and Inclusion policies to specifically
include Heartland’s Rainbow community.

Heartland’s Rainbow Committee has introduced the
option for our people to include pronouns in their email
signatures as a way to easily convey the words they
would like others to use when being addressed or
referred to. We recognise that the ability to self-identify
promotes confidence in our people to bring their true
and authentic self to work.

These actions are only the beginning for our Rainbow
Committee as we strengthen our focus towards
increasing rainbow awareness and ally-ship, and being
an organisation that understands, welcomes and
embraces sexuality and gender diversity.

Joan Scott Reverse Mortgage Consultant

P. 30

P. 31

Living Wage Employer Accreditation

Measuring our Diversity

To achieve a gender balance at all levels of the organisation as soon as possible

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

In 2020 Heartland became an accredited
living wage employer, being one of a small

Our people provide information on a
voluntary basis to help us better understand

number of NZX-listed companies to do so. This is a
movement we support to ensure that New Zealanders
have access to fair pay and in effect reduce inequities
that impact many Kiwi workers, their whānau, and our
communites.

Becoming a Hearing Accredited Workplace

We are working with the National Foundation for
the Deaf and Hard of Hearing to become a Hearing
Accredited Employer in 2021. Hearing loss has a
significant impact on the New Zealand workforce
with 11 out of every 100 people experiencing some
hearing loss. Hearing loss is also becoming more
prevalent in younger people according to the World
Health Organisation1.

the diverse backgrounds of our workforce including
which ethnicity they identify with. In June 2020 we
provided a snapshot of Heartland’s gender information
to Champions for Change to contribute to the wider
pool of data they collate to help businesses work
together to identify and create positive change.

We have now also developed a good understanding
of Heartland’s employee age profile. Our largest
demographic is aged 30 and under, with 33% of
our workforce in this group. In addition, 47% of our
workforce is aged 35 and under. This insight was the
genesis for the creation of Heartland’s Rangatahi
Advisory Board. The Rangatahi Advisory Board is a
group of employees, aged 35 and under, with the main
purpose being to diversify the perspectives of
the Strategic Management Group and the wider Senior
Leadership Team – and ultimately the board – by
providing unique insights on our people and customers
to enhance Heartland’s strategic initiatives.

Heartland continues to identify and address the imbalance of gender at any level where one exists.
The following table shows the gender diversity of directors and employees of Heartland as at 30 June 2020
and 30 June 2019.

As at 30 June 2020

As at 30 June 2019

Positions

Female

Male

Not Stated

Total

Female

Male

Gender
Diverse

Not
Stated

Total

Board -
Heartland
Group
Holdings

Board -
Heartland
Bank

1
(20%)

3
(60%)

1
(20%)

3
(43%)

4
(57%)

Strategic
Management
Group

4
(44%)

5
(56%)

People in Key
Leadership

16
(46%)

All staff

261
(52%)

19
(54%)

231
(46%)

8
(2%)

500

1
(20%)

3
(60%)

3
(43%)

4
(57%)

5
(63%)

12
(40%)

226
(50%)

3
(38%)

18
(60%)

212
(47%)

1
(20%)

1
(0%)

9
(2%)

448

(The data in this table is inclusive of all employees across Australia and New Zealand.)

The leadership talent pipeline is coming through from our younger workforce, with 11% of employees occupying ‘key
leadership roles’ aged 35 and under. For our employees aged 30 and under, the gender balance is encouraging, with
46% reporting as male, 53% reporting as female and the remaining employees opting not to state a gender.

Ronil Mishra Lending Specialist - Small Business

1 www.nfd.org.nz/hearing-accredited-workplaces

P. 32

P. 33

External Diversity Forums

Gender Diversity Initiatives

Flexible Working

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

This year Heartland developed a robust
framework on gender reporting which

Heartland continues to support flexible
working and has a formal policy in place.

enabled us to assess and gain insight on any gender
pay or gender representation issues that require
attention, and understand what the contributing
factors may be.

People leaders are encouraged to take an open-
minded approach to requests for flexible working,
reinforcing the benefits to Heartland and its customers
by providing flexibility to employees who value it.

We continued our partnership with Global Women this year which enables Heartland to access best practice trends
and opportunities to collaborate with other organisations that are leading diversity and inclusion in New Zealand.
There is a strong commitment from the Board to furthering this objective and the following table summarises the
Directors’ individual participation in diversity forums and the aims of each of these forums.

Director

Forum

Aim

Jeffrey Greenslade

Champions for Change

Ellen Comerford

Chief Executive Women

Kathryn Morrison

Global Women

Geoffrey Ricketts
Bruce Irvine

IOD mentoring for diversity

To exchange ideas with peers on appropriate
ways to improve our diversity and
inclusiveness

To educate and influence Australian business
and government on the importance of gender
balance

To catalyse New Zealand’s social and
economic success by championing diversity in
leadership

To promote diversity in its wider sense
including ethnicity, age, skills and experience
in addition to gender

We are now focused on recruiting and promoting
women into more senior roles and ensuring proactive
in-role development of women. We are encouraged
by the representation of women in the Strategic
Management Group and continue to seek to
understand how we can maintain a gender balance as
our workplace demographic evolves.

We have invested in the individual development of
female talent, including 62% of our Rangatahi Advisory
Board members being female which provides a rich
development ground for future leaders. We also
welcomed a new cohort to our Kia Eke programme
during the year, being a support network and talent
development programme for females at an earlier
stage in their career, to support their professional and
career development.

“Heartland has a very supportive and engaging
environment, with numerous opportunities available
for employees. Ensuring that we continue to support
and develop our people is important in reflecting our
Heartland mātāpono (values).”

Veronica Franklin
Rangatahi Advisory Board member

“Those who are 35 and under have potentially
undergone some of the most radical changes within
society, economy, and technology in their lifetime.
It doesn’t make us special, it just means we see
things a little differently to those of older and younger
generations. We can use this to provide an outlook and
perspective on matters that relate to Heartland and our
customers (existing and potential) that haven’t been
raised previously.”

Ian Hedley-Wakefield
Rangatahi Advisory Board member

P. 34

“Under 35s make up almost half of Heartland’s
workforce, and are the pipeline of customers for
Heartland in the future. I think it’s important for the
decision makers to have access to the thoughts of
people in this audience to ensure outcomes are in touch
with the thinking of younger people.”

Aleisha Langdale
Rangatahi Advisory Board member

Whilst we see this as one of the many ways in which
we can attract and retain women in more senior roles
in the organisation, the benefits of having a flexible
working policy extends beyond fostering a gender
balance – it is also aligned to Heartland’s objective to
be a more generally diverse and inclusive workplace.
Giving all employees flexibility enables them to access
personal pursuits such as sport, community work,
religious celebrations or care for family members.

Flexible working at Heartland was enhanced as a
result of the need to support our people to work from
home during the COVID-19 lockdown period this
year. We successfully mobilised a completely flexible
workforce in a short space of time with no interruptions
to our customers. We are proud to have retained
our commitment to inclusion and diversity despite
the challenges presented to our business as a result
of the COVID-19 pandemic and we see this as an
important strategic priority and a key success factor in
maintaining the resilience of our organisation.

To be recognised as a preferred
employer for emerging Māori talent,
and thereby create a pathway to being
an employer that is welcoming to all
cultures and ethnicities

To improve our ethnic and cultural diversity, we are
starting close to home with New Zealand’s own
people: our tangata whenua. Māori have a unique
and significant role in Aotearoa, which Heartland is
embracing. We aspire to be a workplace that Māori
want to be part of. We believe that if we can enhance
our working environment so that Māori language,
culture and values are embraced and Māori feel
confident to join us and succeed authentically as Māori,
then we will have set a good foundation for being a
more welcoming place for people of all cultures and
ethnicities. Heartland has made significant progress in
this respect, our recent selection as a Diversity Awards
NZTM 2020 finalist being testament to this.

P. 35

The growth of our Manawa Ako internship programme
also shows the significant progress we have made,
with 50 rangatahi participating in the programme
over the past three years. We have continued our
relationship with the InZone Education Foundation and
a number of secondary schools to seek participants for
the Manawa Ako prgoramme. This year we will also be
partnering with iwi groups, bringing a new perspective
for the ākonga (interns) to identify opportunities to
learn about the sector and apply those learnings to
their iwi. Heartland sees the value in the different
perspectives the ākonga bring to the workplace
because of their close connection to their identity.

We have also made progress in the way we recruit by
developing a new recruitment strategy, Iho Pūmanawa,
which supports more equitable recruitment and
selection outcomes. Partnerships with iwi groups
also enable our job opportunities to be shared with
their iwi members, giving us reach to a wider pool of
talent. We are taking a pro-active approach to career
development for Māori within the business, including
through a Cadetship programme in partnership with
Te Puni Kōkiri and Indigenous Growth.

We continue to raise the status of te reo Māori
where we can. We acknowledge our role as kaitiaki
(guardians or caretakers) of the language and our
responsibility to maintain a high standard of reo Māori
by engaging recognised proficient translators.
Te Taura Whiri I te reo Māori have been a valuable
source of support with their translator list, online
resources, and recent acknowledgement of the Māori
language version of our website.

We are also proud to support Reo Whairawa Limited
and the next Kura Reo Pakihi in 2021. This is a marae-
based Māori language course for the financial and
accounting community. Heartland has also secured
eight places for our people to attend and stand
shoulder to shoulder with others in the industry.
We recognise that we are in a privileged position to
be able to have a positive impact on regenerating our
indigenous language.

Manawa Whenua, our internal network for Māori
employees and allies, has played a pivotal role in
driving, guiding, and celebrating Māori initiatives at
Heartland. The combined increase in capability and
opportunity has been a cornerstone for the visible
inclusion of Māori culture in our workplace.

Māori currently make up 4% of our Heartland population.
With only 2.3% of people in the financial and insurance
services sector identifying as Māori1, we are working
to create change and make Heartland and the sector
more inclusive for Māori. We continue to make progress
with our younger Māori workforce, with 56% of our
employees who identify as Māori being aged 30 and
under. This can be attributed to the efforts invested in
the Manawa Ako internship programme, which has seen
almost 20 interns progress into further employment with
Heartland. The programme helps to build a workplace
where Māori can see a career pathway and establish
their career with cultural integrity.

Creating an environment where having
English as a second language does not
present a hurdle to being employed by,
or succeeding at, Heartland

We recognise that given the number of ethnicities
and cultures represented at Heartland, some of
our employees are not native English speakers.
Furthermore, our diverse customer and broader
stakeholder base is comprised of people with a
plethora of different native languages.

To ensure we understand the challenges that people
who have English as a second language may face,
we asked our employees to identify any real or
perceived barriers to their success at Heartland as a
result of them not being native English speakers. The
feedback gained from this helped to inform initiatives
around supporting and recognising the various native
languages we have at Heartland. Overall, the feedback
demonstrated to us that people who have English as a
second language at Heartland generally feel supported
by their teams and colleagues.

Different languages are often used in our workplaces
which shows that people are comfortable to do so.
We recognised specific events around languages
this year including a Pasifika movie night, Samoan
Language week and of course Te Wiki o te Reo Māori.
With the needs of our customers in mind, we have
created a language register that enables us to link
customers who would prefer to communicate in a
language other English with our people that are able
to translate and provide a better customer experience.

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

We are very proud of what we have
continued to achieve in 2020 in embracing
and promoting the diversity of our people.
We are creating a more welcoming and
inclusive workplace where all people are
respected and valued. We recognise that all
forms of diversity bring different perspectives
and expressions of ideas and opinions within
the Board, the senior management team
and throughout the organisation, and
contribute to Heartland’s productivity,
profitability and connection with our
communities and stakeholders.

In the year ahead, we will continue to embrace
and promote diversity, leverage diversity as
a competitive advantage to attract, retain
and motivate the widest possible pool of
talent and recognise, understand and value
individual contribution and performance
across the organisation.

Heartland’s Manawa Ako 2019 internship intake

1 Source: New Zealand Census 2013, Statistics New Zealand.

P. 36

Yi Zhang Graphic Designer

P. 37

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

Principle 2 – Board Composition

and Performance

To ensure an effective board, there should be
a balance of independence, skills, knowledge,
experience and perspectives.

Role of the Board

The Board is responsible for corporate governance
and setting the Group’s overall strategic direction.
The Board charter regulates Board procedure and
describes the Board’s role and responsibilities in detail,
and is available on Heartland’s shareholder website,
shareholders.heartland.co.nz. The Board establishes
objectives, strategies and an overall policy framework
within which the Group’s business is conducted.

The Board schedules regular meetings at which it
receives briefings on key strategic and operational
issues from management.

Board Processes

The Board held 12 meetings, and the Heartland Bank
Board held 12 meetings, during the year ended 30
June 2020. The table on the following page shows
attendance by each director at the meetings of the
Heartland and Heartland Bank Boards and Heartland
Board Committees of which he or she was a member.

Corporate Governance

Principle 1 – Code of Ethical Behaviour

Insider Trading Policy

Directors should set high standards of ethical
behaviour, model this behaviour and hold
management accountable for these standards
being followed throughout the organisation

Codes of Conduct

Heartland’s Code of Conduct and Directors’ Code of
Conduct set out the ethical and behavioural standards
expected of Heartland and its subsidiaries’ (Group)
directors, employees and intermediaries. The Codes
of Conduct are available on Heartland’s shareholder
website, shareholders.heartland.co.nz.

The Codes of Conduct cover a wide range of areas,
including:

– Heartland’s responsibilities towards shareholders
and the financial community, its customers, clients
and service providers, and its employees;

– conflicts of interest, including the receipt of gifts and

other corporate opportunities;

– confidentiality; and

– the procedure for advising Heartland of a suspected

breach.

Every new director or employee is to be provided with a
copy of the Code of Conduct and is required to read it.
Each director and staff member has an obligation, at all
times, to comply with the spirit as well as the letter of the
law, to comply with the principles of the Code of Conduct,
including exhibiting a high standard of ethical behaviour.
The Codes of Conduct are subject to annual review.

In addition to the prohibition on insider trading,
the Group’s directors, senior employees and other
restricted persons are prohibited from buying or selling
the Group’s quoted financial products during ‘blackout
periods’ – which are periods that commence 30 days’
prior to the end of the half-year and the full-year and
end once the financial results from the half-year or the
full-year have been released to the market. In addition,
all of the Group’s directors, senior employees and other
restricted persons are required to obtain consent before
buying or selling the Group’s quoted financial products
outside of blackout periods, and to certify that their
decision to buy or sell has not been made on the basis
of inside information.

The Board continually assesses, with the assistance
of the Heartland Bank Board, whether any matters
under consideration are likely to materially influence
Heartland’s share price and therefore whether
additional trading restrictions should be imposed on
directors, senior employees and other restricted persons.

The Insider Trading Policy is available on Heartland’s
shareholder website, shareholders.heartland.co.nz.
Through our share registrar, Link Market Services,
we actively monitor trading in Heartland shares by
directors, senior employees and other restricted persons.

This corporate governance statement describes
Heartland’s corporate governance policies and
practices as at 30 June 2020.

Heartland, as the parent company of the Group, is
committed to ensuring that Heartland’s policies and
practices reflect current best practice, in the interests
of Heartland’s shareholders and other stakeholders.
In addition to information about Heartland’s corporate
governance policies and practices, this section
also includes information about Heartland Bank’s
corporate governance policies and practices. Heartland
Bank has its own Board and Board Committees,
and makes independent decisions (including on
corporate governance matters), however Heartland
and Heartland Bank Board and Committee meetings
are usually held consecutively and members of both
Boards or Committees (as applicable) attend both
meetings. Heartland’s important corporate governance
policies and practices either apply to, or have been
adopted by, Heartland Bank.

Heartland is pleased to report that, other than in
respect of the matter explained in the “Principle
3 – Board Committees” section below, it was fully
compliant with the corporate governance principles
contained in the NZX Corporate Governance Code
(the NZX Code) as at 30 June 2020.

Carla Briggs COVID-19 Remediation Project Manager

P. 38

P. 39

Heartland
Eligible to attend

Heartland
Attended

Heartland Bank
Eligible to attend

Heartland Bank
Attended

Board

J K Greenslade

E F Comerford

E J Harvey

B R Irvine

C R Mace

K Morrison

G T Ricketts

V Stoddart
(resigned 1/1/2020)

G R Tomlinson

S M Ruha
(appointed 1/1/2020 )

Audit Committee

Risk Committee

Corporate
Governance, People,
Remuneration
and Nominations
Committee

Heartland
Eligible to
attend

Heartland
Attended

Heartland
Bank
Eligible to
attend

Heartland
Bank
Attended

Heartland
Eligible to
attend

Heartland
Attended

Heartland
Bank
Eligible to
attend

Heartland
Bank
Attended

Heartland
Eligible to
attend

Heartland
Attended

J K Greenslade

E F Comerford

E J Harvey

B R Irvine

C R Mace

K Morrison

G T Ricketts

V C M Stoddart
(resigned
1/1/2020)

G R Tomlinson

S M Ruha
(appointed
1/01/2020)

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

The Board recognises the need to have a range of
complementary skills, knowledge and experience in
order to support the Group’s implementation of its
strategic priorities, and for the Board to have a balance
of skills and attributes in order to support diversity
at board level. With this in mind, both the Heartland
and the Heartland Bank Boards regularly review
their composition and formally assess their collective
skills, knowledge and experience using a skills matrix
developed specifically for the Group. This exercise
provides an opportunity to reflect on and discuss
current Board composition, as well as succession
planning. The current Boards comprise directors with
a mix of qualifications, skills and attributes who hold
diverse business, governance and industry experience.

The following table summarises the skills, knowledge
and experience of the Heartland and Heartland
Bank Boards as at 30 June 2020. The results of the
assessment are provided as the average score across
all of the directors for a particular category. Details
regarding the scoring system are also provided on the
following page.

Director Appointment

The Corporate Governance, People, Remuneration
and Nominations Committee is tasked with the role
of reviewing Heartland Board composition, and
reviewing and making recommendations in relation to
nominations, for the Board’s consideration.

Each new director of Heartland is required, pursuant to the
Heartland Board charter, to enter into a written agreement
with Heartland in respect of his or her appointment
and Heartland has a pro forma director appointment
letter which is tailored for individual appointments.

Board Membership, Size and Composition

The NZX Main Board Listing Rules provide that the
number of directors must not be fewer than three.
Subject to this limitation, the size of the Board is
determined from time to time by the Board.

As at 30 June 2020, the Board comprised five directors,
being an independent Chairman, the Deputy Chair,
the Chief Executive Officer and two non-executive
directors. The Board encourages rigorous discussion
and analysis when making decisions.

As mentioned above, Heartland Bank has its own
Board and Board Committees, and meetings are
held consecutively with Heartland Board and Board
Committee meetings. Members of both Boards and
Committees (as applicable) attend both Heartland
and Heartland Bank Board or Committee meetings
(as applicable), which further encourages rigorous
discussion and analysis. However, during March to
July 2020, in response to the effects the COVID-19
pandemic was having on New Zealand, the Boards
held combined meetings for the purposes of better
considering and responding to the unprecedented
effects of the pandemic.

All of the then serving members of the Board and Heartland Bank Board attended the Annual Meeting held on 12
November 2019.

Brianna Harris Sales Support Consultant

P. 40

P. 41

Category

Description

Average Score

Level

Descriptor

Summary of Skill / Experience

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

Risk Management

Risk management frameworks, setting risk appetite,
building and adapting organisational risk culture,
regulatory relationships, assessing the effectiveness
of senior leadership.

Governance and
Compliance

Implementing organisation-wide governance and compliance systems,
processes and frameworks, regulatory compliance, assessing the
effectiveness of senior leadership.

Capital/Financial/M&A
Acumen

Implementation of financial and capital management strategies,
corporate finance restructuring, capital raisings within risk appetite/
ICAAP, M&A experience.

Corporate Strategy

Reviewing and setting organisational strategy, organic growth
opportunities, merger and acquisition opportunities (including joint
ventures).

Leadership

Remuneration

Driving engagement and enablement, evaluating employee and
executive performance, strategic workforce planning, succession,
leading organisation change and talent development.

Detailed executive remuneration matters (including scorecard target
setting), incentive arrangements, staff superannuation. Understanding
of the relevant legislative/contractual framework for remuneration.

Health & Safety

Implementing health, safety and wellbeing strategies, proactive
identification and prevention of health and safety risks.

Government Relations/
Policy

Interaction with Government, Regulators, and RBNZ at all levels,
influencing public policy decisions and outcomes.

Banking

Domestic and/or international experience in banking, including the
regulatory landscape for banks.

Liquidity and Funding

Broad experience in funding and liquidity strategies and management,
regulatory requirements and options available to registered banks.

Issues/Event
Management

For example, credit rating downgrade, social media events, regulatory
breaches or changes and other reputational events.

Customer Data/CRM

Experience in driving strategic insights from the collection and analysis
of customer data, experience in customer relationship management,
cloud computing and software delivery.

Digital and Information
Technology

Understanding digital distribution and latest innovations and
technologies disrupting traditional distribution processes. Domestic
and/or international experience in IT strategies, IT networks, cloud
computing and software delivery.

RBNZ/Regulatory
Compliance

Experience relating to RBNZ compliance regime and other applicable
compliance with regulatory bodies (e.g. Australia).

Australian Experience

Experience in banking/financial and related markets. Experience with
regulatory bodies, APRA, ASIC, ASX, etc.

Corporate Emotional
Intelligence (EQ)

Personal attributes relevant to the Board environment including
communication skills, the ability to constructively challenge,
championing an environment that effectively deals with complex issues
and continually seeking to “lift the bar”.

4.5

4.75

3.75

3.5

No skills/experience

Limited-to-no skills/experience and exposure (either as a Senior Manager or
Non-Executive Director (NED) or a combination of both).

Basic skills/experience

Basic level of exposure and skills/experience (either as a Senior Manager or
NED or a combination of both).

Moderate skills/experience

Adequate exposure and skills/experience (either as a Senior Manager or
NED or a combination of both).

Proficient skills/experience

Full capability and experience to draw upon and contribute to Board (either
as a Senior Manager or NED or a combination of both).

Strong skills/experience

Extensive skill and experience over a significant amount of time and multiple
companies (either as a Senior Manager or NED or a combination of both).

Expert skills/experience

Deep subject matter expertise across all facets of the relevant skill/
experience (either as a Senior Manager or NED or a combination of both).

Board Training and Performance Assessment

Diversity and Inclusion

To ensure on-going education, directors are regularly
informed of developments that affect the industry and
business environment, as well as company and legal
issues that impact the directors themselves. Directors
have access to management and any additional
information they consider necessary for informed
decision making.

The Boards of Heartland and Heartland Bank undertake
a formal review of their own, their committees’ and
individual directors’ performance at least annually, and –
as noted above – reviews their composition using a skills
matrix. This is to ensure that they each have a range
of complementary skills, knowledge and experience
in order to effectively govern the Group, to monitor its
performance, and to support the implementation of its
strategic priorities – in the interests of its shareholders
and other stakeholders.

In order to articulate its commitment to diversity,
Heartland has developed a Diversity & Inclusion
Policy, which requires the Board, with the help of the
Diversity Committee, to set measurable objectives for
achieving diversity and to track progress against them.
Heartland’s Diversity & Inclusion Policy is available
on Heartland’s shareholder website, shareholders.
heartland.co.nz.

A discussion of Heartland’s Diversity and Inclusion
Policy and a report on the measurable objectives
which were set for 2020 is included on page 30 of
this Annual Report.

P. 42

P. 43

Principle 3 – Board Committees

Audit Committee

Risk Committee

Membership is restricted to non-executive directors,
with at least three members, the majority of whom
must be independent. The Chair of the Audit
Committee must be an independent director who
is not the Chair of the Board.

As at 30 June 2020, the members of the Audit
Committee were E F Comerford (Chair), C R Mace
and G T Ricketts.

The role of the Audit Committee is to advise and
provide assurance to the Board in order to enable the
Board to discharge its responsibilities in relation to the
oversight of:

– The integrity of financial control, financial

management and external financial reporting.

– The internal audit function.

– The independent audit process.

The Audit Committee works closely with the
Heartland Bank Audit Committee, which has similar
responsibilities in relation to Heartland Bank, and their
meetings occur consecutively. As at 30 June 2020, the
Board determined that all committee members had a
recognised form of financial expertise in accordance
with the Audit Committee’s charter.

The board should use committees where this
will enhance its effectiveness in key areas,
while still retaining board responsibility.

Board Committees

As at 30 June 2020, Heartland had three permanently
constituted Board Committees, each of which is
tasked with working with management in its specific
area of responsibility and reporting its findings and
recommendations to the Board. Management attend
committee meetings as required (however, in the
case of Audit Committee and Corporate Governance,
People, Remuneration and Nominations Committee
meetings, management attend only at the invitation of
the relevant Committee).

Each of these Committees has a charter which sets out
the committee’s objectives, membership, procedures
and responsibilities. A Committee does not take action
or make decisions on behalf of the Board unless it is
specifically mandated to do so. The charter of each
Committee is available on Heartland’s shareholder
website, shareholders.heartland.co.nz.

The Board is comfortable that no other standing
Committees are necessary at this stage; however
other ad hoc Committees are established for specific
purposes from time to time.

As at 30 June 2020, Heartland Bank also had a
permanently constituted Risk Committee and an
Audit Committee which are tasked with working
with management and reporting their findings and
recommendations to the Heartland Bank Board.

Mahendra Tejnani Credit Manager

Membership of the Risk Committee is restricted to
non-executive directors, with at least three members,
the majority of whom must be independent. The Chair
of the Risk Committee must be an independent director
who is not the Chair of the Board.

As at 30 June 2020, the members of the Risk
Committee were E F Comerford (Chair), C R Mace
and G T Ricketts.

The role of the Risk Committee is to advise and provide
assurance to the Board in order to enable the Board to
discharge its responsibilities in relation to the oversight of:

– The formulation of its risk appetite.

– To provide the Board with assurance that all risks
within the key risk categories which are relevant
to the Group have been appropriately identified,
managed and reported to the Board.

The Risk Committee works closely with the Heartland
Bank Risk Committee, which has similar responsibilities
in relation to Heartland Bank, and their meetings occur
consecutively.

Corporate Governance, People, Remuneration and
Nominations Committee

The Corporate Governance, People, Remuneration
and Nominations Committee is required to have at
least three directors, the majority of whom must be
independent.

As at 30 June 2020, the members of the Corporate
Governance, People, Remuneration and Nominations
Committee were G T Ricketts (Chair), B R Irvine and
G R Tomlinson. Although B R Irvine is a director of
Heartland Bank and not Heartland, the Board are
of the view that a director of Heartland Bank should
be a member of the Corporate Governance, People,
Remuneration and Nominations Committee given
that the vast majority of employees of the Group are
employed by Heartland Bank. B Irvine, as Chairman of
Heartland Bank, represents Heartland Bank’s position
in that regard. Accordingly, Heartland has not strictly
complied with recommendation 3.3 of the NZX Code
as the majority of the committee are not independent
directors of Heartland. Instead, the committee has

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

one independent director of Heartland and one
independent director of Heartland Bank but, as
described above, the Board considers this appropriate
for Heartland.

The role of the Corporate Governance, People,
Remuneration and Nominations Committee includes
advising and making recommendations to the
Board regarding:

– Corporate governance matters.

– People strategy, including organisation structure,
performance, succession planning, development,
culture, diversity and remuneration strategy and
policies and any other strategic people initiatives.

– Remuneration of the directors, Chief Executive Officer

and senior executives.

– The performance of the Chief Executive Officer

including setting and review of annual key
performance indicators.

– Director and senior executive appointments,
Board composition and succession planning

Takeovers Response Manual

The Board has documented and adopted a Takeover
Response Manual document, which is designed to
give the Board and management clear direction on
the steps that need to be taken following receipt of a
takeover offer.

The document, amongst other things, includes an
“independent director” protocol for directors who are
involved in or associated with the bidder, talks to the
scope of independent advisory reports to shareholders,
and prompts the Board to consider the option of
establishing an independent takeover committee
following receipt of a takeover offer.

P. 44

P. 45

Principle 4 – Reporting and Disclosures

Audit Committee

Principle 5 – Remuneration

Non-executive Directors’ Remuneration

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

The board should demand integrity in
financial and non-financial reporting,
and in the timeliness and balance of
corporate disclosures.

Heartland appreciates that its investors and other
stakeholders value both financial and non-financial
reporting, and Heartland seeks to ensure that its
investors have timely access to full and accurate
material information about Heartland which is
factual and balanced.

Heartland’s Disclosure Policy sets out procedures
that are in place to make sure all material information
is identified and disclosed in a timely manner, and to
prevent the selective disclosure of material non-public
information. Under the Policy, potentially ‘material
information’ is required to be brought to the attention
of the Disclosure Committee, which is ultimately
responsible for determining whether information
is material, and approving the form and content of
material information that is disclosed. Heartland also
monitors information in the market about itself and
(with the assistance of the Disclosure Committee) will
release information to the extent necessary to prevent
development of a false market for the Group’s quoted
financial products.

All of Heartland’s key governance documents, including
the Disclosure Policy, are available on Heartland’s
shareholder website, shareholders.heartland.co.nz.
Heartland also maintains copies of its stock exchange
announcements, and half-year and full-year
reports, investor presentations and details of annual
shareholder meetings, on its shareholder website.

The Audit Committee oversees the quality and
timeliness of all external financial reports, including
all disclosure documents issued by Heartland.

The Audit Committee oversees the preparation of
Heartland’s financial statements and setting policy
to ensure the information presented is useful for
investors and other stakeholders. Heartland makes
its financial statements easy to read by using clear,
plain language, and structuring them so that key
information is prominent. In addition to the full-year
audit, Heartland’s external auditor completes a review
of the interim financial statements.

The Chief Executive Officer and Chief Financial Officer
are also required to certify to the Audit Committee
that the financial statements of Heartland and its
subsidiaries present a true and fair view of Heartland
and comply with all relevant accounting standards

Non-financial Reporting

Heartland is committed to delivering value for its
customers, shareholders, employees, communities,
partners and intermediaries. This is the third year
that Heartland has reported against a Corporate
Social Responsibility Framework in order to provide
more detailed information on the value created for
Heartland’s stakeholders. Refer to page 60 of this
Annual Report.

Total remuneration available to the Group’s non-
executive directors is determined by Heartland’s
shareholders. The current aggregate approved amount
by shareholders is $1,200,000 per annum.

Heartland’s policy is to pay directors’ fees in cash.
There is no requirement for directors to take a portion
of their remuneration in shares and nor is there a
requirement for directors to hold shares in Heartland.
However, as at 30 June 2020, a number of the directors
held shares, or a beneficial interest in shares, in
Heartland (see the Directors’ Disclosures section of
this Annual Report for further details).

Senior Executive Remuneration

The objective is to provide competitive remuneration
that aligns executives’ remuneration with shareholder
value and rewards the executives’ achievement of the
Group’s strategies and business plans.

All senior executives receive a base salary and are also
eligible to participate in short-term and, in some cases,
long-term incentive plans under which they are rewarded
for achieving key performance and operating results.

Disclosure of the CEO’s remuneration is included in
the Directors’ Disclosures section on page 57 of this
Annual Report.

The remuneration of directors and executives
should be transparent, fair and reasonable.

Heartland’s remuneration strategy is designed to
create a high performance culture which attracts
and retains quality candidates by incentivising and
rewarding exceptional performance.

Heartland has developed a Remuneration Policy which
explains its remuneration strategy and its approach to
setting remuneration in more detail. The key principles
are that Heartland’s remuneration policy:

– supports the attraction, retention and engagement

of quality, diverse candidates;

– does not discriminate on the basis of gender,

ethnicity, sexuality or any other individual factor;

– should further Heartland’s aspiration to achieve pay

equity across the organisation;

– rewards for high performance;

– has the flexibility to cater for Heartland’s operational

differences;

– recognises the link between company performance

and remuneration, and the importance of creation of
shareholder value; and

– is understood by employees.

The full Remuneration Policy is available on
Heartland’s shareholder website at shareholders.
heartland.co.nz.

Heartland’s Corporate Governance, People,
Remuneration and Nominations Committee (the
Committee) is kept up to date with relevant market
information and best practice, obtaining advice from
external advisors when necessary. Heartland has used
PricewaterhouseCoopers as a consultant for advice
on various remuneration activities including, but not
limited to, the structure of its Long Term Incentive
Schemes and the valuation of the performance rights
under these schemes.

Remuneration levels are reviewed annually for market
competitiveness and alignment with strategic and
performance priorities. All senior executive performance
is assessed by the Committee with reference to Group
risk management policies and frameworks.

P. 46

P. 47

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

Principle 8 – Shareholder Rights & Relations

The board should respect the rights of
shareholders and foster constructive
relationships with shareholders that
encourage them to engage with the issuer.

The Board is committed to maintaining a full and
open dialogue with all shareholders, as outlined in the
Disclosure Policy which is available on Heartland’s
shareholder website, shareholders.heartland.co.nz.
Heartland keeps shareholders informed through:

– Periodic and continuous disclosure to NZX and ASX.

– Information provided to analysts and media

during briefings.

– Heartland’s shareholder website (shareholders.

heartland.co.nz).

– The Annual Meeting, at which shareholders’ have

the opportunity to ask questions.

– Annual and half year reports.

The Board encourages full participation of
shareholders at the Annual Meeting to ensure a high
level of accountability. Heartland’s external auditor also
attends the Annual Meeting and is available to answer
questions relating to the external audit.

Principle 6 – Risk Management

Principle 7 – Auditors

Directors should have a sound understanding
of the material risks faced by the issuer and
how to manage them. The Board should
regularly verify that the issuer has appropriate
processes that identify and manage potential
and material risks.

Risk Management

The Board ensures that Heartland has a Risk
Management Programme in place which identifies,
manages and communicates the key risks that may
impact Heartland’s business. Specific risk management
strategies have been developed for each of the key
risks identified. The Risk Committee of the Board
oversees the risk management programme and
strategy. Heartland also has in place insurance cover
for insurable liability and general business risk.

Health and Safety

Heartland promotes a working environment where
we engage with all our people, so that together we can
maintain a workplace that is mentally and physically
safe and healthy; and to promote a positive health and
safety culture. We engage with our people to identify,
assess, control and review risk, with a focus
on continuous improvement of health and safety.

All Group employees are required to read and attest
to our Health, Safety and Wellbeing Policy. Induction
includes instruction on our Health and Safety Policy
and procedures. The Health and Safety Committee,
representing all employees, convenes every second
month to discuss reported incidents, accidents and
near misses, initiatives and tabled reports. Incidents,
accidents and near misses are registered in our Risk
Management System (RMS). A Health and Safety
Report that includes RMS data, number of employee
insurance claims, number of employees accessing
counselling, and summaries of initiatives is provide to
the Executive Risk Committee and to the Board.

In the year ended 30 June 2020, there have been no
notifiable events to report to Worksafe New Zealand.

The board should ensure the quality and
independence of the external audit process.

The Audit Committee is responsible for overseeing the
external, independent audit of Heartland’s financial
statements. This encompasses processes for sustaining
communication with Heartland’s external auditors,
ensuring that the ability of the external auditors to carry
out their statutory audit role is not impaired, or could
reasonably be perceived to be impaired, to address
what other services may be provided by the external
auditors to Heartland, and to provide for the monitoring
and approval of any such services.

Heartland’s External Auditor Independence Policy
provides guidelines to ensure that non-audit related
services do not conflict with the independent role of
the external auditor, and the Audit Committee ensures
that non-audit work undertaken by the auditors is in
accordance with that Policy. That Policy also sets out
guidelines in relation to the tenure and re-appointment of
the external auditor, which the Audit Committee ensures
are complied with. Refer to Heartland’s shareholder
website, shareholders.heartland.co.nz, for a copy of the
External Auditor Independence Policy.

The external auditor monitors its independence and
reports to the Audit Committee bi-annually to confirm
that it has remained independent in the previous six
months, in accordance with Heartland’s External
Auditor Independence Policy and the external auditor’s
policies and professional requirements. There have
been no threats to auditor independence identified
during the year ended 30 June 2020.

Heartland also has an internal audit function which
is independent of the external auditors. The Audit
Committee approves the annual internal audit
programme, which is developed in consultation
with management of Heartland.

P. 48

P. 49

John Ramsay Credit Consultant

Directors’ Disclosures

Directors

The following persons were directors of Heartland and its subsidiaries during the year ended 30 June 2020.

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

Company

Directors

Status

Company

Directors

Status

Heartland Group Holdings Limited

Geoffrey Thomas Ricketts

Independent Director (Chair)

Australian Seniors Finance Pty Limited

Andrew John Ford

Resigned 26/07/2019

Gregory Raymond Tomlinson

Non-Independent Director (Deputy Chair)

Richard Glenn Udovenya

Resigned 26/07/2019

Ellen Frances Comerford

Independent Director

Jeffrey Kenneth Greenslade

Appointed 26/07/2019

Jeffrey Kenneth Greenslade

Executive Director

Christopher David Andrew Cowell

Appointed 26/07/2019

Christopher Robert Mace

Independent Director

Andrew Peter Dixson

Appointed 26/07/2019

Heartland Bank Limited

Bruce Robertson Irvine

Independent Director (Chair)

Ellen Frances Comerford

Independent Director

Jeffrey Kenneth Greenslade

Non-Independent Director

Edward John Harvey

Independent Director

Shelley Maree Ruha

Independent Director

(appointed 1/1/2020)

Kathryn Morrison

Independent Director

Geoffrey Thomas Ricketts

Independent Director

Vanessa Cynthia May Stoddart

Independent Director

(resigned 1/1/2020)

ASF Custodians Pty Limited

Andrew John Ford

Resigned 26/07/2019

Richard Glenn Udovenya

Jeffrey Kenneth Greenslade

Appointed 26/07/2019

Jeffrey Jalal Murray

Appointed 26/07/2019

and resigned 13/03/2020

Cherise Leanne Barrie

Appointed 26/07/2019

and resigned 05/06/2020

Michael Jonathan Drumm

Appointed 26/07/2019

Sharon Susan Yardley

Appointed 9/12/2019

Heartland Australia Holdings Pty Ltd

Ellen Frances Comerford

Resigned 26/07/2019

Andrew John Ford

Resigned 26/07/2019

Jeffrey Kenneth Greenslade

Geoffrey Thomas Ricketts

Resigned 26/07/2019

Gregory Raymond Tomlinson

Resigned 26/07/2019

Christopher David Andrew Cowell

Appointed 26/07/2019

Andrew Peter Dixson

Appointed 26/07/2019

Jeffrey Jalal Murray

Cherise Leanne Barrie

Appointed 26/07/2019

and resigned 13/03/2020

Appointed 26/07/2019

and resigned 5/6/2020

Michael Jonathan Drumm

Appointed 26/07/2019

Sharon Susan Yardley

Appointed 9/12/2019

P. 50

P. 51

Company

Directors

Status

Heartland Australia Group Pty Ltd

Ellen Frances Comerford

Resigned 26/07/2019

When determining whether a director of Heartland is independent, the factors described in the NZX Code as
possibly impacting a director’s independence were considered and it was determined that none of those factors
applied to the directors noted above as independent.

E
R
A
E
W
O
H
W

Heartland Annual Report 2020

Andrew John Ford

Resigned 26/07/2019

Jeffrey Kenneth Greenslade

Geoffrey Thomas Ricketts

Resigned 26/07/2019

Gregory Raymond Tomlinson

Resigned 26/07/2019

Christopher David Andrew Cowell

Appointed 26/07/2019

Andrew Peter Dixson

Appointed 26/07/2019

Jeffrey Jalal Murray

Cherise Leanne Barrie

Appointed 26/07/2019

and resigned 13/03/2020

Appointed 26/07/2019

and resigned 5/6/2020

Michael Jonathan Drumm

Appointed 26/07/2019

Sharon Susan Yardley

Appointed 9/12/2019

Heartland NZ Trustee Limited

Philippa Rosemary Drury

Christopher Patrick Francis Flood

Heartland PIE Fund Limited

Jeffrey Kenneth Greenslade

Bruce Robertson Irvine

MARAC Insurance Limited

Andrew James Aitken

Christopher Patrick Francis Flood

Christopher Robert Mace

Sarah Elizabeth Ann Smith

Seniors Finance Custodians Pty Limited
Company deregistered on 28/04/2020

Andrew John Ford

Resigned 26/07/2019

Richard Glenn Udovenya

Jeffrey Kenneth Greenslade

Appointed 26/07/2019

Seniors Finance Pty Limited
Company deregistered on 24/03/2020

Andrew John Ford

Resigned 26/07/2019

Richard Glenn Udovenya

Jeffrey Kenneth Greenslade

Appointed 26/07/2019

VPS Properties Limited

Christopher Patrick Francis Flood

Interests Register

The following are the entries in the Interests Register of Heartland (and its subsidiaries) made during the year ended
30 June 2020.

Indemnification and insurance of directors

Heartland has given indemnities to, and has effected insurance for, directors of Heartland and its subsidiaries to
indemnify and insure them in respect of any liability for, or costs incurred in relation to, any act or omission in their
capacity as directors, to the extent permitted by the Companies Act 1993. The cost of the insurance premiums to the
Group for the year ended 30 June 2020 was $174,778 (including GST).

Share dealings by directors

Details of individual directors’ share dealings as entered in the Interests Register of Heartland and Heartland Bank
(in respect of share dealings prior to 31 October 2018) under Section 148(2) of the Companies Act 1993 during the
year ended 30 June 2020 are as follows (all dealings are in ordinary shares unless otherwise specified):

E J Harvey

Date of acquisition/
disposal

Nature of relevant interest

Acquisition/disposal

No. of shares

Consideration

6 September 2019

Allotment under DRP

Acquisition

11 March 2020

Allotment under DRP

Acquisition

4,954

3,452

$7,651.86

$5,505.44

J K Greenslade

Date of acquisition/
disposal

Nature of relevant interest

Acquisition/disposal

No. of shares

Consideration

6 September 2019

Allotment under DRP

Acquisition

66,997

$103,474.19

18 October 2019

Vesting of performance rights Acquisition

396,711

Nil

11 March 2020

Allotment under DRP

Acquisition

18 March 2020

Purchase of shares

Acquisition

51,005

50,000

$81,345.63

$58,500.00

B R Irvine

Date of acquisition/
disposal

Nature of relevant interest

Acquisition/disposal

No. of shares

Consideration

6 September 2019

Allotment under DRP

Acquisition

6 September 2019

Allotment under DRP

Acquisition

11 March 2020

Allotment under DRP

Acquisition

11 March 2020

Allotment under DRP

Acquisition

4,636

16,076

3,230

11,200

$7,160.12

$24,828.74

$5,150.38

$17,862.39

G R Tomlinson

Date of acquisition/
disposal

Nature of relevant interest

Acquisition/disposal

No. of shares

Consideration

6 September 2019

Allotment under DRP

Acquisition

2,200,675

$3,398,854.55

P. 52

P. 53

General notice of disclosure of interests in the interests register

Heartland and Heartland Bank Directors’ Relevant Interests

Details of any changes to Heartland and Heartland Bank directors’ general disclosures entered in the relevant
interests register under Section 140 of the Companies Act 1993 during the year ended 30 June 2020 are as follows:

E J Comerford

No amendments for year ended 30 June 2020.

E J Harvey

B R Irvine

C R Mace

K Morrison

G T Ricketts

S M Ruha

No amendments for year ended 30 June 2020.

Appointed director to Original Foods N.Z. Limited from 18 June 2020 and Stark Holdings
(NZ) Limited from 24 October 2019.
Ceased directorship of Gough Transport Supplies Limited, Gough Finance Limited,
Gough Group Limited, Gough Holdings Limited from 30 September 2019 and Kaipaki
Berryfruits Limited from 1 July 2019.

Appointed guardian to The Aotearoa Circle from 3 December 2019.

Appointed director to Link Engine Management Limited from 3 December 2019 .

Appointed director to MCF3 Cook Limited from 12 June 2020, MCF3 TEG Limited from
13 February 2020 and MCF3 Squiz Limited from 12 August 2019.
Ceased directorship of The Todd Corporation Limited, Todd Management Services
Limited and Todd Offshore Limited from 21 May 2020, Asteron Life Limited, Suncorp
Group New Zealand Limited, Suncorp Group Services NZ Limited, Vero Insurance New
Zealand Limited and Vero Liability Insurance Limited from 31 December 2019, Mercury
Pharmacy Holdings Limited from 11 November 2019 and Suncorp Group Holdings (NZ)
Limited from 15 October 2019.

Director of Analey Holdings Limited (appointed 15 Feb 2010), IT & Business Consulting
Limited (appointed 1 April 2019), New Zealand Rural Land Management Limited
(appointed 8 May 2020), Partners Group Holdings Limited (appointed 14 May 2020),
Partners Life Limited (appointed 14 May 2020), 9 Spokes International Limited
(appointed 14 October 2019).
Ceased directorship of The Icehouse Limited from 29 February 2020.

G R Tomlinson

Ceased directorship of Ngakuta Trust Company Limited from 2 April 2020 and Impact
Capital Management Limited from 11 November 2019.

J K Greenslade

Appointed director Henley Family Investments Limited from 1 May 2020.

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

Director

J K Greenslade

E J Harvey

B R Irvine

C R Mace

G T Ricketts

G R Tomlinson

Number of ordinary
shares –
beneficial

Number of ordinary
shares –
non-beneficial1

Number
of options

3,986,156

134,912

563,998

14,337,489

13,267,285

58,392,997

Nil

6,475,976

Nil

1 The non-beneficial interest in the 6,475,976 shares arises from those directors being a trustee of the Heartland
Trust, which held 6,475,976 shares in Heartland as at 30 June 2020.

Directors’ Remuneration

The current total fee pool for the non-executive directors of Heartland and its subsidiaries approved by shareholders
at the Annual Shareholder Meeting of Heartland Bank held on 22 November 2016 is $1,200,000 per annum1.

The table below sets out the fees payable to the non-executive directors of Heartland for the year ended 30 June
2020 based on the position(s) held.

Board/Committee2

Board of Directors

Audit Committee

Risk Committee

Position

Chair
Member

Fees (per annum)

$150,000
$100,000

$15,000
Nil

Details of Heartland Bank directors’ general disclosures entered in the relevant interest register under Section 140 of
the Companies Act 1993 prior to 1 July 2019 can be found in earlier Annual Reports.

Corporate Governance, People, Remuneration and
Nominations Committee

Specific disclosures of interest in the interests register

There were no specific disclosures of interests in transactions entered into by Heartland or its subsidiaries (including
Heartland Bank) during the period 1 July 2019 to 30 June 2020.

Information used by directors

No director of Heartland or its subsidiaries (including Heartland Bank) disclosed use of information received in his or
her capacity as a director that would not otherwise be available to that director.

The total remuneration and value of other benefits3 received by each non-executive director who held office in
Heartland and/or any of its subsidiaries during the year ended 30 June 2020 is set out in the following table.
Directors’ fees exclude GST where appropriate.

P. 54

P. 55

1 On 4 October 2018, NZX granted Heartland a waiver from Rule 3.5.1, to the extent that this Rule requires the Directors’ Remuneration Pool to
be authorised by an Ordinary Resolution of Heartland (as opposed to Heartland Bank).
2 If a director sits on both the Heartland and Heartland Bank boards, they are only entitled to receive one fee.
3 In addition to these amounts, Heartland meets costs incurred by directors, which are incidental to the performance of their duties. This includes
providing directors with telephone concessions and paying the cost of directors’ travel. As these costs are incurred by Heartland to enable
directors to perform their duties, no value is attributable to them as benefits to directors for the purposes of the tables included in this report.

Director

Board Fees

Audit
Committee

Risk
Committee

Corporate
Governance,
People,
Remuneration
and
Nominations
Committee

Other

Total
Remuneration

Heartland and Heartland Bank directorships

E F Comerford

$100,000

$15,000

$100,000

$15,000

E J Harvey

B R Irvine

K Morrison

C R Mace

G T Ricketts

S M Ruha

$150,000

$100,000

$150,000

$50,0004

V C M Stoddart

$50,0005

G R Tomlinson

$100,000

A J Aitken

$32,0006

E F Comerford

A$50,0007

P Drury

C R Mace

$20,0008

$15,0009

R G Udovenya

A$30,00010

Total

Subsidiary directorships

$15,000

$130,000

$115,000

$150,000

$100,000

$165,000

$50,000

$100,000

$32,000

$52,742

$20,000

$15,000

$31,645

$1,111,38711

E
R
A
E
W
O
H
W

Heartland Annual Report 2020

The Scheme Rules provide flexibility to adjust the
relevant performance hurdles, including in order to
account for changes during the performance period.
This feature, in conjunction with the other features
of the Performance Rights Plan, ensures that the
2018/2019 Grant will vest only if, and to the extent,
that sustainable shareholder value is created during
the performance period.

CEO Remuneration Disclosures

In the year ended 30 June 2020, the CEO received
a fixed salary, a variable remuneration component
comprising STI, and other benefits as detailed in the
following tables. The tables also show a comparison
between the year ended 30 June 2020 and the year
ended 30 June 2019 and a summary of the CEO’s total
remuneration over the last five financial years.

This year, Heartland has presented the summary
using both the accounting cost of all current LTI grants
made to the CEO (which shows the cost of those
arrangements to Heartland), and also the value of
the awards which actually vested during the relevant
financial year (which shows what remuneration was
received by the CEO during the relevant financial year).
The accounting cost of all current LTI grants differs
from the value of the awards which actually vested.
This is because the accounting cost of a grant is
determined at the time the grant is made, reflects the
uncertainty around whether the relevant performance
criteria will be met, and is spread over the entire
performance period of that grant. There are no LTI
grants which vested in respect of FY20.

Remuneration and/or Other Benefits

from the Company and its Subsidiaries

to Executive Directors

The remuneration for the Executive Director (being,
in Heartland’s case, the CEO) includes a fixed
remuneration component, a variable remuneration
component comprising short-term incentives (STIs)
and long-term incentives (LTIs), and other benefits.
LTIs are offered to selected employees (including the
CEO) in order to incentivise them to enhance long term
shareholder value.

STI Scheme

The CEO is entitled to receive STIs which are cash
payments, determined by the Board, and paid at the
end of a financial year for exceeding performance
expectations in the relevant financial year. Ultimately,
STI payments are entirely discretionary and entitlement
is not guaranteed even if performance expectations
have been met or exceeded.

LTI Schemes

Set out below is a summary of the grants made to the
CEO under LTI schemes relating to the periods covered
in this section.

Performance Rights Plan – 2018/2019 Grant

Under the Performance Rights Plan – 2018/2019
Grant, the CEO and other Senior Executives were
issued performance rights which, subject to continuous
employment and achievement of certain market
capitalisation and share price targets over the period
between 12 September 2017 and the date falling
20 business days following the date on which
Heartland announces its full year results for the
financial year ended 2021, were to vest into up to
one share in Heartland.

The Board amended the performance hurdles for the
2018/2019 Grant to reference appropriate culture and
conduct measures and achievement of key strategic
objectives, in addition to encompassing a broader
range of financial measures. The Board also extended
the performance period until the end of FY22.

4 Commenced as Heartland Bank director from 1 January 2020.
5 Resigned with effect from 1 January 2020.
6 Fees paid to A J Aitken as a director of MARAC Insurance Limited.
7 Fees paid to E F Comerford by Heartland Australia Group Pty Limited and Heartland Australia Holdings Pty Limited (E F Comerford resigned
as a director from 26 July 2019 but still receives fees in return for consultancy services provided to those companies).
8 Fees paid to P Drury as a director of Heartland NZ Trustee Limited.
9 Fees paid to C R Mace as Chair of MARAC Insurance Limited.
10 Fees paid to R G Udovenya as a director of ASF Custodians Pty Limited and Australian Seniors Finance Pty Limited (resigned 26 July 2019).
11 For the purposes of this table, A$ fees have been converted to NZ$ using an exchange rate of $1.05485.

P. 56

P. 57

CEO Remuneration (FY20 and FY19)

CEO Grant under Performance Rights Scheme (FY18/FY19)

Heartland Annual Report 2020

E
R
A
E
W
O
H
W

Financial year ended

Salary

Benefits

At risk pay

Total

STI

LTI

30 June 2020

$989,200

$10,80012

$956,512

30 June 2019

$989,200

$10,80014

$450,000

Accounting cost
of all grants

Value of awards
actually vested

Accounting cost
of all grants

Value of awards
actually vested

$87,52013

$2,044,032

N/A

$1,956,512

$683,55215

$2,133,552

$1,379,16116

$2,829,161

Five Year Summary of Total CEO Remuneration

Heartland has presented the below summary using only the value of the awards which actually vested during the
relevant financial year (which shows what remuneration was received by the CEO during the relevant financial year).

Financial Year ended

Total Remuneration
Paid

Percentage STI
against maximum17

Percentage LTI
against maximum18

Span of LTI
performance period

30 June 2020

30 June 2019

$1,956,512

$2,829,161

30 June 2018

$2,636,489

30 June 2017

$2,736,489

30 June 2016

$1,700,000

96%

45%

90%

100%

N/A

Breakdown of CEO At Risk Pay (FY20)

N/A

100%

N/A

FY1919

FY17 - FY19

FY1820

FY1721

N/A

Description

Performance Measures

Percentage
Achieved

STI

Up to 100% of base salary based on the
achievement of financial and non-financial
performance expectations

Based on achievement of financial and
non-financial performance expectations22

96%

LTI

N/A

12 Motor vehicle.
13 This amount is net of a pre-existing reserve which had been built up pre-FY20. Including the reserve, the total accounting cost of the grants

would have been $309,180 to date.

14 Motor vehicle.
15 The accounting cost of the Senior Executive Scheme, the 2017 Grant and the 2018/2019 Grant was spread over a period including FY19.
16 This represents the value of the Senior Executive Scheme shares which are being treated as vesting in FY19, and the value of the 2017 Grant

based on the share price on 9 September 2019 (but noting that the shares had not yet been issued on that date).

17 Where “N/A”, there were no maximum limits for the relevant period.
18 Where “N/A”, there were no maximum limits for the relevant period.
19 The service period for the Senior Executive Scheme shares which are being treated as vesting in FY19 was FY19.
20 The service period for the Senior Executive Scheme shares which are being treated as vesting in FY18 was FY18.
21 The service period for the Senior Executive Scheme shares which are being treated as vesting in FY17 was FY17.
22 STI payments are entirely discretionary and entitlement is not guaranteed even if measures are achieved.

Type of scheme
interest

Performance rights
(2018/2019 Grant)

Basis of award

A number of
performance rights
equal to 200% of
2017 base salary
divided by the
Heartland volume
weighted average
share price on the
date of issue

Face value of award
and % of award
vesting at threshold

$2,000,000 face
value

100% vesting on
full achievement
of performance
measures or partial
vesting depending
upon the extent to
which performance
measures were met

Length of vesting
period

12 September 2017
to the date falling
20 business days
following the date
on which Heartland
announces its full
year results for FY22

Summary of
performance
measures and
targets

Continued
employment during,
and achievement
of certain financial
performance, culture
and conduct, and
strategic objectives
during the vesting
period

Summary of Heartland’s TSR Performance (30 June 2015 - 14 October 2020)

The above total shareholder return (TSR) performance graph is provided to aid comparability between Heartland’s
performance and the remuneration information provided in this section. TSR has been calculated as at 14 October
2020, including the benefit of imputation credits. A comparison is shown against the NZX50 Index which measures the
performance of the 50 largest eligible stocks listed on the NZX Main Board by float-adjusted market capitalisation

CEO Remuneration as a Multiple of Staff Remuneration

The CEO’s salary as a multiple of the staff average is 10.7 times (FY19: 10.11 times), and his total remuneration as a
multiple of the staff average is 19.76 times (FY19: 19.77 times).

P. 58

P. 59

Our Sustainability Journey

Sustainability Framework

Our sustainability strategy is about ensuring the work we do can continue for generations to come by minimising
our environmental impact, positively contributing to our communities and enhancing the lives of our people and
our customers.

Our sustainability framework sets out the three key pillars of our sustainability strategy and our key focus areas under
each of those pillars. We are currently in the process of identifying, assessing and measuring the risks arising under
each of these pillars, including climate change credit risk for Heartland.

Caring for our people, customers and communities
Social Equity

Ensuring our
conduct and culture
drives fair outcomes
for our customers

Making a positive
difference in our
communities

Whāia te iti kahurangi –
providing a workplace and
financial service that enables
Māori to succeed as Māori

Creating an internal
culture of inclusivity and
equal opportunity that
supports the wellbeing of
our people

Our goals for the year ahead

– Completion of our Conduct and Culture Work Plan

– Increase the intake of interns in the 2020/2021 Manawa Ako programme and increase the number of interns

who remain at Heartland in full-time or part-time employment

– Implementation of our new recruitment strategy, Iho Pūmanawa, to support our aim to be an employer

of choice for Māori

– Continuing to improve the gender and ethnic balance across all levels of the organisation

– Achievement of the Rainbow Tick

Heartland Annual Report 2020

Y
E
N
R
U
O

J
Y
T
L
B
A
N
A
T
S
U
S
R
U
O

Environmental Conservation

Acting as a kaitiaki of our natural environment

Reducing our direct impact on the environment

Creating business practices that support good
environmental outcomes

Our goals for the year ahead

– Finalise and publish our science based reduction target in relation to our greenhouse gas (GHG) emissions

– Optimise our vehicle fleet and begin transition to PHEVs (plug-in hybrid electric vehicles)

– Implementation of business-wide project to reduce our paper-based customer mailouts and replace with

digital alternatives

– Establish an internal ‘Green Team’ to champion initiatives to make progress towards our GHG emissions

reduction target

– Identify opportunities to deliver products and services that support New Zealand’s transition to a low

carbon economy

– Explore partnership opportunities with iwi to finance sustainable business initiatives

Economic Prosperity

Creating sustainable economic outcomes for our stakeholders

Providing a positive contribution
to the New Zealand and
Australian economies

Enhancing economic outcomes
for our customers through
digital initiatives and tools that
reduce customer effort

Creating sustainable economic
value for our shareholders

– Become a Hearing Accredited Workplace by the National Foundation for Deaf and Hard of Hearing (NFDHH)

Our goals for the year ahead

– Implementation of initiatives to enhance the economic outcomes for Māori who may be receiving poorer quality

or access to financial services

– Development of a financial literacy programme targeted at school leavers that seeks to bridge financial literacy

and access gaps in New Zealand to address inequality

– Development of new digital tools through the Heartland Mobile App that assist with enhancing economic

outcomes for our customers

P. 60

P. 61

Social Equity

Caring for our people, customers and communities

Highlights for FY2020

G R A N T E D B Y T H E H E A R T L A N D T R U S T 1 TO S U P P O R T O U R CO M M U N I T I E S

8 E M P LOY E E S A P P O I N T E D TO O U R R A N G ATA H I A DV I S O R Y B OA R D

Heartland Annual Report 2020

Y
E
N
R
U
O

J
Y
T
L
B
A
N
A
T
S
U
S
R
U
O

452k

S T U D E N T S I N O U R 2 01 9 M A N AWA A KO
( I N T E R N S H I P ) P R O G R A M M E

2 02 0 D I V E R S I T Y AWA R D S N Z ™ F I N A L I S T

F E M A L E E M P LOY E E S S U P P O R T E D
T H R O U G H O U R K I A E K E G R O U P

From left to right:

K AREM ORTIZ
Creative Lead

IAN HEDLE Y-WAKEFIELD
Operations Risk Manager

ALEISHA L ANGDALE
Digital Projects Manager

VERONICA FRANKLIN
Corporate Finance Analyst

PAUL KORAUA
Project Co-ordinator

WILLIAM ORR
Relationship Manager

MONICA IAKOPO
Internal Auditor

NATASHA ABE YSUNDARA
Corporate Finance Analyst

1 The Heartland Trust is a registered charitable trust which is independent from, but closely supported by, Heartland Bank.

P. 62

P. 63

Social Equity

Caring for our people, customers and communities

Ensuring our conduct and culture drives fair
outcomes for our customers

Maintaining good conduct and culture is a core focus
in everything we do. We believe it is essential for a
sustainable successful business, and we build a strong
foundation for this when we keep our customers’ needs
at heart.

The Financial Markets Authority (FMA) and the
Reserve Bank of New Zealand (RBNZ) completed their
review of conduct and culture in New Zealand retail
banks in November 2018. The findings of the FMA and
RBNZ review focused on the industry as a whole and in
addition, each bank received recommendations specific
to them. The recommendations for Heartland formed
the basis of our Conduct and Culture Work Plan. During
the year, we significantly progressed our Conduct
and Culture Work Plan to address the feedback and
recommendations we received.

Some of the key initiatives completed as part of our
Conduct and Culture Work Plan included:

– development and implementation of a formal

Responsible Lending Policy, bringing together our
responsible lending principles for use by our credit
team, sales teams and intermediaries

– enhancing our employee training to ensure integration

of good conduct and culture across all content

– revision of our complaints policy and processes to
support streamlined and simplified recording of
complaints and customer feedback

– development and implementation of a formal

Vulnerable Customers policy and rolling out employee
training and resources to support our people to
identify and help vulnerable customers.

During the year, we surveyed our people in relation to
our Conduct Risk Culture Framework to gain a baseline
understanding in relation to conduct and culture across
the organisation and areas for improvement. Overall,
we were very pleased with the results which showed
that our people know what good customer outcomes
are, how their role contributes to delivering them and
improving customers’ lives, as well as thinking about the
impact on customers as they go about their daily tasks.

For our people in customer-facing roles, the results
showed a high confidence in their understanding of our
products enabling them to help our customers make
informed decisions, and a high confidence in their ability
to identify vulnerable customers.

Maintaining good conduct
and culture is a core focus
in everything we do. We
believe it is essential for
a sustainable successful
business, and we build
a strong foundation for
this when we keep our
customers’ needs at heart.

Heartland Annual Report 2020

Y
E
N
R
U
O

J
Y
T
L
B
A
N
A
T
S
U
S
R
U
O

Making a positive difference in our communities

Through the Heartland Trust, we support a number of
organisations, clubs and schools both regionally and
nationally. The Heartland Trust is a registered charitable
trust which is independent from, but closely supported
by, Heartland Bank.

During the year, the Heartland Trust made grants
totalling $451,734 to support our communities including
in the areas of education, sport and financial literacy.

The Heartland Trust continues to be a proud supporter
of the InZone Education Foundation, a registered
charitable trust that aims to enhance the educational
outcomes of Māori and Pasifika youth. It does this by
establishing and running boarding hostels that provide
an opportunity for motivated students to access high-
performing state schools within the school zones. A
number of InZone students have participated in our
Manawa Ako internship programme and are now
working in permanent roles at Heartland or have
continued on to tertiary education.

This year, the Heartland Trust also provided funding
and support through the Kupe Leadership scholarship
to Rhieve Grey, a Bachelor of Science (Honours)
(Psychology) post-graduate student at the University
of Auckland. The prestigious Kupe scholarship aims
to develop future leaders who are committed to New
Zealand and to creating a successful future for our
country. Through the scholarship, Rhieve receives a
generous stipend, personal mentor and participation
in the leadership programme.

The Heartland Trust continues to support a number of
high school sports teams, recognising that sport forms
the basis of life-long skills including leadership, teamwork
and compassion. This year, we continued to increase
our focus on girls’ rugby and are now proudly supporting
Onehunga Girls’ 1st XV, Rangiora Girls’ 1st XV, Christchurch
Girls’ High School 1st XV and the University of Otago
women’s rugby team. Our support has assisted the
teams with funding uniforms and training equipment.

Bringing together a focus on financial literacy and te
reo Māori, the Heartland Trust has provided a grant to
MoneyTime. MoneyTime is an online financial literacy
programme designed for students aged 10 to 14 years in
order to provide them with the skills and knowledge they
need to become financially independent. The grant has
been provided to MoneyTime to assist with the design
and creation of a te reo Māori version of its programme.

The Heartland Trust is a proud supporter of the University
of Otago women’s rugby team who were the winners
of the 2019 ORFU Speights Championship Shield.

P. 64

P. 65

Social Equity

Caring for our people, customers and communities

Whāia te iti kahurangi - providing a workplace
and financial service that enables Māori to
succeed as Māori

This year we established Whāia te iti kahurangi,
Heartland’s framework for providing a workplace and
financial service that enables Māori to succeed as
Māori. An inclusive workplace is one where all forms
of diversity are valued. The framework contributes to
improving the inclusiveness of Heartland’s workplace.

The purpose of Whāia te iti kahurangi is to support the
work we do with Māori, te reo Māori, and customary
practices. We use it as a reference point for our people
on operational issues, and to support the inclusion of
an indigenous perspective around the work that we do.

Creating an internal culture of inclusivity and equal
opportunity that supports the wellbeing of our people

We recognise the importance of creating a work
environment that is fair, inclusive and supportive of
our employees’ wellbeing. This not only enables a
sustainable business model, but is the right thing to do
for our people and our communities.

Our key areas of focus continue to be:

– addressing imbalances in gender and ethnic

representation by ensuring equitable opportunity for all

– striving to be an employer of choice for Māori

– celebrating diversity and inclusion

There are four pillars of Whāia te iti kahurangi:

– providing best practice support to our people in

relation to mental health and wellbeing.

– Whakapapa - A sense of pride in Heartland’s

whakapapa, and a commitment to uphold the values
of our organisation. Mahi tahi, we are one team.

– Māori succeeding as Māori - A commitment for our
people to succeed as diverse groups represented
equitably across business units and management tiers,
with cultural competence. Mahi toa, have big ambition.

– Cultural guarantee - Best practice, keep evolving
our framework documents that guide our systems
and processes to ensure we’re consistently delivering
best practice. Keep kaupapa Māori safe within our
frameworks. Mahi tipu, always evolving.

– Social license - A strong sense of community,

connecting and giving back to our communities.
Mahi tika, do the right thing.

Our Manawa Whenua group was instrumental in the
creation of Whāia te iti kahurangi, which is a direct
reflection of the work they do. Ehara tēnei i te mahi
takitahi, he mahi takitini kē – this is not the work of one
person alone, but of many.

2020 Diversity Awards NZ™ Finalist
– Manawa Ako internship

Heartland was recognised as one of four finalists in the
Cultural Celebration category for the 2020 Diversity
Awards NZ™, being recognised for an authentic
response to cultural and ethnic engagement within
the workplace. Our Manawa Ako internship provides
opportunities for the next generation of Māori and
Pasifika to experience working in the financial sector
and a corporate environment.

Since its inception, 50 interns have come through the
Manawa Ako internship: 38 Māori and 12 Pasifika.
We have received high performing students from
InZone Education Foundation, Tangaroa College, King’s
College, Ngā Puna o Waioerea, and Auckland and Otago
Universities. To date, almost 20 of these interns have
continued in ongoing employment with Heartland. Those
who are not already employed are encouraged to return
each summer and during university holiday periods.

Heartland Annual Report 2020

Y
E
N
R
U
O

J
Y
T
L
B
A
N
A
T
S
U
S
R
U
O

The Manawa Ako programme has positively
impacted Heartland’s diversity journey in a number
of ways, including:

– a significant increase in the use, understanding

and normalisation of te reo and tikanga Māori in
our workplace

– the impetus to refresh our mātāpono (corporate

values) to incorporate te ao Māori

– giving us the confidence to explore and exhibit

Heartland’s own whakapapa

– the emergence of a more accepting, open-minded and
inclusive internal culture throughout the organisation.

Manawa Ako is just one of the initiatives we are
undertaking to achieve our goal of becoming an
employer of choice for Māori. We take a proactive
approach to career development for Māori within the
business, with programmes to support their growth.
We offer free Maori language and tikanga lessons for
our people and we have developed a new recruitment
strategy, Iho Pūmanawa, to assist with providing a more
equitable process for our Māori applicants.

We recognise that Māori need to be part of the solution
to create equitable outcomes for our people, customers
and the wider community. By getting it right for Māori,
we build a foundation to improve the inclusiveness of
our workplace for all people.

Kia Eke – developing our future female leaders

During the year we welcomed a new cohort of female
employees to Kia Eke, a group established in 2018 to
support women at Heartland to build confidence and
ambition through inspiration. To date, we’ve held a
number of internal and external events and provided
members with a forum to share their experiences
and seek inspiration and encouragement from their
colleagues and from a group of female leaders. The
programme was interrupted throughout the year due
to COVID-19 but plans are in place to re-start in 2021.

We recognise the benefits of achieving gender balance
across all levels of the organisation, particularly in the
senior leadership team. Kia Eke is one of the steps we
are taking to provide development opportunities for
female employees at an earlier stage in their career,
supporting them to grow into leadership roles.

Rangatahi Advisory Board

During the year, our recently established Rangatahi
Advisory Board worked alongside our Strategic
Management Group to provide unique Millennial and
Generation Z insights on our people and our customers.
The Rangatahi Advisory Board is a group of Heartland
employees who are aged 35 and under and also serves
as an opportunity for meaningful career development
for our future leaders.

The Rangatahi Advisory Board worked on a number of
strategic initiatives during the year including customer
experience, brand positioning, products and target
markets and developing our younger people.

“Getting insights from young Heartlanders brings
diversity of thought on executive initiatives. With our
authenticity and input we can create experiences to
connect with younger consumers and stand out.
This is a fantastic opportunity to make it happen.”

Karem Ortiz
Rangatahi Advisory Board member

P. 66

P. 67

Environmental
Conservation

Acting as a kaitiaki of our natural environment

Heartland Annual Report 2020

Y
E
N
R
U
O

Reducing our direct impact on the environment

Heartland’s Carbon Footprint

As part of our sustainability journey, and our commitment as a member of the Climate Leaders Coalition, we have
begun to measure our GHG emissions. Our baseline year is the period from 1 July 2018 to 30 June 2019 and will be
used to measure future progress.

Our biggest emission sources are our vehicle fleet, air travel, waste to landfill and electricity used by our sites across
New Zealand and in Melbourne, Australia.

J
Y
T
L
B
A
N
A
T
S
U
S
R
U
O

Highlights for FY2020

CO M P L E T I O N O F H E A R T L A N D ’ S B A S E L I N E M E A S U R E M E N T O F G H G E M I S S I O N S

Scope

Scope 1

Scope 2

GHG Emissions Sources

tCO2e - 2019

Mobile fuel combustion (petrol, diesel) for Heartland vehicle fleet

Purchased electricity for all Heartland sites

Scope 3 (mandatory)

Business travel, freight, waste to landfill

TOTAL

480

105

564

1,1491

M E M B E R O F T H E C L I M AT E

L E A D E R S COA L I T I O N

I N T E G R AT I O N O F B U S I N E S S -W I D E V I D E O

CO N F E R E N C I N G C A PA B I L I T Y TO A S S I S T

W I T H R E D U C T I O N I N A I R T R AV E L

P I E C E S O F PA P E R S AV E D B Y O P T I M I S I N G P R I N T I N G P R O C E S S E S F O R C U S TO M E R L E T T E R S

540,000

P. 68

Reducing our GHG emissions

We are working towards setting a science based reduction target in relation to our operational GHG emissions.
Our reduction target will be published on Heartland’s website by 31 March 2021.

Our main priorities for reducing our GHG emissions over the next five years are:

– optimising our vehicle fleet and transitioning to PHEVs (plug-in hybrid electric vehicles)

– identifying and implementing initiatives to improve electricity usage and efficiency

– encouraging greater adoption of video conferencing to reduce business travel.

Other initiatives we have underway to reduce our overall impact on the environment (and in turn reduce our GHG
emissions) include:

– reducing paper-based customer mailouts and replacing with digital alternatives

– identifying and implementing initiatives to reduce waste to landfill across the business

– implementing sustainable procurement policies and guidelines for our third-party suppliers.

In addition to actively reducing our GHG emissions, we are currently looking at options for offsetting our unavoidable
GHG emissions.

Creating business practices that support good environmental outcomes

During the year, we also started exploring opportunities to offer preferential finance to customers who make
sustainable business or consumer choices (otherwise known as ‘green lending’). Development and implementation of
some of these opportunities will be a key focus of our sustainability strategy for the year ahead. We have also begun
to implement sustainable procurement policies and guidelines to relevant providers.

1 Heartland’s GHG emissions for FY2019 have not been independently verified. GHG emissions for FY2020 are currently being calculated and
will be independently verified prior to publishing on Heartland’s website.

P. 69

Heartland Annual Report 2020

Y
E
N
R
U
O

J
Y
T
L
B
A
N
A
T
S
U
S
R
U
O

C U S TO M E R S I N N E W Z E A L A N D A N D AU S T R A L I A A B L E TO L I V E A M O R E CO M F O R TA B L E

R E T I R E M E N T T H R O U G H A R E V E R S E M O R TG AG E A S AT 3 0 J U N E 2 02 0

Economic Prosperity

Creating sustainable economic outcomes for our stakeholders

Highlights for FY2020

B U S I N E S S L E N D I N G A S AT 3 0 J U N E 2 02 0

1,150m

AT TA I N E D T H E L I V I N G WAG E E M P LOY E R ACC R E D I TAT I O N

R U R A L L E N D I N G A S AT 3 0 J U N E 2 02 0

605.7m

P. 70

P. 71

Economic Prosperity

Creating sustainable economic outcomes for our stakeholders

Providing a positive contribution to the New Zealand
and Australian economies

Heartland’s product suite

We are proud to offer a product suite in New Zealand
that fuels the economy by providing flexibility and
simplicity to small businesses and consumers. Through
our Reverse Mortgage product, we also enable New
Zealanders and Australians to live a more comfortable
retirement and remain in their homes for as long as they
choose to do so.

Our deposit products help New Zealanders to actively
grow their savings and a number of our deposit
products have received external recognition from
Canstar as providing outstanding value. We were also
recognised as Canstar’s Savings Bank of the Year for
the third year in a row.

Following the onset of COVID-19, we proactively
worked with our customers and the New Zealand
Government to provide support where we were able
to do so. We launched new products for our Business
and Consumer customers to assist with providing this
support. You can read more about our response to
COVID-19 on page 16 of this Annual Report.

Living Wage Employer accreditation

This year, we were proud to become a Living Wage
Employer, being one of a small number of NZX-listed
companies to do so. The Living Wage initiative emerged
as a response to growing poverty and inequality that
continues to hold back many Kiwi workers, their families
and our economy.

The Living Wage concept refers to the hourly wage a
worker needs to pay for the necessities of life and to
participate as an active member of their community. It
reflects the basic expenses of workers and their families
such as food, transportation, housing and childcare,
and is calculated independently each year by the New
Zealand Family Centre Social Policy Unit.

Mahi tika (doing the right thing) is a foundation of
Heartland and our tāngata (people) form the most
important part of what we stand for as a business.
We’re incredibly proud to be a Living Wage employer
and to support Aotearoa in creating positive change for
our people and rangatahi to come.

Enhancing economic outcomes for our customers
through digital initiatives and tools that reduce
customer effort

During the year, we continued to develop digital
capability and technological innovation that reduces
our environmental impact and significantly improves
customer experience, both of which set us up to grow
sustainably in the future as well as enhancing economic
outcomes for our customers.

Since the Heartland Mobile App was launched in
2018, we have been steadily iterating on the features
and functions within the app to improve CX (customer
experience) and allow more customer self-service.

During the year, we also launched Heartland Digital,
giving our customers the features of the Heartland
Mobile App on their web browser to enable flexibility
to access their accounts across their digital devices

Facial recognition technology – simplified customer
on-boarding

As a bank, we must comply with New Zealand’s anti-
money laundering laws. This means we must take steps
to verify that our customers are who they say they are.
To make this verification process quick and simple for
our customers, we invested in new facial recognition
technology (or biometrics for short). During the year, we
progressed from our pilot stage to a full launch of our
biometrics solution enabling our customers to complete
their identity verification on their smartphone either in
their own time or with a Heartland employee guiding
them through the process over the phone.

Our biometrics solution has also been rolled out to our
intermediary networks to enable faster on-boarding for
their customers, for example, a car dealer who is setting
up finance for their customer when purchasing a car.

The roll out of our biometrics solution also means that a
new customer can apply and open a Heartland Direct
Call Account online, provided they meet the eligibility
criteria, in under 10 minutes.

Heartland Annual Report 2020

Y
E
N
R
U
O

J
Y
T
L
B
A
N
A
T
S
U
S
R
U
O

Creating sustainable economic value for our shareholders

D I V I D E N D P E R S H A R E ( C E N T S P E R S H A R E )

5.5

6.5

3.5

2.5

4.5

FY17

FY18

FY19

FY20

Interim dividend

Final dividend

This year, we continued to deliver positive economic
outcomes for our shareholders despite the current
uncertainties in the New Zealand economy. We paid a
total dividend of 7.0 cents per share to our shareholders
in relation to FY20. The decrease in the final dividend
for FY20 reflects restrictions imposed by the RBNZ on
distributions by banks in New Zealand. However, the
continued growth in Heartland’s Australian operations
enabled it to distribute earnings derived from assets
held outside of Heartland Bank. Heartland expects to
return to a pay-out ratio aligning to historical levels once
the RBNZ restrictions are removed.

We have a number of measures in place to ensure that
the value we create for our shareholders is sustainable.
For example, our executive incentives are linked to
long-term value creation. We also review our Board and
Board Committee composition and skills mix annually
to ensure that these are appropriate to maintain
sustainable growth.

P. 72

P. 73

Financial Commentary

Heartland Group Holdings Limited (Heartland) achieved a net profit after tax (NPAT) of $72.0 million for the
financial year ended 30 June 2020 (FY2020). Included within this NPAT is an economic overlay of $9.6 million
pre-tax which Heartland applied to its potential credit losses in response to the ongoing uncertainties relating
to the COVID-19 pandemic. The adjusted NPAT (which excludes this economic overlay) is $78.9 million1.

Financial position

Profitability

Income

Expenses

Heartland Annual Report 2020

S
T
L
U
S
E
R
L
A
C
N
A
N
F
R
U
O

Receivables increased by $215.0 million (4.9% growth)2
mainly due to growth in Reverse Mortgages, Business
Intermediated, Motor, Open for Business (O4B) and
Harmoney, offset by decreases in non-core lending,
specifically Business Relationship and Rural Relationship.

Total assets increased by $389.1 million (7.9% growth),
primarily driven by the $234.0 million (5.4%) increase in
net finance receivables. Liquid assets, comprising cash,
cash equivalents and investments increased by $127.2
million (30.5% growth). This reflected the precaution
of a strong liquidity buffer through the period of
COVID-19 uncertainty.

NPAT was $72.0 million, a $1.6 million (2.2%) decrease
on FY2019. Adjusted NPAT4 was $78.9 million, a $5.3
million (7.2%) increase on FY2019.

ROE was 10.5%, down 59 basis points (bps) from
FY2019. Adjusted ROE4 was 11.4%, up 31 bps
from FY2019.

EPS was 12.5 cps, down 0.5 cps from FY2019.
Adjusted EPS4 was 13.7 cps, up 0.7 cps from FY2019
as a result of an increase in underlying NPAT.

Total funding3 increased by $320.9 million (7.6% growth).

NOI5 ($m)

During the reporting period, net assets increased by
$24.3 million to $700.0 million. Net tangible assets (NTA)
increased by $15.8 million to $610.0 million, resulting in
an NTA per share of $1.05 (30 June 2019: $1.04).

NPAT ($m)

Adjusted NPAT ($m)

NIM

NIM excl. liquid assets6

CTI

Adjusted impairment
expense ratio

Adjusted ROE

Adjusted EPS

FY2020

FY2019

235.3

72.0

78.9

4.33%

4.59%

45.4%

208.0

73.6

4.33%

4.46%

41.6%

0.44%

0.49%

11.4%

11.1%

13.7 cps

13.0 cps

Total net operating income (NOI) was $235.3 million,
an increase of $27.4 million (13.2%) on FY2019.

The required accounting standard change in respect of
upfront reverse mortgage fees contributed $6.4 million
to the FY2020 NOI (and resulted in a corresponding
contribution of $7.4 million in operating expenses).
Adjusted for this, NOI increased by $21.7 million
(10.5%) compared with FY2019, largely due to a $22.4
million (11.5%) increase in underlying net interest
income. Underlying other operating income decreased
by $0.7 million (5.2%) compared with FY2019, primarily
due to a lower net operating lease, insurance and fee
income result.

NOI was $1.9 million (1.6%) lower in the second half
(2H2020) compared with the first half of FY2020
(1H2020). Excluding the impact of the required
accounting standard change in respect of upfront
reverse mortgage fees and fair value gains on equity
investments from 1H2020, underlying NOI was $2.6
million (2.3%) higher half-on-half.

Heartland’s NIM for FY2020 was 4.33%, flat on FY2019.

Net interest income was $6.3 million higher in 2H2020,
a 5.7% increase half-on-half. This was a result of a
$4.6 million (6.8%) decrease in interest expense which
was primarily due to 28 bps reduction in cost of funds,
and a $1.7 million (1.0%) increase in interest income
largely driven by $117.5 million increase in interest
earning assets.

Operating expenses were $106.8 million, an increase
of $21.0 million (24.5%) on FY2019. The required
accounting standard change in respect of upfront
reverse mortgage costs contributed $7.4 million
to FY2020 operating expenses. Adjusted for this,
underlying operating expenses were $14.8 million
(17.5%) higher compared with FY2019.

The cost to income ratio (CTI) increased to 45.4%,
compared with 41.6% in FY2019, while on an
underlying basis this was 44.5% in the current
period, compared with 39.9% in FY2019.

Higher operating expenses were primarily due to a $7.3
million (15.1%) increase in staff expenses. While many
organisations are downsizing, Heartland employed 23
new people in permanent or fixed term roles between
March and June 2020 to provide additional support to
customers.

Heartland has also invested in technical expertise in
areas of strategic importance (for example, in its digital
and finance teams) to reduce the reliance on external
service providers and enable Heartland to adopt a more
agile delivery model, reflecting the growing maturity of
the business and the need to respond to an increasingly
complex and regulated operating environment.

Higher operating expenses were also due to a $3.3
million (97.6%) increase in marketing investment across
both New Zealand and Australian markets to drive
product and brand awareness.

1 Heartland’s FY2020 results present reported and adjusted financial information. These measures are considered useful for investors because
they adjust for one-off impacts, which allows for better comparability with past performance.
2 Excluding the impact of changes in FX rates.
3 Total funding includes retail deposits and other borrowings.
4 Excluding the impact of $9.6 million pre-tax economic overlay due to COVID-19.
5 NOI includes fair value gains/losses on investments.
6 NIM is calculated based on average gross interest earning assets excluding liquid assets.

P. 74

P. 75

S
T
L
U
S
E
R
L
A
C
N
A
N
F
R
U
O

Impact of Covid-19 on provisioning

Since March 2020, the economy has been disrupted
by measures put in place to limit the impact of the
spread of COVID-19. It has also been disrupted by the
downstream effects of the deterioration that COVID-19
has caused in the global economy.

Countermeasures implemented by Government
(including the Government’s support and fiscal
programmes) and the RBNZ have assisted to mitigate
the impact of those measures. As noted elsewhere,
Heartland has also worked closely with its customers
to understand their needs and provide them with the
financial support that best meets their requirements.

On 18 May 2020, during this period of disruption, Fitch
affirmed the Long-Term Issuer Default Ratings for
Heartland, Heartland Bank and Heartland Australia
with outlook remaining stable. Heartland was one of
only two Australasian banks to have no reduction or
adverse change to its rating or outlook as it entered the
economic downturn.

The affirmation reflects Fitch’s view that Heartland has
solid buffers to withstand its base-case scenario and
enters the economic downturn with sufficient headroom
in its key financial metrics. Fitch noted that “the ratings
of [Heartland Group] and [Heartland Bank] are driven
by the group’s consolidated risk profile, which reflect its
stronger-than-peer profitability”.

Heartland does not have a material exposure to the
industries most profoundly affected by COVID-19
(tourism, hospitality, retail business)7, nor the
demographic most impacted by rising unemployment
(15-24 year olds)8. In addition, a significant proportion
of Heartland’s book has shown resilience to the
economic disruption – in particular the Reverse
Mortgage books in Australia and New Zealand
(where borrower behaviour remains largely
unchanged) and the Rural portfolio.

Taking into account Heartland’s differentiated
portfolio composition, management’s experience
and understanding of Heartland’s customers, and
assuming management’s forecast of future economic
conditions transpires to be accurate, Heartland
determined that there was no reason to consider that
its existing provisions were not adequate. However,
Heartland recognises that its support arrangements
and the significant Government support mean that
traditional indicators of increased credit risk may not
provide an accurate measure of credit quality.

Against that backdrop, Heartland has taken an
economic overlay of $9.6 million pre-tax to allow
for the uncertainty created by COVID-19. Economic
overlays are deployed to supplement existing methods
of calculating expected credit loss where the economic
environment is outside that contemplated by existing
methods and have been used by banks as a response
to the uncertainty created by COVID-19. Importantly,
an overlay does not represent actual or current losses,
but provides a buffer against any losses that the
uncertainty may give rise to.

Heartland’s total provision coverage ratio excluding the
$9.6 million pre-tax economic overlay due to COVID-19
is 1.71%9 as at 30 June 2020. This is a relatively strong
position compared with most of its peers. The COVID-19
economic overlay further increased the total provision
coverage ratio to 2.02% as at 30 June 2020.

Heartland Annual Report 2020

The table below compares Heartland’s provision
coverage ratio10 year-on-year, including the impact of the
$9.6 million pre-tax economic overlay due to COVID-19.

30 June 2020

30 June 2019

GROSS
RECEIVABLES
$m

TOTAL
PROVISION
$m

PROVISION
COVERAGE
RATIO

GROSS
RECEIVABLES
$m

TOTAL
PROVISION
$m

PROVISION
COVERAGE
RATIO

Motor

Harmoney NZ

Harmoney AU

Personal Loans

Open for Business

Business Intermediated

Business Relationship

Rural

Retail Mortgages

1,126

17.8

146

155

499

496

606

7.6

3.1

1.8

8.5

7.6

8.1

8.2

3,108

62.7

1.58%

5.20%

5.77%

15.05%

5.46%

1.53%

1.62%

1.35%

0.00%

2.02%

1,089

14.1

151

133

425

560

656

3,090

5.5

1.7

2.0

4.8

5.7

11.4

13.1

58.5

1.30%

3.66%

4.55%

12.18%

3.63%

1.34%

2.03%

2.00%

0.00%

1.89%

Impairments

Including the overlay mentioned above, impairment
expense increased by $8.7 million (42.3%) to $29.4
million. Impairment expense as a percentage of
average receivables increased from 0.49% in FY2019
to 0.65% in FY2020.

On an adjusted basis11, impairment expense decreased
by $0.9 million (4.1%) to $19.8 million, and impairment
expense as a percentage of average receivables
decreased from 0.49% in FY2019 to 0.44% in FY2020.
This reflects improving quality and improved collections
processes.

Additionally, refined provisioning methodologies in
accordance with IFRS9 have resulted in a reduced
impairment expense.

7 Heartland’s total exposure to the retail, accommodation and transport (excluding road freight transport) industries at 30 June 2020, based on

borrower ANZSIC codes, was 2.84%, 2.17% and 1.15% respectively.

8 At 10 August 2020, Heartland’s exposure to customers in this age bracket is 4.2% in Motor, 0.7% in personal lending and 0.9% in Harmoney.
9 Calculated as total provisions over gross finance receivables excluding Reverse Mortgages.

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

P. 76

P. 77

S
T
L
U
S
E
R
L
A
C
N
A
N
F
R
U
O

Business performance

New Zealand Reverse Mortgages

Business Intermediated

New Zealand Reverse Mortgages NOI was $23.5
million, an increase of $2.7 million (12.7%) compared
with FY2019.

Business Intermediated lending NOI was $21.9 million,
an increase of $4.3 million (24.3%) compared with
FY2019.

New Zealand Reverse Mortgage Receivables increased
$49.6 million (9.7%) to $559.9 million, driven by an
investment in marketing to increase brand awareness
and digital channel enhancements.

Business Intermediated Receivables increased $73.6
million (17.3%) to $499.0 million, reflecting Heartland
Bank’s growth focus on this portfolio.

Motor

Motor NOI was $60.6 million, an increase of $3.5
million (6.2%) compared with FY2019.

Motor Receivables increased $37.0 million (3.4%) to
$1,125.6 million mainly due to an increase in the Motor
dealer book (car dealerships, brokers and partnerships
such as Kia and Jaguar/Land Rover).

Following a strong result in 1H2020, 2H2020 was
characterised by higher repayment levels in Motor.
While new lending held up strongly in the period 1
March to 30 June 2020 ($164.8 million) repayments
were $164.2 million (partly due to customers
consolidating debt due to low interest residential
mortgage rates). As a result, Motor posted a largely
flat volume growth in 2H2020.

Generating much of Motor’s new lending in 2H2020
was Heartland Bank’s innovative digital platforms,
which allowed motor dealers to safely provide vehicle
finance to New Zealanders even when alert levels
restricted in-person interactions with customers

Harmoney and other personal lending

Harmoney NOI was $17.2 million, an increase of $4.8
million (39.1%) compared with FY2019.

Harmoney Receivables increased $10.1 million (5.3%),
with the New Zealand Harmoney portfolio contracting
$5.6 million (3.7%) to $145.9 million, while the Australia
Harmoney portfolio increased $15.7 million (40.9%)
to $54.0 million. Both New Zealand and Australian
portfolios contracted in 2H2020 as a result of slowdown
in new lending following the COVID-19 outbreak.

Harmoney impairments were higher in FY2020
primarily due to additional provisions taken up to cover
potential future COVID-19 losses, as well as the impact
of strong growth in Australia which resulted in an
increase in stage one provisions. Prior to the COVID-19
lockdown, loss rates in FY2020 had been lower than
FY2019 in both New Zealand and Australia. Adjusted
for the COVID-19 overlay, FY2020 impairment rate
for New Zealand and Australia Harmoney portfolio is
3.4% and 4.1% respectively (4.1% and 4.9% in FY2019).
FY2020 impairment rate for New Zealand and Australia
Harmoney portfolio is 4.7% and 5.6% respectively.

P. 78

Business Relationship

Business Relationship lending NOI was $24.8 million, a
decrease of $3.8 million (13.4%) compared with FY2019.

Business Relationship Receivables decreased a further
$19.7 million in 2H2020 to $495.7 million as a result
of the strategic focus on reducing concentration risk in
low margin exposures, posting a $63.9 million (11.4%)
decrease in FY2020.

O4B

O4B NOI was $14.7 million, an increase of $5.1 million
(53.7%) compared with FY2019.

O4B Receivables increased $21.8 million (16.4%) to
$155.1 million. Whilst O4B growth slowed down in
2H2020, ongoing investments in operational capacity,
automation and marketing to increase product
awareness are expected to fuel recovery to
pre-COVID-19 levels and growth in future periods

Rural

Rural lending NOI was $30.7 million, a decrease of $1.0
million (3.1%) compared with FY2019.

Rural Receivables decreased by $50.7 million (7.7%)
to $605.7 million. Rural Relationship Receivables
reduced by $22.2 million in 2H2020 to $490.4 million
as optimisation of non-core Rural Relationship lending
to reduce low margin concentration continues, posting
a $44.4 million (8.3%) decrease in FY2020. At the same
time, Livestock Receivables decreased by $6.3 million
(5.2%) to $115.3 million.

Australia

Australian operations NOI was $34.3 million, an increase
of $11.6 million (51.0%) compared with FY2019.

Australian Reverse Mortgage Receivables increased
by $149.1 million (18.4%)12 to $957.5 million. Heartland
remains the leading originator of reverse mortgages in
Australia with 12-month market share increasing from
21%13 to 26%14, and a similar trend expected in the future.

Heartland Annual Report 2020

Funding and liquidity

New Zealand

Australia

Heartland Bank increased borrowings by $131.8
million (3.8%), primarily as a result of growth in
deposits of $115.6 million (3.7%) and growth in other
borrowings of $16.2 million (4.7%).

Heartland Australia increased borrowings by A$168.4
million (24.7%) as a result of growth in reverse mortgage
warehouse funding of A$73.2 million (11.6%) and a
A$100 million medium-term note (MTN) issuance.

Deposits grew $100.5 million (3.2%) in the April-June
2020 quarter (Q4) as a result of strong promotional
activity with Heartland Bank continuing to be a
consistent rate leader during the lockdown period and
beyond. Heartland Bank’s focus is on the reduction of
risk concentrations in its deposit book and shifting its
deposit mix in favour of lower rate call deposits where
Heartland is relatively underweight.

Within other borrowings, money market and registered
certificate of deposit borrowings reduced by $59.8 million
in aggregate, while borrowings under the auto warehouse
facility increased by $65.6 million as part of a strategy
to shift funding away from short-term uncommitted
sources in favour of committed wholesale lines.

Heartland Bank increased total liquidity by $205
million (39%). This was a result of growth in cash
and cash equivalents of $66 million (169%), growth
in investments of $55 million (16%) and growth in
undrawn committed facilities of $205 million (39%).

In response to the uncertain economic and liquidity
impacts of COVID-19, Heartland Bank increased its
committed auto warehouse facility from $150 million to
$300 million, and increased its target holding of cash
and cash equivalents. As such Heartland Bank holds
liquidity well in excess of regulatory minimums.

Heartland cancelled its $25 million undrawn corporate
debt facility in May 2020.

To support its growth, Heartland has secured A$142
million of long-term funding for its Australian Reverse
Mortgage business. The innovative Australian reverse
mortgage-backed syndicated loan securitisation
transaction announced on 15 September 2020 is
funded by established offshore institutional investors.
The first-of-its-kind transaction achieves another
milestone in executing Heartland’s strategy to diversify
type, source and tenor of its Australian funding and
importantly evidences market liquidity to existing
warehouse funders.

The financing structure provides Heartland access
to deep pools of efficient long-dated funding that is
typically unavailable to most Australian non-bank
financial institutions. Heartland’s high-quality reverse
mortgage asset portfolio has enabled the structure to
achieve leverage15 of 98%.

During the financial year, Heartland Australia
successfully continued to execute on its strategic
funding programme to cater for the strong growth
that continues to be generated.

Other funding activity included:

– execution and utilisation of a new A$250 million
reverse mortgage funding warehouse provided
by a major Australian financial institution

– issuance of A$100 million new MTNs.

Heartland now has access to committed Australian
reverse mortgage loan funding of A$1 billion in
aggregate. Further expansion of existing warehouse
funding through increased senior limits and
introduction of mezzanine funding is planned together
with continued optimisation of long-term duration
matched funding.

12 Excluding the impact of changes in FX rates.
13 Based on APRA ADI Property Exposure combined with Heartland Seniors Finance data as at 31 March 2019.
14 Based on APRA ADI Property Exposure combined with Heartland Seniors Finance data as at 31 March 2020.
15 Being total senior debt divided by total reverse mortgages funded.

P. 79

F I N A N C I A L S TAT E M E N T S
F O R T H E Y E A R E N D E D 3 0 J U N E 2 02 0

We asked our Manawa Ako interns to create a series of murals
that represent Heartland.

This mural represents relationships and connections; between
people and the land, between Heartland and our people, between
us and our customers, and between this generation and the next.
As our people, customers and partners grow, so too do we.

Heartland’s mātāpono (values) have also been incorporated
throughout the mural. Mahi Tika – do the right thing;
Mahi Tahi – be one team; Mahi Toa – have big ambition;
Mahi Tipu – be always evolving.

This piece is an all-inclusive portrayal of what it means to be part
of our Heartland whānau.

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F

CONTENTS
FINANCIAL STATEMENTS

P. 85
P. 85
P. 85
P. 86
P. 87
P. 88
P. 89
P. 90
P. 91

General Information
Auditor
Other Material Matters
Directors
Directors’ Statements
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows

NOTES TO THE FINANCIAL STATEMENTS

P. 93

1. Financial statements preparation

PERFORMANCE

2. Segmental analysis
P. 98
P. 99
3. Net interest income
P. 100 4. Net operating lease income
P. 100 5. Other income
P. 101 6. Operating expenses
P. 101 7. Compensation of auditor
P. 102 8. Impaired asset expense
P. 104 9. Taxation
P. 106 10. Earnings per share

FINANCIAL POSITION

P. 107 11. Investments
P. 108 12. Derivative financial instruments
P. 110 13. Finance receivables
P. 114 14. Operating lease vehicles
P. 114 15. Borrowings
P. 115 16. Share capital and dividends
P. 116 17. Other reserves
P. 116 18. Other balance sheet items
P. 119 19. Related party transactions and balances
P. 121 20. Fair value

RISK MANAGEMENT

P. 125 21. Enterprise risk management program
P. 128 22. Credit risk exposure
P. 131 23. Liquidity risk
P. 133 24. Interest rate risk

OTHER DISCLOSURES

P. 134 25. Significant subsidiaries
P. 135 26. Structured entities
P. 136 27. Staff share ownership arrangements
P. 138 28. Insurance business, securitisation,

funds management, other fiduciary activities

P. 138 29. Concentrations of funding
P. 139 30. Contingent liabilities and commitments
P. 139 31. Events after the reporting date

AUDITOR’S REPORT

P. 140 Auditor’s Report

P. 84

Financial Statements for the year ended 30 June 2020

General information

These financial statements are issued by Heartland
Group Holdings Limited (HGH) and its subsidiaries
(the Group) for the year ended 30 June 2020.

Name and address for service
The Group’s address for service is Level 3, Heartland
House, 35 Teed Street, Newmarket, Auckland.

Details of incorporation
HGH was incorporated in New Zealand under
the Companies Act 1993 on 19 July 2018.

Auditor

KPMG
KPMG Centre
18 Viaduct Harbour Avenue
Auckland

Other material matters

There are no material matters relating to the business
or affairs of the Group that are not contained elsewhere
in these consolidated financial statements which
would, if disclosed in these consolidated financial
statements, materially affect the decision of a person
to subscribe for debt or equity instruments of which the
Group is the issuer.

P. 85

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F

Directors

Directors’ statements

Financial Statements for the year ended 30 June 2020

The consolidated financial statements are dated 17 September 2020 and have been signed by all the Directors.

G T Ricketts (Chair)

E F Comerford

J K Greenslade

Sir C R Mace

G R Tomlinson

All Directors of HGH reside in New Zealand with the exception of Ellen Comerford who resides in Australia. Communications
to the Directors can be sent to Heartland Group Holdings Limited, 35 Teed Street, Newmarket, Auckland. At the time
of the signing of these consolidated financial statements the Directors of HGH and their details were:

Name: GEOFFREY THOMAS RICKETTS CNZM
Chairman - Board of Directors
Type of Director: Independent Non-Executive Director

Qualifications: LLB (Hons), LLD (honoris causa), CFInstD
Occupation: Company Director

External Directorships: Janmac Capital Limited, Maisemore Enterprises Limited, MCF2 Message4U Limited, MCF
2 Nexus Limited, MCF 7 Limited, MCF 8 Limited, MCF 9 Limited, MCF 10 Limited, MCF2 (Fund 1) Limited, MCF2A
General Partner Limited, MCF2 GP Limited, MCF3 GP Limited, MCF3B General Partner Limited, MCF3A General
Partner Limited, MCF2 FFF-GK Limited, MCF3 Cook Limited, MCF3 TEG Limited, MCF3 Squiz Limited, MC Medical
Properties Limited, Mercury Capital No.1 Fund Limited, Mercury Capital No. 1 Trustee Limited, Mercury Medical
Holdings Limited, New Zealand Catholic Education Office Limited, NZCEO Finance Limited, O & E Group Services
Limited, Oceania and Eastern Finance Limited, Oceania and Eastern Group Funds Limited, Oceania and Eastern
Holdings Limited, Oceania and Eastern Limited, Oceania and Eastern Securities Limited, Oceania North Limited,
Oceania Securities Limited, Quartet Equities Limited, The Centre for Independent Studies Limited.

Name: ELLEN FRANCES COMERFORD
Type of Director: Independent Non-Executive Director

Qualifications: BEc
Occupation: Company Director

External Directorships: Auscred Limited, Hollard Holdings Australia Pty Limited, The Hollard Insurance Group Pty
Limited, Comerford Gohl Holdings Pty Limited.

Name: SIR CHRISTOPHER ROBERT MACE KNZM
Type of Director: Independent Non-Executive Director

Qualifications: CMInstD
Occupation: Company Director

External Directorships: Akitu Equities Limited, Akitu Capital Limited, Akitu Group Company No 1 Limited, Akitu
Group Company No 2 Limited, Akitu Group Company No 3 Limited, Akitu Health Services Limited, Akitu Investments
Limited, Akitu Investments No 2 Limited, Goldburn Resources Limited, Helicopter Enterprises Limited, Janik Equities
Limited, Janmac Capital Limited, J N S Capital Limited, Mace Capital Limited, Mace Construction Limited, Mace
Developments Limited, Mace Enterprises Limited, Mace Investments Limited, Maisemore Enterprises Limited,
Nuffield Forestry Limited, Oceania and Eastern Finance Limited, Oceania and Eastern Group Funds Limited,
Oceania and Eastern Holdings Limited, Oceania and Eastern Limited, Oceania and Eastern Securities Limited,
O & E Group Services Limited, Paroa Bay Station Limited, PPT Trustee (NZ) Limited, Quartet Equities Limited,
Ryburn Lagoon Trust Limited, St. Just Enterprises Limited, Te Puia Tapapa GP Limited, The Aotearoa Circle.

Name: GREGORY RAYMOND TOMLINSON
Type of Director: Non-Independent Non-Executive Director

Qualifications: AME
Occupation: Company Director

External Directorships: Alta Cable Holdings Limited, Argenta Limited, Chippies Vineyard Limited, Forte Health
Group Limited, Forte Health Limited, Impact Capital Limited, Indevin Group Limited, Little Ngakuta Trust Company
Limited, Mountbatten Trustee Limited, Nearco Stud Limited, Oceania Healthcare Limited, Pelorus Finance Limited,
St Leonards Limited, The Icehouse Limited, Tomlinson Group NZ Limited, Tomlinson Holdings Limited, Tomlinson
Group Investments Limited, Tomlinson Ventures Limited.

Name: JEFFREY KENNETH GREENSLADE
Type of Director: Non-Independent Executive Director

Qualifications: LLB
Occupation: Chief Executive Officer of HGH

External Directorships: Henley Family Investments Limited.

P. 86

P. 87

Consolidated statement of comprehensive income
For the year ended 30 June 2020

Consolidated statement of changes in equity
For the year ended 30 June 2020

Financial Statements for the year ended 30 June 2020

Note

June 2020

June 2019

June 2020

June 2019

$000’s

Note

Capital Reserves

Retained
Earnings

Total
Equity

Capital Reserves

Retained
Earnings

Total
Equity

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F

$000’s

Interest income

Interest expense

Net interest income

Operating lease income

Operating lease expense

Net operating lease income

Lending and credit fee income

Other income

Net operating income

Operating expenses

Profit before impaired asset expense and income tax

Fair value gain on investment

Impaired asset expense

Profit before income tax

Income tax expense

Profit for the year

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

Movement in fair value reserve

Movement in foreign currency translation reserve

Items that will not be reclassified to profit or loss, net of income tax:

Movement in defined benefit reserve

Other comprehensive (loss) for the year, net of income tax

346,802

330,041

130,129

135,734

216,673

194,307

5,946

4,063

1,883

10,811

3,882

6,337

3,670

2,667

6,642

2,435

233,249

206,051

106,794

85,798

126,455

120,253

2,097

29,419

1,936

20,676

99,133

101,513

27,161

27,896

71,972

73,617

(2,179)

766

114

(4,762)

2,968

(5,281)

(86)

(1,299)

(7,161)

Total comprehensive income for the year

70,673

66,456

Earnings per share

Basic earnings per share

Diluted earnings per share

12c

13c

Total comprehensive income for the year is attributable to the owners of the Group.

The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.

Balance at
beginning of year

NZ IFRS 9 adjustment

NZ IFRS 16 adjustment

Restated balance at
beginning of year

Total comprehensive
income for the year

Profit for the year

Other comprehensive
(loss), net of income tax

Total comprehensive
income for the year

Contributions by and
distributions to owners

558,970

(4,297)

120,995

675,668 542,315

4,585

117,260

664,160

(751)

(19,283)

558,970

(4,297)

120,244

674,917 542,315

4,585

97,977

644,877

71,972

(1,299)

71,972

70,673

73,617

(7,161)

73,617

66,456

(50,599)

Dividends paid

(62,993)

Dividend
reinvestment plan

Issue of share capital

Transaction costs
associated with
capital raising

Share based payments

16,895

(28)

516

Shares vested

420

(420)

16,895

14,333

(28)

516

(18)

619

2,340

(2,340)

14,333

(18)

619

Total transactions
with owners

Balance at the end
of the year

17,287

(62,993)

(45,610)

16,655

(1,721)

(50,599)

(35,665)

576,257

(5,500)

129,223

699,980 558,970

(4,297)

120,995

675,668

The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.

P. 88

P. 89

Consolidated statement of financial position
As at 30 June 2020

Consolidated statement of cash flows
For the year ended 30 June 2020

Financial Statements for the year ended 30 June 2020

Note

June 2020

June 2019

$000’s

Note

June 2020

June 2019

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F

$000’s

Assets

Cash and cash equivalents

Investments

Investment properties

Derivative financial instruments

Finance receivables

Finance receivables - reverse mortgages

Operating lease vehicles

Right of use assets

Other assets

Intangible assets

Deferred tax asset

Total assets

Liabilities

Deposits

Other borrowings

Tax liabilities

Derivative financial instruments

Lease liabilities

Trade and other payables

Total liabilities

Equity

Share capital

Retained earnings and reserves

Total equity

147,179

413,340

11,132

17,246

74,496

354,928

11,132

14,491

3,045,195

3,031,128

1,538,585

1,318,677

17,603

18,362

19,558

72,813

17,123

15,516

27,208

71,924

9,531

5,318,136

4,929,031

3,264,192

3,153,681

1,267,931

1,057,568

12,303

17,012

20,456

36,262

7,532

11,147

23,435

4,618,156

4,253,363

576,257

123,723

558,970

116,698

699,980

675,668

Total equity and liabilities

5,318,136

4,929,031

Total interest earning and discount bearing assets

Total interest and discount bearing liabilities

5,114,348

4,757,615

4,518,174

4,199,564

The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.

Cash flows from operating activities

Interest received

Operating lease income received

Lending, credit fees and other income received

Operating inflows

Interest paid

Payments to suppliers and employees

Taxation paid

Operating outflows

Net cash flows from operating activities before changes in operating
assets and liabilities

Proceeds from sale of operating lease vehicles

Purchase of operating lease vehicles

Net movement in finance receivables

Net movement in deposits

Net cash flows (applied to) operating activities

Cash flows from investing activities

Sale of property, plant and equipment and intangible assets

Total cash provided from investing activities

Purchase of property, plant and equipment and intangible assets

Net increase in investments

Total cash applied to investing activities

258,665

249,193

5,934

16,037

5,392

7,284

280,636

261,869

117,313

143,252

82,874

24,619

87,528

25,895

224,806

256,675

55,830

5,194

4,969

(9,938)

4,959

(5,496)

(171,617)

(329,378)

110,993

270,232

(9,763)

(54,489)

118

6,739

55,549

62,288

4,514

11,226

15,740

Net cash flows (applied to) investing activities

(62,170)

(15,740)

Cash flows from financing activities

Net increase / (decrease) in wholesale funding

Proceeds from issue of Unsubordinated Notes

Total cash provided from financing activities

Dividends paid

Repayments of subordinated notes

Payment of lease liabilities

Transaction costs associated with capital raising

85,795

106,952

(14,580)

177,247

192,747

162,667

46,098

2,005

36,266

26,206

Total cash applied to financing activities

48,131

62,490

Net cash flows from financing activities

144,616

100,177

Net increase in cash held

Opening cash and cash equivalents

Closing cash and cash equivalents

72,683

74,496

147,179

29,948

44,548

74,496

The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.

P. 90

P. 91

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

Consolidated statement of cash flows
For the year ended 30 June 2020

Reconciliation of profit after tax to net cash flows from operating activities

$000’s

Profit for the year

Add / (less) non-cash items:

Depreciation and amortisation expense

Depreciation on lease vehicles

Capitalised net interest income and fee income

Impaired asset expense

Investment fair value movement

Other non-cash items

Total non-cash items

Add / (less) movements in operating assets and liabilities:

Finance receivables

Operating lease vehicles

Other assets

Current tax

Derivative financial instruments

Deferred tax

Deposits

Other liabilities

Note

June 2020

June 2019

71,972

73,617

9,161

3,634

5,760

3,363

(77,429)

(81,325)

29,419

(2,097)

2,488

20,676

(1,936)

1,750

(34,824)

(51,712)

(171,617)

(329,378)

(4,969)

9,528

4,771

931

(7,592)

110,993

11,044

(537)

(5,599)

(3,927)

(8,231)

(4,212)

270,232

5,258

Total movements in operating assets and liabilities

(46,911)

(76,394)

Financial Statements for the year ended 30 June 2020

Notes to the financial statements
For the year ended 30 June 2020

1. Financial statements preparation

Reporting entity

The financial statements presented are the consolidated financial statements comprising Heartland Group Holdings
Limited (HGH) and its subsidiaries (the Group). Refer Note 25 – Significant subsidiaries for further details.

As at 30 June 2020, HGH is a company incorporated in New Zealand under the Companies Act 1993 and a Financial
Market Conduct (FMC) reporting entity for the purposes of the Financial Markets Conduct Act 2013.

Basis of preparation

The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New
Zealand (NZ GAAP) and the NZX Main Board Listing Rules and the ASX Listing Rules. The financial statements
comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable
Financial Reporting Standards as appropriate for profit-oriented entities. The financial statements also comply with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

The financial statements are presented in New Zealand dollars which is the Group’s functional and presentation
currency. Unless otherwise indicated, amounts are rounded to the nearest thousand dollars.

The financial statements have been prepared on a going concern basis after considering the Group’s funding and
liquidity position.

The accounting policies adopted have been applied consistently throughout the periods presented in these financial
statements.

Certain comparative balances have been reclassified to align with the presentation used in the current financial year.
These reclassifications have no impact on the overall financial performance or financial position for the comparative year.

Net cash flows applied to operating activities

(9,763)

(54,489)

Basis of measurement

The notes to the financial statements form an integral part of, and should be read in conjunction with,
these consolidated financial statements.

The financial statements have been prepared on the basis of historical cost, except for certain financial instruments
and investment property, which are measured at their fair values as identified in the accounting policies set out in the
accompanying notes to the financial statements.

Principles of consolidation

The consolidated financial statements of the Group incorporate the assets, liabilities and results of all controlled
entities. Controlled entities are all entities in which the Group is exposed to, or has rights to, variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the investee.
Intercompany transactions, balances and any unrealised income and expense (except for foreign currency
translation gains or losses) between controlled entities are eliminated.

Assets and liabilities in a transactional currency that is not the New Zealand dollar, are translated at the exchange
rates ruling at balance date. Revenue and expense items are translated at the spot rate at the transaction date.
Exchange differences are taken to the consolidated statement of comprehensive income.

Changes in accounting standards

Impact of adopting NZ IFRS 16 Leases

The Group has adopted NZ IFRS 16 retrospectively from 1 July 2019, but has not restated comparatives for the 2019
reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 July 2019.

The Group leases office space, car parks, equipment and cars. Rental contracts are typically made for fixed periods
but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions.

P. 92

P. 93

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

1. Financial statements preparation (continued)

Until 30 June 2019, leases of property, plant and equipment were classified as either finance or operating leases.
Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss.

From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding lease liability at the date at
which the leased asset is available for use by the Group. The right-of-use assets are initially measured at cost,
comprising the amount of the initial measurement of the lease liability, any lease payments made at or before the
commencement date less any lease incentives received, any initial direct costs and restoration costs. The right-of-
use asset is depreciated over the shorter of the asset’s estimated useful life and the lease term on a straight-line
basis. The estimated useful life of right-of-use assets are determined on the same basis as those of property, plant
and equipment.

In determining the lease term, management considers all facts and circumstances that create an economic incentive
to exercise an extension option. Extension options are only included in the lease term if the lease is reasonably
certain to be extended.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis
as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

On adoption of NZ IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been
classified as ‘operating leases’ under the principles of NZ IAS 17 Leases. These liabilities were measured at the present
value of the remaining lease payments, discounted using the Group’s incremental borrowing rate as at 1 July 2019. The
weighted average Group’s incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 2.9%.

The Group elected not to reassess whether a contract is, or contains, a lease at the date of initial application.
Instead, for contracts entered into before the transition date, the Group relied on its assessment made applying NZ
IAS 17 and NZ IFRIC 4 Determining whether an Arrangement contains a Lease.

$000’s

Operating lease commitments as at 30 June 2019

Discounted using the Group’s incremental borrowing rate on initial application

Adjustments relating to changes in the index or rate effective variable payments

Lease liability recognised as at 1 July 2019

Of which are:

Current lease liabilities

Non-current lease liabilities

Total lease liabilities

12,497

(1,060)

316

11,753

1,947

9,806

11,753

The associated right-of-use assets which are predominantly property leases were measured on a retrospective
basis as if the new rules had always been applied. There were no onerous lease contracts that would have required
an adjustment to the right-of-use assets at the date of initial application.

The change in accounting policy affected the following items in the consolidated statement of financial position as
at 1 July 2019.

- Right-of-use assets: increased by $10.7 million

- Deferred tax assets: increased by $0.3 million

- Lease liabilities: increased by $11.8 million

The net impact on retained earnings on 1 July 2019 was a decrease of $0.8 million.
The adoption of NZ IFRS 16 has no material impact to the Group’s leasing business where the Group acts as the lessor.
There have been no other changes to accounting policies or new or amended standards that are issued and effective
that are expected to have a material impact on the Group.

P. 94

Financial Statements for the year ended 30 June 2020

1. Financial statements preparation (continued)

Accounting standards issued but not yet effective

NZ IFRS 17 Insurance Contracts was issued in July 2017 and is applicable to general and life insurance contracts.
NZ IFRS 17 will replace NZ IFRS 4 Insurance Contracts. In March 2020, the effective date of NZ IFRS 17 was deferred
by one year. As such it is expected that the standard will be effective for the Group’s reporting for the financial year
ending 30 June 2024, including 30 June 2023 comparatives.

The Group conducts insurance business through its subsidiary MARAC Insurance Limited (MIL). MIL has entered
into a distribution agreement with DPL Insurance Limited (DPL) to distribute DPL’s insurance products through its
network and has stopped writing insurance policies in February 2020. The Group will assess the impact arising from
NZ IFRS 17 in conjunction with this new arrangement.

Other amendments to existing standards that are not yet effective are not expected to have a material impact on the Group.

Estimates and judgements

The preparation of the Group’s consolidated financial statements requires the use of estimates and judgements. This
note provides an overview of the areas that involve a higher degree of judgement or complexity. Detailed information
about each of these estimates and judgements is included in the relevant notes together with the basis of calculation
for each affected item in the financial statements.

– Provisions for impairment - The effect of credit risk is quantified based on the Group’s best estimate of future cash
repayments and proceeds from any security held or by reference to risk profile groupings, historical loss data and
forward-looking information. Refer to Note 8 - Impaired asset expense, and Note 13 - Finance receivables for
further details.

– Fair value of reverse mortgages - Fair value is quantified by the transaction price and the Group’s subsequent best

estimate of the risk profile of the reverse mortgage portfolio. Refer to Note 20 - Fair value for further details.

– Goodwill - Determining the fair value of assets and liabilities of acquired businesses requires the Group to exercise

judgement. The carrying value of goodwill is tested annually for impairment, refer to Note 18 - Other balance
sheet items.

Assumptions made at each reporting date (e.g. the calculation of the provision for impairment and fair value
adjustments) are based on best estimates as at that date. Although the Group has internal controls in place to
ensure that estimates can be reliably measured, actual amounts may differ from these estimates. The estimates and
judgements used in the preparation of the Group’s financial statements are continually evaluated. They are based
on historical experience and other factors, including expectations of future events that may have a financial impact
on the entity. Revisions to accounting estimates are recognised in the reporting period in which the estimates are
revised and in any future periods affected.

COVID-19 Pandemic - Impact on Estimates and Judgements

On 11 March 2020, COVID-19 was declared a pandemic by the World Health Organisation. The domestic
economy has been significantly disrupted by measures put in place to limit the impact of the spread of COVID-19
among the community, and also by the downstream effects of the deterioration that COVID-19 has caused in the
global economy. Countermeasures implemented by Government (including the Government’s support and fiscal
programmes) and the Reserve Bank of New Zealand have assisted to mitigate the impact of those measures –
however, the unprecedented nature of the current environment and the number of variables which impact on that
environment means that significant uncertainty around future economic conditions remains.

The Group has responded to the pandemic by working with its customers to understand their needs and provide
them with the financial support that best meets their requirements. To date, that support has included participating
in industry wide measures (such as the mortgage deferrals programme and the provision of liquidity under the
Business Finance Guarantee Scheme (BFGS) program), and implementing other measures such as temporary
payment reduction or payment deferral arrangements for both business and consumer customers. The Group has
also developed a product, Heartland Extend, which provides customers with flexible payment options.

The accounting judgement that is most impacted by the pandemic relates to expected credit losses (ECL) on finance
receivables at amortised cost. The Group’s accounting policy for the recognition and measurement of the allowance
for ECL is described in Note 8 - Impaired asset expense. The Group measures the allowance for ECL using an
expected credit loss impairment model in compliance with NZ IFRS 9 Financial Instruments.

P. 95

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

1. Financial statements preparation (continued)

Financial Statements for the year ended 30 June 2020

The impact of the pandemic has also been considered where there is significant use of forward-looking estimates
and judgement, primarily when identifying impairment indicators for goodwill and intangible assets and calculating
the recoverable amount.

The impact of the COVID-19 pandemic on each of these estimates and judgements is discussed further in the
following notes to the consolidated financial statements:

– Note 8 - Impaired asset expense

– Note 13 - Finance receivables

– Note 18 - Other balance sheet items - Goodwill

– Note 20 - Fair value

Financial assets and liabilities

Financial Assets

Financial assets are classified based on:

– The business model within which the assets are managed; and

– Whether the contractual cash flows of the instrument represent solely payment of principal and interest (SPPI).

The Group determines the business model at the level that reflects how groups of financial assets are managed.
When assessing the business model, the Group considers factors including how performance and risks are
managed, evaluated and reported and the frequency and volume of, and reason for sales in previous periods

Financial assets are classified into the following measurement categories:

Financial Assets

Measurement Category

Bank bonds and floating rate notes

Fair value through other comprehensive income (FVOCI)

Public sector securities and corporate bonds

Local authority stock

Equity investments

FVOCI

Fair value through profit or loss (FVTPL)

Finance receivables – reverse mortgages

FVTPL

Finance receivables

Amortised cost

Note

Financial assets measured at amortised cost
Financial assets are measured at amortised cost if they are held within a business model whose objective is achieved
through holding the financial asset to collect contractual cash flows which represent SPPI on the principal balance.

Financial assets at amortised cost are initially recognised at fair value and subsequently measured at amortised cost
using the effective interest rate method.

Financial assets measured at FVOCI
Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved both
through collecting contractual cash flows which represent SPPI on the principal balance or selling the financial asset.

Financial assets at FVOCI are measured at fair value with unrealised gains and losses recognised in other
comprehensive income except for interest income, impairment charges and foreign exchange gains and losses,
which are recognised in profit or loss.

Financial assets measured at FVTPL
Financial assets are measured at FVTPL if:

Financial assets at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.

Financial Liabilities

Financial liabilities are classified into the following measurement categories:

– Those to be measured at amortised cost;

– Those to be measured at FVTPL.

Financial liabilities measured at amortised cost

Financial liabilities are measured at amortised cost if they are not held for trading or designated at FVTPL.

Financial liabilities measured at amortised cost are accounted for using the effective interest rate method.

Financial liabilities measured at FVTPL

Financial liabilities are measured at FVTPL if:

– They are held for trading whose principal objective is achieved through selling or repurchasing the financial liability

in the near term, or forms part of a portfolio of financial instruments that are managed together and for which
there is evidence of short-term profit taking; or

– They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.

Financial liabilities at FVTPL are measured at fair value with subsequent changes in fair value recognised in profit or loss.
Further details of the accounting policy for each category of financial asset or financial liability mentioned above is
set out in the note for the relevant item.

The Group’s policies for determining the fair value of financial assets and financial liabilities are set out in Note 20 -
Fair value.

Recognition

The Group initially recognises finance receivables and borrowings on the date that they are originated. All other
financial assets and liabilities (including assets and liabilities designated at FVTPL) are initially recognised on the
trade date at which the Group becomes a party to the contractual provisions of the instrument.

Derecognition

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially
all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial
assets that is created or retained by the Group is recognised as a separate asset.

The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial
position, but retains either all risks or rewards of the transferred assets or a portion of them. If all or substantially all
risks and rewards are retained, then the transferred assets are not derecognised from the consolidated statement
of financial position. Transfers of assets with the retention of all or substantially all risks and rewards include, for
example, securitised assets and repurchase transactions.

Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. Where an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, the exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, with the difference in the respective carrying amounts recognised in
profit or loss.

– They are held within a business model whose objective is achieved through selling or repurchasing the financial
asset in the near term, or forms part of a portfolio of financial instruments that are managed together and for which
there is evidence of short-term profit taking; or

– They are designated at FVTPL upon initial recognition to eliminate or reduce an accounting mismatch.

Offsetting financial instruments

The Group offsets financial assets and financial liabilities and reports the net balance in the balance sheet where
there is currently a legally enforceable right to set off and there is an intention to settle on a net basis or to realise the
asset and settle the liability simultaneously.

P. 96

P. 97

Performance

2. Segmental analysis

Segment information is presented in respect of the Group’s operating segments which are those used for the Group’s
management and internal reporting structure.

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 within New Zealand.

Other personal

A comprehensive range of financial services - including term, transactional and personal
loans to individuals.

Business

Rural

Term debt, plant and equipment finance, commercial mortgage lending and working capital
solutions for small-to-medium sized businesses.

Specialist financial services to the farming sector primarily offering livestock finance, rural
mortgage lending, seasonal and working capital financing, as well as leasing solutions to
farmers.

Australia

Reverse mortgage lending and other financial services within Australia.

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 Group’s operating segments are different from the industry categories detailed in Note 22 - Credit risk exposure.
The operating segments are primarily categorised by sales channel, whereas Note 22 - Credit risk exposure
categorises exposures based on credit risk concentrations.

$000’s

June 2020

Reverse
Mortgages

Other
Personal

Motor

Business

Rural Australia

Other

Total

Net interest income

56,957

20,118

18,365

57,950

29,674

30,127

3,482

216,673

Net other income

3,622

3,430

3,055

3,465

1,028

4,214

(2,238)

16,576

Net operating income

60,579

23,548

21,420

61,415

30,702

34,341

1,244

233,249

Operating expenses

3,248

4,804

6,776

11,283

2,648

11,680

66,355

106,794

Financial Statements for the year ended 30 June 2020

2. Segmental analysis (continued)

$000’s

June 2019

Reverse
Mortgages

Other
Personal

Motor

Business

Rural Australia

Other

Total

Net interest income

54,695

20,674

14,564

52,857

30,393

22,265

(1,141)

194,307

Net other income

2,578

224

4,344

2,989

1,288

477

(156)

11,744

Net operating income

57,273

20,898

18,908

55,846

31,681

22,742

(1,297)

206,051

Operating expenses

2,750

2,279

5,602

9,156

3,263

5,122

57,626

85,798

Profit / (loss) before
impaired asset expense
and income tax

Fair value gain on
investment

Impaired asset expense/
(benefit)

Profit / (loss) before
income tax from
continuing operations

54,523

18,619

13,306

46,690

28,418

17,620

(58,923)

120,253

5,277

8,429

7,102

(132)

1,936

20,676

49,246

18,619

4,877

39,588

28,550

17,620

(56,987)

101,513

Income tax expense

27,896

Profit / (loss)
for the year

49,246

18,619

4,877

39,588

28,550

17,620

(84,883)

73,617

Total assets

1,089,769

510,299

220,500 1,096,773

650,751

808,733

552,206 4,929,031

Total liabilities

4,253,363

3. Net interest income

Policy

Interest income and expense on financial instruments is measured using the effective interest rate method that
discounts the financial instruments’ future cash flows to their present value and allocates the interest income or
expense over the life of the financial instrument. The effective interest rate is established on initial recognition
of the financial assets or liabilities and is not subsequently revised. For financial instruments at amortised cost,
the calculation of the effective interest rate includes all yield related fees and commissions paid or received that
are an integral part of the underlying financial instrument.

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

57,331

18,744

14,644

50,132

28,054

22,661

(65,111)

126,455

$000’s

June 2020

June 2019

Profit / (loss) before
impaired asset expense
and income tax

Fair value gain on
investment

Impaired asset expense/
(benefit)

Profit / (loss) before
income tax from
continuing operations

Profit / (loss)
for the year

10,160

11,119

10,110

(1,970)

2,097

29,419

47,171

18,744

3,525

40,022

30,024

22,661

(63,014)

99,133

Income tax expense

27,161

Interest income

Cash and cash equivalents

Investments

Finance receivables

Finance receivables - reverse mortgages

Total interest income

Interest expense

Retail deposits

Other borrowings

47,171

18,744

3,525

40,022

30,024

22,661

(90,175)

71,972

Net interest expense on derivative financial instruments

Total assets

1,125,295

559,934

214,759 1,126,632

604,938

979,496

707,082 5,318,136

Total liabilities

P. 98

4,618,156

Total interest expense

Net interest income

499

8,496

250,606

87,201

717

9,733

239,624

79,967

346,802

330,041

90,739

35,888

3,502

96,476

37,415

1,843

130,129

135,734

216,673

194,307

P. 99

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

4. Net operating lease income

Policy

As a lessor, the Group retains substantially all the risks and rewards of ownership of an asset are classified
as operating leases. Rental income and expense from operating leases is recognised on a straight-line basis
over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease
are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease
term. Profits on the sale of operating lease assets are included as part of operating lease income. Current year
depreciation and losses on the sale of operating lease assets are included as part of operating lease expenses.
The leased assets are depreciated over their useful lives on a basis consistent with similar assets.

$000’s

Operating lease income

Lease income

Gain on disposal of lease assets

Total operating lease income

Operating lease expense

Depreciation on lease assets

Direct lease costs

Total operating lease expense

Net operating lease income

5. Other income

Policy

June 2020

June 2019

5,194

752

5,946

3,634

429

4,063

5,518

819

6,337

3,363

307

3,670

1,883

2,667

Rental income from investment property
Rental income from investment properties is recognised on a straight-line basis over the term of the relevant lease.

Insurance income
Insurance premium income and commission expense are recognised in profit or loss from the date of attachment
of the risk over the period of the insurance contract. Claim expense is recognised in the profit or loss on an accrual
basis once our liability to the policyholder has been confirmed under the terms of the contract.

$000’s

June 2020

June 2019

Rental income from investment properties

Insurance income

Gain on sale of investments

Other income/(loss)

FX gain/(loss)

Total other income

1,125

1,610

774

373

3,882

731

2,537

173

(408)

(598)

2,435

Financial Statements for the year ended 30 June 2020

6. Operating expenses

Policy

Operating expenses are recognised as the underlying service is rendered or over a period in which an asset is
consumed or a liability is incurred.

$000’s

Personnel expenses

Directors’ fees

Superannuation

Depreciation - property, plant and equipment

Operating lease expense as a lessee

Legal and professional fees

Advertising and public relations

Depreciation - right of use asset

Technology services

Telecommunications, stationary and postage

Customer acquisition costs

Amortisation of intangible assets

Other operating expenses1

Total operating expenses

1 Other operating expenses include compensation of auditor which is disclosed in Note 7.

7. Compensation of auditor

$000’s

Audit and review of the financial statements1

Other assurance services paid to auditor2

Total compensation of auditor

June 2020

June 2019

54,511

47,222

1,059

1,069

2,380

3,615

6,729

2,324

6,372

1,886

7,419

4,456

1,099

1,081

1,867

1,807

3,129

3,354

5,721

1,883

1,227

3,893

14,974

106,794

13,515

85,798

June 2020

June 2019

774

133

907

614

666

1 Audit and review of the financial statements includes fees paid for both the audit of the annual financial statements and the review of the
interim financial statements.
2 Other assurance services paid to the auditor comprise regulatory assurance services, agreed upon procedures engagements and supervisor
reporting.

P. 100

P. 101

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

8. Impaired asset expense

Policy

Impairment of finance receivables
At each reporting date, the Group applies a three stage approach to measuring ECL to finance receivables not
carried at fair value. The ECL model assesses whether there has been a significant increase in credit risk since
initial recognition.

Financial Statements for the year ended 30 June 2020

8. Impaired asset expense (continued)

The Group has followed industry and regulatory guidance when assessing individual customers, or portfolios of
assets, to determine if a significant increase in credit risk (SICR) has occurred. The industry guidance provides that
any payment deferral or similar allowance provided to customers as a result of the impact of COVID-19 would not
automatically result in a SICR. Accordingly, customers who received assistance through the pandemic as a result of
a payment reduction, deferral arrangement, or through the Heartland Extend product, have not been assessed as
being subject to a SICR.

The ECL model is a forward looking model where impairment allowances are recognised before losses are
actually incurred. On initial recognition, an impairment allowance is required, based on events that are possible
in the next 12 months.

However, as a result (and when considered in conjunction with the measures put in place to limit the impact of the
spread of COVID-19 among the community), the traditional indicators of increased credit risk may not provide an
accurate measure of the credit quality of the Group’s assets.

Assets may migrate through the following stages based on their change in credit quality:

Stage 1 - 12 months ECL (past due 30 days or less)
Where there has been no evidence of increased credit risk since initial recognition, and are not credit impaired
upon origination, the portion of the lifetime ECL associated with the probability of default events occurring
within the next 12 months is recognised.

Stage 2 - Lifetime ECL not credit impaired (greater than 30 but less than 90 days past due)
Where there has been a significant increase in credit risk.

Stage 3 - Lifetime ECL credit impaired (90 days past due or more)
Objective evidence of impairment, so are considered to be in default or otherwise credit impaired.

In determining whether credit risk has increased all available information relevant to the assessment of economic
conditions at the reporting date are taken into consideration. To do this the Group considers its historical
loss experience and adjusts this for current observable data. In addition to this the Group uses reasonable
and supportable forecasts of future economic conditions including experienced judgement to estimate the
amount of an expected impairment loss. Future economic conditions consider macroeconomic factors such as
unemployment, interest rate, gross domestic product, and inflation, and requires an evaluation of both the current
and forecast direction of the economic cycle. The methodology and assumptions including any forecasts of future
economic conditions are reviewed regularly as incorporating forward-looking information increases the level of
judgement as to how changes in these macroeconomic factors will affect the ECL.

The calculation of expected credit loss is modelled for portfolios of like assets. For portfolios which are either
new or too small to model, judgement is used to determine impairment provisions.

The Group’s models for estimating expected credit losses for each of its portfolios are based on the historic credit
experience of those portfolios. The models assume that economic conditions (such as GDP growth, unemployment
rates, and house price index forecasts) remain static over time. If the Group forecasts that economic conditions
will not remain static in the foreseeable future, the Group applies judgment to determine whether the modelled
output should be subject to an economic overlay. This follows analysis of historic data and performance which has
established no clear correlation between key economic indicators and the credit performance of the Group’s unique
portfolios, meaning the approach is an inherently judgmental exercise.

In the current scenario, the pandemic has caused a deterioration in economic conditions. The Group has therefore
applied judgement to estimate whether the modelled output should be subject to an economic overlay. In exercising
that judgement, it was assumed that the Group’s “base case” economic forecast would prevail. That base case
forecast scenario is for:

– A steep initial adverse movement (at close to -20%) in gross domestic product to 30 June 2020 but with a relatively

quick, full recovery by June 2022;

– Unemployment to peak at 8.2% (June 2021) and then to largely recover over the following 2.5 years; but

– House prices falling 6.6% to March 2021, with a full recovery to June 2021.

That base case also assumes:

– There are no further significant periods of lockdown in or across any part of NZ as at the date of approval of the

Group’s financial statements for the year ended 30 June 2020.

– Heartland Extend, through providing customers with time (with economic conditions improving over time) would be

successful in supporting the Group’s consumer and business customers who need that assistance.

– The recently amended BFGS would be successful in supporting the Group’s business customers who need

$000’s

Non-securitised

Individually impaired asset expense

Collectively impaired asset expense

Total non-securitised impaired asset expense

Securitised

Collectively impaired asset expense

Total securitised impaired asset expense

Total

Individually impaired asset expense

Collectively impaired asset expense

Total impaired asset expense

June 2020

June 2019

that assistance.

3,385

25,637

29,022

1,311

19,024

20,335

397

341

3,385

26,034

29,419

1,311

19,365

20,676

– Second hand car prices would remain stable.

– The price for exported primary produce would not materially fall.

Using those assumptions, and taking Management’s experience and deep understanding of the Group’s customers
(following the customer contact programmes implemented by the Group during, and after, COVID-19), the Group
recognised that there is downside risk (including in the event that any of the underlying assumptions transpire to be
incorrect) and, as a result, the Group’s expected credit losses could be understated.

It is stressed that there is considerable uncertainty in these judgements. As noted by the New Zealand Treasury:

“The magnitude and duration of the downturn and the subsequent pace of the recovery depends on many unknown
factors, including the course of the virus, how long activity restrictions are in place, how quickly the global economy
will recover, how behaviours and production might change, and how successful government policies will be in
supporting households and firms.”

P. 102

P. 103

8. Impaired asset expense (continued)

To reflect that inherent risk, the Group employed three methodologies to ascertain a range of potential expected
credit losses on each of its portfolios:

9. Taxation (continued)

Income tax expense

$000’s

1. First, the Group has calculated a “Stage 2” lifetime expected loss provision as applied to the most affected parts of

Income tax recognised in profit or loss

its portfolio.
This methodology neutralises the concern that the Group’s assistance measures (when considered in conjunction
with the measures put in place to limit the impact of the spread of COVID-19 among the community), may have
masked traditional indicators of increased credit risk, by demonstrating how much provisions would increase by if
all customers receiving assistance were treated as posing increased credit risk for the Group.

2. Secondly, the Group used the loss rates experienced on its Motor portfolio during the Global Financial Crisis of

2008, applied them to its current Motor portfolio, and extrapolated the proportionate increase in provisions to its
other affected portfolios.

3. Lastly, the Group engaged a consultant to analyse historic correlations between certain industry default levels and
macroeconomic indicators. This correlation was then applied to the Group’s base case forecast scenario economic
outlook, to determine the degree to which (based on that historic correlation, and the base case forecast scenario)
the Group’s customers may be likely to default in the base case forecast scenario economic overlay. That increased
chance of default was then used to calculate an increase in provisions in affected portfolios.

Each of those methodologies have limitations. However, they did provide the Group with a range of “downside”
potential credit losses for each portfolio. Across the three methodologies and portfolios, the range of possible outcomes
was between $4.1 million and $11.8 million. Judgement was applied (taking into account the ranges provided by those
methodologies, and all other relevant factors) in order to calculate an economic overlay across each affected portfolio.
As a result a pre-tax overlay of $9.6 million was applied as outlined in Note 13 - Finance receivables.

9. Taxation

Policy

Income tax
Income tax expense for the year comprises current tax and movements in deferred tax balances, including any
adjustment required for prior years’ tax expense. Income tax expense is recognised in profit and loss except
to the extent that it relates to items recognised directly in other comprehensive income, in which case it is
recognised in equity or other comprehensive income.

Current tax
Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to the tax payable or receivable
in respect of previous years. Current tax for current and prior years is recognised as a liability (or asset) to the
extent that it is unpaid (or refundable).

Deferred tax
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for accounting purposes and the amounts used for taxation
purposes. As required by NZ IAS 12 Income Taxes, a deferred tax asset is recognised only to the extent that it
is probable that a future taxable profit will be available to realise the asset.

Goods and services tax (GST)
Revenues, expenses and assets are recognised net of GST. As the Group is predominantly involved in providing
financial services, only a proportion of GST paid on inputs is recoverable. The non-recoverable proportion of
GST is treated as an expense or, if relevant, as part of the cost of acquisition of an asset.

Financial Statements for the year ended 30 June 2020

June 2020

June 2019

30,868

1,834

335

(3,568)

(2,289)

(19)

25,181

(1,989)

277

3,306

1,067

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

Current tax

Current year

Adjustments for prior year

Tax other rates

Deferred tax

Current year

Adjustments for prior year

Tax other rates

Total income tax expense recognised in profit or loss

27,161

27,896

Income tax recognised in other comprehensive income

Current tax

Derivatives at fair value reserve

Fair value movements of cash flow hedge

Deferred tax

Defined benefit plan

Fair value movements of cash flow hedges

Total income tax expense recognised in other comprehensive income

$000’s

Profit before income tax

Reconciliation of effective tax rate

Tax at New Zealand income tax rate of 28%

Higher tax rate for overseas jurisdiction

Adjusted tax effect of items not taxable/deductible

Adjustments for prior year

Total income tax expense

768

(1,477)

(709)

(82)

(34)

(238)

(354)

June 2020

June 2019

99,133

101,513

27,757

28,424

316

(457)

(455)

331

(922)

27,161

27,896

P. 104

P. 105

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

9. Taxation (continued)

Deferred tax assets comprise the following temporary differences:

$000’s

Employee expenses

Share based payment

Provision for impairment

Investment properties

Intangibles and property, plant and equipment

Deferred acquisition costs

Operating lease vehicles

Other temporary differences

Total deferred tax assets

Opening balance of deferred tax assets

Movement recognised in profit or loss

Movement recognised in other comprehensive income

Transfer on demerger

Movement recognised in retained earnings

Closing balance of deferred tax assets

Imputation credit account

$000’s

Imputation credit account

10. Earnings per share

June 2020

June 2019

1,942

692

17,739

(4,576)

(936)

731

1,531

1,286

14,574

(4,182)

(1,321)

(800)

(30)

17,123

9,531

7,336

256

17,123

5,319

(4,537)

(272)

777

8,244

9,531

June 2020

June 2019

5,676

9,116

June 2020

June 2019

Earnings
Per Share
Cents

Net Profit
After Tax
000’s

Weighted
Average No.
of Shares
000’s

Earnings
Per Share
Cents

Net Profit
After Tax
000’s

Weighted
Average No.
of Shares
000’s

Basic earnings

Diluted earnings

71,972

576,929

73,617

563,364

Financial Statements for the year ended 30 June 2020

Financial Position

11. Investments

Policy

Investments are classified into one of the following categories:

Fair value through profit or loss
Investments under this category include equity investments and are measured at fair value plus transaction
costs. Changes in fair value of these investments are recognised in profit or loss in the period in which they occur

Fair value through other comprehensive income
Investments under this category include bank bonds, floating rate notes, local authority stock, public securities
and corporate bonds. These are initially measured at fair value, including transaction costs, and subsequently
carried at fair value. Changes in fair value of these investments are recognised in other comprehensive income
and presented within the fair value reserve.

Amortised cost
Investments under this category include bank deposits and are measured using effective interest rate method.
They are held to collect contractual cash flows that are solely payments of principal and interest on the
principal amount outstanding.

$000’s

Bank deposits, bank bonds and floating rate notes

Public sector securities and corporate bonds

Local authority stock

Equity investments

Total investments

June 2020

June 2019

366,289

246,724

30,716

16,335

82,370

13,399

12,435

413,340

354,928

Refer to Note 20 - Fair value for details of the split between investments measured at fair value through profit or loss, fair value
through other comprehensive income and amortised cost.

P. 106

P. 107

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

12. Derivative financial instruments

12. Derivative financial instruments (continued)

Financial Statements for the year ended 30 June 2020

Policy

Derivative financial instruments are contracts whose value is derived from changes in one or more underlying
financial instruments or indices. They include forward contracts, swaps, options and combinations of these
instruments.

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and
are subsequently measured at their fair value at each reporting date. All derivatives are carried as assets when
fair value is positive and as liabilities when fair value is negative.

Fair values are obtained from quoted market prices in active markets, including recent market transactions, and
valuation techniques, including discounted cash flow models and options pricing models, as appropriate. Fair
values include adjustment for counterparty credit risk. The method of recognising the resulting fair value gain
or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged. A hedge instrument is a designated derivative, the changes in fair values or cash flows of
which are expected to offset changes in the fair value of cash flows of the designated hedged item.

A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that exposes the
Group to risk of changes in fair value or cash flows, and that is designated as being hedged. The Group applies
fair value hedge accounting to hedge movements in the value of fixed interest rate assets and liabilities subject
to interest rate risk. The Group applies cash flow hedge accounting to hedge the variability in highly probable
forecast future cash flows attributable to interest rate risk on variable rate assets and liabilities.

Fair value hedge accounting
The criteria that must be met for a relationship to qualify for hedge accounting include:

- the hedging relationship must be formally designated and documented at inception of the hedge,

- effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective,

consistent with the originally documented risk management strategy, and

- the instruments or counterparty must be a third party external to the Group.

The Group documents, at the inception of the transaction, the relationship between hedged items and hedging
instruments, as well as its risk management objective and strategy for undertaking various hedge transactions.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value of
hedged items.

Subsequent to initial designation, changes in the fair value of derivatives that are designated and qualify for
fair value hedge accounting are recorded in the consolidated statement of comprehensive income together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The
movement in fair value of the hedged item attributable to the hedged risk is made as an adjustment to the
carrying value of the hedged asset or liability.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, the adjustment to carrying amount of a hedged item is amortised to the consolidated statement
of comprehensive income on an effective yield basis over the remaining period to maturity of the hedged item.
Where the hedged item is derecognised from the balance sheet, the adjustment to the carrying amount of the
asset or liability is immediately transferred to the consolidated statement of comprehensive income.

Cash flow hedge accounting
The criteria that must be met for a relationship to qualify for hedge accounting include:

- the hedging relationship must be formally designated and documented at inception of the hedge,

- effectiveness testing must be carried out on an on-going basis to ensure the hedge is effective, consistent

with the originally documented risk management strategy, and

- the instruments or counterparty must be a third party external to the Group.

A fair value gain or loss associated with the effective portion of a derivative designated as a cash flow hedge
is recognised initially in the hedging reserve. The ineffective portion of a fair value gain or loss is recognised
immediately in the consolidated statement of comprehensive income.

When a hedging derivative expires or is sold, the hedge no longer meets the criteria for hedge accounting,
or the Group elects to revoke the hedge designation, the cumulative gain or loss on the hedging derivative
remains in the cash flow hedging reserve until the forecast transaction occurs and affects income, at which
point it is transferred to the corresponding income or expense line. If a forecast transaction is no longer
expected to occur, the cumulative gain or loss on the hedging derivative previously reported in the cash flow
hedging reserve is immediately transferred to the consolidated statement of comprehensive income.

June 2020

June 2019

Notional
Principal

Fair Value
Assets

Fair Value
Liabilities

Notional
Principal

Fair Value
Assets

Fair Value
Liabilities

$000’s

Held for risk management

Interest rate related contracts

Swaps

1,140,422

17,238

16,938

1,958,083

13,048

11,005

Foreign currency related
contracts

Forwards

Options

Total derivative financial
instruments

237,900

222,769

177,255

315

1,128

142

1,378,322

17,246

17,012

2,358,107

14,491

11,147

P. 108

P. 109

13. Finance receivables

(a) Finance receivables held at amortised cost

Policy

Finance receivables are initially recognised at fair value plus incremental direct transaction costs and are
subsequently measured at amortised cost using the effective interest method, less any impairment loss.

Fees and direct costs relating to loan origination, financing and loan commitments are deferred and amortised
to interest income over the life of the loan using the effective interest rate method. Lending fees not directly
related to the origination of a loan are recognised over the period of service.

Past due but not impaired assets are any assets which have not been operated by the counterparty within
their key terms but are not considered to be impaired by the Group.

Individually impaired assets are those loans for which the Group has evidence that it will incur a loss, and will
be unable to collect all principal and interest due according to the contractual terms of the loan.

In determining whether credit risk has increased all available information relevant to the assessment including
information about past events, current conditions and reasonable and supportable forecasts of economic
conditions at the reporting date are taken into consideration.

The calculation of expected credit loss is modelled for portfolios of like assets. For portfolios which are either
new or too small to model, judgement is used to determine impairment provisions.

$000’s

Non-securitised

June 2020

June 2019

Neither at least 90 days past due nor impaired - at amortised cost

2,945,858

3,018,741

At least 90 days past due - at amortised cost

Individually impaired - at amortised cost

Gross finance receivables

Less provision for impairment

Total non-securitised finance receivables

Securitised

Neither at least 90 days past due nor impaired - at amortised cost

At least 90 days past due - at amortised cost

Individually impaired - at amortised cost

Gross finance receivables

Less provision for impairment

Total securitised finance receivables

Total

Neither at least 90 days past due nor impaired - at amortised cost

At least 90 days past due - at amortised cost

Individually impaired - at amortised cost

Gross finance receivables

Less provision for impairment

Total finance receivables

58,876

24,667

44,466

26,412

3,029,401

3,089,619

(62,272)

(58,491)

2,967,129

3,031,128

78,059

404

78,463

(397)

78,066

3,023,917

3,018,741

59,280

24,667

44,466

26,412

3,107,864

3,089,619

(62,669)

(58,491)

3,045,195

3,031,128

Financial Statements for the year ended 30 June 2020

13. Finance receivables (continued)

Movement in provision

The following table details the movement from the opening balance to the closing balance of the provision for
impairment losses by class.

$000’s

June 2020

Non-securitised

12 - Month
ECL

Lifetime ECL
Not Credit
Impaired

Lifetime ECL
Credit
Impaired

Specific
Provision

Total

Impairment allowance as at 30 June 2019

30,422

1,781

18,425

7,863

58,491

Changes in loss allowance

Transfer between stages

(1,190)

(294)

(109)

1,593

New and increased provision
(net of collective provision releases)

2,901

2,090

25,047

1,792

31,830

Recovery of amounts written off

(2,808)

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

Credit impairment charge

1,711

1,796

Recovery of amounts previously written off

Write offs

Effect of changes in foreign exchange rate

22,130

2,808

3,385

29,022

2,808

(1,438)

(20,705)

(5,947)

(28,090)

Impairment allowance as at 30 June 2020

32,160

2,143

22,668

5,301

62,272

Securitised

Impairment allowance as at 30 June 2019

Changes in loss allowance

Transfer between stages

New and increased provision
(net of collective provision releases)

Recovery of amounts written off

Credit impairment charge

Recovery of amounts previously written off

Write offs

Effect of changes in foreign exchange rate

(19)

279

260

Impairment allowance as at 30 June 2020

260

Total

106

114

397

Impairment allowance as at 30 June 2019

30,422

1,781

18,425

7,863

58,491

Changes in loss allowance

Transfer between stages

(1,209)

(283)

(101)

1,593

New and increased provision
(net of collective provision releases)

3,180

2,102

25,153

1,792

32,227

Recovery of amounts written off

(2,808)

Credit impairment charge

1,971

1,819

Recovery of amounts previously written off

Write offs

Effect of changes in foreign exchange rate

22,244

2,808

3,385

29,419

2,808

(1,438)

(20,705)

(5,947)

(28,090)

The impact of COVID-19 on use of judgements and estimates is discussed in Note 8 - Impaired asset expense.

Impairment allowance as at 30 June 2020

32,420

2,166

22,782

5,301

62,669

P. 110

P. 111

Impairment allowance as at 30 June 2018

31,784

1,365

14,945

8,897

56,991

Collectively impaired asset expense (excluding COVID-19 adjustments)

13. Finance receivables (continued)

$000’s

June 2019

Non-securitised

12 - Month
ECL

Lifetime ECL
Not Credit
Impaired

Lifetime ECL
Credit
Impaired

Specific
Provision

Total

Changes in loss allowance

Transfer between stages

(2,462)

(238)

2,648

New and increased provision
(net of collective provision releases)

Recovery of amounts written off

Credit impairment charge

Recovery of amounts previously written off

Write offs

Effect of changes in foreign exchange rate

1,151

(1,311)

(51)

656

418

(2)

19,151

1,311

22,269

(828)

18,375

3,959

21,441

829

(15,722)

(4,993)

(20,715)

(2)

(55)

Impairment allowance as at 30 June 2019

30,422

1,781

18,425

7,863

58,491

Securitised

Impairment allowance as at 30 June 2018

400

345

Changes in loss allowance

Transfer between stages

New and increased provision
(net of collective provision releases)

Recovery of amounts written off

Credit impairment charge

Recovery of amounts previously written off

Write offs

Effect of changes in foreign exchange rate

Impairment allowance as at 30 June 2019

Total

(8)

(392)

(400)

(7)

(13)

(20)

(360)

(345)

765

(765)

New and increased provision
(net of collective provision releases)

Recovery of amounts written off

Credit impairment charge

Recovery of amounts previously written off

Write offs

Effect of changes in foreign exchange rate

759

(1,711)

(51)

643

398

(2)

(828)

18,030

829

3,959

(828)

20,676

829

(15,722)

(4,993)

(20,715)

(2)

(55)

Impairment allowance as at 30 June 2019

30,422

1,781

18,425

7,863

58,491

Financial Statements for the year ended 30 June 2020

13. Finance receivables (continued)

Impact of COVID-19 on allowance for ECL

The following table represents a summary of amounts included in the credit impairment charge with respect to the
Group’s allowance for ECL:

$000’s

COVID-19 adjustments

Total collectively impaired asset expense

Individually impaired asset expense

Total impaired asset expense

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

June 2020

16,434

9,600

26,034

3,385

29,419

Impact of changes in gross finance receivables held at amortised cost on allowance for ECL

$000’s

June 2020

12 - month
ECL

Lifetime ECL
Not Credit
Impaired

Lifetime ECL
Credit
Impaired

Specific
Provision

Total

Gross finance receivables as at 1 July 2019

2,799,282

206,882

Transfer between stages

Additions

Deletions

Write offs

(61,191)

1,497,073

12,570

87,843

(1,402,340)

(118,572)

(6,616)

(5,463)

57,043

41,245

23,610

(37,334)

(10,835)

26,412

3,089,619

7,376

1,608,526

(3,174)

(1,561,420)

(5,947)

(28,861)

Gross finance receivables as at 30 June 2020

2,826,208

183,260

73,729

24,667

3,107,864

(b) Finance receivables held at fair value

Policy

Finance receivables – reverse mortgages are initially recognised, and subsequently measured, at fair value
through profit or loss.

Note 20 (a) - Financial instruments measured at fair value discloses further information regarding the Group’s
valuation policy.
Note 22 - Credit risk exposure discloses further information regarding how reverse mortgages operate.

Credit risk adjustments on financial assets designated at fair value through Profit or loss

There were no credit risk adjustments on individual financial assets.

Impairment allowance as at 30 June 2018

32,184

1,385

15,290

8,897

57,756

Changes in loss allowance

Transfer between stages

(2,470)

(245)

2,648

$000’s

Finance receivables - reverse mortgages

18,791

1,311

21,504

Total finance receivables - reverse mortgages

June 2020

June 2019

1,538,585

1,318,677

1,538,585

1,318,677

P. 112

P. 113

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

14. Operating lease vehicles

Policy

15. Borrowings (continued)

The Group has the following unsubordinated notes on issue at balance sheet date:

Operating lease vehicles are stated at cost less accumulated depreciation.

Principal

Valuation

Note

Issue Date

Maturity Date

Frequency
of Interest
Repayment

Operating lease vehicles are depreciated on a straight line basis over their expected useful life after allowing
for any residual values. The estimated lives of these vehicles vary up to five years. Vehicles held for sale are
not depreciated but are tested for impairment.

$125 million

$150 million

AU $45 million

Amortised cost

AU $100 million

Amortised cost

20(b)

12 April 2019

12 April 2024

Half yearly

21 September 2017

21 September 2022

Half yearly

8 March 2019

8 March 2021

13 November 2019

13 May 2022

Quarterly

Financial Statements for the year ended 30 June 2020

$000’s

Cost

Opening balance

Additions

Disposals

Closing balance

Accumulated depreciation

Opening balance

Depreciation charge for the year

Disposals

Closing balance

Opening net book value

Closing net book value

June 2020

June 2019

At 30 June 2020 the Group had the following securitised borrowings outstanding:

21,623

9,938

(7,463)

24,098

6,107

3,634

(3,246)

6,495

15,516

17,603

24,703

5,495

(8,575)

21,623

7,179

3,363

(4,435)

6,107

17,524

15,516

– Heartland Auto Receivables Warehouse Trust 2018 - 1 securitisation facility $300 million, drawn $66 million (2019:
$150 million, undrawn). Securitised borrowings held by investors are secured over the assets of the Heartland Auto
Receivables Warehouse Trust 2018-1. The facility has a maturity date of 29 August 2021.

– Senior Warehouse Trust securitisation facility AU $600 million, drawn AU $544 million (2019: AU $650 million,

drawn AU $631 million). The bank facility is secured over the assets of ASF Settlement Trust and Seniors
Warehouse Trust. The facility has a maturity date of 30 September 2022.

– Senior Warehouse Trust No. 2 securitisation facility AU $250 million, drawn AU $160 million (2019: nil). The bank

facility is secured over the assets of Seniors Warehouse Trust No. 2 and has a maturity date of 1 July 2022.

16. Share capital and dividends

Policy

Ordinary shares are classified as equity, incremental costs directly attributable to the issue of ordinary shares
and share options are recognised as a deduction from equity, net of any tax effect.

The future minimum lease payments receivable under operating leases not later than one year is $3.487 million (2019:
$3.952 million), within one to five years is $2.053 million (2019: $3.137 million) and over five years is nil (2019: nil).

15. Borrowings

Policy

Borrowings and deposits are initially recognised at fair value including incremental direct transaction costs.
They are subsequently measured at amortised cost using the effective interest method.

$000’s

Deposits

Total borrowings related to deposits

Unsubordinated Notes

Bank borrowings

Certificate of deposit

Securitised borrowings

Total other borrowings

Deposits and unsubordinated notes rank equally and are unsecured.

June 2020

June 2019

3,264,192

3,153,681

3,264,192

3,153,681

448,228

819,703

337,680

25,002

34,836

660,050

1,267,931

1,057,568

P. 114

000’s

Issued shares

Opening balance

Shares issued during the year

Dividend reinvestment plan

Cancelled shares

Closing balance

Number of
Shares

569,338

560,588

817

10,824

9,191

(441)

580,979

569,338

Under dividend reinvestment plans, 7,313,501 new shares were issued at $1.5444 per share on 6 September 2019
and 3,511,020 at $1.5948 on 11 March 2020 (2019: 5,282,619 new shares were issued at $1.6250 per share on 21
September 2018 and 3,907,858 at $1.4709 per share on 1 April 2019). Other shares issued during the period relate
to staff share schemes.

Dividends paid

June 2020

June 2019

Date
Declared

Cents
Per Share

$000’s

Date
Declared

Cents
Per Share

Final dividend

15 August 2019

Interim dividend

18 February 2020

6.5

4.5

37,007

15 August 2018

25,986

19 February 2019

5.5

3.5

Total dividends paid

62,993

000’s

30,808

19,791

50,599

P. 115

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

17. Other reserves

18. Other balance sheet items (continued)

Financial Statements for the year ended 30 June 2020

Foreign
Currency
Translation
Reserve
(FCTR)

Employee
Benefits
Reserve

Fair Value
Reserve

Defined
Benefit
Reserve

Cash Flow
Hedge
Reserve

Total

$000’s

June 2020

Balance as at 1 July 2019

838

(4,021)

4,558

171

(5,843)

(4,297)

Other comprehensive
income, net of income tax

Share based payments

Shares vested

516

(420)

114

766

(2,179)

(1,299)

516

(420)

Balance as at 30 June 2020

934

(3,907)

5,324

171

(8,022)

(5,500)

June 2019

Balance as at 1 July 2018

2,559

1,260

1,590

257

(1,081)

4,585

Other comprehensive
income, net of income tax

Share based payments

Shares vested

619

(2,340)

(5,281)

2,968

(86)

(4,762)

(7,161)

619

(2,340)

Balance as at 30 June 2019

838

(4,021)

4,558

171

(5,843)

(4,297)

18. Other balance sheet items

Policy

Property, plant and equipment are stated at cost less accumulated depreciation and impairment (if any).
Depreciation is calculated on a straight line basis to write off the net cost or revalued amount of each asset
over its expected life to its estimated residual value.

$000’s

Other assets

Trade receivables

GST receivable

Prepayments

Property, plant and equipment

Other receivables

Total other assets

June 2020

June 2019

1,952

985

4,857

10,153

1,611

19,558

6,269

3,840

5,649

10,216

1,234

27,208

Policy

Intangible assets
Intangible assets with finite useful lives
Software acquired or internally developed by the Group is stated at cost less accumulated amortisation and
any accumulated impairment losses. Expenditure on software assets is capitalised only when it increases the
future economic value of that asset. Amortisation of software is on a straight line basis, at rates which will
write off the cost over the assets’ estimated useful lives. The expected useful life of the software has been
determined to be ten years.

Goodwill
Goodwill arising on acquisition represents the excess of the cost of the acquisition over the Group’s interest in the fair
value of the identifiable net assets acquired. Goodwill that has an indefinite useful life is not subject to amortisation
and is tested for impairment annually. Goodwill is carried at cost less accumulated impairment losses.

$000’s

Computer software

Cost

Accumulated amortisation

Net carrying value of computer software

Goodwill

Cost

Net carrying value of goodwill

June 2020

June 2019

42,534

14,864

27,670

45,143

37,210

10,429

26,781

45,143

Total intangible assets

72,813

71,924

Goodwill was tested for impairment on 30 June 2020. In assessing impairment, an internal valuation model was
developed to indicate the value of the business i.e. the recoverable amount. This value was compared to the net
assets of the Group.

The recoverable amount was determined on a value in use basis using a five-year discounted cash flow methodology
based on financial budget and forecasts. Key assumptions used in the model included a discount rate of 10% and a
terminal growth rate of 2% which reflect both past experience and external sources of information.

The deterioration in economic conditions as a result of the COVID-19, and the consequential impact on the Group
were also considered for any indicators of impairment. These included:

– Comparing cashflows and other key financial metrics against budget;

– Material decreases in mid-term and/or long-term growth rates as compared to previous estimates;

– Any material changes in business model or strategy;

– Comparing the Group’s market capitalisation against its net assets;

– Changes in market interest rates or other market rates of return;

– Fluctuations in the foreign exchange rates or commodity prices that impact the entity’s cash flows; and

– Any deferral of investment projects.

There was no indication of impairment and no impairment losses have been recognised against the carrying amount
of goodwill for the year ended 30 June 2020 (30 June 2019: nil).

P. 116

P. 117

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

18. Other balance sheet items (continued)

19. Related party transactions and balances

Financial Statements for the year ended 30 June 2020

For the purposes of impairment testing, goodwill is allocated to cash generating units (CGU’s). A CGU is the smallest
identifiable group of assets that generate independent cash inflows. The Group has assessed that goodwill should
be allocated to the following smallest identifiable CGUs:

– Heartland Australia Holdings Pty Limited: $15.3 million (2019: $15.3 million).

– Heartland Bank Limited (HBL): $29.8 million (2019: $29.8 million).

Policy

Employee benefits
Annual leave entitlements are accrued at amounts expected to be paid. Long service leave is accrued by
calculating the probable future value of the entitlements and discounting back to present value. Obligations to
defined contribution superannuation schemes are recognised as an expense when the contribution is paid.

$000’s

Trade and other payables

Trade payables

Insurance liability

Employee benefits

Other tax payables

June 2020

June 2019

20,657

6,094

8,223

1,288

8,815

7,469

5,595

1,556

Total trade and other payables

36,262

23,435

Policy

Leases
The Group leases office space, car parks, equipment and cars. Rental contracts are typically made for fixed
periods but may have extension options. Lease terms are negotiated on an individual basis and contain a wide
range of different terms and conditions.

In determining the lease term, all facts and circumstances that create an economic incentive to exercise an
extension option are considered. Extension options are only included in the lease term if the lease is reasonably
certain to be extended.

Lease liabilities are measured at the present value of the remaining lease payments and discounted using the
Group’s incremental borrowing rate (IBR). Lease liabilities are measured using the effective interest method.
Carrying amounts are remeasured only upon reassessments and lease modifications.

Right of use assets are depreciated at the shorter of lease term or the Group’s depreciation policy for that asset class.

$000’s

Right of use assets

Balance at 1 July 2019

Depreciation charge for the year, included within depreciation expense in the income
statement

Additions to right of use assets

Total right of use assets

Lease liability

Current

Non-current

Total lease liability

Interest expense relating to lease liability

P. 118

June 2020

June 2019

10,728

(2,324)

9,958

18,362

2,222

18,234

20,456

570

Policy

A person or entity is a related party under the following circumstances:

a) A person or a close member of that person’s family if that person:

i) has control or joint control over HGH;
ii) has significant influence over HGH; or
iii) is a member of the key management personnel of HGH.

b) An entity is related to HGH if any of the following conditions applies:

i) The entity and HGH are members of the same group;
ii) One entity is an associate or joint venture of the other entity;
iii) Both entities are joint ventures of the same third party;
iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity;
v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting
entity or an entity related to HGH;
vi) The entity is controlled, or jointly controlled by a person identified in (a); and
vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key
management personnel of the entity (or of a parent of the entity).

(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, for example interest rates and collateral, and the risks to the Group are comparable to
transactions with other employees and did not involve more than the normal risk of repayment or present other
unfavourable features.

All other transactions with KMPs and their related entities are made on terms equivalent to those that prevail in
arm’s length transactions.

$000’s

June 2020

June 2019

Transactions with key management personnel

Interest income

Interest expense

Key management personnel compensation

Short-term employee benefits

Share-based payment expense

Total transactions with key management personnel

Due (to) / from key management personnel

Lending

Borrowings - deposits

Total due (to) key management personnel

(47)

(76)

(8,814)

(828)

(9,671)

239

(1,646)

(1,407)

(4,839)

(703)

(5,618)

(3,019)

P. 119

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

19. 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 between each other on agreed terms. The transactions include
the provision of administrative services, tax transactions, and customer operations and call centre. Banking facilities
are provided by Heartland Bank Limited to other Heartland Group entities on normal commercial terms as with other
customers. There is no lending from subsidiaries within the Group to HGH.

Related party transactions between the Group eliminate on consolidation. Related party transactions outside of the
Group are as follows:

$000’s

June 2020

June 2019

Southern Cross Building Society Staff Superannuation (SCBS)

Interest expense

Management fees from SCBS

ASF Custodians Pty Limited

Audit fees

Heartland Trust (HT)

Dividend paid

712

583

Heartland Trust held 6,475,976 shares in HGH (2019: 6,475,976 shares).

The Trustees of Heartland Trust and certain employees of the Group provided their time and skills to the oversight
and operation of HT at no charge.

$000’s

June 2020

June 2019

Southern Cross Building Society Staff Superannuation

Retail deposits

1,934

2,070

Financial Statements for the year ended 30 June 2020

20. Fair value

Policy

Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.

On initial recognition, the transaction price generally represents the fair value of the financial instrument, unless
there is observable information from an active market that provides a more appropriate fair value.

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted
market prices or dealer price quotations. For all other financial instruments, the Group determines fair value
using other valuation techniques.

The Group measures fair values using the following fair value hierarchy, which reflects the observability of the
inputs used in measuring fair value:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly (that is, as prices) or indirectly (derived from prices).

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period
during which the change has occurred.

(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.

Investments

Investments in public sector securities and corporate bonds are classified as being available for sale and are
stated at FVOCI, with the fair value being based on quoted market prices (Level 1 under the fair value hierarchy) or
modelled using observable market inputs (Level 2 under the fair value hierarchy). Refer to Note 11 - Investments for
more details.

Investments valued under Level 2 of the fair value hierarchy are valued either based on quoted market prices or
dealer quotes for similar instruments, or discounted cash flows analysis.

Investments in unlisted equity securities are classified as being fair valued through profit or loss and are valued
under Level 3 of the fair value hierarchy, with the fair value being based on unobservable inputs.

Finance receivables - reverse mortgages

Reverse mortgage loans are classified at fair value through profit or loss. On initial recognition the Group considers
the transaction price to represent the fair value of the loan.

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 a reverse mortgage loan the Group has set expectations regarding the loan’s current and
future risk profile and expectation of performance. This expectation references a wide range of assumptions including:

– Mortality and move to care;

– Voluntary exits;

– House price changes;

– No negative equity guarantee; and

– Interest rate margin.

P. 120

P. 121

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

20. Fair value (continued)

Financial Statements for the year ended 30 June 2020

At balance date the Group does not consider any of the above expectations to have moved outside of the original
expectation range. Therefore the Group has continued to estimate the fair value of the portfolio at transaction
price. There has been no fair value movement recognised in profit or loss during the period. Given the nature of the
loan terms and tenor, the fair value as recorded is regarded as not being highly sensitive to the above assumptions,
particularly to house prices and interest rates, that would impact the fair value at balance date. While noting the
significant uncertainty around future economic conditions, based on current judgment there is no evidence that
COVID-19 will have a long-term adverse impact on market conditions, particularly regarding the key elements of
house prices or interest rates, that would materially influence the fair value of the reverse mortgage portfolio at
balance date.

The Group will continue 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 Statement of Financial Position.

$000’s

June 2020

Assets

Investments

Derivative financial instruments

Finance receivables - reverse mortgages

Level 1

Level 2

Level 3

Total

295,300

94,354

17,246

16,335

405,989

17,246

1,538,585

The movement in Level 3 assets measured at fair value are below:

$000’s

June 2020

As at 1 July 2019

New loans

Repayments

Capitalised Interest and fees

Additions

Other

As at 30 June 2020

$000’s

June 2019

As at 1 July 2018

Adjustment for NZ IFRS 9

New loans

Repayments

Capitalised Interest and fees

Additions

Other

As at 30 June 2019

Finance Receivables
- Reverse Mortgage

Investments

Total

1,318,677

290,488

(182,653)

91,288

20,785

12,435

1,803

2,097

1,331,112

290,488

(182,653)

91,288

1,803

22,882

1,538,585

16,335

1,554,920

Finance Receivables
- Reverse Mortgage

Investments

Total

1,129,956

2,882

233,095

(104,644)

80,999

(23,611)

9,694

2,741

1,139,650

2,882

233,095

(104,644)

80,999

2,741

(23,611)

1,318,677

12,435

1,331,112

Total financial assets measured at fair value

295,300

111,600

1,554,920

1,961,820

(b) Financial instruments not measured at fair value

Liabilities

Derivative financial instruments

Total financial liabilities measured at fair value

17,012

June 2019

Assets

Investments

Derivative financial instruments

Finance receivables - reverse mortgages

255,875

79,047

14,491

12,435

347,357

14,491

1,318,677

Total financial assets measured at fair value

255,875

93,538

1,331,112

1,680,525

Liabilities

Derivative financial instruments

Total financial liabilities measured at fair value

11,147

The following assets and liabilities of the Group are not measured at fair value in the consolidated statement of
financial position.

Cash and cash equivalents

Cash and cash equivalents are measured at amortised cost and their carrying value is considered equivalent to their
fair value due to their short term nature.

Finance receivables

The fair value of the Group’s finance receivables is calculated using a valuation technique which assumes the Group’s
current weighted average lending rates for loans of a similar nature and term.

The current weighted average lending rate used to fair value finance receivables with a fixed interest rate was
8.06% (2019: 8.88%). Finance receivables with a floating interest rate are deemed to be at current market rates.
The current amount of credit provisioning has been deducted from the fair value calculation of finance receivables
as a proxy for future losses.

Borrowings

The fair value of deposits, bank borrowings and other borrowings is the present value of future cash flows and is
based on the current market interest rates payable by the Group for the debt of similar maturities. The average
current market rate used to fair value borrowings is 2.24% (2019: 2.59%).

P. 122

P. 123

20. Fair value (continued)

Other financial assets and financial liabilities
Financial instruments such as short-term trade receivables and payables are considered equivalent to their carrying
value due to their short term nature.

The following table sets out financial instruments not measured at fair value, compares their carrying value against
their fair value and analyses them by level in the fair value hierarchy.

$000’s

June 2019

Cash and cash equivalents

Investments

Finance receivables

June 2020

June 2019

Finance receivables - reverse mortgages

Derivative financial instruments

2,825

11,666

$000’s

Assets

Cash and cash equivalents

Investments1

Finance receivables

Other financial assets

Total financial assets

Liabilities

Retail deposits

Other borrowings

Borrowings - securitised

Other financial liabilities

Fair Value
Hierarchy

Total Fair
Value

Total
Carrying
Value

Fair Value
Hierarchy

Total Fair
Value

Total
Carrying
Value

Level 1

Level 2

Level 3

147,179

7,375

7,351

3,092,150

3,045,195

3,563

Level 1

Level 2

Level 3

74,496

7,432

74,496

7,571

3,017,327

3,031,128

7,503

3,250,267

3,203,288

3,106,758

3,120,698

Level 2

Level 3

3,278,483

3,264,192

448,626

448,228

819,305

819,703

26,751

Level 2

Level 3

3,160,426

3,153,681

397,643

659,925

16,284

Total financial liabilities

4,573,165

4,558,874

4,234,278

4,227,533

1 Included within investments are bank deposits which are held to support the Group’s contractual cash flows. Such investments are measured at
amortised cost.

Other financial assets

Total financial assets

Retail deposits

Other borrowings

Derivative financial instruments

Other financial liabilities

Total financial liabilities

Risk Management

Financial Statements for the year ended 30 June 2020

FVOCI

FVTPL

Amortised
Cost

Total
Carrying
Value

Total Fair
Value

334,922

12,435

74,496

7,571

74,496

354,928

354,789

3,031,128

3,017,327

1,318,677

7,503

1,318,677

14,491

7,503

14,491

7,503

337,747

1,342,778

3,120,698

4,801,223

4,787,283

9,893

3,153,681

3,160,426

1,057,568

1,254

16,284

11,147

16,284

11,147

16,284

1,254

4,227,533

4,238,680

4,245,425

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

21. Enterprise risk management program

The board of directors (the Board) sets and monitors the Group’s risk appetite across the primary risk domains of credit,
capital, liquidity, market (including interest rate), operational and compliance and general business risk. Management
are, in turn, responsible for ensuring appropriate structures, policies, procedures and information systems are in
place to actively manage these risk domains, as outlined within the Enterprise Risk Management Framework (ERMF).
Collectively, these processes are known as the Group’s Enterprise Risk Management Program (RMP).

Role of the Board and the Board Risk Committee

The following table summarises the categories of financial instruments and the carrying value and fair value of all
financial instruments of the Group:

$000’s

June 2020

FVOCI

FVTPL

Amortised
Cost

Total
Carrying
Value

Total Fair
Value

Cash and cash equivalents

147,179

Investments

Finance receivables

Finance receivables - reverse mortgages

Derivative financial instruments

Other financial assets

Total financial assets

Retail deposits

Other borrowings

147,179

413,340

147,179

413,364

389,654

16,335

7,351

3,045,195

3,092,150

1,538,585

17,213

3,563

1,538,585

17,246

3,563

17,246

3,563

389,686

1,572,133

3,203,288

5,165,108

5,212,087

3,264,192

3,278,483

1,267,931

Derivative financial instruments

15,408

1,604

Other financial liabilities

26,751

17,012

26,751

17,012

26,751

Total financial liabilities

15,408

1,604

4,558,874

4,575,886

4,590,177

The Board, through its Board Risk Committee (BRC) is responsible for oversight and governance of the development
of the RMP. The role of the BRC is to assist the Board to formulate its risk appetite, and to monitor the effectiveness
of the RMP. The BRC has the following specific responsibilities:

– To advise the Board on the formulation of the Board’s Risk Appetite Statement at least annually.

– To review any reports, policies, standards, other risk documents or matters, or minutes which have been prepared
by or in respect of the HGH’s Board, Risk Committee, or Executive Risk Committee as it may see fit, and to advise
the Board in relation thereto.

– To advise and make recommendations to the Board as to the key parameters for ICAAP, delegated authorities,

risk appetite and stress testing for its subsidiary, Heartland Bank Limited.

The BRC consists of three non-executive directors. All three members of the BRC sit on the Audit Committee.
In addition, the directors who are not members of the BRC are entitled to attend meetings and to receive copies
of the BRC papers.

Audit Committee

The Audit Committee focuses on financial reporting and application of accounting policies as part of the internal
control and risk assessment framework. The Audit Committee monitors the identification, evaluation and
management of all significant risks through the Group. This work is supported by internal audit, which provides
an independent assessment of the design, adequacy and effectiveness of internal controls. The Audit Committee
receives regular reports from internal audit.

Charters for both the BRC and Audit Committee ensure suitable cross representation to allow effective
communication pertaining to identified issues with oversight by the Board.

P. 124

P. 125

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

21. Enterprise risk management program (continued)

Internal Audit

The Group has an Internal Audit function, the objective of which is to provide independent, objective assurance
over the internal control environment. In certain circumstances, Internal Audit will provide risk and control advice
to Management provided the work does not impede the independence of the Internal Audit function. The function
assists the Group in accomplishing its objectives by bringing a systematic and disciplined approach to evaluate and
improve the effectiveness of risk management, control, and governance processes.

– The second line of defence is the Risk and Compliance function, responsible for the design and ownership of
the Operational Risk Management Framework. It incorporates key processes including Risk and Control Self-
Assessment (RCSA), incident management, independent evaluation of the adequacy and effectiveness of the
internal control framework, and the attestation process.

– The third line of defence is Internal Audit which is responsible for independently assessing how effectively the

Group is managing its risk according to the stated risk appetite.

Internal Audit is allowed full, free and unfettered access to any and all of the organisation’s records, personnel and
physical properties deemed necessary to accomplish its activities.

Market risk

Financial Statements for the year ended 30 June 2020

A regular cycle of review has been implemented to cover all areas of the business, focused on assessment,
management and control of risks identified. The audit plan takes into account cyclical review of various business
units and operational areas, as well as identified areas of higher identified risk. The audit methodology is designed to
meet the International Standards for the Professional Practice of Internal Auditing of The Institute of Internal Auditors.

Each audit has specific audit procedures tailored to the area of business that is being reviewed. The audit procedures
are updated during each audit to reflect any process changes. Audit work papers are completed to evidence the
testing performed in accordance with the audit procedures.

Audit reports are addressed to the manager of the relevant area that is being audited in addition to other relevant
stakeholders within the Bank. Management comments are obtained from the process owner(s) and are included in
the report.

The Head of Internal Audit has a direct reporting line to the Chairman of the Audit Committee whilst administratively
reporting to the Chief Legal & Bank Risk Officer. Internal audit has accountability to the Audit Committee of the
Group. A schedule of all outstanding internal control issues is maintained and presented to the Audit Committee
to assist the Audit Committee to track the resolution of previously identified issues. Any issues raised that are
categorised as high risk are specifically reviewed by internal audit during a follow up review once the issue is
considered closed by management. The follow up review is performed with a view to formally close out the issue.

Asset and Liability Committee (ALCO)

The ALCO comprises the CEO HGH, CEO HBL, GCRO, CFO, Chief Legal & Bank Risk Officer, Treasurer, Head of Retail,
Financial Controller HBL and Chief Distribution Officer. The ALCO generally meets monthly, and provides reports to the
BRC. ALCO’s specific responsibilities include decision making and oversight of risk matters in relation to:

– Market risk (including non-traded interest rate risk and the investment of capital)

– Liquidity risk (including funding)

– Foreign exchange rate risk

– Balance sheet structure

– Capital management

Operational and compliance risk

Operational and compliance risk is the risk arising from day to day operational activities in the execution of the
Group’s strategy which may result in direct or indirect losses. Operational and compliance risk losses can occur as a
result of fraud, human error, missing or inadequately designed processes, failed systems, damage to physical assets,
improper behaviour, or from external events. The losses range from direct financial losses, to reputational damage,
unfavourable media attention, injury to or loss of staff or clients or as a breach of laws or banking regulations. Where
appropriate, risks are mitigated by insurance.

To ensure appropriate responsibility is allocated for the management, reporting and escalation of operational and
compliance risk, the Group operates a “three lines of defence” model which outlines principles, responsibilities and
accountabilities for operational and compliance risk management:

– The first line of defence is the business line management of the identification, management and mitigation of the
risks associated with the products and processes of the business. This accountability includes regular testing and
attestation of the adequacy and effectiveness of controls and compliance with the Group’s policies.

Market risk is the possibility of experiencing losses or gains due to factors affecting the overall performance of
financial markets in which the Group is exposed. The primary market risk exposures for the Group are interest
rate risk and foreign exchange risk. The risk being that market interest rates or foreign exchange rates will change
and adversely impact on the Group’s earnings due to either adverse moves in foreign exchange market rates or in
the case of interest rate risks mismatches between repricing dates of interest bearing assets and liabilities and/or
differences between customer pricing and wholesale rates.

Interest rate risk

Interest rate risk refers to exposure of an entity’s earnings and / or capital because of a mismatch between the
interest rate exposures of its assets and liabilities. Interest rate risk for the Group arises from the provision of
non-traded retail banking products and services and from traded wholesale transactions entered into to reduce
aggregate interest rate risk (known as hedges). This risk arises from four key sources:

– Mismatches between the repricing dates of interest bearing assets and liabilities (yield curve and repricing risk);

– Banking products repricing differently to changes in wholesale market rates (basis risk);

– Loan prepayment or deposit early withdrawal behaviour from customers that deviates from the expected or

contractually agreed behaviour (optionality risk); and

– The effect of internal or market forces on a bank’s net interest margin where, for example, in a low rate

environment any fall in rates will further decrease interest income earned on the assets whereas funding cost
cannot be reduced as it is already at the minimum level (margin compression risk).

Refer Note 24 - Interest rate risk for further details regarding interest rate risk.

Foreign exchange risk

Foreign exchange risk is the risk that the Group’s earnings and shareholder equity position are adversely impacted
from changes in foreign exchange rates. The Group has exposure to foreign exchange translation risks through its
Australian subsidiaries (which have a functional currency of AUD), in the forms of profit translation risk and balance
sheet translation risk.

Profit translation risk is the risk that deviations in exchange rates have a significant impact on the reported profit.
Balance sheet translation risk is the risk that whilst the foreign currency value of the net investment in a subsidiary
may not have changed, when translated back to the New Zealand dollars (NZD), the NZD value has changed
materially due to movements in the exchange rates. Foreign exchange revaluation gains and losses are booked to
the foreign currency translation reserve. Foreign exchange rate movements in any given year may have an impact
on other comprehensive income. The Group manages this risk by setting and approving the foreign exchange rate for
the upcoming financial year and entering into hedging contracts to manage the foreign exchange translation risks.

Counterparty Credit Risk

The Group has on-going credit exposure associated with:

– Cash and cash equivalents;

– Finance receivables;

– Holding of investment securities; and

– Payments owed to the Group from risk management instruments.

Counterparty credit risk is managed against limits set in the Market Risk Policy including credit exposure on
derivative contracts, bilateral set-off arrangements, cash and cash equivalents and investment securities.

P. 126

P. 127

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

22. Credit risk exposure

Credit risk is the risk that a borrower will default on any type of debt by failing to make payments which it is
obligated to make. The risk is primarily that of the lender and includes loss of principal and interest, disruption
to cash flows and increased collection costs.

Credit risk is managed to achieve sustainable risk-reward performance whilst maintaining exposures within
acceptable risk “appetite” parameters. This is achieved through the combination of governance, policies, systems
and controls, underpinned by commercial judgement as described below.

To manage this risk, HBL’s Executive Risk Committee (ERC) oversees the formal credit risk management strategy.
The ERC reviews the Group’s credit risk exposures typically on a monthly basis. The credit risk management
strategies aim to ensure that:

– Credit origination meets agreed levels of credit quality at point of approval;

– Sector concentrations are monitored;

– Maximum total exposure to any one debtor is actively managed; and

– Changes to credit risk are actively monitored with regular credit reviews.

The BRC also oversees the Group’s credit risk exposures to monitor overall risk metrics having regard to risk appetite
set by the Board.

HBL’s BRC has authority for approval of all credit exposures. Lending authority has been provided to the HBL’s Credit
Committee, and to the business units under a detailed Delegated Lending Authority framework. Application of credit
discretions in the business operation are monitored through a defined review and hindsight structure as outlined
in the Credit Risk Oversight Policy. Delegated Lending Authorities are provided to individual officers with due
cognisance of their experience and ability. Larger and higher risk exposures require approval of senior management,
the Credit Committees and ultimately through to HBL’s BRC.

The Group employs a process of hindsighting loans to ensure that credit policies and the quality of credit processes
are maintained.

Impact of COVID-19 has been considered by the Group as outlined in Note 8 - Impaired asset expense.

Reverse mortgage loans and negative equity risk

Reverse mortgage loans are a form of mortgage lending designed for the needs of people over 60 years. These
loans differ to conventional mortgages in that they typically are not repaid until the borrower ceases to reside in
the property. Further, interest is not required to be paid, it is capitalised into the loan balance and is repayable on
termination of the loan. As such, there are no incoming cash flows and therefore no default risk to manage during the
term of the loan. Negative equity risk arises from the promise by the Group that the maximum repayment amount is
limited to the net sale proceeds of the borrowers’ property.

The Group’s exposure to negative equity risk is managed by the Credit Risk Oversight Policy in conjunction with
associated lending standards specific for this product. In addition to usual criteria regarding the type, and location,
of security property that the Group will accept for reverse mortgage lending, a key aspect of the Group’s policy is
that a borrower’s age on origination of the reverse mortgage loan will dictate the loan-to-value ratio of the reserve
mortgage on origination. Both New Zealand and Australia reverse mortgage operations are similarly aligned. The
policy is managed and reviewed periodically to ensure appropriate consistency across locations.

Business Finance Guarantee Scheme

HBL, along with other registered banks in New Zealand, has entered into a Deed of Indemnity with the New Zealand
Government to implement the New Zealand Governments Business Finance Guarantee Scheme. The purpose of
the scheme is to provide short term credit to eligible small and medium size businesses, who have been impacted
by economic effects of COVID 19. The scheme allows banks to lend to a maximum of $500,000 for a maximum of
three years. The New Zealand Government will guarantee 80% of any loss incurred (credit risk) with HBL holding the
remaining 20%. As at 30 June 2020 the Group had a total exposure of $6.5 million to its customers under the scheme.

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 statement of financial position.

P. 128

22. Credit risk exposure (continued)

$000’s

Cash and cash equivalents

Investments

Finance receivables

Finance receivables - reverse mortgages

Derivative financial assets

Other financial assets

Financial Statements for the year ended 30 June 2020

June 2020

June 2019

147,179

397,005

3,045,195

1,538,585

17,246

3,563

74,496

342,493

3,031,128

1,318,677

14,491

7,503

Total on balance sheet credit exposures

5,148,773

4,788,788

Concentration of credit risk by geographic region

$000’s

New Zealand

Australia

Rest of the world1

Provision for impairment

Total on balance sheet credit exposures

June 2020

June 2019

3,855,199

1,060,894

295,349

3,686,867

906,261

254,151

5,211,442

4,847,279

(62,669)

(58,491)

5,148,773

4,788,788

1 These overseas assets are primarily NZD-denominated investments in AA+ and higher rated securities issued by offshore supranational
agencies (“Kauri Bonds”).

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 industry sectors.

$000’s

Agriculture

Forestry and fishing

Mining

Manufacturing

Finance and insurance

Wholesale trade

Retail trade and accommodation

Households

Other business services

Construction

Rental, hiring and real estate services

Transport and storage

Other

Provision for impairment

Total on balance sheet credit exposures

June 2020

June 2019

625,141

145,045

12,993

75,659

596,772

39,540

232,664

689,089

132,545

13,695

70,740

430,532

40,869

237,342

2,603,760

2,428,705

163,801

197,174

142,467

257,634

118,792

170,013

186,843

148,502

237,451

60,953

5,211,442

4,847,279

(62,669)

(58,491)

5,148,773

4,788,788

P. 129

22. Credit risk exposure (continued)

Commitments to extend credit

$000’s

Undrawn facilities available to customers

Conditional commitments to fund at future dates

June 2020

June 2019

248,868

58,045

177,316

14,286

As at 30 June 2020 there was no undrawn lending commitments available to counterparties for whom drawn
balances were classified as individually impaired (2019: nil).

Credit risk grading

The Group’s finance receivables are monitored either by account behaviour (Behavioural portfolio) or a regular
assessment of their credit risk grade based on an objective review of defined risk characteristics (Judgemental
portfolio).

Finance receivables - reverse mortgages have no arrears characteristics and are assessed on origination against a
pre-determined criteria.

The Judgemental portfolio consists mainly of business and rural lending where an on-going and detailed working
relationship with the customer has been developed while the Behavioural portfolio consists of consumer, retail and
smaller business receivables.

Judgemental loans are individually risk graded based on loan status, financial information, security and debt
servicing ability. Exposures in the Judgemental portfolio are credit risk graded by an internal risk grading mechanism
where grade 1 is the strongest risk. Grade 8 and grade 9 are the weakest risk grades where a loss is probable.
Behavioural loans are managed based on their arrears status.

Upon adoption of NZ IFRS 9 all loans past due but not impaired have been categorised into three impairments
stages (see Note 8) which are in most cases based on arrears status. If a Judgemental loan is risk graded 6 or above
it will be classified as stage 2 as a minimum and carry a provision based on lifetime expected credit losses.

12 Months
ECL

Lifetime ECL
Not Credit
Impaired

Lifetime ECL
Credit
Impaired

Specifically
Provided

Fair Value

Total

$000’s

June 2020

Judgemental portfolio

Grade 1 - Very Strong

Grade 2 - Strong

Grade 3 - Sound

Grade 4 - Adequate

Grade 5 - Acceptable

Grade 6 - Monitor

Grade 7 - Substandard

Grade 8 - Doubtful

Grade 9 - At risk of loss

9,323

65,084

509,154

817,190

5,117

4,613

112,586

27,289

189

4,238

1,938

2,558

17,652

26,575

47,154

16,025

8,642

24,667

9,323

65,273

518,509

823,741

115,144

44,941

16,025

8,642

1,601,626

1,538,585

3,044,823

Total judgemental portfolio

1,400,779

149,605

Total behavioural portfolio

1,425,429

33,655

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

22. Credit risk exposure (continued)

Financial Statements for the year ended 30 June 2020

12 Months
ECL

Lifetime ECL
Not Credit
Impaired

Lifetime ECL
Credit
Impaired

Specifically
Provided

Fair Value

Total

$000’s

June 2019

Judgemental portfolio

Grade 1 - Very Strong

Grade 2 - Strong

Grade 3 - Sound

Grade 4 - Adequate

Grade 5 - Acceptable

Grade 6 - Monitor

Grade 7 - Substandard

Grade 8 - Doubtful

Grade 9 - At risk of loss

8,685

86,109

478,682

851,873

3,707

4,835

142,122

22,913

5,478

4,854

5,031

3,450

18,884

38,159

57,043

15,391

11,021

26,412

8,685

86,180

487,867

861,562

147,153

26,363

15,391

11,021

1,644,229

1,318,677

2,764,067

26,412

1,318,677

4,408,296

Total Judgemental portfolio

1,425,356

173,577

Total Behavioural portfolio

1,373,926

33,305

Gross finance receivables

2,799,282

206,882

Provision for impairment

(30,422)

(1,781)

(18,425)

(7,863)

(58,491)

Total finance receivables

2,768,860

205,101

38,618

18,549

1,318,677

4,349,805

23. 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 and is closely monitored by the Group.

Measurement of liquidity risk is designed to ensure that the Group has the ability to generate or obtain sufficient cash
in a timely manner and at a reasonable price to meet its financial commitments on a daily basis.

The Group’s exposure to liquidity risk is governed by a policy approved by the Board and managed by the ALCO.
This policy sets out the nature of the risk which may be taken and aggregate risk limits, and the ALCO must conform
to this. The objective of the ALCO is to derive the most appropriate strategy for the Group in terms of a mix of assets
and liabilities given its expectations of future cash flows, liquidity constraints and capital adequacy. The Group
employs asset and liability cash flow modelling to determine appropriate liquidity and funding strategies.

RBNZ facilities

In March 2020, HBL was onboarded by the RBNZ as an approved counterparty and executed a 2011 Global Master
Repo Agreement providing an additional source for intra-day liquidity for the Group if required.

On 16 March 2020, as a result of COVID-19, the RBNZ announced that it would provide term funding through a Term
Auction Facility to give banks the ability to access term funding using repurchase agreements with qualifying collateral
for a term of up to twelve months. From 26 May 2020, the RBNZ also made available, for a period of 6 months, a Term
Lending Facility to offer loans for a fixed term of three years at the Official Cash Rate, with access to the funds linked to
HBL’S lending under the BFGS. The Group had not utilised either of these facilities as at 30 June 2020.

Gross finance receivables

2,826,208

183,260

73,729

24,667

1,538,585

4,646,449

Provision for impairment

(32,420)

(2,166)

(22,782)

(5,301)

(62,669)

Total finance receivables

2,793,788

181,094

50,947

19,366

1,538,585

4,583,780

P. 130

P. 131

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

23. Liquidity risk (continued)

24. Interest rate risk

Financial Statements for the year ended 30 June 2020

The Group holds the following liquid assets and committed funding sources for the purpose of managing liquidity risk:

$000’s

Cash and cash equivalents

Investments

Undrawn committed bank facilities

Total liquidity

June 2020

June 2019

147,179

397,005

390,762

74,496

342,493

219,631

934,946

636,620

Contractual liquidity profile of liabilities

The following tables present the Group’s liabilities by relevant maturity groupings based upon contractual maturity
date. The amounts disclosed in the tables represent undiscounted future principal and interest cash flows. As
a result, the amounts in the tables below may differ to the amounts reported on the consolidated statement of
financial position.

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.

$000’s

June 2020

Financial liabilities

Retail deposits

Other borrowings

Lease liabilities

Derivative financial liabilities

Other financial liabilities

On
Demand

0-6
Months

6-12
Months

1-2
Years

2-5
Years

5+
Years

Total

813,140 1,418,656

833,440

162,221

86,615

13,517

61,038

196,835 1,039,462

1,400

5,722

26,751

1,415

4,665

5,730

5,297

7,634

1,354

- 3,314,072

- 1,310,072

7,085

23,264

17,038

26,751

Total financial liabilities

813,140 1,466,046

900,558

370,083 1,135,065

7,085 4,691,977

Undrawn facilities available to customers

248,868

Undrawn committed bank facilities

390,762

248,868

390,762

June 2019

Financial liabilities

Retail deposits

Other borrowings

Derivative financial liabilities

Other financial liabilities

895,290 1,415,994

605,804

224,545

73,034

1,680 3,216,347

75,198

15,032

81,915

977,044

- 1,149,189

4,751

7,769

10,552

5,741

16,284

28,813

16,284

Total financial liabilities

895,290 1,512,227

628,605

317,012 1,055,819

1,680 4,410,633

Undrawn facilities available to customers

102,285

Undrawn committed bank facilities

219,631

102,285

219,631

The Group’s market risk is derived primarily of exposure to interest rate risk, predominantly from raising funds
through the retail and wholesale deposit market, the debt capital markets and committed and uncommitted bank
funding, securitisation of receivables, and offering loan finance products to the commercial and consumer market in
New Zealand and Australia.

The Group’s exposure to market risk is governed by a policy approved by the Board and managed by the ALCO. This
policy sets out the nature of risk which may be taken and aggregate risk limits, and the ALCO must conform to this.
The objective of the ALCO is to derive the most appropriate strategy for the Group in terms of the mix of assets and
liabilities given its expectations of the future and the potential consequences of interest rate movements, liquidity
constraints and capital adequacy.

To manage this market risk, the Group measures sensitivity to interest rate changes by assessing the change in
the fair value of the position to a +/- 1 basis point shock to the curve (that is multiplied by 100), with basis point
sensitivity limits set according to the Risk Appetite Statement and Market Risk Policy. The Group also manages
interest rate risk by:

– Monitoring maturity profiles and seeking to match the re-pricing of assets and liabilities;

– Monitoring interest rates daily and regularly (at least monthly) reviewing interest rate exposures; and

– Entering into derivatives to hedge against movements in interest rates.

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.

$000’s

June 2020

Financial assets

0-3
Months

3-6
Months

6-12
Months

1-2
Years

2+
Years

Non-
Interest
Bearing

Total

Cash and cash equivalents

147,172

147,179

Investments

Finance receivables

43,863

18,425

52,708

59,296

222,713

16,335

413,340

1,522,837

198,446

352,076

557,569

400,658

13,609 3,045,195

Finance receivables - reverse mortgages

1,538,585

Derivative financial assets

Other financial assets

- 1,538,585

17,246

3,563

Total financial assets

3,252,457

216,871

404,784

616,865

623,371

50,760 5,165,108

Financial liabilities

Retail deposits

Other borrowings

Derivative financial liabilities

Lease liabilities

Other financial liabilities

1,616,521

585,482

815,366

155,219

77,655

13,949 3,264,192

976,638

970

290,323

- 1,267,931

17,012

20,456

26,751

Total financial liabilities

2,593,159

586,452

815,366

155,219

367,978

78,168 4,596,342

Effect of derivatives held for risk
management

557,955

(51,349)

(239,137)

(237,212)

(30,257)

Net financial assets / (liabilities)

1,217,253 (420,930) (649,719)

224,434

225,136

(27,408)

568,766

P. 132

P. 133

Financial Statements for the year ended 30 June 2020

24. Interest rate risk (continued)

26. Structured entities

$000’s

June 2019

Financial assets

0-3
Months

3-6
Months

6-12
Months

1-2
Years

2+
Years

Non-
Interest
Bearing

Total

Cash and cash equivalents

74,490

74,496

Investments

Finance receivables

24,097

15,368

91,248

62,048

149,732

12,435

354,928

1,553,748

206,801

337,236

537,300

386,870

9,173 3,031,128

Finance receivables - reverse mortgages

1,318,677

Derivative financial assets

Other financial assets

- 1,318,677

14,491

7,503

Total financial assets

2,971,012

222,169

428,484

599,348

536,602

43,608 4,801,223

Financial liabilities

Retail deposits

Other borrowings

Derivative financial liabilities

Other financial liabilities

1,614,124

519,676

729,734

212,575

65,887

11,685 3,153,681

772,134

285,434

- 1,057,568

11,147

16,284

Total financial liabilities

2,386,258

519,676

729,734

212,575

351,321

39,116 4,238,680

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:

$000’s

Deposits

June 2020

June 2019

166,676

146,094

(b) 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
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:

Effect of derivatives held
for risk management

(36,789)

162,749

38,975 (313,184)

148,249

$000’s

Net financial assets / (liabilities)

547,965 (134,758) (262,275)

73,589

333,530

4,492

562,543

The tables above illustrate the periods in which the cash flows from interest rate swaps are expected to occur and
affect profit or loss.

Cash and cash equivalents

Finance receivables - reverse mortgages

Other borrowings

June 2020

June 2019

26,491

929,179

(783,373)

6,112

756,454

(659,925)

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

Other Disclosures

25. Significant subsidiaries

Significant Subsidiaries

Country of
Incorporation and
Place of Business

Nature of
Business

Proportion of ownership
and voting power held

The Auto Warehouse securitises motor loan receivables as a source of funding.

The Group continues to recognise the securitised assets and associated borrowings in the consolidated statement
of financial position as the Group remains exposed to and has the ability to affect variable returns from those assets
and liabilities. Although the Group recognises those interests in Auto Warehouse, the loans sold to Auto Warehouse
are set aside for the benefit of investors in Auto Warehouse and other depositors and lenders to the Group have no
recourse to those assets.

June 2020

June 2019

$000’s

Heartland Bank Limited

New Zealand

Bank

100%

VPS Properties Limited

New Zealand

Investment property
holding company

MARAC Insurance Limited

New Zealand

Insurance services

Heartland Australia Holdings Pty Limited

Heartland Australia Group Pty Limited

Australia

Financial services

100%

Australian Seniors Finance Pty Limited

Australia

Management services

100%

Cash and cash equivalents

Finance receivables

Other borrowings

June 2020

June 2019

5,493

78,066

(79,012)

555

(559)

P. 134

P. 135

27. Staff share ownership arrangements

27. Staff share ownership arrangements (continued)

Financial Statements for the year ended 30 June 2020

The Group operates a number of share-based compensation plans that are equity settled. The fair value determined
at the grant date is expensed on a straight line basis over the vesting period, based on the Group’s estimate of equity
instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period
the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised
estimate, with a corresponding adjustment to the employee benefits reserve.

(a) Share-based compensation plan details

Heartland performance rights plan (PR plan)

The PR plan was established to enhance the alignment of participants’ interests with those of the Group’s
shareholders. Under the PR plan participants are issued performance rights which will entitle them to receive shares
in the Group. As at June 2020, there were 3 tranches being 2017, 2018 and 2022. The 2017 and 2018 tranche
rules have been aligned to the PR Plan 2022, and therefore they all have the same terms and conditions applying
regarding participants, awarding of PR, measurement date and vesting as outlined below:

1 July 2019

Granted

Issued

Forfeited

30 June 2020

1 July 2018

Granted

Issued

Forfeited

30 June 2019

PR Plan 2022 Tranche (PR plan 2022)

1 Senior Executive Scheme (SES) was established in June 2016 and terminated in June 2019.

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

PR Plan
Number of
Rights

3,121,340

(816,858)

1,230,740

(318,295)

3,216,927

SES1
Number of
Shares

3,180,298

1,858,676

(1,858,676)

293,759

(352,717)

3,121,340

June 2020

June 2019

516

327

341

668

The number of performance rights offered is determined by the participant’s long-term incentive (LTI) value over the
volume weighted average price (VWAP) of the Group’s ordinary shares on the NZX Main Board for the 20 business
days immediately before (and excluding) the issue date. The issue date is 14 September 2019. Performance rights do
not entitle participants to dividends or voting rights.

The performance rights are issued subject to the participants’ continued employment with the Group until the
measurement date and the Group achieving its financial measures, strategic objectives and culture and conduct
objectives, over the period commencing 1 July 2019 and ending on 30 June 2022. The targets are dynamic and
may be adjusted by the Board from time to time in order to account for unanticipated capital changes during the
performance period. The measurement date is the business days following the date on which the Group announces
its full year results for the financial year ended 2022.

Performance rights will vest on the measurement date to the extent these criteria have been met, but subject to caps
and also to retesting on a later measurement date if the criteria are not met on the initial measurement date.

(b) Effect of share-based payment transactions

$000’s

Award of Shares

SES

PR Plan

Total expense recognised

As at 30 June 2020, $1.9 million of the share scheme awards remain unvested and not expensed
(2019: $0.59 million). This expense will be recognised over the vesting period of the awards.

000’s

PR plan - 2016

PR Plan - 2017

PR Plan - 2018

PR Plan - 2022

Total

June 2020

June 2019

Rights
Outstanding

Remaining
Years

Rights
Outstanding

Remaining
Years

2,039

259

919

3,217

823

2,039

259

3,121

P. 136

P. 137

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
E
H
T
O
T
S
E
T
O
N

28. Insurance business, securitisation, funds management, other fiduciary activities

30. Contingent liabilities and commitments

Financial Statements for the year ended 30 June 2020

Insurance business

The Group conducts insurance business through its subsidiary MIL.

The Group’s aggregate amount of insurance business comprises the total consolidated assets of MIL of $10.9 million
(2019: $12.9 million), which represents 0.2% of the total consolidated assets of the Group.

During the current year the Group has undertaken a strategic review of its insurance business in line with its core
banking business. The Group has entered into a distribution agreement with DPL to distribute DPL’s insurance
products through its network and has stopped writing insurance policies in February 2020. The Group will gradually
exit from the insurance business as the existing written policies expire over time.

Securitisation, funds management and other fiduciary activities

Changes to the Group’s involvement in securitisation activities are set out in Note 26. There have been no material
changes to the Group’s involvement in funds management and other fiduciary activities during the year.

29. Concentrations of funding

(a) Concentrations of funding by industry

The Group in the ordinary course of business will be subject to claims and proceedings against it whereby the validity
of the claim will only be confirmed by uncertain future events. In such circumstances the contingent liabilities are
possible obligations, or present obligations if known, where the transfer of economic benefit is uncertain or cannot be
reliable measured. Contingent Liabilities are not recognised, but are disclosed, unless they are remote. Where some
loss is probable, provisions have been made on a case by case basis.

Contingent liabilities and credit related commitments arising in respect of the Group’s operations were:

$000’s

Letters of credit, guarantee commitments and performance bonds

Total contingent liabilities

Undrawn facilities available to customers

Conditional commitments to fund at future dates

Total commitments

June 2020

June 2019

6,515

6,757

248,868

177,316

58,045

14,286

306,913

191,602

The Australian and New Zealand Standard Industrial Classification (ANZSIC) codes have been used as the basis for
categorising customer industry sectors:

31. Events after the reporting date

COVID-19 pandemic update

$000’s

Agriculture

Forestry and fishing

Mining

Manufacturing

Finance and insurance

Wholesale trade

Retail trade and accommodation

Households

Rental, hiring and real estate services

Construction

Other business services

Transport and storage

Other

Unsubordinated notes

Total borrowings

(b) Concentration of funding by geographical area

$000’s

New Zealand

Rest of the world

Total borrowings

P. 138

June 2020

June 2019

109,268

14,901

6,976

68,559

25,360

11,233

1,431,320

1,149,034

10,855

20,423

11,520

19,730

2,263,668

2,340,764

41,348

19,702

63,697

4,552

97,150

30,110

15,338

57,360

4,416

140,084

4,083,895

3,873,569

448,228

337,680

4,532,123

4,211,249

June 2020

June 2019

3,470,744

1,061,379

3,404,163

807,086

4,532,123

4,211,249

Following the confirmation of further community spread of COVID-19 with unknown origin, the Government
announced on 12 August 2020 that New Zealand’s COVID-19 Alert Levels will change, with the Auckland region
(Wellsford to Pukekohe) moving to Alert Level 3 and the rest of New Zealand moving to Alert Level 2. Following that,
the Auckland region moved to Alert Level 2 from 31 August 2020. This did not have any impact on Group’s estimates
and judgements (refer to Note 1 - Financial statements preparation).

Dividend

The Group declared a fully imputed dividend of 2.5 cents per share on 17 September 2020, to be paid to share
holders on 9 October 2020.

Funding facility

On 15 September 2020, the Group announced that a funding facility of AU$142 million had been secured for its
Australian reverse mortgages portfolio.

There were no other events subsequent to the reporting period which would materially affect the consolidated
financial statements.

P. 139

Financial Statements for the year ended 30 June 2020

S
E
R
U
S
O
L
C
S
D
R
E
H
T
O

P. 140

P. 141

Financial Statements for the year ended 30 June 2020

S
E
R
U
S
O
L
C
S
D
R
E
H
T
O

P. 142

P. 143

Executive Remuneration

The number of employees of Heartland and its subsidiaries (including former employees), other than directors, who
received remuneration, including non-cash benefits, in excess of $100,000 during the year ended 30 June 2020 is
set out in the remuneration bands detailed below.

Remuneration

$100,000 - $109,999

$110,000 - $119,999

$120,000 - $129,999

$130,000 - $139,999

$140,000 - $149,999

$150,000 - $159,999

$160,000 - $169,999

$170,000 - $179,999

$180,000 - $189,999

$190,000 - $199,999

$200,000 - $209,999

$210,000 - $219,999

$220,000 - $229,999

$230,000 - $239,999

$240,000 - $249,999

$260,000 - $269,999

$270,000 - $279,999

$280,000 - $289,999

$360,000 - $369,999

$390,000 - $399,999

$420,000 - $429,999

$470,000 - $479,999

$480,000 - $489,999

$490,000 - $499,999

$530,000 - $539,999

$580,000 - $589,999

$680,000 - $689,999

$950,000 - $959,999

Number of
employees

Grand Total

145

Heartland Annual Report 2020

S
E
R
U
S
O
L
C
S
D
R
E
H
T
O

Shareholder Information

Spread of shares

Set out below are details of the spread of shareholders of Heartland as at 1 September 2020 (being a date not more
than two months prior to the date of this Annual Report).

Size of holding

1 - 1,000 shares

1,001 - 5,000 shares

5,001 - 10,000 shares

10,001 - 50,000 shares

50,001 - 100,000 shares

100,001 shares and over

Number of
shareholders

Total shares

% of issued shares

1,367

3,092

2,314

4,580

822

507

780,560

8,758,629

17,299,847

103,184,093

57,024,882

393,931,095

0.13

1.51

2.98

17.76

9.82

67.80

TOTAL

12,682

580,979,106

100.00

Twenty largest shareholders

Set out below are details of the 20 largest shareholders of Heartland as at 1 September 2020 (being a date not more
than two months prior to the date of this Annual Report).

Rank

Shareholder

Total shares

% of issued shares

Harrogate Trustee Limited

Citibank Nominees (NZ) Limited

FNZ Custodians Limited

Accident Compensation Corporation

Oceania & Eastern Limited

Philip Maurice Carter

HSBC Nominees (New Zealand) Limited

New Zealand Depository Nominee

HSBC Nominees (New Zealand) Limited

JPMORGAN Chase Bank

Heartland Trust

Leveraged Equities Finance Limited

Investment Custodial Services Limited

Forsyth Barr Custodians Limited

Custodial Services Limited

Jarden Custodians Limited

Jeffrey Kenneth Greenslade & Sarah Ormond
Greenslade

Custodial Services Limited

Cogent Nominees Limited

Pt Booster Investments Nominees Limited

58,392,997

29,503,229

28,737,195

19,116,125

13,267,285

11,416,647

9,932,309

9,337,023

7,225,138

6,601,938

6,475,976

6,200,000

6,151,632

5,339,816

4,983,278

4,794,667

3,986,156

3,723,367

3,382,404

3,077,467

10.05

5.08

4.95

3.29

2.28

1.97

1.71

1.61

1.24

1.14

1.11

1.07

1.06

0.92

0.86

0.83

0.69

0.64

0.58

0.53

Total

241,644,649

41.61

P. 144

P. 145

Substantial product holders

As at 30 June 2020, the following product holders are substantial product holders in Heartland.

Name

Number of Shares

Class of Shares

Total number of
shares in class

Harrogate Trustee Limited and
Gregory Raymond Tomlinson

58,392,997

Ordinary

580,979,106

Other Information

Auditor’s fees

KPMG has continued to act as auditor of Heartland and its subsidiaries. The amount payable by Heartland and its
subsidiaries to KPMG as audit fees during the year ended 30 June 2020 was $774,000. The amount of fees payable
to KPMG for other assurance services during the year ended 30 June 2020 was $133,000. These other assurance
fees were primarily for regulatory assurance services, agreed upon procedures engagements and supervisor
reporting.

Credit rating

As at the date of this Annual Report, Heartland has a Fitch Australia Pty Limited long-term credit rating of BBB
(outlook stable).

Donations

The total amount of donations made by Heartland during the year ended 30 June 2020 was $103,763.

Exercise of NZX disciplinary powers

NZX Limited did not exercise any of its powers under Listing Rule 9.9.3 in relation to Heartland and its subsidiaries
during the year ended 30 June 2020.

NZX waivers

Set out below is a summary of all waivers granted to the Group by NZX, or relied on by the Group, within the
12-month period preceding 30 June 2020.

Announcement of full year results and release of annual report – reliance on NZX class waiver

Heartland relied on an NZX class waiver from Listing Rules 3.5.1 and 3.6.1 on 11 August 2020 to the extent that
those rules required Heartland to release a results announcement within 60 days after the end of the financial year
ending 30 June 2020 and release an annual report within three months after the end of the same financial year.
The reason for the granting of the class waivers by the NZX was to provide issuers (including Heartland) with
additional time to prepare and release their full year results announcement and annual report, in recognition that
COVID-19 has impacted issuers’ abilities to meet the usual reporting timeframes. Pursuant to the waiver, Heartland
announced that it expected to announce its full year results for the financial year ended 30 June 2020 on 17
September 2020 and release its annual report for the same financial year on 30 October 2020.

Y
R
O
T
C
E
R
D

Heartland Annual Report 2020

STRATEGIC MANAGEMENT GROUP

JEFFRE Y GREENSL ADE
CEO, Heartland Group Holdings Limited

CHRISTOPHER FLOOD
CEO, Heartland Bank Limited

KEIRA BILLOT
Chief People & Culture Officer

L AURA BYRNE
Group Chief of Staff

ANDREW DIXSON
Chief Financial Officer

MICHAEL DRUMM
Chief Legal & Bank Risk Officer

GRANT KEMBLE
Group Chief Risk Officer

SARAH SMITH
Chief Technology Officer

LYDIA ZULKIFLI
Chief Digital Officer