Half Year Results to 31 December 2012 Jeff Greenslade Simon Owen - - PowerPoint PPT Presentation

Interim Results to 31 December 2012 | Page 1

Half Year Results to 31 December 2012 Jeff Greenslade Simon Owen Craig Stephen

Interim Results to 31 December 2012 | Page 2

Important Notice

This presentation has been prepared by Heartland New Zealand Limited (Heartland) (NZX: HNZ) for the purpose of briefings provided by HNZ in relation to its financial statements. The presentation and the briefing constitute summary information only, and you should not rely on them in isolation from the full detail set out in the financial statements. Heartland Bank Limited is the principal operating subsidiary of HNZ.

Interim Results to 31 December 2012 | Page 3

Agenda

• Introduction

Jeff Greenslade

• Financial overview

Simon Owen / Craig Stephen

• Looking forward

Jeff Greenslade

• Questions

Interim Results to 31 December 2012 | Page 4

Introduction

Achievements

• 1. Bank registration
• 2. Dividend policy set, special dividend paid
• 3. Interim dividend announced
• 4. Investment grade credit rating affirmed and outlook to stable

Key Priorities

• 1. Focus shift to drive financial performance
• 2. Cost of funds reduction underway
• 3. Balance sheet, operating efficiencies and product strategy
• 4. Non-core property review and Board composition

Interim Results to 31 December 2012 | Page 5

Financial Overview

Simon Owen / Craig Stephen

Interim Results to 31 December 2012 | Page 6

Financial Half Year Overview

• Achieved NPAT of $10.7m
• Prior half included one-off

tax credits of $6.2m

• NPBT $14.9m vs $5.6m
• Key value drivers are:

— Net interest margin — Operating expenses ratio

• Impairments higher due to

non-core property

6 months to 6 months to 12 months to Dec 2012 Dec 2011 Jun 2012 (NZ$m) (NZ$m) (NZ$m) Net interest income 46.8 39.1 83.6 Net other income 5.3 6.0 11.8 Net operating income * 52.1 45.1 95.4 Expenses 31.9 35.7 65.6 Profit before impairments and tax 20.2 9.4 29.8 Impaired asset expense 5.3 3.8 5.6 Decrease in fair value of investment properties

• 3.9

Net profit before tax 14.9 5.6 20.3 Tax 4.2 (4.2) (3.3) Net profit after tax (reported) 10.7 9.8 23.6 * Net operating income includes share of MARAC Insurance profit

Big increase in NPBT

Interim Results to 31 December 2012 | Page 7

Net Profit Before Tax

• NPBT improving half on half
• Profitability growth rate slowed in the half

year ended 31 Dec 2012 (1H13)

• Higher growth in half year ended 30 June

2012 (2H12) due to less liquidity held and lower funding margins post Crown guarantee

• Growth rate in 1H13 lower due to higher

bank - related professional fees, system integration costs and expense “lumpiness”

• Expect NPBT growth to uplift in 2H13 –

mid range forecast 2H13 $16.5m

3.7 5.6 14.7 14.9 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 2H11 1H12 2H12 1H13 $m

Net Profit Before Tax

Trend improvement in NPBT continues

Interim Results to 31 December 2012 | Page 8

Net Profit Before Tax - Bridge

5.6 14.9 6.9 3.7 1.5 0.1 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 NPBT 31/12/2011 Net Operating Income Operating expenses Impaired asset expense Equity earnings NPBT 31/12/2012

NPBT 1H13 v 1H12 ($m)

* Includes investment property fair value adjustments

14.7 14.9 1.9 2.1 0.5 0.1 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 NPBT 30/06/2012 Net Operating Income Operating expenses Impaired asset expense* Equity earnings NPBT 31/12/2012

NPBT 1H13 v 2H12 ($m)

Breakdown of component parts

Interim Results to 31 December 2012 | Page 9

Operational Efficiency

• On track – cost to income trend line

shows steady improvement

• Some wobbles due to integration, bank

registration and expense timing

• Cost project to further reduce nominal

costs in 2014 financial year

25.0 30.0 35.0 40.0 45.0 50.0 55.0 2H11 1H12 2H12 1H13 $m

Net Operating Income and Operating Expenses

Operating Income Operating Expenses

We are on track

50% 55% 60% 65% 70% 75% 80% 85% 2H11 1H12 2H12 1H13

Cost to Income Ratio

Cost Income Ratio Trend

Interim Results to 31 December 2012 | Page 10

Balance Sheet Summary

• Total assets stable
• Net finance receivables fell by $33m
• NTA increased to $0.90 per share
• Core divisions net receivables up

2.8%pa Strong balance sheet

31 Dec 2012 30 Jun 2012 31 Dec 2011 (NZ$m) (NZ$m) (NZ$m) Total assets 2,350.1 2,348.1 2,380.5 Total liabilities 1,969.0 1,973.3 2,020.3 Total equity 381.1 374.8 360.2 Equity ratio 16.2% 16.0% 15.1% Net tangible assets 350.0 343.7 330.6 NTA per share 0.90 $ 0.88 $ 0.85 $

88 105 481 479 531 540 946 955

• 500

1,000 1,500 2,000 2,500 H1 2013 H2 2012 $m

Net Finance Receivables

Retail & Consumer Business Rural Non-Core Property

$2,045m $2,078m

2 2 1 2 3 4 11 11 8 13 11 10 24 23 22

• 10

20 30 40 50 60 H1 2013 H2 2012 H1 2012 $m

Net Operating Income

Retail & Consumer Business Rural Non-Core Property Other

$52m $50m $45m

Interim Results to 31 December 2012 | Page 11

Net Finance Receivables - Bridge

2,078 2,045 48 39 10 2 17 2,000 2,010 2,020 2,030 2,040 2,050 2,060 2,070 2,080 2,090 Receivables 30/6/2012 Retail Consumer Business Rural Non Core Property Receivables 31/12/2012 $m

Receivables Movement 6 Months ended 31 December 2012

Core up, Non-Core down

Interim Results to 31 December 2012 | Page 12

Asset Quality Trends

Trend improvement in underlying asset quality

• Asset quality improving
• Non-core property remains

driver of elevated impairment levels

• Underlying impairment trend

improvement in last half

• Profit affected by RECL

agreement being treated as fully utilised

• Non-core property impairment

manageable, but review underway to test strategy

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 HY 2013 Net Finance Receivables ($bn) 2.1 2.0 1.8 1.7 2.1 2.0 Net Impairment (%) 4.2% 8.3% 5.4% 5.9% 4.4% 3.9% Net Core Finance Receivables ($bn) 1.6 2.0 2.0 Net Impairment (%) 1.7% 1.8% 1.7%

9 7 14 12 8 9 5 15 29 26 19 18 26 65 75 69 57 49 76 122 65 67 52 49

34 56 55

• 20

40 60 80 100 120 140 160 180 200 Impaired Assets ($m)

Heartland Asset Quality $m

Collective Provision Specific Provision Specifically Impaired Past Due >90 Investment Property Restructured Assets 27 38 118 108 27 139

Interim Results to 31 December 2012 | Page 13

Funding & Liquidity

• Improving liquidity mix
• Strong positive cash flows from asset

base

• Staggered maturity profile

Strong liquidity position

69% 16% 15%

Invested Cash and Liquid Assets as at 31 December 2012

Call Deposits Bonds Cash at Bank

36% 30% 33% 10% 14% 42% 41% 59% 44% 50% 27% 25% 31% 56%

0% 5% 10% 15% 20% 25% 30% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 % of Total Liabilities Liquidity Split (%)

Liquidity Split

Undrawn Standby Facility Undrawn Securitisation Facility Cash and Liquid Assets Liquidity as % of Total Liabilities (RHS)

Interim Results to 31 December 2012 | Page 14

Cost of Funds

• Cost of Funds has fallen in the 12 months to

31 Dec 2012 due to:

• Funding margin alignment with bank

peers

• Run-off of higher cost deposits
• Portfolio mix changes and new product

developments

• This Cost of Funds reduction trend – based
• n current identified needs – will continue

to flow through over the next 18 months Cost of funds continue to track lower

Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12

Heartland Bank - Cost of Funds

20 40 60 80 100 120 140 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Funding Margin Over Bank Rates (bp)

Trend of Heartland Term Deposit Margins over Peer Bank Rates

Interim Results to 31 December 2012 | Page 15

Progress since Bank Registration

Solid deposit growth & lower COF

2 4 6 8 10 12 60% 65% 70% 75% 80% 85% 90% Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 New Fund Flows ($m) Reinvestment Rate

Average Weekly New Funds & Reinvestment Rates

Reinvestment Rate New Fund Flows (RHS) Holiday period Bank Registration 17 December 2012 0% 5% 10% 15% 20% 25% 30% 35% 300 350 400 450 500 550 600 650 700 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 As % of Total Liabilities Total Liquidity ($m)

Liquidity

Liquidity Liquidity as % of Total Liabilities (RHS) Bank Registration 17 December 2012

• 15
• 10
• 5

5 10 15 20 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Total Growth / Contraction ($m)

Retail Deposit Growth

Bank Registration 17 December 2012 10 20 30 40 50 60 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Total Business Call ($m)

Business Call Deposits

Bank Registration 17 December 2012

Interim Results to 31 December 2012 | Page 16

Looking Forward

Jeff Greenslade

Interim Results to 31 December 2012 | Page 17

Products & Campaigns

Business Call Account Invoice Finance Livestock Finance

Supporting NZ Households, Farmers and Small Businesses

School Fees

Interim Results to 31 December 2012 | Page 18

Operational Performance

• 1. To increase profitability:
• Grow core assets
• Reduce Cost of Funds
• Reduce cost to income ratio. Target to reduce nominal costs in 2014 year
• Manage property impairments
• 2. Right size capital base
• Heartland Bank had $67m capital buffer over minimum regulatory

requirement (31 Dec 2012)

• Capital held for growth, acquisition and general buffer (risk management)
• Continue to review needs

How do we deliver >10% ROE

Interim Results to 31 December 2012 | Page 19

Other Matters

• 1. Non-core property review
• 2. Board review
• 3. Dividend

Interim Results to 31 December 2012 | Page 20

Questions