HGH - Heartland Group Holdings

[minimoke]

Slightly off the present topic,

A while ago we were discussing how hard the internet banking was to use, shortly after that I am sure some of you will have had the chance to download the Heartland App, I downloaded it a week or so ago and it wouldn't operate on my iPhone 5, the app has been updated and it now works. Good stuff except it seems to only give me the ability to look at my savings type a/c's and not move money around a/c's or to another bank. I will copy and paste (below) how the IT dept explained it to me,

"Glad to hear you’re now able to login to the app.

We've released the app with a focus on making savings and deposit accounts easy to manage, so at the moment the app does not support our transactional accounts, like Everyday accounts. Providing this access is on the radar for future developments, as we realise this is something that will be useful for customers like yourself. At this stage we’re unable to give timings around when this feature might become available."

Interested to know how others have found the new app.

Blocky

I wouldnt have even thought about that as its a kinda basic thing isn't it?

And then I got wondering. Heck can I transfer money with my banks? So I went into my ANZ and my Kiwibank apps and both allow me to transfer money between my accounts and to other accounts.

[777]

I think the problem is that everything at Heartland goes via the Westpac.

[winner69]

You can do HEAPS AND HEAPS with the Heartland Mobile App ...in theory

https://www.heartland.co.nz/mobile-app/questions

[Snoopy]

The objective of this post is to consider cashflow, both in and out over the subsequent one year period after reporting date. This will help evaluate the ability of Heartland to repay debentures due for repayment in the 12 months following the end of year account reporting date.

The following information for FY2016 is derived from note 20 in AR2016 on 'Liquidity Risk'.

1/ Contractual information is extracted from the table titled 'Contractual Liquidity Profile of Financial Assets and Liabilities.
2/ Expected information is calculated by multiplying the 'Contracted' risk by the Expected Behaviour Multiple.
3/ The Expected Behaviour Multiple is dervied from Heartlands own results, back in the day they printed both 'Contracted' and 'Expected' behaviour.

Loan Maturity	Expected Behaviour Multiple	FY2014 Financial Receivables Maturity: Contracted/ Expected	FY2015 Financial Receivables Maturity: Contracted/ Expected	FY2016 Financial Receivables Maturity: Contracted/ Expected
On Demand	100%	$50.254m / $50.254m	$37.012m / $37.012m	$84.154m / $84.154m
0-6 months	132%	$477.190m / $629.445m	$664.557m / $877.215m	$743.389m / $961.274m
6-12 months	132%	$367.564m / $483.727m	$450.638m / $594.842m	$484.420m / $639.962m

Note that in the above table, a 'loan maturity' represents an expected inflow of cash from a Heartland bank perspective.

Deposit Maturity	Expected Behaviour Multiple	FY2014 Financial Liabilities Maturity: Contracted/ Expected	FY2015 Financial Liabilities Maturity: Contracted/ Expected	FY2016 Financial Liabilities Maturity: Contracted/ Expected
On Demand	3.01%	$629.125m / $18.922m	$748.332m / $22.450m	$718.587m / $21.630m
0-6 months	32.4%	$748.129m / $242.431m	$1,213.450m / $395.102m	$892.944m / $289.314m
6-12 months	36.4%	$538.050m / $195.682m	$686.159m / $249.762m	$837.844m / $304.975m

Note that in the above table, a 'financial liability (debenture) maturity' represents an expected outflow of cash from a Heartland bank perspective.

If we now take the expected cash inflows and subtract from those the expected cash outflows we can examine the expected net cashflow from a 'one year in advance' perspective.

Deposit Maturity	FY2014: 'Expected' combined Loan and Deposit Cashflow	FY2015: 'Expected' combined Loan and Deposit Cashflow	FY2016: 'Expected' combined Loan and Deposit Cashflow
On Demand	$31.332m	$14.562m	$62.524m
0-6 months	$387.014m	$482.113m	$691.960m
6-12 months	$288.045m	$345.080m	$334.987m
Total	$706.391m	$841.755m	$1,089.471m

I should note here that 'expected' behaviour from future and existing depositors can be modified. Heartland could put a special offer into the market to attract more deposit money if required, for example. Nevertheless even without this I see little cause for concern if customer behaviour pans out as expected.

From an historical perspective, the 'On Demand' net position outlook for FY2015 looked a little weak. But there has been a lot of promotion in the market regarding Heartland's 'on call' rates over the last year. So it is fair to assume that any potential problem in this area has been well and truly fixed.

The objective of this post is to consider cashflow, both in and out over the subsequent one year period after reporting date. This will help evaluate the ability of Heartland to repay debentures due for repayment in the 12 months following the end of year account reporting date.

The following information for FY2017 is derived from note 20 in AR2017 on 'Liquidity Risk'.

1/ Contractual information is extracted from the table titled 'Contractual Liquidity Profile of Financial Assets and Liabilities.
2/ Expected information is calculated by multiplying the 'Contracted' risk by the Expected Behaviour Multiple.
3/ The Expected Behaviour Multiple is dervied from Heartlands own results, back in the day they printed both 'Contracted' and 'Expected' behaviour.

Loan Maturity	Expected Behaviour Multiple	FY2014 Financial Receivables Maturity: Contracted/ Expected	FY2015 Financial Receivables Maturity: Contracted/ Expected	FY2016 Financial Receivables Maturity: Contracted/ Expected	FY2017 Financial Receivables Maturity: Contracted/ Expected
On Demand	100%	$50.254m / $50.254m	$37.012m / $37.012m	$84.154m / $84.154m	$57.040m / $57.040m
0-6 months	132%	$477.190m / $629.445m	$664.557m / $877.215m	$743.389m / $961.274m	$618.271m / $816.118m
6-12 months	132%	$367.564m / $483.727m	$450.638m / $594.842m	$484.420m / $639.962m	$521.215m / $688.004m

Note that in the above table, a 'loan maturity' represents an expected inflow of cash from a Heartland bank perspective.

Deposit Maturity	Expected Behaviour Multiple	FY2014 Financial Liabilities Maturity: Contracted/ Expected	FY2015 Financial Liabilities Maturity: Contracted/ Expected	FY2016 Financial Liabilities Maturity: Contracted/ Expected	FY2017 Financial Liabilities Maturity: Contracted/ Expected
On Demand	3.01%	$629.125m / $18.922m	$748.332m / $22.450m	$718.587m / $21.630m	$836.829m / $25.189m
0-6 months	32.4%	$748.129m / $242.431m	$1,213.450m / $395.102m	$892.944m / $289.314m	$1,191.957m / $386.194m
6-12 months	36.4%	$538.050m / $195.682m	$686.159m / $249.762m	$837.844m / $304.975m	$729.145m / $265.409m

Note that in the above table, a 'financial liability (debenture) maturity' represents an expected outflow of cash from a Heartland bank perspective.

If we now take the expected cash inflows and subtract from those the expected cash outflows we can examine the expected net cashflow from a 'one year in advance' perspective.

Deposit Maturity	FY2014: 'Expected' combined Loan and Deposit Cashflow	FY2015: 'Expected' combined Loan and Deposit Cashflow	FY2016: 'Expected' combined Loan and Deposit Cashflow	FY2017: 'Expected' combined Loan and Deposit Cashflow
On Demand	$31.332m	$14.562m	$62.524m	$31.851m
0-6 months	$387.014m	$482.113m	$691.960m	$429.924m
6-12 months	$288.045m	$345.080m	$334.987m	$422.595m
Total	$706.391m	$841.755m	$1,089.471m	$884.370m

Once again lots of numbers here. Now there are four years of consecutive data on display, we can start to get a view on what 'normal' numbers should look like. So what numbers in the above table(s) are worthy of further attention?

The purpose of this exercise is to work out if Heartland has an identifiable chance of running out of cash. A customer might not be happy if Heartland decides not to offer them a loan. But they will likely be even more unhappy if they have loaned Heartland money, be it in a short term debenture or a cash account, and Heartland does not have the cash to pay them back. Whether cash is available depends on the balance between cash coming into the company and cash going out. This 'balance' is reflected in the bottom table, and this is the table that deserves our attention.

If a cash depositing customer is denied their cash on maturity, this would be equally annoying whether it happened on a 6-12 month term deposiit a 3-6 month term deposit or a cash deposit. So it is the individual figures in the tables that are important, not the totals. Even if an individual figure comes out negative (which none have), it is not certain that Heartland will default. It is not certain because 'expected' behaviour can be changed with incentives: Incentives like offering a higher than market interest rate for a defined period of management concern, for example.

From an historical perspective, the 'On Demand' net position outlook for FY2015 looked a little weak. IIRC there was serious promotion of Heartland's 'on call' account at the time and new money flowed in. Some of this money belonged to members of this forum who responded to the incentive of Heartland offering 3% at the time (? - please correct me forum members if I have remember this figure incorrectly) on their call money just as the big banks were reducing their on call deposit rates to near zero (ANZ, BNZ and Westpac now offer just 0.1% on 'at call' deposit money). By EOFY2016 there was a relative abundance of 'net on call cash available' ($62.5m) and that nearly halved to a still acceptable (because Heartland hasn't seen fit to boost it) $31.9m at EOFY2017. I see that the 'on deposit' rate at Heartland was reduced to 2.75% last year, which no doubt took a lot of the froth out of the cash market from those seeing stars when the rate was 3% and above.

Another anomaly was the 0-6 month maturity outlook from EOFY2016 (30th June 2016). IIRC this was a period when there was real uncertainty about the milk price and Heartland may have shied away from short term loan deals to dairy customers over this time, and thus created a higher than originally planned for net maturity of 0-6 month debentures. That 'bump' also looks to be ironed out in the FY2017 figures.

I see Percy is once again 'on the ball' and has replied to this post before I have finished it. You are right about us having this discussion before Percy, this is at least the fourth time. But that doesn't mean it is a waste of time. Short term cash flow is an issue that never goes away. And an imbalance in these figures is an indicator that Heartland might need to offer higher interest rates in the future to fix any upcoming cashflow situation. Offering above market interest rates, if only for a time, means lower profits for shareholders. And that is something that shareholders should know about! Given all of this information is now historical, we can compare what was indicated with what actually happened. It looks like Heartland was not forecasting any unusual cash shortfall on the 'net' existing loan book for FY2018, so no unusually high interest rate deals would be on offer to customers over the 30th June 2017 to 30th June 2018 period. Is that what happened (I haven't kept close tabs of Heartland deposit rates over the year)?

SNOOPY

[percy]

It is the function of all banks' treasury dept to balance supply/demand.
This is why we notice the variations in deposit interest rates at different maturities.
Any bank having an over supply of money [maturities] will lower their interest rate for that time.
If they see more demand, they increase the interest rate for that period.
I would not try to second guess any bank's treasury dept,as that is their job,and all banks seem to manage supply/demand well.
If memory serves me correctly we have had this discussion previously.Nothing has changed in banks' treasury depts. since then.
If they see themselves running short of capital,they either sell something off,or go to shareholders for more funds.

[Snoopy]

The objective of this post is to consider cashflow, both in and out over the subsequent one year period after reporting date. This will help evaluate the ability of Heartland to repay debentures due for repayment in the 12 months following the end of year account reporting date.

The following information for FY2017 is derived from note 20 in AR2017 on 'Liquidity Risk'.

1/ Contractual information is extracted from the table titled 'Contractual Liquidity Profile of Financial Assets and Liabilities.
2/ Expected information is calculated by multiplying the 'Contracted' risk by the Expected Behaviour Multiple.
3/ The Expected Behaviour Multiple is dervied from Heartlands own results, back in the day they printed both 'Contracted' and 'Expected' behaviour.

Loan Maturity	Expected Behaviour Multiple	FY2014 Financial Receivables Maturity: Contracted/ Expected	FY2015 Financial Receivables Maturity: Contracted/ Expected	FY2016 Financial Receivables Maturity: Contracted/ Expected	FY2017 Financial Receivables Maturity: Contracted/ Expected
On Demand	100%	$50.254m / $50.254m	$37.012m / $37.012m	$84.154m / $84.154m	$57.040m / $57.040m
0-6 months	132%	$477.190m / $629.445m	$664.557m / $877.215m	$743.389m / $961.274m	$618.271m / $816.118m
6-12 months	132%	$367.564m / $483.727m	$450.638m / $594.842m	$484.420m / $639.962m	$521.215m / $688.004m

Note that in the above table, a 'loan maturity' represents an expected inflow of cash from a Heartland bank perspective.

Deposit Maturity	Expected Behaviour Multiple	FY2014 Financial Liabilities Maturity: Contracted/ Expected	FY2015 Financial Liabilities Maturity: Contracted/ Expected	FY2016 Financial Liabilities Maturity: Contracted/ Expected	FY2017 Financial Liabilities Maturity: Contracted/ Expected
On Demand	3.01%	$629.125m / $18.922m	$748.332m / $22.450m	$718.587m / $21.630m	$836.829m / $25.189m
0-6 months	32.4%	$748.129m / $242.431m	$1,213.450m / $395.102m	$892.944m / $289.314m	$1,191.957m / $386.194m
6-12 months	36.4%	$538.050m / $195.682m	$686.159m / $249.762m	$837.844m / $304.975m	$729.145m / $265.409m

Note that in the above table, a 'financial liability (debenture) maturity' represents an expected outflow of cash from a Heartland bank perspective.

If we now take the expected cash inflows and subtract from those the expected cash outflows we can examine the expected net cashflow from a 'one year in advance' perspective.

Deposit Maturity	FY2014: 'Expected' combined Loan and Deposit Cashflow	FY2015: 'Expected' combined Loan and Deposit Cashflow	FY2016: 'Expected' combined Loan and Deposit Cashflow	FY2017: 'Expected' combined Loan and Deposit Cashflow
On Demand	$31.332m	$14.562m	$62.524m	$31.851m
0-6 months	$387.014m	$482.113m	$691.960m	$429.924m
6-12 months	$288.045m	$345.080m	$334.987m	$422.595m
Total	$706.391m	$841.755m	$1,089.471m	$884.370m

Time to update the "Liquidity Buffer ratio" for FY2017.

Dear old Colin has now 'left the building', but what better way to immortalise his contribution to society than continuing with the 'Meads Test', and the 'solid as' quote with which he will alwys be identified? When Colin told us all those years ago that a certain finance company was 'solid as' with reference to investing debenture money, the end result was that this cash became tied up in illiquid property developments. So although the company had enough money to pay out their debenture holders 'on paper' and appeared to be operating profitably, the debenture holders could not get their cash back. The 'Meads Test' (as christened by Snoopy) is one method of finding out if a finance sector company really is 'solid as'. The basic data I need to check this out has already been calculated (see above). So let's get going.

To check out the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%

On the numerator of the equation, we have borrowings.

HLB Borrowings

1/ Term deposits lodged with Heartland.	$2,573.980m
2/ Bank Borrowings	$616.838m
3/ Securitized Borrowings total	$214.365m
4/ Subordinated Bonds	$3.378m
4/ Subordinated Notes	$21.180m
Total Borrowings of (see note 13)	$3,429.741m

Note 13 does not contain a clear breakdown of current and longer-term borrowing amounts and their maturity dates.

Banking facilities are provided by CBA Australia but for both Australia and New Zealand. These facilities are, I believe, in relation to the Australian part of the 'Seniors Reverse Mortgage Portfolio'. These banking facilities are secured over the homes on which the reverse mortgages have been taken out. These CBA loans have a maturity date of 30th September 2019. That means they are classed as ‘long term’ for accounting purposes (talking from a 1st July 2017 looking forwards perspective). And Heartland can’t rely on CBA Australia as a source of short-term funds.

The information given in note 13 on the securitized borrowing facilities is as follows:

Securitized bank facilities total all in relation to the Heartland ABCP Trust 1:	$300.000m	maturing on 1st February 2018 (*)
less Current level of drawings against this facility	$214.365m
equals Borrowing Headroom	$85.365m	{A}

(*) I do not expect any problem in rolling this facility over for another year.


HLB Lendings vs HLB Borrowings

Customers owe HNZ 'Finance Receivables' of $3,545.897 There is no breakdown in AR2017 (note 11) as to what loans are current or longer terms. However, if we look at note 20, we can derive the expected maturity profile of total finance receivables due over the next twelve months.

	On Demand	0-6 Months	6-12 Months	Total
Expected Receivables Due	$57.040m	+ $816.118m	+$688.004m	= $1,561.162m
less Expected Deposits for Repayment	$25.189m	+ $386.194m	+ $265.409m	= $676.792m
equals Net Expected Cash Into Business	$31.851m	$429.924m	$422.595m	$884.370m	{B}

If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for debenture holder liquidity. That is the case here.

Summing up:

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding)
= $85.364m / $884.370m
= 9.7% < 10%

=> Close enough to 10% (with rounding) so Pass Short term liquidity test

Of course there are other ways to satisfy liquidity requirements. Issuing new shares or corporate bonds are two, and Heartland has done both in the past. But sometimes these are not options when market conditions change. This is why it is important to retain some 'headroom' with your existing borrowing arrangements.

SNOOPY

[winner69]

Didn’t beat guidance — disappointing

But was in near the top of the guidance range

http://nzx-prod-s7fsd7f98s.s3-websit...214/284489.pdf

[winner69]

Wow ...$77m in F19

That’s +14% ....stronger growth F18

[winner69]

Full year dividend same as last year

What’s happened to ever increasing dividends year on year that some expect/hope for?

[minimoke]

"

Achievements for the year ended 30 June 2018

o Launch of the Heartland mobile app for depositors and savers " But its an App that doesn't do anything