Heartland NZ says more than half its NZ$1.6 billion worth of retail deposits aren't covered by the Crown guarantee

Heartland NZ says more than half its NZ$1.6 billion worth of retail deposits aren't covered by the Crown guarantee

Heartland New Zealand, created through the merger of Marac Finance, CBS Canterbury and Southern Cross Building Society in January, still has some way to go to wean itself off the extended Crown retail deposit guarantee scheme.

Heartland NZ says more than half its NZ$1.6 billion worth of retail deposits are now either for terms extending beyond the end of the extended Crown retail deposit guarantee on December 31 or are not guaranteed by the taxpayer. The building society, which plans to apply to the Reserve Bank for banking registration sometime before the end of 2011, made this revelation in an announcement to the sharemarket today.

Meanwhile, it said its liquidity was increasing to about NZ$650 million through the NZ$100 million expansion of its securitisation programmes. It securitises car loans and residential mortgages.

In an interview with interest.co.nz last month Heartland NZ CEO Jeff Greenslade declined to say whether the financial services provider would stop taking deposits covered by the extended Crown guarantee scheme before it expires on December 31, and nor would he say what percentage or value of Heartland NZ's deposits had maturity dates beyond December 31. However, he did indicate that Heartland NZ was likely to disclose the latter in the future, which it has now done.

Having more than half its retail funding not covered by the Crown guarantee comes after Heartland NZ said in April at least 61% of its NZ$1.67 billion worth of retail funding was guaranteed.

The building society said its retail deposit reinvestment rate during July was 75%.

"An overwhelming majority of Heartland retail deposits (new or reinvested) now being made by depositors on a non-guaranteed basis," Heartland NZ said. "Over 90% of new retail deposits and approximately 80% of reinvestments during July were placed on the basis of either non-guaranteed, or for a term which extends beyond the expiry of the Heartland Crown guarantee (31 December 2011)."

Heartland NZ, which is proposing to acquire between NZ$400 million and NZ$430 million of rural lender PGG Wrightson Finance's good loans,also said it has hired BNZ and Westpac - providers of a NZ$200 million untapped loan to Heartland NZ - to assess the potential for a retail bond issue as a possible refinancing option for about NZ$92 million worth of PGG Wrightson Finance bonds due to mature this October that it will become responsible for.

PGG Wrightson Finance also has deposits covered by the extended Crown retail deposit guarantee. The other two entities still covered by the Crown guarantee, Wairarapa Building Society and Fisher & Paykel Finance, have stopped offering deposits carrying the guarantee.

Heartland NZ aims to become a Christchurch-headquartered "Heartland Bank" that doubles its NZ$2.2 billion asset base within five years through growing family, small business and agricultural lending.

See Heartland NZ's full statement below:

When Heartland New Zealand Limited (“HNZ”) (NZX: HNZ) announced in June the intended acquisition of PGG Wrightson Finance Limited (“PWF” ) it said that it would keep the market regularly informed on progress on key acquisition milestones.

In doing so on this occasion, HNZ is also pleased to update the market on its liquidity and funding position.

Highlights of this are:

- Heartland Building Society (“Heartland”) liquidity is due to reach record levels.

- Heartland retail depositors continue to demonstrate strong loyalty.

- New Heartland retail deposits are at record levels.

- An overwhelming majority of Heartland retail deposits (new or reinvested) are now being made by depositors on a non-guaranteed basis.

- Over half of Heartland’s total retail deposits are now either non-guaranteed, or for a term which extends beyond the expiry of the Heartland Crown guarantee.

Liquidity

Heartland liquidity is due to increase to approximately $650 million. This is a result of the planned expansion of the Heartland securitisation programmes by a further $100 million, in contemplation of the proposed acquisition of PWF. Liquidity consists of cash, liquid assets and unutilised available funding lines.

The total liquidity of approximately $650 million will be:

- over a third of the amount of total retail deposits; and - approximate to the total amount of Crown guaranteed term (i.e. not call) deposits maturing before the expiry of the Heartland Crown guarantee (31 December 2011).

Heartland notes that if the proposed PWF Acquisition proceeds, Heartland will become responsible for the outstanding PWF bonds of approximately $92 million which mature in October 2011. Heartland has sufficient cash on hand to repay the maturing PWF bonds in full.

However given current demand for corporate bonds and the desire to retain the PWF deposit base, the board is considering a bond issue in the near future as part of a broader wholesale funding strategy. Heartland has mandated Westpac and Bank of New Zealand regarding a potential retail bond issue as a possible refinancing option.

Retail Deposits

Heartland’s preparations for the expiry of the Crown guarantee remain ahead of projections with:

- Heartland retail depositors continuing to demonstrate strong loyalty: the Heartland retail deposit reinvestment rate during July was 75%.

- New Heartland retail deposits during July being at record levels.

- An overwhelming majority of Heartland retail deposits (new or reinvested) now being made by depositors on a non-guaranteed basis: over 90% of new retail deposits and approximately 80% of reinvestments during July were placed on the basis of either non-guaranteed, or for a term which extends beyond the expiry of the Heartland Crown guarantee (31 December 2011).

- Over half of Heartland’s total retail deposits being either non-guaranteed, or for a term which extends beyond the expiry of the Heartland Crown guarantee (31 December 2011).

These metrics exceed management expectations.

As Heartland is 100% locally funded, it is not experiencing the volatility occurring in offshore capital markets. This demonstrates the advantages of being a New Zealand based financial institution.

PWF deposit holder vote Meetings of PWF depositors and bondholders were convened on the 8 August to vote on the proposed transfer of their investments in PWF to Heartland (in connection with the proposed acquisition of PWF). As expected quorums were not reached, and each meeting was adjourned until 15 August.

Key Facts on Heartland (all as at 5 January 2011):

- Total assets $2.2 billion

- Total retail deposits $1.6 billion

- Shareholders funds $294 million

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