Good day everyone, and welcome to the Heartland Group Full Year Results For 2022. Please note that all participants are currently in a listen only mode. Once the presentation is over, you will be invited to ask questions. To do so, dial star one on your keypad, and an operator will assist you. I would like to turn the conference over now to Mr. Jeff Greenslade. Please go ahead, sir.
Good morning and welcome to Heartland's FY 2022 results. I'm Jeff Greenslade, the Chief Executive of Heartland Group. I'm joined by a number of executives in the room. I have Chris Flood, who's the Deputy Chief Executive of Heartland Group, Andrew Dixson, the Group's Chief Financial Officer, Michael Drumm, the Group's Chief Operating Officer, and Leanne Lazarus, the recently appointed Chief Executive of the bank. Before I get onto the results in detail, I just want to make some observations around our strategic vision in the context of results.
This vision is anchored in our objective of best or only products and has four elements. Firstly, business as usual growth, and I'm pleased to report that during the course of FY 2022, we grew by 15%, which was well in excess of our system. Secondly, to provide frictionless service at the lowest cost. During the course of the year, we increased the number of our mobile app users by 120%, and our cost-to-income ratio continued to decline. Expansion in Australia, we grew market share in reverse mortgages from 29%-33%. Finally, acquisitions.
We completed the acquisition of a NZD 250 million livestock book, StockCo, and have recently made an investment in Avenue Bank of NZD 5 million, which is the beginnings of our pathway to our aspiration of ultimately becoming a bank in Australia. In terms of our business, online digitalization in Australia being the key themes, we performed extremely well. Turning now to page seven, which shows you a bit of a wagon wheel of the results.
Reported NPAT was NZD 95.1. In an underlying sense, it was NZD 96.1, so just slightly above the upper end of guidance. That was driven by that strong balance sheet growth of 15%. Total balance sheet growth was 23.5%, but that includes the StockCo acquisition. In terms of the quality of that growth, it just turns some of the key metrics that we look to. Firstly, we did see a decline in our net interest margin, our NIM, which was 4.16% at the end of the year. Our perhaps more accurate measure is the monthly average, which is 4.24%. Nonetheless, the margin was down. Why was that? There are three key contributors to that.
Firstly, due to the introduction of the CCCFA, where we saw lending slowing down or ceasing in some areas, particularly in motor, we were saying no to a lot of our customers that we would normally say yes to. We tended to be at the lower end of the credit quality scale. The motor book has shifted towards higher quality, but that's what also comes with a lower margin. Secondly, the weight of growth in reverse mortgages and online mortgages, very high-quality loans, low impairments, but lower margins has dragged down the average.
Thirdly, there has been elements of mismatch in timing, in that our deposits reset much faster than our loans do. In an environment of increased interest rates, that does work against us. That explains the NIM. That third element will right itself over time. Secondly, our cost-to-income ratio. The headline rate reported was 43.6, which was down the previous year. The underlying rate, 42.5, also down on the previous year by about a 5%. What that really means is we achieved a 5% efficiency gain during the course of the year, which is something we're very pleased about.
Impairments in an underlying sense remained reasonably constant. Underlying impairments were at 29 basis points versus 31 the year before. On the note of impairments, I just want to spend a few moments before I hand over to Andrew to go through the numbers in a little bit more detail, just on the credit environment.
What did we see during the course of the year and how do we shape up for the coming year? During the course of the year, in dollar terms, our impairments went up, and that really was a function of growth. However, in a percentage sense, it went slightly down, and that is a reflection of that, of the changed mix that I alluded to, not just in motor, but across the entire book, where we've seen more reverse mortgages, more online mortgages, the introduction of a large livestock book, which comes with low impairments, and the run-off of higher impairment books such as our personal lending book. We've seen a reweighting of risk in the book, which has de-risked it somewhat.
During the course of the year, we carried a COVID-19 overlay of NZD 9.6 million, and the board has decided to release that. It was not utilized at all. However, given some of the economic uncertainty coming down the line in terms of the coming year, we have decided to create an economic overlay of NZD 8 million to cover the risk concentrations, the larger loans that we have in areas like asset finance and business lending. Going forward, clearly we see the macroeconomic conditions are challenging, they're well documented, the impact of high interest rates, high inflation rates.
However, that remixing of our book, the reshaping of our book, puts us in a more resilient position than we've been in the past. And on top of that, with the additional buffer of an economic overlay. I want to hand over to Andrew, who will take you through those results in a bit more detail.
Thank you, Jeff, and good morning, everyone. I'm on slide 11, which bridges net profit after tax from the financial year 2021 with that of the financial year 2022. This is presented on both the reported and underlying basis, adjusted for the impacts of the StockCo Australia acquisition, which was effectively neutral to net profit after tax for the year. With the underlying result also excluding the impacts of other one-off items in each financial year. I will talk to those as I run through the individual components. Firstly, net profit after tax, which on a reported basis was NZD 95.1 million for 2022. That was an increase of NZD 8.1 million or 9.3% higher than the prior year.
On an underlying basis, NPAT was NZD 96.1 million for 2022, which was an increase of NZD 8.2 million or 8.3% higher than the prior year. Stepping through the components. Net interest income. Reported net interest income was NZD 250.1 million, which includes a NZD 1.9 million dollar NPAT net contribution of StockCo Australia and related acquisition impacts. Underlying net interest income was NZD 248.3 million, which was an increase of NZD 14.7 million or 6.3% higher than the prior year. This was driven by two factors. Firstly, the continuation of strong net interest margin, which was 4.16% for the year, combined with Harmoney's largest year of asset growth in its history.
Assets grew NZD 1.4 billion, with receivables excluding the impact of FX growing NZD 1.1 billion. The acquisition of StockCo, which was completed on the May 31st, 2022, contributed NZD 387 million to this receivables growth. Excluding this, underlying receivables grew NZD 766 million or 15.3%. Jeff will break this out on the upcoming slide 14. While continuing to be a strong metric for Heartland of 4.16%, net interest margin was down from the 4.3% level it has historically and consistently operated. Just recapping on some of the factors that contributed to this reported reduction.
Firstly, a de-risking of our balance sheet, with the receivables composition shifting towards highly secured, lower yielding, and lower risk assets such as home loans and reverse mortgages in favor of unsecured, higher yielding, higher risk assets such as personal loans and unsecured SME lending. Secondly, the unintended effects of changes to consumer credit legislation, which caused some disruption to our service proposition, particularly in home loans and also motor, which resulted in a mixed change in the motor portfolio. Again, toward lower yielding but high-quality assets at the new and near new end of the market.
Thirdly, testing a price elasticity in the Australian reverse mortgage market, which caused some margin compression later in the financial year as it coincided with the commencement of bank bill rate rising, which flowed through to our cost of funds. Fourthly, a small lag in the immediacy of cost of funding impacts, passing those impacts onto customers. This was compounded by the pace and quantum of the interest rate rising. Finally, the cruelty of simple averages. Much of our growth for the second half of the financial year came in the latter months, particularly May and June, which obviously elevates the denominator of the calculation without realizing the full benefit of the income.
As Jeff noted, as an indication, a pure monthly average of receivables on our net interest margin would have been 4.24%. Overall, we can expect some continued volatility in reported net interest margin with further changes in asset mix and the continuation of interest rate rises. However, we expect StockCo Australia to contribute positively to net interest margin for the full year impact. Moving on to other operating income. On both the reported and underlying basis, other operating income was largely flat year-on-year. Reported was down NZD 0.2 million, while underlying was up NZD 2.2 million compared to the prior year.
Reported other operating income includes some significant one-off impacts. There are two in particular. Firstly, a NZD 16.7 million gain from hedge accounting impacts of interest rate swaps, which are used to economically hedge interest rate risk on the fixed rate loans, sorry, with terms longer than 12 months. A portfolio of these swaps were put into hedge accounting relationships with our premium savings products, with the underlying risk being hedged three-month BKBM. These products are traditionally priced at a margin above 3-month BKBM.
However, market participation during FY 2022 caused this relationship to fail, with that margin at times being below 3-month BKBM. A hard line interpretation of the accounting standard has required the cumulative cash flow hedge reserve balance to be recognized on the income statement. To be clear, the group actively manages interest rate risk by entering into derivative contracts to hedge against movements in interest rates, which is economically very effective. This accounting treatment has been our standard practice. In the past.
There is, however, some asymmetry in economic hedging and hedge accounting. This gain effectively brings forward that which would have flowed through over the next three years. Secondly, a NZD 12.7 million net fair value loss on Heartland's 10% equity investment in Harmoney Corporation, and this compared to a NZD 3.9 million fair value gain in the prior year.
The magnitude of the movement was caused by a reduction in the fair value price per share of AUD 1.90 in the prior year, down to AUD 0.71 per share, following an across the board softening in equity markets, with financial technology and non-bank lending stocks, in particular, hit very hard. Operating expenses. Reported operating expenses were NZD 116.8 million, which was a decrease of about NZD 900,000 on the prior year. This includes the impacts of the StockCo Australia acquisition and the following one-off items. In the prior year, one-off expenses of NZD 6.9 million were incurred, being NZD 4.3 million of voluntary accelerated amortization on software assets, NZD 1.7 million of legacy suspense account provisioning and write-offs, and about NZD 900,000 of non-recurring staff expenses.
In the current period, one-off expenses consisted of NZD 3.4 million of non-recurring expenses, I should say. There was NZD 2.9 million of voluntary amortization of intangibles that are no longer expected to provide future economic benefits, NZD 1 million of non-recurring staff expenses, and this was partially offset by NZD 500 thousand of recovery of suspense account items that were previously provided for. After taking these items into consideration, underlying operating expenses were NZD 111.4 million, up NZD 0.6 million or 0.6% on the prior year. This was primarily due to NZD 2.8 million higher IT and communication expenses, driven by software amortization and licensing costs as a result of our continued investment in technology and digital capability.
This was offset by lower staff expenses with a lower FTE carried across the year. As previously flagged and indicated on the upcoming key performance measures slide, our cost-to-income ratio has continued its downward trajectory, decreasing to 43.6% on a reported basis, whereas underlying CTI has decreased to 42.5%. Finally, impairment expense. Reported impairment expense was NZD 13.8 million, a decrease of NZD 1.2 million, and an impaired asset expense ratio of 0.25%. Underlying impairment expense was NZD 15.7 million, an increase of NZD 0.7 million and an expense ratio of 0.29%, down 2 basis points from the prior year of 31 basis points.
We should note in the prior year that the first half of the financial year, the impaired asset expense ratio was low at 19 basis points due to the significant amount of COVID variation that occurred in that half. The underlying for this financial year is actually on that basis, even further lower. The key impacts from reported to underlying, is the NZD 9.6 million COVID overlay taken in FY 2020 has not been utilized and has been released in full now that we have more certainty as to the impacts of the pandemic on our borrowers. We have taken an NZD 8 million economic overlay to provide further resilience against the continued economic uncertainty resulting from rising interest rates and high inflation causing cost of living pressures.
The reduction in underlying impairment is reflective of both the general de-risking across our portfolio, with assets with a higher potential risk profile, i.e., unsecured consumer and SME lending, being replaced with low LVR, highly secured assets such as reverse mortgages and online home loans, which now constitute 3% of our portfolio. Asset quality has also improved across the portfolios, and this is evidenced by the percentage of Heartland's receivables that attract a lifetime expected credit loss provision, reducing from 6.32% as at 30 June 2021 to 3.92% as at June 30th, 2022. Finally, provisioning coverage remains very strong.
Heartland's total provisions as at June 30th, 2022 were NZD 52 million, with a coverage ratio of 1.24%, and this is a reduction from the coverage ratio of 1.61% as at the prior year, but is reflective again of the improved quality and mix of Heartland's portfolios. Moving on to slide 12, key performance measures. Underlying NIM, which we've spoken to, which doesn't exclude the StockCo Australia impact, decreased from 4.35% to 4.16%. On both a reported and underlying basis, the cost-to-income ratio has continued its downward trajectory. The reported cost-to-income ratio was down 3.2 percentage points to 43.6%, while underlying was 42.5%.
Underlying CTI as a measure of the efficiency of digitalization has been continuously decreasing over the last two financial years. In the most recent half, it was down to 41.9%. Finally, non-performing loans and impaired asset expense have returned to more normal levels after historic lows due to the previously noted remediation effort and strong growth in the lending portfolio, although still remain below pre-COVID-19 levels due to the previously mentioned shift in portfolio mix and improved quality. Moving on to slide 13, shareholder return.
Return on equity of 12.1% increased 21 basis points on the prior year, with underlying return on equity very strong at 12.6%, which is a 59 basis point increase on an underlying basis. Earnings per share also increased NZD 0.161 per share, which was up NZD 0.012 per share on the prior year, and that represents EPS growth of 8.1%.
Pleasingly, we have announced a fully imputed NZD 0.055 per share final dividend, providing a continuation of a consistently strong dividend yield of 7.1% at a payout ratio of 68%, which is in line with the average of the past three years. We will cover capital in more detail later in the pack. However, the dividend reinvestment plan has been suspended for this dividend due to the proposed equity raise. I will now pass back to Jeff to cover receivables growth at a summary level.
Thank you, Andrew. I'm on page 14, and just a few things to call out here. Firstly, the spectacular growth that we're getting in reverse mortgages in both New Zealand and Australia. You can see large dollar amounts and the percentages very, very impressive. What we're seeing is with the decline in property prices, say in Auckland and Melbourne and Sydney, we're seeing the level of repayments beginning to decline. Like, the inference we take from that is that we saw repayments peaking when property prices were peaking, when people saw those prices as a reason to bring forward decisions that they would've made a few years later in terms of downsizing.
Secondly, we see with household expenditure being put under pressure through inflation, more demand for the product. Pipelines for both countries are looking very strong. If you move to the other end of the waterfall chart to online or home loans, online mortgages, very proud of what we've achieved in a very short space of time, NZD 223 million of mortgages, where we've been able, at times, to offer market's best rates. Why can a bank like Heartland offer better rates than major banks? It all comes down to some of the things which we've been talking about already, our cost to income ratio.
When drilled down to this product, our cost to income ratio in an online mortgage is very, very low. The cost of us writing a mortgage is probably a fifth or a sixth of what it is for a major bank. That difference really allows us to compete despite their size and other advantages in terms of cost of funds. Next to that, you'll see personal lending was down quite considerably. The Harmoney channel is no longer providing us with opportunities there. Not uncomfortable from a risk point of view to see that personal book wind down in the current environment.
Next to that is motor. Chris will talk to this. I'll explain to you, 7% is not normally as good as we would expect, and I think as he will tell you, CCCFA is to blame there. We're hoping for better growth next year. Otherwise, I will leave the rest of those performances for Chris to discuss. Moving now on to page 16. I've covered most of the strategic elements contained there, except for a couple I just do want to call out. Remembering that the growth we had is largely fueled by deposits. We have made some fantastic gains in terms of our deposit raising, both in terms of launching new products and the volume that we've been able to raise and also being awarded the best savings bank in New Zealand once again in terms of our savings products.
Turning now to sustainability, where we have three pillars, environmental conservation, social equity, and economic prosperity. Something that is very important for us in terms of our sustainable performance, our ability to discharge our social responsibility in order to be in business. I'll ask Michael Drumm, who is taking responsibility for environmental sustainability, to summarize our achievements.
Thanks, Jeff. In terms of environmental sustainability, we've made some strong progress in reducing our own greenhouse gas emissions. We've got a target of a 35% level of reductions by FY 2026, and we're already at a 31% reduction level, which is pleasing. That's in our most recent GHG reporting period. We continue to make strong growth towards achieving that target, for example, through the replacement of our own fleet with hybrid alternatives, which is currently underway. We've also seen in our own portfolio a shift towards newer and lower emissions vehicles and assets.
For example, the percentage of hybrid or EVs under through our motor portfolio has continued to rise throughout the year with our key partners' production of those vehicles steadily increasing. We're also undertaking a body of work in advance of the mandatory climate-related disclosure regime, which comes into force from FY 2024 onwards. Now, that regime is gonna require us to report on, among other things, our own customers' GHG emissions. I'll pass back to you, Jeff.
Thank you. During the course of the year, we achieved our Rainbow Tick. We continued our Manawa Ako program for predominantly Māori and Pasifika intern school leavers. We had to run that remotely given the lockdowns, but another successful year, another large intake and a growing alumni now that we have of former interns going back over six years, which is becoming a fantastic pool for us to recruit talent. Our mātāpono, which has been relaunched during the course of the year, and we're very pleased to see that 93% of our staff recognize and identify with our mātāpono. There's still work to be done, though. As you can see, we have disclosed our gender gap at 23% and 25% for both Māori and Pasifika respectively.
There's some work still required there. We're very proud of what we've achieved in terms of contributing to the economic prosperity of New Zealanders, particularly, the seniors demographic, giving them the ability through our reverse mortgages to live in retirement in dignity. We've also delivered value to younger New Zealanders through our market-leading, online mortgages. We've delivered a shareholder return of 66.9% versus the NZ average of 56.6% to our shareholders. Turning now to pages 18 and 19. I want to just spend a bit of time on our acquisition in Australia and also our broader plans for Australia.
During the year in May, we acquired StockCo for AUD 154 million, which brought our loan book of around about AUD 350 million, based mainly around beef livestock lending in Australia. It's a product we like. We have that experience in New Zealand. It really fits with our best or only strategy, and we see the potential with our support for StockCo to increase market share, being provided support economically by us. We see there's an opportunity there. Also, for reasons I'll mention in a moment, in terms of our broader aspirations for Australia, we can see the opportunities to kick on and look to broaden our reach into some of the bank sector lending into the grazier markets in Australia.
It's a relatively simple product, really the dynamics around the acquisition of a livestock at a price at farm gate, the weight gain, and then that managed against the commodity price for the beef. It's a business that, in terms of distribution and onboarding, lends itself to digitalization, so we do expect also to give them some operating efficiencies in terms of what we can bring to them. Turning now to Australia in a broader sense, our aspiration is ultimately to become a bank in Australia. Why is that and why do we think we will be successful? I'll answer the second question first. We are already successful in Australia.
We are running our best or only strategy in Australia based around reverse mortgages and livestock, and that has been successful. However, it's been so successful that our biggest challenge has now become funding of that book. Becoming a bank in order to access a wider and deeper long-term pool of funding is something that is a strategic imperative. It will allow us to unlock the full potential of the livestock lending, being supported by a bank, as I mentioned earlier, will give them reach into all sorts of markets that they currently cannot compete in, and having a bank license will underpin the future of our growing reverse mortgage business in Australia. We just don't want to be any sort of bank.
We want to be a digital bank, and we spent a lot of time looking at opportunities in Australia, looking at buying existing banks, looking at starting a bank, or looking to jump into a restricted bank during the course of their application to become a bank. We chose the third of those options. We decided that was the fastest and cheapest pathway to becoming a bank. Changing an existing bank, we decided was going to be very time-consuming and costly. Similarly, starting a bank would probably take us around about three years. What we have at the moment is a restricted bank that's established, has all its frameworks in place, has an organization, more importantly, has a core system that is operational.
That is the choice that we've made, and Avenue Bank, we're very delighted with what we have acquired. At this stage, an AUD 5 million investment, but a pathway subject to being comfortable around a number of things that we will move to at 100%. We want to be a digital bank in Australia, and we think Avenue provides us with that opportunity. We also see the opportunity in Australia to differentiate ourselves in two ways. Apart from being digital, being a profitable digital bank, and that gives the ability for us to expand and grow, and also to be differentiated around the best or only strategy that we are currently operating. I will now hand over to Chris Flood, who will go through the divisional reports.
Before I do, I just wish to congratulate Chris on his new position as Deputy CEO, who will be responsible for growth across our businesses in both countries. I'm looking forward to seeing the results of that, but also I'd like to thank Chris for his contribution as the Chief Executive of the bank. Then also welcome Leanne Lazarus, who's joined us to be the new Chief Executive of the bank. We're very delighted and indeed lucky to have someone of Leanne's caliber in our organization. She has extensive background in banking in all facets in both New Zealand, Australia, and offshore, and amongst other things, brings a very strong commanding understanding of how banks operate, and we look forward to seeing more efficiencies coming through under her leadership. Chris.
Thank you, Jeff, and good morning, everyone. I'm on page 21, Reverse Mortgages Portfolio Analytics. I guess the first thing to call out on that page is the growth that Jeff mentioned earlier. That's a product of increased awareness and greater acceptance of the product, supported very much by Heartland's advertising. We can see the strong growth achieved on both sides of [Inaudible]. I guess that advertising greater awareness, combined with the compelling demographics we saw when we acquired the business in 2014, means we're now really starting to realize the potential identified back in 2014 when we purchased the book.
Specialist teams remain critical part of the service proposition that drives fulfillment and mitigates conduct and operational risk. I note the quality of the book, which is largely behavioral. In that, I mean, borrowers only borrow what they need rather than what they're eligible for. That's, as you can see, reflected a couple of ways. The average origination LVR on both sides of Tasman is low, as is the average LVR of the book now. I also note that only 6% of the over 30,500 loans that are active have LVRs of over 75%. Turning now to page 22 and 23, which is the New Zealand and Australia books.
Heartland is the largest writer of reverse mortgage loans in both New Zealand and Australia. In Australia, the federal government's promotion of their own product, which is narrower and more targeted than our own, helps with awareness and acceptance of the product.
Industry awards in both countries supports Heartland's advertising and product expansion broadens access to the addressable market. Except for travel, the historical needs of borrowers remain the same. However, we're also experiencing an increasing number of people retiring with modest levels of debt, and we expect that trend to continue. New Zealand pipelines are up 67% year-on-year, while Australian pipelines are up super 50%. Again, we anticipate a very strong year ahead. The other thing that Jeff mentioned is cost of living increases, and we also expect to see that drive up our regular monthly advance that we provide. And that's grown both in volume and number of customers that elect that option.
Turning now to page 24 and Open for Business, which was Heartland's first digital platform, and as Jeff noted earlier, it lends to the SME sector. Since the COVID lockdowns of 2020, we have taken a cautious approach to this sector and continue to do so in the current economic environment. We're comfortable with the book contractions that occurred last year and expect only modest growth, if any, in the year ahead. We also expect growth would be weighted towards the second half of the financial year. Turning now to page 25 in Asset Finance.
I note the strong growth achieved in the last financial year and also note we expect that to be maintained in the current financial year, notwithstanding the current tightening economic conditions that we're experiencing. Growth will be driven by continued market share gains at a distributor, dealership, and partnership level. Remember, this is our intermediated strategy, and we work with other groups to promote our product. We note the continuation of strong pipelines and good levels of inquiry, principally in the logistics sector. We also note the supply chain constraints that hampered performance in the last financial year continue to improve.
Lastly, planned digital development will support further scalability of this business unit. Getting now to page 26 in Business, which includes the historical relationship book that continues to run down or be refinanced. It also includes a growing floor plan lending, which is loans to motor and truck dealerships secured against stock, and wholesale lending, which is loans made to finance companies who lend in markets we have experience or are active in.
We know dealerships are carrying higher levels of stock and mitigating supply chain constraints should they continue, and we expect further growth in this book as new facilities are secured. Broad-based lending supports both our motor and asset finance divisions, as it comes with a requirement for the retailers to provide us the finance originated from the yard. Now, my explanation on page 27 in terms of motor finance, and perhaps that was the most interesting year I've experienced in this market, and hopefully I'll be doing it for quite some time.
A strong start. First five months accumulating a record volume up in November was very pleasing. The performance was supported by market share gains at the franchise end of the market, and this is ahead of the CCCFA changes. The introduction of those changes in December added both cost and complexity and pushed out approval timeframes. Further, decline rates increased significantly across the industry and limited both the number of vehicles sold and the finance volumes being written across the industry. As a consequence, volumes over the next four months were challenging.
Before changes to the CCCFA were signaled, aimed at removing some of the unintended consequences resulted from the December changes. We also note further changes are planned for early next calendar year. Growth returned in the last three months of the financial year, and we now expect a solid growth in the current financial year, notwithstanding the weaker consumer sentiment. That growth will be underpinned by expansion of distributor relationships, noting auto distributors have added Opel to their portfolio.
They will start being sold in New Zealand later this calendar year. As for Citroën and Peugeot Finance, that will be offered under the iOWN brand that Heartland underwrites. Further growth will come from market share gains discussed earlier that were hindered by the CCCFA changes. Jeff mentioned personal lending, and I'm now on page 28, which is now a small part of Heartland portfolios, and it speaks to the range under prevailing market conditions. Principal drive for contraction ledger was, as Jeff mentioned, the write-off of the Harmoney lending platform, as they closed the channel, noting we also ended negotiations with Harmoney around provision of a wholesale facility in March.
We are comfortable with reduced exposure to unsecured consumer lending in the current environment and so expect sort of write-off to continue. Turning now to home loans on page 29. Heartland's exclusively digital home loan platform targets borrowers who are refinancing and coming off fixed periods. It's a massive market in a Heartland context, with NZD billions of loan values maturing every month. We target borrowers who have low LVR and strong income-to-debt ratios, so the quality end of the housing market. Quality combined with low cost of acquisition, as a result of digitalization, enables Heartland to offer low and often market-leading rates. As such, we expect continuation of the strong growth rates achieved in the last financial year. Lastly, turning now to page 30 in our rural book.
Pleasing level of asset growth while improving the overall quality of the ledger. We continue to exit large historical relationship loans and replace them with higher quality sheep and beef or dairy direct loans. These loans have smaller loan sizes, are better secured in terms of LVR, and as such, carry lower risk. As part of the market that is underserviced currently and afforded good opportunities for growth for Heartland as a consequence. Growth in the number of farmers using seasonal livestock borrowings increased also as the limits that we provided them with. Improved facility utilization has underpinned a strong performance in the last financial year. We expect momentum to be maintained in the current financial year, noting the seasonal nature of that borrowing. Just hand back now to Jeff.
Thank you, Chris. I'll ask Andrew Dixson, the Chief Financial Officer, to quickly take us through the funding or the capital update on page 31 onward, 32 onward.
Thank you. Yeah, slide 32. In New Zealand, Heartland Bank increased borrowings by 16.8% to NZD 4.35 billion. Deposits grew 11.7% to NZD 3.6 billion, with strong contribution from Heartland Bank's two new Notice Saver products. In the current financial year, Heartland Bank launched the 90-day Notice Saver product at a market-leading rate off the back of a successful launch of the 32-day Notice Saver in late FY 2021. The introduction of these products did see some initial deflection from call and term deposits. However, underlying retention rates remained strong and new bank customers continued to grow with increased uptake in digital channels via the mobile app.
Heartland Bank was announced Canstar Savings Bank of the Year in 2022, which is the fifth consecutive year it awards for direct call and Notice Saver accounts. Other borrowings increased by 49% to NZD 750 million, largely driven by increases in the committed auto warehouse facility and commercial paper. During the year, we did increase the committed auto warehouse facility from NZD 300 million to NZD 400 million with the amount drawn increasing by NZD 160 million. Overall, liquidity remains strong, well in excess of regulatory and internal risk measures.
Overall, Heartland Bank continues to have a well-diversified funding base and demonstrated access to a wide range of funding markets and instruments. Moving to slide 33, Australia. Heartland Australia increased borrowings by 9.3% to NZD 1.2 billion in FY 2022, and during the period, increased its access to committed Australian reverse mortgage funding to NZD 1.3 billion, NZD 1.35 billion in aggregate.
Reverse mortgage limits were increased by NZD 100 million, and maturities were extended by two and three years respectively in our two warehouses. We also increased issuance from our medium-term note program during the period, issuing a new NZD 45 million line in July 2021, a new NZD 115 million line in May 2022, of which NZD 100 million of that refinanced an existing maturity. Recently, we issued a NZD 30 million TAP to an existing maturity in August 2022. A new NZD 300 million securitization warehouse was executed for StockCo Australia in conjunction with the acquisition. This refinanced an existing smaller facility and provides headroom for near-term growth.
The facility is funded by two banks. Overall, the Australian business remains well-financed with long-term committed funding and proven access to that market. The next phase of our funding strategy focuses on continuing to build these programs out ahead of ultimately becoming a bank in Australia. Moving to slide 34. Group capital remains strong at NZD 809 million, which is 11.4% of total assets. This is expected to rise above 14% following the equity raise. Heartland Bank's capital ratio as at 30 June 2022 is 13.49%, so down from 13.88% with growth in the latter half of the year, consuming capital generated from profit.
In the regulatory space for Heartland Bank, the partial restriction on bank dividends was removed from July 1st, 2022. As part of the Reserve Bank of New Zealand's capital implementation review requiring an increase in capital, increases in capital will be phased over a seven-year period, beginning from July 1st. This requires the minimum total capital ratio to be gradually increased from the current 10.5% up to 16%.
To give you an indication on current footings, Heartland Bank would require NZD 24 million of additional capital to meet the 14% tier one ratio and a further NZD 93 million to meet the 16% total capital ratio. Remembering that Heartland Bank currently has no hybrid capital, in either form, additional tier one or tier two, currently on issue. I'll hand back to Jeff.
Thank you very much. Michael Drumm, who's the CEO, will just take us quickly through the regulatory update.
Thanks, Jeff. The volume of recent and upcoming change in this area continues to be high. Chris has spoken to the impact of the Credit Contracts and Consumer Finance Act on our consumer portfolios, and further changes are expected in that area in the later part of the current financial year. The Financial Markets Conduct Amendment Act will introduce a new conduct regime for banks and other financial institutions. That will be coming into force in 2025 and will require Heartland to obtain a license and also introduces rules around how we incentivize intermediaries.
Many of those details, however, are yet to be determined. The upcoming Deposit Takers Act intends to strengthen the regulatory framework for deposit-taking institutions like Heartland Bank. The key part there will be the introduction of a deposit compensation scheme, but again, details are expected to be released for consultation in the later part of this calendar year. Final observation there is the climate-related disclosures regime, which I touched on briefly before. Now that comes in from FY 2024 onwards and requires a significant level of climate-related disclosures in our financial accounts.
Thank you very much, Michael. Now just turning towards the final part of the presentation of the results, just looking forward. Clearly, there's a lot of challenge in the economic environment in the coming year. High interest rates, high inflation, among others. However, there is reasons for us to be optimistic to some extent. We are insulated in terms of growth through products such as reverse mortgages and livestock in particular that will continue to grow despite macroeconomic conditions.
In addition, in the banking activities, for reasons that Chris mentioned, we are optimistic with the level of refinance that comes through the mortgage market, that we're positioned to continue to grow in our online mortgage proposition and indeed in other areas, pick up market share in asset finance and motor.
From a risk position, as we have discussed, we are much more resilient than we have ever been in the past, given the de-risking and the change of portfolio mix that we have undergone. Indeed, on top of that, we have the advantage of an economic overlay. We will continue also to pursue efficiencies through digitalization. Without a doubt, the biggest opportunity for us clearly is in Australia, to continue the high growth that we're getting in our reverse mortgage book, to unlock the potential of the livestock business, and in starting that journey towards becoming a bank.
A lot of hoops to jump through yet, but we're very confident that we've found the right vehicle and the right pathway in order to realize that aspiration of becoming a bank. In terms of guidance, we have an underlying range of NZD 109 million-NZD 114 million, excluding any one-off impacts such as fair value changes of equity investments. Finally, this performance would not be possible without our people. I'd like to thank all of our Heartland people for the strong contribution they have made in a year, yet again, disrupted by COVID, et cetera.
And I would also like to thank the support of our shareholders during the course of the year. That concludes the presentation of the results, but we're not done yet. We're going to introduce the equity raise. Andrew Dixson's just gonna take us through the key elements of the equity raise that we have announced. Just one thing I'd like to say is that we have chosen this structure with care and deliberation, a placement with an SPP, for two reasons. One is, the markets remain extremely volatile. From week to week, there can be quite wild swings.
We needed a process which would have us in and out of the market in the fastest possible time. Secondly, and more importantly, the placement is designed to address the issue that we have, which is the liquidity in our shares through insufficient institutional support. We are quite unique in the NZX with the level of retail to institutional. We have only 15% institutional shareholding on the registry. That has to change. For the long-term benefit of our shareholders, we need more institutional shareholders. We need more liquidity in the shares. To give you an idea, we are ranked 25th in the NZX. Number 26 has more than double the turnover of shares that we have, and it's in everybody's best interest to create more liquidity. Thank you. I hand over to Andrew.
Thanks, Jeff. I'm on slide 39, and very pleased to announce Heartland's first equity raise since 2017. We're seeking to raise NZD 200 million via a NZD 130 million fully underwritten placement to eligible investors and a NZD 70 million share purchase plan. The underwrite is provided by Jarden. The proceeds will principally be used to repay the acquisition finance facility that was utilized to complete the purchase of StockCo Australia, with the residual to provide additional growth capital to Heartland's existing businesses in Australia and New Zealand. The placement shares will be issued at a price of NZD 1.80 per share, which is a 12.8% discount to the ex-dividend last closed price.
The share purchase plan price will be the lower of the placement price and a 2.5% discount to the five day VWAP up to the closing date of the share purchase plan. As Jeff mentioned, in forming the structure, Heartland is focused to ensure existing shareholders are treated fairly, balanced against the backdrop of volatile market conditions that have been experienced to date in 2022, and our objective to further diversify the share register to promote increased liquidity on both the NZX and ASX, noting that Heartland's trading liquidity is lower than other NZX 50 companies of similar size.
Increasing liquidity will attract further institutional investors, which is positive for the company and all shareholders. Heartland will size the share purchase plan to the maximum amount possible under the NZX listing rules, which is 5% of shares issued and a NZD 15,000 per applicant.
We did seek a waiver to increase this amount. However, the rules are currently under consultation. Heartland also favored the share purchase plan as it provides a benefit to participants in volatile markets with the downside pricing mechanism, which is not available in pro-rata structures. Finally, regarding the placement, Heartland is again focused on ensuring all existing shareholders are treated fairly through the placement by an allocation policy that seeks, to the extent possible, to provide pro-rata allocations to existing shareholders that bid for at least such quantum into the placement. I'll pass to Michael Drumm, who will cover the key risks of the offer.
Thanks, Andrew. Like any investment, there are a number of risks. We've noted some of the key risks facing Heartland in the coming period in the pack. As we've talked about, we've seen a lot of volatility in macroeconomic conditions recently, increases in inflation and interest rates in the prior period. As a financial institution, there's always the potential for volatility or deterioration of those conditions to impact negatively on Heartland's funding, liquidity, and credit risk for Heartland.
The successful execution of our strategy involves both organic and acquisitive growth, and there are various factors which impact on our ability to succeed and which we don't control, including the extensive competitive pressure in the sectors we operate in, the need to obtain regulatory approvals in some cases, and the impact of overall market conditions on things like budgets and timeframes, particularly for acquisitive growth. Like any business in the current environment, we're operating in a tight labor market, which is dealing with the ongoing health impacts of COVID and other strains of illness. This is particularly the case in some specialist areas. We're comfortable at present, but we maintain a close watch on that area.
We deal with the constant threat of cybersecurity, which again, we're comfortable with it at present and are monitoring very closely, but we're also in a process of upgrading our core banking system. We're comfortable with how that project is tracking, but as with any project, there's always the risk of delay or overrun. Given our rural and livestock portfolios, we're exposed to biosecurity risks. The recent foot-and-mouth disease outbreak in Bali is a very good example of this. In that case, a strong government response and compensation scheme, together with strong origination standards at the Heartland end, is expected to limit the longer term risk.
There's always short-term risk if an incursion does occur in New Zealand or Australia. I touched upon the extent of regulation in this industry, and we obviously need to comply with them. Need to comply with that regulation, and failure to do so can have a material impact on us. We've also touched on the growth in the reverse mortgage books. Borrowers under that product can choose to remain in their property for as long as they wish to do so, and the balance of their loans will never exceed the sale proceeds of their homes. This exposes Heartland to negative equity risk, which we monitor and we're comfortable with.
Changes in factors such as interest rates, house price inflation, mortality, and voluntary exit rates can have an impact on that risk. Finally, Andrew's talked about hedge accounting. Hedge accounting is tricky to achieve, and diversification in markets can cause hedge accounting risk into the future. I'll hand back to Jeff.
Thank you very much. We've run slightly over time, but we still have room for questions, so we'll now open up for questions.
Thank you, sir. We would now like to open the line to the participants for any questions. If you wish to ask a question, please press star one on your telephone and an operator will assist you. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Wade Gardiner with Craigs Investment Partners. Please go ahead.
Hi there. Hi guys. I've got a couple of questions. First of all, the NZD 8 million dollar economic overlay. How did you calculate that? What's the science behind that?
Thanks, Wade. What we did to calculate that is we looked to the impact of the downside scenario on the portfolios that Jeff mentioned, being business relationship and asset finance in particular. What would a downside scenario look like to those portfolios? Doing a bottom-up analysis of losses compared with modeled losses yielded a number, and that informed the size of the overlay.
I guess how aggressive did you get in terms of, I guess, economic conditions? I mean, what were sort of the assumptions behind it?
I think, look, there are a number of assumptions behind it. The problem. It's difficult to model losses, right? What we did is looked at what we thought the impact could be on us by reference to our book and our individual exposures rather than using sort of a more sophisticated modeled approach.
The DRP being suspended, I mean, I understand that given the equity raise, but how should we view that going forward? Do you envisage it being reintroduced for the interim, or are we looking sort of more like FY 2023, FY 2024, sorry?
We've only suspended that in relation to the capital raise. I think you can assume going forward it'll be reinstated.
Okay. Slide 27, you talk about the motor vehicle run rate in Q4 . How's it sort of gone, you know, in the first six weeks of FY 2023? Or even towards the end of 2024. Was it an instantaneous sort of rebound or are we gathering pace there?
We're gathering pace, Wade. It is running at sort of more traditional levels now, so some time after. Obviously we note the direction in terms of whether CCCFA changes are hitting. We expect momentum to build.
Okay. Final question from me. The dividend flat versus last year and versus an EPS that was up sort of 8%, can you just sort of give a bit of color on why you settled on a flat dividend?
We think that the combination of factors, the payout ratio is still the same, which is consistent, but also just in terms of, you know, it happens to come during a time of capital raising. We've decided that that was the right balance to strike.
Okay. That's all from me. Thank you.
Again, press star one to ask a question. We will take our next question from Stephen Hudson with Macquarie Securities. Please go ahead.
Oh, good morning, gents. Just a couple from me. Just firstly back on sort of credit, or asset quality. Can you give us a feel for what's happened in that Stage two impaired bucket, at 30- to 90-day past due, if you've seen any sort of changes, in that bucket over the last six months?
I think general observation is that we've seen a reduction in past due receivables year on year. The volume of past due has reduced compared to stage one. In terms of the breakdown between stage two and three, I don't have that to hand, at the minute, but we can always come back on that.
Okay. Thank you. Just on reverse mortgages, you're sort of painting a picture of a product coming into its own. I just wondered what you're seeing in terms of new entrants in Australia and New Zealand, if any?
It's Chris here. There is other participants in both countries. We have had a new entrant in the Australian market over recent times. We actually think more people advertising the product is going to be good for Heartland. It supports awareness. Obviously we have a award-winning service proposition that is, you know, is continuing to see increased growth.
It's also relevant to point out that the other participants in Australia are much smaller than us and don't have the funding base that we have. With some exceptions, at the beginning of their journey. Still, going through the negative cash flow that you tend to get for the first seven to nine years of starting up a reverse mortgage business.
That makes sense. Thanks. Just finally, just on the guidance of 109-114, so forgive my silly question, but the StockCo contribution there, is it just a straight NZD 10 million-NZD 12 million or have you made some assumption around how you fund that? And if so, what's that assumption?
Yeah, that's exactly right, Stephen. We've included that range within that range.
That's just a straight 10-12 in the 109-114. Fantastic.
That's right.
Actually, Andrew, sorry, while I've got you, the 109-114, I know you always give a range, but you know, would you give any sort of call-outs on what that range is constructed around?
It's a number of factors, so growth, net interest margin, and the continuation of improved cost-to-income ratio, but also a stable impairment environment. Noting we have taken the NZD 8 million economic overlay.
Yep. That makes sense. Thanks very much, guys.
At this point, there are no more questions. I will now pass the line back to Jeff for a closing statement.
Thank you very much for your attendance. That concludes both the presentation of the results and the announcement of the capital raising. Thank you and have a good day.
This concludes today's call. Thank you for your participation. You may now disconnect.