Heartland’s Q1 FY2026: 8.6% ROE and $26.7m NPAT Highlight Solid Growth

Solid Start to FY2026 Amid Challenging Conditions

Heartland Group Holdings Limited (NZX/ASX – HGH) has delivered a robust trading update for the first quarter ending 30 September 2025, marking a positive start to the financial year ending 30 June 2026. The company reported improved profitability and return on equity (ROE), underpinned by an expanding net interest margin (NIM) and stable cost growth. These results come despite ongoing challenges in New Zealand's business environment and seasonal impacts in Australia.

Asset Quality and Lending Performance

Heartland Bank’s Motor Finance portfolio showed consistent improvement in asset quality, benefiting from enhanced collections, recoveries, and write-off strategies. This segment continues to outperform industry arrears averages, with expectations of no arrears exceeding 180 days by the end of FY2026. Conversely, the Business Finance portfolio experienced an uptick in non-performing loans (NPLs) due to subdued market conditions, though the portfolio remains well provisioned and is expected to see improvements in the coming quarter.

In Australia, Heartland Bank Australia’s NPL ratio was affected by seasonal contractions in Livestock Finance but is also anticipated to improve in the next quarter. Meanwhile, Reverse Mortgages maintained strong momentum across both banks, contributing positively to lending growth despite subdued conditions in other core lending areas.

Accelerated Non-Strategic Asset Realisation

A standout feature of the quarter was the accelerated realisation of non-strategic assets (NSAs), which exceeded Heartland’s internal estimates. Key milestones included the partial settlement and refinancing of large Relationship exposures, the unconditional sale of a dairy farm property, and the full exit from the Harmoney Corp Limited shareholding; generating a notable fair value gain. The sale of Heartland Bank Australia’s stake in Alex Bank also settled in October 2025. These moves have significantly reduced the NSA portfolio, with a 66.6% decrease in value since June 2024, positioning the group for a leaner, more focused balance sheet.

Funding and Cost Management Initiatives

Heartland Bank Australia repaid a $100 million medium-term note ahead of its maturity, replacing it with cheaper deposit funding. Although this early repayment incurred a break fee impacting Q2 earnings, the move is expected to deliver margin benefits through FY2026 and beyond. On the cost front, underlying operating expenses remained stable in New Zealand and increased modestly in Australia due to investments in marketing, professional services, and technology initiatives aimed at unifying origination and servicing platforms.

Looking Ahead

Heartland plans to update investors on its long-term ambitions at an investor day scheduled for later in the calendar year, following progress in technology vendor negotiations. With lending performance expected to improve as the year progresses and asset quality trends stabilising, the group appears well-positioned to navigate the current economic headwinds while delivering shareholder value.