Heartland doubles profit as TSB merger aims to create NZ challenger bank
Heartland Group Holdings delivered a striking 140% jump in net profit for FY2026, underpinned by margin gains and asset quality improvements, while advancing a transformative merger with TSB to create a major New Zealand challenger bank.
- 140% increase in FY2026 net profit to NZD 93.2 million
- Underlying return on equity rises to 7.1%
- Successful conclusion of non-strategic asset realisation
- Proposed $620 million TSB acquisition and merger underway
- FY2027 profit guidance set at NZD 102 million excluding merger costs
Profit More Than Doubles on Margin Expansion and Asset Quality
Heartland Group Holdings Limited (NZX/ASX:HGH) reported a remarkable 140% increase in net profit after tax (NPAT) to NZD 93.2 million for the year ended 30 June 2026, compared to NZD 38.8 million the prior year. On an underlying basis, which excludes one-off items like merger transaction costs, the NPAT rose to NZD 90.4 million, more than doubling from NZD 46.9 million in FY2025.
This profit surge was driven by a 36 basis point expansion in net interest margin (NIM) to 3.98% underlying, alongside a significant reduction in impairment expense ratio to 0.45%, reflecting improved asset quality. Heartland’s return on equity (ROE) rose 286 basis points to 7.1% underlying, surpassing its 7.0% target.
Non-Strategic Asset Programme Successfully Closed
The company marked the successful conclusion of its non-strategic asset (NSA) realisation programme, which achieved a 94% recovery rate and released NZD 31.7 million of capital in FY2026. The residual NSA portfolio, now down to NZD 94 million and no longer material, has returned to business-as-usual management. This capital release bolsters Heartland’s capacity for organic growth.
Proposed Merger with TSB to Forge New Challenger Bank
Heartland announced in June 2026 a conditional agreement to acquire TSB Bank Limited from Toi Foundation for NZD 620 million, with plans to merge the two entities into TSB Heartland Bank Limited. The merged bank would become New Zealand’s seventh largest, with approximately NZD 15 billion in assets, combining Heartland’s specialist lending expertise with TSB’s cost-effective funding and transactional banking platform.
The transaction aims to unlock estimated annual cost synergies of NZD 34 million before tax within three years post-completion, enhancing operating leverage and shareholder value. Subject to regulatory and shareholder approvals, the merger vote is scheduled for 30 September 2026, with integration targeted for December 2026. This deal is expected to create a more diversified and lower risk-weighted product portfolio, strengthening Heartland’s market position in New Zealand. The merger’s scale and strategic fit reflect Heartland’s ambition to broaden its footprint beyond its current niche lending focus TSB merger creating NZ challenger.
Strong Growth in Reverse Mortgages and Rural Lending
Both Heartland Bank in New Zealand and Heartland Bank Australia saw continued momentum in Reverse Mortgages, with receivables rising 16.8% and 19.7% respectively. The New Zealand Rural portfolio also outpaced the sector with 10.8% growth, supported by strengthened intermediary partnerships and regional expansion.
Heartland Bank’s Motor Finance portfolio showed signs of stabilisation, with all non-performing loans over 180 days past due cleared and arrears outperforming the industry average. However, Business Finance receivables contracted 18.1%, reflecting a cautious approach amid subdued demand in construction and transport sectors.
Technology Transformation to Drive Efficiency and Growth
Heartland advanced key milestones in its technology transformation programmes across both New Zealand and Australia, launching Reverse Mortgages on new platforms. These initiatives aim to simplify technology landscapes, automate workflows, and enhance customer and employee experiences, laying the groundwork for scalable growth without proportional increases in operating costs.
Capital Position Supports Growth and Dividend
With regulatory capital approximately NZD 110 million above requirements, potentially rising to NZD 160 million after expected risk weight changes, Heartland is well positioned to fund growth initiatives. The company declared a final dividend of 3.5 cents per share, bringing the full-year payout to 7.0 cents, representing an 8.0% yield and a payout ratio of 73%, well above its 50% target. The dividend will be paid in cash, with the dividend reinvestment plan suspended due to excess capital.
FY2027 Guidance Targets Further Profit and ROE Growth
Looking ahead, Heartland aims to increase NPAT to at least NZD 102 million and lift ROE to a minimum of 7.5% in FY2027, excluding merger-related costs estimated at NZD 9.5 million. Growth will be driven by accelerating core portfolio expansion, particularly Reverse Mortgages with growth targets above 18% in both countries, and completing the TSB merger. Operating expenses are expected to rise modestly due to ongoing technology investments and merger integration activities, with a cost-to-income ratio targeted below 55.7%.
This outlook reflects Heartland’s confidence in its reset strategic foundation and its ambition to leverage scale and diversification to enhance shareholder returns.
Bottom Line?
Heartland’s FY2026 results and strategic moves, including the TSB merger, position it for scale and stronger returns but hinge on regulatory approvals and integration execution.
Questions in the middle?
- Will Heartland’s merger with TSB deliver the anticipated $34 million in annual cost synergies within three years?
- How will competitive pressures in Motor and Business Finance affect Heartland’s asset quality and margins in FY2027?
- What impact will the Reserve Bank of New Zealand’s review of reverse mortgage risk weights have on Heartland’s capital and lending strategy?
