Heartland’s profit rebound gives TSB merger plan momentum

Profit recovery sets up TSB decision

Heartland Group Holdings (NZX:HGH, ASX:HGH) has put a sharp profit recovery behind its proposed transformation into a larger New Zealand bank, reporting FY2026 net profit after tax of NZD 93.2 million, compared with NZD 38.8 million a year earlier. Underlying NPAT, which excludes specified one-off items, rose to NZD 90.4 million from NZD 46.9 million.

The improvement came as average net interest margin widened to 3.95%, or 3.98% on an underlying basis, while the impairment expense ratio fell to 0.45%. Heartland Bank’s non-performing loan ratio improved by 129 basis points to 1.92%, with all Motor Finance loans more than 180 days past due cleared during the year. The bank said Business Finance, including Asset Finance, remained under pressure from subdued demand and economic challenges in construction and transport.

NZD 620 million merger awaits shareholders

The result arrives as Heartland seeks approval for its proposal to acquire TSB Bank from Toi Foundation for NZD 620 million and merge it with Heartland Bank. The combined institution would be called TSB Heartland Bank, with management estimating ongoing annual cost synergies of about NZD 34 million before tax once fully realised. Those estimates remain subject to execution, regulatory requirements, market conditions and the final integration design.

Heartland shareholders are due to vote on the proposal on 30 September 2026. The transaction is also conditional on necessary regulatory approvals, so the strategic case remains a proposal rather than an achieved change in scale. Heartland’s board says the deal would combine TSB’s transactional banking and funding platform with Heartland’s specialist lending expertise.

Capital and dividends provide room to manoeuvre

Heartland completed its non-strategic asset realisation programme during FY2026, reducing those assets by NZD 270.7 million, releasing NZD 31.7 million of available capital and achieving a 94% recovery rate. The residual portfolio had fallen to NZD 94 million at year-end and returned to business-as-usual management.

The Banking Group held about NZD 110 million of regulatory capital above expected requirements at 30 June. Heartland estimates that figure could rise to about NZD 160 million once expected Reserve Bank of New Zealand risk-weight changes are applied to the year-end balance sheet. The board lifted the full-year dividend to 7.0 cents per share from 4.0 cents, including a fully imputed final dividend of 3.5 cents.

Climate progress is measurable, but not yet comprehensive

The separate Climate Statement reported total emissions of 1,477,712 tonnes of CO2 equivalent, down about 16% from restated FY2025 emissions of 1,764,998 tonnes. The reduction was largely in financed emissions, which account for 99.63% of the group’s total footprint. Heartland also increased New Zealand new-generation vehicle finance to NZD 195.0 million, representing 24.2% of Motor Finance funded during the year.

Those figures need careful handling. Heartland changed its financed-emissions methodology for New Zealand Rural Finance and Australian Livestock Finance, restating prior periods, while most financed-emissions estimates rely on assumptions and sector averages. The climate-risk assessment covers only four New Zealand product areas and excludes Heartland Bank Australia’s standalone physical and transition-risk assessment. PwC’s limited assurance covered specified Scope 1 and Scope 2 disclosures and related methods, not the complete climate statement.

FY2027 targets shift from repair to growth

Heartland is guiding to reported NPAT of at least NZD 102 million and return on equity of at least 7.5% in FY2027, excluding costs related to the proposed transaction. It is targeting Reverse Mortgage growth of more than 18% in both New Zealand and Australia while continuing technology migrations and automation.

The immediate test is whether the improved credit performance and released capital can support growth without reopening the asset-quality problems that drove the previous reset. The next, more consequential test comes before any integration plan: whether shareholders and regulators are prepared to let Heartland use its stronger balance sheet to buy scale through TSB.