Heartland’s Reverse Mortgage engine keeps FY2027 targets in sight

First-quarter metrics remain aligned with FY2027 guidance

Heartland Group Holdings Limited (NZX/ASX:HGH) has begun FY2027 with its core profitability measures broadly where management wants them, reporting a 7.6% return on equity and NZ$25.5 million of net profit after tax before proposed transaction costs. Average net interest margin was 3.92%, above the full-year target of more than 3.88%, while the cost-to-income ratio came in at 54.7%, below the guidance ceiling of 55.7%.

Reported NPAT was NZ$24.5 million after NZ$0.9 million of costs associated with the proposed purchase of TSB Bank and subsequent merger with Heartland Bank. Heartland continues to target an FY2027 NPAT of at least NZ$102 million and ROE of at least 7.5%, although those targets exclude proposed transaction costs where applicable. The figures are unaudited, and the company says its guidance will be updated if the transaction completes.

Reverse Mortgage growth carries the lending book

The clearest growth engine remains Reverse Mortgages. New Zealand gross finance receivables increased NZ$46.9 million, or 12.9% on an annualised quarterly basis, to NZ$1.49 billion. In Australia, receivables rose AU$117 million, or 19.6%, to AU$2.49 billion. Australian banking produced AU$11.3 million of NPAT, a 9.5% ROE and a 3.72% NIM for the quarter.

The New Zealand technology transformation programme is now live for all new Reverse Mortgage loans, bringing settlement and ongoing servicing in-house and adding mobile app access. Heartland said productivity was temporarily affected during implementation, but its application pipeline has rebounded and early signs point to faster application-to-settlement times. Australia is continuing its migration to the Constantinople platform, with new loans from direct channels and selected brokers being processed on the system.

Portfolio contractions temper the result

Growth elsewhere was less even. New Zealand Rural receivables fell NZ$50.6 million, or 29.7% annualised, after a large borrower changed its funding strategy. Motor Finance declined NZ$36 million, with Wholesale Lending down NZ$28.4 million following a borrower exit and delayed shipping arrivals. Business Finance fell NZ$23.5 million as small-business credit demand remained subdued in difficult trading conditions.

Those contractions have not yet translated into a broad deterioration in credit quality. Heartland Bank’s total non-performing loan ratio improved to 1.87% from 1.92% at 30 June, while the core lending portfolio ratio was broadly stable at 1.37%. The New Zealand impairment expense was NZ$6.3 million, including NZ$3.4 million of Motor Finance write-offs, leaving the impairment expense ratio at 0.55%, above the full-year guidance threshold of less than 0.48%.

TSB merger remains the next major variable

Heartland shareholders approved the proposed transaction on 30 September, and the group is still targeting completion no earlier than December 2026, subject to the remaining conditions. The deal has progressed from the earlier stage in which initial TSB conditions were satisfied, but its eventual effect is not reflected in the current FY2027 guidance. Transaction costs are expected to total NZ$9.5 million for the year, with most incurred on successful completion.

The first quarter therefore offers a relatively clean test of Heartland’s existing operating model: margins and costs are within target, asset quality is improving, and Reverse Mortgage growth is doing the heavy lifting. The unresolved question is whether that momentum can offset weaker lending demand in several New Zealand portfolios while the group absorbs technology investment and prepares for a bank merger that would change the shape of its earnings base.