Heartland's FY26 turnaround sets up a bigger, merged NZ challenger bank
Heartland Group Holdings has swung back to stronger profitability in FY2026, posting net profit after tax of $93.2 million, up sharply from $38.8 million the prior year, as margin expansion and improved asset quality offset a subdued lending backdrop across parts of its book.
TSB deal would create $15 billion regional bank
Heartland's proposed acquisition of TSB Bank from Toi Foundation remains on track, with a special shareholder meeting scheduled for 30 September to vote on the $620 million deal. If completed, the merged entity, TSB Heartland Bank, would hold approximately $15 billion in total New Zealand assets.
The investor presentation notes the combination would give Heartland requisite scale in New Zealand home loans that it has been unable to achieve organically, with an estimated $34 million in annual pre-tax cost synergies once fully realised.
Turnaround driven by margin and asset quality gains
On an underlying basis, NPAT rose to $90.4 million from $46.9 million, with return on equity climbing 286 basis points to 7.1% on an underlying basis and average net interest margin expanding 36 basis points to 3.98%.
Heartland Bank cleared all motor finance non-performing loans greater than 180 days past due, with the portfolio's arrears continuing to outperform the industry average. The bank's overall NPL ratio improved 129 basis points year-on-year to 1.92%, aided by the conclusion of its non-strategic asset realisation programme, which achieved a 94% recovery rate.
Reverse mortgages remained the standout growth engine on both sides of the Tasman, with receivables up 16.8% for Heartland Bank and 19.7% for Heartland Bank Australia.
Heartland Bank's rural portfolio also delivered strong receivables growth of 10.8%, outpacing sector-wide agricultural lending growth of 1.8%.
Heartland Bank's own investor presentation shows reverse mortgage momentum accelerated through the year, with annualised growth rising from 14% in the first quarter to 18.5% by the fourth quarter, while asset quality within the portfolio remained strong, with an NPL ratio of just 0.06% and a weighted average current loan-to-value ratio of 27.5%.
Not every lending category grew: business finance receivables fell 18.1% to $638.8 million, reflecting Heartland Bank's deliberate pricing-for-risk stance amid weaker demand in construction and transport, two of its key lending sectors.
Capital position supports FY27 growth targets
Heartland enters FY2027 targeting NPAT of at least $102 million and ROE of at least 7.5%, alongside Reverse Mortgage growth targets above 18% in both New Zealand and Australia.
The bank holds approximately $110 million in regulatory capital above expected requirements, rising to around $160 million once anticipated risk-weight changes are applied — capital Heartland intends to direct toward growth and improved shareholder returns as the TSB transaction progresses.
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