Heartland Group Holdings says it's still tracking towards December completion of TSB Heartland deal, as reverse mortgage growth helps offset drop across Heartland’s rural, business and motor finance portfolios in company's first quarter

Heartland Group Holdings says it’s still on track to complete its proposed takeover of TSB in December after reporting its reverse mortgage book grew in the first three months of its June-2027 year, while its rural, motor finance and business finance portfolios contracted.

In a first quarter trading update on Tuesday, the sharemarket-listed firm said reverse mortgage receivables were up 12.9% or $47 million to $1.487 billion as of September 2026, reflecting growth across New Zealand and Australia. This was a little lower than the 14.0% increase in reverse mortgage receivables Heartland reported a year ago.

“Growth was impacted during first quarter 2027 by lower productivity as a result of the implementation of Heartland Bank’s technology transformation programme. However, the reverse mortgage pipeline has rebounded, and early evidence of an improving application-to-settlement conversion timeline is emerging,” the company said.

Heartland said its technology transformation programme is now live for all new reverse mortgage loans, which has introduced mobile app access and brought loan settlement and ongoing servicing in-house.

Heartland attributed the decline across its rural, motor finance and business portfolios over the first quarter to a large – unnamed – rural borrower changing its funding strategy; competitive and timing impacts in motor finance, primarily in the wholesale lending portfolio; and subdued business finance credit demand amid challenging conditions.

A Heartland spokesperson told interest.co.nz it couldn't reveal the name of the rural borrower due to the information being commercially sensitive, but confirmed the borrower was related to Heartland's NZ business, rather than its Australian one.

Across the quarter, rural lending receivables fell 29.7% or $51 million to $624.3 million as of September 2026, motor finance receivables were down 8.3% or $36 million to $1.683 billion, and business finance receivables fell 14.6% or $24 million to $615.3 million.

Heartland said its non-performing loan (NPL) ratio for its core lending portfolios (reverse mortgages, motor finance, rural and business finance) was “stable”, at 1.37% in the September quarter, down from 2.36% a year earlier. 

The NPL ratio measures the credit quality of a bank’s loan book.

“Economic conditions remain challenging for businesses in sectors served by Heartland Bank’s business finance portfolio. Business finance NPLs continue to be managed prudently, with the total value down $0.8 million from fourth quarter 2026,” Heartland said.

Heartland’s average net interest margin (NIM) was 3.92% in the first quarter of the June-2027 year, up from 3.89% a year earlier and above Heartland’s full-year guidance of greater than 3.88%. The net interest margin is the difference between a bank’s borrowing costs through the likes of deposits and what the bank earns on its lending activities.

Heartland reported a net profit of $24.5 million in the first quarter, down from $26.7 million recorded during the same period last year. But Heartland says it’s on track to deliver a return on equity (ROE) of at least 7.5% and net profit after tax (NPAT) of at least $102 million in the 2027 financial year.

Heartland confirmed it’s still aiming to have the TSB takeover finished before the end of the year.

“Heartland continues to target completion of the proposed transaction no earlier than December 2026, subject to satisfaction of all remaining conditions,” the company said on Monday.

In the first quarter of the 2027 financial year, Heartland said it expensed $900,000 in costs associated with the proposed transaction. This is in line with expected transaction costs of $9.5 million in its 2027 financial year.

Back in June, Heartland announced it had signed a deal with TSB’s owner, the Toi Foundation, to buy all TSB’s shares in a deal valued at $620 million. Both the Toi Foundation and Heartland Group Holdings' shareholders have now backed the proposed deal. The plan is to merge Heartland Bank, a subsidiary of the sharemarket-listed Heartland Group Holdings, with TSB, with the merged bank to be named TSB Heartland Bank.

Heartland is currently waiting for approval from the Reserve Bank (RBNZ) over the deal. A spanner was thrown into the works in September when the RBNZ told TSB to get an independent report after TSB identified and reported issues to the regulator about how it calculates and reports liquidity and capital ratios. TSB has appointed Deloitte, with a draft report due at the end of October, and a final report due to the Reserve Bank in November.

Heartland also unveiled a leadership team for the proposed TSB Heartland Bank last week, which will report to Chief Executive Officer designate Leanne Lazarus, who is currently CEO of Heartland Bank. Lazarus will be joined by five of her current Heartland team and four members of TSB’s leadership team.

The TSB Heartland Bank leadership team, which excludes both TSB's CEO and Chief Financial Officer (CFO), has been endorsed by an establishment panel, which is set to be the combined bank’s board, assuming Heartland's takeover of TSB is completed as expected.