Heartland Holds FY26 Earnings Guidance as Margin Expansion, Asset Quality Improvement and Reverse Mortgage Growth Support Momentum

About Heartland Group Holdings Limited

Heartland Group Holdings Limited (ASX: HGH) is an Australasian financial services group operating through Heartland Bank in New Zealand and Heartland Bank Australia. The group focuses on specialist banking products including Reverse Mortgages, Livestock Finance, Savings and Deposits in both markets, and Motor Finance and Asset Finance in New Zealand. Its current strategy is centred on allocating capital toward higher-return specialist lending segments, simplifying the balance sheet through non-strategic asset run-off, and improving long-term shareholder returns through tighter portfolio focus and cost discipline.

The group result shows improving operating quality, even with earnings still under pressure

Heartland’s consolidated third-quarter result was solid enough to support unchanged full-year guidance, although the earnings mix remains uneven. Reported and underlying third-quarter NPAT both came in at NZ$21.4 million, taking underlying year-to-date NPAT to NZ$67.5 million. Average NIM lifted to 4.06 per cent, with exit NIM at 4.01 per cent, while the group’s cost-to-income ratio improved to 54.6 per cent, remaining inside the FY2026 target of below 56 per cent. Underlying ROE was 7.1 per cent year to date, keeping Heartland on track for its at-least-7 per cent target for the full year.

The main swing factor in the quarter was impairment expense, which rose to NZ$10.8 million from NZ$5.8 million in the second quarter. Even so, the year-to-date impairment expense ratio of 0.43 per cent remains within the FY2026 target of below 0.45 per cent. The rise in quarter-specific impairments therefore appears manageable in the context of the broader full-year guidance range, particularly as some of the expense relates to deliberate clean-up activity rather than deterioration across the core book.

Non-strategic asset run-off continues to free capital and simplify the business

One of the most important strategic themes remains the run-off of non-strategic assets. Heartland reduced the value of these assets by NZ$35.6 million during the quarter, releasing NZ$5.3 million of available capital. As at 31 March 2026, the remaining NSA portfolio stood at NZ$139.3 million, down materially from NZ$364.8 million at 30 June 2025. The associated capital tied to these assets has also fallen to NZ$21.1 million from NZ$47.6 million over the same period.

This matters because it improves the efficiency of Heartland’s balance sheet and supports capital reallocation toward higher-return lending. By the end of FY2026, Heartland expects the remaining NSA portfolio to reduce to around NZ$88 million, largely comprising scheduled Home Loan run-off, a smaller residual pool of Rural and Business receivables with confirmed exit pathways or active management strategies, and a modest level of property and equity investments. The balance sheet is therefore becoming progressively more aligned to the group’s specialist banking strategy.

New Zealand banking is mixed on profit, but improving on portfolio quality and growth

Heartland Bank in New Zealand remains the largest earnings contributor, but the quarter highlighted both strengths and trade-offs. Underlying NPAT for NZ Banking was NZ$8.2 million in 3Q2026, taking year-to-date underlying NPAT to NZ$36.5 million, still tracking toward a full-year target above NZ$45 million. Average NIM eased 3 basis points in the quarter to 4.09 per cent, and exit NIM declined to 4.02 per cent, largely because of portfolio mix. However, both measures are expected to lift in the fourth quarter as reduced funding costs continue to flow through.

Costs remained relatively controlled, with underlying OPEX of NZ$32.4 million in the quarter, although the CTI ratio rose to 57.7 per cent as subdued overall portfolio growth and ongoing NSA run-off weighed on operating leverage. That is still a little above the full-year target, but the broader issue is less about cost blowout and more about revenue mix and balance sheet transition.

The more encouraging aspect of the NZ banking update was asset quality. Heartland Bank’s overall NPL ratio fell 23 basis points from late December to 2.81 per cent by 31 March 2026. Excluding NSAs and Unsecured Lending, the core portfolio NPL ratio was stable at 2.06 per cent. The chart in the investor presentation also shows both the total bank NPL ratio and the core portfolio NPL ratio trending down over recent quarters, reinforcing the point that portfolio quality is improving rather than deteriorating.

This improvement is especially visible in Motor Finance. Heartland said arrears continued to improve, with NPLs between 180 and 364 days past due on track to be cleared by 30 June 2026. The Motor Finance arrears chart also suggests Heartland’s total and consumer motor arrears remain below broader market arrears benchmarks, which supports the view that underwriting quality is holding up despite sector pressures.

Core lending portfolios are beginning to re-accelerate

A notable positive in the quarter was the return to growth across several core New Zealand lending segments. Reverse Mortgages grew by NZ$49.4 million in the quarter, taking receivables to NZ$1.377 billion. Rural receivables rose by NZ$39.8 million to NZ$618.2 million, supported by intermediary partnerships, regional expansion and the seasonal growth phase of Livestock Finance. Motor Finance also returned to growth, up NZ$40.6 million to NZ$1.694 billion, helped by Heartland’s strategic shift toward higher-quality franchise business and a surge in EV lending during March. Asset Finance receivables increased as well, supporting flat overall Business Finance growth in the quarter.

These trends matter because they show the core franchise is still capable of generating growth even while NSA run-off shrinks the broader receivables base. In effect, Heartland is simplifying the balance sheet while also improving the quality of growth.

Australian banking remains the stronger margin and returns story

Heartland Bank Australia produced one of the cleaner quarter-on-quarter improvements across the group. Underlying NPAT reached AU$11.5 million in 3Q2026, lifting year-to-date NPAT to AU$28.2 million and keeping the business on track for full-year profit above AU$37 million. Average NIM rose to 3.99 per cent, up 15 basis points in the quarter, while exit NIM held at 3.95 per cent. This margin expansion was supported by the earlier repayment of the final medium-term note and the benefits of the bank’s deposit funding strategy.

The Australian business also delivered a much improved CTI ratio of 44.8 per cent, down sharply from 53.5 per cent in the prior quarter. This was helped by stronger NOI and effective cost management, with quarterly OPEX of AU$14.2 million still favourable to expectations. Asset quality remained stable, with a quarterly impairment expense ratio of negative 0.01 per cent, comfortably within the full-year target of below 0.10 per cent.

Growth remains concentrated in Australian Reverse Mortgages, where receivables increased by AU$95.9 million in the quarter to AU$2.264 billion. By contrast, Australian Livestock Finance contracted by AU$26.2 million due to extreme weather events and a single large customer changing its funding strategy. As a result, Heartland now expects Australian Livestock Finance receivables to be flat for FY2026 rather than growing more than 20 per cent as previously targeted.

Outlook

Heartland’s third-quarter update reinforces a business that is improving in quality even if earnings remain somewhat uneven quarter to quarter. Margin expansion, ongoing NSA run-off, stabilising asset quality and strong Reverse Mortgage growth continue to support the full-year targets of at least NZ$85 million underlying NPAT and at least 7 per cent underlying ROE. New Zealand credit quality is improving, Motor Finance has returned to growth, and the Australian bank is showing strong margin and cost performance. The main watchpoints remain geopolitical uncertainty, fuel-cost pressure on some lending sectors and whether fourth-quarter NIM behaves as expected. Even so, the overall direction remains constructive, with Heartland appearing better positioned heading into FY2027 than it was a year ago.