Heartland to merge Heartland Bank and TSB, creating a New Zealand challenger bank of scale

About Heartland Group

Heartland Group Holdings Limited (ASX: HGH) is an Australasian financial services group providing specialist banking products to New Zealanders and Australians. It is the listed holding company for two banks, Heartland Bank in New Zealand and Heartland Bank Australia, with products including reverse mortgages, livestock finance, savings and deposits across both countries, and motor finance and asset finance in New Zealand.

Heartland traces its history to the establishment of the Ashburton Permanent Building & Investment Society in 1875, with Heartland Bank emerging in 2011. In 2024 it became the first New Zealand registered bank to acquire an Australian authorised deposit-taking institution, now Heartland Bank Australia. The proposed TSB merger continues that acquisition and integration track record.

A challenger bank of scale with a regional focus

The strategic rationale centres on combining Heartland Bank’s specialist product expertise with TSB‘s cost-effective funding platform and established transactional banking capabilities. The result would be a full-service capable bank differentiated by its specialist products, with a lower risk-weighted product portfolio and an enhanced ability to serve customers throughout their financial lifecycle.

On a pro forma basis, the combined Heartland Group would hold approximately NZ$18.3 billion in total assets, including Heartland Bank Australia. Greater scale and product diversification are expected to improve financial efficiency and resilience, and may support an uplift in the merged bank’s long-term credit rating compared with Heartland Bank’s current BBB stable rating from Fitch, reflecting strengthened asset quality and a lower risk-weighted profile.

The acquisition also gives Heartland the scale in New Zealand home loans that it has been unable to achieve organically, complementing existing strengths in motor finance, reverse mortgages, rural lending and business finance.

Consideration and transaction structure

The $620 million aggregate consideration to Toi Foundation comprises four components. A $50 million pre-completion cash dividend will be paid by TSB. Heartland will issue $250 million of ordinary equity, being 200 million shares at $1.25 each, a 14.6% premium to Heartland’s 10-day volume-weighted average share price of $1.09 prior to the announcement, leaving Toi Foundation with a 17.5% shareholding in Heartland.

The remaining consideration is made up of $56 million of subordinated debt issued by Heartland Bank as Reserve Bank of New Zealand eligible Tier 2 capital, and a $264 million vendor loan provided to Heartland by Toi Foundation with a two-year term that can be refinanced at any time without break fees. Heartland expects to remain well capitalised after the transaction, with no further ordinary equity issuances anticipated to meet future capital requirements.

Synergies and financial outcomes

Material synergies are expected to be progressively realised over a three-year period by reducing duplication and shared costs across the merged bank. When fully realised, these synergies are expected to deliver an ongoing benefit of approximately $34 million per annum to profit before tax. Total one-off integration costs of around $34 million are expected over the same period, with further potential upside from funding, liquidity and technology synergies still being assessed.

Synergy realisation and the transaction structure are expected to drive normalised earnings per share accretion in excess of 20% in the first year after completion, alongside an enhanced dividend per share profile and improved return on equity. Pro forma last-twelve-months net profit after tax is expected to lift to around $145 million on a post-synergies basis, with the normalised cost-to-income ratio improving to approximately 54%.

Governance and ownership

Toi Foundation, a perpetual philanthropic community trust focused on Taranaki, has owned TSB since 1988 and currently holds 100% of TSB and 66% of Fisher Funds. Through the sale, the Foundation will receive a more diversified investment portfolio, including its 17.5% stake in Heartland, supporting its ability to fund philanthropic activities across the region.

Subject to Heartland shareholder approval, one Toi Foundation nominee is expected to be initially appointed to the Heartland Board on completion, and two existing TSB directors are expected to join the TSB Heartland Bank Board.

Regional focus, conditions and timing

Heartland Bank and TSB each have long histories and deep regional connections, with Heartland’s roots in Canterbury and TSB’s in Taranaki, where it was founded in 1850 and marked its 175th anniversary in 2025. TSB Heartland Bank is intended to retain Heartland Bank’s nationwide presence while keeping Taranaki as a key operational hub, including a local branch network and customer-facing roles.

Completion is targeted for December 2026, subject to community consultation by Toi Foundation with Taranaki residents, Heartland shareholder approval, and necessary New Zealand and Australian regulatory approvals. As with any acquisition, the transaction carries completion, forecast and information risks, and may not proceed if conditions are not satisfied.

Conclusion

The proposed merger marks a significant step in Heartland’s strategy to build scale in New Zealand banking while retaining its specialist product focus across New Zealand and Australia. Combining complementary strengths, the transaction is positioned to lift earnings, broaden the product set and strengthen the merged bank’s capital and funding profile, though the ultimate outcome remains dependent on satisfying the conditions set out in the merger implementation agreement.