Heartland Group (ASX:HGH) executives told investors its strategic reset continued to gain traction in the first half of fiscal 2026, driving a sharp recovery in profit, wider margins, and improved credit quality, while the group began multi-year technology programs in both New Zealand and Australia.
Group results show profit rebound, margin expansion, and lower impairments
Chief Executive Andrew Dixson said the group delivered net profit after tax (NPAT) of NZD 48.8 million for the first half, or NZD 46.1 million on an underlying basis. Underlying return on equity (ROE) rose to 7.3%, up 540 basis points from the first half of fiscal 2025 and 142 basis points above the second half of fiscal 2025.
Asset quality also improved materially. The group reported an impairment expense ratio of 0.35%, down 105 basis points, alongside a “sharp reduction” in non-performing loans (NPLs). Management said prescriptive collections and recoveries policies are now embedded, and noted motor finance arrears were performing better than the industry average.
On balance sheet trends, Dixson said aggregate receivables grew AUD 157 million, steady at 4.3% on an annualized basis, despite AUD 173 million of non-strategic asset (NSA) realization. Reverse Mortgages were cited as a consistent growth engine, with annualized growth over 15% in New Zealand and around 19% in Australia. Livestock finance grew nearly 15% in Australia despite seasonality and extreme weather impacts, while motor and business finance portfolios contracted as the group shifted toward higher quality lending.
Reported vs. underlying narrowing; Harmoney exit boosted statutory profit
Management said the gap between reported and underlying NPAT was only NZD 2.7 million in the half, primarily due to a NZD 3.1 million fair value gain associated with the full exit of Heartland’s Harmoney equity investment above its carrying value.
While the company will retain two NPAT measures for the remainder of fiscal 2026, Dixson said Heartland intends to move to a single statutory reported measure from fiscal 2027 and is “already transitioning” by recording certain one-off costs within reported NPAT.
Technology uplift begins in both banks with Pega and Constantinople
Dixson confirmed each bank has commenced a multi-year technology program, with Pega selected in New Zealand and Constantinople in Australia. In New Zealand, the program is designed to leverage Heartland’s Oracle core banking investment to unify origination and servicing across product sets and increase automation. In Australia, the initiative aims to consolidate three origination and servicing platforms into a single banking solution.
Management said both platforms will integrate with Workday, Snowflake, and Genesys investments and include “embedded AI capability,” with implementation starting in Reverse Mortgages before extending to other product sets.
Total implementation costs were estimated at no more than NZD 17 million over three years (approximately NZD 11 million in New Zealand and AUD 5 million in Australia, in local currency). During Q&A, management said there would be “very little capitalization in FY26,” with some New Zealand delivery costs capitalized, but not in Australia due to the nature of the build. Executives suggested the second-half P&L impact at a group level would be roughly NZD 1 million to NZD 2 million, and said project benefits and metrics would be presented in detail at an Investor Day.
Capital position strengthened by regulatory decisions and NSA run-off
On capital, Dixson said Heartland holds excess capital across the group following NSA realization and recent Reserve Bank of New Zealand (RBNZ) decisions on capital settings. He highlighted RBNZ’s December 2025 final decisions, which are expected to reduce total capital requirements relative to previously determined 2028 settings, remove the need for additional Tier 1 capital instruments, allow a higher mix of Tier 2 capital, and introduce more granular and reduced risk weights—particularly for small business and rural lending. These settings are targeted for implementation in October 2026, with further RBNZ information expected 27 February 2026.
Separately, effective 1 March 2026, RBNZ reduced Heartland Bank’s transitional capital overlay (imposed after acquiring what is now Heartland Bank Australia) by 1.5%, from 2% to 0.5%. Management said the remaining overlay is expected to remain until a formal group supervision policy is implemented, expected in December 2028. RBNZ has also indicated it will review Reverse Mortgage risk weights in 2026.
As of 31 December 2025, management said Heartland Bank holds about NZD 125 million of regulatory capital in excess of expected requirements, rising to approximately NZD 190 million when applying expected risk weight changes to the same balance sheet.
NSA realization also continued to release capital. Dixson said NSAs reduced by nearly NZD 190 million in the first half, creating more than NZD 21 million of available capital, with recovery rates in excess of 90% since the NSA portfolio and dedicated team were established. Management said the NSA program is tracking to be largely concluded by the end of fiscal 2026.
Bank-by-bank: NZ retraction offsets growth; Australia scales and funds with deposits
In New Zealand, Chief Financial Officer Kerry Conway said reported NPAT was NZD 31 million, while underlying NPAT was NZD 28.3 million, reflecting the non-repeat of large impairment activity in the prior year. Receivables retracted NZD 254 million (10%) over six months to NZD 4.5 billion, with NZD 173 million of the retraction attributed to NSA execution. Reverse Mortgages grew at a 15% annualized pace, rural grew 8% annualized excluding livestock seasonality, while motor, asset finance, and business relationship portfolios contracted amid economic headwinds, competition, and a strategic quality shift.
Conway said the New Zealand bank’s December exit NIM was 4.11%, with expectations to exit the year above 4.20%. Operating expenses were up NZD 0.5 million year-on-year to NZD 62.6 million, while the cost-to-income ratio for the bank was 53.8%. Impairment expense was NZD 11.5 million, down NZD 38 million from the prior year period, and the NPL ratio improved to 3.04% (2.07% excluding NSAs and non-core lending). The New Zealand bank’s regulatory capital ratio was 17%, above the 14.5% minimum.
In Australia, Conway reported first-half NPAT of AUD 16.7 million, up 39% on an underlying basis. Receivables grew 17% to AUD 2.5 billion. Average NIM expanded 93 basis points to 3.68%, driven by lower funding costs as the bank shifted toward retail deposits; management said retail deposits represented 86% of funding at December. Operating expenses rose to AUD 28 million, reflecting staffing and technology investment and higher onboarding costs tied to strong Reverse Mortgage growth. The bank’s impairment ratio was described as stable at 10 basis points, and its capital ratio was 19.5%.
Heartland declared an interim dividend of NZD 0.035 per share, up NZD 0.015 from the prior corresponding period, with a first-half payout ratio of 72% of underlying NPAT. Management said it is not changing its dividend policy (at least 50% of underlying NPAT) and views the higher payout as tied to excess capital, particularly from NSA realization, while emphasizing a preference to deploy capital into organic growth.
For the full year, Heartland reaffirmed guidance of underlying ROE of at least 7% and underlying NPAT of at least NZD 85 million. Management said NIM remains on track and impairment guidance was positively adjusted following first-half improvements, while cost-to-income guidance was revised to reflect portfolio retraction and technology investment.
About Heartland Group (ASX:HGH)
Heartland Group Holdings Limited provides various financial services in New Zealand and Australia. The company offers savings accounts, term deposits, and direct and business call accounts. It also provides home loans, business loans, term loans, revolving credit, car loans, and reverse mortgage lending and other financial services. In addition, the company offers term debt, plant and equipment finance, commercial mortgage lending, and working capital solutions for small-to-medium sized businesses; and livestock finance, rural mortgage lending, and seasonal and working capital financing, as well as leasing solutions to farmers.
