Heartland Group Signs Conditional Merger Deal With TSB to Build $15B NZ Bank
Heartland Group Holdings (NZX/ASX: HGH) has signed a conditional merger implementation agreement (MIA) with Toi Foundation to merge Heartland Bank and TSB Bank, creating a new entity to be named TSB Heartland Bank Limited. The aggregate consideration to Toi Foundation is $620 million, representing 76% of TSB’s book value as at 31 December 2025. Based on RBNZ Banking Dashboard data as at 31 December 2025, the combined bank would rank as New Zealand’s seventh largest by total assets. Targeted completion is December 2026, subject to the satisfaction of conditions outlined in the MIA.
Why this merger makes strategic sense
Scale that changes the competitive landscape
TSB Heartland Bank is expected to hold approximately $15 billion in total New Zealand assets, representing a 171% increase in Heartland Bank’s New Zealand asset base. The combined customer base is estimated at approximately 320,000 (pro forma, without adjusting for potential common customers).
Management has identified three scale benefits anticipated from the transaction:
- An improved cost-to-income ratio through greater operating leverage across the combined fixed cost base
- More effective capital deployment across a larger, optimised banking business
- The ability to leverage Heartland’s investment in current and future technology programmes
A full-service bank differentiated by specialist products
The merger is designed to be complementary rather than duplicative. Heartland Bank contributes Motor Finance, Reverse Mortgages, Rural, and Business Finance; TSB contributes Home Loans (representing approximately 84% of its lending book), Commercial Property, and everyday transactional banking capabilities. Together, pro forma gross receivables are expected to reach $12.3 billion.
The combined product portfolio is expected to produce a lower risk-weighted asset profile. Heartland Bank currently holds a long-term credit rating of BBB Stable (issued by Fitch Australia Pty Ltd), and management has stated the merger may support an uplift in the merged bank’s long-term credit rating, reflecting strengthened asset quality and a lower risk-weighted product profile. No credit rating upgrade has been confirmed.
Synergies and shareholder value
Pre-tax cost synergies are estimated at approximately $34 million per annum (run-rate), anticipated to be progressively realised over a three-year period post-completion. One-off integration costs are similarly estimated at approximately $34 million over the same three-year period.
Material normalised earnings per share (EPS) accretion in excess of 20% is expected to be generated in the first year post-completion, based on full run-rate synergies, alongside an enhanced dividends per share (DPS) profile. EY was engaged to independently assist in identifying and quantifying synergies. These are management estimates prepared for transaction evaluation purposes, have not been audited, and are subject to execution risk, regulatory requirements, market conditions, and final integration design.
| Metric | Heartland Standalone (LTM Dec-25) | TSB Standalone (LTM Dec-25) | Pro Forma Post-Synergies |
|---|---|---|---|
| NPAT | $84m | $51m | $145m |
| EPS | 8.9 cps | n.a. | 12.6 cps |
| NIM | ~3.9% | ~2.2% | ~2.9% |
| CTI ratio | ~56% | ~67% | ~54% |
| ROE | ~6.7% | n.a. | ~8.6% |
Source: Heartland Group investor presentation, 2 June 2026. Pro forma figures are for illustrative purposes only and are not audited. LTM figures as at 31 December 2025.
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How the $620 million deal is structured
The $620 million aggregate consideration to Toi Foundation represents 76% of TSB’s book value as at 31 December 2025, implying 12.1x TSB’s last twelve months (LTM) NPAT excluding synergies, and 8.2x LTM NPAT post achievement of full run-rate synergies. The consideration is structured across four components:
- $50 million pre-completion cash dividend paid by TSB to Toi Foundation
- $250 million ordinary equity, comprising 200 million shares issued by Heartland to Toi Foundation at $1.25 per share (a 14.6% premium to Heartland’s 10-day volume weighted average share price on the NZX of $1.09 prior to announcement), resulting in a 17.5% shareholding in Heartland by Toi Foundation
- $56 million subordinated debt, issued by Heartland Bank to Toi Foundation as RBNZ-eligible Tier 2 capital, at a margin of 220 basis points over the NZ 5-year swap rate, with a 10-year term callable after 5 years
- $264 million vendor loan, provided by Toi Foundation to Heartland, with a two-year term and repayable at any time without break fees
Heartland has confirmed that no ordinary equity share capital issuances by Heartland are expected to be needed to meet future capital requirements. Transaction costs are estimated at approximately $15 million in total, with approximately $7 million to be reflected in Heartland’s NPAT for FY2026 and approximately $8 million in FY2027, subject to completion.
Toi Foundation Chair Chris Ussher
“We believe this proposal creates a win-win where we can further strengthen the bank, retain a strong presence in Taranaki, and grow the Foundation’s investment returns through both a stronger, combined, performing bank investment and some investment portfolio diversification.”
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Regional roots, national reach — and what comes next
Two banks with deep New Zealand heritage
Heartland Bank’s origins trace back more than 150 years to the Ashburton Permanent Building & Investment Society, established in 1875. Today it is New Zealand’s ninth largest bank by total assets, with $5.6 billion in total assets as at 31 December 2025, and operates a specialist lending model across Motor Finance, Reverse Mortgages, Rural, and Business Finance.
TSB was founded in 1850 to serve the people of Taranaki and has since grown into a nationwide bank, remaining community trust-owned through Toi Foundation since 1988. As at 31 December 2025, TSB held $9.5 billion in total assets, ranking as New Zealand’s seventh largest bank, and celebrated its 175th anniversary in 2025. Its funding base is notable for its low cost, with 49% of deposits held in term deposits.
The two banks are positioned as complementary rather than overlapping. Heartland Bank’s specialist lending expertise combines with TSB’s established transactional banking capabilities and cost-effective deposit base to form a full-service offering. TSB Heartland Bank is intended to retain Taranaki as a key operational hub, including a local branch network and customer-facing roles in the region.
Conditions, timetable and what shareholders need to know
Key milestones for the transaction are as follows:
- Toi Foundation community consultation with Taranaki residents: June–July 2026
- Confirmatory due diligence completed and conditions satisfied: June 2026
- Warranty and indemnity insurance obtained: June 2026
- Notice of Meeting dispatched to Heartland shareholders: July 2026
- Heartland shareholder meeting to vote on the proposed transaction: August 2026
- Targeted merger implementation date: December 2026
Key conditions include the completion of Toi Foundation’s community consultation with Taranaki residents, Heartland shareholder approval, regulatory approvals from the RBNZ, FMA, and APRA, and Fitch Ratings reaffirming that TSB Heartland Bank will hold a Long-Term Issuer Default Rating of at least BBB with a Stable outlook. Either party may terminate the MIA if conditions are not satisfied or waived by 1 March 2027, the agreed sunset date.
Heartland’s investor day, previously scheduled for 5 June 2026, has been deferred to enable a more detailed strategic update following transaction clarity. Heartland is advised by Jarden (sole financial adviser), Chapman Tripp (legal and tax), Deloitte (financial and technology due diligence), and EY (independent synergy assessment).
Investors should note that completion of the transaction is not guaranteed. All conditions must be satisfied by the 1 March 2027 sunset date for the merger to proceed.
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