by Jenny Ruth
The merged bank will be renamed TSB Heartland Bank and it will have the sixth largest mortgage book in New Zealand after Kiwibank's $31.36 billion book.
Heartland had tried to create its own home loan portfolio in March 2020 with an online only and owner-occupier only offering but the launch was stymied by the beginning of the Covid pandemic and the offering was relaunced in October 2020.
But when Heartland reported its results in early 2025 it said it had decided to give up on the product which appears to have peaked at $328.6 million in the December 2023 half year.
Heartland’s latest results for the December 2025 half year showed home loans were down to $70.5 million and Heartland’s presentation of the TSB merger proposal shows it expects to have largely realised the rundown of its non-strategic assets by June 30.
TSB won’t release its annual results for the year ended March 31 until later this month but its first half disclosure statement showed it had on-balance sheet home loans of $6.66 billion at Sept 30 last year, up by $216,250 from March 31 last year.
TSB also had $448,749 in off-balance sheet mortgages at Sept 30.
The Reserve Bank’s bank financial strength dashboard shows TSB as having $6.53 billion in housing loans at March 31 and Heartland as having $4.18 billion, but most of Heartland’s housing loans are reverse mortgages.
Heartland chief executive Andrew Dixson said buying TSB “provides requisite scale in New Zealand home loans which Heartland has been unable to achieve organically.”
The merger presentation showed Heartland’s NZ reverse mortgages accounting for 11% of gross receivables in this country with motor finance accounting for 13%, commercial property 9%, while rural and business finance loans each accounted for 6%.
Heartland has a long history of successful acquisitions, including the 2011 merger of Marac Finance and three building societies, the purchase of PGC Wrightson Finance, also in 2022, the purchase of reverse mortgages in New Zealand and Australia in 2014 and the StockCo livestock business in Australia in 2022.
But the TSB transaction is much bigger than its last acquisition of Australia-based Challenger Bank for a total of A$115.7 million in 2024, since rebranded as Heartland Bank Australia.
Heartland is paying a total of $620 million for TSB, although none of that will be in cash and the company says it doesn’t expect to have to sell more shares to meet future capital requirements as a result of the transaction.
Of that total, $50 million will be a final dividend that TSB pays to Toi, meaning the effective cost to Heartland will be $570 million.
Heartland is issuing TSB’s owner, the Toi Foundation community trust, with $250 million of new shares at a nominal price of $1.25, a 14.6% premium to Heartland’s 10-day volume-weighted average market price of $1.09 ahead of the announcement.
Heartland’s shares rose as high as $1.29 after the TSB announcement.
Heartland will also issue Toi Foundation $56 million in 10-year subordinated debt at a 220 basis point margin over the NZ five-year swap rate and which will be callable after five years.
Toi Foundation is also providing Heartland with a two-year vendor loan of $264 million which Heartland can repay at will without penalty.
Toi Foundation will become Heartland’s largest shareholder with a 17.5% stake with Tomlinson Group owning 7.3%, institutional investors owning 22.7% and retail investors owning 52.5%.
Heartland said it expects the transaction costs will be about $15 million with $7 million of that included in its results for the year ending this month.
It expects merging Heartland NZ and TSB will take three years from completion of the transaction, expected by December this year, and that the group will progressively achieve $34 million a year in synergies once the process has been completed.
Heartland reported a net profit of $48.8 million for the six months ended Dec 31 while TSB reported a net profit of $21.7 million for the six months ended Sept 30 and a net profit of $41.2 million for the year ended March 31 last year.
TSB’s highest ever annual pre-tax profit of $85.6 million was achieved in the year ended March 2019 when it reported a net profit of $61.6 million.
Heartland said it may get a credit rating upgrade from Fitch Ratings after the merger – Heartland currently has a “BBB” rating, the lowest investment-grade rating, while TSB’s is one notch higher at “BBB+”.
The TSB purchase does not include Toi’s 66% stake in Fisher Funds.
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