Heartland’s half-year net profit drops to $3.6m, winding down home loan portfolio, eyeing retirement village product

Heartland Group Holdings’ half-year net profit plunged to $3.6 million after taking a hit from the $49.6 million impairment that the bank revealed it was taking a week earlier.

Heartland, which operates in New Zealand and Australia, reported its results for the six months to December 2024 on Thursday, with actual net profit after tax (NPAT) coming in at $3.6 million and underlying NPAT at $10.7 million.

The bank’s $3.6 million actual profit is a 90% decrease from the $37.6 million half-year profit that Heartland reported in the equivalent period of its previous financial year. 

Heartland targets niche markets such as reverse mortgages, vehicle lending and livestock finance where bigger banks are not aggressively competing. It also offers business and home loans as well as investment and saving options.

The bank restructured in 2018 and Heartland Bank is now a wholly owned subsidiary of Heartland Group Holdings.

The Group’s operating expenses rose 47.5% or $31.6 million to $98.1 million in the half-year to December 2024. Heartland Group Holdings’ net operating income (NOI) also edged up 8.4% or $12 million to $155.1 million. An interim dividend of 2 cents will be paid.

Heartland told the market in mid-February that it was taking “a more proactive and prescriptive approach” to car and business loan arrears management. 

This, along with a weak NZ economy, were cited as reasons for a $49.6 million impairment. Derisking and repositioning some of its NZ lending portfolios also contributed.  

Heartland Bank said in its half-year results on Thursday that strong reverse mortgage growth had continued in both Australia and New Zealand, with receivables up 15.3% or $82 million to $1.2 billion in NZ.

Cost of living challenges remained “evident” in the way Heartland Bank’s Reverse Mortgage customers were using their loans, Heartland said.

Allowing people to use home equity to buy retirement village property

During the analysts call following the release of the half-year results, Heartland Bank CEO Leanne Lazarus said the bank was planning to launch a new product designed that would allow people to access the equity in their home in order to purchase retirement village property.

NZ reverse mortgage receivables are expected to grow by 15.7% in the full 2025 financial year.

Rural lending receivables were down 11.7% or $42 million to $668 million between June and December 2024. Heartland said its rural lending portfolio still performed better than the bank had anticipated for the period.

Motor finance receivables also fell, down 3.9% or $32 million to $1.6 billion as of December 2024.

Heartland said motor finance growth through its direct channels had risen 20.1% compared to the prior corresponding half-year period due to an increase in marketing activity and Heartland’s partnership with Tesla.

The bank said it was focused on achieving “sustainable and profitable growth” in its core NZ lending portfolios of reverse mortgages, rural lending, motor finance and asset finance as it rationalises all other lending against meeting return on equity (ROE) thresholds.

“This includes continuing its shift away from unsecured lending and large relationship lending,” the company said.

Heartland Bank’s net interest margin (NIM) was at 3.78% by December 2024, down three basis points from the previous corresponding half year. 

The bank attributed this to NZ’s declining interest rate environment and subdued credit demand, which had triggered “significant pricing competition” in the market throughout the half-year period.

Figures displayed by the Reserve Bank's Bank Financial Strength Dashboard show Heartland Bank's total loans at September 2024 were at $4.961 billion, down from $5.079 billion at June 2024. 

Wind down

Heartland also quietly announced in its Thursday results that it plans to focus on winding down its home loan portfolio over the next year.

“The portfolio is being wound down through organic repayment. Heartland expects over 80% of the total balance will be repaid by the end of 1H2026,” Heartland said.

Receivables from Heartland’s home loan portfolio were sitting at $246.5 million at December 2024, down 20.7% or $64.5 million from $311 million in home loan receivables in June 2024.

Heartland launched a home loan market push in 2020 via an online service. It was a way of “testing the appetite” New Zealanders had towards getting a residential mortgage online, according to Chris Flood, who was Heartland Bank's CEO at the time. 

Outlook

Heartland Group Holdings expects underlying NPAT for the full 2025 financial year to be “at least $45 million” and that the gap between reported and underlying full-year NPAT will reduce in the second half.

But it warned that trading conditions for the NZ banking environment are expected to remain “challenging”. 

This will be particularly felt in the forestry, transport, agriculture contractor and construction sectors, the bank said.

Operational expenditure growth is expected to moderate for Heartland’s NZ banking division by the end of the 2025 financial year as well.